First Charter Corporation
As filed with the Securities and Exchange Commission on
July 18, 2006
Registration
No. 333-
UNITED STATES SECURITIES AND
EXCHANGE COMMISSION
Washington, D.C.
20549
Form S-4
REGISTRATION STATEMENT UNDER
THE SECURITIES ACT OF 1933
FIRST CHARTER
CORPORATION
(Exact name of registrant as
specified in its charter)
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North Carolina
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6021
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56-1355866
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(State or other jurisdiction
of
incorporation or organization)
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(Primary Standard Industrial
Classification Code Number)
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(I.R.S. Employer
Identification Number)
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10200 David Taylor
Drive
Charlotte, North Carolina
28262-2373
(704) 688-4300
(Address, Including Zip Code,
and Telephone Number, Including Area Code, of Registrants
Principal Executive Offices)
Stephen J. Antal
Senior Vice President,
General Counsel and Corporate
Secretary
First Charter
Corporation
10200 David Taylor
Drive
Charlotte, North Carolina
28262-2373
(704) 688-4300
(Address, Including Zip Code,
and Telephone Number, Including Area Code, of Agent for
Service)
Copies to:
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Richard W. Viola, Esq.
Helms Mulliss & Wicker, PLLC
201 North Tryon Street
Charlotte, NC 28202
Phone: (704) 343-2149
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Elizabeth Orazem
Derrick, Esq.
Womble Carlyle Sandridge & Rice, PLLC
550 South Main Street, Suite 400
Greenville, SC 29601
Phone: (864) 255-5415
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Approximate date of commencement of proposed sale to the
public: As soon as practicable after this
registration statement becomes effective.
If the securities being registered on this Form are to be
offered in connection with the formation of a holding company
and there is compliance with General Instruction G, check the
following box. o
If this Form is filed to register additional securities for an
offering pursuant to Rule 462(b) under the Securities Act,
check the following box and list the Securities Act registration
statement number of the earlier effective registration statement
for the same offering. o
If this Form is a post-effective amendment filed pursuant to
Rule 462(d) under the Securities Act, check the following
box and list the Securities Act registration statement number of
the earlier effective registration statement for the same
offering. o
CALCULATION OF REGISTRATION FEE
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Proposed Maximum
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Proposed Maximum
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Title of Each Class of
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Amount
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Offering Price
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Aggregate
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Amount of
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Securities to be Registered
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to be Registered
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Per Share
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Offering Price(2)
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Registration Fee(3)
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Common Stock, no par value
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2,975,000(1)
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N/A
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$67,897,245
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$7,266
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(1)
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Represents the maximum number of
shares of First Charter Corporation common stock that may be
issued in connection with the proposed merger to which this
registration statement relates.
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(2)
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Calculated in accordance with
Rule 457(c) and 457(f)(1) under the Securities Act by
multiplying $46.30, the average of the bid and asked price per
share for GBC Bancorp, Inc. common stock, as quoted on the OTC
Bulletin Board on July 14, 2006, by the
2,136,608 shares of common stock of GBC Bancorp, Inc. to be
exchanged or cancelled in the merger, less the total cash
consideration (approximately $31,027,705) to be paid by the
Registrant in exchange for the common stock of GBC Bancorp,
Inc., in accordance with Rule 457(f)(3) under the
Securities Act.
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(3)
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Calculated in accordance with
Rule 457(f) under the Securities Act by multiplying the
proposed maximum aggregate offering price by 0.000107.
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The Registrant hereby amends this Registration Statement on
such date or dates as may be necessary to delay its effective
date until the Registrant shall file a further amendment which
specifically states that this Registration Statement shall
thereafter become effective in accordance with Section 8(a)
of the Securities Act, or until this Registration Statement
shall become effective on such date as the Securities and
Exchange Commission, acting pursuant to said Section 8(a),
may determine.
Information
contained herein is subject to completion or amendment. A
registration statement relating to these securities has been
filed with the Securities and Exchange Commission. These
securities may not be sold nor may offers to buy be accepted
prior to the time the registration statement becomes effective.
This document shall not constitute an offer to sell or the
solicitation of an offer to buy nor shall there be any sale of
these securities in any jurisdiction in which such offer,
solicitation or sale would be unlawful prior to registration or
qualification under the securities laws of any such
jurisdiction.
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SUBJECT
TO COMPLETION, DATED JULY 18, 2006
MERGER
PROPOSED YOUR VOTE IS VERY IMPORTANT
The boards of directors of First Charter Corporation (First
Charter) and GBC Bancorp, Inc. (GBC) each have approved a merger
of GBC with and into First Charter. GBC shareholders will have
the opportunity to elect to receive merger consideration in the
form of 1.989 shares of First Charter common stock, $47.74
in cash, or a combination of First Charter common stock and
cash, for each share of GBC common stock they own. However,
because 70% of the total number of shares of GBC common stock
outstanding at the closing will be converted into First Charter
common stock and the remaining 30% of the outstanding shares
will be converted into cash, you may receive a combination of
cash and shares of First Charter common stock for your GBC
shares that is different than what you elected, depending on the
elections made by other GBC shareholders.
The value of the merger consideration will fluctuate with the
market price of First Charter common stock. The following table
shows the closing sale price of First Charter common stock and
the most recent market quotation for GBC common stock as
reported on June 1, 2006, the last trading day before we
announced the merger, and on
[ ],
2006, the last practicable trading day before the distribution
of this document. This table also shows the implied value of the
merger consideration proposed for each share of GBC common
stock, which we calculated by assuming 70% of each share of
GBCs common stock is converted into First Charter common
stock at an exchange ratio of 1.989 shares per full GBC
share and the remaining 30% is converted into cash at a price of
$47.74 per full GBC share.
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Implied Value per
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First Charter
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Share of GBC
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Common Stock
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GBC Common Stock
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Common Stock
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At June 1, 2006
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$
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24.56
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$
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39.00
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$
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48.52
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At
[ ],
2006
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[ ]
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[ ]
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[ ]
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The market prices of both First Charter common stock and GBC
common stock will fluctuate before the merger. You should obtain
current stock price quotations for First Charter common stock
and GBC common stock. First Charter common stock is quoted on
the NASDAQ Global Select Market under the symbol
FCTR. Shares of GBC common stock are thinly traded
on the OTC Bulletin Board under the symbol
GBCP.OB. We expect that the merger will generally be
tax-free to you as to shares of First Charter common stock you
receive in the merger and generally taxable as to the cash you
receive.
We cannot complete the merger unless GBCs shareholders
approve it. GBC will hold a special meeting of its shareholders
to vote on this merger proposal at the main office of Gwinnett
Banking Company at 165 Nash Street, Lawrenceville, Georgia
30045, on
[ ],
2006, at 8:00 a.m., local time. Your vote is
important. Regardless of whether you plan to attend the
special shareholders meeting, please take the time to vote
your shares in accordance with the instructions contained in
this document. Failing to vote will have the same effect as
voting against the merger. The GBC board of directors
unanimously recommends that GBC shareholders vote FOR
approval of the merger.
This document describes the special meeting, the merger, the
documents related to the merger and other related matters.
Please carefully read this entire document, including
Risk Factors beginning on page 14 for a
discussion of the risks relating to the proposed merger. You
also can obtain information about our companies from documents
that each of us has filed with the Securities and Exchange
Commission.
Neither the Securities and Exchange Commission nor any state
securities commission has approved or disapproved the First
Charter common stock to be issued under this document or
determined if this document is accurate or adequate. Any
representation to the contrary is a criminal offense.
The date of this document is
[ ],
2006, and it is first being mailed or otherwise delivered to GBC
shareholders on or about
[ ],
2006.
GBC Bancorp, Inc.
165 Nash Street
Lawrenceville, Georgia 30045
NOTICE OF SPECIAL MEETING OF
SHAREHOLDERS
To Be Held on
[ ],
2006
NOTICE IS HEREBY GIVEN that a special meeting of shareholders of
GBC Bancorp, Inc. will be held at the main office of Gwinnett
Banking Company at 165 Nash Street, Lawrenceville, Georgia 30045
on
[ ],
2006, at 8:00 a.m., local time, to consider and vote upon
the following matters:
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a proposal to approve the merger of GBC Bancorp, Inc. with and
into First Charter Corporation, substantially on the terms set
forth in the Agreement and Plan of Merger, dated as of
June 1, 2006, by and between First Charter and GBC, as it
may be amended from time to time; and
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a proposal to approve the adjournment of the special meeting, if
necessary, to solicit additional proxies, in the event that
there are not sufficient votes at the time of the special
meeting to approve the merger.
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The merger with First Charter is more fully described in the
attached Proxy Statement/Prospectus, which you should read
carefully and in its entirety before voting. A copy of the
merger agreement is included as Appendix A to the
accompanying Proxy Statement/Prospectus. Holders of GBC common
stock may exercise dissenters rights under Article 13
of the Georgia Business Corporation Code. We have attached a
copy of that law as Appendix C to the accompanying
Proxy Statement/Prospectus.
Our board of directors unanimously recommends that you vote
FOR approval of the merger.
Please complete, sign and return the enclosed proxy card
promptly in the enclosed postage-paid envelope. Your vote is
important, regardless of the number of shares that you own.
Voting by proxy will not prevent you from voting in person at
GBC Bancorp, Inc.s special meeting, but will assure that
your vote is counted if you are unable to attend.
By Order of the Board of Directors
Larry D. Key
Chairman of the Board, President and
Chief Executive Officer
GBC Bancorp, Inc.
Lawrenceville, Georgia
[ ],
2006
HOW TO
GET COPIES OF RELATED DOCUMENTS
This document incorporates important business and financial
information about First Charter that is not included in or
delivered with this document. You may receive this information
free of charge upon written or oral request. You can obtain
documents incorporated by reference in this document, other than
certain exhibits to those documents, by requesting them in
writing or by telephone from First Charter at the following
address.
First
Charter Corporation
10200 David Taylor Drive
Charlotte, North Carolina
28262-2373
Attention: Investor Relations
Telephone:
(704) 688-4300
You will not be charged for any of these documents that you
request. GBC shareholders requesting documents should do so by
[ ,
2006] in order to receive them before the special meeting.
See Where You Can Find More Information on
page 101.
TABLE OF
CONTENTS
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Page
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1
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2
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13
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14
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14
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47
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47
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51
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60
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Page
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98
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101
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101
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101
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101
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102
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APPENDICES
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A. Agreement and Plan of
Merger by and between First Charter Corporation and GBC Bancorp,
dated as of
June 1, 2006
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A-1
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B. Opinion of Sandler
ONeill & Partners, L.P.
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B-1
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C. Article 13 of the
Georgia Business Corporation Code (Dissenters Rights
Provision)
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C-1
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D. Voting Agreement by and
among First Charter Corporation and the Shareholders of GBC
Bancorp, Inc. set
forth therein
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D-1
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E. GBC Financial Statements
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E-1
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Ex-4.1 |
Ex-23.3 |
Ex-23.4 |
Ex-99.3 |
ii
QUESTIONS
AND ANSWERS ABOUT THE MERGER AND SPECIAL MEETING
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WHAT DO I NEED TO DO NOW? |
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After you have carefully read this Proxy Statement/Prospectus,
indicate on your proxy card how you want your shares to be
voted, then sign and mail it in the enclosed postage-paid
envelope as soon as possible so that your shares may be
represented and voted at the GBC special meeting. If you sign
and send in your proxy card and do not indicate how you want to
vote, we will vote your shares in favor of the merger agreement,
in favor of a proposal to approve the adjournment of the special
meeting, if necessary, to solicit additional proxies, in the
event there are not sufficient votes at the time of the special
meeting to approve the merger and in the discretion of the proxy
holders on any other proposals to be voted on at the special
meeting. |
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WHY IS MY VOTE IMPORTANT? |
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The merger must be approved by the holders of at least a
majority of the issued and outstanding shares of GBC common
stock entitled to vote at the GBC special meeting. Therefore,
the failure of a GBC shareholder to vote, by proxy or in person,
will have the same effect as a vote against the merger. If you
do not return your proxy card at or prior to the special
meeting, it will be more difficult for GBC to obtain the
necessary quorum to hold the special meeting. |
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HOW DO I VOTE? |
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You can vote by mail. For this method you will need to complete,
sign, date and return your proxy card in the postage-paid
envelope provided. You can also vote in person at the special
meeting. Even if you plan to attend the meeting in person,
please take the time to properly return the proxy card to ensure
that your vote is counted. |
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IF MY SHARES ARE HELD IN STREET NAME BY MY
BROKER, WILL MY BROKER VOTE MY SHARES FOR ME? |
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No. Your broker cannot vote on the merger proposal on your
behalf without specific instructions from you. Your broker will
vote your shares on the merger proposal only if you provide
instructions on how to vote. You should follow the directions
provided by your broker. |
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WHAT IF I FAIL TO INSTRUCT MY BROKER? |
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If you fail to instruct your broker how to vote your shares and
the broker submits an unvoted proxy, the resulting broker
non-vote will be counted toward a quorum at the
special meeting, but it will have the same effect as a vote
against the merger. |
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CAN I ATTEND THE SPECIAL MEETING AND VOTE MY SHARES IN
PERSON? |
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Yes. All shareholders are invited to attend the special meeting.
Shareholders of record can vote in person at the special
meeting. If a broker holds your shares in street name, then you
are not the shareholder of record and you must ask your broker
how you can vote at the special meeting in person. |
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CAN I CHANGE MY VOTE AFTER I HAVE MAILED MY SIGNED PROXY
CARD? |
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Yes. If you have not voted through your broker, there are three
ways for you to revoke your proxy and change your vote. First,
you may send written notice to the Corporate Secretary of GBC
stating that you would like to revoke your proxy. Second, you
may complete and submit a new proxy card. Third, you may vote in
person at the special meeting. If you have instructed a broker
to vote your shares, you must follow the directions you receive
from your broker to change your vote. Your last vote will be the
vote that is counted. |
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I AM A GBC SHAREHOLDER. SHOULD I SEND IN MY GBC STOCK
CERTIFICATES NOW? |
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No. You should not send in your stock certificates at this
time. We will separately send you an election form with
instructions for exchanging your GBC stock certificates. |
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WHEN DO YOU EXPECT TO MERGE? |
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We are working toward completing the merger as quickly as
possible. We expect to complete the merger in the fourth quarter
of 2006. However, we cannot assure you when or if the merger
will occur. We must first obtain the approval of shareholders of
GBC and all necessary regulatory approvals. |
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WHOM SHOULD I CALL WITH QUESTIONS OR TO OBTAIN ADDITIONAL
COPIES OF THIS PROXY STATEMENT/PROSPECTUS? |
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GBC shareholders should call John T. Hopkins, III,
Corporate Secretary, at
(770) 995-9561
with any questions about the merger and related transactions. |
1
SUMMARY
This is a summary of certain information regarding the proposed
merger and the shareholder meeting to vote on the merger
agreement contained in this document. It does not contain all of
the information that may be important to you. We urge you to
carefully read the entire document, including the Appendices,
before deciding how to vote.
About
This Document
The boards of directors of GBC Bancorp, Inc. (GBC) and First
Charter Corporation (First Charter) have approved and adopted
the merger agreement by and between GBC and First Charter and
pursuant to which GBC will merge with and into First Charter.
The merger cannot be completed unless the shareholders of GBC
approve the merger on substantially the terms set forth in the
merger agreement. GBCs shareholders will vote on the
merger agreement at GBCs special meeting. This document is
the Proxy Statement used by your board to solicit proxies for
the special meeting. It is also the Prospectus of First Charter
regarding the shares of First Charter common stock to be issued
to GBC shareholders if the merger is completed.
The
Companies
First
Charter Corporation (See page 29)
First Charter Corporation, a North Carolina corporation, is the
holding company for First Charter Bank, a North Carolina state
bank. First Charter Bank, a full service bank, operates 58
financial centers and four insurance offices, as well as 139
ATMs (automated teller machines) throughout North Carolina.
First Charter Bank also operates loan origination offices in
Asheville, North Carolina and Reston, Virginia. The Federal
Deposit Insurance Corporation insures the deposits of First
Charter Bank. At March 31, 2006, First Charter had
approximately $4.3 billion in total consolidated assets.
First Charters principal executive offices are located at
10200 David Taylor Drive, Charlotte, North Carolina 28262. First
Charters telephone number is
(704) 688-4300.
GBC
Bancorp, Inc. (See page 29)
GBC Bancorp, Inc., a Georgia corporation, is the holding company
for Gwinnett Banking Company, a Georgia state bank. Gwinnett
Banking Company is a full service commercial bank with locations
at 165 Nash Street, Lawrenceville, Gwinnett County, Georgia and
11675 Rainwater Drive, Alpharetta, Fulton County, Georgia.
Gwinnett Banking Companys primary service area is Gwinnett
and Fulton Counties, but also serves the adjacent Georgia
counties, or parts thereof, of Cherokee, Cobb, DeKalb, Forsyth,
Fulton, Hall and Walton. At March 31, 2006, GBC had
approximately $418 million in total consolidated assets.
GBCs principal executive offices are located at 165 Nash
Street, Lawrenceville, Gwinnett County, Georgia. GBCs
telephone number is
(770) 995-9561.
The
Merger
General
Description (See page 69)
GBC will merge with and into First Charter, with First Charter
as the surviving institution. The merger will be completed
within five business days after all conditions to closing have
been met, unless First Charter and GBC agree on a different
closing date. A copy of the merger agreement is attached as
Appendix A to this document and is incorporated
herein by reference.
Consideration
Payable to GBC Shareholders (See page 69)
GBC shareholders may elect to receive merger consideration in
the form of 1.989 shares of First Charter common stock,
$47.74 in cash or a combination of First Charter common stock
and cash in exchange for each of their shares of GBC common
stock. However, because the merger agreement generally provides
that 70% of the total number of shares of GBC common stock
outstanding at the closing will be exchanged for First Charter
common stock and the remaining 30% of the outstanding shares
will be exchanged for cash, a GBC
2
shareholder may actually receive a combination of cash and
shares of First Charter common stock that is different than what
such shareholder elected depending on the elections made by
other GBC shareholders. Cash will be paid in lieu of any
fractional share of First Charter common stock. All elections
will be subject to the allocation and proration procedures
described in the merger agreement.
Election
of Cash or Stock Consideration (See page 69)
Before the expected date of completion of the merger, First
Charter will send an election form to GBC shareholders that you
may use to indicate whether your preference is to receive cash,
First Charter common stock or a combination of cash and First
Charter common stock, or whether you have no preference for your
shares of GBC common stock. GBC shareholders should not send in
their stock certificates until they receive the election form
with instructions from the exchange agent, Registrar and
Transfer Company.
The merger agreement contains allocation and proration
provisions that are designed to ensure that 70% of the
outstanding shares of common stock of GBC will be exchanged for
shares of First Charter common stock and the remaining 30% of
the outstanding shares of common stock of GBC will be exchanged
for cash. Therefore, if GBC shareholders elect to receive First
Charter common stock for more than 70% of the outstanding shares
of GBC common stock, the amount of First Charter common stock
that each such shareholder would receive from First Charter will
be reduced on a pro rata basis. As a result, these GBC
shareholders will receive cash consideration for any GBC shares
for which they do not receive First Charter common stock.
Similarly, if GBC shareholders elect to receive cash for more
than 30% of the outstanding shares of GBC common stock, the
amount of cash that each such shareholder would receive from
First Charter will be reduced on a pro rata basis. As a result,
such shareholders will receive First Charter common stock for
any GBC shares for which they do not receive cash. If you do not
make an election, you will be allocated either cash or shares of
First Charter common stock, or a combination of cash and shares
of First Charter common stock, depending on the elections made
by other GBC shareholders.
Material
Federal Income Tax Consequences of the Merger (See
page 82)
The merger is intended to qualify as a reorganization for
U.S. federal income tax purposes, and it is a condition to
GBCs obligations to complete the merger that GBC receive a
legal opinion to that effect. Accordingly, the merger will
generally be tax-free to you as to the shares of First Charter
common stock you receive in the merger and generally taxable as
to the cash you receive in the merger. The amount of gain that
you recognize in the merger will generally be limited to the
lesser of the amount of gain that you realize and the amount of
cash that you receive in the merger. The amount of gain that you
realize is generally equal to the excess, if any, of the sum of
the cash and the fair market value of the First Charter common
stock that you receive over your tax basis in the GBC common
stock you surrender in the merger.
The federal income tax consequences described above may not
apply to all holders of GBC common stock. Your tax consequences
will depend on your individual situation. Accordingly, we
strongly urge you to consult your tax advisor for a full
understanding of the particular tax consequences of the merger
to you.
Public
Trading Markets and Share Information (See
page 64)
First Charter common stock is listed on the NASDAQ Global Select
Market under the symbol FCTR. Shares of GBC common
stock are thinly traded on the OTC Bulletin Board under the
symbol GBCP.OB. The following table shows the
closing sale prices of First Charter common stock and the most
recent market quotation for GBC common stock as of June 1,
2006, the last trading day before we announced the merger, and
on
[ ],
2006, the last practicable trading day before the distribution
of this document. This table also shows the implied value of the
merger consideration proposed for each share of GBC common
stock, which we calculated by assuming 70% of each share of
GBCs common stock is converted into a right to
3
receive First Charter common stock at an exchange ratio of
1.989 shares per full GBC share and the remaining 30% is
converted into a right to receive cash at a price of
$47.74 per full GBC share.
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|
|
|
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Implied Value per
|
|
|
|
First Charter
|
|
|
|
|
|
Share of GBC
|
|
|
|
Common Stock
|
|
|
GBC Common Stock
|
|
|
Common Stock
|
|
|
At June 1, 2006
|
|
$
|
24.56
|
|
|
$
|
39.00
|
|
|
$
|
48.52
|
|
At
[ ],
2006
|
|
|
[ ]
|
|
|
|
[ ]
|
|
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|
[ ]
|
|
The market price of First Charters common stock will
fluctuate between the date of this Proxy Statement/Prospectus
and the date on which the merger takes place, as well as after
completion of the merger. GBC shareholders are advised to obtain
current market quotations for First Charters common stock.
No assurance can be given as to the market price of First
Charters common stock at the time of the merger or
thereafter.
Reselling
the Stock You Receive in the Merger (See
page 81)
The shares of First Charter common stock to be issued in the
merger will be registered under the Securities Act of 1933.
Except as noted below, shareholders may freely transfer those
shares after they receive them. GBC has identified certain of
its directors, executive officers and others who may be deemed
affiliates of GBC, and those persons have entered
into agreements with First Charter acknowledging and agreeing to
comply with the restrictions imposed by the securities laws on
their ability to transfer the shares they will receive in the
merger.
Differences
in Shareholders Rights (See page 86)
In the merger, each GBC shareholder who receives First Charter
common stock will become a First Charter shareholder. The rights
of GBC shareholders are currently governed by Georgia law and
GBCs articles of incorporation and bylaws. The rights of
First Charter shareholders are currently governed by North
Carolina law and First Charters articles of incorporation
and bylaws. There are differences in the rights of shareholders
of GBC and shareholders of First Charter with respect to voting
requirements and various other matters.
Reasons
for the Merger (See pages 51 and 60)
GBC entered into the merger agreement at the conclusion of a
process in which GBC determined that a merger with First Charter
was in the best interests of the GBC shareholders. The reasons
of the GBC board of directors are discussed in more detail in
the body of this document. The GBC board of directors believes
that the merger is fair to GBC shareholders and urges
shareholders to vote FOR approval of the
merger agreement.
First Charter determined that a merger with GBC would represent
an effective use of its capital and would add to its franchise
by expanding its banking operations and providing access to the
greater metropolitan Atlanta area, which First Charter believes
is an attractive market area.
GBCs
Financial Advisors and Fairness Opinion (See
page 52)
Among other factors considered in deciding to approve the merger
agreement, the board of directors of GBC considered the opinion
of Sandler ONeill & Partners, L.P., its financial
advisor, provided to the GBC board of directors on June 1,
2006 that, as of that date, and based on and subject to the
assumptions made, matters considered and qualifications and
limitations set forth therein, in its opinion, the per share
merger consideration provided for in the merger agreement was
fair from a financial point of view to holders of GBC common
stock. Holders of GBC common stock should carefully read Sandler
ONeills opinion in its entirety. A copy of the full
text of Sandler ONeills fairness opinion is included
as Appendix B to this Proxy Statement/Prospectus.
Sandler ONeills opinion is not intended to be and
does not constitute a recommendation to any holder of GBC common
stock as to how such holder should vote in connection with the
merger transaction.
4
Pursuant to an engagement letter between GBC and Sandler
ONeill, GBC agreed to pay Sandler ONeill a
transaction fee with respect to its services as GBCs
independent financial advisor, which is payable in cash upon
completion of the merger. In addition, GBC has paid Sandler
ONeill a reasonable fee in connection with rendering its
opinion.
Pursuant to an engagement letter between GBC and Burke Capital
Group, L.L.C., which was entered into prior to the engagement of
Sandler ONeill and subsequently amended, GBC has also
agreed to pay Burke Capital Group a cash fee, the principal
portion of which is payable upon completion of the merger.
Financial
Interests of GBCs Directors and Executive Officers in the
Merger (See page 62)
GBCs directors and executive officers have economic
interests in the merger that are different from, or in addition
to, their interests as GBC shareholders. The GBC board of
directors considered these interests in its decision to adopt
and approve the merger agreement. Some of the interests of the
directors and executive officers of GBC include:
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Prior to completion of the merger, First Charter will take
certain actions to appoint to the First Charter board of
directors an individual from the GBC region that is mutually
agreed upon by First Charter and GBC;
|
|
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|
As a condition to entering into the merger agreement, First
Charter required that Larry D. Key, GBCs Chairman of the
Board, President and Chief Executive Officer, enter into an
employment agreement with First Charter to serve as an Executive
Vice President of First Charter Bank and Regional President for
the GBC region following the completion of the merger;
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|
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|
First Charter also required, as a condition to entering into the
merger agreement, that each of Katrina M. Winberg and Michael L.
Couch enter into a retention agreement with First Charter.
Ms. Winberg serves as Senior Vice President, SBA Lending
for GBC and Mr. Couch serves as a Senior Vice President and
Senior Construction Loan Officer for GBC. Pursuant to these
agreements, upon completion of the merger each of
Ms. Winberg and Mr. Couch will serve in a
substantially similar position for First Charter as each did for
GBC. First Charter has also entered into retention agreements
with nine of GBCs employees, including Michael A. Roy and
Paul C. Birkhead, Gwinnett Banking Companys Executive Vice
President and Chief Credit Officer and Senior Vice President and
Senior Commercial Loan Officer, respectively. These retention
agreements provide incentives and benefits, including, in some
cases, cash and stock awards, to encourage these employees to
remain with First Charter Bank after the completion of the
merger;
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|
GBC has a deferred stock unit plan in which GBCs and
Gwinnett Banking Companys directors are able to choose to
receive deferred fee units as consideration for their
directors fees in lieu of cash. The deferred fee units
assigned to the plan participant equal the number of shares of
common stock that could be purchased at the fair market value
with the amount of fees deferred. When a plan participant
terminates service as a director or there is a change in control
of GBC, such as will occur in connection with the merger with
First Charter, the units will be settled in cash at the fair
market value of GBCs common stock. Each participant will
receive a lump sum cash payment for the value of his or her
units.
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|
Several years prior to the transaction with First Charter, GBC
entered into Executive Supplemental Retirement Agreements
(SERPs) with five of its executive officers to
provide retirement benefits in addition to those available under
the tax-qualified plans that GBC has sponsored for its
employees. Immediately prior to the execution of the merger
agreement, GBC and the five executives amended the SERPs
(i) to convert the SERPs from a plan providing the payment
of an account balance over a specified period of years during
retirement to a defined benefit-type plan that pays at least a
minimum specified retirement benefit for the lifetime of the
executive, (ii) to set the minimum benefit payable under
each SERP at a specified dollar amount equal to 40% of the
executives annualized compensation; and (iii) to
provide that if the investment return on the insurance policies
that have been earmarked to provide benefits under the SERPs
provides a fund that exceeds the amount needed to provide the
minimum benefits in retirement, then the benefits would be
increased correspondingly.
|
5
|
|
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|
|
GBC leases its main office banking facilities and associated
land, which are located at 165 Nash Street, Lawrenceville,
Georgia, from GBC Properties, LLC, a limited liability company
owned by members of the GBC board of directors. Prior to
entering into the transaction with First Charter, GBC and GBC
Properties, LLC reached an understanding whereby the GBC main
office banking facilities would be sold to GBC in the event of a
change in control of GBC. The merger agreement requires that
such purchase occur prior to the consummation of the
merger; and
|
|
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|
Directors and executive officers of GBC have indemnification
rights that will survive completion of the merger.
|
Conditions
to the Merger (See page 78)
Currently, we expect to complete the merger in the fourth
quarter of 2006. As more fully described in this document and in
the merger agreement, the completion of the merger depends on a
number of customary conditions being satisfied or, where legally
permissible, waived, including approval of the merger agreement
by GBC shareholders at the special meeting and receipt of the
required regulatory approvals. We cannot be certain when, or if,
the conditions to the merger will be satisfied or waived, or
that the merger will be completed.
Regulatory
Approvals (See page 65)
We have agreed to use our reasonable best efforts to obtain all
regulatory approvals required to complete the transactions
contemplated by the merger agreement. These approvals include
approval from the Federal Reserve Board and other federal and
state regulatory authorities, including the Georgia Department
of Banking and Finance. First Charter and GBC have completed, or
will complete, the filing of applications and notifications to
obtain the required regulatory approvals. In obtaining the
required regulatory approvals, First Charter is not required to
agree to any restriction or condition that would have a material
adverse effect on GBC or First Charter, measured on a scale
relative to GBC. Although we do not know of any reason why we
cannot obtain these regulatory approvals in a timely manner, we
cannot be certain when or if we will obtain them. Approval or
non-objection by regulators does not constitute an endorsement
of the merger or a determination that the terms of the merger
are fair to GBC shareholders.
Termination
of the Merger Agreement (See page 79)
The merger agreement may be terminated by mutual consent, or by
either First Charter or GBC if the merger has not occurred by
April 30, 2007 and under other limited circumstances
described in the merger agreement and which are described in
further detail elsewhere in this document. Additionally, GBC may
terminate the merger agreement if First Charters stock
price has dropped to less than $20.35 and has also declined by
greater than 15% relative to a bank stock index between
May 31, 2006 (the day prior to the date the merger
agreement was signed) and six business days prior to the
closing. However, the merger agreement will not be terminated if
First Charter increases the common stock component of the merger
consideration payable to GBC shareholders, as set forth in the
merger agreement.
GBC will be required to pay First Charter a termination fee in
the amount of $3.57 million, plus all of the reasonable
actual expenses incurred by First Charter in connection with the
proposed transaction, if GBC enters into or closes on an
acquisition agreement with respect to an Alternative Transaction
(as defined in the merger agreement and described in greater
detail under The Merger
Agreement Agreement Not to Solicit Other
Offers) if either:
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|
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|
|
the merger agreement is duly terminated by First Charter and
prior to such termination, an Alternative Transaction was
received, commenced, publicly proposed or publicly disclosed,
and within 12 months after such termination, GBC has
entered into a definitive written agreement relating to an
Alternative Transaction or consummated an Alternative
Transaction, or
|
|
|
|
after receiving an Alternative Proposal (as defined in the
merger agreement and described in greater detail under The
Merger Agreement Agreement Not to Solicit Other
Offers), GBCs board of
|
6
|
|
|
|
|
directors fails to convene the special meeting to approve the
merger with First Charter or recommend that the GBC shareholders
approve the merger agreement, and within 12 months of
receiving the Alternative Proposal, GBC has entered into a
definitive written agreement relating to an Alternative
Transaction or consummated an Alternative Transaction.
|
GBC
has Agreed Not to Solicit Alternative Transactions (See
page 76)
In the merger agreement, GBC has agreed not to solicit,
initiate, encourage, facilitate (including by way of furnishing
information) or take any other action designed to facilitate any
inquiries or proposals for an acquisition transaction involving
GBC by any party other than First Charter. This restriction may
deter other potential acquirors of control of GBC. However, GBC
may take certain of these actions if its board of directors
determines that it must do so in order to properly discharge its
fiduciary duties following consultation with its legal counsel
and financial advisors.
Dissenters
Rights for GBC Shareholders (See page 66)
Dissenters rights are statutory rights that enable
shareholders to dissent from an extraordinary transaction, such
as a merger, and to demand that the corporation pay the fair
value for their shares as determined by a court in a judicial
proceeding instead of receiving the consideration offered to
shareholders in connection with the extraordinary transaction.
GBC shareholders may dissent from the merger and, upon following
the requirements of Georgia law, receive cash in the amount of
the fair value of their GBC shares, as determined pursuant to
Article 13 of the Georgia Business Corporate Code, instead
of the merger consideration provided for in the merger agreement.
Any GBC shareholder who wishes to exercise dissenters
rights:
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|
|
must file a written notice of intent to dissent prior to the
vote;
|
|
|
|
must not vote in favor of the merger; and
|
|
|
|
must strictly comply with the procedural requirements of Georgia
law.
|
A copy of the dissenters rights statute is attached as
Appendix C to this document. We encourage you to
read the statute carefully and to consult with legal counsel if
you desire to exercise your dissenters rights.
The
Rights of GBC Shareholders will be Governed by North Carolina
Law and by New Governing Documents After the Merger (See
page 86)
The rights of GBC shareholders will change as a result of the
merger due to differences in First Charters and GBCs
governing documents and due to the fact that the companies are
incorporated in different states (GBC in Georgia and First
Charter in North Carolina). This document contains descriptions
of shareholder rights under each of the First Charter and GBC
governing documents and applicable state law, and describes the
material differences between them.
The GBC
Special Meeting Will be Held on
[ ],
2006
Date,
Time and Place (See page 25)
GBC will hold its special meeting of shareholders at the main
office of Gwinnett Banking Company at 165 Nash Street,
Lawrenceville, Georgia 30045 on
[ ],
2006, at 8 a.m., local time. At the special meeting, GBC
shareholders will be asked to:
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|
|
approve the merger on substantially the terms set forth in the
merger agreement; and
|
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|
approve the adjournment of the special meeting, if necessary, to
solicit additional proxies, in the event that there are not
sufficient votes at the time of the special meeting to approve
the merger.
|
7
Record
Date (See page 26)
The record date for shareholders entitled to vote at the special
meeting of shareholders is
[ ],
2006.
Shares Entitled
to Vote (See page 26)
[2,136,608] shares of GBC common stock were outstanding on
the record date and entitled to vote at the GBC special meeting.
Voting
Agreement (See page 26)
In consideration of First Charter agreeing to enter into the
merger agreement, the directors and executive officers of GBC
have agreed to vote their shares of GBC common stock in favor of
the merger and not to support any other merger proposal by a
third party. Because these individuals have combined beneficial
ownership of approximately 26% of the outstanding shares of GBC
common stock as of the record date, this voting agreement may
have the effect of discouraging a competing offer to acquire
GBC. A copy of the voting agreement is attached as
Appendix D.
Vote
Required (See page 26)
At least a majority of the issued and outstanding shares of GBC
common stock must be cast in favor of the merger agreement for
it to be approved. Your failure to vote, your failure to
instruct your broker to vote your shares (a broker non-vote), or
your abstaining from voting will have the same effect as a vote
against the merger.
As of the record date, the directors and executive officers of
GBC beneficially owned 557,785 shares, or approximately 26%
of the outstanding shares of GBC common stock. As referenced
above, pursuant to a voting agreement entered into at the time
the merger agreement with First Charter, each director and
executive officer of GBC has agreed, among other things, to vote
or cause to be voted all shares which they beneficially own in
favor of the merger. Except for shares of GBC common stock that
may be attributable to them pursuant to the voting agreement,
none of the directors or executive officers of First Charter
beneficially own any shares of GBC common stock. A copy of the
voting agreement is attached as Appendix D.
GBCs board of directors has unanimously adopted and
approved the merger agreement and unanimously recommends that
GBC shareholders vote FOR the approval of the
merger.
8
SELECTED
CONSOLIDATED HISTORICAL FINANCIAL DATA OF FIRST
CHARTER
Set forth below are highlights from First Charters
consolidated financial data as of and for the years ended
December 31, 2001 through 2005 and First Charters
unaudited consolidated financial data as of and for the three
months ended March 31, 2005 and 2006. The results of
operations for the three months ended March 31, 2006 are
not necessarily indicative of the results of operations for the
full year or any other interim period. First Charter management
prepared the unaudited information on the same basis as it
prepared First Charters audited consolidated financial
statements. In the opinion of First Charter management, this
information reflects all adjustments, consisting of only normal
recurring adjustments, necessary for a fair presentation of this
data for those dates. You should read this information in
conjunction with First Charters consolidated financial
statements and related notes incorporated by reference within
First Charters Annual Report on
Form 10-K
for the year ended December 31, 2005, and First
Charters Quarterly Report on
Form 10-Q
for the quarter ended March 31, 2006, which are
incorporated by reference in this document and from which this
information is derived. See Where You Can Find More
Information.
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Three Months
|
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|
Ended
|
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|
Years Ended December 31,
|
|
|
March 31,
|
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|
|
2005
|
|
|
2004
|
|
|
2003
|
|
|
2002
|
|
|
2001
|
|
|
2006
|
|
|
2005
|
|
|
|
(Dollars in thousands, except per share amounts)
|
|
|
Income statement
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest income
|
|
|
$ 224,605
|
|
|
|
$ 187,303
|
|
|
|
$ 178,292
|
|
|
|
$ 196,388
|
|
|
|
$ 215,276
|
|
|
|
$ 59,646
|
|
|
|
$ 51,282
|
|
Interest expense
|
|
|
99,722
|
|
|
|
64,293
|
|
|
|
70,490
|
|
|
|
83,227
|
|
|
|
109,912
|
|
|
|
27,556
|
|
|
|
20,708
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income
|
|
|
124,883
|
|
|
|
123,010
|
|
|
|
107,802
|
|
|
|
113,161
|
|
|
|
105,364
|
|
|
|
32,090
|
|
|
|
30,574
|
|
Provision for loan losses
|
|
|
9,343
|
|
|
|
8,425
|
|
|
|
27,518
|
|
|
|
8,270
|
|
|
|
4,465
|
|
|
|
1,519
|
|
|
|
1,900
|
|
Noninterest income
|
|
|
50,213
|
|
|
|
60,896
|
|
|
|
63,933
|
|
|
|
47,410
|
|
|
|
38,773
|
|
|
|
18,241
|
|
|
|
15,814
|
|
Noninterest expense
|
|
|
131,222
|
|
|
|
111,017
|
|
|
|
126,785
|
|
|
|
97,551
|
|
|
|
87,579
|
|
|
|
31,512
|
|
|
|
28,869
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income taxes
|
|
|
34,531
|
|
|
|
64,464
|
|
|
|
17,432
|
|
|
|
54,750
|
|
|
|
52,093
|
|
|
|
17,300
|
|
|
|
15,619
|
|
Income tax expense
|
|
|
9,220
|
|
|
|
22,022
|
|
|
|
3,286
|
|
|
|
14,947
|
|
|
|
16,768
|
|
|
|
5,856
|
|
|
|
5,310
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
|
$ 25,311
|
|
|
|
$ 42,442
|
|
|
|
$ 14,146
|
|
|
|
$ 39,803
|
|
|
|
$ 35,325
|
|
|
|
$ 11,444
|
|
|
|
$ 10,309
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Per common share
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic net income
|
|
|
$ 0.83
|
|
|
|
$ 1.42
|
|
|
|
$ 0.47
|
|
|
|
$ 1.30
|
|
|
|
$ 1.12
|
|
|
|
$ 0.37
|
|
|
|
$ 0.34
|
|
Diluted net income
|
|
|
0.82
|
|
|
|
1.40
|
|
|
|
0.47
|
|
|
|
1.30
|
|
|
|
1.12
|
|
|
|
0.37
|
|
|
|
0.34
|
|
Cash dividends declared
|
|
|
0.76
|
|
|
|
0.75
|
|
|
|
0.74
|
|
|
|
0.73
|
|
|
|
0.72
|
|
|
|
0.19
|
|
|
|
0.19
|
|
Period-end book value
|
|
|
10.53
|
|
|
|
10.47
|
|
|
|
10.08
|
|
|
|
10.80
|
|
|
|
10.06
|
|
|
|
10.77
|
|
|
|
10.31
|
|
Average shares
outstanding basic
|
|
|
30,457,573
|
|
|
|
29,859,683
|
|
|
|
29,789,969
|
|
|
|
30,520,125
|
|
|
|
31,480,109
|
|
|
|
30,859,461
|
|
|
|
30,234,683
|
|
Average shares
outstanding diluted
|
|
|
30,784,406
|
|
|
|
30,277,063
|
|
|
|
30,007,435
|
|
|
|
30,702,107
|
|
|
|
31,660,985
|
|
|
|
31,153,338
|
|
|
|
30,630,601
|
|
Ratios
|
|
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|
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|
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|
|
|
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|
|
Return on average
shareholders equity
|
|
|
7.86
|
%
|
|
|
14.05
|
%
|
|
|
4.50
|
%
|
|
|
12.52
|
%
|
|
|
11.03
|
%
|
|
|
14.12
|
%
|
|
|
13.21
|
%
|
Return on average assets
|
|
|
0.56
|
|
|
|
0.98
|
|
|
|
0.35
|
|
|
|
1.13
|
|
|
|
1.14
|
|
|
|
1.10
|
|
|
|
0.94
|
|
Net interest margin(2)
|
|
|
3.05
|
|
|
|
3.14
|
|
|
|
3.00
|
|
|
|
3.52
|
|
|
|
3.72
|
|
|
|
3.40
|
|
|
|
3.06
|
|
Average loans to average deposits
|
|
|
102.01
|
|
|
|
92.86
|
|
|
|
86.60
|
|
|
|
94.30
|
|
|
|
95.43
|
|
|
|
105.75
|
|
|
|
97.04
|
|
Average equity to average assets
|
|
|
7.18
|
|
|
|
6.99
|
|
|
|
7.85
|
|
|
|
9.02
|
|
|
|
10.31
|
|
|
|
7.82
|
|
|
|
7.13
|
|
Efficiency ratio
|
|
|
60.05
|
|
|
|
60.44
|
|
|
|
65.79
|
|
|
|
64.29
|
|
|
|
60.97
|
|
|
|
61.89
|
|
|
|
61.41
|
|
Dividend payout
|
|
|
92.68
|
|
|
|
53.57
|
|
|
|
157.45
|
|
|
|
56.15
|
|
|
|
64.29
|
|
|
|
51.35
|
|
|
|
55.88
|
|
9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months
|
|
|
|
|
|
|
Ended
|
|
|
|
Years Ended
December 31,
|
|
|
March 31,
|
|
|
|
2005
|
|
|
2004
|
|
|
2003
|
|
|
2002
|
|
|
2001
|
|
|
2006
|
|
|
2005
|
|
|
|
(Dollars in thousands, except
per share amounts)
|
|
|
Selected period end
balances
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Securities available for sale
|
|
|
$ 899,111
|
|
|
|
$ 1,652,732
|
|
|
|
$ 1,601,900
|
|
|
|
$ 1,129,212
|
|
|
|
$ 1,076,324
|
|
|
|
$ 900,424
|
|
|
|
$ 1,440,494
|
|
Loans held for sale
|
|
|
6,447
|
|
|
|
5,326
|
|
|
|
5,137
|
|
|
|
158,404
|
|
|
|
7,334
|
|
|
|
8,719
|
|
|
|
6,006
|
|
Loans, net
|
|
|
2,917,020
|
|
|
|
2,412,529
|
|
|
|
2,227,030
|
|
|
|
2,045,266
|
|
|
|
1,921,718
|
|
|
|
2,981,458
|
|
|
|
2,676,707
|
|
Allowance for loan losses
|
|
|
28,725
|
|
|
|
26,872
|
|
|
|
25,607
|
|
|
|
27,204
|
|
|
|
25,843
|
|
|
|
29,505
|
|
|
|
27,483
|
|
Total assets
|
|
|
4,232,420
|
|
|
|
4,431,605
|
|
|
|
4,206,693
|
|
|
|
3,745,949
|
|
|
|
3,332,737
|
|
|
|
4,283,356
|
|
|
|
4,513,053
|
|
Total deposits
|
|
|
2,799,479
|
|
|
|
2,609,846
|
|
|
|
2,427,897
|
|
|
|
2,322,647
|
|
|
|
2,162,945
|
|
|
|
2,800,346
|
|
|
|
2,702,708
|
|
Borrowings
|
|
|
1,068,574
|
|
|
|
763,738
|
|
|
|
473,106
|
|
|
|
1,042,440
|
|
|
|
808,512
|
|
|
|
1,103,784
|
|
|
|
1,451,756
|
|
Total liabilities
|
|
|
3,908,825
|
|
|
|
4,116,918
|
|
|
|
3,907,254
|
|
|
|
3,421,263
|
|
|
|
3,023,396
|
|
|
|
3,949,729
|
|
|
|
4,200,799
|
|
Total shareholders equity
|
|
|
323,595
|
|
|
|
314,687
|
|
|
|
299,439
|
|
|
|
324,686
|
|
|
|
309,341
|
|
|
|
333,627
|
|
|
|
312,254
|
|
Selected average
balances
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans and loans held for sale
|
|
|
2,795,711
|
|
|
|
2,363,107
|
|
|
|
2,152,748
|
|
|
|
2,122,890
|
|
|
|
1,990,406
|
|
|
|
2,945,908
|
|
|
|
2,551,876
|
|
Earning assets
|
|
|
4,164,969
|
|
|
|
4,004,678
|
|
|
|
3,662,460
|
|
|
|
3,261,844
|
|
|
|
2,881,295
|
|
|
|
3,868,519
|
|
|
|
4,112,175
|
|
Total assets
|
|
|
4,489,083
|
|
|
|
4,322,727
|
|
|
|
4,009,511
|
|
|
|
3,525,090
|
|
|
|
3,104,952
|
|
|
|
4,203,273
|
|
|
|
4,439,768
|
|
Total deposits
|
|
|
2,740,742
|
|
|
|
2,544,865
|
|
|
|
2,485,711
|
|
|
|
2,251,256
|
|
|
|
2,085,669
|
|
|
|
2,785,632
|
|
|
|
2,629,795
|
|
Borrowings
|
|
|
1,375,910
|
|
|
|
1,428,124
|
|
|
|
1,159,889
|
|
|
|
906,263
|
|
|
|
652,298
|
|
|
|
1,049,529
|
|
|
|
1,443,909
|
|
Total shareholders equity
|
|
|
322,226
|
|
|
|
302,101
|
|
|
|
314,562
|
|
|
|
317,952
|
|
|
|
320,215
|
|
|
|
328,763
|
|
|
|
316,476
|
|
|
|
(1) |
Noninterest expense less debt extinguishment expense and
derivative termination costs divided by the sum of taxable
equivalent net interest income plus noninterest income less
(loss) gain on sale of securities.
|
|
|
|
(2) |
|
Amounts and ratios in 2004 have been adjusted to correct a
calculation error with respect to the taxable-equivalent
adjustment. |
10
SELECTED
CONSOLIDATED HISTORICAL FINANCIAL DATA OF GBC
Set forth below are highlights from GBCs consolidated
financial data as of and for the years ended December 31,
2001 through 2005 and GBCs unaudited consolidated
financial data as of and for the three months ended
March 31, 2005 and 2006. The results of operations for the
three months ended March 31, 2006 are not necessarily
indicative of the results of operations for the full year or any
other interim period. The unaudited information was prepared on
the same basis as GBCs audited consolidated financial
statements. In the opinion of GBC management, this information
reflects all adjustments, consisting of only normal recurring
adjustments, necessary for a fair presentation of this data for
those dates. You should read this information in conjunction
with GBCs audited consolidated financial statements as of
and for the year ended December 31, 2005 and GBCs
unaudited consolidated financial statements as of and for the
three months ended March 31, 2006, which are included with
this Proxy Statement/Prospectus as Appendix E and
are incorporated by reference herein and from which this
information is derived.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
|
Years Ended December 31,
|
|
|
March 31,
|
|
|
|
2005
|
|
|
2004
|
|
|
2003
|
|
|
2002
|
|
|
2001
|
|
|
2006
|
|
|
2005
|
|
|
Income statement
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest income
|
|
$
|
25,192
|
|
|
$
|
16,849
|
|
|
$
|
13,042
|
|
|
$
|
11,430
|
|
|
$
|
10,217
|
|
|
$
|
8,052
|
|
|
$
|
5,348
|
|
Interest expense
|
|
|
9,324
|
|
|
|
5,625
|
|
|
|
4,830
|
|
|
|
5,009
|
|
|
|
5,423
|
|
|
|
3,365
|
|
|
|
1,789
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income
|
|
|
15,868
|
|
|
|
11,224
|
|
|
|
8,212
|
|
|
|
6,421
|
|
|
|
4,794
|
|
|
|
4,687
|
|
|
|
3,559
|
|
Provision for loan losses
|
|
|
853
|
|
|
|
798
|
|
|
|
1,033
|
|
|
|
644
|
|
|
|
426
|
|
|
|
451
|
|
|
|
256
|
|
Noninterest income
|
|
|
2,983
|
|
|
|
1,815
|
|
|
|
1,466
|
|
|
|
678
|
|
|
|
388
|
|
|
|
444
|
|
|
|
698
|
|
Noninterest expense
|
|
|
8,356
|
|
|
|
7,209
|
|
|
|
5,675
|
|
|
|
5,044
|
|
|
|
4,171
|
|
|
|
2,201
|
|
|
|
2,063
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income taxes
|
|
|
9,642
|
|
|
|
5,032
|
|
|
|
2,970
|
|
|
|
1,411
|
|
|
|
585
|
|
|
|
2,479
|
|
|
|
1,938
|
|
Income tax expense
|
|
|
3,441
|
|
|
|
1,709
|
|
|
|
995
|
|
|
|
456
|
|
|
|
167
|
|
|
|
909
|
|
|
|
702
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
6,201
|
|
|
$
|
3,323
|
|
|
$
|
1,975
|
|
|
$
|
955
|
|
|
$
|
418
|
|
|
$
|
1,570
|
|
|
$
|
1,236
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Per common share
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic net income
|
|
$
|
3.54
|
|
|
$
|
1.93
|
|
|
$
|
1.15
|
|
|
$
|
0.57
|
|
|
$
|
0.44
|
|
|
$
|
0.89
|
|
|
$
|
0.71
|
|
Diluted net income
|
|
|
3.17
|
|
|
|
1.84
|
|
|
|
1.11
|
|
|
|
0.55
|
|
|
|
0.42
|
|
|
|
0.81
|
|
|
|
0.67
|
|
Cash dividends declared
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Period-end book value
|
|
|
18.62
|
|
|
|
15.49
|
|
|
|
13.62
|
|
|
|
12.52
|
|
|
|
11.59
|
|
|
|
19.43
|
|
|
|
15.97
|
|
Average shares outstanding basic
|
|
|
1,753
|
|
|
|
1,720
|
|
|
|
1,712
|
|
|
|
1,681
|
|
|
|
956
|
|
|
|
1,773
|
|
|
|
1,740
|
|
Average shares outstanding diluted
|
|
|
1,954
|
|
|
|
1,810
|
|
|
|
1,774
|
|
|
|
1,734
|
|
|
|
986
|
|
|
|
1,947
|
|
|
|
1,834
|
|
Ratios
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Return on average
shareholders equity
|
|
|
21.38
|
|
|
|
13.94
|
|
|
|
8.83
|
|
|
|
4.84
|
|
|
|
4.2
|
|
|
|
19.16
|
|
|
|
18.52
|
|
Return on average assets
|
|
|
1.8
|
|
|
|
1.19
|
|
|
|
0.89
|
|
|
|
0.56
|
|
|
|
0.35
|
|
|
|
1.58
|
|
|
|
1.55
|
|
Net interest margin
|
|
|
4.77
|
|
|
|
4.17
|
|
|
|
3.85
|
|
|
|
3.9
|
|
|
|
4.25
|
|
|
|
4.79
|
|
|
|
4.66
|
|
Average loans to average deposits
|
|
|
0.94
|
|
|
|
0.93
|
|
|
|
0.94
|
|
|
|
0.94
|
|
|
|
0.88
|
|
|
|
0.96
|
|
|
|
0.92
|
|
Average equity to average assets
|
|
|
8.4
|
|
|
|
8.54
|
|
|
|
10.11
|
|
|
|
11.5
|
|
|
|
8.38
|
|
|
|
8.25
|
|
|
|
8.39
|
|
Efficiency ratio
|
|
|
0.44
|
|
|
|
0.55
|
|
|
|
0.59
|
|
|
|
0.71
|
|
|
|
0.8
|
|
|
|
0.43
|
|
|
|
0.48
|
|
Dividend payout
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
11
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
|
Years Ended
December 31,
|
|
|
March 31,
|
|
|
|
2005
|
|
|
2004
|
|
|
2003
|
|
|
2002
|
|
|
2001
|
|
|
2006
|
|
|
2005
|
|
|
Selected period end
balances
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Securities available for sale
|
|
|
32,411
|
|
|
|
31,000
|
|
|
|
22,501
|
|
|
|
20,282
|
|
|
|
9,327
|
|
|
|
32,114
|
|
|
|
30,262
|
|
Loans held for sale
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans, net
|
|
|
315,453
|
|
|
|
248,801
|
|
|
|
212,108
|
|
|
|
157,992
|
|
|
|
120,626
|
|
|
|
348,268
|
|
|
|
279,374
|
|
Allowance for loan losses
|
|
|
3,702
|
|
|
|
3,775
|
|
|
|
3,030
|
|
|
|
2,174
|
|
|
|
1,532
|
|
|
|
4,094
|
|
|
|
3,125
|
|
Total assets
|
|
|
379,706
|
|
|
|
313,935
|
|
|
|
247,456
|
|
|
|
198,206
|
|
|
|
144,911
|
|
|
|
418,322
|
|
|
|
333,230
|
|
Total deposits
|
|
|
341,171
|
|
|
|
282,336
|
|
|
|
222,051
|
|
|
|
174,784
|
|
|
|
125,924
|
|
|
|
375,431
|
|
|
|
300,151
|
|
Borrowings
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
|
346,712
|
|
|
|
287,196
|
|
|
|
224,139
|
|
|
|
176,776
|
|
|
|
127,493
|
|
|
|
383,883
|
|
|
|
305,295
|
|
Total shareholders equity
|
|
|
32,993
|
|
|
|
26,739
|
|
|
|
23,317
|
|
|
|
21,430
|
|
|
|
17,418
|
|
|
|
34,440
|
|
|
|
27,935
|
|
Selected average
balances
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans and loans held for sale
|
|
|
291,716
|
|
|
|
234,025
|
|
|
|
185,261
|
|
|
|
140,512
|
|
|
|
94,951
|
|
|
|
345,795
|
|
|
|
264,611
|
|
Earning assets
|
|
|
332,837
|
|
|
|
268,970
|
|
|
|
213,043
|
|
|
|
164,618
|
|
|
|
112,870
|
|
|
|
397,793
|
|
|
|
313,520
|
|
Total assets
|
|
|
345,431
|
|
|
|
279,354
|
|
|
|
221,221
|
|
|
|
171,366
|
|
|
|
118,893
|
|
|
|
397,469
|
|
|
|
318,261
|
|
Total deposits
|
|
|
309,361
|
|
|
|
251,893
|
|
|
|
196,355
|
|
|
|
149,959
|
|
|
|
107,415
|
|
|
|
360,710
|
|
|
|
289,091
|
|
Borrowings
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total shareholders equity
|
|
|
29,003
|
|
|
|
23,844
|
|
|
|
22,374
|
|
|
|
19,712
|
|
|
|
9,959
|
|
|
|
32,783
|
|
|
|
26,700
|
|
12
COMPARATIVE
PER SHARE DATA
The following table sets forth for First Charter common stock
and GBC common stock certain historical, pro forma and pro
forma-equivalent per share financial information. The pro forma
and pro forma-equivalent per share information gives effect to
the merger as if the merger had been effective on the dates
presented, in the case of the book value data, and as if the
merger had become effective on January 1, 2005, in the case
of the net income and dividends declared data. The pro forma
data in the tables assume that the merger is accounted for using
the purchase method of accounting and represents a current
estimate based on available information of the combined
companys results of operations. The pro forma financial
adjustments record the assets and liabilities of GBC at their
estimated fair values and are subject to adjustment as
additional information becomes available and as additional
analyses are performed. See Accounting Treatment.
The information in the following table is based on, and should
be read together with, the historical financial information that
we have presented in our prior filings with the Securities and
Exchange Commission, which we refer to as the SEC. See
Where You Can Find More Information.
We anticipate that the merger will provide the combined company
with financial benefits that include reduced operating expenses
and revenue enhancement opportunities. The pro forma
information, while helpful in illustrating the financial
characteristics of the combined company under one set of
assumptions, does not reflect the impact of possible revenue
enhancements, expense efficiencies, asset dispositions and share
repurchases, among other factors, that may result as a
consequence of the merger and, accordingly, does not attempt to
predict or suggest future results. It also does not necessarily
reflect what the historical results of the combined company
would have been if our companies had combined during these
periods. The Comparative Per Share Data Table for the three
months ended March 31, 2006 and the year ended
December 31, 2005 combines the historical income per share
data of First Charter and subsidiaries and GBC and subsidiaries
giving effect to the merger as if the merger had become
effective on January 1, 2005, using the purchase method of
accounting. Upon completion of the merger, the operating results
of GBC will be reflected in the consolidated financial
statements of First Charter on a prospective basis.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
First
|
|
|
|
|
|
Pro
|
|
|
Per
|
|
|
|
Charter
|
|
|
GBC
|
|
|
Forma
|
|
|
Equivalent
|
|
|
|
Historical
|
|
|
Historical
|
|
|
Combined
|
|
|
GBC Share(1)
|
|
|
Net income from continuing
operations for the twelve months ended December 31,
2005:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
0.83
|
|
|
$
|
3.54
|
|
|
$
|
0.89
|
|
|
$
|
1.24
|
|
Diluted
|
|
$
|
0.82
|
|
|
$
|
3.17
|
|
|
$
|
0.88
|
|
|
$
|
1.23
|
|
Net income from continuing
operations for the three months ended March 31,
2006:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
0.37
|
|
|
$
|
0.89
|
|
|
$
|
0.37
|
|
|
$
|
0.52
|
|
Diluted
|
|
$
|
0.37
|
|
|
$
|
0.81
|
|
|
$
|
0.37
|
|
|
$
|
0.52
|
|
Dividends Paid:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the twelve months ended
December 31, 2005
|
|
$
|
0.76
|
|
|
|
|
|
|
$
|
0.76
|
|
|
$
|
1.06
|
|
For the three months ended
March 31, 2006
|
|
$
|
0.19
|
|
|
|
|
|
|
$
|
0.19
|
|
|
$
|
0.26
|
|
Book Value:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31, 2005
|
|
$
|
10.53
|
|
|
$
|
18.62
|
|
|
$
|
11.86
|
|
|
$
|
16.51
|
|
As of March 31, 2006
|
|
$
|
10.77
|
|
|
$
|
19.43
|
|
|
$
|
12.07
|
|
|
$
|
16.80
|
|
|
|
|
(1) |
|
Reflects GBC shares at the exchange ratio of 1.989, as adjusted
to reflect that 70% of the merger consideration will be paid as
First Charter common stock with the remaining 30% paid in cash. |
13
RISK
FACTORS
In addition to the other information contained in or
incorporated by reference in this Proxy Statement/Prospectus,
including the matters addressed under the caption
Cautionary Statement Regarding Forward-Looking
Statements, you should carefully consider the following
risk factors in deciding whether to vote for the merger.
Risks
Associated with the Merger
You
may not receive the form of merger consideration that you
elect.
The merger agreement contains provisions that are generally
designed to ensure that 70% of the outstanding shares of GBC
common stock are exchanged for shares of First Charter common
stock and the other 30% of the shares are exchanged for cash. If
elections are made by GBC shareholders that would otherwise
result in more or less than 70% of such shares being converted
into a right to receive First Charter common stock, either those
electing to receive all or a portion of their consideration in
cash or those electing to receive all or a portion of their
consideration in shares of First Charter common stock, will have
the consideration of the type they selected reduced by a pro
rata amount and will receive a portion of their consideration in
the form that they did not elect to receive. Accordingly, there
is a risk that you will not receive a portion of the merger
consideration in the form that you elect, which could result in,
among other things, tax consequences that differ from those that
would have resulted had you received the form of consideration
you elected (including the recognition of gain for federal
income tax purposes with respect to the cash received). If you
do not make an election, you will receive the merger
consideration in a combination of cash
and/or
shares of common stock as provided for in the merger agreement.
We may
fail to realize all of the anticipated benefits of the
merger.
The success of the merger will depend, in part, on our ability
to realize the anticipated benefits and cost savings from
combining the businesses of First Charter and GBC. However, to
realize these anticipated benefits and cost savings, we must
successfully combine the businesses of First Charter and GBC. If
we are not able to achieve these objectives, the anticipated
benefits and cost savings of the merger may not be realized
fully or at all or may take longer to realize than expected.
First Charter and GBC have operated and, until the completion of
the merger, will continue to operate, independently. It is
possible that the integration process could result in the loss
of key employees, the disruption of each companys ongoing
businesses or inconsistencies in standards, controls, procedures
and policies that adversely affect our ability to maintain
relationships with clients, customers, depositors and employees
or to achieve the anticipated benefits of the merger.
Integration efforts between the two companies will also divert
management attention and resources. These integration matters
could have an adverse effect on each of GBC and First Charter
during such transition period.
First
Charter has not previously operated in the Atlanta metropolitan
market area.
Gwinnett Banking Companys primary service area is Gwinnett
and Fulton Counties, which are a part of the greater Atlanta
metropolitan market area. The banking business in the greater
Atlanta metropolitan market area is extremely competitive, and
the level of competition may increase further. First Charter has
not previously participated in this market and there may be
unexpected challenges and difficulties that could adversely
affect First Charter following the consummation of the merger.
The
market price of First Charter common stock after the merger may
be affected by factors different from those affecting the shares
of GBC or First Charter currently.
The businesses of First Charter and GBC differ in important
respects and, accordingly, the results of operations of the
combined company and the market price of the combined
companys shares of common stock may be affected by factors
different from those currently affecting the independent results
of operations of GBC. For a discussion of the business of First
Charter and of certain factors to consider in connection with
14
its business, see the documents incorporated by reference in
this document and referred to under Where You Can Find
More Information. For a discussion of the business of GBC
and of certain factors to consider in connection with its
business, see the information provided under Information
About the Companies GBC Bancorp, Inc.
GBC
shareholders who make elections will be unable to sell their GBC
shares in the market after making their election.
GBC shareholders may elect to receive the merger consideration
in the form of cash or stock. Shareholders making an election
must turn in their GBC stock certificates with their election
form. During the time between when the election is made and when
First Charter stock certificates are received by shareholders
following the completion of the merger, GBC shareholders will be
unable to sell their GBC common stock. If the merger is
unexpectedly delayed, this period could extend for a significant
period of time. Elections received after the close of the
election period will not be accepted or honored.
The
opinion obtained by GBC from its financial advisor will not
reflect changes in circumstances between signing the merger
agreement and the merger.
GBC has not obtained an updated opinion as of the date of this
document from its financial advisor. Changes in the operations
and prospects of First Charter or GBC, general market and
economic conditions and other factors which may be beyond the
control of First Charter and GBC, and on which the financial
advisors opinion was based, may significantly alter the
value of First Charter or GBC or the prices of shares of First
Charter common stock or GBC 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. Because GBC currently does not anticipate
asking its financial advisor to update its opinion, the opinion
will not address the fairness of the merger consideration, from
a financial point of view, at the time the merger is completed.
For a description of the opinion that GBC received from its
financial advisor, please refer to The
Merger Opinion of GBCs Financial
Advisor. For a description of the other factors considered
by GBCs board of directors in determining to approve the
merger, please refer to The
Merger GBCs Reasons for the Merger;
Recommendation of the GBC Board of Directors.
The
merger is subject to the receipt of consents and approvals from
government entities that may impose conditions that could have
an adverse effect on First Charter.
Before the merger may be completed, various approvals or
consents must be obtained from the Federal Reserve Board and
various state bank regulatory and other authorities. These
governmental entities, including the Federal Reserve Board, may
impose conditions on the completion of the merger or require
changes to the terms of the merger. Although First Charter and
GBC do not currently expect that any such conditions or changes
would be imposed, there can be no assurance that they will not
be, and such conditions or changes could have the effect of
delaying completion of the merger or imposing additional costs
on or limiting the revenues of First Charter following the
merger, any of which might have a material adverse effect on
First Charter following the merger. First Charter is not
obligated to complete the merger if the regulatory approvals
received in connection with the completion of the merger include
any conditions or restrictions that, in the aggregate, would
reasonably be expected to have a material adverse effect on GBC
or First Charter, measured relative to GBC, but First Charter
could choose to waive this condition.
GBC
directors and executive officers have financial interests in the
merger that are different from, or in addition to, the interests
of GBC shareholders.
Executive officers of GBC negotiated the terms of the merger
agreement with their counterparts at First Charter, and
GBCs board of directors adopted and approved the merger
agreement and unanimously recommended that GBC shareholders vote
to approve the merger on substantially the terms set forth in
the merger agreement. In considering these facts and the other
information contained in this document, you should be aware that
GBCs directors and executive officers have financial
interests in the merger that are different from, or in addition
to, the interests of GBC shareholders. For example, certain
executive officers have entered
15
into agreements with GBC that provide, among other things,
retention payments, restricted stock awards, severance
and/or other
benefits following the merger. In addition, at or before the
closing of the merger, Gwinnett Banking Company will purchase
its main office banking facilities and associated land, which
are located at 165 Nash Street, Lawrenceville, Georgia, from GBC
Properties, LLC, a limited liability company owned by members of
the GBC board of directors. These and some other additional
interests of GBC directors and executive officers may create
potential conflicts of interest and cause some of these persons
to view the proposed transaction differently than you may view
it, as a shareholder. Please see The
Merger GBCs Directors and Officers Have
Financial Interests in the Merger for information about
these financial interests.
Risks
Associated with First Charters Business
First
Charter is subject to interest rate risk.
First Charters earnings and cash flows are largely
dependent upon its net interest income. Net interest income is
the difference between interest income earned on
interest-earning assets such as loans and securities and
interest expense paid on interest-bearing liabilities such as
deposits and borrowed funds. Interest rates are highly sensitive
to many factors that are beyond First Charters control,
including general economic conditions and policies of various
governmental and regulatory agencies and, in particular, the
Board of Governors of the Federal Reserve System. Changes in
monetary policy, including changes in interest rates, could
influence not only the interest First Charter receives on loans
and securities and the amount of interest it pays on deposits
and borrowings, but such changes could also affect
(i) First Charters ability to originate loans and
obtain deposits, (ii) the fair value of First
Charters financial assets and liabilities, and
(iii) the average duration of First Charters
mortgage-backed securities portfolio. If the interest rates paid
on deposits and other borrowings increase at a faster rate than
the interest rates received on loans and other investments,
First Charters net interest income, and therefore
earnings, could be adversely affected. Earnings could also be
adversely affected if the interest rates received on loans and
other investments fall more quickly than the interest rates paid
on deposits and other borrowings.
Although management believes it has implemented effective
asset-liability management strategies, including the potential
use of derivatives as hedging instruments, to reduce the
potential effects of changes in interest rates on First
Charters results of operations, any substantial,
unexpected, prolonged change in market interest rates could have
a material adverse effect on First Charters financial
condition and results of operations.
First
Charter is subject to lending risk.
There are inherent risks associated with First Charters
lending activities. There risks include, among other things, the
impact of changes in interest rates and changes in the economic
conditions of the markets where First Charter operates as well
as those across the State of North Carolina and the United
States. Increases in interest rates
and/or
weakening economic conditions could adversely impact the ability
of borrowers to repay outstanding loans or the value of the
collateral securing these loans. First Charter is also subject
to various laws and regulations that affect its lending
activities. Failure to comply with applicable laws and
regulations could subject First Charter to regulatory
enforcement action that could result in the assessment of
significant civil money penalties.
As of December 31, 2005, approximately 52 percent of
First Charters loan portfolio consisted of commercial
non-real estate, construction and commercial real estate loans.
These types of loans are generally viewed as having more risk of
default than residential real estate loans or consumer loans.
These types of loans are also typically larger than residential
real estate loans and consumer loans. Because First
Charters loan portfolio contains a significant number of
commercial non-real estate, construction and commercial real
estate loans with relatively large balances, the deterioration
of one or a few of these loans could cause a significant
increase in non-performing loans. An increase in nonperforming
loans could result in a net loss of earnings from these loans,
an increase in a provision for loan losses and an increase in
loan charge-offs, all of which could have a material adverse
effect on First Charters financial condition and results
of operations.
16
First
Charters allowance for loan losses may be
insufficient.
First Charter maintains an allowance for loan losses, which is a
reserve established through a provision for loan losses charged
to expense that represents managements best estimate of
probable losses that have been incurred within the existing
portfolio of loans. The allowance, in the judgment of
management, is necessary to reserve for estimated loan losses
and risks inherent in the loan portfolio. The level of the
allowance reflects managements continuing evaluation of
industry concentrations; specific credit risks; loan loss
experience; current loan portfolio quality; present economic,
political and regulatory conditions and unidentified losses
inherent in the current loan portfolio. The determination of the
appropriate level of the allowance for loan losses inherently
involves a high degree of subjectivity and requires management
to make significant estimates of current credit risks and future
trends, all of which may undergo material changes. Changes in
economic conditions affecting borrowers, new information
regarding existing loans, identification of additional problem
loans and other factors, both within and outside of First
Charters control, may require an increase in the allowance
for loan losses. In addition, bank regulatory agencies
periodically review First Charters allowance for loan
losses and may require an increase in the provision for loan
losses or the recognition of further loan charge-offs, based on
judgments different than those of management. In addition, if
charge-offs in future periods exceed the allowance for loan
losses, First Charter will need additional provisions to
increase the allowance for loan losses. Any increases in the
allowance for loan losses will result in a decrease in net
income and, possibly, capital, and may have a material adverse
effect on First Charters financial condition and results
of operations.
First
Charter is subject to environmental liability risk associated
with lending activities.
A significant portion of First Charters loan portfolio is
secured by real property. During the ordinary course of
business, First Charter may foreclose on and take title to
properties securing certain loans. In doing so, there is a risk
that hazardous or toxic substances could be found on these
properties. If hazardous or toxic substances are found, First
Charter may be liable for remediation costs, as well as for
personal injury and property damage. Environmental laws may
require First Charter to incur substantial expenses and may
materially reduce the affected propertys value or limit
First Charters ability to use or sell the affected
property. In addition, future laws or more stringent
interpretations or enforcement policies with respect to existing
laws may increase First Charters exposure to environmental
liability. Although First Charter has policies and procedures to
perform an environmental review before initiating any
foreclosure action on real property, these reviews may not be
sufficient to detect all potential environmental hazards. The
remediation costs and any other financial liabilities associated
with an environmental hazard could have a material adverse
effect on First Charters financial condition and results
of operations.
First
Charters profitability depends significantly on economic
conditions in the Carolinas.
First Charters success depends primarily on the general
economic conditions of the Carolinas and the specific local
markets in which First Charter operates. Unlike larger national
or other regional banks that are more geographically
diversified, First Charter currently provides banking and
financial services to customers primarily in the metropolitan
areas of Charlotte-Gastonia-Concord, Lincolnton,
Statesville-Mooresville, Shelby, Forest City, Salisbury,
Asheville, Brevard and Raleigh-Cary. The local economic
conditions in these areas have a significant impact on the
demand for First Charters products and services as well as
the ability of First Charters customers to repay loans,
the value of the collateral securing loans and the stability of
First Charters deposit funding sources. A significant
decline in general economic conditions, caused by inflation,
recession, or unemployment in First Charters primary
markets, or changes in securities markets or other factors could
impact these local economic conditions and, in turn, have a
material adverse effect on First Charters financial
condition and results of operations.
First
Charter operates in a highly competitive industry and market
area.
First Charter faces substantial competition in all areas of its
operations from a variety of different competitors, many of
which are larger and may have more financial resources than
First Charter. Such competitors primarily include national,
regional and local financial institutions within the various
markets First
17
Charter operates. Additionally, various
out-of-state
banks have begun to enter or have announced plans to enter the
market areas in which First Charter currently operates. First
Charter also faces competition from many other types of
financial institutions, including, without limitation, savings
and loan associations, savings banks, credit unions, finance
companies, brokerage firms, insurance companies, and major
retail stores that offer competing financial services. The
financial services industry could become even more competitive
as a result of legislative, regulatory and technological changes
and continued consolidation. Banks, securities firms and
insurance companies can merge under the umbrella of a financial
holding company, which can offer virtually any type of financial
service, including banking, securities underwriting, insurance
(both agency and underwriting) and merchant banking. Also,
technology has lowered barriers to entry and made it possible
for non-banks to offer products and services traditionally
provided by banks, such as automatic transfer and automatic
payment systems. Many of First Charters competitors have
fewer regulatory constraints and may have lower cost structures.
Additionally, due to their size, many competitors may be able to
achieve economies of scale and, as a result, may offer a broader
range of products and services as well as better pricing for
those products and services than First Charter can.
First Charters ability to compete successfully depends on
a number of factors, including, among other things:
|
|
|
|
|
The ability to develop, maintain and build upon long-term
customer relationships based on top quality service, high
ethical standards and safe, sound assets.
|
|
|
|
The ability to expand First Charters market position.
|
|
|
|
The scope, relevance and pricing of products and services
offered to meet customer needs and demands.
|
|
|
|
The rate at which First Charter introduces new products and
services relative to its competitors.
|
|
|
|
Customer satisfaction with First Charters level of service.
|
|
|
|
Industry and general economic trends.
|
Failure to perform in any of these areas could significantly
weaken First Charters competitive position, which could
adversely affect First Charters growth and profitability,
which, in turn, could have a material adverse effect on First
Charters financial condition and results of operation.
First
Charter is subject to extensive government regulation and
supervision.
First Charter, primarily through First Charter Bank and certain
non-bank subsidiaries, is subject to extensive federal and state
regulation and supervision. Banking regulations are primarily
intended to protect depositors funds, federal deposit
insurance funds and the banking system as a whole, not
shareholders. These regulations affect First Charters
lending practices, capital structure, investment practices,
dividend policy and growth, among other things. Congress and
federal regulatory agencies continually review banking laws,
regulations and policies for possible changes. Changes to
statutes, regulations or regulatory policies, including changes
in interpretation or implementation of statutes, regulations or
policies, could affect First Charter in substantial and
unpredictable ways. Such changes could subject First Charter to
additional costs, limit the types of financial services and
products First Charter may offer
and/or
increase the ability of non-banks to offer competing financial
services and products, among other things. Failure to comply
with laws, regulations or policies could result in sanctions by
regulatory agencies, civil money penalties
and/or
reputation damage, which could have a material adverse effect on
First Charters business, financial condition and results
of operations. While First Charter has policies and procedures
designed to prevent any such violations, there can be no
assurance that such violations will not occur.
First
Charters controls and procedures may fail or be
circumvented.
Management regularly reviews and updates First Charters
internal controls, disclosure controls and procedures, and
corporate governance policies and procedures. Any system of
controls, however well designed and operated, is based in part
on certain assumptions and can provide only reasonable, not
absolute, assurances
18
that the objectives of the systems are met. Any failure or
circumvention of First Charters controls and procedures or
failure to comply with regulations related to controls and
procedures could have a material adverse effect on First
Charters business, results of operations and financial
condition.
New
lines of business or new products and services may subject First
Charter to additional risks.
From time to time, First Charter may implement new lines of
business or offer new products and services within existing
lines of business. There are substantial risks and uncertainties
associated with these efforts, particularly in instances where
the markets are not fully developed. In developing and marketing
new lines of business
and/or new
products and services First Charter may invest significant time
and resources. Initial timetables for the introduction and
development of new lines of business
and/or new
products or services may not be achieved and price and
profitability targets may not prove feasible. External factors,
such as compliance with regulations, competitive alternatives,
and shifting market preferences, may also impact the successful
implementation of a new line of business or a new product or
service. Furthermore, any new line of business
and/or new
product or service could have a significant impact on the
effectiveness of First Charters system of internal
controls. Failure to successfully manage these risks in the
development and implementation of new lines of business or new
products or services could have a material adverse effect on
First Charters business, results of operations and
financial condition.
First
Charter relies on dividends from First Charter Bank for most of
its revenue.
First Charter Corporation is a separate and distinct legal
entity from First Charter Bank. It receives substantially all of
its revenue from dividends received from First Charter Bank.
These dividends are the principal source of funds to pay
dividends on First Charters common stock and interest and
principal on its outstanding debt securities. Various federal
and/or state
laws and regulations limit the amount of dividends that First
Charter Bank may pay to First Charter. In the event First
Charter Bank is unable to pay dividends to First Charter, First
Charter may not be able to service debt, pay obligations or pay
dividends on First Charters common stock. The inability to
receive dividends from First Charter Bank could have a material
adverse effect on First Charters business, financial
condition, and results of operations.
Potential
acquisitions may disrupt First Charters business and
dilute shareholder value.
From time to time First Charter may seek merger or acquisition
partners that are culturally similar and have experienced
management and possess either significant market presence or
have potential for improved profitability through financial
management, economies of scale or expanded services. Acquiring
other banks, businesses, or branches involves risks commonly
associated with acquisitions, including, among other things:
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Potential exposure to unknown or contingent liabilities of the
target company.
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Exposure to potential asset quality issues of the target company.
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Difficulty and expense of integrating the operations and
personnel of the target company.
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Potential disruption to First Charters business.
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Potential diversion of the time and attention of First
Charters management.
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The possible loss of key employees and customers of the target
company.
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Difficulty in estimating the value of the target company.
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Potential changes in banking or tax laws or regulations that may
affect the target company.
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First Charter regularly evaluates merger and acquisition
opportunities and conducts due diligence activities related to
possible transactions with other financial institutions and
financial services companies. As a result, merger or acquisition
discussions and, in some cases, negotiations may take place and
future mergers or acquisitions involving cash, debt or equity
securities may occur at any time. Acquisitions typically involve
the payment of a premium over book and market values, and,
therefore, some dilution of First Charters tangible book
value and net income per common share may occur in connection
with any future transaction.
19
Furthermore, failure to realize the expected revenue increases,
cost savings, increases in geographic or product presence,
and/or other
projected benefits from an acquisition could have a material
adverse effect on First Charters financial condition and
results of operations.
First
Charter may not be able to attract and retain skilled
personnel.
First Charters success depends, in large part, on its
ability to attract and retain key personnel. Competition for
these individuals in most businesses engaged in by First Charter
can be intense and First Charter may not be able to hire or
retain them. The unexpected loss of services of one or more of
First Charters key personnel could have a material adverse
impact on First Charters business because of their skills,
knowledge of First Charters market, years of financial
services experience and the difficulty of promptly finding
qualified replacement personnel. First Charter has employment
agreements or non-competition agreements with several of its
senior and executive officers in an attempt to partially
mitigate this risk.
First
Charters information systems may experience an
interruption or breach in security.
First Charter relies heavily on communications and information
systems to conduct its business. Any failure, interruption or
breach in security of these systems could result in failures or
disruptions in First Charters customer relationship
management, general ledger, deposit, loan and other systems.
While First Charter has policies and procedures designed to
prevent or limit the effect of the failure, interruptions or
security breach of its information systems, there can be no
assurance that any such failures, interruptions or security
breaches will not occur or, if they do occur, that they will be
adequately addressed. The occurrence of any failures,
interruptions or security breaches of First Charters
information systems could damage First Charters
reputation, result in a loss of customer business, subject First
Charter to additional regulatory scrutiny, or expose First
Charter to civil litigation and possible financial liability,
any of which could have a material adverse effect on First
Charters financial condition and results of operations.
First
Charter continually encounters technological
advancements.
The financial services industry is continually undergoing rapid
technological advancements with frequent introductions of new
technology-driven products and services. The effective use of
technology increases efficiency and enables financial
institutions to better serve customers and to reduce costs.
First Charters future success depends, in large part, upon
its ability to address the needs of its customers by using
technology to provide products and services that will satisfy
customer demands, as well as to create additional efficiencies
in First Charters operations. Many of First Charters
competitors have substantially greater resources to invest in
technological improvements. First Charter may not be able to
effectively implement new technology-driven products and
services or be successful in marketing these products and
services to its customers. Failure to successfully keep pace
with technological advancements affecting the financial services
industry could have a material adverse impact on First
Charters business and, in turn, First Charters
financial condition and results of operations.
First
Charter is subject to claims and litigation pertaining to
fiduciary responsibility.
From time to time, customers make claims and take legal action
pertaining to First Charters performance of its fiduciary
responsibilities. Whether customer claims and legal action
related to First Charters performance of its fiduciary
responsibilities are founded or unfounded, if such claims and
legal actions are not resolved in a manner favorable to First
Charter they may result in significant financial liability
and/or
adversely affect the market perception of First Charter and its
products and services as well as impact customer demand for
those products and services. Any financial liability or
reputational damage could have a material adverse effect on
First Charters business, which, in turn, could have a
material adverse effect on First Charters financial
condition and results of operations.
20
First
Charter may need additional capital resources in the future
which may not be available when needed or at all.
First Charter may need to obtain additional debt or equity
financing in the future for growth, investment or strategic
acquisitions. There can be no assurance that such financing will
be available to First Charter on acceptable terms or at all. If
First Charter is unable to obtain such additional financing,
First Charter may not be able to grow or make strategic
acquisitions or investments when desired, which could have a
material adverse impact on First Charters business and, in
turn, First Charters financial condition and results of
operations.
Severe
weather, natural disasters and other adverse external events
could significantly impact First Charters
business.
Severe weather, natural disasters and other adverse external
events could have a significant impact on First Charters
ability to conduct business. Such events could affect the
stability of First Charters deposit base, impair the
ability of borrowers to repay outstanding loans, impair the
value of collateral securing loans, cause significant property
damage, result in loss of revenue and or cause First Charter to
incur additional expenses. The Southeast region of the Untied
States is periodically impacted by hurricanes. For example,
during 1989, Hurricane Hugo made landfall along the South
Carolina coast and subsequently caused extensive flooding and
destruction in the metropolitan area of Charlotte, North
Carolina and other communities where First Charter conducts
business. While the impact of hurricanes may not significantly
affect First Charter, other severe weather or natural disasters,
acts of war or terrorism or other adverse external events may
occur in the future. Although management has established
disaster recovery policies and procedures, the occurrence of any
such event could have a material adverse effect on First
Charters business, which, in turn, could have a material
adverse effect on First Charters financial condition and
results of operations.
Risks
Related to First Charters Common Stock
First
Charters stock price can be volatile.
Stock price volatility may make it more difficult for a
shareholder to resell First Charters common stock when
desired and at favorable prices. First Charters stock
price can fluctuate significantly in response to a variety of
factors including, among other things:
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Actual or anticipated variations in quarterly results of
operations.
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Recommendations by securities analysts.
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Operating and stock price performance of other financial
institutions that investors deem comparable to First Charter.
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News reports relating to trends, concerns and other issues in
the financial services industry.
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Perceptions in the marketplace regarding First Charter
and/or its
competitors.
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New technology used, or services offered, by competitors.
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Significant acquisitions, business combinations or capital
commitments by or involving First Charter or its competitors.
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Failure to integrate acquisitions or realize anticipated
benefits from acquisitions.
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Changes in government regulations.
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Geopolitical conditions such as acts or threats of terrorism or
military conflicts.
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General market fluctuations, industry factors and general
economic and political conditions and events, such as economic
slowdowns or recessions, interest rate changes or credit loss
trends, could also cause First Charters stock price to
decrease regardless of operating results.
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21
The
trading volume in First Charters common stock is less than
that of other larger financial services companies.
Although First Charters common stock is listed for trading
on the NASDAQ Global Select Market, the trading volume in its
common stock is less than that of other larger financial
services companies. A public trading market having the desired
characteristics of depth, liquidity and orderliness depends on
the presence in the marketplace of willing buyers and sellers of
First Charters common stock at any given time. This
presence depends on the individual decisions of investors and
general economic and market conditions over which First Charter
has no control. Given the lower trading volume of First
Charters common stock, significant sales of First
Charters common stock, or the expectation of these sales,
could cause First Charters stock price to fall.
An
investment in First Charters common stock is not an
insured deposit.
First Charters common stock is not a bank deposit and,
therefore, is not insured against loss by the Federal Deposit
Insurance Corporation (FDIC), any other deposit insurance fund
or by any other public or private entity. Investment in First
Charters common stock is inherently risky for the reasons
described in this Risk Factors section and elsewhere
in this report and is subject to the same market forces that
affect the price of common stock in any company. As a result, if
you acquire First Charters common stock, you may lose some
or all of your investment.
First
Charters articles of incorporation, bylaws and shareholder
protection rights agreement as well as certain banking laws may
have an anti-takeover effect.
Provisions of First Charters articles of incorporation and
bylaws, federal banking laws, including regulatory approval
requirements, and First Charters Shareholder Protection
Rights Agreement could make it more difficult for a third party
to acquire First Charter, even if doing so would be perceived to
be beneficial to First Charters shareholders. The
combination of these provisions effectively inhibits a
non-negotiated merger or other business combination, which, in
turn, could adversely affect the market price of First
Charters common stock.
Risks
Associated with First Charters Industry
The
earnings of financial services companies are significantly
affected by general business and economic
conditions.
First Charters operations and profitability are impacted
by general business and economic conditions in the United States
and abroad. These conditions include short-term and long-term
interest rates, inflation, money supply, political issues,
legislative and regulatory changes, fluctuations in both debt
and equity capital markets, broad trends in industry and
finance, and the strength of the U.S. economy and the local
economies in which First Charter operates, all of which are
beyond First Charters control. A deterioration in economic
conditions could result in an increase in loan delinquencies and
non-performing assets, decreases in loan collateral values and a
decrease in demand for First Charters products and
services, among other things, any of which could have a material
adverse impact on First Charters financial condition and
results of operations.
Financial
services companies depend on the accuracy and completeness of
information about customers and counterparties.
In deciding whether to extend credit or enter into other
transactions, First Charter may rely on information furnished by
or on behalf of customers and counterparties, including
financial statements, credit reports and other financial
information. First Charter may also rely on representations of
those customers, counterparties or other third parties, such as
independent auditors, as to the accuracy and completeness of
that information. Reliance on inaccurate or misleading financial
statements, credit reports or other financial
22
information could have a material adverse impact on First
Charters business and, in turn, First Charters
financial condition and results of operations.
Consumers
may decide not to use banks to complete their financial
transactions.
Technology and other changes are allowing parties to complete
financial transactions that historically have involved banks
through alternative methods. For example, consumers can now
maintain funds that would have historically been held as bank
deposits in brokerage accounts or mutual funds. Consumers can
also complete transactions such as paying bills
and/or
transferring funds directly without the assistance of banks. The
process of eliminating banks as intermediaries, known as
disintermediation, could result in the loss of fee
income, as well as the loss of customer deposits and the related
income generated from those deposits. The loss of these revenue
streams and the lower cost deposits as a source of funds could
have a material adverse effect on First Charters financial
condition and results of operations.
23
CAUTIONARY
STATEMENT REGARDING FORWARD-LOOKING STATEMENTS
This document contains or incorporates by reference a number of
forward-looking statements, including statements about the
financial conditions, results of operations, earnings outlook
and prospects of First Charter, GBC and the potential combined
company and may include statements for the period following the
completion of the merger. You can find many of these statements
by looking for words such as plan,
believe, expect, intend,
anticipate, estimate,
project, potential, possible
or other similar expressions.
The forward-looking statements involve certain risks and
uncertainties. The ability of either First Charter or GBC to
predict results or the actual effects of its plans and
strategies, or those of the combined company, is subject to
inherent uncertainty. Factors that may cause actual results or
earnings to differ materially from such forward-looking
statements include, among others, the following:
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the risk that the businesses of First Charter
and/or GBC
in connection with the merger will not be integrated
successfully or such integration may be more difficult,
time-consuming or costly than expected;
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expected revenue synergies and cost savings from the merger may
not be fully realized or realized within the expected time frame;
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the merger may be more expensive to complete than anticipated,
including as a result of unexpected factors or events;
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revenues following the merger may be lower than expected;
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changes in the interest rate environment reduce interest margins
and impact funding sources;
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changes in market rates and prices may adversely impact the
value of financial products;
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customer and employee relationships and business operations may
be disrupted by the merger;
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the ability to obtain required governmental and GBC shareholder
approvals, and the ability to complete the merger on the
expected timeframe;
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possible changes in economic and business conditions;
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the existence or exacerbation of general geopolitical
instability and uncertainty;
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the ability of First Charter to integrate other acquisitions and
attract new customers;
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possible changes in monetary and fiscal policies, and laws and
regulations;
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the effects of easing of restrictions on participants in the
financial services industry;
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the cost and other effects of legal and administrative cases;
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possible changes in the credit worthiness of customers and the
possible impairment of collectibility of loans;
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the effects of changes in interest rates; and
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other risks and factors identified in First Charters and
GBCs filings with the SEC.
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Because these forward-looking statements are subject to
assumptions and uncertainties, actual results may differ
materially from those expressed or implied by these
forward-looking statements. You are cautioned not to place undue
reliance on these statements, which speak only as of the date of
this document or the date of any document incorporated by
reference in this document.
All subsequent written and oral forward-looking statements
concerning the merger or other matters addressed in this
document and attributable to First Charter or GBC or any person
acting on their behalf are expressly qualified in their entirety
by the cautionary statements contained or referred to in this
document. Except to the extent required by applicable law or
regulation, First Charter and GBC undertake no obligation to
update these forward-looking statements to reflect events or
circumstances after the date of this document or to reflect the
occurrence of unanticipated events.
24
THE GBC
SPECIAL MEETING
This section contains information about the special meeting of
GBC shareholders that has been called to consider and approve
the merger on substantially the terms set forth in the merger
agreement.
Together with this document, we are also sending you a notice of
the special meeting and a form of proxy that is solicited by the
GBC board of directors. The special meeting will be held at the
main office of Gwinnett Banking Company at 165 Nash Street,
Lawrenceville, Georgia 30045 on
[ ],
2006, at 8:00 a.m., local time.
Matters
to be Considered
The purpose of the special meeting is to vote on a proposal for
approval of the merger on substantially the terms set forth in
the merger agreement.
You also will be asked to vote upon a proposal to approve the
adjournment of the special meeting, if necessary, to solicit
additional proxies in the event that there are not sufficient
votes at the time of the special meeting to approve the merger.
Proxies
Each copy of this document mailed to holders of GBC common stock
is accompanied by a form of proxy with instructions for voting.
If you hold stock in your name as a shareholder of record, you
should complete and return the proxy card accompanying this
document to ensure that your vote is counted at the special
meeting, or at any adjournment or postponement of the special
meeting, regardless of whether you plan to attend the special
meeting.
If you hold your stock in street name through a bank
or broker, you must direct your bank or broker to vote in
accordance with the instructions you have received from your
bank or broker.
If you hold stock in your name as a shareholder of record, you
may revoke any proxy at any time before it is voted by signing
and returning a proxy card with a later date, delivering a
written revocation letter to GBCs Secretary, or by
attending the special meeting in person, notifying the
Secretary, and voting by ballot at the special meeting.
Any shareholder entitled to vote in person at the special
meeting may vote in person regardless of whether a proxy has
been previously given, but the mere presence of a shareholder at
the special meeting will not constitute revocation of a
previously given proxy.
Written notices of revocation and other communications about
revoking your proxy should be addressed to:
GBC Bancorp, Inc.
165 Nash Street
Lawrenceville, Georgia 30045
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Attention:
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John T. Hopkins, III
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Corporate Secretary
Phone Number:
(770) 995-9561
If your shares are held in street name by a bank or
broker, you should follow the instructions of your bank or
broker regarding the revocation of proxies.
All shares represented by valid proxies that we receive through
this solicitation, and that are not revoked, will be voted in
accordance with your instructions on the proxy card. If you make
no specification on your proxy card as to how you want your
shares voted before signing and returning it, your proxy will be
voted FOR approval of the merger and
FOR approval of the proposal to adjourn the
special meeting, if necessary, to solicit additional proxies in
the event that there are not sufficient votes at the time of the
special meeting to approve the merger.
25
GBC shareholders should NOT send stock certificates with
their proxy cards. GBC shareholders will be sent election forms
and instructions, at which time they will be requested to submit
their stock certificates. If the merger is completed, GBC
shareholders who did not make a timely or proper election will
be mailed a transmittal form promptly following the completion
of the merger with instructions on how to exchange their GBC
stock certificates for the merger consideration.
Solicitation
of Proxies
GBC and First Charter will bear equally the cost of printing and
mailing this Proxy Statement/Prospectus and all filing and other
fees paid to the SEC in connection with the merger, however, GBC
solely will bear any additional costs of soliciting proxies from
you. In addition to solicitation of proxies by mail, GBC will
request that banks, brokers, and other record holders send
proxies and proxy material to the beneficial owners of GBC
common stock and secure their voting instructions. GBC and First
Charter will reimburse the record holders for their reasonable
expenses in taking those actions. If necessary, several of
GBCs regular employees, who will not be specially
compensated, may solicit proxies from GBC shareholders, either
personally or by telephone, facsimile, letter or other
electronic means. Prior to the special meeting, GBC may hire a
proxy solicitation firm to assist GBC in soliciting proxies from
you. In this event, GBC would bear the proxy solicitors
fee plus reasonable expenses.
Record
Date
The close of business on
[ ],
2006 has been fixed as the record date for determining the GBC
shareholders entitled to receive notice of and to vote at the
special meeting. At that time, [2,136,608] shares of GBC
common stock were outstanding, held by approximately [750]
holders of record.
Voting
Rights and Vote Required
The presence, in person or by properly executed proxy, of the
holders of a majority of the outstanding shares of GBC common
stock entitled to vote is necessary to constitute a quorum at
the special meeting. Abstentions will be counted for the purpose
of determining whether a quorum is present.
Approval of the merger requires the affirmative vote of the
holders of a majority of the issued and outstanding shares of
GBC common stock entitled to vote at the special meeting. You
are entitled to one vote for each share of GBC common stock you
held as of the record date.
Approval of any proposal to adjourn or postpone the meeting, if
necessary, for the purpose of soliciting additional proxies may
be obtained by the affirmative vote of the holders of a majority
of the shares present in person or by proxy, even if less than a
quorum. Because approval of such adjournments is based on the
affirmative vote of a majority of shares present in person or by
proxy, abstentions will have the same effect as a vote against
this proposal.
Shareholders will vote at the meeting by ballot. Votes cast at
the meeting, in person or by proxy, will be tallied by
GBCs transfer agent.
Because the affirmative vote of the holders of a majority of the
issued and outstanding shares of GBC common stock entitled to
vote at the special meeting is needed for us to proceed with the
merger, the failure to vote by proxy or in person will have the
same effect as a vote against the merger. Abstentions and broker
non-votes also will have the same effect as a vote against the
merger. Accordingly, the GBC board of directors urges GBC
shareholders to promptly vote by completing, dating, and signing
the accompanying proxy card and to return it promptly in the
enclosed postage-paid envelope, or, if you hold your stock in
street name through a bank or broker, by following
the voting instructions of your bank or broker.
Voting
Agreement
As an inducement to and a condition of First Charters
willingness to enter into the merger agreement, each of the
directors and executive officers of GBC entered into a voting
agreement with First Charter. Pursuant to the voting agreement,
each of the directors and executive officers of GBC agreed,
among other
26
things, to vote (or cause to be voted), all the shares owned
beneficially by each of them, (i) in favor of the approval
and adoption of the merger agreement (or any amended version
thereof), the merger and the other transactions contemplated
thereby, (ii) against any action or agreement that is or
would be reasonably likely to result in any condition to
GBCs obligations or First Charters obligations under
the merger agreement not being fulfilled and (iii) against
any Alternative Proposal (as defined in the merger agreement and
as further described under The Merger
Agreement Agreement Not to Solicit Other
Offers). As of the record date, the directors and
executive officers of GBC beneficially owned
557,785 shares, or approximately 26% of the outstanding
shares of GBC common stock.
Each of the directors and executive officers of GBC also granted
First Charter an irrevocable proxy coupled with an interest to
vote such shareholders shares as provided in the voting
agreement. Each proxy will expire automatically and without
further action by the parties upon the termination of the voting
agreement, which terminates upon termination of the merger
agreement. Except for shares of GBC common stock that may be
attributable to them pursuant to the voting agreement, none of
the directors or executive officers of First Charter
beneficially own any shares of GBC common stock.
A copy of the voting agreement is attached as Appendix D
of this Proxy Statement/Prospectus and is incorporated
herein by reference. GBC shareholders are urged to read the
voting agreement in its entirety.
Beneficial
Stock Ownership of GBC Management and Directors
The following table provides information concerning beneficial
ownership of GBC common stock as of June 30, 2006, by:
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each of GBCs directors;
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each of GBCs Chief Executive Officer and Chief Financial
Officer; and
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all of GBCs and Gwinnett Banking Companys directors
and executive officers as a group.
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The following table lists the applicable percentage of
beneficial ownership based on 2,136,608 shares of common
stock outstanding as of June 30, 2006. Except where noted,
the persons or entities named have sole voting and investment
power with respect to all shares shown as beneficially owned by
them.
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Number of Shares
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Name of Beneficial
Owner
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Beneficially Owned(1)
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Percentage
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Larry D. Key
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82,323
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3.85
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%
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John T. Hopkins III
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60,510
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2.83
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%
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James B. Ballard
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44,764
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2.10
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%
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Jerry M. Boles
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31,700
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1.48
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%
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W. H. Britt
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23,026
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1.08
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%
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Richard F. Combs(2)
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63,643
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2.98
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%
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W. Grant Hayes(3)
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11,000
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*
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Douglas A. Langley(4)
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36,500
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1.71
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%
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Norris J. Nash(5)
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53,813
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2.52
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%
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J. Joseph Powell(6)
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47,765
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2.24
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%
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Michael A. Roy
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53,531
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2.51
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%
|
William S. Stanton, Jr.
|
|
|
49,210
|
|
|
|
2.30
|
%
|
All directors and executive
officers
|
|
|
|
|
|
|
|
|
as a group (12 persons)
|
|
|
557,785
|
|
|
|
26.11
|
%
|
|
|
|
* |
|
Less than 1% |
|
(1) |
|
Except as otherwise indicated, the persons named in the table
have sole voting and investment power with respect to all shares
shown as beneficially owned by them. The information shown above
is based upon information furnished by the named persons and
based upon beneficial ownership concepts set forth
in |
27
|
|
|
|
|
rules promulgated under the Exchange Act. Under such rules, a
person is deemed to be a beneficial owner of a
security if that person has or shares voting power,
which includes the power to vote or to direct the voting of such
security, or investment power, which includes the
power to dispose or to direct the disposition of such security.
A person is also deemed to be a beneficial owner of any security
of which that person has the right to acquire beneficial
ownership within 60 days. |
|
(2) |
|
Includes 6,882 shares owned by Mr. Combs wife. |
|
(3) |
|
Includes 2,500 shares owned by a company that
Mr. Hayes controls. |
|
(4) |
|
Includes 3,600 shares owned by Mr. Langleys
wife, 28,000 shares held by the Ashworth &
Associates, P.C. 401(k) Profit Sharing Plan, of which
Mr. Langley is the Trustee. |
|
(5) |
|
Includes 2,500 shares held by a general partnership that
Mr. Nash controls. |
|
(6) |
|
Includes 10,714 shares owned by a company that
Mr. Powell controls. |
28
INFORMATION
ABOUT THE COMPANIES
First
Charter Corporation
First Charter Corporation is a North Carolina corporation and a
bank holding company under U.S. law. Its principal asset is
the stock of its subsidiary, First Charter Bank. First
Charters primary market area is located within North
Carolina and is centered primarily around the Charlotte Metro
region, including Mecklenburg County and its surrounding
counties. Charlotte is the twenty-sixth largest city in the
United States and has a diverse economic base. As of
March 31, 2006 First Charter had total consolidated assets
of approximately $4.3 billion, total consolidated deposits
of approximately $2.8 billion and total consolidated
shareholders equity of approximately $334 million.
At March 31, 2006, First Charter Bank, a full service bank,
operated 58 financial centers and four insurance offices, as
well as 139 ATMs (automated teller machines) throughout North
Carolina. First Charter Bank also operates loan origination
offices in Asheville, North Carolina and Reston, Virginia.
Through its financial centers, First Charter Bank provides a
wide range of banking products, including interest-bearing and
noninterest-bearing checking accounts, money market accounts,
certificates of deposit, individual retirement accounts, full
service and discount brokerage services including annuity sales,
overdraft protection, financial planning services, personal and
corporate trust services, safe deposit boxes, and online
banking. First Charter Bank also provides commercial, consumer,
real estate, residential mortgage and home equity loans. First
Charter Bank also operates other lines of business through
various subsidiaries, including insurance services.
First Charters common stock is traded under the symbol
FCTR on the NASDAQ Global Select Market. The
principal executive offices of First Charter are located at
10200 David Taylor Drive, Charlotte, North Carolina 28262. The
telephone number is
(704) 688-4300.
Additional information about First Charter and its subsidiaries
is included in documents incorporated by reference in this
document. See Where You Can Find More Information.
GBC
Bancorp, Inc.
General
GBC was organized in August 1996 as a Georgia corporation for
the purpose of acquiring all of the common stock of Gwinnett
Banking Company, a Georgia bank that subsequently opened for
business in October 1997. GBC is a bank holding company within
the meaning of the Bank Holding Company Act of 1956, and the
Georgia Bank Holding Company Act. GBC was organized to
facilitate Gwinnett Banking Companys ability to serve its
customers requirements for financial services. The holding
company structure provides flexibility for expansion of
GBCs banking business through the possible acquisition of
other financial institutions and the provision of additional
banking-related services that the traditional commercial bank
may not provide under present laws.
Gwinnett
Banking Company
Gwinnett Banking Company is a full service commercial bank with
locations at 165 Nash Street, Lawrenceville, Gwinnett County,
Georgia and 11675 Rainwater Drive, Alpharetta, Fulton County,
Georgia. Gwinnett Banking Companys primary service area is
Gwinnett and Fulton Counties, but also serves the adjacent
Georgia counties, or parts thereof, of Cherokee, Cobb, DeKalb,
Forsyth, Fulton, Hall and Walton. The principal business of
Gwinnett Banking Company is to accept deposits from the public
and to make loans and other investments. The principal source of
funds for Gwinnett Banking Companys loans and investments
are demand, time, savings, and other deposits (including
negotiable orders of withdrawal or NOW accounts), amortization
and prepayments of loans and borrowings. The principal sources
of income for Gwinnett Banking Company are interest and fees
collected on loans, interest and dividends collected on other
investments and service charges. The principal expenses of
Gwinnett Banking Company are interest paid on savings and other
deposits (including NOW accounts), interest paid on other
borrowings by Gwinnett Banking Company, employee compensation,
office expenses and other overhead expenses.
29
Industry
and Competition
Gwinnett Banking Company opened its main office in
Lawrenceville, Gwinnett County, Georgia, followed by a second
branch in Alpharetta, Fulton County, Georgia in 2001. Gwinnett
and Fulton Counties boast some of the strongest demographic
growth trends in the nation. Gwinnett Countys population,
for example, is projected to grow at a 23.5% rate from 2005 to
2010. This is significantly faster growth than the 11.3%
projected for Georgia or the 6.3% projected nationally over the
same time period. The 2005 median household income in Gwinnett
County is $71,149 and Fulton County is $61,147, significantly
higher than the $51,646 median income for Georgia and $46,059
for the Southeast.
Gwinnett Banking Company competes with national and state banks,
financial institutions, brokerage firms and credit unions for
loans and deposits. These competitors offer a range of banking
services and compete vigorously to offer these services,
especially deposits. In addition, in certain aspects of its
banking business, Gwinnett Banking Company also competes with
credit unions, small loan companies, consumer finance companies,
brokerage firms, insurance companies, money market funds and
other financial institutions which have recently been invading
traditional banking markets. Gwinnett Banking Company competes
with these institutions primarily on the basis of price and
customer service. The competition has increased significantly
within the past few years as a result of federal and state
legislation deregulating financial institutions. Many of
Gwinnett Banking Companys competitors enjoy competitive
advantages, including greater financial resources, a wider
geographic presence, more accessible branch office locations,
the ability to offer additional services, more favorable pricing
alternatives and lower origination and operating costs. Some of
the competitors have been in business for a long time and have
an established customer base and name recognition.
Employees
Gwinnett Banking Company had 45 full-time and
2 part-time employees as of June 1, 2006. GBC does not
have any employees who are not also employees of Gwinnett
Banking Company.
Supervision
and Regulation
Supervision, regulation and examination of GBC and Gwinnett
Banking Company is intended primarily for the protection of
depositors rather than holders of GBC common stock. GBC is a
bank holding company registered with the Federal Reserve Board
and the Georgia Department of Banking and Finance under the Bank
Holding Company Act of 1956, as amended, (the BHC
Act) and the Georgia Bank Holding Company Act,
respectively. As a result, it is subject to the supervision,
examination and reporting requirements of these acts and the
regulations of the Federal Reserve Board and the Georgia
Department of Banking and Finance issued under these acts.
The BHC Act requires every bank holding company to obtain the
prior approval of the Federal Reserve Board before (1) it
may acquire direct or indirect ownership or control of any
voting shares of any bank if, after the acquisition, the bank
holding company will directly or indirectly own or control more
than five percent of the voting shares of the bank; (2) it
or any of its subsidiaries, other than a bank, may acquire all
or substantially all of the assets of any bank; or (3) it
may merge or consolidate with any other bank holding company.
The Gramm-Leach-Bliley Act (GLB Act) permits bank
holding companies meeting certain management, capital and
community reinvestment standards to engage in a substantially
broader range of non-banking activities than were permitted
previously, including insurance underwriting and merchant
banking activities. The GLB Act repealed sections 20 and 32
of the Glass Steagall Act, permitting affiliations of banks
with securities firms and registered investment companies. The
GLB Act permits banks to be under common control with securities
firms, insurance companies, investment companies and other
financial interests if these companies are subsidiaries of a
financial holding company. Some of these affiliations are also
permissible for bank subsidiaries. The GLB Act includes
significant provisions regarding the privacy of financial
information. These financial privacy provisions generally
require a financial institution to adopt a privacy policy
regarding its practices for sharing nonpublic personal
information and to disclose that policy to its customers, both
at the
30
time the customer relationship is established and at least
annually during the relationship. These provisions also prohibit
the Company from disclosing nonpublic personal financial
information to third parties unless customers have the
opportunity to opt out of the disclosure.
The Federal Reserve Act generally imposes certain limitations on
extensions of credit and other transactions by and between banks
that are members of the Federal Reserve Board and other
affiliates (which includes any holding company of which a bank
is a subsidiary and any other non-bank subsidiary of such
holding company). Banks that are not members of the Federal
Reserve Board also are subject to these limitations. Further,
federal law prohibits a bank holding company and its
subsidiaries from engaging in certain tying arrangements in
connection with any extension of credit, lease or sale of
property or the furnishing of services.
The Federal Deposit Insurance Corporation Improvement Act of
1991 (FDICIA) recapitalized the Bank Insurance Fund
(BIF), of which Gwinnett Banking Company is a
member; substantially revised statutory provisions, including
capital standards; restricted certain powers of state banks;
gave regulators the authority to limit officer and director
compensation; and required holding companies to guarantee the
capital compliance of their banks in certain instances. FDICIA,
among other things, requires the federal banking agencies to
take prompt corrective action with respect to banks
that do not meet minimum capital requirements. FDICIA
established five capital tiers: well capitalized,
adequately capitalized,
undercapitalized, significantly
undercapitalized, and critically
undercapitalized, as defined by regulations adopted by the
Federal Reserve Board, the Federal Deposit Insurance Corporation
(FDIC) and the other federal depository institution
regulatory agencies. A depository institution is well
capitalized if it significantly exceeds the minimum level
required by regulation for each relevant capital measure,
adequately capitalized if it meets such measure,
undercapitalized if it fails to meet any such measure,
significantly undercapitalized if it is significantly below such
measure, and critically undercapitalized if it fails to meet any
critical capital level set forth in the regulations. The
critical capital level must be a level of tangible equity
capital equal to the greater of 2 percent of total tangible
assets or 65 percent of the minimum leverage ratio to be
prescribed by regulation. An institution may be deemed to be in
a capitalization category that is lower than is indicated by its
actual capital position if it receives an unsatisfactory
examination rating. Generally, subject to a narrow exception,
FDICIA requires the banking regulator to appoint a receiver or
conservator for an institution that is critically
undercapitalized. The federal banking agencies have specified by
regulation the relevant capital level for each category.
Under the agency rule implementing the prompt corrective action
provisions, an institution that (i) has a Total Capital
ratio of 10.0% or greater, a Tier 1 Capital ratio of 6.0%
or greater, and a Leverage Ratio of 5.0% or greater and
(ii) is not subject to any written agreement, order,
capital directive, or prompt corrective action directive issued
by the appropriate federal banking agency is deemed to be
well capitalized. An institution with a Total
Capital ratio of 8.0% or greater, a Tier 1 Capital ratio of
4.0% or greater, and a Leverage Ratio of 4.0% or greater is
considered to be adequately capitalized. A
depository institution that has a Total Capital ratio of less
than 8.0%, a Tier 1 Capital ratio of less than 4.0%, or a
Leverage Ratio of less than 4.0% is considered to be
undercapitalized. A depository institution that has
a Total Capital ratio of less than 6.0%, a Tier 1 Capital
ratio of less than 3.0%, or a Leverage Ratio of less than 3.0%
is considered to be significantly undercapitalized,
and an institution that has a tangible equity capital to assets
ratio equal to or less than 2.0% is deemed to be
critically undercapitalized. For purposes of the
regulation, the term tangible equity includes core
capital elements counted as Tier 1 Capital for purposes of
the risk-based capital standards plus the amount of outstanding
cumulative perpetual preferred stock (including related
surplus), minus all intangible assets with certain exceptions. A
depository institution may be deemed to be in a capitalization
category that is lower than is indicated by its actual capital
position if it receives an unsatisfactory examination rating. An
institution that is categorized as undercapitalized,
significantly undercapitalized, or critically undercapitalized
is required to submit an acceptable capital restoration plan to
its appropriate federal banking agency.
Under FDICIA, a bank holding company must guarantee that a
subsidiary depository institution meets its capital restoration
plan, subject to certain limitations. The obligation of a
controlling bank holding company under FDICIA to fund a capital
restoration plan is limited to the lesser of 5.0% of an
undercapitalized subsidiarys assets and the amount
required to meet regulatory capital requirements. An
undercapitalized
31
institution is also generally prohibited from increasing its
average total assets, making acquisitions, establishing any
branches, or engaging in any new line of business, except in
accordance with an accepted capital restoration plan or with the
approval of the FDIC. In addition, the appropriate federal
banking agency is given authority with respect to any
undercapitalized depository institution to take any of the
actions it is required to or may take with respect to a
significantly undercapitalized institution as described below if
it determines that those actions are necessary to carry
out the purpose of FDICIA.
If a depository institution fails to meet regulatory capital
requirements, regulatory agencies can require submission and
funding of a capital restoration plan by the institution, place
limits on its activities, require the raising of additional
capital and, ultimately, require the appointment of a
conservator or receiver for the institution. The obligation of a
controlling bank holding company under FDICIA to fund a capital
restoration plan is limited to the lesser of 5.0% of an
undercapitalized subsidiarys assets or the amount required
to meet regulatory capital requirements. If the controlling bank
holding company fails to fulfill its obligations under FDICIA
and files (or has filed against it) a petition under the Federal
Bankruptcy Code, the FDICs claim may be entitled to a
priority in such bankruptcy proceeding over third party
creditors of the bank holding company.
For those institutions that are significantly undercapitalized
or undercapitalized and either fail to submit an acceptable
capital restoration plan or fail to implement an approved
capital restoration plan, the appropriate federal banking agency
must require the institution to take one or more of the
following actions: (i) sell enough shares, including voting
shares, to become adequately capitalized; (ii) merge with
(or be sold to) another institution (or holding company), but
only if grounds exist for appointing a conservator or receiver;
(iii) restrict certain transactions with banking affiliates
as if the sister bank exception to the requirements
of Section 23A of the Federal Reserve Act did not exist;
(iv) otherwise restrict transactions with bank or non-bank
affiliates; (v) restrict interest rates that the
institution pays on deposits to prevailing rates in the
institutions region; (vi) restrict asset growth or
reduce total assets; (vii) alter, reduce, or terminate
activities; (viii) hold a new election of directors;
(ix) dismiss any director or senior executive officer who
held office for more than 180 days immediately before the
institution became undercapitalized, provided that in requiring
dismissal of a director or senior officer, the agency must
comply with certain procedural requirements, including the
opportunity for an appeal in which the director or officer will
have the burden of proving his or her value to the institution;
(x) employ qualified senior executive officers;
(xi) cease accepting deposits from correspondent depository
institutions; (xii) divest certain non-depository
affiliates which pose a danger to the institution; or
(xiii) be divested by a parent holding company. In
addition, without the prior approval of the appropriate federal
banking agency, a significantly undercapitalized institution may
not pay any bonus to any senior executive officer or increase
the rate of compensation for such an officer without regulatory
approval. At December 31, 2005, GBC and Gwinnett Banking
Company were both well capitalized and were not
subject to any of the foregoing restrictions.
The Community Reinvestment Act of 1977 (CRA) and the
regulations of the Federal Reserve Board and the FDIC
implementing that act are intended to encourage regulated
financial institutions to help meet the credit needs of their
local community or communities, including low and moderate
income neighborhoods, consistent with the safe and sound
operation of such financial institutions. The CRA and its
implementing regulations provide that the appropriate regulatory
authority will assess the records of regulated financial
institutions in satisfying their continuing and affirmative
obligations to help meet the credit needs of their local
communities as part of their regulatory examination of the
institution. The results of such examinations are made public
and are taken into account upon the filing of any application to
establish a domestic branch or to merge or to acquire the assets
or assume the liabilities of a bank. In the case of a bank
holding company, the CRA performance record of the banks
involved in the transaction are reviewed in connection with the
filing of an application to acquire ownership or control of
shares or assets of a bank or to merge with any other bank
holding company. An unsatisfactory record can substantially
delay or block the transaction. Gwinnett Banking Companys
most recent CRA examination was in December 9, 2003 and
Gwinnett Banking Company received a Satisfactory
rating.
The Uniting and Strengthening America by Providing Appropriate
Tools Required to Intercept and Obstruct Terrorism Act of 2001
(the USA Patriot Act) is intended to allow the
federal government to address terrorist threats through enhanced
domestic security measures, expanded surveillance powers,
increased
32
information sharing and broadened anti-money laundering
requirements. Title III of the USA Patriot Act takes
measures intended to encourage information sharing among bank
regulatory agencies and law enforcement bodies. Certain
provisions of Title III impose affirmative obligations on a
broad range of financial institutions, including banks, thrifts,
brokers, dealers, credit unions, money transfer agents and
parties registered under the Commodity Exchange Act.
Among its provisions, the USA Patriot Act requires each
financial institution: (i) to establish an anti-money
laundering program, (ii) to establish due diligence
policies, procedures and controls with respect to its private
banking accounts and correspondent banking accounts involving
foreign individuals and certain foreign banks and (iii) to
avoid establishing, maintaining, administering, or managing
correspondent accounts in the United States for, or on behalf
of, a foreign bank that does not have a physical presence in any
country. In addition, the USA Patriot Act contains a provision
encouraging cooperation among financial institutions, regulatory
authorities and law enforcement authorities with respect to
individuals, entities and organizations engaged in, or
reasonably suspected of engaging in, terrorist acts or money
laundering activities. The federal banking agencies have begun
proposing and implementing regulations interpreting the USA
Patriot Act. Compliance with the USA Patriot Act did not have a
significant impact on the financial condition or results of
operations of GBC and Gwinnett Banking Company.
The Sarbanes-Oxley Act of 2002 (the Sarbanes-Oxley
Act) intended to address systemic and structural
weaknesses of the capital markets in the United States that were
perceived to have contributed to recent corporate scandals. The
Sarbanes-Oxley Act created the Public Company Accounting
Oversight Board (PCAOB) to oversee the conduct of
audits of public companies. The duties of PCAOB include
(i) registering public accounting firms that prepare audit
reports, (ii) establishing auditing, quality control,
ethics, independence and other standards for the preparation of
audit reports, (iii) conducting inspections of registered
public accounting firms and (iv) otherwise promoting high
professional standards among, and improving the quality of audit
services offered by auditors of public companies. The PCAOB is
funded from assessments on public companies and is subject to
the oversight of the SEC. In addition, the Sarbanes-Oxley Act
attempts to strengthen the independence of public company
auditors by, among other things, (i) prohibiting public
company auditors from providing certain non-audit services to
their audit clients, (ii) requiring a companys audit
committee to preapprove all audit and non-audit services being
provided by its independent auditor, (iii) requiring the
rotation of audit partners and (iv) prohibiting an auditor
from auditing a client that has as its chief executive officer,
chief financial officer, chief accounting officer or controller
a person that was employed by the auditor during the previous
year.
The Sarbanes-Oxley Act also attempts to enhance the
responsibility of corporate management by, among other things,
(i) requiring the Chief Executive Officer and Chief
Financial Officer of public companies to provide certain
certifications in their periodic reports regarding the accuracy
of the periodic reports filed with the SEC,
(ii) prohibiting directors and officers of public companies
from fraudulently influencing an accountant engaged in the audit
of the companys financial statements, (iii) requiring
chief executive officers and chief financial officers to forfeit
certain bonuses in the event of a misstatement of financial
results, (iv) prohibiting directors and officers found to
be unfit from serving in a similar capacity with other public
companies, (v) prohibiting directors and officers from
trading in the companys equity securities during pension
blackout periods and (vi) requiring the SEC to issue
standards of professional conduct for attorneys representing
public companies. In addition, public companies whose securities
are listed on a national securities exchange or association must
satisfy the following additional requirements: (i) the
companys audit committee must appoint and oversee the
companys auditors, (ii) each member of the
companys audit committee must be independent,
(iii) the companys audit committee must establish
procedures for receiving complaints regarding accounting,
internal accounting controls and audit-related matters,
(iv) the companys audit committee must have the
authority to engage independent advisors and (v) the
company must provide appropriate funding to its audit committee,
as determined by the audit committee.
The Sarbanes-Oxley Act contains several provisions intended to
enhance the quality of financial disclosures of public
companies, including provisions that (i) require that
financial disclosures reflect all material correcting
adjustments identified by the companys auditors,
(ii) require the disclosure of all material off-balance
sheet transactions, (iii) require the SEC to issue rules
regarding the use by public companies of
33
pro forma financial information, (iv) with certain limited
exceptions, including an exception for financial institutions
making loans in compliance with federal banking regulations,
prohibit public companies from making personal loans to its
directors and officers, (v) with certain limited
exceptions, require directors, officers and principal
shareholders of public companies to report changes in their
ownership in the companys securities within two business
days of the change, (vi) require a companys
management to provide a report of its assessment of the internal
controls of the company in its annual report and requires
auditors to attest to managements assertion of the internal
controls, (vii) require public companies to adopt codes of
conduct for senior financial officers and (viii) require
companies to disclose whether the companys audit committee
has a financial expert as a member.
Under the Sarbanes-Oxley Act, the SEC was directed to adopt
rules designed to protect the independence of research analysts
and to require research analysts to disclose conflicts of
interest and potential conflicts of interest. The Sarbanes-Oxley
Act also directs that certain studies be conducted by the
Comptroller General and the SEC, including studies regarding the
function of credit rating agencies and the role of investment
banks and financial advisers might have on earnings.
Although GBC and Gwinnett Banking Company have incurred
additional expense in complying with the provisions of the
Sarbanes-Oxley Act and the regulations promulgated by the SEC
thereunder, such compliance has not had a material impact on
GBCs or Gwinnett Banking Companys financial
condition or results of operations.
Environmental
Laws
GBC does not anticipate that compliance with environmental laws
and regulations will have any material effect on capital,
expenditures, earnings, or on its competitive position. However,
environmentally related hazards have become a source of high
risk and potentially unlimited liability for financial
institutions. Environmentally contaminated properties owned by
an institutions borrowers may result in a drastic
reduction in the value of the collateral securing the
institutions loans to such borrowers, and liability to the
institution for
clean-up
costs if it forecloses on the contaminated property. GBC is not
aware of any borrower who is currently subject to any
environmental investigation or
clean-up
proceeding that is likely to have a materially adverse effect on
the financial condition or results of operations of GBC.
Properties
Gwinnett Banking Company leases its main office located at 165
Nash Street, Lawrenceville, Gwinnett County, Georgia. Gwinnett
Banking Company also leases its branch banking offices located
at 11675 Rainwater Drive, Suite 150, Alpharetta, Fulton
County, Georgia 30004. All leased property is in good order and
condition. Please see The Merger GBCs
Directors and Officers Have Financial Interests in the
Merger Purchase of GBC Main Office.
Legal
Proceedings
GBC is subject to claims and litigation in the ordinary course
of business. GBC believes that any pending claims and litigation
will not have a material adverse effect on its consolidated
position.
Market
Price of and Dividends on GBCs Common Stock and Related
Shareholder Matters
Shares of GBC common stock are thinly traded on the OTC
Bulletin Board under the symbol GBCP.OB.
As of June 1, 2006, there were approximately 750 holders of
GBC common stock. To date, GBC has not paid any dividends. Under
the terms of the merger agreement, GBC may not pay cash
dividends on its common stock.
34
No
Changes in or Disagreements with Accountants on Accounting and
Financial Disclosure
During GBCs two most recent fiscal years and all
subsequent interim periods, there were no changes in its
accountants or any disagreements with its accountants on any
matter of accounting principal or practice, financial statement
disclosure, or auditing scope or procedure. Further, the
accountants reports on GBCs financial statements for
the two most recent fiscal years did not contain an adverse
opinion or disclaimer of opinion and were not qualified or
modified as to uncertainty, audit scope or accounting principal.
GBC
Bancorp, Inc. Managements Discussion and Analysis of
Financial Condition
and Results of Operations
General
The following is GBCs managements discussion and
analysis of certain significant factors that have affected the
financial position and operating results of GBC and Gwinnett
Banking Company, during the periods included in the accompanying
audited consolidated financial statements as of and for the
years ended December 31, 2005 and December 31, 2004
and the unaudited consolidated financial statements as of and
for the three months ended March 31, 2006 and
March 31, 2005. The purpose of this discussion is to focus
on information about GBCs financial condition and results
of operations that are not otherwise apparent from these
financial statements. Reference should be made to these
financial statements contained in Appendix E and the
selected financial data presented elsewhere in this Proxy
Statement/Prospectus for an understanding of the following
discussion and analysis.
Critical
Accounting Policies
GBC has adopted various accounting policies that govern the
application of accounting principles generally accepted in the
United States in the preparation of GBCs financial
statements. GBCs significant accounting policies are
described in the footnotes to the audited consolidated financial
statements included in this proxy statement/prospectus.
Certain accounting policies involve significant judgments and
assumptions by GBC which have a material impact on the carrying
value of certain assets and liabilities. GBC considers these
accounting policies to be critical accounting policies. The
judgments and assumptions GBC uses are based on historical
experience and other factors, which GBC believes to be
reasonable under the circumstances. Because of the nature of the
judgments and assumptions GBC makes, actual results could differ
from these judgments and estimates which could have a material
impact on GBCs carrying values of assets and liabilities
and GBCs results of operations.
GBC believes the allowance for loan losses is a critical
accounting policy that requires the most significant judgments
and estimates used in preparation of GBCs consolidated
financial statements. Please see Provision for
Loan Losses, below, for a description of GBCs
processes and methodology for determining GBCs allowance
for loan losses.
Managements
Discussion and Analysis for the Three Months Ended
March 31, 2006 and March 31, 2005
GBCs results for the first three months of 2006 were
highlighted by continued increased profitability to
approximately $1,570,000, compared to approximately $1,236,000
for the first three months of 2005, along with continued quality
growth of over $38 million in total assets during the
quarter.
Liquidity
and Capital Resources
The purpose of liquidity management is to ensure that there are
sufficient cash flows to satisfy demands for credit, deposit
withdrawals, and other needs. Traditional sources of liquidity
include asset maturities and growth in core deposits. A company
may achieve its desired liquidity objectives from the management
of assets and liabilities and through funds provided by
operations. Funds invested in short-term marketable instruments
and the continuous maturing of other earning assets are sources
of liquidity from the asset
35
perspective. The liability base provides sources of liquidity
through deposit growth, the maturity structure of liabilities,
and accessibility to market sources of funds.
Scheduled loan payments are a relatively stable source of funds,
but loan payoffs and deposit flows fluctuate significantly,
being influenced by interest rates and general economic
conditions and competition. GBC attempts to price deposits to
meet asset/liability objectives consistent with local market
conditions.
GBCs liquidity is monitored on a periodic basis by
management and State and Federal regulatory authorities. GBC
monitors its liquidity requirements under two categories,
operational needs and emergency needs. The operational needs
category establishes the cash requirements to sufficiently
fund GBCs deposit reserve requirements and pay
operating expenses. The emergency need category establishes
sufficient cash requirements to fund the volatility of deposits.
As determined under these categories, GBCs liquidity as of
March 31, 2006 was considered satisfactory.
In the future, the primary source of funds available to GBC will
be the payment of dividends by Gwinnett Banking Company. Banking
regulations limit the amount of the dividends that may be paid
without prior approval of Gwinnett Banking Companys
regulatory agency. Currently, Gwinnett Banking Company could pay
approximately a $3,100,000 dividend without regulatory approval.
At March 31, 2006, GBCs capital ratios were adequate
based on regulatory minimum capital requirements. The minimum
capital requirements and the actual capital ratios on a
consolidated and bank-only basis are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Actual
|
|
Well-
|
|
|
|
|
Gwinnett Banking
|
|
Capitalized
|
|
|
GBC
|
|
Company Only
|
|
Requirement
|
|
Leverage ratios
|
|
|
8.81
|
%
|
|
|
8.53
|
%
|
|
|
5.00
|
%
|
Risk-based capital ratios:
|
|
|
|
|
|
|
|
|
|
|
|
|
Tier 1 capital
|
|
|
9.65
|
%
|
|
|
9.35
|
%
|
|
|
6.00
|
%
|
Total capital
|
|
|
9.78
|
%
|
|
|
10.48
|
%
|
|
|
10.00
|
%
|
These ratios may decline as asset growth continues, but are
expected to exceed regulatory minimum requirements. GBC believes
that anticipated future earnings will assist in keeping these
ratios at satisfactory levels.
GBC believes that its liquidity and capital resources will be
adequate and will meet its foreseeable short and long-term
needs. GBC anticipates that it will have sufficient funds
available to meet current loan commitments and to fund or
refinance, on a timely basis, GBCs other material
commitments and liabilities.
GBC management is not aware of any known trends, events or
uncertainties, other than those discussed above, that will have
or that are reasonably likely to have a material effect on
GBCs liquidity, capital resources or operations.
Management is also not aware of any current recommendations by
regulatory authorities that, if they were implemented, would
have such an effect.
At March 31, 2006, GBC had no material commitments for
capital expenditures.
Off-Balance
Sheet Arrangements
GBC is a party to financial instruments with off-balance sheet
risk in the normal course of business to meet the financing
needs of GBCs customers. These financial instruments
include commitments to extend credit and standby letters of
credit. Such commitments involve, to varying degrees, elements
of credit risk and interest rate risk in excess of the amount
recognized in the balance sheet.
GBCs exposure to credit loss in the event of
nonperformance by the other party to the financial instrument
for commitments to extend credit and standby letters of credit
is represented by the contractual
36
amount of those instruments. GBC uses the same credit policies
in making commitments and conditional obligations as it does for
on-balance sheet instruments. A summary of GBCs
commitments is as follows:
|
|
|
|
|
|
|
March 31, 2006
|
|
|
Commitments to extend credit
|
|
$
|
141,831,436
|
|
Letters of credit
|
|
|
4,993,607
|
|
|
|
|
|
|
|
|
$
|
146,825,043
|
|
|
|
|
|
|
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. 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 amount of collateral obtained, if deemed
necessary by GBC upon extension of credit, is based on
GBCs credit evaluation of the customer.
Standby letters of credit are conditional commitments issued by
GBC to guarantee the performance of a customer to a third party.
Those letters of credit are primarily issued to support public
and private borrowing arrangements. The credit risk involved in
issuing letters of credit is essentially the same as that
involved in extending loans to customers. Collateral is required
in instances which GBC deems necessary.
Related
Party Transactions
Directors and officers of GBC and their affiliates, including
members of their families or businesses and other organizations
with which they are associated, have banking and other
transactions in the ordinary course of business with Gwinnett
Banking Company. It is the policy of Gwinnett Banking Company
that any loans or other transactions with those persons or
entities (i) be made in accordance with applicable law and
Gwinnett Banking Companys lending policies, (ii) be
made on substantially the same terms, including price, interest
rates and collateral, as those prevailing at the time for
comparable transactions with other unrelated parties of similar
standing, and (iii) not be expected to involve more than
the normal risk of collectability or present other unfavorable
features to the GBC and Gwinnett Banking Company. In addition,
all transactions with directors and officers of GBC and their
affiliates are intended to be on terms no less favorable than
could be obtained from an unaffiliated third party, and must be
approved by a majority of the directors of GBC, including a
majority of the directors who do not have an interest in the
transaction.
GBC leases its main office banking facilities under a
noncancelable operating lease agreement from GBC Properties,
LLC, a limited liability company owned by several members of the
GBC board of directors. The lease term is for 15 years with
the monthly rental payment adjusting every fifth year for
changes in the Consumer Price Index. The lease agreement
requires GBC to pay normal operating and occupancy expenses of
the facilities. Prior to the transaction with First Charter, GBC
and GBC Properties, LLC reached an understanding whereby the GBC
main office banking facilities would be sold to GBC in the event
of a change in control of GBC. The merger agreement requires
that such purchase occur prior to the consummation of the
merger. Please see The Merger GBCs
Directors and Officers Have Financial Interests in the
Merger Purchase of GBC Main Office.
37
Financial
Condition as of March 31, 2006 and December 31,
2005
Following is a summary of GBCs balance sheet for the
periods indicated:
|
|
|
|
|
|
|
|
|
|
|
March 31,
|
|
|
December 31,
|
|
|
|
2006
|
|
|
2005
|
|
|
|
(Dollars in thousands)
|
|
|
Cash and due from banks
|
|
$
|
7,049
|
|
|
$
|
3,801
|
|
Federal funds sold
|
|
|
18,735
|
|
|
|
16,656
|
|
Securities
|
|
|
32,114
|
|
|
|
32,411
|
|
Loans, net
|
|
|
348,268
|
|
|
|
315,453
|
|
Premises and equipment
|
|
|
293
|
|
|
|
293
|
|
Other assets
|
|
|
11,863
|
|
|
|
11,092
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
418,322
|
|
|
$
|
379,706
|
|
|
|
|
|
|
|
|
|
|
Deposits
|
|
$
|
375,430
|
|
|
$
|
341,171
|
|
Securities sold under repurchase
agreements
|
|
|
2,772
|
|
|
|
829
|
|
Other liabilities
|
|
|
5,680
|
|
|
|
4,713
|
|
Shareholders equity
|
|
|
34,440
|
|
|
|
32,993
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
418,322
|
|
|
$
|
379,706
|
|
|
|
|
|
|
|
|
|
|
GBCs total assets increased by 10.17% for the first three
months of 2006. Deposit growth of approximately $34,259,000 was
invested primarily in the interest earning categories of loans
and federal funds sold. GBC increases its deposits in response
to increases in loans. GBCs net loan to deposit ratio
increased to 92.77% at March 31, 2006 from 92.46% at
December 31, 2005. GBCs total equity increased by
year-to-date
net income of approximately $1,570,000 and decreased by an
unrealized loss on securities
available-for-sale,
net of tax, of approximately $123,000.
GBCs securities portfolio, consisting of U.S. Agency,
State, County and Municipals, and mortgage-backed securities,
amounted to approximately $32,114,000 at March 31, 2006.
Unrealized losses on securities amounted to approximately
$876,000 at March 31, 2006, as compared to an unrealized
loss of approximately $705,000 at December 31, 2005.
Management has not specifically identified any securities for
sale in future periods that, if so designated, would require a
charge to operations if the market value would not be reasonably
expected to recover prior to the time of sale.
GBC has approximately 80% of its loan portfolio collateralized
by real estate located in its primary market area of Gwinnett
and Fulton Counties, Georgia and surrounding counties.
GBCs real estate construction portfolio consists of loans
collateralized by loans to build
one-to-four-family
residential properties. GBC generally requires that loans
collateralized by real estate not exceed 80%-85% of the
collateral value.
The remaining approximately 20% of the loan portfolio consists
of commercial, consumer, and other loans. GBC requires
collateral commensurate with the repayment ability and
creditworthiness of the borrower.
The specific economic and credit risks associated with
GBCs loan portfolio, especially the real estate portfolio,
include, but are not limited to, a general downturn in the
economy which could affect unemployment rates in GBCs
market area, general real estate market deterioration, interest
rate fluctuations, deteriorated or non-existing collateral,
title defects, inaccurate appraisals, financial deterioration of
borrowers, fraud, and any violation of banking protection laws.
Construction lending can also present other specific risks to
the lender such as whether the builders can obtain financing for
the construction, whether the builders can sell the home to a
buyer, and whether the buyer can obtain permanent financing.
GBC attempts to reduce these economic and credit risks not only
by adhering to loan to value guidelines, but also by
investigating the creditworthiness of the borrower and
monitoring the borrowers financial position. Also, GBC
establishes and periodically reviews its lending policies and
procedures as well as having independent loan review. State
banking regulations limit exposure by prohibiting secured loan
relationships
38
that exceed 25% of Gwinnett Banking Companys statutory
capital and unsecured loan relationships that exceed 15% of
Gwinnett Banking Companys statutory capital.
Results
of Operations for the Three Months Ended March 31, 2006 and
2005
Following is a summary of GBCs operations for the periods
indicated:
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
|
March 31,
|
|
|
|
2006
|
|
|
2005
|
|
|
|
(Dollars in thousands)
|
|
|
Interest income
|
|
$
|
8,052
|
|
|
$
|
5,348
|
|
Interest expense
|
|
|
3,365
|
|
|
|
1,789
|
|
|
|
|
|
|
|
|
|
|
Net interest income
|
|
|
4,687
|
|
|
|
3,559
|
|
Provision for loan losses
|
|
|
451
|
|
|
|
256
|
|
Other income
|
|
|
444
|
|
|
|
698
|
|
Other expense
|
|
|
2,201
|
|
|
|
2,063
|
|
|
|
|
|
|
|
|
|
|
Pre-tax income
|
|
|
2,479
|
|
|
|
1,938
|
|
Income tax
|
|
|
909
|
|
|
|
702
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
1,570
|
|
|
$
|
1,236
|
|
|
|
|
|
|
|
|
|
|
GBCs net interest income increased by approximately
$1,128,000 for the first three months of 2006 as compared to the
same period in 2005. GBCs net interest margin increased to
4.79% during the first three months of 2006 as compared to 4.66%
for the first three months of 2005. The increase in net interest
income is due primarily to the increased volume of average
loans, the increase in prime interest rate and related loan
fees. The increased volume of average loans is attributable to
increased economic activity in GBCs primary markets. The
increase in the net interest margin is due to the increase in
the prime interest rate along with a smaller increase in cost of
funds. GBCs cost of funds increased to 4.10% in the first
three months of 2006 as compared to 2.79% in the first three
months of 2005.
The provision for loan losses increased by approximately
$195,000 for the first three months of 2006 as compared to the
same period in 2005. The amounts provided are due primarily to
overall loan growth, as well as GBCs assessment of the
inherent risk in the loan portfolio. Based upon GBCs
evaluation of the loan portfolio, it believes the allowance for
loan losses to be adequate to absorb losses on existing loans
that may become uncollectible. GBCs evaluation considers
significant factors relative to the credit risk and loss
exposure in the loan portfolio, including past due and
classified loans, past experience, underlying collateral values,
and current economic conditions that may affect the
borrowers ability to repay. The allowance for loan losses
is evaluated by segmenting the loan portfolio into unclassified
and classified loans. The unclassified loans are further
segmented by loan type with an allowance percentage applied to
each type in order to establish a general allowance for loan
losses. The allowance percentage determined is based upon
GBCs experience specifically and the historical experience
of the banking industry generally. Due to improvements in the
economic environment, the historical experience of low losses
and the maturing of the loan portfolio, management may decrease
the general allowances for loan losses in the future. The
classified loans, including impaired loans, are analyzed
individually in order to establish a specific allowance for
losses. The allowance for loan losses as a percentage of total
loans was 1.16% at March 31, 2006 and December 31,
2005.
39
Information with respect to nonaccrual, past due and
restructured loans is as follows:
|
|
|
|
|
|
|
|
|
|
|
March 31,
|
|
|
|
2006
|
|
|
2005
|
|
|
|
(Dollars in thousands)
|
|
|
Nonaccrual loans
|
|
$
|
1,461
|
|
|
$
|
2,229
|
|
Loans contractually past due
90 days or more as to interest or principal payments and
still accruing
|
|
|
0
|
|
|
|
0
|
|
Restructured loans
|
|
|
279
|
|
|
|
304
|
|
Potential problem loans
|
|
|
2,358
|
|
|
|
2,551
|
|
Interest income that would have
been recorded on nonaccrual and restructured loans under
original terms
|
|
|
65
|
|
|
|
97
|
|
Interest income that was recorded
on nonaccrual and restructured loans
|
|
|
24
|
|
|
|
38
|
|
Potential problem loans are defined as loans about which GBC has
serious doubts as to the ability of the borrower to comply with
the present loan repayment terms and which may cause the loan to
be placed on nonaccrual status, to become past due more than
90 days, or to be restructured.
It is GBCs policy to discontinue the accrual of interest
income when, in the opinion of management, collection of
interest becomes doubtful. Management considers the collection
of interest doubtful when (1) there is a significant
deterioration in the financial condition of the borrower and
full repayment of principal and interest is not expected and
(2) the principal or interest is more than 90 days
past due, unless the loan is both well-secured and GBC is in the
process of collection.
Loans classified for regulatory purposes as loss, doubtful,
substandard, or special mention that have not been included in
the table above do not represent or result from trends or
uncertainties which management reasonably expects will
materially impact future operating results, liquidity, or
capital resources. These classified loans do not represent
material credits about which management is aware of any
information, which causes management to have serious doubts as
to the ability of such borrowers to comply with the loan
repayment terms.
Information regarding certain loans and allowance for loan loss
data is as follows:
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
|
March 31,
|
|
|
|
2006
|
|
|
2005
|
|
|
|
(Dollars in thousands)
|
|
|
Average amount of loans outstanding
|
|
$
|
345,795
|
|
|
$
|
264,611
|
|
|
|
|
|
|
|
|
|
|
Balance of allowance for loan
losses at beginning of period
|
|
$
|
3,701
|
|
|
$
|
3,775
|
|
|
|
|
|
|
|
|
|
|
Loans charged off Commercial and
financial
|
|
$
|
0
|
|
|
$
|
573
|
|
Real estate construction
|
|
|
0
|
|
|
|
0
|
|
Installment
|
|
|
0
|
|
|
|
0
|
|
Other
|
|
|
69
|
|
|
|
333
|
|
|
|
|
|
|
|
|
|
|
|
|
|
69
|
|
|
|
906
|
|
|
|
|
|
|
|
|
|
|
Loans recovered Commercial and
financial
|
|
|
0
|
|
|
|
0
|
|
Real estate construction
|
|
|
0
|
|
|
|
0
|
|
Other
|
|
|
10
|
|
|
|
0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10
|
|
|
|
0
|
|
|
|
|
|
|
|
|
|
|
Net charge-offs
|
|
|
59
|
|
|
|
906
|
|
|
|
|
|
|
|
|
|
|
Additions to allowance charged to
operating expense during period
|
|
|
451
|
|
|
|
256
|
|
|
|
|
|
|
|
|
|
|
Balance of allowance for loan
losses at end of period
|
|
$
|
4,093
|
|
|
$
|
3,125
|
|
|
|
|
|
|
|
|
|
|
Ratio of net loans charged off
during the period to average loans outstanding
|
|
|
.02
|
%
|
|
|
.34
|
%
|
|
|
|
|
|
|
|
|
|
40
Net charge-offs for the three months ended March 31, 2006
were substantially less than net charge-offs for the three
months ended March 31, 2005 due to the fact that GBC
charged-off two major banking relationships during the three
months ended March 31, 2005. The net charge-offs for the
three months ended March 31, 2006 represent a return to
more typical net charge-offs.
Other income decreased by approximately $254,000 for the three
months ended March 31, 2006 as compared to the same period
in 2005. Decreased gain on sale of loans of approximately
$361,000 created the
year-to-date
decrease. The decrease is due to a provisional decreased
activity in the Small Business Administration (SBA) loan program
during the first three months of 2006.
Other expenses increased by approximately $138,000 for the first
three months of 2006 as compared to the same period in 2005.
Salaries and employee benefits have increased by approximately
$185,000 during this period due to an increase in the number of
full time equivalent employees to 46 as of March 31, 2006
from 42 as of March 31, 2005, and to other annual salary
increases. Equipment and occupancy expenses decreased by $32,000
due to the fact that the renewed lease contract included free
rent for first six months of 2006. Other operating expenses have
decreased by approximately $15,000, during this period due to a
decrease in professional fees.
GBC has provided for income taxes at an effective tax rate of
37% for the first three months of 2006 as compared to 36% for
the first three months of 2005.
GBC is not aware of any known trends, events or uncertainties,
other than the effect of events as described above, that will
have or that are reasonably likely to have a material effect on
GBCs liquidity, capital resources or operations. GBC is
also not aware of any current recommendations by regulatory
authorities, which, if they were implemented, would have such an
effect.
Managements
Discussion and Analysis for the Years Ended December 31,
2005, and December 31, 2004
Financial
Condition at December 31, 2005, and December 31,
2004
Following is a summary of GBCs balance sheet for the years
indicated:
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2005
|
|
|
2004
|
|
|
|
(Dollars in thousands)
|
|
|
Cash and due from banks
|
|
$
|
3,801
|
|
|
$
|
5,390
|
|
Federal funds sold
|
|
|
16,656
|
|
|
|
17,694
|
|
Securities
|
|
|
32,411
|
|
|
|
31,000
|
|
Loans, net
|
|
|
315,453
|
|
|
|
248,801
|
|
Premises and equipment
|
|
|
293
|
|
|
|
378
|
|
Other assets
|
|
|
11,092
|
|
|
|
10,672
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
379,706
|
|
|
$
|
313,935
|
|
|
|
|
|
|
|
|
|
|
Total deposits
|
|
$
|
341,171
|
|
|
$
|
282,336
|
|
Securities sold under repurchase
agreements
|
|
|
830
|
|
|
|
1,820
|
|
Other liabilities
|
|
|
4,712
|
|
|
|
3,040
|
|
Shareholders equity
|
|
|
32,993
|
|
|
|
26,739
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
379,706
|
|
|
$
|
313,935
|
|
|
|
|
|
|
|
|
|
|
As of December 31, 2005, GBC had total assets of
approximately $380 million, an increase of 21% over
December 31, 2004. Total interest-earning assets were
approximately $365 million at December 31, 2005, or
96% of total assets, as compared to 95% of total assets at
December 31, 2004. GBCs primary interest-earning
assets at December 31, 2005, were loans, which made up 86%
of total interest-earning assets, as compared to 84% at
December 31, 2004. GBCs loan to deposit ratio was 92%
at December 31, 2005, as compared to 88% at
December 31, 2004. Deposit growth of approximately
$59 million as of December 31, 2005 compared to
41
December 31, 2004, along with the decrease in cash and due
from banks and federal funds funded the increase in investments
of $1.4 million and the increase in loans of
$67 million. GBC increases its deposits in response to
increases in loans.
GBCs securities portfolio, consisting of U.S. Agency,
State and municipal, and mortgage-backed securities, amounted to
approximately $32 million at December 31, 2005 as
compared to approximately $31 million at December 31,
2004. Net unrealized losses on securities amounted to
approximately $705,000 at December 31, 2005, as compared to
unrealized gains of approximately $82,000 at December 31,
2004. Management has not specifically identified any securities
for sale in future periods that, if so designated, would require
a charge to operations if the market value would not be
reasonably expected to recover prior to the time of sale.
Approximately 79% of GBCs loan portfolio is collateralized
by real estate located in GBCs primary market area of
Gwinnett County, Georgia and surrounding counties. GBCs
real estate construction portfolio consists of loans
collateralized by loans to build one- to four-family residential
properties. GBC generally requires that loans collateralized by
real estate not exceed 80%-85% of the collateral value.
The remaining approximately 21% of the loan portfolio consists
of commercial, consumer, and other loans. GBC requires
collateral commensurate with the repayment ability and
creditworthiness of the borrower.
The specific economic and credit risks associated with
GBCs loan portfolio, especially the real estate portfolio,
include, but are not limited to, a general downturn in the
economy which could affect unemployment rates in GBCs
market area, general real estate market deterioration, interest
rate fluctuations, deteriorated or non-existing collateral,
title defects, inaccurate appraisals, financial deterioration of
borrowers, fraud, and any violation of banking protection laws.
Construction lending can also present other specific risks to
the lender such as whether the builders can obtain financing for
the construction, whether the builders can sell the home to a
buyer, and whether the buyer can obtain permanent financing.
GBC attempts to reduce these economic and credit risks not only
by adhering to loan to value guidelines, but also by
investigating the creditworthiness of the borrower and
monitoring the borrowers financial position. Also, GBC
establishes and periodically reviews its lending policies and
procedures as well as having independent loan review. State
banking regulations limit exposure by prohibiting secured loan
relationships that exceed 25% of Gwinnett Banking Companys
statutory capital and unsecured loan relationships that exceed
15% of Gwinnett Banking Companys statutory capital.
Liquidity
and Capital Resources
At December 31, 2005, GBCs capital ratios were
considered adequate based on regulatory minimum capital
requirements. GBCs shareholders equity increased by
approximately $6,254,000 due to net income in 2005 of
approximately $6,201,000 and proceeds from the exercise of stock
options of $541,000. These increases partially offset by a
decrease in other comprehensive income related to GBCs
securities of approximately $488,000. For regulatory purposes,
the net unrealized gains on securities
available-for-sale
are excluded in the computation of the capital ratios.
The primary source of funds available to GBC will be the payment
of dividends by Gwinnett Banking Company. Banking regulations
limit the amount of the dividends that may be paid without prior
approval of Gwinnett Banking Companys regulatory agency.
The minimum capital requirements to be considered well
capitalized under prompt corrective action provisions and the
actual capital ratios for GBC and Gwinnett Banking Company as of
December 31, 2005, are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Actual
|
|
Well-
|
|
|
|
|
Gwinnett Banking
|
|
Capitalized
|
|
|
GBC
|
|
Company Only
|
|
Requirement
|
|
Leverage ratios
|
|
|
9.08
|
%
|
|
|
8.77
|
%
|
|
|
5.00
|
%
|
Risk-based capital ratios:
|
|
|
|
|
|
|
|
|
|
|
|
|
Tier 1 capital
|
|
|
9.88
|
%
|
|
|
9.55
|
%
|
|
|
6.00
|
%
|
Total capital
|
|
|
10.98
|
%
|
|
|
10.65
|
%
|
|
|
10.00
|
%
|
42
At December 31, 2005, GBC had no material commitments for
capital expenditures.
Off-Balance
Sheet Arrangements
GBC is party to financial instruments with off-balance sheet
risk in the normal course of business to meet the financing
needs of GBCs customers. These financial instruments
include commitments to extend credit and standby letters of
credit. Such commitments involve, to varying degrees, elements
of credit risk and interest rate risk in excess of the amount
recognized in the balance sheet.
GBCs exposure to credit loss in the event of
nonperformance by the other party to the financial instrument
for commitments to extend credit and standby letters of credit
is represented by the contractual amount of those instruments.
GBC uses the same credit policies in making commitments and
conditional obligations as it does for on-balance sheet
instruments. A summary of GBCs commitments as of
December 31, 2005 and December 31, 2004 is as follows:
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2005
|
|
|
2004
|
|
|
Letters of credit
|
|
$
|
4,606,625
|
|
|
$
|
4,607,425
|
|
Commitments to extend credit
|
|
|
115,581,935
|
|
|
|
98,888,244
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
120,188,560
|
|
|
$
|
103,495,669
|
|
|
|
|
|
|
|
|
|
|
Letters of credit are conditional commitments that GBC issues to
guarantee the performance of a customer to a third party. Those
letters of credit are primarily issued to support public and
private borrowing arrangements. The credit risk involved in
issuing letters of credit is essentially the same as that
involved in extending loans to customers. Collateral is required
in instances which GBC deems necessary. At December 31,
2005, GBC had arrangements with four commercial banks for
additional short-term advances of $25,200,000.
Commitments to extend credit are agreements to lend to a
customer as long as there is no violation of any condition
established in the contract. Because these commitments generally
have fixed expiration dates and many will expire without being
drawn on, the total commitment amounts do not necessarily
represent future cash requirements. The amount of collateral
obtained, if GBC deems it necessary in connection with the
extension of credit, is based on GBCs credit evaluation of
the borrower. If needed, GBC has the ability on a short-term
basis to borrow funds and purchase Federal funds from other
financial institutions.
Effects
of Inflation
The impact of inflation on banks differs from its impact on
non-financial institutions. Banks, as financial intermediaries,
have assets that are primarily monetary in nature and that tend
to fluctuate in concert with inflation. A bank can reduce the
impact of inflation if it can manage its rate sensitivity gap.
This gap represents the difference between rate sensitive assets
and rate sensitive liabilities. GBC, through its asset/liability
committee, attempts to structure the assets and liabilities and
manage the rate sensitivity gap, thereby seeking to minimize the
potential effects of inflation. For information on the
management of GBCs interest rate sensitive assets and
liabilities, see Asset/Liability
Management, below.
GBC does not engage in any transactions or have relationships or
other arrangements with an unconsolidated entity. These include
special purpose and similar entities or other off-balance sheet
arrangements. GBC also does not trade in energy, weather or
other commodity-based contracts.
43
Results
of Operations for the Years Ended December 31, 2005 and
December 31, 2004
The following is a summary of GBCs operations for the
years indicated.
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2005
|
|
|
2004
|
|
|
|
(Dollars in thousands)
|
|
|
Interest income
|
|
$
|
25,192
|
|
|
$
|
16,849
|
|
Interest expense
|
|
|
9,324
|
|
|
|
5,625
|
|
|
|
|
|
|
|
|
|
|
Net interest income
|
|
|
15,868
|
|
|
|
11,224
|
|
Provision for loan losses
|
|
|
853
|
|
|
|
798
|
|
Other income
|
|
|
2,983
|
|
|
|
1,815
|
|
Other expenses
|
|
|
8,356
|
|
|
|
7,209
|
|
|
|
|
|
|
|
|
|
|
Pre-tax income
|
|
|
9,642
|
|
|
|
5,032
|
|
|
|
|
|
|
|
|
|
|
Income taxes
|
|
|
3,441
|
|
|
|
1,709
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
6,201
|
|
|
$
|
3,323
|
|
|
|
|
|
|
|
|
|
|
Net
Interest Income
GBCs results of operations are determined by GBCs
ability to manage interest income and expense effectively, to
minimize loan and investment losses, to generate non-interest
income, and to control operating expenses. Because interest
rates are determined by market forces and economic conditions
beyond GBCs control, GBCs ability to generate net
interest income depends on GBCs ability to obtain an
adequate net interest spread between the rate GBC pays on
interest-bearing liabilities and the rate GBC earns on
interest-earning assets.
GBCs net yield on average interest-earning assets was
4.75% in 2005, as compared to 4.17% in 2004. Average loans
increased by approximately $57 million, which accounted for
the most significant change in the approximately
$64 million increase in total average interest-earning
assets. Average interest-bearing liabilities increased by
approximately $55 million, with average interest-bearing
demand and time deposits accounting for the vast majority of
this increase. The rate earned on average interest-earning
assets increased to 7.57% in 2005 from 6.26% in 2004. The rate
paid on average interest-bearing liabilities increased to 3.30%
in 2005 from 2.47% in 2004. The increase in net yield was due
primarily to the rising rate environment experienced during
2005. As GBCs rates continue to increase on average
interest-earning assets, GBC expects to see its net yield
continue to increase. The increase in net income is due to
continued strong loan demand from GBCs primary markets
coupled with the increase in net yield.
Provision
for Loan Losses
The provision for loan losses was $853,000 in 2005, as compared
to $798,000 in 2004. The increase in the amounts provided were
due primarily to the change in the inherent risk in the loan
portfolio. GBC had $926,000 in net charge-offs in 2005, as
compared to $52,000 in net charge-offs in 2004. As of
December 31, 2005, GBC had $1,961,000 of nonperforming
loans or assets, as compared to $2,145,000 at December 31,
2004. Through GBCs eighth full year of operations, GBC has
incurred no significant loan losses. Based on GBCs
evaluation of the loan portfolio, GBC believes the allowance for
loan losses to be adequate to absorb losses on existing loans
that may become uncollectible. GBCs evaluation considers
significant factors relative to the credit risk and loss
exposure in the loan portfolio, including past due and
classified loans, past experience, underlying collateral values,
and current economic conditions that may affect the
borrowers ability to repay. The allowance for loan losses
is evaluated by segmenting the loan portfolio into unclassified
and classified loans. The unclassified loans are further
segmented by loan type with an allowance percentage applied to
each type in order to establish a general allowance for loan
losses. The allowance percentage determined is based on
GBCs experience specifically and the historical experience
of the banking industry generally. The classified loans,
including impaired loans, are analyzed individually in order to
establish a specific allowance for losses. The allowance for
loan losses as a percentage of total loans at December 31,
44
2005 was 1.16%, as compared to 1.49% at December 31, 2004.
The increase in this percentage is primarily the result of
having more of GBCs own historical experience on which to
base GBCs evaluation of the adequacy of the allowance for
loan losses.
Other
Income
Other income consists of service charges on deposit accounts,
mortgage loan origination fees, gain on sale of SBA loans and
other miscellaneous revenue and fees. Other income of
approximately $2,983,000 increased by approximately $1,168,000
in 2005 from approximately $1,815,000 in 2004. This net increase
is due to a increase in service charges on deposit accounts of
approximately $8,000, a decrease in mortgage loan origination
fees of approximately $1,000, an increase in gains on sale of
SBA loans of approximately $723,000, an increase in SBA
servicing fees of $384,000, a decrease in income recognized on
life insurance policies of approximately $2,000, and an increase
in other miscellaneous revenues and fees of approximately
$56,000.
Other
Expenses
Other expenses were approximately $8,356,000 in 2005, as
compared to approximately $7,209,000 in 2004, an increase of
approximately $1,147,000. Salaries and employee benefits
increased by approximately $669,000 due to the annual salary
increase to all employees and the increase in commissions paid
on SBA premiums. Equipment and occupancy expenses decreased by
approximately $26,000, due primarily to decreased property taxes
and decrease in depreciation. Other operating expenses increased
by approximately $504,000, due primarily to a $34,000 increase
in data processing costs, $248,000 increase in director fees,
$46,000 increase in broker fees, $65,000 increase in
professional fees, $58,000 increase in business license, $35,000
increase in contributions and a $18,000 increase in other
operating costs. The overall increase in other expenses is
primarily attributable to the growth of Gwinnett Banking Company.
Income
Tax
GBC has reported income tax expense for 2005 of $3,441,000, as
compared to $1,709,000 in 2004. GBCs effective income tax
rate was 36% in 2005 and 34% in 2004.
Asset/Liability
Management
GBCs objective is to manage assets and liabilities to
provide a satisfactory, consistent level of profitability within
the framework of established cash, loan, investment, borrowing
and capital policies. Specific officers are charged with the
responsibility for monitoring policies and procedures that are
designed to ensure acceptable composition of the asset/liability
mix. GBCs managements overall philosophy is to
support asset growth primarily through growth on core deposits
of all categories made by local individuals, partnerships and
corporations.
GBCs asset/liability mix is monitored on a regular basis
with a report reflecting the interest rate-sensitive assets and
interest rate-sensitive liabilities being prepared and presented
to GBCs board of directors on a monthly basis. The
objective of this policy is to monitor interest rate-sensitive
assets and liabilities so as to minimize the impact on earnings
of substantial movements in interest rates. An asset or
liability is considered to be interest rate-sensitive if it will
reprice or mature within the time period analyzed. The interest
rate-sensitivity gap is the difference between the
interest-earning assets and interest-bearing liabilities
scheduled to mature or reprice within such time period. A gap is
considered positive when the amount of interest rate-sensitive
assets exceeds the amount of interest rate-sensitive
liabilities. A gap is considered negative when the amount of
interest rate-sensitive liabilities exceeds the interest
rate-sensitive assets. During a period of rising interest rates,
a negative gap would tend to affect net interest income
adversely, while a positive gap would tend to result in an
increase in net interest income. Conversely, during a period of
falling interest rates, a negative gap would tend to result in
an increase in net interest income, while a positive gap would
tend to affect net interest income adversely. If GBCs
assets and liabilities were equally flexible and moved
concurrently, the impact of any increase or decrease in interest
rates on net interest income would be minimal.
A simple interest rate gap analysis by itself may
not be an accurate indicator of how net interest income will be
affected by changes in interest rates. Accordingly, GBC also
evaluates how the repayment of
45
particular assets and liabilities is impacted by changes in
interest rates. Income associated with interest-earning assets
and costs associated with interest-bearing liabilities may not
be affected uniformly by changes in interest rates. In addition,
the magnitude and duration of changes in interest rates may have
a significant impact on net interest income. For example,
although certain assets and liabilities may have similar
maturities or periods of repricing, they may react in different
degrees to changes in market interest rates. Interest rates on
certain types of assets and liabilities fluctuate in advance of
changes in general market rates, while interest rates on other
types may lag behind changes in general market rates. In
addition, certain assets, such as adjustable rate mortgage
loans, have features (generally referred to as interest rate
caps and floors), which limit changes in interest rates.
Prepayment and early withdrawal levels also could deviate
significantly from those assumed in calculating the interest
rate gap. The ability of many borrowers to service their debt
also may decrease during periods of rising interest rates.
Changes in interest rates also affect GBCs liquidity
position. GBC currently prices deposits in response to market
rates and it is managements intention to continue this
policy. If deposits are not priced in response to market rates,
a loss of deposits could occur that would negatively affect
GBCs liquidity position.
GBCs cumulative one year interest rate-sensitivity gap
ratio was 1.05 and 1.11 at December 31, 2005 and
December 31, 2004, respectively. This indicates that
GBCs interest-earning assets will reprice during each
respective period at a rate faster than GBCs
interest-bearing liabilities. GBCs targeted ratio for each
respective period was .80 to 1.20 for this time horizon. The
change in the one year interest rate-sensitivity gap ratio is a
normal variation and does not reflect any change in GBC policies.
The following table sets forth the distribution of the repricing
of GBCs interest-earning assets and interest-bearing
liabilities as of December 31, 2005, the interest
rate-sensitivity gap, the cumulative interest rate-sensitivity
gap, the interest rate-sensitivity gap ratio and the cumulative
interest rate-sensitivity gap ratio. The table also sets forth
the time periods in which interest-earning assets and
interest-bearing liabilities will mature or may reprice in
accordance with their contractual terms. However, the table does
not necessarily indicate the impact of general interest rate
movements on the net interest margin as the repricing of various
categories of assets and liabilities is subject to competitive
pressures and the needs of GBCs customers. In addition,
various assets and liabilities indicated as repricing within the
same period may in fact, reprice at different times within such
period and at different rates.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
After Three
|
|
|
After One
|
|
|
|
|
|
|
|
|
|
Within
|
|
|
Months But
|
|
|
Year But
|
|
|
|
|
|
|
|
|
|
Three
|
|
|
Within
|
|
|
Within
|
|
|
After Five
|
|
|
|
|
|
|
Months
|
|
|
One Year
|
|
|
Five Years
|
|
|
Years
|
|
|
Total
|
|
|
|
(Dollars in thousands)
|
|
|
Interest-earning assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal funds sold
|
|
$
|
16,656
|
|
|
$
|
0
|
|
|
$
|
0
|
|
|
$
|
0
|
|
|
$
|
16,656
|
|
Securities
|
|
|
0
|
|
|
|
0
|
|
|
|
14,847
|
|
|
|
17,564
|
|
|
|
32,411
|
|
Loans
|
|
|
275,488
|
|
|
|
14,810
|
|
|
|
27,690
|
|
|
|
1,167
|
|
|
|
319,155
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
292,144
|
|
|
|
14,810
|
|
|
|
42,537
|
|
|
|
18,731
|
|
|
|
368,222
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest-bearing liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest-bearing demand deposits
|
|
|
61,191
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
61,191
|
|
Savings
|
|
|
2,879
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
2,879
|
|
Certificates, less than $100,000
|
|
|
38,863
|
|
|
|
119,240
|
|
|
|
7,806
|
|
|
|
0
|
|
|
|
165,909
|
|
Certificates, $100,000 and over
|
|
|
17,790
|
|
|
|
51,444
|
|
|
|
12,448
|
|
|
|
0
|
|
|
|
81,682
|
|
Repurchase agreements
|
|
|
829
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
829
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
121,552
|
|
|
|
170,684
|
|
|
|
20,254
|
|
|
|
0
|
|
|
|
312,490
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate sensitivity gap
|
|
$
|
170,592
|
|
|
$
|
(155,874
|
)
|
|
$
|
22,283
|
|
|
$
|
18,731
|
|
|
$
|
55,732
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cumulative interest rate
sensitivity gap
|
|
$
|
170,592
|
|
|
$
|
14,718
|
|
|
$
|
37,001
|
|
|
$
|
55,732
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate sensitivity gap ratio
|
|
|
2.40
|
|
|
|
.09
|
|
|
|
2.10
|
|
|
|
.0
|
|
|
|
|
|
Cumulative interest rate
sensitivity gap ratio
|
|
|
2.40
|
|
|
|
1.05
|
|
|
|
1.12
|
|
|
|
1.18
|
|
|
|
|
|
46
THE
MERGER
Background
of the Merger
GBCs board of directors has periodically explored and
assessed strategic options available to achieve GBCs goals
of fully utilizing its capital, achieving superior returns on
equity and maximizing shareholder value. These strategic
discussions have included the possibility of accelerating branch
openings, business combinations involving GBC and other
equally-sized financial institutions, as well as a possible sale
of GBC to a larger regional or national financial institution.
At a meeting on December 14, 2004, GBCs board of
directors engaged in a discussion about the timing of a possible
future sale or merger of GBC and obtained the advice of
GBCs legal counsel with respect to matters pertaining to a
possible sale or merger of GBC. Larry D. Key, GBCs
Chairman of the Board, President and Chief Executive Officer and
John T. Hopkins, III, GBCs Executive Vice President,
Chief Financial Officer and Secretary, were instructed by
GBCs board of directors to continue to explore GBCs
strategic options, including the possible future sale or merger
of GBC and to interview financial advisory firms to serve, at
the appropriate time, as GBCs financial advisor with
respect to the possible sale or merger of GBC.
In January 2005, GBCs board of directors decided it was
appropriate to engage an investment banking firm to advise it on
its strategic alternatives. After considering several
candidates, GBCs board of directors decided to engage
Burke Capital Group as its financial advisor based on the
extensive merger advisory experience of Burke Capital Group and
other significant qualifications. Burke Capital Group had a
detailed knowledge of GBC, was extremely familiar with the
Atlanta banking market and had significant knowledge of many
potential partners for a merger or sale of GBC. On
February 4, 2005, GBC executed an engagement letter with
Burke Capital Group.
In the following weeks, GBC provided Burke Capital Group with
detailed reports regarding GBC including: company history,
markets, management, historical financial performance, projected
financial performance, business plan, asset quality, and branch
locations. Mr. Key and Mr. Hopkins regularly conferred
with representatives of Burke Capital Group and assisted in
drafting a confidential information memorandum on GBC to be used
by Burke Capital Group in assessing strategic alternatives and
to provide to potential partners who may have an interest in
learning more about GBC. Burke Capital Group also developed a
list of potential partners who may have an interest in acquiring
GBC.
From March to July 2005, Burke Capital Group contacted
approximately 30 bank holding companies regarding their
potential interest in acquiring GBC. Eleven of these companies
indicated such an interest. Burke Capital Group entered into
confidentiality agreements on behalf of GBC with each of these
companies in order to provide them with the confidential
information memorandum. In June 2005, two of these companies
provided written non-binding indications of interest outlining
their respective proposals. Both companies were invited to
conduct detailed due diligence. One of the companies withdrew
its proposal after conducting due diligence. At a meeting on
June 23, 2005, GBCs board of directors considered the
other companys proposal, reviewed materials provided by
Burke Capital Group and consulted with its legal counsel
regarding its fiduciary duties in considering a business
combination transaction or sale of the business under Georgia
law and GBCs articles of incorporation. GBCs board
of directors discussed the alternatives in detail and the
potential impact a sale of GBC would have on GBCs
employees, customers, communities and shareholders.
Representatives of Burke Capital Group explained the proposal in
detail and provided an extensive analysis of the company, its
business prospects, as well as the terms of the proposal. After
considering the proposal, the alternatives, and other factors
(including, without limitation, the detailed due diligence
conducted by GBCs management on the company), GBCs
board of directors informed Burke Capital Group not to proceed
with discussions regarding a business combination with this
company.
Burke Capital Group continued to discuss options with GBCs
management and re-contacted several companies it had originally
contacted. In August 2005, one company expressed an interest and
provided GBC with a written non-binding proposal. This company
was invited to conduct detailed due diligence. After conducting
due diligence, this company withdrew its proposal. Throughout
the remainder of 2005, Burke
47
Capital Group continued intermittently to contact other bank
holding companies regarding a possible combination with GBC.
None of these discussions resulted in serious negotiations or
any written expressions of interest. Burke Capital Groups
engagement expired on December 31, 2005, subject to certain
rights of Burke Capital Group surviving until December 31,
2006 with respect to a sale transaction involving the
approximately 30 bank holding companies previously
contacted by Burke Capital Group.
In January, 2006, GBCs board of directors decided it was
appropriate to engage another investment banking firm to advise
it on its strategic alternatives. GBCs board of directors
decided to engage Sandler ONeill as its financial advisor
based on its extensive merger advisory experience and other
significant qualifications. Sandler ONeill is a nationally
recognized investment banking firm specializing in financial
institutions and has been a leading financial advisor for
commercial bank and thrift merger transactions in the southeast
and metro-Atlanta during the past few years. Due to Sandler
ONeills national presence, the GBC board of
directors concluded that this engagement would result in access
to a wider range of potential partners. On January 17,
2006, GBC executed an engagement letter with Sandler
ONeill.
In the following weeks, GBC provided Sandler ONeill with
detailed reports regarding GBC including: company history,
markets, management, historical financial performance, projected
financial performance, business plan, asset quality and branch
locations. Mr. Key and Mr. Hopkins regularly conferred
with Sandler ONeill and assisted in compiling confidential
information on GBC to be used by Sandler ONeill in
discussions with potential merger partners. Sandler ONeill
also developed a list of potential partners, distinct from those
contacted by Burke Capital Group, who may have an interest in
acquiring GBC.
From January to March, 2006, Sandler ONeill contacted each
of these bank holding companies inquiring as to their potential
interest in acquiring GBC. One of these companies indicated an
interest. Sandler ONeill entered into a confidentiality
agreement on behalf of GBC with this company and provided it
with confidential financial information.
Between March 17 and April 3, 2006, management of GBC
and this company discussed the possibility of a business
combination, including the principal financial and business
terms of the transaction and proposed employment arrangements
with certain senior executive officers of GBC. During this time,
GBC provided this company with detailed financial and other
information. On April 12, 2006, this company submitted a
non-binding written indication of interest to enter into a
business combination with GBC whereby GBC would merge with and
into this company. The indication of interest proposed an
exchange ratio with an implied value of $44.50 per share of
GBC common stock, with an aggregate transaction value of
approximately $95.1 million. The indication of interest
contemplated the merger consideration to be paid 51% in common
stock of this company and 49% in cash. The indication of
interest was subject to satisfactory completion of due diligence
and the execution of a definitive merger agreement.
On April 18, 2006, the GBC board of directors met with
representatives of Sandler ONeill and outside legal
counsel to review the proposal submitted by this company.
Sandler ONeill presented a summary of the proposed terms
of the transaction along with an overview of this company.
Sandler ONeill also compared the proposal to other
acquisition transactions in the southeast and metro-Atlanta
during the past few years. The GBC board of directors discussed
its obligations to give due consideration to all relevant
factors, including the short-term and long-term social and
economic interests of GBCs employees, customers,
shareholders, other constituents and the communities within
which it operates. The GBC board of directors directed
Mr. Key and Mr. Hopkins to continue due diligence
investigations with this company and work toward a definitive
merger agreement.
During the week of April 24, 2006, this company conducted
on-site due
diligence at GBC. On May 2, 2006, representatives of GBC
management and Sandler ONeill and GBCs outside legal
counsel met with this companys management at its
headquarters to conduct
on-site due
diligence and continue discussions of the terms of the proposed
transaction.
Simultaneously with these discussions, First Charter, a bank
holding company which had previously been contacted by Burke
Capital Group during July 2005, indicated an interest in
entering into a business combination transaction with GBC
whereby GBC would merge with and into First Charter. On
April 3, 2006,
48
First Charter executed a Confidentiality Agreement. Thereafter,
on April 5, 2006, Robert E. James, Jr., President and
Chief Executive Officer of First Charter, and Stephen M. Rownd,
Executive Vice President and Chief Risk Officer of First
Charter, met with Mr. Key in Atlanta to discuss a potential
business combination. Subsequently, on April 17, 2006, the
First Charter Executive Committee held a special meeting to
discuss the potential transaction. By letter dated
April 17, 2006, First Charter submitted a non-binding
indication of interest. First Charters indication of
interest proposed an exchange ratio with an implied value from
$43.54 to $45.41 per share of GBC common stock, with an
aggregate transaction value ranging from approximately $93 to
$97 million. The indication of interest contemplated the
merger consideration to be paid 70% in First Charter common
stock and 30% in cash. The indication of interest was subject to
satisfactory completion of due diligence and the execution of a
definitive merger agreement.
On April 26, 2006, the board of directors of First Charter
held a meeting to review and discuss the potential transaction
and its proposed terms. On April 27, 2006, Mr. Key met
with the First Charter management team in Charlotte to continue
discussions concerning a proposed transaction. Thereafter, on
May 5, 2006, Burke Capital Group informed First Charter
that GBC was in discussion with another bidder and that First
Charter would need to increase its indication of interest to
warrant continued consideration from GBC.
During the week of May 8, 2006, First Charter conducted
on-site due diligence at GBC. During this time, GBC also
continued due diligence and negotiations toward a definitive
merger agreement with the other company. On May 15, 2006,
the First Charter board of directors held a special meeting at
which members of First Charter senior management made various
presentations about, and the board discussed, the potential
strategic combination with GBC and the proposed terms of the
merger. At this meeting, the First Charter board approved the
proposed transaction subject to certain conditions. On
May 15, 2006, First Charter revised its original indication
of interest to provide for an exchange ratio with an implied
value of $47.41 per share of GBC common stock, with an
aggregate transaction value of approximately
$101.5 million. Similar to the original indication of
interest, the revised indication of interest contemplated the
merger consideration to be paid 70% in First Charter common
stock and 30% in cash.
On May 16, 2006, the GBC board of directors met with
representatives of Sandler ONeill and outside legal
counsel to review the proposal submitted by First Charter and to
discuss the status of the negotiations with the other company.
Representatives of Burke Capital Group provided the GBC board of
directors with a comparison of the indications of interest,
highlighting the differences in pricing and proposal terms, as
well as the business and financial performance of each company.
Representatives of Sandler ONeill discussed GBCs
options with respect to the indications of interest and the
available alternatives, and answered questions from the GBC
board of directors. The GBC board of directors evaluated and
discussed the most attractive option for GBC and its
shareholders, including continuing as an independent entity,
postponing the process until the first quarter of 2007 and
continuing with due diligence investigations and merger
negotiations with the two companies. The GBC board of directors
discussed its obligations to give due consideration to all
relevant factors, including the short-term and long-term social
and economic interests of GBCs employees, customers,
shareholders, other constituents and the communities within
which it operates. Additionally, the GBC board of directors
discussed the indications of interest in relation to the future
value of GBC as an independent entity, as well as other
comparable precedent transactions. The GBC board of directors
voted unanimously to continue due diligence activities and work
toward a definitive merger agreement with both companies. The
GBC board of directors invited both companies to submit revised
indications of interest by May 22, 2006. The GBC board of
directors believed that proceeding simultaneously with both
companies and requesting revised indications of interest was
necessary in order for the GBC board of directors to accurately
and completely discharge their fiduciary duties.
First Charter submitted a revised indication of interest
proposing an exchange ratio with an implied value of
$47.74 per share of GBC common stock, with an aggregate
transaction value of approximately $102 million. The
proposal contemplated the merger consideration to be paid 70% in
First Charter common stock and 30% in cash. Additionally, this
proposal contained certain price protection features in the
event First Charters common stock price dropped below a
certain threshold and declined 15% more than a decline in a bank
stock index between the time the merger agreement was signed and
six days prior to the closing. The other company
49
resubmitted its earlier written proposal and, as an additional
option to GBC, verbally submitted a revised indication of
interest with an implied value of $47.74 per share of GBC
common stock, with an aggregate transaction value of
approximately $102 million. This proposal, however,
contemplated the merger consideration to be paid 100% in cash.
On May 23, 2006, the GBC board of directors held a meeting
to consider all of the alternatives, including the offers by
First Charter and the other company. The GBC board of directors
noted that other preliminary indications of interest in 2006 had
not materialized into formal offers and that, at the conclusion
of the extensive process conducted by Burke Capital Group and
Sandler ONeill, the offers by First Charter and the other
company were the only offers for the GBC board of directors to
consider. Representatives of Sandler ONeill explained
First Charters proposal in detail and gave an extensive
analysis of First Charter, its business prospects, as well as
the terms of the proposal. In addition, representatives of
Sandler ONeill explained the other companys
proposals in detail and gave an extensive analysis of the other
company, its business prospects, as well as the terms of its
proposals. After considering the proposals from both companies
and the alternatives and factors discussed below in
GBCs Reasons for the Merger, the GBC
board of directors authorized Sandler ONeill and the
management of GBC to continue discussions with First Charter
regarding a business combination involving First Charter and GBC
on the terms proposed by First Charter. Sandler ONeill was
instructed to notify the other company that it would not proceed
with discussions regarding a business combination.
After May 23, 2006, GBC management and representatives of
Sandler ONeill continued discussions with the management
of First Charter about the proposed transaction, including the
principal financial and business terms of the transaction and
proposed employment arrangements with certain senior executive
officers of GBC. GBC management and representatives of Sandler
ONeill continued due diligence investigations on First
Charter, and worked with GBCs legal advisors to draft
definitive documentation with respect to a potential merger. On
May 30, 2006, these due diligence investigations were
completed.
On June 1, 2006, the GBC board of directors met with
certain members of GBCs senior management, representatives
from Sandler ONeill and GBCs outside legal advisors.
The GBC board of directors reviewed information regarding GBC,
First Charter and the terms of the proposed transaction with
First Charter. Representatives of Sandler ONeill reviewed
with the GBC board of directors financial and other information
regarding GBC, First Charter and the proposed transaction with
First Charter, as well as information regarding peer companies
and comparable transactions. Sandler ONeill rendered to
the GBC board of directors its oral opinion (subsequently
confirmed in writing) that, as of the date of its fairness
opinion and based upon and subject to the considerations
described in its opinion and other matters as Sandler
ONeill considered relevant, the proposed merger
consideration in the First Charter transaction was fair, from a
financial point of view, to holders of GBC common stock.
Legal counsel to GBC discussed with the GBC board of directors
the legal standards applicable to its decisions and actions with
respect to the proposed transaction under Georgia law and
GBCs articles of incorporation and reviewed the legal
terms of the merger and related agreements. As it had done
previously, the GBC board of directors discussed the
alternatives in detail and the potential impact the proposed
transaction would have on GBCs employees, customers,
communities and shareholders. The GBC board of directors also
considered the liquidity of First Charters stock relative
to the liquidity of GBC common stock. First Charters
average daily trading volume over the prior three months was
approximately 70,000 shares. It was noted that GBCs
common stock rarely trades. The GBC board of directors noted
further that GBCs common stock was significantly less
liquid which could generate more volatility.
The GBC board of directors also considered the size of First
Charter and its geographic markets and diversified business
lines. In the current competitive environment, the GBC board of
directors noted that partnering with a larger organization such
as First Charter would likely improve GBCs ability to
compete in its markets by providing additional products,
increased lending limits, better training for personnel, and
greater resources in general. In addition, the GBC board of
directors considered the risk that GBC may not achieve its
business plan given its size, lack of scale, and the relative
size of its market presence and name recognition and the
increasing competition faced in its markets.
50
Following review and discussion among the members of the GBC
board of directors at its meeting on June 1, 2006, the GBC
board of directors voted unanimously to approve the merger, the
merger agreement, and the transactions contemplated by the
merger agreement with First Charter. Following the board of
directors meeting, GBC and First Charter and their respective
counsel finalized, executed and delivered the definitive
agreements for the transaction. These agreements included the
merger agreement, the employment agreement with Larry D.
Key, and the retention agreements with Michael L. Couch, a
Senior Vice President and Senior Construction Loan Officer for
GBC, and Katrina M. Winberg, a Senior Vice President, SBA
Lending for GBC. The employment and retention agreements were a
condition of First Charters willingness to enter into the
merger agreement. The transaction was announced on June 1,
2006, by a joint press release issued by First Charter and GBC
at approximately 11:00 p.m. Eastern Time.
GBCs
Reasons for the Merger; Recommendation of the GBC Board of
Directors
The GBC board of directors consulted with GBC management, as
well as its legal and financial advisors, in its evaluation of
the merger. In reaching its conclusion to approve the merger
agreement and in determining that the merger is in the best
interests of GBC and its shareholders, the GBC board considered
a number of factors, including the following:
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the merits of other strategic options available to GBC,
including continuing as an independent entity while making
certain changes to its current strategic plans;
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Sandler ONeills and Burke Capital Groups
detailed analyses of similar transactions which demonstrated
that the principal financial and business terms of the merger
were comparable;
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the opinion delivered to GBC by Sandler ONeill, to the
effect that, as of June 1, 2006, and based upon and subject
to the considerations set forth in the opinion, the merger
consideration specified in the merger agreement was fair from a
financial point of view to the holders of shares of GBC common
stock;
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the low probability of receiving more favorable merger offers
from other financial institutions in the near future due to the
thorough market-testing process that the GBC board of directors
had completed;
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the expected compatibility of cultures, management, and similar
business philosophies of GBC and First Charter;
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the employee benefits that current employees of GBC would
receive as employees of First Charter;
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the ability to offer GBCs current customers an expanded
array of products and services;
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the benefits to the communities in which GBC operates due to the
expected effects on GBCs employees and customers;
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the information regarding First Charters financial
condition, operations, culture, and business philosophy learned
in meetings between the executive management of GBC and Sandler
ONeill and the executive management of First Charter;
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GBCs due diligence review of First Charter and its
knowledge of First Charter, including First Charters track
record of completing and integrating bank acquisitions;
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the regulatory and other approvals required in connection with
the merger and the significant likelihood that, once the
definitive merger agreement had been entered into, the merger
would be completed;
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the expected treatment of the merger as a
reorganization for United States federal income tax
purposes which would generally allow GBC shareholders receiving
First Charter common stock in exchange for their shares of GBC
common stock to avoid recognizing any gain or loss for federal
income tax purposes;
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First Charters ability to access a large capital base to
support its lending and deposit operations;
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First Charters history of paying dividends and its
attractive dividend yield;
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the fact that First Charters common stock has greater
liquidity than GBCs common stock;
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the challenges of combining the businesses, assets and
workforces of the two companies and First Charters
successful experience in this regard; and
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the proposed employment
and/or
retention arrangements with Larry D. Key, Michael L.
Couch, Katrina M. Winberg, Michael A. Roy,
Paul C. Birkhead, Jan K. Smith, Kevin H. Mathis,
Debbie D. Poole, Carolyn R. Hall, Thomas L.
Dorman, Christopher C. Cagle, and Jerry M. Barfield
and the fact that some of GBCs directors and executive
officers have other interests in the merger that are in addition
to their interests as GBC shareholders.
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The foregoing discussion of the information and factors
considered by the GBC board of directors is not exhaustive, but
includes the material factors considered by the GBC board of
directors. In view of the wide variety of factors considered by
the GBC board of directors in connection with its evaluation of
the merger and the complexity of these matters, the GBC board of
directors did not consider it practical to, nor did it attempt
to, quantify, rank or otherwise assign relative weights to the
specific factors that it considered in reaching its decision.
The GBC board of directors evaluated the factors described
above, including by asking questions of GBC management and GBC
legal and financial advisors, and reached consensus that the
merger was in the best interests of GBC and its shareholders. In
considering the factors described above, individual members of
the GBC board of directors may have given different weights to
different factors.
The GBC board of directors determined that the merger, the
merger agreement and the transactions contemplated by the merger
agreement are in the best interests of GBC and its shareholders.
Accordingly, the GBC board of directors unanimously approved the
merger and the merger agreement and unanimously recommends that
GBC shareholders vote FOR approval of the merger.
Opinion
of GBCs Financial Advisor
By letter agreement dated January 17, 2006 and amended on
May 16, 2006, GBC engaged Sandler ONeill to act as
the exclusive and independent financial advisor to the board of
directors of GBC and its subsidiaries in connection with
GBCs consideration of a possible business combination
involving GBC and a second party. Sandler ONeill is a
nationally recognized investment banking firm whose principal
business specialty is financial institutions. In the ordinary
course of its investment banking business, Sandler ONeill
is regularly engaged in the valuation of financial institutions
and their securities in connection with mergers and acquisitions
and other corporate transactions.
Sandler ONeill acted as financial advisor to GBC in
connection with the proposed merger and participated in certain
of the negotiations leading to the merger agreement. At the
June 1, 2006 meeting at which the GBC board considered and
approved the merger agreement, Sandler ONeill delivered to
the board its oral opinion, subsequently confirmed in writing
that, as of such date, the merger consideration was fair to GBC
shareholders from a financial point of view. The full text of
Sandler ONeills opinion is attached as
Appendix B to this Proxy
Statement/Prospectus.
The opinion outlines the procedures followed, assumptions made,
matters considered and qualifications and limitations on the
review undertaken by Sandler ONeill in rendering its
opinion. The description of the opinion set forth below is
qualified in its entirety by reference to the opinion. GBC
shareholders are urged to read the entire opinion carefully in
connection with their consideration of the proposed merger.
Sandler ONeills opinion speaks only as of the
date of the opinion. The opinion was directed to the GBC board
and is directed only to the fairness of the merger consideration
to GBCs shareholders from a financial point of view. It
does not address the underlying business decision of GBC to
engage in the merger or any other aspect of the merger and is
not a recommendation to any GBC shareholder as to how the
shareholder should vote at the special meeting with respect to
the merger or any other matter or the form of consideration the
shareholder should elect in the merger.
52
In connection with rendering its opinion, Sandler ONeill
reviewed and considered, among other things:
(1) the merger agreement;
(2) certain publicly available financial statements and
other historical financial information of GBC that Sandler
ONeill deemed relevant;
(3) certain publicly available financial statements and
other historical financial information for First Charter that
Sandler ONeill deemed relevant;
(4) internal financial projections for GBC for the years
ending December 31, 2006 through December 31, 2010
prepared by and reviewed with senior management of GBC;
(5) consensus earnings per share estimates for First
Charter for the years ending December 31, 2006 and 2007 as
published by First Call and discussed with the senior management
of First Charter and, for the years ending December 31,
2008 through December 31, 2010, an assumed earnings per
share annual growth rate as discussed with senior management of
First Charter;
(6) the pro forma financial impact of the merger based on
assumptions relating to transaction expenses, purchase
accounting adjustments and cost savings determined by the senior
managements of GBC and First Charter;
(7) a comparison of certain financial and stock market
information for GBC with similar publicly available information
for certain other companies the securities of which are publicly
traded;
(8) the publicly reported historical stock price and
trading activity for First Charters common stock,
including a comparison of certain financial and stock market
information for First Charter with similar publicly available
information for certain other companies the securities of which
are publicly traded;
(9) to the extent publicly available, the financial terms
of certain recent business combinations involving commercial
banks and thrifts as the selling entity;
(10) the current market environment generally and the
banking environment in particular; and
(11) such other information, financial studies, analyses
and investigations and financial, economic and market criteria
as Sandler ONeill considered relevant.
Sandler ONeill also discussed with certain members of the
senior management of GBC the business, financial condition,
results of operations and prospects of GBC and held similar
discussions with certain members of senior management of First
Charter regarding the business, financial condition, results of
operations and prospects of First Charter. All information
provided to Sandler ONeill regarding First Charter was
provided pursuant to the terms of a confidentiality agreement.
In performing its review, Sandler ONeill has relied upon
the accuracy and completeness of all of the financial and other
information that was available to them from public sources, that
was provided to them by GBC and First Charter or their
respective representatives or that was otherwise reviewed by
them and have assumed such accuracy and completeness for
purposes of rendering this opinion. Sandler ONeill has
further relied on the assurances of the managements of GBC and
First Charter that they are not aware of any facts or
circumstances that would make any of such information inaccurate
or misleading. Sandler ONeill has not been asked to and
has not undertaken an independent verification of any such
information and does not assume any responsibility or liability
for the accuracy or completeness thereof. Sandler ONeill
did not make an independent evaluation or appraisal of the
specific assets, the collateral securing the assets or the
liabilities (contingent or otherwise) of GBC or First Charter or
any of their subsidiaries, or the collectibility of any such
assets, nor has Sandler ONeill been furnished with any
such evaluations or appraisals. Sandler ONeill did not
make an independent evaluation of the adequacy of the allowance
for loan losses of GBC and First Charter nor has Sandler
ONeill reviewed any individual credit files relating to
GBC or First Charter. Sandler ONeill assumed, based on the
consent of the managements of GBC and First Charter, that the
respective allowances for loan losses for both GBC and First
Charter are adequate to cover such losses and will be adequate
on a pro forma basis for the combined entity. With respect to
the financial projections for GBC and First Charter
53
and all projections of transaction costs, purchase accounting
adjustments and expected cost savings prepared by
and/or
reviewed with the managements of GBC and First Charter and used
by Sandler ONeill in its analyses, GBCs and First
Charters managements confirmed to Sandler ONeill
that they reflected the best currently available estimates and
judgments of the respective managements for the respective
future financial performances of GBC and First Charter and
Sandler ONeill assumed that such performances would be
achieved. Sandler ONeill expresses no opinion as to such
financial projections or the assumptions on which they are
based. Sandler ONeill has also assumed that there has been
no material change in GBCs and First Charters
assets, financial condition, results of operations, business or
prospects since the date of the most recent financial statements
made available to Sandler ONeill.
Sandler ONeill has assumed in all respects material to its
analysis that GBC and First Charter will remain as going
concerns for all periods relevant to its analyses, that all of
the representations and warranties contained in the merger
agreement and all related agreements are true and correct, that
each party to the agreements will perform all of the covenants
required to be performed by such party under the agreements,
that the conditions precedent in the agreements are not waived
and that the merger will qualify as a tax-free reorganization
for federal income tax purposes. Finally, with GBCs
consent, Sandler ONeill has relied upon the advice GBC has
received from its legal, accounting and tax advisors as to all
legal, accounting and tax matters relating to the merger and the
other transactions contemplated by the merger agreement.
Sandler ONeills opinion was necessarily based on
financial, economic, market and other conditions as in effect
on, and the information made available to it as of, the date
thereof. Events occurring after that date could materially
affect this opinion. Sandler ONeill has not undertaken and
has not been asked to update, revise, reaffirm or withdraw this
opinion or otherwise comment upon events occurring after the
date hereof. Sandler ONeill is expressing no opinion as to
what the value of First Charters common stock will be when
issued to GBCs shareholders pursuant to the merger
agreement or the prices at which GBCs or First
Charters common stock may trade at any time.
In rendering its opinion, Sandler ONeill performed a
variety of financial analyses. The following is a summary of the
material analyses performed by Sandler ONeill, but is not
a complete description of all the analyses underlying Sandler
ONeills opinion. The summary includes information
presented in tabular format. In order to fully understand the
financial analyses, these tables must be read together with the
accompanying text. The tables alone do not constitute a complete
description of the financial analyses. The
preparation of a fairness opinion is a complex process involving
subjective judgments as to the most appropriate and relevant
methods of financial analysis and the application of those
methods to the particular circumstances. The process, therefore,
is not necessarily susceptible to a partial analysis or summary
description. Sandler ONeill believes that its analyses
must be considered as a whole and that selecting portions of the
factors and analyses considered without considering all factors
and analyses, or attempting to ascribe relative weights to some
or all such factors and analyses, could create an incomplete
view of the evaluation process underlying its opinion. Also, no
company included in Sandler ONeills comparative
analyses described below is identical to GBC or First Charter
and no transaction is identical to the merger. Accordingly, an
analysis of comparable companies or transactions involves
complex considerations and judgments concerning differences in
financial and operating characteristics of the companies and
other factors that could affect the public trading values or
merger transaction values, as the case may be, of GBC or First
Charter and the companies to which they are being compared.
The earnings projections used and relied upon by Sandler
ONeill for GBC in its analyses were based upon internal
financial projections for GBC for the years ending
December 31, 2006 through December 31, 2010 prepared
by and reviewed with the management of GBC. The earnings
projections for First Charter for the years ending
December 31, 2006 and 2007 were published by First Call and
discussed with senior management of First Charter and, for the
years ending December 31, 2008 through 2010, an assumed
annual earnings per share growth rate was discussed with senior
management of First Charter. With respect to GBCs and
First Charters financial projections and all projections
of transaction costs, purchase accounting adjustments and
expected cost savings relating to the merger, management of the
respective institutions confirmed to Sandler ONeill that
they reflected the best currently available estimates and
judgments of management and Sandler ONeill assumed for
purposes of its analyses that such performances would be
54
achieved. Sandler ONeill expressed no opinion as to such
financial projections or the assumptions on which they were
based. These projections, as well as the other estimates used by
Sandler ONeill in its analyses, were based on numerous
variables and assumptions that are inherently uncertain, and,
accordingly, actual results could vary materially from those set
forth in such projections.
In performing its analyses, Sandler ONeill also made
numerous assumptions with respect to industry performance,
business and economic conditions and various other matters, many
of which cannot be predicted and are beyond the control of GBC,
First Charter and Sandler ONeill. The analyses performed
by Sandler ONeill are not necessarily indicative of actual
values or future results, which may be significantly more or
less favorable than suggested by such analyses. Sandler
ONeill prepared its analyses solely for purposes of
rendering its opinion and provided such analyses to the GBC
board at its June 1, 2006 meeting. Estimates on the values
of companies do not purport to be appraisals or necessarily
reflect the prices at which companies or their securities may
actually be sold. Such estimates are inherently subject to
uncertainty and actual values may be materially different.
Accordingly, Sandler ONeills analyses do not
necessarily reflect the value of the GBC common stock or the
price at which the First Charter common stock may be sold at any
time.
Summary
of Proposal
Sandler ONeill reviewed the financial terms of the
proposed transaction. Based upon the total consideration equal
to $30.6 million in cash and 2.975 million shares of
First Charter common stock valued at $24.00 per share and
upon 2,136,608 fully diluted shares of GBC common stock;
assuming all outstanding options of GBC are exercised prior to
the closing of the merger, Sandler ONeill calculated a per
share transaction value of $47.74 (excluding merger expenses and
capitalized transaction costs).
Based upon GBCs financial information as of and for the
period ending March 31, 2006, Sandler ONeill
calculated the following ratios:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Transaction Ratios
|
|
|
|
|
GBC
|
|
|
|
|
|
|
|
|
GBC
|
|
Bancorp/
|
|
|
|
|
|
|
|
|
Bancorp
|
|
First
|
|
Nationwide
|
|
Southeast
|
|
Metro-Atlanta
|
|
|
Values(1)
|
|
Charter
|
|
Transactions(2)
|
|
Transactions(3)
|
|
Transactions(4)
|
|
Transaction price/book value
|
|
$
|
19.43
|
|
|
|
245.7
|
%
|
|
|
217.7
|
%
|
|
|
233.9
|
%
|
|
|
271.4
|
%
|
Transaction price/tangible book
value
|
|
$
|
19.43
|
|
|
|
245.7
|
%
|
|
|
230.2
|
%
|
|
|
249.4
|
%
|
|
|
271.4
|
%
|
Transaction price/LTM net income
|
|
$
|
3.31
|
|
|
|
14.4
|
x
|
|
|
20.2
|
x
|
|
|
19.7
|
x
|
|
|
21.7
|
%
|
Tangible book premium/core
deposits(5)
|
|
$
|
284,853
|
|
|
|
22.0
|
%
|
|
|
20.4
|
%
|
|
|
22.8
|
%
|
|
|
23.6
|
%
|
|
|
|
(1) |
|
Financial data as of or for the twelve months ended
March 31, 2006; per GBCs financial statements. |
|
(2) |
|
Based on 90 Nationwide commercial bank and thrift transactions
since January 1, 2005 with a transaction value between
$15-$150 million and Sellers Core Deposits / Total
Deposits < 75%. |
|
(3) |
|
Based on 49 Southeast commercial bank and thrift transactions
since January 1, 2005 with a transaction value between
$15-$150 million. |
|
(4) |
|
Based on 15 Metro-Atlanta commercial bank and thrift
transactions since January 1, 2003 with a transaction value
between $15-$150 million. |
|
(5) |
|
Core deposits equal total deposits less time deposits greater
than $100,000. |
55
Comparable
Company Analysis
Sandler ONeill used publicly available information to
compare selected financial and market trading information for
GBC and a group of Metro-Atlanta commercial banks selected by
Sandler ONeill with assets of $200 million to
$1 billion. This peer group consisted of the following
publicly traded commercial banks:
|
|
|
CCF Holding Company
|
|
Integrity Bancshares, Inc.
|
Citizens Bancshares Corporation
|
|
SouthCrest Financial Group, Inc.
|
Crescent Banking Company
|
|
Southern Community Bancshares, Inc.
|
FirstBank Financial Services,
Inc.
|
|
Summit Bank Corporation
|
Georgia Bancshares, Inc.
|
|
WGNB Corporation
|
Sandler ONeill used publicly available information to
compare selected financial and market trading information for
GBC and the median data for the commercial banks in the peer
group listed above. The table below sets forth the comparative
financial data as of and for the twelve months ending
March 31, 2006, with pricing data as of May 30, 2006:
Comparable
Group Analysis
|
|
|
|
|
|
|
|
|
|
|
|
|
Peer Group
|
|
|
GBC Bancorp
|
|
Median
|
|
Total assets (in millions)
|
|
$
|
418.3
|
|
|
$
|
429.2
|
|
Tangible equity/tangible assets
|
|
|
8.23
|
%
|
|
|
8.28
|
%
|
LTM return on average assets
|
|
|
1.74
|
%
|
|
|
1.11
|
%
|
LTM return on average equity
|
|
|
20.30
|
%
|
|
|
11.28
|
%
|
Price/tangible book value(1)
|
|
|
NM
|
|
|
|
201.4
|
%
|
Price/LTM earnings per share(1)
|
|
|
NM
|
|
|
|
16.7
|
x
|
Market capitalization (in
millions)(1)
|
|
|
NM
|
|
|
$
|
69.5
|
|
|
|
(1) |
GBCs market valuation is considered non-meaningful for
purposes of this analysis because GBC does not have an actively
traded stock. From January 1, 2006 to May 30, 2006, a
total of 2,000 GBC shares were traded equating to an average
daily volume of 19 shares.
|
Present
Value Analysis of GBC
Sandler ONeill performed an analysis that estimated the
net present value per share through December 31, 2010 of
GBC common stock under various circumstances and assuming GBC
performs in accordance with managements estimates for the
years ending December 31, 2006 through 2010. To approximate
the terminal value of GBCs common stock at
December 31, 2010, Sandler ONeill applied
price/earnings multiples ranging from 12.0x to 17.0x and
multiples of tangible book value ranging from 150% to 275%. The
terminal values were then discounted to present values using
different discount rates ranging from 12.5% to 15.5% chosen to
reflect different assumptions regarding required rates of return
of holders or prospective buyers of GBC common stock. As
illustrated in the following tables, this analysis indicated an
imputed range of per share values for GBC common stock of $36.13
to $58.00 when applying the price/earnings multiples and $34.95
to $72.60 when applying multiples of tangible book value.
Sandler ONeill calculated a per share transaction value of
$47.74.
Present
Value Per Share Based on Price/Earnings;
Net Present Value for Period Ending Dec. 31, 2010
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Discount Rate
|
|
12.0x
|
|
13.0x
|
|
14.0x
|
|
15.0x
|
|
16.0x
|
|
17.0x
|
|
12.5%
|
|
$
|
40.94
|
|
|
$
|
44.35
|
|
|
$
|
47.76
|
|
|
$
|
51.17
|
|
|
$
|
54.59
|
|
|
$
|
58.00
|
|
13.5%
|
|
$
|
39.25
|
|
|
$
|
42.53
|
|
|
$
|
45.80
|
|
|
$
|
49.07
|
|
|
$
|
52.34
|
|
|
$
|
55.61
|
|
14.5%
|
|
$
|
37.65
|
|
|
$
|
40.79
|
|
|
$
|
43.93
|
|
|
$
|
47.07
|
|
|
$
|
50.20
|
|
|
$
|
53.34
|
|
15.5%
|
|
$
|
36.13
|
|
|
$
|
39.14
|
|
|
$
|
42.15
|
|
|
$
|
45.16
|
|
|
$
|
48.17
|
|
|
$
|
51.18
|
|
56
Present
Value Per Share Based on Price/Tangible Book
Value;
Net Present Value for Period Ending Dec. 31, 2010
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Discount Rate
|
|
150%
|
|
|
175%
|
|
|
200%
|
|
|
225%
|
|
|
250%
|
|
|
275%
|
|
|
12.5%
|
|
$
|
39.60
|
|
|
$
|
46.20
|
|
|
$
|
52.80
|
|
|
$
|
59.40
|
|
|
$
|
66.00
|
|
|
$
|
72.60
|
|
13.5%
|
|
$
|
37.97
|
|
|
$
|
44.30
|
|
|
$
|
50.63
|
|
|
$
|
56.96
|
|
|
$
|
63.29
|
|
|
$
|
69.61
|
|
14.5%
|
|
$
|
36.42
|
|
|
$
|
42.49
|
|
|
$
|
48.56
|
|
|
$
|
54.63
|
|
|
$
|
60.70
|
|
|
$
|
66.77
|
|
15.5%
|
|
$
|
34.95
|
|
|
$
|
40.77
|
|
|
$
|
46.60
|
|
|
$
|
52.42
|
|
|
$
|
58.25
|
|
|
$
|
64.07
|
|
Analysis
of Selected Merger Transactions
Sandler ONeill reviewed 90 merger transactions announced
from January 1, 2005 through May 30, 2006 involving
commercial banks and thrifts acquired in the United States with
announced transaction values greater than $15 million and
less than $150 million and where the sellers core
deposits / total deposits were less than 75% (the
Nationwide Group). Sandler ONeill also
reviewed 49 merger transactions announced in the Southeast from
January 1, 2005 through May 30, 2006 involving
commercial banks and thrifts with announced transaction values
greater than $15 million and less than $150 million
(the Southeast Group). Sandler ONeill also
reviewed 15 merger transactions announced in Metro-Atlanta from
January 1, 2003 through May 30, 2006 involving
commercial banks and thrifts with announced transaction values
greater than $15 million and less than $150 million
(the Metro-Atlanta Group). In connection with these
three groups of merger transactions, Sandler ONeill
reviewed the following multiples: transaction price at
announcement to last twelve months net income, transaction
price to stated book value, transaction price to tangible book
value, and tangible book premium to core deposits. Sandler
ONeill computed a high, low, and median multiple for these
groups of transactions. The median multiples from the
Nationwide, Southeast and Metro-Atlanta Groups were then applied
to GBCs financial information as of and for the twelve
months ended March 31, 2006. As illustrated in the
following table, Sandler ONeill derived imputed ranges of
values for GBC of $42.30 to $66.86 based upon the median
multiples for the Nationwide Group, $45.45 to $65.14 based upon
the median multiples for the Southeast Group and $49.87 to
$71.66 based upon the median multiples for the Metro-Atlanta
Group. Sandler ONeill calculated a per share transaction
value of $47.74.
Comparable
Transaction Multiples
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Median
|
|
|
|
Median
|
|
|
|
Median
|
|
|
|
|
Nationwide
|
|
|
|
Southeast
|
|
|
|
Metro-Atlanta
|
|
|
|
|
Group
|
|
Implied
|
|
Group
|
|
Implied
|
|
Group
|
|
Implied
|
|
|
Multiple
|
|
Value
|
|
Multiple
|
|
Value
|
|
Multiple
|
|
Value
|
|
Transaction price/LTM net income(1)
|
|
|
20.2
|
x
|
|
$
|
66.86
|
|
|
|
19.7
|
x
|
|
$
|
65.14
|
|
|
|
21.7
|
x
|
|
$
|
71.66
|
|
Transaction price/book value
|
|
|
217.7
|
%
|
|
$
|
42.30
|
|
|
|
233.9
|
%
|
|
$
|
45.45
|
|
|
|
271.4
|
%
|
|
$
|
52.72
|
|
Transaction price/tangible book
value
|
|
|
230.2
|
%
|
|
$
|
44.72
|
|
|
|
249.4
|
%
|
|
$
|
48.46
|
|
|
|
271.4
|
%
|
|
$
|
52.72
|
|
Tangible book premium/core
deposits(2)
|
|
|
20.4
|
%
|
|
$
|
45.56
|
|
|
|
22.8
|
%
|
|
$
|
48.76
|
|
|
|
23.6
|
%
|
|
$
|
49.87
|
|
|
|
(1)
|
For purposes of this analysis, Price/LTM EPS multiples
> 30x are assumed to be non-meaningful or
NM.
|
|
(2)
|
Core deposit premium is calculated by taking the transaction
value, less tangible book value, divided by core deposits. Core
deposits equal total deposits less time deposits greater than
$100,000. For purposes of this analysis, a Core Deposit Premium
> 50% is assumed to be non-meaningful or NM.
|
57
Stock
Trading History
Sandler ONeill reviewed the reported closing per share
market prices and volume of the First Charter common stock for
the one-year and three-year periods ended May 30, 2006, and
the relationship between the movements in the closing prices of
the First Charter common stock during those periods to movements
in certain stock indices, including the Standard &
Poors 500 Index, Standard & Poors Bank
Index, and the Nasdaq Bank Index, and to the weighted average
(by market capitalization) performance of a peer group of
publicly-traded commercial banks selected by Sandler
ONeill. The institutions included in the peer group are
identified in the section Comparable Company
Analysis below.
During the one-year period ended May 30, 2006, the First
Charter common stock outperformed the Standard &
Poors Bank Index, while it generally underperformed the
Nasdaq Bank Index, the Standard & Poors 500 Index
and the peer group to which it was compared. Over the three-year
period ended May 30, 2006, the First Charter common stock
underperformed the indices and peer group to which it was
compared.
First
Charter Stock Performance
|
|
|
|
|
|
|
|
|
|
|
Beginning Index Value
|
|
Ending Index Value
|
|
|
May 27,
|
|
May 30,
|
|
|
2005
|
|
2006
|
|
First Charter
|
|
|
100.0
|
|
|
|
105.1
|
|
NASDAQ Bank Index
|
|
|
100.0
|
|
|
|
106.5
|
|
S&P 500 Index
|
|
|
100.0
|
|
|
|
105.1
|
|
First Charter Peer Group
|
|
|
100.0
|
|
|
|
110.8
|
|
S&P Bank Index
|
|
|
100.0
|
|
|
|
103.8
|
|
|
|
|
|
|
|
|
|
|
|
|
Beginning Index Value
|
|
Ending Index Value
|
|
|
May 30,
|
|
May 30,
|
|
|
2003
|
|
2006
|
|
First Charter
|
|
|
100.0
|
|
|
|
121.8
|
|
NASDAQ Bank Index
|
|
|
100.0
|
|
|
|
128.6
|
|
S&P 500 Index
|
|
|
100.0
|
|
|
|
130.7
|
|
First Charter Peer Group
|
|
|
100.0
|
|
|
|
135.9
|
|
S&P Bank Index
|
|
|
100.0
|
|
|
|
130.5
|
|
Sandler ONeill also noted that the total reported trading
volume for First Charter over the one-year and three-year
periods ended May 30, 2006 was 13.7 million and
37.1 million shares, respectively, with average daily
trading volumes of 54,167 and 48,952, respectively, over the
same one-year and three-year periods.
Comparable
Company Analysis
Sandler ONeill used publicly available information to
compare selected financial and market trading information for
First Charter and a group of commercial banks selected by
Sandler ONeill with total assets greater than
$2.0 billion and less than $10.0 billion. This peer
group consisted of the following publicly traded commercial
banks:
|
|
|
Alabama National Bancorporation
|
|
Simmons First National Corporation
|
Bank of the Ozarks, Inc.
|
|
Sterling Bancshares, Inc.
|
Capital City Bank Group, Inc.
|
|
Texas Capital Bancshares, Inc.
|
Provident Bankshares Corporation
|
|
Texas Regional Bancshares, Inc.
|
Renasant Corporation
|
|
Trustmark Corporation
|
SCBT Financial Corporation
|
|
United Bankshares, Inc.
|
Seacoast Banking Corporation of
Florida
|
|
United Community Banks, Inc.
|
58
Sandler ONeill used publicly available information to
compare selected financial and market trading information for
First Charter and the median data for the commercial banks in
the peer group listed above. The table below sets forth the
comparative financial data as of and for the twelve months
ending March 31, 2006, with pricing data as of May 30,
2006:
Comparable
Group Analysis
|
|
|
|
|
|
|
|
|
|
|
|
|
Peer Group
|
|
|
First Charter(1)
|
|
Median
|
|
Total assets (in millions)
|
|
$
|
4,283.4
|
|
|
$
|
3,469.3
|
|
Tangible equity/tangible assets
|
|
|
7.32
|
%
|
|
|
6.71
|
%
|
LTM return on average assets
|
|
|
1.06
|
%
|
|
|
1.15
|
%
|
LTM return on average equity
|
|
|
14.39
|
%
|
|
|
13.29
|
%
|
Price/tangible book value
|
|
|
234.6
|
%
|
|
|
298.5
|
%
|
Price/LTM earnings per share
|
|
|
15.6
|
x
|
|
|
16.8x
|
|
Price/estimated FY 2006 earnings
per share
|
|
|
15.0
|
x
|
|
|
16.3x
|
|
Market capitalization (in
millions)
|
|
$
|
731.6
|
|
|
$
|
678.4
|
|
|
|
|
(1) |
|
Financial results exclude $7.8 million in charges to
terminate derivative transactions, $6.9 million in charges
due to the early extinguishment of debt and $16.7 million
in charges resulting from its balance sheet restructuring. |
Present
Value Analysis of First Charter
Sandler ONeill performed an analysis that estimated the
net present value per share through December 31, 2010 of
First Charter common stock under various circumstances and
assuming First Charter performs in accordance with
managements guidance for the years ending
December 31, 2006 through 2010. To approximate the terminal
value of First Charters common stock at December 31,
2010, Sandler ONeill applied price/earnings multiples
ranging from 14.0x to 19.0x and multiples of tangible book value
ranging from 225% to 350%. The terminal values were then
discounted to present values using different discount rates
ranging from 11.0% to 15.0% chosen to reflect different
assumptions regarding required rates of return of holders or
prospective buyers of First Charter common stock. As illustrated
in the following tables, this analysis indicated an imputed
range of per share values for First Charter common stock of
$19.54 to $30.12 when applying the price/earnings multiples and
$21.57 to $37.53 when applying multiples of tangible book value.
These ranges compare to a price per share of $24.00 used in
determining the transaction value.
Present
Value Per Share Based on Price/Earnings;
Net Present Value for Period Ending Dec. 31, 2010
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Discount Rate
|
|
14.0x
|
|
|
15.0x
|
|
|
16.0x
|
|
|
17.0x
|
|
|
18.0x
|
|
|
19.0x
|
|
|
11.0%
|
|
$
|
22.91
|
|
|
$
|
24.35
|
|
|
$
|
25.79
|
|
|
$
|
27.24
|
|
|
$
|
28.68
|
|
|
$
|
30.12
|
|
12.0%
|
|
$
|
22.00
|
|
|
$
|
23.38
|
|
|
$
|
24.77
|
|
|
$
|
26.15
|
|
|
$
|
27.53
|
|
|
$
|
28.91
|
|
13.0%
|
|
$
|
21.14
|
|
|
$
|
22.47
|
|
|
$
|
23.79
|
|
|
$
|
25.12
|
|
|
$
|
26.44
|
|
|
$
|
27.77
|
|
14.0%
|
|
$
|
20.32
|
|
|
$
|
21.59
|
|
|
$
|
22.86
|
|
|
$
|
24.13
|
|
|
$
|
25.40
|
|
|
$
|
26.67
|
|
15.0%
|
|
$
|
19.54
|
|
|
$
|
20.76
|
|
|
$
|
21.98
|
|
|
$
|
23.20
|
|
|
$
|
24.42
|
|
|
$
|
25.64
|
|
59
Present
Value Per Share Based on Price/Tangible Book
Value;
Net Present Value for Period Ending Dec. 31, 2010
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Discount Rate
|
|
225%
|
|
|
250%
|
|
|
275%
|
|
|
300%
|
|
|
325%
|
|
|
350%
|
|
|
11.0%
|
|
$
|
25.30
|
|
|
$
|
27.75
|
|
|
$
|
30.19
|
|
|
$
|
32.64
|
|
|
$
|
35.08
|
|
|
$
|
37.53
|
|
12.0%
|
|
$
|
24.30
|
|
|
$
|
26.64
|
|
|
$
|
28.98
|
|
|
$
|
31.33
|
|
|
$
|
33.67
|
|
|
$
|
36.02
|
|
13.0%
|
|
$
|
23.34
|
|
|
$
|
25.59
|
|
|
$
|
27.84
|
|
|
$
|
30.08
|
|
|
$
|
32.33
|
|
|
$
|
34.58
|
|
14.0%
|
|
$
|
22.43
|
|
|
$
|
24.59
|
|
|
$
|
26.74
|
|
|
$
|
28.90
|
|
|
$
|
31.05
|
|
|
$
|
33.21
|
|
15.0%
|
|
$
|
21.57
|
|
|
$
|
23.64
|
|
|
$
|
25.70
|
|
|
$
|
27.77
|
|
|
$
|
29.84
|
|
|
$
|
31.90
|
|
Pro
Forma Merger Analysis
Sandler ONeill analyzed certain potential pro forma
effects of the merger, assuming the following: (1) the
merger closes on December 31, 2006;
(2) $30.6 million in cash and 2.975 million
shares of First Charter common stock are issued in the merger;
(3) earnings per share projections for GBC and First
Charter are consistent with internal projections as discussed
with management of both companies; and (4) purchase
accounting adjustments, charges and transaction costs associated
with the merger and cost savings are as expected by the senior
managements of GBC and First Charter. The analysis indicated
that for the years ending December 31, 2007 through 2010,
the merger would be accretive to the projected earnings per
share of First Charter and that at, as of December 31,
2006, the assumed closing date for the merger, dilutive to the
tangible book value per share of First Charter.
GBC has agreed to pay Sandler ONeill a transaction fee in
connection with the merger which is payable in cash upon the
closing of the Business Combination. GBC has also agreed to pay
Sandler ONeill a fee of $150,000 for rendering its
opinion, which was paid in cash at the time the opinion was
rendered. GBC has also agreed to reimburse certain of Sandler
ONeills reasonable
out-of-pocket
expenses incurred in connection with its engagement and to
indemnify Sandler ONeill and its affiliates and their
respective partners, directors, officers, employees, agents, and
controlling persons against certain expenses and liabilities,
including liabilities under securities laws. GBC and its
affiliates do not have, and during the previous two years have
not had, any other material relationship with Sandler
ONeill, its affiliates, or any of its unaffiliated
representatives.
In the ordinary course of its business as a broker-dealer,
Sandler ONeill may purchase securities from and sell
securities to GBC and First Charter and their respective
affiliates and may actively trade the debt or equity securities
of GBC and First Charter and their respective affiliates for its
own account and for the accounts of customers and, accordingly,
may at any time hold a long or short position in such securities.
First
Charters Reasons for the Merger
First Charters board of directors believes that the merger
of GBC into First Charter will further the strategic plan of
First Charter to be a leading regional financial services
company delivering community banking services in the established
and growing markets along the I-85 and I-40 corridors in North
Carolina, South Carolina, Georgia and Virginia. The First
Charter board of directors believes that the consummation of the
merger presents an unique opportunity for First Charter to
broaden its geographic market area by expanding its franchise
and banking operations into the greater metropolitan Atlanta
area, which First Charter believes is an attractive market area.
The acquisition of GBC also is expected to benefit First Charter
by allowing First Charter to spread its credit risk over
multiple market areas and states and to provide access to
another large market area as a source for core deposits.
The terms of the merger, including the exchange ratio, are the
result of arms-length negotiations between representatives
of First Charter and GBC. In reaching its decision to approve
the merger, the First Charter board of directors consulted with
its legal advisors regarding the terms of the transaction, with
its financial advisors regarding the financial aspects of the
proposed transaction and the exchange ratio, and with
60
management of First Charter. In approving the entry into the
merger, the First Charter board of directors considered the
following material factors:
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GBCs branches are located in Gwinnett and Fulton County,
Georgia, two of the wealthiest and fastest growing counties in
the United States.
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GBC is a very well-managed, quality organization with a strong
earnings record, strong credit quality, strong risk management
and a customer-focused business model.
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The consummation of the merger would add GBCs experienced,
high-performing management team to the First Charter senior
management.
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GBCs and First Charters managements share a common
business vision and commitment to their respective customers,
shareholders, employees and other constituencies.
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The two companies have complementary sales- and service-focused
business models, strong credit culture and credit quality, and
an ability to market products to each others customer
bases, including, specifically:
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the opportunity to introduce First Charters successful
retail banking practices into a new growth market;
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the addition of GBCs superior small business association
(frequently referred to as SBA) lending expertise; and
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the leveraging of First Charter managements home builder
finance product niche with GBCs strong existing commercial
real estate and home building finance products and services.
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The expectation of First Charters management that the
merger will be immediately accretive to First Charters
earnings under generally accepted accounting practices and will
accelerate First Charters balance sheet conversion to
higher yielding assets.
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|
The merger is likely to provide an increase in shareholder
value, including the benefits of a stronger strategic position.
|
The First Charter board of directors also considered potential
risks associated with the merger in connection with its
deliberations of the proposed transaction, including the
challenges of integrating GBCs business, operations and
workforce with those of First Charter Bank, the potential
negative impact on First Charters stock price, the need to
obtain GBC shareholder and regulatory approvals in order to
complete the transaction, and the risks associated with
achieving the anticipated cost savings.
First Charters board of directors considered all of these
factors as a whole and, on balance, First Charters board
of directors believes that the opportunities created by the
merger to increase the value of the First Charter franchise more
than offset any integration or other risks inherent in the
merger.
The foregoing discussion of the information and factors
considered by the First Charter board of directors is not
exhaustive, but includes the material factors considered by the
First Charter board of directors. In view of the wide variety of
factors considered by the First Charter board of directors in
connection with its evaluation of the merger and the complexity
of these matters, the First Charter board of directors did not
consider it practical to, nor did it attempt to, quantify, rank
or otherwise assign relative weights to the specific factors
that it considered in reaching its decision. In considering the
factors described above, individual members of the First Charter
board of directors may have given different weights to different
factors.
On the basis of these considerations, First Charters entry
into the merger was approved by First Charters board of
directors on May 15, 2006.
Board of
Directors and Management of First Charter Following Completion
of the Merger
Upon completion of the merger, Larry D. Key, GBCs Chairman
of the Board, President and Chief Executive Officer, will serve
as an Executive Vice President of First Charter Bank and
Regional President for
61
the GBC region, reporting to Robert E. James, Jr.,
President and Chief Executive Officer of First Charter.
Additionally, prior to completion of the merger, First Charter
will take certain actions to appoint to the First Charter board
of directors an individual from the GBC region that is mutually
agreed upon by First Charter and GBC.
Information about the current First Charter directors and
executive officers can be found in First Charters proxy
statement dated March 22, 2006. See Where You Can
Find More Information. For more information on the
employment arrangements between First Charter and certain GBC
officers that will become effective upon the completion of the
merger, see GBCs Directors and Officers
Have Financial Interests in the Merger, immediately below.
GBCs
Directors and Officers Have Financial Interests in the
Merger
In considering the recommendation of the GBC board of directors
that you vote to approve the merger on substantially the terms
set forth in the merger agreement, you should be aware that some
of GBCs directors and executive officers have interests in
the merger and have arrangements that are different from, or in
addition to, those of GBCs shareholders generally. The GBC
board of directors was aware of these interests and considered
them, among other matters, in reaching its decisions to approve
the merger agreement and to recommend that you vote in favor of
approving the merger. These interests include the following:
Larry
Key Employment Agreement
Larry D. Key, GBCs Chairman of the Board, President and
Chief Executive Officer, has entered into an employment
agreement with First Charter to serve as an Executive Vice
President of First Charter Bank and Regional President for the
GBC region following the completion of the merger.
Mr. Keys employment agreement provides an annual base
salary of $225,000 and makes him eligible for a bonus payment
for his fiscal 2006 performance pursuant to the terms of
GBCs bonus program in effect at the date of the merger
agreement and a bonus payment of up to 50% of his 2007 base
salary for his fiscal 2007 performance in accordance with the
performance targets established in his employment agreement. In
consideration of terminating his employment agreement with GBC,
Mr. Key will receive a retention payment of $611,232 and a
restricted stock award of First Charter common stock valued at
approximately $450,000 that will vest on the third anniversary
of the closing of the merger, subject to the qualifications set
forth in Mr. Keys employment agreement. Mr. Key
will also receive certain other perquisites, including a car
allowance, club membership dues and insurance benefits, and
other employee perquisites and benefits, such as expense
reimbursement and participation in First Charters
insurance and health benefit plans, that are available to other
First Charter executives. Mr. Keys employment
agreement will also subject him to non-competition restrictions
in the event of the termination of his employment with First
Charter.
Retention
Agreements
First Charter required, as a condition to entering into the
merger agreement, that Katrina M. Winberg enter into a retention
agreement with First Charter. Ms. Winberg serves as Senior
Vice President, SBA Lending for GBC and, upon completion of the
merger, Ms. Winberg will serve in a substantially similar
position for First Charter as she did for GBC.
Ms. Winbergs retention agreement provides, among
other things, that she will be paid an annual base salary of
approximately $118,000, plus commissions pursuant to the terms
of GBCs incentive program in effect at the date of the
merger agreement. She will also receive a restricted stock award
of First Charter common stock that will vest on the third
anniversary of the closing of the merger, valued at
approximately $354,000. In addition, if Ms. Winberg
experiences a Termination of Service (as defined in her
restricted stock award agreement) before the third anniversary
of the closing of the merger as a result of First Charters
discontinuance of its Small Business Administration lending
business or First Charters involuntary termination of
Ms. Winberg without cause, Ms. Winberg will be paid
the cash value of her restricted shares based on the publicly
traded price of the First Charters common stock as of the
Termination of Service as if such shares had vested on a
pro-rata basis through the effective date of such event.
Ms. Winberg will be entitled to participate in management
incentives, bonuses and benefits made
62
available to First Charter employees of a similar class.
Ms. Winbergs retention agreement will also subject
her to non-competition restrictions in the event of the
termination of her employment with First Charter.
First Charter also required, as a condition to entering into the
merger agreement, that Michael L. Couch enter into a retention
agreement with First Charter. Mr. Couch serves as a Senior
Vice President and Senior Construction Loan Officer for GBC and,
upon completion of the merger, Mr. Couch will serve in a
substantially similar position for First Charter as he did for
GBC. Mr. Couchs retention agreements provides, among
other things, that he will be paid an annual base salary of
approximately $128,000 and will receive a restricted stock award
of First Charter common stock that will vest on the third
anniversary of the closing of the merger, valued at
approximately $384,000. In addition, if Mr. Couch
experiences a Termination of Service (as defined in his
restricted stock award agreement) before the third anniversary
of the closing of the merger as a result of First Charters
involuntary termination of Mr. Couch without cause,
Mr. Couch will be paid the cash value of his restricted
shares based on the publicly traded price of the First
Charters common stock as of the Termination of Service as
if such shares had vested on a pro-rata basis through the
effective date of such event. Mr. Couch will be entitled to
participate in management incentives, bonuses and benefits made
available to First Charter employees of a similar class.
Mr. Couchs retention agreement will also subject him
to non-competition restrictions in the event of the termination
of his employment with First Charter.
First Charter has entered into retention agreements with nine of
GBCs employees, including Michael A. Roy and Paul C.
Birkhead, Gwinnett Banking Companys Executive Vice
President and Chief Credit Officer and Senior Vice President and
Senior Commercial Loan Officer, respectively. These retention
agreements provide incentives and benefits, including, in some
cases, cash and stock awards, to encourage these employees to
remain with First Charter Bank after the completion of the
merger. The obligation of First Charter to complete the merger
is conditioned, among other things, upon the effectiveness of
these nine retention agreements.
John
Hopkins Agreement with GBC
Pursuant his current employment agreement with GBC, following
the completion of the merger, John T. Hopkins, III,
GBCs Executive Vice President, Chief Financial Officer and
Secretary, will be entitled to a change in control payment of
approximately $475,948 and continued health and insurance
benefits.
Payments
Under Deferred Stock Unit Plan
Effective January 1, 2001, GBC established a deferred stock
unit plan in which GBCs and Gwinnett Banking
Companys directors were able to choose to receive deferred
fee units as consideration for their directors fees in
lieu of cash. The deferred fee units assigned to the plan
participants equal the number of shares of common stock that
could be purchased at the fair market value with the amount of
fees deferred. When a plan participant terminates service as a
director or there is a change in control of GBC, such as will
occur in connection with the merger with First Charter, the
units will be settled in cash at the fair market value of
GBCs common stock. Each participant will receive a lump
sum cash payment for the value of his or her units. As of
May 31, 2006, approximately 47,000 deferred fee units had
been awarded under the deferred stock unit plan. In the merger
agreement, GBC agreed not to make any additional awards under
the deferred stock unit plan.
SERP
Amendments
Several years prior to the transaction with First Charter, GBC
entered into Executive Supplemental Retirement Agreements
(SERPs) with five of its executive officers,
including Larry D. Key, to provide retirement benefits in
addition to those available under the tax-qualified plans that
GBC has sponsored for its employees. Immediately prior to the
execution of the merger agreement, GBC and the five executives
amended the SERPs as follows:
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|
|
Each SERP was converted from a plan that provides the payment of
an account balance over a specified period of years during
retirement to a defined benefit-type plan that pays at least a
minimum specified retirement benefit for the lifetime of the
executive.
|
63
|
|
|
|
|
The minimum benefit payable under each SERP was set at a
specified dollar amount equal to 40% of the executives
current, annualized compensation at the time of the amendment.
|
|
|
|
To provide that if the investment return on the insurance
policies that have been earmarked to provide benefits under the
SERPs provides a fund that exceeds the amount needed to provide
the minimum benefits in retirement, then the benefits would be
increased correspondingly.
|
Purchase
of GBC Main Office
GBC leases its main office banking facilities and associated
land, which are located at 165 Nash Street, Lawrenceville,
Georgia, from GBC Properties, LLC, a limited liability company
owned by members of the GBC board of directors. Prior to
entering into the transaction with First Charter, GBC and GBC
Properties, LLC reached an understanding whereby the GBC main
office banking facilities would be sold to GBC in the event of a
change in control of GBC. The merger agreement requires that
such purchase occur prior to the consummation of the merger.
Under the merger agreement, First Charter is permitted to
participate in the negotiation of the contract for the purchase
of the GBC main office and a sale contract may not be entered
into without First Charters prior approval (which approval
shall not be unreasonably withheld or delayed). The merger
agreement provides that the purchase price for GBCs main
office shall equal the fair market value of the property as
determined by the average of two commercial appraisals
separately selected by GBC and First Charter, and is subject to
adjustment if the two appraisals differ by greater than ten
percent.
First
Charter Board Seat
Prior to completion of the merger, First Charter will take
certain actions to appoint to the First Charter board of
directors an individual from the GBC region that is mutually
agreed upon by First Charter and GBC.
First
Charter Advisory Board
It is anticipated that each member of the board of directors of
GBC will be asked to serve on a local advisory board of First
Charter Bank. It is anticipated that the advisory board will
meet quarterly and that members of the board will be compensated
for their service.
GBC
Director and Officer Indemnification
First Charter has agreed to indemnify the directors and officers
of GBC against certain liabilities following the merger. First
Charter has also agreed to provide directors and
officers liability insurance for a period of three years
following the merger subject to certain restrictions as provided
for in the merger agreement.
Public
Trading Markets
First Charter common stock is currently traded on the NASDAQ
Global Select Market under the symbol FCTR. Shares
of GBC common stock are thinly traded on the OTC
Bulletin Board under the symbol GBCP.OB. Upon
completion of the merger, GBC common stock will be removed from
the OTC Bulletin Board and deregistered under the
Securities Exchange Act of 1934, as amended. The shares of First
Charter common stock issued pursuant to the merger agreement
will be traded on the NASDAQ Global Select Market.
The shares of First Charter common stock to be issued in
connection with the merger will be freely transferable under the
Securities Act of 1933, except for shares issued to any
shareholder who may be deemed to be an affiliate of GBC, as
discussed in The Merger Agreement Resales of
First Charter Stock by GBC Affiliates.
First
Charter Dividends
First Charter currently pays a quarterly cash dividend of
$0.195 per share on its common stock. First Charter
currently expects to continue to pay a quarterly cash dividend
of at least $0.195 per share of common
64
stock, although the First Charter board of directors may change
this dividend policy at any time. GBC currently pays no cash
dividends on its common stock. Under the terms of the merger
agreement, GBC may not pay cash dividends on its common stock.
First Charter shareholders will be entitled to receive dividends
when and if declared by the First Charter board of directors out
of funds legally available for dividends. The First Charter
board of directors may change its dividend policy at any time
and the First Charter board of directors will periodically
consider the payment of dividends, taking into
account First Charters financial condition and level
of net income, changing opportunities to deploy capital
effectively, operating trends, future income tax rates and
general economic conditions, as well as various legal and
regulatory limitations.
Regulatory
Approvals Required for the Merger
Bank holding companies, such as First Charter and GBC, and their
respective depository institution subsidiaries are highly
regulated institutions, with numerous federal and state laws and
regulations governing their activities. These institutions are
subject to ongoing supervision, regulation and periodic
examination by various federal and state financial institution
regulatory agencies. Detailed discussions of this ongoing
regulatory oversight and the laws and regulations under which it
is carried out can be found in the Annual Report on
Form 10-K
of First Charter, which is incorporated by reference in this
Proxy Statement/Prospectus, and the discussion under the caption
Information About the Companies GBC Bancorp,
Inc. Those discussions are qualified in their entirety by
the actual language of the laws and regulations, which are
subject to change based on possible future legislation and
action by regulatory agencies. See Where You Can Find More
Information.
The merger of Gwinnett Banking Company with and into First
Charter Bank, which we expect to complete following the
effective time of the merger (which we refer to as the
subsidiary bank merger), are subject to regulatory
approvals, as set forth below. To the extent that the following
information describes statutes and regulations, it is qualified
in its entirety by reference to those particular statutes and
regulations.
The
Merger
The merger is subject to approval by Board of Governors of the
Federal Reserve System (which we refer to as the Federal Reserve
Board) under the Bank Holding Company Act. In considering the
approval of a transaction such as the merger, this Act requires
the Federal Reserve Board to review the financial and managerial
resources and future prospects of the bank holding companies and
the banks concerned and the convenience and needs of the
communities to be served. The Federal Reserve Board is also
required to evaluate whether the merger would result in a
monopoly or would be in furtherance of any combination or
conspiracy or attempt to monopolize the business of banking in
any part of the United States or otherwise would substantially
lessen competition or tend to create a monopoly or which in any
manner would be in restraint of trade. If the Federal Reserve
Board determines that there are anti-competitive consequences to
the merger, it will not approve the transaction unless it finds
that the anti-competitive effects of the proposed transaction
are clearly outweighed in the public interest by the probable
effect of the transaction in meeting the convenience and needs
of the communities to be served.
Where a transaction, such as the merger, is the acquisition by a
bank holding company of a bank located in a state other than the
home state of the bank holding company (in this case North
Carolina), the Bank Holding Company Act authorizes the Federal
Reserve Board to approve the transaction without regard to
whether such transaction is prohibited under the laws of any
state, as long as the bank holding company is adequately
capitalized and adequately managed and certain other limitations
are not exceeded. First Charter is considered well-capitalized
and well-managed under the Federal Reserves
Regulation Y, and the transaction does not exceed the other
limitations.
The Federal Reserve Board also must review the nonbanking
activities being acquired in the merger (such as certain
insurance agency activities, brokerage and investment advisory
services) to determine whether the acquisition of such
activities reasonably can be expected to produce benefits to the
public (such as greater convenience, increased competition or
gains in efficiency) that outweigh possible adverse effects
(such as
65
undue concentration of resources, decreased or unfair
competition, conflicts of interest or unsound banking
practices). This consideration includes an evaluation by the
Federal Reserve Board of the financial and managerial resources
of First Charter and its subsidiaries and the nonbank
subsidiaries of GBC, and the effect of the proposed transaction
on those resources, as well as whether the merger would result
in a monopoly or otherwise would substantially lessen
competition.
GBC also must obtain the prior approval of the merger from the
Georgia Department of Banking and Finance under the bank holding
company act provisions of the Financial Institutions Code of
Georgia. In evaluating the transaction, the Georgia Department
of Banking and Finance will consider the effect of the
transaction upon competition, the convenience and needs of the
community to be served, the financial history of the acquiring
holding company and the bank to be acquired, the condition of
the acquiring holding company and the bank to be acquired
including capital, management and earnings prospects, the
existence of insider transactions, the adequacy of disclosure of
the terms of the acquisition and the equitable treatment of
minority shareholders of the bank to be acquired.
[First Charter filed its application for regulatory approval
with the Federal Reserve Board on
[ ,
2006] and filed its application for regulatory approval with the
Georgia Department of Banking and Finance on
[ ,
2006].
The
Subsidiary Bank Merger
Although not required by the terms of the merger agreement,
First Charter expects to effect the subsidiary bank merger
during the fourth quarter of 2006 or the first quarter of 2007.
The subsidiary bank merger is subject to approval of the Federal
Reserve Board under the Bank Merger Act. In granting its
approval under the Bank Merger Act, the Federal Reserve Board
must consider the financial and managerial resources and future
prospects of the existing and proposed institutions and the
convenience and needs of the communities to be served. Further,
the Federal Reserve Board may not approve any subsidiary bank
merger if it would result in a monopoly, if it would be in
furtherance of any combination or conspiracy to monopolize or to
attempt to monopolize the business of banking in any part of the
United States, if the effect of the subsidiary bank merger in
any section of the country may be to substantially lessen
competition or to tend to create a monopoly or if it would be in
any other manner in restraint of trade, unless the Federal
Reserve Board finds that the anticompetitive effects of the
subsidiary bank merger are clearly outweighed in the public
interest by the probable effect of such merger in meeting the
convenience and needs of the communities to be served. In
addition, the Federal Reserve Board must take into account the
record of performance of the existing and proposed institution
under the Community Reinvestment Act in meeting the credit needs
of the community, including low- and moderate-income
neighborhoods, served by such institution. Applicable
regulations also require publication of notice of the
application for approval of the subsidiary bank merger and an
opportunity for the public to comment on the applications in
writing and to request a hearing.
The North Carolina Commissioner of Banks also must approve the
subsidiary bank merger under the bank merger act provisions of
the North Carolina General Statutes. In its review of the
subsidiary bank merger, the North Carolina Commissioner of Banks
is required to consider whether the interests of the depositors,
creditors and shareholders of each institution are protected,
whether the merger is in the public interest and whether the
merger is for legitimate purposes.
GBC
Shareholders Have Dissenters Rights of Appraisal in the
Merger
GBC is incorporated under Georgia law. Under Article 13,
Sections 14-2-1301
through 14-2-1332 of the Georgia Business Corporation Code, or
the Georgia Code, holders of GBC common stock who desire to
object to the merger and to receive the fair value of their GBC
stock in cash, referred to as dissenting
shareholders, may do so by complying with the provisions
of Georgia law pertaining to the exercise of dissenters
rights.
THE FOLLOWING DISCUSSION IS NOT A COMPLETE STATEMENT OF THE
LAW PERTAINING TO DISSENTERS RIGHTS UNDER THE GEORGIA CODE
AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO THE FULL TEXT
OF ARTICLE 13 OF THE GEORGIA CODE, A COPY OF WHICH IS
ATTACHED AS APPENDIX C TO THIS PROXY
STATEMENT/PROSPECTUS.
66
This Proxy
Statement/Prospectus
constitutes notice to holders of GBC common stock (for purposes
of this discussion, Shareholders or
Holders) of the applicable statutory provisions of
Article 13 of the Georgia Code. Any Shareholder who wishes
to assert his or her dissenters rights or who wishes to
preserve his or her right to do so should review the following
discussion and Appendix C carefully. If Shareholders
fail to comply timely and properly with the procedures specified
they will lose dissenters rights under Georgia law.
A Holder of GBC common stock is entitled to dissent and obtain
payment in cash for the fair value of his or her shares. For
purposes of Article 13 of the Georgia Code, the term
fair value means the value of the dissenting shares
immediately before the consummation of the merger, excluding any
appreciation or depreciation in anticipation of the merger. Each
dissenting Shareholder must:
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deliver to GBC, before the vote is taken to approve the merger
at the GBC special meeting, written notice of his or her intent
to demand payment of the fair value of his or her shares of
common stock if the merger is effectuated; and
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not vote his or her dissenting shares in favor of the merger
proposal.
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A Shareholder who does not satisfy both of these requirements is
not entitled to payment for his or her shares under Georgia law.
In addition, any Shareholder who returns a signed proxy but
fails to provide instructions as to the manner in which the
shares are to be voted will be deemed to have voted in favor of
the transaction and will not be entitled to assert
dissenters rights.
If the merger agreement is approved by the Shareholders, GBC is
required to send a written dissenters notice to all
dissenting Shareholders no later than ten days after
consummation of the merger. The dissenters notice will
provide where the payment demand must be sent and where and when
stock certificates for dissenting shares must be deposited. The
dissenters notice will also set a date by which GBC must
receive the payment demand, which date may not be fewer than 30
nor more than 60 days after the date the dissenters
notice is delivered and be accompanied by a copy of
Article 13 of the Georgia Code.
Each dissenting Shareholder to whom GBC sends a dissenters
notice must make a first payment demand for his or her shares by
written notice to GBC and deposit his or her stock certificates
in accordance with the terms of the dissenters notice.
Upon completion of the merger, the rights of a dissenting
Shareholder are limited to the rights to receive the fair value
of his or her shares. Any dissenting Shareholder who does not
submit a first payment demand or deposit his or her shares as
set forth in the dissenters notice will lose his or her
rights to dissent and shall not be entitled to payment for his
or her shares under Article 13 of the Georgia Code.
Within ten days of the later of the closing of the merger or
GBCs receipt of the first payment demand, GBC will offer
to pay the dissenting Shareholders who have complied with the
provisions of Article 13 of the Georgia Code the amount GBC
estimates to be the fair value of the shares, plus accrued
interest. GBCs offer of payment must be accompanied by:
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recent GBC financial statements;
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a statement of GBCs estimate of the fair value of the
shares;
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an explanation of how the interest was calculated;
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a statement of the dissenting Shareholders right to demand
payment of a different amount if the dissenting Shareholder is
dissatisfied with the offer; and
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a copy of Article 13 of the Georgia Code.
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If a dissenting Shareholder accepts GBCs offer by
providing written notice to GBC within 30 days after the
date the offer is made, or if the dissenting Shareholder is
deemed to have accepted such offer by failure to respond within
such 30-day
period, GBC shall make payment for the dissenting
shareholders shares within 60 days after the later of
the date GBC made the offer of payment or the date on which the
merger occurs.
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If the merger is not effected within 60 days after the
first payment demand and the deposit of stock certificates, GBC
must return the deposited stock certificates. If, after the
return, the merger is effectuated, GBC must send a new
dissenters notice and repeat the payment demand procedure
described above.
If a dissenting Shareholder is dissatisfied with GBCs
offer of payment or the merger does not occur and GBC does not
return the deposited certificates within 60 days after the
date set for making the first payment demand, he or she may make
a second payment demand to GBC in writing of his or her own
estimate of the fair value of his or her shares and the amount
of interest due. A dissenting Shareholder waives his or her
right to demand payment of a different amount than that offered
by GBC and is deemed to have accepted the amount offered by GBC
unless the dissenting Shareholder makes a second payment demand
within 30 days after the date GBC makes its offer.
In the event a dissenting Shareholders second payment
demand remains unsettled 60 days after GBC receives such
second payment demand, GBC will commence a nonjury equitable
appraisal proceeding in the Superior Court of Gwinnett County,
Georgia to determine the fair value of the shares and accrued
interest. GBC will make all dissenting Shareholders whose second
payment demands remain unsettled parties to the appraisal
proceeding. In the appraisal proceeding, the court will fix a
value of the shares and may appoint one or more appraisers to
receive evidence and recommend a decision on the question of
fair value. If GBC does not commence the appraisal proceeding
within 60 days after receiving a dissenting
Shareholders second payment demand, GBC shall pay each
dissenting Shareholder whose second payment demand remains
unsettled the amount demanded by each dissenting Shareholder in
his or her second payment demand.
Any dissenting Shareholder who has duly asserted
dissenters rights in compliance with Article 13 of
the Georgia Code will not, after the consummation of the merger,
be entitled to vote such shares for any purpose or be entitled
to the payment of dividends or other distributions on those
shares.
If any Shareholder who properly asserts dissenters rights
under Article 13 of the Georgia Code fails to perfect such
rights, or effectively withdraws such assertion or loses such
rights, as provided in Article 13 of the Georgia Code, the
dissenting shares of such Shareholder will be converted into the
right to receive the consideration receivable with respect to
such dissenting shares in accordance with the merger agreement.
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THE
MERGER AGREEMENT
The following describes certain aspects of the merger,
including material provisions of the merger agreement. The
following description of the merger agreement is subject to, and
qualified in its entirety by reference to, the merger agreement,
which is attached to this document as Appendix A and is
incorporated by reference in this document. We urge you to read
the merger agreement carefully and in its entirety, as it is the
legal document governing this merger.
Terms of
the Merger
Merger
Consideration
Under the terms of the merger agreement, at the effective time
of the merger, each outstanding share of GBC common stock will
be converted into the right to receive, at the election of the
holder of such share, either:
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$47.74 in cash (without interest); or
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1.989 shares of First Charter common stock; or
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a combination of cash and First Charter common stock.
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Any merger consideration is subject to ratable proration, as
described below. No fractional shares of First Charter common
stock will be issued in connection with the merger. Instead, GBC
shareholders will receive, without interest, a cash payment from
First Charter equal to the fractional share interest they
otherwise would have received, multiplied by the value of First
Charter common stock. For this purpose, First Charter common
stock will be valued at its closing sales prices on the
effective date of the merger.
Based on the closing price of $[ ]
per share of First Charter common stock on
[ ,
2006] the latest practicable date prior to the mailing of this
Proxy Statement/Prospectus, the implied value of the merger
consideration proposed for each share of GBC common stock is
[$ ], which we calculated by
assuming 70% of each share of GBCs common stock is
converted into a right to receive First Charter common stock at
an exchange ratio of 1.989 shares per full GBC share and
the remaining 30% is converted into the right to receive cash at
a price of $47.74 per full GBC share. We cannot give you
any assurance as to whether or when the merger will be
completed, and you are advised to obtain current market
quotations for First Charter common stock.
Cash
or Stock Election
If you are a record holder of GBC common stock, an election form
will be provided to you under separate cover. The election form
will entitle you to elect to receive cash, First Charter common
stock, or a combination of cash and First Charter common stock,
or to make no election with respect to the merger consideration
that you wish to receive. A more detailed description of the
election form is set forth below under the subheading The
Merger Agreement Election Procedures; Surrender
of Stock Certificates.
All elections by GBC shareholders are subject to the allocation
and proration procedures described in the merger agreement.
These procedures are intended to ensure that 70% of the
outstanding shares of GBC common stock will be converted into
the right to receive First Charter common stock, and the
remaining 30% of the outstanding shares of GBC common stock will
be converted into the right to receive cash.
It is unlikely that elections will be made in the exact
proportions provided for in the merger agreement. As a result,
the merger agreement describes procedures to be followed if GBC
shareholders in the aggregate elect to receive greater or fewer
of the shares of First Charter common stock than First Charter
has agreed to issue. These procedures are summarized below.
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If First Charter common stock is
oversubscribed: If GBC shareholders elect to
receive more First Charter common stock than First Charter has
agreed to issue in the merger, then all GBC shareholders who
have elected to receive cash or who have made no election will
receive cash for their GBC shares and all shareholders who
elected to receive First Charter common stock will receive a pro
rata portion
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of the available First Charter shares plus cash for those shares
not converted into First Charter common stock.
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If First Charter common stock is
undersubscribed: If GBC shareholders elect to
receive fewer shares of First Charter common stock than First
Charter has agreed to issue in the merger, then all GBC
shareholders who have elected to receive First Charter common
stock will receive First Charter common stock, and
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if the number of shares as to which GBC shareholders have made
no election is less than this shortfall, then all GBC
shareholders who have made no election will receive First
Charter common stock, and all GBC shareholders who have elected
to receive cash will receive a pro rata portion of the available
cash consideration plus First Charter common stock for those GBC
shares not converted into cash; or
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if the number of shares as to which GBC shareholders have made
no election is greater than or equal to the shortfall, all GBC
shareholders who have elected to receive cash will receive cash,
and all GBC shareholders who made no election will receive a pro
rata portion of the remaining available cash consideration plus
First Charter common stock for those GBC shares not converted
into cash.
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Neither GBC nor First Charter is making any recommendation as
to whether GBC shareholders should elect to receive cash or
First Charter common stock in the merger. Each GBC shareholder
must make his or her own decision with respect to such
election.
No guarantee can be made that you will receive the amounts of
cash or stock you elect. As a result of the allocation
procedures and other limitations outlined in this document and
in the merger agreement, you may receive First Charter common
stock or cash in amounts that vary from the amounts you elected
to receive.
First Charter will not issue any fractional shares of First
Charter common stock in the merger. Instead, a GBC shareholder
who otherwise would have received a fraction of a share of First
Charter common stock will receive an amount in cash determined
by multiplying the fraction of a share of First Charter common
stock to which the holder would otherwise be entitled by the
average closing price of First Charter common stock on the date
on which the merger is completed and rounding such amount to the
nearest cent.
The First Charter articles of incorporation will be the articles
of incorporation, and the First Charter bylaws will be the
bylaws, of the combined company after completion of the merger.
The merger agreement provides that First Charter may change the
structure of the merger if consented to by GBC (but GBCs
consent cannot be unreasonably withheld or delayed). No such
change will alter the amount or kind of merger consideration to
be provided under the merger agreement, adversely affect the tax
consequences to GBC shareholders in the merger, or materially
impede or delay completion of the merger.
Closing
and Effective Time of the Merger
The merger will be completed only if all of the following occur:
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the merger agreement is approved by GBC shareholders;
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we obtain all required governmental and regulatory consents and
approvals without a condition or restriction that would have a
material adverse effect on either GBC or First Charter, measured
on a scale relative to GBC; and
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all other conditions to the merger discussed in this document
and the merger agreement are either satisfied or waived.
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The merger will become effective when articles of merger are
filed with each of the Secretary of State of the State of
Georgia and the Secretary of State of the State of North
Carolina. However, we may agree to a later time for completion
of the merger and specify that time in the articles of merger in
accordance with Georgia and North Carolina law. In the merger
agreement, we have agreed to cause the completion of the merger
to occur no later than the fifth business day following the
satisfaction or waiver of the last of the conditions specified
in the merger agreement, or on another mutually agreed date. If
these conditions are
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satisfied or waived during the two weeks immediately prior to
the end of a fiscal quarter of First Charter, then First Charter
may postpone the closing until the first full week after the end
of that quarter. It currently is anticipated that the effective
time of the merger will occur prior to the end of 2006, but we
cannot guarantee when or if the merger will be completed.
Board
of Directors of the Surviving Corporation
Prior to completion of the merger, First Charter will take
certain actions to appoint to the First Charter board of
directors an individual from the GBC region that is mutually
agreed upon by First Charter and GBC and, if necessary, will
increase the size of the board of directors to permit this
appointment.
Election
Procedures; Surrender of Stock Certificates
As described above, holders of record of GBC common stock will
receive an election form under separate cover. The election form
will entitle you to elect to receive cash, First Charter common
stock, or a combination of cash and First Charter common stock,
or to make no election with respect to the merger consideration
that you wish to receive.
To make a valid election, you must submit a properly completed
election form to Registrar and Transfer Company, which will be
acting as the exchange agent, on or before 5:00 p.m.,
Eastern Time, on the 25th day following the mailing of the
election form. Registrar and Transfer Company will act as
exchange agent in the merger and in that role will process the
exchange of GBC common stock certificates for cash
and/or First
Charter common stock. Shortly after the merger, the exchange
agent will allocate cash and shares of First Charter common
stock among GBC shareholders, consistent with their elections,
and the allocation and proration procedures. If you do not
submit an election form, you will receive instructions from the
exchange agent on where to surrender your GBC stock certificates
after the merger is completed. Please do not forward your GBC
stock certificates and election form with your proxy cards.
Stock certificates and election forms should be returned to the
exchange agent in accordance with the instructions contained in
the election form.
An election form will be deemed properly completed only if
accompanied by stock certificates representing all shares of GBC
common stock covered by the election form (or an appropriate
guarantee of delivery). You may change your election at any time
prior to the election deadline by written notice accompanied by
a properly completed and signed, revised election form received
by the exchange agent prior to the election deadline. You may
revoke your election by written notice received by the exchange
agent prior to the election deadline. All elections will be
revoked, and share certificates returned, automatically if the
merger agreement is terminated. If you have a preference for
receiving either First Charter common stock
and/or cash
for your GBC common stock, you should complete and return the
election form. If you do not make an election, you will be
allocated First Charter common stock
and/or cash
depending on the elections made by other GBC shareholders. You
should be aware, however, that if you make an election you will
not be able to sell or otherwise transfer your shares of GBC
common stock thereafter unless you properly withdraw your
election prior to the election deadline. GBC shareholders who do
not submit a properly completed election form or who revoke
their election form prior to the election deadline will have
their shares of GBC common stock designated as non-election
shares.
GBC shareholders who hold their shares of common stock in
street name through a bank, broker or other
financial institution, and who wish to make an election, should
seek instructions from the institution holding their shares
concerning how to make the election.
First Charter will deposit with the exchange agent the shares
representing First Charters common stock and cash to be
issued to GBC shareholders in exchange for their shares of GBC
common stock. As soon as is reasonably practicable after the
completion of the merger, the exchange agent will mail to GBC
shareholders who have not submitted election forms or who have
revoked such forms a letter of transmittal instructions for the
exchange of their GBC stock certificates for the merger
consideration. Upon surrendering his or her certificate(s)
representing shares of GBC common stock, together with the
signed letter of transmittal, the GBC shareholder shall be
entitled to receive, as applicable: (i) certificate(s)
representing a number of whole shares of First Charter common
stock (if any) determined in accordance with the exchange ratio
or (ii) a check
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representing the amount of cash (if any) to which such holder
shall have become entitled to and (iii) a check
representing the amount of cash in lieu of fractional shares, if
any. Until you surrender your GBC stock certificates for
exchange after completion of the merger, you will not be paid
dividends or other distributions declared after the merger with
respect to any First Charter common stock. No interest will be
paid or accrued to GBC shareholders on the cash consideration,
cash in lieu of fractional shares or unpaid dividends and
distributions, if any. After the completion of the merger, there
will be no further transfers of GBC common stock. GBC stock
certificates presented for transfer will be canceled and
exchanged for the merger consideration.
If your stock certificates have been lost, stolen or destroyed,
you will have to prove your ownership of these certificates and
that they were lost, stolen or destroyed and an indemnity bond
must be purchased at your expense before you receive any
consideration for your shares. Upon request, the exchange agent
will send you instructions on how to provide evidence of
ownership and the purchase of an indemnity bond for lost
certificates.
If any certificate representing shares of First Charters
common stock is to be issued in a name other than that in which
the certificate for shares surrendered in exchange is
registered, or cash is to be paid to a person other than the
registered holder, it will be a condition of issuance or payment
that the certificate so surrendered be properly endorsed or
otherwise be in proper form for transfer and that the person
requesting the exchange either:
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pay to the exchange agent in advance any transfer or other taxes
required by reason of the issuance of a certificate or payment
to a person other than the registered holder of the certificate
surrendered, or
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establish to the satisfaction of the exchange agent that the tax
has been paid or is not payable.
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Any portion of the cash or shares of First Charter common stock
made available to the exchange agent that remains unclaimed by
GBC shareholders as of the first anniversary of the effective
time of the merger will be returned to First Charter. After the
first anniversary of the effective time, any GBC shareholder who
has not exchanged shares of GBC common stock for the merger
consideration in accordance with the merger agreement may look
only to First Charter for payment of the merger consideration
for these shares and any unpaid dividends or distributions.
Nonetheless, First Charter, GBC, the exchange agent or any other
person will not be liable to any GBC shareholder for any amount
properly delivered to a public official under applicable
abandoned property, escheat or similar laws.
Withholding
The exchange agent will be entitled to deduct and withhold from
the cash consideration or cash in lieu of fractional shares
payable to any GBC shareholder the amounts it is required to
deduct and withhold under any federal, state, local or foreign
tax law. If the exchange agent withholds any amounts, these
amounts will be treated for all purposes of the merger as having
been paid to the shareholders from whom they were withheld.
Dividends
and Distributions
Until GBC common stock certificates are surrendered for
exchange, any dividends or other distributions declared after
the effective time with respect to First Charter common stock
into which shares of GBC common stock may have been converted
into the right to receive will accrue but will not be paid.
First Charter will pay to former GBC shareholders any unpaid
dividends or other distributions, without interest, only after
they have duly surrendered their GBC stock certificates.
Prior to the effective time of the merger, GBC and its
subsidiaries may not declare or pay any dividend or distribution
on its capital stock or repurchase any shares of its capital
stock, other than:
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dividends paid by any subsidiary of GBC to GBC or to any of its
wholly-owned subsidiaries; and
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the acceptance of shares of GBC common stock in payment of the
exercise of a stock option granted under a GBC stock option
plan, in accordance with past practice.
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Representations
and Warranties
The merger agreement contains customary representations and
warranties of GBC and First Charter relating to their respective
businesses. With the exception of certain representations that
must be true and correct in all material respects (or, in the
case of specific representations and warranties regarding the
capitalization and financial statements of our companies, true
and correct except to a de minimus extent), no
representation or warranty will be deemed untrue or incorrect as
a consequence of the existence or absence of any fact,
circumstance or event unless that fact, circumstance or event,
individually or when taken together with all other facts,
circumstances or events, has had or is reasonably likely to have
a material adverse effect on the company making the
representation. In determining whether a material adverse effect
has occurred or is reasonably likely, the parties will disregard
any effects resulting from (1) changes in generally
accepted accounting principles or regulatory accounting
requirements applicable to banks or savings associations and
their holding companies, generally, (2) changes in laws,
rules or regulations of general applicability to banks or
savings associations, and their holding companies, generally, or
their interpretations by courts or governmental entities,
(3) changes in global or national political conditions or
in general economic or market conditions affecting banks,
savings associations or their holding companies generally,
except to the extent that such changes in general or market
conditions have a materially disproportionate adverse effect on
such party, or (4) completion or public disclosure of the
merger. The representations and warranties in the merger
agreement do not survive the effective time of the merger.
Each of First Charter and GBC has made representations and
warranties to the other regarding, among other things:
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corporate matters, including due organization and qualification;
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capitalization;
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authority relative to execution and delivery of the merger
agreement and the absence of conflicts with, or violations of,
organizational documents or other obligations as a result of the
merger;
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required governmental filings and consents;
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the timely filing of reports with governmental entities, and the
absence of investigations by regulatory agencies;
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financial statements, internal controls and accounting;
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brokers fees payable in connection with the merger;
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the absence of material adverse changes;
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legal proceedings;
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tax matters;
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compliance with applicable laws;
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tax treatment of the merger; and
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the accuracy of information supplied for inclusion in this
document and other similar documents.
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In addition, GBC has made other representations and warranties
about itself to First Charter as to:
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employee matters, including employee benefit plans;
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material contracts;
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risk management instruments and derivatives;
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investment and loan portfolios;
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real property and intellectual property;
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environmental liabilities;
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personal and real property leases;
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credit card operations and securitizations;
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the inapplicability of state takeover laws; and
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the receipt of a financial advisors opinion.
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First Charter also has made a representation and warranty to GBC
regarding the availability of cash to pay the cash portion of
the merger consideration.
The representations and warranties described above and included
in the merger agreement were made by each of First Charter and
GBC to the other. These representations and warranties were made
as of specific dates, may be subject to important qualifications
and limitations agreed to by First Charter and GBC in connection
with negotiating the terms of the merger agreement, and may have
been included in the merger agreement for the purpose of
allocating risk between First Charter and GBC rather than to
establish matters as facts. The merger agreement is described
in, and included as Appendix A to, this document
only to provide you with information regarding its terms and
conditions, and not to provide any other factual information
regarding GBC, First Charter or their respective businesses.
Accordingly, the representations and warranties and other
provisions of the merger agreement should not be read alone, but
instead should be read only in conjunction with the information
provided elsewhere in this document and in the documents
incorporated by reference into this document. See Where
You Can Find More Information.
Covenants
and Agreements
Each of GBC and First Charter has undertaken customary covenants
that place restrictions on it and its subsidiaries until the
effective time of the merger. In general, GBC agreed to
(1) conduct its business in the ordinary course in all
material respects, (2) use reasonable best efforts to
maintain and preserve intact its business organization and
advantageous business relationships, including retaining the
services of key officers and employees, and (3) take no
action that is intended to or would reasonably be expected to
adversely affect or materially delay its respective ability to
obtain any necessary regulatory approvals, perform its covenants
or complete the merger. GBC has further agreed that, with
certain exceptions and except with First Charters prior
written consent, GBC will not, and will not permit any of its
subsidiaries to, among other things, undertake the following
extraordinary actions:
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incur indebtedness or in any way assume the indebtedness of
another person, except in the ordinary course of business;
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adjust, split, combine or reclassify any of its capital stock;
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make, declare or pay any dividends or other distributions on any
shares of its capital stock, except as set forth above in
The Merger Agreement Dividends and
Distributions;
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issue shares, stock options or other equity-based awards outside
the parameters set forth in the merger agreement;
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except as contemplated by the merger agreement and except as in
the ordinary course of business, (1) increase wages,
salaries or incentive compensation, (2) pay or provide, or
increase or accelerate the accrual rate, vesting or timing or
payment or funding of, any compensation or benefit to employees
of GBC and its subsidiaries, or (3) establish, adopt or
become a party to any new employee benefit or compensation plan
or agreement or amend any existing plan;
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other than in the ordinary course of business, sell, transfer,
mortgage, encumber or otherwise dispose of any material assets
or properties, or cancel, release or assign any material
indebtedness;
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enter into any new line of business or change in any material
respect its lending, investment, underwriting, risk and asset
liability management and other banking, operating,
securitization and servicing policies other than as required by
applicable law;
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make any material investment either by purchase of securities,
capital contributions, property transfers or purchase of
property or assets;
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take any action or knowingly fail to take any action reasonably
likely to prevent the merger from qualifying as a reorganization
for federal income tax purposes;
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amend any charter documents, take any action to exempt another
person from any applicable takeover law or defensive charter or
terminate, amend or waive any provisions of any confidentiality
or standstill agreements in place with third parties;
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restructure or materially change its investment securities
portfolio or its gap position;
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commence or settle any material claim;
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take or fail to take any action that is intended, or may be
reasonably expected, to cause any of the conditions to the
merger to fail to be satisfied;
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change its tax accounting or financial accounting methods,
except as required by applicable law or generally accepted or
regulatory accounting principles;
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file or amend any tax return other than in the ordinary course
of business, make or change any material tax election or settle
or compromise any material tax liability;
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incur any single expense in excess of $200,000;
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modify the terms of the employment or retention agreements, as
the case may be, between GBC and certain of its
employees; or
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agree to take or adopt any resolutions by the board of directors
in support of any of the actions prohibited by the preceding
bullets.
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First Charter agrees that, except with GBCs prior written
consent, First Charter will not, among other things, undertake
the following extraordinary actions:
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amend any charter documents in a manner that would adversely
affect GBC or its shareholders or the transactions contemplated
by the merger agreement;
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take any action or knowingly fail to take any action reasonably
likely to prevent the merger from qualifying as a reorganization
for federal income tax purposes;
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take any action that is intended, or may be reasonably expected,
to result in any of the conditions to the merger failing to be
satisfied;
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take any action that would reasonably be expected to prevent,
materially impede or materially delay completion of the merger;
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declare, set aside, make or pay any extraordinary special
dividends on First Charter common stock or make any other
extraordinary or special distributions in respect of any of its
capital stock;
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enter into any agreement to acquire all or substantially all of
the capital stock or assets of any other entity or business
unless such transaction would not be expected to delay
completion of the merger beyond April 30, 2007, or
materially impair the prospects of completing the merger; or
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agree to take or adopt any resolutions by the board of directors
in support of any of the actions prohibited by the preceding
bullets.
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The merger agreement also contains mutual covenants relating to
the preparation of this document, access to information of the
other company and public announcements with respect to the
transactions contemplated by the merger agreement.
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Reasonable
Best Efforts of GBC to Obtain the Required Shareholder
Vote
GBC has agreed to hold a meeting of its shareholders as soon as
is reasonably practicable for the purpose of obtaining
shareholder approval of the merger. GBC will use its reasonable
best efforts to obtain such approval. GBC is also required to
submit the merger agreement to a shareholder vote even if its
board of directors no longer recommends approval of the merger
agreement.
GBC and First Charter have also agreed in good faith to use
their reasonable best efforts to negotiate a restructuring of
the merger if GBCs shareholders do not approve the merger
agreement at the special meeting and to resubmit the transaction
to GBCs shareholders for approval. However, in any
restructuring neither party has any obligation to change the
amount or kind of the merger consideration in a manner adverse
to that party or its shareholders.
Agreement
Not to Solicit Other Offers
GBC also has agreed that it, its subsidiaries and their
officers, directors, employees, agents and representatives will
not, directly or indirectly:
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solicit, initiate, encourage or facilitate any inquiries or
proposals for any Alternative Transaction (as
defined below); or
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participate in any discussions or negotiations, or enter into
any agreement, regarding any Alternative Transaction.
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However, prior to the special meeting, GBC may consider and
participate in discussions and negotiations with respect to a
bona fide Alternative Proposal (as defined below) if
(1) it has first entered into a confidentiality agreement
with the party proposing the Alternative Proposal on terms
comparable to the confidentiality agreement with First Charter
and (2) the GBC board of directors determines reasonably in
good faith (after consultation with outside legal counsel and
financial advisors) that failure to take these actions would
cause it to violate its fiduciary duties.
GBC has agreed:
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to notify First Charter promptly (but in no event later than
24 hours) after it receives any Alternative Proposal, or
any material change to any Alternative Proposal, or any request
for nonpublic information relating to GBC or any of its
subsidiaries, and to provide First Charter with relevant
information regarding the Alternative Proposal or request;
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to keep First Charter fully informed, on a current basis, of any
material changes in the status and any material changes in the
terms of any such Alternative Proposal; and
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to cease any existing discussions or negotiations with any
persons with respect to any Alternative Proposal, and to use
reasonable best efforts to cause all persons other than First
Charter who have been furnished with confidential information in
connection with an Alternative Proposal within the
12 months prior to the date of the merger agreement to
return or destroy such information.
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As used in the merger agreement, Alternative
Proposal means any inquiry or proposal regarding any
merger, share exchange, consolidation, sale of assets, sale of
shares of capital stock (including by way of a tender offer) or
similar transactions involving GBC or any of its subsidiaries
that, if completed, would constitute an Alternative Transaction.
As used in the merger agreement, Alternative
Transaction means any of the following:
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a transaction pursuant to which any person (or group of persons)
other than First Charter or its affiliates, directly or
indirectly, acquires or would acquire more than 25% of the
outstanding shares of GBC common stock or outstanding voting
power or of any new series or new class of GBC preferred stock
that would be entitled to a class or series vote with respect to
the merger, whether from GBC or pursuant to a tender offer or
exchange offer or otherwise;
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a merger, share exchange, consolidation or other business
combination involving GBC (other than the merger being described
here);
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any transaction pursuant to which any person (or group of
persons) other than First Charter or its affiliates acquires or
would acquire control of assets (including, for this purpose,
the outstanding equity securities of subsidiaries of GBC and
securities of the entity surviving any merger or business
combination including any of GBCs subsidiaries) of GBC, or
any of its subsidiaries representing more than 25% of the fair
market value of all the assets, net revenues or net income of
GBC and its subsidiaries, taken as a whole, immediately prior to
such transaction; or
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any other consolidation, business combination, recapitalization
or similar transaction involving GBC or any of its subsidiaries,
other than the transactions contemplated by the merger
agreement, as a result of which the holders of shares of GBC
common stock immediately prior to the transaction do not, in the
aggregate, own at least 75% of each of the outstanding shares of
common stock and the outstanding voting power of the surviving
or resulting entity in the transaction immediately after the
completion of the transaction in substantially the same
proportion as the holders held the shares of GBC common stock
immediately prior to the completion of the transaction.
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Expenses
and Fees
In general, each of First Charter and GBC will be responsible
for all expenses incurred by it in connection with the
negotiation and completion of the transactions contemplated by
the merger agreement. However, the costs and expenses of
printing and mailing this document, and all filing and other
fees paid to the SEC in connection with the merger, shall be
borne equally by GBC and First Charter.
Employee
Matters
First Charter has agreed that for a period of one year following
the closing of the merger, with respect to the employees of GBC
and its subsidiaries at the effective time, it will provide such
employees in the aggregate with employee benefits, rates of base
salary or hourly wage and annual bonus opportunities that are
substantially similar in the aggregate to the aggregate employee
benefits, rates of base salary or hourly wage and annual bonus
opportunities provided to such employees pursuant to GBCs
benefit plans as in effect immediately prior to the merger.
First Charter has also agreed to honor certain existing GBC
compensation arrangements, discussed under the subheading
The Merger GBCs Directors and
Officers Have Financial Interests in the Merger.
In addition, First Charter has agreed, to the extent any GBC
employee becomes eligible to participate in First Charter
benefit plans following the merger:
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generally to recognize each employees service with GBC
prior to the completion of the merger for purposes of
eligibility to participate, vesting credits and, except under
defined benefit pension plans, benefit accruals, in each case
under the First Charter plans to the same extent such service
was recognized under comparable GBC plans prior to completion of
the merger; and
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to waive any exclusion for pre-existing conditions under any
First Charter health, dental or vision plans, to the extent such
limitation would have been waived or satisfied under a
corresponding GBC plan in which such employee participated
immediately prior to the effective time, and recognize any
medical, dental or health expenses incurred in the GBC health
plan year in which the merger closes for purposes of applicable
deductible and annual
out-of-pocket
expense requirements under any health, dental or vision plan of
First Charter.
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However, First Charter has no obligation to continue the
employment of any GBC employee for any period following the
merger. For a discussion of employment and retention agreements
that First Charter has entered into with certain GBC employees
and executive officers, including Larry D. Key, GBCs
Chairman of the Board, President and Chief Executive Officer,
please see The Merger GBCs
Directors and Officers Have Financial Interests in the
Merger.
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Indemnification
and Insurance
The merger agreement requires First Charter to maintain in
effect for and in accordance with their terms the current rights
of GBC directors, officers and employees to indemnification
under the GBC articles of incorporation or the GBC bylaws or
disclosed agreements of GBC. The merger agreement also provides
that, upon completion of the merger, First Charter will
indemnify and hold harmless, and provide advancement of expenses
to, all past and present officers, directors and employees of
GBC and its subsidiaries in their capacities as such against all
losses, claims, damages, costs, expenses, liabilities, judgments
or amounts paid in settlement to the fullest extent permitted by
applicable laws.
The merger agreement provides that First Charter will maintain
for a period of three years after completion of the merger
GBCs current directors and officers liability
insurance policies, or policies of at least the same coverage
and amount and containing terms and conditions that are not less
advantageous than the current policy, with respect to acts or
omissions occurring prior to the effective time of the merger,
except that First Charter is not required to incur annual
premium expense greater than 125% of GBCs current annual
directors and officers liability insurance premium.
Purchase
of GBCs Main Office Property
GBC leases its main office banking facilities and associated
land, which are located at 165 Nash Street, Lawrenceville,
Georgia, from GBC Properties, LLC, a limited liability company
owned by members of the GBC board of directors. Prior to
entering into the transaction with First Charter, GBC and GBC
Properties, LLC reached an understanding whereby the GBC main
office banking facilities would be sold to GBC in the event of a
change in control of GBC. The merger agreement requires that
such purchase occur prior to the consummation of the merger.
Under the merger agreement, First Charter is permitted to
participate in the negotiation of the contract for the purchase
of the GBC main office and a sale contract may not be entered
into without First Charters prior approval (which approval
shall not be unreasonably withheld or delayed). The merger
agreement provides that the purchase price for GBCs main
office shall equal the fair market value of the property as
determined by the average of two commercial appraisals
separately selected by GBC and First Charter, and is subject to
adjustment if the two appraisals differ by greater than ten
percent.
Conditions
to Complete the Merger
Our respective obligations to complete the merger are subject to
the fulfillment or waiver of certain conditions, including:
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the approval of the merger by GBC shareholders;
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the approval of the listing of First Charter common stock to be
issued in the merger on the NASDAQ Global Select Market, subject
to official notice of issuance;
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the effectiveness of the registration statement of which this
document is a part with respect to the First Charter common
stock to be issued in the merger under the Securities Act and
the absence of any stop order or proceedings initiated or
threatened by the SEC for that purpose;
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the absence of any law, statute, regulation, judgment, decree,
injunction or other order in effect by any court or other
governmental entity that prohibits completion of the
transactions contemplated by the merger agreement;
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the receipt and effectiveness of all governmental and other
approvals, registrations and consents, and the expiration of all
related waiting periods required to complete the merger (in the
case of the conditions to First Charters obligation to
complete the merger, without any conditions or restrictions that
would have a material adverse effect on either GBC or First
Charter, measured on a scale relative to GBC); and
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the truth and correctness of the representations and warranties
of each other party in the merger agreement, subject to the
materiality standard provided in the merger agreement, and the
performance
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by each other party in all material respects of their
obligations under the merger agreement and the receipt by each
party of certificates from the other party to that effect.
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The obligation of First Charter to complete the merger is also
subject to the satisfaction or waiver of a number of other
conditions, including:
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GBC shall have performed in all material respects all
obligations required to be performed by it under the merger
agreement;
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There shall be no investigation (formal or informal) by any
governmental entity regarding or involving GBC, Gwinnett Banking
Company or any aspect of GBCs business and there shall be
no claim or proceeding brought by a third-party seeking any
order or decree to limit First Charters business
activities as a result of the consummation of the merger or any
of the transactions contemplated by the merger agreement that
has not been settled on terms satisfactory to First Charter;
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The employment agreement with Larry D. Key and the retention
agreements with Katrina M. Winberg and Michael L. Couch, and the
other nine retention agreements, all of which are discussed
under the heading The Merger GBCs
Directors and Officers Have Financial Interests in the
Merger shall be in full force and effect, and First
Charter shall have received no notice of any intent to modify or
terminate any of those agreements;
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All stock options relating to GBC common stock shall have been
exercised or extinguished and no such GBC options shall remain
outstanding; and
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Gwinnett Banking Company 401(k) employee stock ownership plan
shall have been terminated as of or prior to the effective time
of the merger.
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The obligation of GBC to complete the merger is also subject to
the satisfaction or waiver of a number of other conditions,
including:
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First Charter shall have performed in all material respects all
obligations required to be performed by it under the merger
agreement; and
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the receipt by GBC of a legal opinion with respect to certain
federal income tax consequences of the merger.
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We cannot provide assurance as to when or if all of the
conditions to the merger can or will be satisfied or waived by
the appropriate party. As of the date of this document, we have
no reason to believe that any of these conditions will not be
satisfied.
Termination
of the Merger Agreement
The merger agreement can be terminated at any time prior to
completion by mutual consent, if authorized by each of our
boards of directors, or by either party in the following
circumstances:
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if any of the required regulatory approvals are denied (and the
denial is final and nonappealable);
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if the merger has not been completed by April 30, 2007,
unless the failure to complete the merger by that date is due to
the terminating partys failure to abide by the merger
agreement;
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if there is a breach by the other party that would cause the
failure of the closing conditions described above, unless the
breach is capable of being, and is, cured within 30 days of
notice of the breach; or
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if the other party has committed a substantial, bad faith breach
of its obligation to use reasonable best efforts to negotiate a
restructuring of the transaction and to resubmit the transaction
to GBCs shareholders for approval, if GBC shareholders
fail to approve the merger.
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First Charter may terminate the merger agreement if the GBC
board of directors fails to recommend that GBC shareholders
approve the merger, withdraws or modifies in a manner adverse to
First Charter, or makes public statements inconsistent with, its
recommendation of the merger to shareholders, or recommends a
competing merger proposal.
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In addition, GBC may terminate the merger agreement if First
Charters average stock price over the 10 trading days up
to and including the sixth business day before the closing of
the merger (the determination date) is less than
$20.35 and First Charters stock price has also declined by
greater than 15% relative to the Nasdaq Bank Index between
May 31, 2006 (the day prior to the date the merger
agreement was signed) and the determination date. However, if
GBC elects to exercise this termination right, the merger
agreement will nevertheless not be terminated if within five
business days of receiving GBCs termination notice, First
Charter increases the common stock component of the merger
consideration, as set forth in the merger agreement.
GBC will be required to pay First Charter a termination fee in
the amount of $3.57 million, plus all of the reasonable
actual expenses incurred by First Charter in connection with the
proposed transaction, if GBC enters into or closes on an
acquisition agreement with respect to an Alternative Transaction
(or an Alternative Proposal is received (as defined in the
merger agreement and described above under the subheading
The Merger Agreement Agreement Not to
Solicit Other Offers)) if either:
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the merger agreement is duly terminated by First Charter and
prior to such termination, an Alternative Transaction was
received, commenced, publicly proposed or publicly disclosed (as
defined in the merger agreement and described above under the
subheading The Merger Agreement Agreement
Not to Solicit Other Offers), and within 12 months
after such termination, GBC has entered into a definitive
written agreement relating to an Alternative Transaction or
consummated an Alternative Transaction, or
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after receiving an Alternative Proposal, GBCs board of
directors fails to convene the special meeting to approve the
merger with First Charter or recommend that the GBC shareholders
approve the merger agreement, and within 12 months of
receiving the Alternative Proposal, GBC has entered into a
definitive written agreement relating to an Alternative
Transaction or consummated an Alternative Transaction.
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However, First Charter will in any event not be entitled to a
termination fee if the merger agreement is terminated by mutual
consent or due to a failure to obtain the necessary regulatory
approvals. Similarly, First Charter will not be entitled to a
termination fee if GBC terminates the merger agreement due to
(i) a material breach of a representation, warranty or
covenant by First Charter or (ii) a decline in First
Charters average stock price described above in this
subsection coupled with First Charters decision not to
increase the common stock component of the merger consideration.
Effect
of Termination
If the merger agreement is terminated, it will become void, and
there will be no liability on the part of First Charter or GBC,
except that (1) both First Charter and GBC will remain
liable for any willful breach of the merger agreement and
(2) designated provisions of the merger agreement,
including the payment of fees and expenses, the confidential
treatment of information and publicity restrictions, will
survive the termination.
Amendment,
Waiver and Extension of the Merger Agreement
Subject to applicable law, the parties may amend the merger
agreement by action taken or authorized by their boards of
directors or by written agreement. However, after any approval
of the transactions contemplated by the merger agreement by the
GBC shareholders, there may not be, without further approval of
those shareholders, any amendment of the merger agreement that
(1) changes the amount or the form of the consideration to
be delivered to the holders of GBC common stock,
(2) changes any term of the certificate of incorporation of
the combined company, or (3) changes any of the terms and
conditions of the merger agreement if such change would
adversely affect the holders of any GBC securities, in each case
other than as contemplated by the merger agreement.
At any time prior to the completion of the merger, each of us,
by action taken or authorized by our respective board of
directors, to the extent legally allowed, may:
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extend the time for the performance of any of the obligations or
other acts of the other party;
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waive any inaccuracies in the representations and warranties of
the other party; or
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waive compliance by the other party with any of the other
agreements or conditions contained in the merger agreement.
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Resales
of First Charter Stock by GBC Affiliates
Shares of First Charter common stock to be issued to GBC
shareholders in the merger have been registered under the
Securities Act, and may be traded freely and without restriction
by those shareholders not deemed to be affiliates (as that term
is defined under the Securities Act) of GBC. Any transfers of
First Charter common stock, however, by any person who is an
affiliate of GBC at the time the merger is submitted for a vote
of the GBC shareholders will, under existing law, require:
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the further registration under the Securities Act of the First
Charter stock to be transferred;
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compliance with Rule 145 promulgated under the Securities
Act, which permits limited sales under certain
circumstances; or
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the availability of another exemption from registration.
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An affiliate of GBC is a person who directly, or
indirectly through one or more intermediaries, controls, is
controlled by, or is under common control with, GBC. These
restrictions are expected to apply to the directors and
executive officers of GBC and the holders of 10% or more of the
outstanding GBC common stock. The same restrictions apply to the
spouses and certain relatives of those persons and any trusts,
estates, corporations or other entities in which those persons
have a 10% or greater beneficial or equity interest.
First Charter will give stop transfer instructions to the
exchange agent with respect to the shares of First Charter
common stock to be received by persons subject to these
restrictions, and the certificates for their shares will be
appropriately legended.
GBC has agreed in the merger agreement to use its reasonable
best efforts to cause each person who is an affiliate of GBC for
purposes of Rule 145 under the Securities Act to deliver to
First Charter a written agreement intended to ensure compliance
with the Securities Act.
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ACCOUNTING
TREATMENT
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 (including identifiable
intangible assets) and liabilities (including executory
contracts and other commitments) of GBC as of the effective time
of the merger will be recorded at their respective fair values
and added to those of First Charter. Any excess of purchase
price over the fair values is recorded as goodwill. Financial
statements of First Charter issued after the merger will reflect
these fair values and will not be restated retroactively to
reflect the historical financial position or results of
operations of GBC.
MATERIAL
FEDERAL INCOME TAX CONSEQUENCES OF THE MERGER
The following general discussion sets forth the anticipated
material United States federal income tax consequences of the
merger to U.S. holders (as defined below) of GBC common
stock that exchange their shares of GBC common stock for shares
of First Charter common stock and cash in the merger. This
discussion does not address any tax consequences arising under
the laws of any state, local or foreign jurisdiction, or under
any United States federal laws other than those pertaining to
income tax. This discussion is based upon the Internal Revenue
Code of 1986, as amended (the Code), the regulations
promulgated under the Code and court and administrative rulings
and decisions in effect on the date of this document. These laws
may change, possibly retroactively, and any change could affect
the continuing validity of this discussion.
This discussion addresses only those GBC shareholders that hold
their shares of GBC common stock as a capital asset within the
meaning of Section 1221 of the Code. Further, this
discussion does not address all aspects of United States federal
income taxation that may be relevant to you in light of your
particular circumstances or that may be applicable to you if you
are subject to special treatment under the United States federal
income tax laws, including if you are:
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a financial institution;
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a tax-exempt organization;
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an S corporation or other pass-through entity (or an
investor in an S corporation or other pass-through entity);
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an insurance company;
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a mutual fund;
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a dealer in stocks and securities, or foreign currencies;
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a trader in securities that elects the
mark-to-market
method of accounting for your securities;
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a holder of GBC common stock subject to the alternative minimum
tax provisions of the Code;
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a holder of GBC common stock that received GBC common stock
through the exercise of an employee stock option, through a tax
qualified retirement plan or otherwise as compensation;
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a person that is not a U.S. holder (as defined below);
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a holder of GBC common stock that holds GBC common stock as part
of a hedge, straddle, constructive sale or conversion
transaction.
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Determining the actual tax consequences of the merger to you may
be complex. They will depend on your specific situation and on
factors that are not within our control. You should consult with
your own tax advisor as to the tax consequences of the merger in
your particular circumstances, including the applicability and
effect of the alternative minimum tax and any state, local,
foreign or other tax laws and of changes in those laws.
For purposes of this discussion, the term
U.S. holder means a beneficial owner of GBC
common stock that is (i) an individual citizen or resident
of the United States, (ii) a corporation organized in or
under the
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laws of the United States or any state thereof or the District
of Columbia or (iii) otherwise subject to U.S. federal
income taxation on a net income basis in respect of the GBC
common stock.
The parties intend for the merger to qualify as a reorganization
for United States federal income tax purposes. In connection
with the filing of the registration statement of which this
document forms a part, Womble Carlyle Sandridge & Rice,
PLLC has delivered an opinion to GBC to the effect that
(1) assuming that no less than 40% of the closing date fair
market value of the aggregate consideration for all of the
outstanding GBC common stock will be in the form of First
Charter common stock, the merger will constitute a
reorganization within the meaning of
Section 368(a) of the Code (the Stock Consideration
Assumption) and (2) except to the extent of any cash
consideration received in the merger and except with respect to
cash received in lieu of fractional share interests in First
Charter common stock, no gain or loss will be recognized by
holders of GBC common stock in the merger. It is a condition to
GBCs obligation to complete the merger that GBC receive an
opinion from Womble Carlyle Sandridge & Rice, PLLC,
dated the closing date of the merger, to the same effect as the
opinion from that firm described above. This opinion will be
based on representations contained in certificates delivered by
First Charter and GBC and on customary factual assumptions, all
of which must continue to be true and accurate in all material
respects as of the effective time of the merger. In the event
that on the closing date of the merger, the Stock Consideration
Assumption is not satisfied (because of the operation of
Section 8.1(g) of the merger agreement or for any other
reason), the merger may not qualify as a
reorganization within the meaning of
Section 368(a) of the Code and Womble Carlyle
Sandridge & Rice, PLLC will be unable to deliver the
opinion that is a condition to GBCs obligation to complete
the merger. The opinion described above will not be binding on
the Internal Revenue Service. First Charter and GBC have not
sought and will not seek any ruling from the Internal Revenue
Service regarding any matters relating to the merger, and as a
result, there can be no assurance that the Internal Revenue
Service will not disagree with or challenge any of the
conclusions described herein.
Assuming the merger qualifies as a reorganization within the
meaning of Section 368(a) of the Code, the material United
States federal income tax consequences of the merger are as
follows:
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if you exchange GBC common stock solely for First Charter common
stock, you will not recognize gain or loss except with respect
to any cash received in lieu of a fractional share of First
Charter common stock;
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if you exchange GBC common stock solely for cash, you generally
will recognize gain or loss in an amount equal to the difference
between the amount of cash you receive and your tax basis in
your shares of GBC common stock surrendered;
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if you exchange GBC common stock for a combination of First
Charter common stock and cash and your tax basis in the GBC
common stock surrendered is less than the sum of the fair market
value of the First Charter common stock and the amount of cash
received, you generally will recognize gain in an amount equal
to the lesser of (1) the excess of the sum of the cash
(excluding any cash received in lieu of a fractional share of
First Charter common stock) and the fair market value of the
First Charter common stock you receive (including any fractional
share of First Charter common stock you are deemed to receive
and exchange for cash), over your tax basis in the GBC common
stock surrendered in the merger (i.e., realized gain); and
(2) the amount of cash (excluding any cash received in lieu
of a fractional share of First Charter common stock) that you
receive in the merger. However, if your tax basis in the GBC
common stock surrendered in the merger is greater than the sum
of the amount of cash and the fair market value of the First
Charter common stock received, your loss will not be recognized
for tax purposes until you dispose of the shares you received in
the merger;
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your tax basis in the First Charter common stock that you
receive in the merger (including any fractional shares you are
deemed to receive and exchange for cash), will equal your tax
basis in the GBC common stock you surrendered, increased by the
amount of taxable gain, if any, you recognize on the exchange
(excluding any gain recognized with respect to any cash received
in lieu of a fractional share of First Charter common stock) and
decreased by the amount of any cash received by you in the
merger (excluding any cash received in lieu of a fractional
share of First Charter common stock); and
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your holding period of the First Charter common stock that you
receive in the merger (including any fractional shares you are
deemed to receive and exchange for cash) will include your
holding period for the shares of GBC common stock that you
exchange in the merger.
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If you acquired different blocks of GBC common stock at
different times or at different prices, any gain or loss you
recognize will be determined separately with respect to each
block of GBC common stock, and the cash and First Charter common
stock you receive will be allocated pro rata to each such block
of common stock. In addition, your tax basis and holding period
in your First Charter common stock received in the merger may be
determined with reference to each block of GBC common stock
exchanged. If you have different bases or holding periods in
respect of shares of GBC common stock, you should consult your
tax advisor prior to the exchange with regard to identifying the
bases or holding periods of the particular shares of First
Charter common stock received in the merger.
Any recognized gain will generally be long-term capital gain if
your holding period with respect to the GBC common stock
surrendered is more than one year at the effective time of the
merger. In some cases, where you actually or constructively own
First Charter common stock immediately before the merger, such
cash received in the merger could be treated as having the
effect of the distribution of a dividend, under the tests set
forth in Section 302 of the Code, in which case such cash
received would be treated as ordinary dividend income. These
rules are complex and dependent upon the specific factual
circumstances particular to you. Consequently, if you may be
subject to those rules, you should consult your tax advisor as
to the application of these rules to the particular facts
relevant to you.
Cash
in Lieu of a Fractional Share
If you receive cash in lieu of a fractional share of First
Charter common stock, you will be treated as having received the
fractional share of First Charter common stock pursuant to the
merger and then as having exchanged the fractional share of
First Charter common stock for cash in a redemption by First
Charter. As a result, assuming that the redemption of a
fractional share of First Charter common stock is treated as a
sale or exchange and not as a dividend, you generally will
recognize gain or loss equal to the difference between the
amount of cash received and your basis in the fractional share
of First Charter common stock as set forth above. This gain or
loss generally will be capital gain or loss, and will be
long-term capital gain or loss if, as of the effective date of
the merger, the holding period for the shares is greater than
one year. The deductibility of capital losses is subject to
limitations.
Dissenting
Shareholders
Holders of GBC common stock who dissent with respect to the
merger as discussed in The Merger GBC
Shareholders Have Dissenters Rights of Appraisal in the
Merger, and who receive cash in respect of their shares of
GBC common stock generally will recognize gain or loss in an
amount equal to the difference between the amount of cash
received and their aggregate tax basis in their shares of GBC
common stock. This gain or loss generally will be capital gain
or loss, and will be long-term capital gain or loss if, as of
the effective date of the merger, the holding period for the
shares is greater than one year. The deductibility of capital
losses is subject to limitations.
Backup
Withholding
If you are a non-corporate holder of GBC common stock you may be
subject to information reporting and backup withholding at a
rate of 28% on any cash payments you receive. You generally will
not be subject to backup withholding, however, if you:
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furnish a correct taxpayer identification number and certify
that you are not subject to backup withholding on the substitute
Form W-9
or successor form included in the election form/letter of
transmittal you will receive; or
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are otherwise exempt from backup withholding.
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Penalties apply for failure to furnish correct information and
for failure to include reportable payments in income. Any
amounts withheld under the backup withholding rules will
generally be allowed as a refund or credit against your United
States federal income tax liability, provided you timely furnish
the required information to the Internal Revenue Service.
Reporting
Requirements
If you receive shares of First Charter common stock as a result
of the merger, you will be required to retain records pertaining
to the merger and you will be required to file with your United
States federal income tax return for the year in which the
merger takes place a statement setting forth certain facts
relating to the merger.
The preceding discussion is intended only as a summary of
material United States federal income tax consequences of the
merger. It is not a complete analysis or discussion of all
potential tax consequences that may be important to you. Thus,
we urge GBC shareholders to consult their own tax advisors as to
the specific tax consequences to them resulting from the merger,
including tax return reporting requirements, the applicability
and effect of federal, state, local and other applicable tax
laws and the effect of any proposed changes in the tax laws.
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COMPARISON
OF SHAREHOLDERS RIGHTS FOR EXISTING GBC
SHAREHOLDERS
When the merger becomes effective, holders of GBC common stock
who elect to receive First Charter common stock as merger
consideration, or who otherwise receive First Charter common
stock due to the proration of their cash merger consideration
election as described elsewhere in this document, will become
holders of First Charter common stock. The following is a
summary of material differences between the rights of holders of
First Charter common stock and holders of GBC common stock.
Since First Charter is organized under the laws of the State of
North Carolina and GBC is organized under the laws of the State
of Georgia, differences in the rights of holders of First
Charter common stock and those of holders of GBC common stock
arise from differing provisions of the North Carolina Business
Corporation Act (the NCBCA) and the Georgia Business
Corporation Code (the Georgia Code), in addition to
differing provisions of their respective articles of
incorporation and bylaws.
The following summary does not purport to be a complete
statement of the provisions affecting, and differences between
the rights of holders of First Charter common stock and holders
of GBC common stock. The identification of specific provisions
or differences is not meant to indicate that other equally or
more significant differences do not exist. This summary is
qualified in its entirety by reference to the NCBCA and the
Georgia Code and the governing corporate instruments of First
Charter and GBC, to which the shareholders of GBC are referred.
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FIRST CHARTER
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GBC
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AUTHORIZED CAPITAL
STOCK
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Common Stock. First Charters authorized common stock consists of 100,000,000 shares of common stock, no par value. As of June 30, 2006, there were (i) 31,120,421 shares of First Charter common stock issued and outstanding and (ii) 4,329,461 shares of First Charter common stock reserved for issuance upon exercise of stock options issued pursuant to employee and director stock plans of First Charter or its subsidiary, First Charter Bank. Except for the preferred stock discussed below, there are no other classes of capital stock authorized for issuance by First Charter.
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Common Stock. GBCs authorized common stock consists of 3,000,000 shares of common stock, $1.00 par value per share. As of June 30, 2006, there were 2,136,608 shares of GBC common stock issued and outstanding. There are no other classes of capital stock authorized for issuance by GBC.
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Preferred Stock.
First Charters authorized preferred stock
consists of 2,000,000 shares. First Charters
articles of incorporation authorize the First Charter board of
directors (the First Charter Board) to fix the
designation, powers, preferences, and rights of the shares of
each series of preferred stock to be issued by First Charter.
The rights of preferred stockholders may supersede the rights of
common shareholders. As of June 1, 2006, First Charter had
established one class of preferred stock, which was designated
Series X Junior Participating Preferred Stock. As of June
1, 2006, 100,000 shares of the Series X Junior
Participating Preferred Stock were authorized for issuance, and
none of such shares were issued and outstanding.
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Preferred Stock. GBC has no authorized or issued shares of preferred stock.
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FIRST CHARTER
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GBC
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MERGERS, SHARE EXCHANGES AND
SALES OF ASSETS
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First Charters articles of incorporation provide that, generally, any merger, consolidation or disposition of all or substantially all of the assets of First Charter or the stock or assets of any of its major subsidiaries may be submitted to the shareholders of First Charter only if approved by at least seventy-five percent (75%) of the First Charter Board. If submitted to the shareholders, such action generally must be approved by (i) the holders of at least seventy-five percent (75%) of the aggregate voting power of First Charter and (ii) the holders of at least 50% of the aggregate voting power entitled to vote thereon other than controlling shareholders.
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GBCs articles of incorporation provide that any merger or share exchange of the corporation with or into any other entity, or the sale or other disposition of all or substantially all of GBCs assets requires either: (i) the affirmative vote of two-thirds (2/3) of the GBC board of directors (the GBC Board) and the affirmative vote of a majority of the issued and outstanding shares of the corporation entitled to vote; or (ii) the affirmative vote of a majority of the GBC Board and the affirmative vote of at least two-thirds (2/3) of the issued and outstanding shares of the corporation entitled to vote. The GBC Board unanimously approved the merger with First Charter and, thus, an affirmative vote of a majority of the issued and outstanding shares of the corporation is required to approve the merger with First Charter.
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AMENDMENTS TO THE ARTICLES
OF INCORPORATION
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The NCBCA provides that a North Carolina corporations articles of incorporation may be amended only upon approval by a majority of the votes cast within each voting group entitled to vote. As provided in Mergers, Share Exchanges and Sales of Assets above, First Charters articles of incorporation further provide more stringent voting requirements to amend certain articles regarding specified significant corporate actions. These articles may be amended only by the vote of the shareholders required by the provisions for the significant corporate actions.
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The Georgia Code provides that an amendment of a corporations articles of incorporation requires approval by a majority of each voting group entitled to vote on the amendment. GBCs articles of incorporation further provide that unless approved by two-thirds (2/3) of the GBC Board, any amendment to the provisions in GBCs articles of incorporation regarding (i) removal of directors, (ii) approval of mergers, consolidations or a sale of all or substantially all of the corporations assets, or (iii) the consideration by the GBC board of tender offers, must be approved by two-thirds (2/3) of the issued and outstanding shares of the corporation.
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AMENDMENTS TO THE
BYLAWS
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First Charters bylaws provide that the shareholders may amend or repeal the bylaws and may adopt new bylaws. In regard to the First Charter Board, First Charters bylaws authorize the First Charter Board to amend or repeal the bylaws, except that a bylaw adopted, amended or repealed by the shareholders may not be readopted, amended or repealed by the First Charter Board. Further, any bylaw that fixes a greater quorum requirement than otherwise provided by the NCBCA may not be amended by a quorum or vote of the directors less than the quorum or vote prescribed by the bylaw.
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GBCs articles of incorporation provide that GBCs shareholders and the GBC Board have the power to alter, amend, or repeal GBCs bylaws or adopt new bylaws at any regular or special meeting. In order to amend the provision of the bylaws regarding the number of directors, GBCs articles of incorporation impose a heightened requirement of the affirmative vote of two- thirds (2/3) of all directors then in office or the affirmative vote of the holders of two-thirds (2/3) of the issued and outstanding shares of the corporation.
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SHAREHOLDERS RIGHTS OF
DISSENT AND APPRAISAL
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The NCBCA provides that for any merger, share exchange or sale or exchange of property,
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The Georgia Code provides dissenters rights for (i) mergers and certain share exchanges that
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FIRST CHARTER
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GBC
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dissenters rights are not
available to the shareholders of a corporation, such as First
Charter, that is either listed on a national securities exchange
or held by more than 2,000 record shareholders, unless (i)
the articles of incorporation of the corporation provide
otherwise or (ii) in the case of a merger or share
exchange, the holders of the shares are required to accept
anything other than (a) cash, (b) shares
in another corporation that are either listed on a national
securities exchange or held by more than 2,000 record
shareholders or (c) a combination of cash and such
shares. First Charters articles of incorporation do not
authorize any special dissenters rights.
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require shareholder approval,
(ii) sales of all or substantially all of the assets of a
corporation, (iii) certain amendments to the articles of
incorporation and (iv) any corporate action taken pursuant
to a shareholder vote if the articles of incorporation, bylaws
or a resolution of the board of directors entitle shareholders
to dissent. Similar to the NCBCA, the Georgia Code does not
provide dissenters rights for corporations that have over
2,000 shareholders or whose voting stock is listed on a
national securities exchange.
Since GBC does not have 2,000 shareholders and its common
stock is quoted on the OTC Bulletin Board, which is not a
national securities exchange, holders of GBCs common stock
have dissenters rights in connection with the merger with
First Charter. For a discussion of the dissenters rights
that are available to GBC shareholders in connection with the
merger, and the specific steps that must be followed to exercise
those rights, see The Merger GBC
Shareholders Have Dissenters Rights of Appraisal in the
Merger.
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SPECIAL MEETINGS OF
SHAREHOLDERS
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Special meetings of the shareholders of First Charter may be called at any time by First Charters Chief Executive Officer, by the Secretary acting under instructions of the Chief Executive Officer or by the First Charter Board.
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Special meetings of the GBC shareholders may be called at any time by the GBC Board, GBCs President or upon the written request of any one or more shareholders owning an aggregate of not less than twenty-five percent (25%) of the outstanding capital stock of GBC.
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SHAREHOLDER NOMINATIONS AND
SHAREHOLDER PROPOSALS
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First Charters bylaws establish advance notice procedures for shareholder proposals and the nominations of candidates for election as directors. Any shareholder wishing to nominate a person for election to the First Charter Board must, in most cases, submit the nomination in writing to the Secretary of First Charter between 90 and 120 days prior to the anniversary of the preceding years annual meeting. Similarly, any shareholder intending to make a proposal for consideration at a regularly scheduled annual meeting of shareholders must, in most cases, provide notice to the Secretary of First Charter between 90 and 120 days prior to the anniversary of the preceding years annual meeting.
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Neither GBCs articles of incorporation nor its bylaws have provisions for advance shareholder notice of shareholder proposals or advance notice of director nominations.
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DIRECTORS
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Number of
Directors
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First Charters bylaws provide the First Charter Board shall have not less than five (5) nor more
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GBCs bylaws provide the GBC Board shall have not less than seven (7) nor more than
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FIRST CHARTER
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GBC
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than twenty-five (25)
members, as determined from time to time either by
(i) a vote of the shareholders or (ii) the
approval of at least seventy-five percent (75%) of the members
of the First Charter Board. Currently, the number of directors
serving on the First Charter Board has been fixed at 16
directors, and there are 14 directors serving on the
board, with two vacancies.
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fifteen (15) members. The number
of directors on the GBC Board may be changed, within the minimum
and maximum, by an affirmative vote of two-thirds
(2/3)
of the issued and outstanding shares of the corporation entitled
to vote in an election of directors, or by the affirmative vote
of two-thirds
(2/3)
of all directors then in office on the GBC Board. GBCs
Board currently has 10 members.
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Classification
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First Charters articles of incorporation provide that the First Charter Board shall be divided into three classes, with directors serving staggered three-year terms.
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GBC does not have a classified board of directors. All directors are elected by the shareholders for one year terms.
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Election of
Directors
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First Charters bylaws provide that directors are to be elected by a plurality of the votes cast by the shares entitled to vote in the election, at a meeting at which a quorum is present.
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GBCs bylaws provide that directors are to be elected at each annual meeting of the shareholders by an affirmative vote of a plurality of the shares represented at such meeting.
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Removal
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Under First Charters bylaws, First Charter directors may be removed, with or without cause, by a vote of the shareholders if the number of votes cast to remove such director exceeds the number of votes cast not to remove him or her. A director may not be removed by the shareholders at a shareholders meeting unless the notice of the meeting states that the purpose, or one of the purposes, of the meeting is removal of the director. If any directors are so removed, new directors may be elected at the same meeting.
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GBCs articles of incorporation provide that the entire GBC Board or any individual director may be removed without cause only by a vote of the holders of a majority of the issued and outstanding shares of the corporation. The entire GBC Board or any individual director may be removed with cause only by the affirmative vote of the holders of a majority of the shares of the corporation represented at the shareholders meeting. For purposes of removal, cause is considered: (i) conviction of a felony; (ii) the request or demand for removal by any bank regulatory authority having jurisdiction over the corporation; or (iii) a determination by at least two-thirds (2/3) of the directors of the corporation then in office, excluding the director to be removed, that the directors conduct has been inimical to the best interest of the corporation.
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Vacancy
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First Charters bylaws provide that if a vacancy occurs on the First Charter Board, including a vacancy resulting from an increase in the number of directors or from the failure of the shareholders to elect the authorized number of directors, the vacancy may be filled by (i) the shareholders, (ii) the First Charter Board in a regular board action or (iii) if less than a quorum of the First Charter Board exists, the affirmative vote of a majority of the directors or by the sole director remaining in office. If the vacant office was held by a director elected by a voting group
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GBCs bylaws provide that any vacancy among directors, including a vacancy created by an increase in the number of directors, may be filled by a vote of the remaining directors.
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FIRST CHARTER
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GBC
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of shareholders, only the
remaining director or directors elected by that voting group or
the holders of shares of that voting group are entitled to fill
the vacancy.
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Discharge of
Duties
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The NCBCA requires that a director discharge his or her duties (i) in good faith, (ii) with the care an ordinarily prudent person in a like position would exercise under similar circumstances and (iii) in a manner the director reasonably believes to be in the best interests of the corporation. The NCBCA expressly provides that a director facing a change of control situation is not subject to any different duties or to a higher standard of care.
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The Georgia Code requires that a director discharge his or her duties as a director subject to several general standards of care. Each director must act in a manner he or she believes in good faith to be in the best interests of the corporation. Additionally, a director must exercise the care of an ordinarily prudent person in a like position and in similar circumstances.
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Exculpation
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First Charters articles of incorporation provide that, to the fullest extent permitted by applicable law, no director of First Charter will have any personal liability for monetary damage for a breach of his or her duty as a director.
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GBCs articles of incorporation provide that a director will not be personally liable to GBC or its shareholders for monetary damages for breach of any duty as a director, other than personal liability for: (i) any appropriation, in violation of his or her duties, of any business opportunity of the corporation; (ii) acts or omissions not in good faith or which involve intentional misconduct or a knowing violation of the law; (iii) certain types of liability enumerated under Georgia law, dealing with unlawful distributions to shareholders; and (iv) any transactions from which the director derived an improper personal benefit.
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Indemnification
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First Charters bylaws require First Charter to indemnify its directors, to the fullest extent permitted by applicable law, against liabilities arising out of his or her status as a director or officer, excluding any liability relating to activities that were known or believed by such person to be clearly in conflict with the best interests of First Charter. For more on indemnification of First Charters directors and officers, please see the discussion below under the caption Indemnification of Directors and Officers.
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GBCs bylaws provide that GBC shall indemnify its directors for liabilities and expenses from proceedings arising out of his or her duties as a director if the director acted in a manner he or she believed in good faith to be in the best interests of the corporation and, in the case of any criminal proceeding, he or she had no reasonable cause to believe his or her conduct was unlawful. For more on indemnification of GBCs directors and officers, please see the discussion below under the caption Indemnification of Directors and Officers.
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Consideration of Business
Combinations
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Neither First Charters articles of incorporation nor its bylaws specify any factors to which the First Charter Board must give consideration in evaluating a transaction involving a potential change in control of First Charter. For a discussion of the factors considered by the First Charter Board in connection with the merger,
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GBCs articles of incorporation provide that the GBC Board, when evaluating any offer of another party (i) to make a tender offer or exchange offer for any equity security of GBC, (ii) to merge or consolidate any other corporation with GBC or (iii) to purchase or otherwise acquire all or substantially all of the assets of the
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FIRST CHARTER
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GBC
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please see The Merger
First Charters Reasons for the
Merger.
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corporation, must, in determining
what is in the best interests of the corporation and its
shareholders, give due consideration to all relevant factors.
These factors specifically include: (a) the short-term and
long-term social and economic effects on the employees,
customers, shareholders and the constituents of GBC and its
subsidiaries, and on the communities within which the
corporation and its subsidiaries operate and (b) the
consideration being offered by the other party in relation to
the then-current value of the corporation in a freely negotiated
transaction and in relation to the GBC Boards
then-estimate of the future value of the corporation as an
independent entity. For a discussion of the factors considered
by the GBC Board in connection with the merger, please see
The Merger GBCs Reasons
for the Merger.
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ANTI-TAKEOVER
STATUTES
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The North Carolina Control Share
Acquisition Act is designed to protect shareholders of publicly
owned corporations based and incorporated in North Carolina
against certain changes in control and to provide shareholders
with the opportunity to vote on whether to afford voting rights
to certain types of shareholders. The Act is triggered by the
acquisition by a person of shares of voting stock of a covered
corporation that, when added to all other shares beneficially
owned by the person, would result in that person holding
one-fifth, one-third or a majority of the voting power for the
election of directors. Under the Act, the shares acquired that
result in the crossing of any of these thresholds have no voting
rights until such rights are conferred by the affirmative vote
of the holders of a majority of all outstanding voting shares,
excluding those shares held by any person involved or proposing
to be involved in the acquisition of shares in excess of the
thresholds, any officer of the corporation and any employee of
the corporation who is also a director of the corporation. If
voting rights are conferred on the acquired shares, all
shareholders of the corporation may require that their shares be
redeemed at the highest price paid per share by the acquirer for
any of the acquired shares. First Charter has opted out of the
North Carolina Control Share Acquisition Act, as permitted by
that Act.
The North Carolina Shareholder Protection Act requires that
certain business combinations with existing shareholders either
be approved by a
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Georgia law provides for certain voting rules and fair price requirements concerning business combinations with interested shareholders. These provisions are designed to protect shareholders of Georgia corporations against the inequities of certain tactics which have been utilized in hostile takeover attempts. Under the fair price provisions, business combinations with interested shareholders (generally, any person who beneficially owns 10% or more of the corporations voting shares) must meet one of three criteria designed to protect minority shareholders: (i) the transaction must be unanimously approved by the continuing directors of the corporation (generally, directors who served prior to the time the interested shareholder acquired 10% ownership and who are unaffiliated with the interested shareholder), (ii) the transaction must be approved by two-thirds (2/3) of the continuing directors and a majority of shares held by shareholders other than the interested shareholders, or (iii) the terms of the transaction must meet specified fair pricing criteria and certain other tests which are intended to assure that all shareholders receive a fair price for their shares regardless of which point in time they sell to the acquiring party. Fair price requirements under the Georgia Code are not applicable to any corporation unless they are specifically incorporated in the bylaws of the corporation. Since GBCs bylaws do not contain specific fair price requirements, they do not apply to transactions involving GBC.
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FIRST CHARTER
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GBC
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supermajority of the other
shareholders or meet certain fair price
requirements. First Charter has opted out of the North Carolina
Shareholder Protection Act in its articles of incorporation, as
permitted by that Act.
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INDEMNIFICATION OF DIRECTORS
AND OFFICERS
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First Charters bylaws
require First Charter to indemnify its directors and officers,
to the fullest extent permitted by applicable law, against
liabilities arising out of his or her status as a director or
officer, excluding any liability relating to activities that
were known or believed by such person to be clearly in conflict
with the best interests of First Charter. First Charter must
also indemnify each director and officer for reasonable costs,
expenses and attorneys fees incurred in connection with
the enforcement of rights to indemnification, if it is
determined that the director or officer is entitled to
indemnification.
The determination concerning whether an officer or director is
entitled to indemnification must be made (i) by the
First Charter Board by a majority vote of the directors that are
not parties to the proceeding; (ii) if a quorum of
directors cannot be obtained, by a majority vote of a committee
duly designated by the First Charter Board; (iii) by
special legal counsel selected by the First Charter Board or its
committee; or (iv) by the shareholders, but shares owned
by or voted under the control of directors who are at the time
parties to the proceeding may not be voted on the determination.
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GBCs bylaws provide that GBC must indemnify any individual made a party to a proceeding because he or she is or was a director, officer, employee or agent of the corporation for reasonable expenses, judgments, fines, penalties and amounts paid in settlement, if the individual acted in a manner he or she believed in good faith to be in or not opposed to the best interests of the corporation. In the case of any criminal proceeding, such indemnification is required if he or she had no reasonable cause to believe his or her conduct was unlawful. GBCs bylaws also provide that if a director, officer, employee, or agent of the corporation has been successful in the defense of any proceeding (or claim, issue or matter within a proceeding) to which he or she was a party because his or her service to the corporation, GBC must (without consideration of the exceptions provided above) indemnify the party against reasonable expenses incurred in connection the proceeding.
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DIVIDENDS AND OTHER
DISTRIBUTIONS
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The NCBCA prohibits a North Carolina corporation from making any distributions to shareholders, including the payment of cash dividends, that would (i) render the corporation insolvent, (ii) make the corporation unable to meet its obligations as they become due in the ordinary course of business or (iii) result in the corporations total assets being less than the sum of its total liabilities plus the amount that would be needed, if it were to be dissolved at the time of the dividend payment, to satisfy the preferential rights upon dissolution of shareholders whose preferential rights are superior to those receiving the distribution. First Charter is not subject to any other express restrictions on payments of dividends and other distributions.
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Under the Georgia Code, the GBC Board may declare dividends on GBC common stock unless doing so would cause GBC to be unable to pay its debts as they come due in the usual course of business, or GBCs total assets to be less than the sum of its total liabilities plus the amount needed to satisfy any dissolution preferences. Like First Charter, since GBC is a bank holding company, the ability of GBC to pay distributions to GBC shareholders largely depends upon the amount of dividends its bank subsidiary may provide to it under regulatory guidelines and as the Federal Reserve will permit.
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The ability of First Charter to pay distributions to the holders of its common stock will largely depend, however, upon the amount of dividends
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FIRST CHARTER
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GBC
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its bank subsidiary, which is
subject to restrictions imposed by regulatory authorities, pays
to First Charter. In addition, the Federal Reserve could oppose
a distribution by First Charter if it determined that such a
distribution would harm First Charters ability to support
its bank subsidiary. There can be no assurances that dividends
will be paid in the future. The declaration, payment and amount
of any such future dividends would depend on business
conditions, operating results, capital, reserve requirements and
the consideration of other relevant factors by the First Charter
Board.
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LIQUIDATION
RIGHTS
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In the event of the liquidation,
dissolution or
winding-up
of the affairs of First Charter, holders of First Charter Series
X Junior Participating Preferred Stock, of which there are
presently none, are entitled to be paid before any distribution
or payment is made to holders of First Charter common stock.
These preferred shareholders, of which there are presently none,
are to be paid the greater of (i) $1.00 per
share or (ii) the aggregate amount distributed or to be
distributed to the holder prior to such date in connection with
the liquidation, dissolution or winding up, together with
accrued dividends, whether or not declared. The holders of
common stock are entitled to share in First Charters
assets and funds remaining after payment, or provision for
payment, of all debts, other liabilities, and payment of the
preferred shareholders of First Charter.
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In the event of the liquidation,
dissolution or
winding-up
of the affairs of GBC, holders of outstanding shares of GBC
common stock are entitled to share in the assets and funds
remaining after payment, or provision for payment, of all debts
and other liabilities of GBC.
Because GBC is a bank holding company, its rights and the
rights of its creditors and shareholders to receive the assets
of any subsidiary upon liquidation or recapitalization may be
subject to prior claims of the subsidiarys creditors,
except to the extent that GBC may itself be a creditor with
recognized claims against the subsidiary.
|
|
|
|
Because First Charter is a bank holding company, its rights and the rights of its creditors and shareholders, to receive the assets of any subsidiary upon the subsidiarys liquidation or recapitalization may be subject to the prior claims of the subsidiarys creditors, except to the extent that First Charter may itself be a creditor with recognized claims against the subsidiary
|
|
|
93
UNAUDITED
PRO FORMA CONDENSED COMBINED FINANCIAL INFORMATION
The following unaudited pro forma condensed combined financial
information and explanatory notes present how the combined
financial statements of First Charter and GBC may have appeared
had the businesses actually been combined at the beginning of
the period presented. The unaudited pro forma condensed combined
financial information shows the impact of the merger of First
Charter and GBC on the companies respective historical
financial positions and results of operations under the purchase
method of accounting with First Charter treated as the acquirer.
Under this method of accounting, the assets and liabilities of
GBC will be recorded by First Charter at their estimated fair
values as of the date the merger is completed. The unaudited pro
forma condensed combined financial information combines the
historical financial information of First Charter and GBC as of
and for the three months ended March 31, 2006 and for the
year ended December 31, 2005. The unaudited pro forma
condensed combined balance sheet as of March 31, 2006
assumes the merger was completed on that date. The unaudited pro
forma condensed combined statements of income give effect to the
merger as if the merger had been completed on January 1,
2005.
The merger agreement was announced on June 1, 2006 and
provides for each outstanding share of GBC common stock to be
converted into the right to receive merger consideration in the
form of 1.989 shares of First Charter common stock, $47.74
in cash, or a combination of First Charter common stock and
cash, except in the case of GBC shareholders who validly perfect
dissenters rights. The unaudited pro forma condensed
combined financial information has been derived from and should
be read in conjunction with the historical consolidated
financial statements and the related notes of both First Charter
and GBC. First Charters historical consolidated financial
statements are incorporated in this document by reference.
GBCs historical consolidated financial statements are
included with this document as Exhibit E and are
incorporated herein by reference. See Where You Can Find
More Information.
The unaudited pro forma condensed combined financial information
is presented for illustrative purposes only and does not
indicate the financial results of the combined companies had the
companies actually been combined at the beginning of each period
presented and had the impact of possible revenue enhancements
and expense efficiencies, among other factors, been considered.
In addition, as explained in more detail in the accompanying
notes to the unaudited pro forma condensed combined financial
information, the allocation of the purchase price reflected in
the pro forma condensed combined financial information is
subject to adjustment and may vary from the actual purchase
price allocation that will be recorded upon completion of the
merger.
94
First
Charter/GBC
Pro Forma Condensed Combined Balance Sheet
(unaudited)
The following unaudited pro forma condensed combined balance
sheet combines the historical balance sheets of First Charter
and GBC assuming the companies had been combined on
March 31, 2006, on a purchase accounting basis.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2006
|
|
|
|
|
|
|
|
|
|
Pro Forma
|
|
|
First Charter
|
|
|
|
First Charter
|
|
|
GBC Bancorp
|
|
|
Adjustments
|
|
|
GBC Combined
|
|
|
|
(Dollars in thousands)
|
|
|
ASSETS
|
Cash and Cash Equivalents
|
|
$
|
101,833
|
|
|
$
|
25,784
|
|
|
$
|
4,676
|
A
|
|
$
|
132,293
|
|
Securities Available for Sale
|
|
|
900,424
|
|
|
|
32,114
|
|
|
|
|
|
|
|
932,538
|
|
Loans Held for Sale
|
|
|
8,719
|
|
|
|
|
|
|
|
|
|
|
|
8,719
|
|
Loans, Net of Unearned Income
|
|
|
3,010,963
|
|
|
|
352,362
|
|
|
|
(201
|
)B
|
|
|
3,363,124
|
|
|
|
|
|
|
|
|
|
|
|
|
|
C
|
|
|
|
|
Allowance for Loan Losses
|
|
|
(29,505
|
)
|
|
|
(4,094
|
)
|
|
|
201
|
B
|
|
|
(33,398
|
)
|
Goodwill
|
|
|
19,910
|
|
|
|
|
|
|
|
69,848
|
D
|
|
|
89,758
|
|
Other Intangible Assets
|
|
|
1,836
|
|
|
|
|
|
|
|
4,190
|
E
|
|
|
6,026
|
|
Other Assets
|
|
|
269,176
|
|
|
|
12,156
|
|
|
|
|
|
|
|
281,332
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Assets
|
|
$
|
4,283,356
|
|
|
$
|
418,322
|
|
|
$
|
78,714
|
|
|
$
|
4,780,392
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES
|
Deposits
|
|
$
|
2,800,346
|
|
|
$
|
375,431
|
|
|
$
|
|
C
|
|
$
|
3,175,777
|
|
Federal Funds Purchased and Sold
Under Agreements to Repurchase
|
|
|
261,599
|
|
|
|
2,772
|
|
|
|
30,602
|
F
|
|
|
294,973
|
|
Commercial Paper
|
|
|
199,342
|
|
|
|
|
|
|
|
|
|
|
|
199,342
|
|
Long-term Debt
|
|
|
642,843
|
|
|
|
|
|
|
|
|
|
|
|
642,843
|
|
Other Liabilities
|
|
|
45,599
|
|
|
|
5,679
|
|
|
|
1,676
|
G
|
|
|
57,754
|
|
|
|
|
|
|
|
|
|
|
|
|
4,800
|
H
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Liabilities
|
|
$
|
3,949,729
|
|
|
$
|
383,882
|
|
|
$
|
37,078
|
|
|
$
|
4,370,689
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Shareholders Equity
|
|
|
333,627
|
|
|
|
34,440
|
|
|
|
4,676
|
A
|
|
|
409,703
|
|
|
|
|
|
|
|
|
|
|
|
|
(34,440
|
)F
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
71,400
|
F
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Liabilities and Equity
|
|
$
|
4,283,356
|
|
|
$
|
418,322
|
|
|
$
|
78,714
|
|
|
$
|
4,780,392
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
95
First
Charter/GBC
Pro Forma Condensed Combined Statement of Income
(unaudited)
The following unaudited pro forma condensed combined statement
of income for the three months ended March 31, 2006
combines the historical statements of income of First Charter
and GBC assuming the companies had been combined on
January 1, 2005, on a purchase accounting basis.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2006
|
|
|
|
|
|
|
|
|
|
Pro Forma
|
|
|
First Charter
|
|
|
|
First Charter
|
|
|
GBC Bancorp
|
|
|
Adjustments
|
|
|
GBC Combined
|
|
|
Interest Income
|
|
$
|
59,646
|
|
|
$
|
8,052
|
|
|
$
|
|
C
|
|
$
|
67,698
|
|
Interest Expense
|
|
|
27,556
|
|
|
|
3,365
|
|
|
|
436
|
I
|
|
|
31,357
|
|
|
|
|
|
|
|
|
|
|
|
|
|
C
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Interest Income
|
|
$
|
32,090
|
|
|
$
|
4,687
|
|
|
$
|
(436
|
)
|
|
$
|
36,341
|
|
Provision for Loan Losses
|
|
|
1,519
|
|
|
|
451
|
|
|
|
|
|
|
|
1,970
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Interest After Provision of
Loan Losses
|
|
$
|
30,571
|
|
|
$
|
4,236
|
|
|
$
|
(436
|
)
|
|
$
|
34,371
|
|
Noninterest Income
|
|
|
18,241
|
|
|
|
444
|
|
|
|
|
|
|
|
18,685
|
|
Noninterest Expense
|
|
|
31,512
|
|
|
|
2,201
|
|
|
|
238
|
J
|
|
|
33,951
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income Before Taxes
|
|
$
|
17,300
|
|
|
$
|
2,479
|
|
|
$
|
(674
|
)
|
|
$
|
19,105
|
|
Provision for Income Taxes
|
|
|
5,856
|
|
|
|
909
|
|
|
|
(270
|
) K
|
|
|
6,495
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Income
|
|
$
|
11,444
|
|
|
$
|
1,570
|
|
|
$
|
(404
|
)
|
|
$
|
12,610
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Income Per Share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
0.37
|
|
|
$
|
0.89
|
|
|
|
|
|
|
$
|
0.37
|
|
Diluted
|
|
$
|
0.37
|
|
|
$
|
0.81
|
|
|
|
|
|
|
$
|
0.37
|
|
Weighted Average Shares:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
30,859,461
|
|
|
|
|
|
|
|
2,974,799
|
L
|
|
|
33,834,260
|
|
Diluted
|
|
|
31,153,338
|
|
|
|
|
|
|
|
2,974,799
|
L
|
|
|
34,128,137
|
|
96
First
Charter/GBC
Pro Forma Condensed Combined Statement of Income
(unaudited)
The following unaudited pro forma condensed combined statement
of income for the year ended December 31, 2005 combines the
historical statements of income of First Charter and GBC
assuming the companies had been combined on January 1,
2005, on a purchase accounting basis.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2005
|
|
|
|
|
|
|
|
|
|
Pro Forma
|
|
|
First Charter
|
|
|
|
First Charter
|
|
|
GBC Bancorp
|
|
|
Adjustments
|
|
|
GBC Combined
|
|
|
Interest Income
|
|
$
|
224,605
|
|
|
$
|
25,192
|
|
|
$
|
|
C
|
|
$
|
249,797
|
|
Interest Expense
|
|
|
99,722
|
|
|
|
9,324
|
|
|
|
1,744
|
I
|
|
|
110,790
|
|
|
|
|
|
|
|
|
|
|
|
|
|
C
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Interest Income
|
|
$
|
124,883
|
|
|
$
|
15,868
|
|
|
$
|
(1,744
|
)
|
|
$
|
139,007
|
|
Provision for Loan Losses
|
|
|
9,343
|
|
|
|
853
|
|
|
|
|
|
|
|
10,196
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Interest After Provision of
Loan Losses
|
|
$
|
115,540
|
|
|
$
|
15,015
|
|
|
$
|
(1,744
|
)
|
|
$
|
128,811
|
|
Noninterest Income
|
|
|
50,213
|
|
|
|
2,983
|
|
|
|
|
|
|
|
53,196
|
|
Noninterest Expense
|
|
|
131,222
|
|
|
|
8,356
|
|
|
|
1,048
|
J
|
|
|
140,626
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income Before Taxes
|
|
$
|
34,531
|
|
|
$
|
9,642
|
|
|
$
|
(2,792
|
)
|
|
$
|
41,381
|
|
Provision for Income Taxes
|
|
|
9,220
|
|
|
|
3,441
|
|
|
|
(1,117
|
) K
|
|
|
11,544
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Income
|
|
$
|
25,311
|
|
|
$
|
6,201
|
|
|
$
|
(1,675
|
)
|
|
$
|
29,837
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Income Per Share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
0.83
|
|
|
$
|
3.54
|
|
|
|
|
|
|
$
|
0.89
|
|
Diluted
|
|
$
|
0.82
|
|
|
$
|
3.17
|
|
|
|
|
|
|
$
|
0.88
|
|
Weighted Average Shares:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
30,457,573
|
|
|
|
|
|
|
|
2,947,991
|
L
|
|
|
33,405,564
|
|
Diluted
|
|
|
30,784,406
|
|
|
|
|
|
|
|
2,947,991
|
L
|
|
|
33,732,397
|
|
97
NOTES TO
THE UNAUDITED PRO FORMA
CONDENSED COMBINED FINANCIAL INFORMATION
Note 1
Basis of Pro Forma Presentation
The unaudited pro forma condensed combined financial information
related to the merger is included for the year ended
December 31, 2005 and as of and for the three months ended
March 31, 2006. The pro forma adjustments included herein
reflect the conversion of GBC common stock into First Charter
common stock using an exchange ratio of 1.989 shares of
First Charter stock for each of the 2,096,633 shares of GBC
common stock outstanding as of June 1, 2006. The estimated
purchase price of $102 million is based on a per share
price for First Charter common stock of $24.00 and GBC common
stock of $47.74.
The merger will be accounted for using the purchase method of
accounting, accordingly, First Charters cost to acquire
GBC will be allocated to the assets (including identifiable
intangible assets) and liabilities of GBC at their respective
fair values on the date the merger is completed.
The unaudited pro forma condensed combined financial information
includes estimated adjustments to record the assets and
liabilities of GBC at their respective fair values and
represents managements estimates based on the available
information. The pro forma adjustments included herein may be
revisited as additional information becomes available and as
additional analyses are preformed. 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 GBCs tangible, and identifiable intangible,
assets and liabilities as of the completion date. Accordingly,
the final purchase accounting adjustments and integration
charges may be materially different form the pro forma
adjustments presented in this document. Increases and decreases
in the fair value of the net assets, commitments, executory
contracts and other items of GBC as compared to the information
shown in this document may change the amount of the purchase
price allocated to goodwill and other assets and liabilities and
may impact the statement of income due to adjustments in yield
and/or
amortization of the adjusted assets or liabilities.
The pro forma financial statements do not currently include the
complete cost that will be incurred to combine the operations of
First Charter and GBC. The unaudited pro forma condensed
combined financial information presented in this document does
not necessarily indicate the results of operations of the
combined financial position that would have resulted had the
merger been completed at the beginning of the applicable period
presented, nor is it indicative of the results of operations in
future periods or the future financial position of the combined
company.
Note 2
Pro Forma Adjustments
The unaudited pro forma condensed combined financial information
for the merger includes the pro forma balance sheet as of
March 31, 2006, assuming the merger was completed on
January 1, 2005. The pro forma income statements for the
three months ended March 31, 2006 and the year ended
December 31, 2005 were prepared assuming the merger was
completed on January 1, 2005.
The pro forma adjustments in the pro forma financial statements
reflect the exchange of 70% of the total number of shares of GBC
common stock outstanding at the closing to be exchanged for
1.989 shares of First Charter common stock and the
remaining 30% of the outstanding shares will be exchanged for
cash at a price of $47.74. Based on these assumptions, the pro
forma adjustments reflect the issuance of 2,975,000 shares
of First Charter common stock with an aggregate value of
$71,400,000. In addition, the cash component of the merger
consideration is approximately $30.6 million. The balance
sheet pro forma adjustments include an increase in short-term
borrowings of $30.6 million to fund the cash component of
the purchase price to be paid to GBC shareholders.
98
NOTES TO
THE UNAUDITED PRO FORMA
CONDENSED COMBINED FINANCIAL
INFORMATION (Continued)
|
|
|
|
|
|
|
|
|
Purchase Price (in
thousands)
|
|
|
|
|
|
|
|
|
Exchange Ratio
|
|
|
1.989
|
|
|
|
|
|
Times 70%
|
|
|
0.70
|
|
|
|
|
|
Equivalent Exchange Ratio
|
|
|
1.3923
|
|
|
|
|
|
GBC Net shares
outstanding, March 31, 2006
|
|
|
1,773
|
|
|
|
|
|
GBC Stock Options Exercised on
June 30, 2006
|
|
|
364
|
|
|
|
|
|
Adjusted GBC
Shares Outstanding
|
|
|
2,137
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Issuance of First Charter
shares
|
|
|
2,975
|
|
|
|
|
|
Purchase Price per First Charter
common stock
|
|
$
|
24.00
|
|
|
|
|
|
Incremental purchase price based
on exchange ratio
|
|
|
|
|
|
$
|
71,400
|
|
Cash Price
|
|
$
|
47.74
|
|
|
|
|
|
Times 30%
|
|
|
0.30
|
|
|
|
|
|
Equivalent Cash Price
|
|
$
|
14.32
|
|
|
|
|
|
GBC Net shares
outstanding, March 31, 2006
|
|
|
1,773
|
|
|
|
|
|
GBC Stock Options Exercised on
June 30, 2006
|
|
|
364
|
|
|
|
|
|
Adjusted GBC
Shares Outstanding
|
|
|
2,137
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Incremental purchase price based
on cash payment
|
|
|
|
|
|
$
|
30,602
|
|
|
|
|
|
|
|
|
|
|
Total Purchase Price
|
|
|
|
|
|
$
|
102,002
|
|
|
|
|
|
|
|
|
|
|
GBC Shareholders Equity
|
|
$
|
34,440
|
|
|
|
|
|
Estimated adjustments to reflect
assets acquired at fair value
|
|
|
|
|
|
|
|
|
Intangible Assets
|
|
|
4,190
|
|
|
|
|
|
Estimated amounts allocated to
liabilities assumed at fair value
|
|
|
|
|
|
|
|
|
Deferred income tax
|
|
|
(1,676
|
)
|
|
|
|
|
Other liabilities
|
|
|
(4,800
|
)
|
|
|
|
|
Total Adjustments
|
|
$
|
32,154
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Goodwill resulting from merger
|
|
|
|
|
|
$
|
69,848
|
|
|
|
|
|
|
|
|
|
|
The pro forma adjustments included in the unaudited pro forma
condensed combined financial information are as follows:
A. Adjustment to record the exercising of
363,900 shares of GBC stock options at a weighted average
price of $12.85 prior to June 30, 2006, as required.
B. Adjustment to the allowance for loan losses reserve
associated with impaired loans.
C. GBC loans and deposits are subject to adjustment to
their effective fair value. Such adjustments are pending
completion of our analysis, therefore no pro forma adjustments
are included herein for these items.
D. Adjustment to record goodwill as a result of the merger.
E. Adjustment to record intangible assets (other than
goodwill) resulting from the merger based on estimated fair
values.
F. Adjustment to eliminate GBCs historical
shareholders equity and record the issuance of First
Charter common stock and payment of cash consideration to GBC
shareholders.
99
NOTES TO
THE UNAUDITED PRO FORMA
CONDENSED COMBINED FINANCIAL
INFORMATION (Continued)
G. Adjustment to record the deferred tax liabilities
resulting from the intangible assets recognized in note E
above using an estimated tax rate of 40%.
H. Adjustment to record an estimated accrual for
restructuring costs associated with the merger. This does not
include a full estimate to fully integrate the operations of the
two companies. Restructuring costs include certain retention
bonuses which may have an on going impact to the income
statement. Pending our analysis, such expenses have not been
reflected in the condensed pro forma income statements.
I. Adjustment to record interest expense related to an
increase in short term borrowings used to fund the cash
component of the purchase price.
J. Adjustment to record amortization expense of the
intangible assets described in note E above.
K. Adjustment to record the tax effect of the pro forma
adjustments using an estimated tax rate of 40%.
L. Weighted average shares were calculated using the
historical weighted average shares of First Charter and GBC,
adjusted for GBC stock options exercised on June 30, 2006,
using the exchange ratio, to the equivalent shares of First
Charter common stock, for the year ended December 31, 2005
and the three months ended March 31, 2005.
100
LEGAL
MATTERS
Womble Carlyle Sandridge & Rice, PLLC, counsel to GBC,
has delivered its opinion to GBC as to material federal income
tax consequences of the merger. The validity of the First
Charter common stock to be issued in connection with the merger
will be passed upon for First Charter by Helms
Mulliss & Wicker, PLLC. Helms Mulliss &
Wicker, PLLC regularly performs legal services for First
Charter. Some members of Helms Mulliss & Wicker, PLLC
performing those legal services own shares of First Charter
common stock.
EXPERTS
The consolidated financial statements of First Charter
Corporation as of December 31, 2005 and 2004, and the
related consolidated statements of income, shareholders
equity, and cash flows for each of the years in the three-year
period ended December 31, 2005, and managements
assessment of the effectiveness of internal control over
financial reporting as of December 31, 2005 have been
included in First Charters annual report on
Form 10-K
for the year ended December 31, 2005, and incorporated by
reference herein, have been incorporated by reference herein in
reliance upon the reports of KPMG LLP, independent registered
public accounting firm, incorporated by reference herein, and
upon the authority of said firm as experts in accounting and
auditing.
The consolidated financial statements of GBC and its
subsidiaries for the year ended December 31, 2005 included
herewith at Appendix E, have been audited by
Mauldin & Jenkins, LLC, an independent registered
public accounting firm, as indicated in its related audit
reports, and are included in reliance upon such reports and upon
the authority of such firm as experts in accounting and auditing.
GBC expects representatives of Mauldin & Jenkins, LLC
to attend the special meeting. These representatives will have
an opportunity to make a statement if they desire to do so, and
we expect that they will be available to respond to any
appropriate questions you may have.
OTHER
MATTERS
Under Georgia law and the GBC bylaws, business to be conducted
at a special meeting of shareholders may only be brought before
the meeting pursuant to a notice of meeting. Accordingly, no
matters other than the matters described in this document will
be presented for action at the special meeting or at any
adjournment or postponement of the special meeting.
GBC 2006
Annual Meeting Shareholder Proposals
GBC will hold its 2006 annual meeting of shareholders only if it
reasonably expects that the merger with First Charter will not
completed. In the event that GBC elects to hold its 2006 annual
meeting, more information on the deadline for the submission of
shareholders proposals to be considered at the 2006 annual
meeting will be provided in a quarterly report on
Form 10-QSB
of GBC. In order to be considered for inclusion in the proxy
statement and proxy to be used in connection with GBCs
2006 annual meeting (in the event this meeting is held),
shareholder proposals must be received by GBCs corporate
secretary a reasonable time before GBC begins to print and mail
its proxy materials. Any shareholder proposals will be subject
to
Rule 14a-8
under the Exchange Act.
A GBC shareholder may wish to have a proposal presented at the
2006 annual meeting of shareholders of GBC (in the event this
meeting is held), but not to have the proposal included in the
proxy statement and proxy relating to that meeting. If notice of
any such proposal is not received by GBC a reasonable time
before GBC begins to print and mail its proxy materials for the
2006 annual meeting (in the event this meeting is held), then
such proposal shall be deemed untimely and the persons named in
the proxies solicited by the GBC board of directors for the 2006
annual meeting of shareholders may exercise discretionary voting
power with respect to any such proposal.
101
WHERE YOU
CAN FIND MORE INFORMATION
First Charter has filed with the SEC a registration statement
under the Securities Act that registers the distribution to GBC
shareholders of the shares of First Charter common stock to be
issued in connection with the merger. The registration
statement, including the attached exhibits and schedules,
contains additional relevant information about First Charter and
First Charter common stock. The rules and regulations of the SEC
allow us to omit certain information included in the
registration statement from this document.
You may read and copy this information at the Public Reference
Room of the SEC at 100 F Street, NE, Room 1580,
Washington, D.C. 20549. You may obtain information on the
operation of the SECs Public Reference Room by calling the
SEC at
1-800-SEC-0330.
The SEC also maintains an internet website that contains
reports, proxy statements and other information about issuers,
like First Charter and GBC, who file electronically with the
SEC. You may obtain copies of all documents filed with the SEC
regarding this transaction, free of charge, at the SECs
website (www.sec.gov). You may also obtain these documents free
of charge from the First Charter website (www.FirstCharter.com)
under the section About First Charter and then under
the heading Investor Relations and then under the
item SEC Filings. You may also obtain these
documents, free of charge, from GBC on the Gwinnett Banking
Company website (www.gwinnettbanking.com) under the tab
Investor Relations. We have included the web
addresses of the SEC, First Charter and GBC as inactive textual
references only. Except as specifically incorporated by
reference into this document, information on those web sites is
not part of this document.
The SEC allows First Charter to incorporate by reference
information in this document. This means that First Charter can
disclose important information to you by referring you to
another document filed separately with the SEC. The information
incorporated by reference is considered to be a part of this
document, except for any information that is superseded by
information that is included directly in this document.
This document incorporates by reference the documents listed
below that First Charter previously filed with the SEC. They
contain important information about First Charter and its
financial condition.
(a) First Charters Annual Report on
Form 10-K
for the fiscal year ended December 31, 2005;
(b) First Charters Quarterly Report on
Form 10-Q
for the quarter ended March 31, 2006;
(c) First Charters Current Reports on
Form 8-K
filed on January 24, 2006, January 31, 2006,
February 6, 2006, March 2, 2006, March 7, 2006,
March 9, 2006, April 6, 2006, April 24, 2006,
April 27, 2006, June 2, 2006, June 6, 2006,
June 20, 2006 (both reports filed on such date) and
June 30, 2006 (other than those portions furnished under
Items 2.02 and 7.01 of
Form 8-K);
(d) The description of First Charters common stock
contained in First Charters Registration Statement filed
under Section 12 of the Securities Exchange Act of 1934, as
amended, including any amendment or report filed for the purpose
of updating such description.
In addition, First Charter also incorporates by reference
additional documents that it files with the SEC under
Sections 13(a), 13(c), 14 and 15(d) of the Securities
Exchange Act of 1934, as amended, between the date of this
document and the date of the GBC special meeting. These
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.
First Charter has supplied all information contained or
incorporated by reference in this document relating to First
Charter and GBC has supplied all information relating to GBC.
Documents incorporated by reference are available from First
Charter without charge, excluding any exhibits to those
documents unless the exhibit is specifically incorporated by
reference as an exhibit in this
102
document. You can obtain documents incorporated by reference in
this document by requesting them in writing or by telephone from
First Charter at the following addresses:
First Charter Corporation
10200 David Taylor Drive
Charlotte, North Carolina
28262-2373
Attention: Investor Relations
Telephone:
(704) 688-4300
GBC shareholders requesting documents should do so by
[ ,
2006] to receive them before the special meeting. You will not
be charged for any of these documents that you request. If you
request any incorporated documents from First Charter, First
Charter will mail them to you by first class mail, or another
equally prompt means, within one business day after it receives
your request.
Neither First Charter nor GBC has authorized anyone to give
any information or make any representation about the merger or
our companies that is different from, or in addition to, that
contained in this document or in any of the materials that have
been incorporated in this document. Therefore, if anyone does
give you information of this sort, you should not rely on it. If
you are in a jurisdiction where offers to exchange or sell, or
solicitations of offers to exchange or purchase, the securities
offered by this document or the solicitation of proxies is
unlawful, or if you are a person to whom it is unlawful to
direct these types of activities, then the offer presented in
this document does not extend to you. The information contained
in this document speaks only as of the date of this document
unless the information specifically indicates that another date
applies.
This document contains a description of the representations
and warranties that each of First Charter and GBC made to the
other in the merger agreement. Representations and warranties
made by First Charter, GBC and other applicable parties are also
set forth in contracts and other documents (including the merger
agreement and voting agreement) that are attached or filed as
exhibits to this document or are incorporated by reference into
this document. These representations and warranties were made as
of specific dates, may be subject to important qualifications
and limitations agreed to between the parties in connection with
negotiating the terms of the agreement, and may have been
included in the agreement for the purpose of allocating risk
between the parties rather than to establish matters as facts.
These materials are included or incorporated by reference only
to provide you with information regarding the terms and
conditions of the agreements, and not to provide any other
factual information regarding GBC, First Charter or their
respective businesses. Accordingly, the representations and
warranties and other provisions of the agreements (including the
merger agreement and the voting agreement) should not be read
alone, but instead should be read only in conjunction with the
other information provided elsewhere in this document or
incorporated by reference into this document.
103
Execution Copy
AGREEMENT AND PLAN OF MERGER
by and between
GBC BANCORP, INC.
and
FIRST CHARTER CORPORATION
DATED AS OF JUNE 1, 2006
TABLE OF
CONTENTS
|
|
|
|
|
|
|
|
|
|
|
|
|
Page
|
|
ARTICLE I THE
MERGER
|
|
|
A-1
|
|
|
1
|
.1
|
|
The Merger
|
|
|
A-1
|
|
|
1
|
.2
|
|
Effective Time
|
|
|
A-1
|
|
|
1
|
.3
|
|
Effects of the Merger
|
|
|
A-1
|
|
|
1
|
.4
|
|
Conversion of GBC Common Stock
|
|
|
A-2
|
|
|
1
|
.5
|
|
Stock Options
|
|
|
A-2
|
|
|
1
|
.6
|
|
Articles of Incorporation of First
Charter
|
|
|
A-2
|
|
|
1
|
.7
|
|
Bylaws of First Charter
|
|
|
A-2
|
|
|
1
|
.8
|
|
Tax Consequences
|
|
|
A-2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
ARTICLE II DELIVERY
OF MERGER CONSIDERATION
|
|
|
A-3
|
|
|
2
|
.1
|
|
Exchange Agent
|
|
|
A-3
|
|
|
2
|
.2
|
|
Election Procedures
|
|
|
A-3
|
|
|
2
|
.3
|
|
Deposit of Merger Consideration
|
|
|
A-4
|
|
|
2
|
.4
|
|
Delivery of Merger Consideration
|
|
|
A-5
|
|
|
2
|
.5
|
|
Dissenting Shareholders
|
|
|
A-6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
ARTICLE III REPRESENTATIONS
AND WARRANTIES OF GBC
|
|
|
A-7
|
|
|
3
|
.1
|
|
Corporate Organization
|
|
|
A-7
|
|
|
3
|
.2
|
|
Capitalization
|
|
|
A-8
|
|
|
3
|
.3
|
|
Authority; No Violation
|
|
|
A-8
|
|
|
3
|
.4
|
|
Consents and Approvals
|
|
|
A-9
|
|
|
3
|
.5
|
|
Reports; Regulatory Matters
|
|
|
A-9
|
|
|
3
|
.6
|
|
Financial Statements
|
|
|
A-10
|
|
|
3
|
.7
|
|
Brokers Fees
|
|
|
A-11
|
|
|
3
|
.8
|
|
Absence of Certain Changes or
Events
|
|
|
A-11
|
|
|
3
|
.9
|
|
Legal Proceedings
|
|
|
A-12
|
|
|
3
|
.10
|
|
Taxes and Tax Returns
|
|
|
A-12
|
|
|
3
|
.11
|
|
Employee Matters
|
|
|
A-13
|
|
|
3
|
.12
|
|
Compliance with Applicable Law
|
|
|
A-15
|
|
|
3
|
.13
|
|
Certain Contracts
|
|
|
A-15
|
|
|
3
|
.14
|
|
Risk Management Instruments
|
|
|
A-16
|
|
|
3
|
.15
|
|
Investment Securities and
Commodities
|
|
|
A-16
|
|
|
3
|
.16
|
|
Loan Portfolio
|
|
|
A-17
|
|
|
3
|
.17
|
|
Property
|
|
|
A-17
|
|
|
3
|
.18
|
|
Intellectual Property
|
|
|
A-18
|
|
|
3
|
.19
|
|
Environmental Liability
|
|
|
A-18
|
|
|
3
|
.20
|
|
Leases
|
|
|
A-18
|
|
|
3
|
.21
|
|
Securitizations
|
|
|
A-18
|
|
|
3
|
.22
|
|
State Takeover Laws
|
|
|
A-18
|
|
|
3
|
.23
|
|
Reorganization; Approvals
|
|
|
A-18
|
|
|
3
|
.24
|
|
Opinion
|
|
|
A-19
|
|
|
3
|
.25
|
|
GBC Information
|
|
|
A-19
|
|
|
|
|
|
|
|
|
|
|
A-i
|
|
|
|
|
|
|
|
|
|
|
|
|
Page
|
|
|
|
|
|
|
ARTICLE IV REPRESENTATIONS
AND WARRANTIES OF FIRST CHARTER
|
|
|
A-19
|
|
|
4
|
.1
|
|
Corporate Organization
|
|
|
A-19
|
|
|
4
|
.2
|
|
Capitalization
|
|
|
A-20
|
|
|
4
|
.3
|
|
Authority; No Violation
|
|
|
A-20
|
|
|
4
|
.4
|
|
Consents and Approvals
|
|
|
A-21
|
|
|
4
|
.5
|
|
Reports; Regulatory Matters
|
|
|
A-21
|
|
|
4
|
.6
|
|
Financial Statements
|
|
|
A-22
|
|
|
4
|
.7
|
|
Brokers Fees
|
|
|
A-23
|
|
|
4
|
.8
|
|
Absence of Certain Changes or
Events
|
|
|
A-23
|
|
|
4
|
.9
|
|
Legal Proceedings
|
|
|
A-23
|
|
|
4
|
.10
|
|
Taxes and Tax Returns
|
|
|
A-23
|
|
|
4
|
.11
|
|
Compliance with Applicable Law
|
|
|
A-24
|
|
|
4
|
.12
|
|
Reorganization; Approvals
|
|
|
A-24
|
|
|
4
|
.13
|
|
Aggregate Cash Consideration
|
|
|
A-24
|
|
|
4
|
.14
|
|
First Charter Information
|
|
|
A-24
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
ARTICLE V COVENANTS
RELATING TO CONDUCT OF BUSINESS
|
|
|
A-24
|
|
|
5
|
.1
|
|
Conduct of Businesses Prior to the
Effective Time
|
|
|
A-24
|
|
|
5
|
.2
|
|
GBC Forbearances
|
|
|
A-25
|
|
|
5
|
.3
|
|
First Charter Forbearances
|
|
|
A-26
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
ARTICLE VI ADDITIONAL
AGREEMENTS
|
|
|
A-27
|
|
|
6
|
.1
|
|
Regulatory Matters
|
|
|
A-27
|
|
|
6
|
.2
|
|
Access to Information;
Confidentiality
|
|
|
A-28
|
|
|
6
|
.3
|
|
Shareholder Approval
|
|
|
A-28
|
|
|
6
|
.4
|
|
Affiliates
|
|
|
A-29
|
|
|
6
|
.5
|
|
Nasdaq Listing
|
|
|
A-29
|
|
|
6
|
.6
|
|
Employee Matters
|
|
|
A-29
|
|
|
6
|
.7
|
|
Indemnification; Directors
and Officers Insurance
|
|
|
A-30
|
|
|
6
|
.8
|
|
Additional Agreements
|
|
|
A-31
|
|
|
6
|
.9
|
|
Advice of Changes
|
|
|
A-31
|
|
|
6
|
.10
|
|
No Solicitation
|
|
|
A-31
|
|
|
6
|
.11
|
|
Directorship; Advisory Board
|
|
|
A-32
|
|
|
6
|
.12
|
|
Restructuring Efforts
|
|
|
A-32
|
|
|
6
|
.13
|
|
Press Releases
|
|
|
A-32
|
|
|
6
|
.14
|
|
Reasonable Best Efforts;
Cooperation
|
|
|
A-33
|
|
|
6
|
.15
|
|
Main Office Property
|
|
|
A-33
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
ARTICLE VII CONDITIONS
PRECEDENT
|
|
|
A-33
|
|
|
7
|
.1
|
|
Conditions to Each Partys
Obligation To Effect the Merger
|
|
|
A-33
|
|
|
7
|
.2
|
|
Conditions to Obligations of First
Charter
|
|
|
A-34
|
|
|
7
|
.3
|
|
Conditions to Obligations of GBC
|
|
|
A-35
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
ARTICLE VIII TERMINATION
AND AMENDMENT
|
|
|
A-35
|
|
|
8
|
.1
|
|
Termination
|
|
|
A-35
|
|
|
8
|
.2
|
|
Effect of Termination
|
|
|
A-37
|
|
A-ii
|
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Page
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8
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.3
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Fees and Expenses
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A-37
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8
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.4
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Amendment
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A-38
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8
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.5
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Extension; Waiver
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A-38
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ARTICLE IX GENERAL
PROVISIONS
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A-38
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9
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.1
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Closing
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A-38
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9
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.2
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Nonsurvival of Representations,
Warranties and Agreements
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A-38
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9
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.3
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Notices
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A-38
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9
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.4
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Interpretation
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A-39
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9
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.5
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Counterparts
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A-39
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9
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.6
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Entire Agreement
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A-39
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9
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.7
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Governing Law; Jurisdiction
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A-39
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9
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.8
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Publicity
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A-40
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9
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.9
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Assignment; Third-Party
Beneficiaries
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A-40
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Exhibit A Voting Agreement
Exhibit B Form of Affiliate Letter
Exhibit C Form of Employment Agreement for
Larry D. Key
Exhibit D Form of Retention Agreement for
Katrina M. Winberg
Exhibit E Form of Retention Agreement for
Michael L. Couch
A-iii
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Defined Term
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Section
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Agreement
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Preamble
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Alternative Proposal
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6.10(a)
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Alternative Transaction
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6.10(a)
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Articles of Merger
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1.2
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Average Closing Price
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8.1(g)
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BHC Act
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3.1(b)
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Cash Consideration
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1.4(c)
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Cash Election
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2.2(b)
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Cash Election Shares
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2.2(a)
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Cash/Stock Consideration
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1.4(c)
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Certificate
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1.4(d)
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Claim
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6.7(a)
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Closing
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9.1
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Closing Date
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9.1
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Code
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Recitals
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Confidentiality Agreement
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6.2(b)
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Covered Employees
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6.6(a)
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Criticized Assets
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3.16(a)
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Derivative Transactions
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3.14(a)
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Determination Date
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8.1(g)
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DPC Common Shares
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1.4(b)
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Effective Time
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1.2
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Election Deadline
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2.2(c)
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Election Form
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2.2(b)
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Election Form Record Date
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2.2(b)
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ERISA
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3.11(a)
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Exchange Act
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3.5(c)
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Exchange Agent
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2.1
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Exchange Agent Agreement
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2.1
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Exchange Fund
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2.3
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Exchange Ratio
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1.4(c)
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Executed Retention Agreements
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3.11(i)
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FDIC
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3.1(d)
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Federal Reserve Board
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3.4
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First Charter
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Preamble
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First Charter Articles
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1.6
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First Charter Bylaws
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1.7
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First Charter Capitalization Date
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4.2(a)
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First Charter Closing Price
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2.4(f)
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First Charter Common Stock
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1.4(a)
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First Charter Disclosure Schedule
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Art. IV
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First Charter Floor Price
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8.1(g)
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First Charter Index Ratio
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8.1(g)
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First Charter Preferred Stock
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4.2(a)
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A-iv
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Defined Term
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Section
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First Charter Ratio
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8.1(g)
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First Charter Regulatory Agreement
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4.5(b)
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First Charter Requisite Regulatory
Approvals
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7.2(d)
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First Charter SEC Reports
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4.5(c)
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First Charter Stock Plans
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4.2(a)
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First Charter Subsidiary
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3.1(c)
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Form S-4
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3.4
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GAAP
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3.1(c)
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GBC
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Preamble
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GBC Articles
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3.1(b)
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GBC Benefit Plans
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3.11(a)
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GBC Board
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3.3
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GBC Bylaws
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3.1(b)
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GBC Capitalization Date
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3.2(a)
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GBC Common Stock
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1.4(b)
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GBC Contract
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3.13(a)
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GBC Disclosure Schedule
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Art. III
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GBC Options
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1.5
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GBC Regulatory Agreement
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3.5(b)
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GBC Requisite Regulatory Approvals
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7.3(d)
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GBC SEC Reports
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3.5(c)
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GBC Shareholders Meeting
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6.3
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GBC Stock Plans
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1.5
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GBC Subsidiary
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3.1(c)
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GBCC
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1.1(a)
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GDBF
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3.1(b)
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Governmental Entity
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3.4
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Gwinnett Bank
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3.1(b)
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Indemnified Parties
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6.7(a)
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Index Price
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8.1(g)
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Initial Stock Value
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8.1(g)
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Injunction
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7.1(d)
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Insurance Amount
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6.7(c)
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Intellectual Property
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3.18
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IRS
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3.10(a)
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Leased Properties
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3.17
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Letter of Transmittal
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2.3(a)
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Liens
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3.2(b)
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Loans
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3.16(a)
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Mailing Date
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2.2(b)
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Main Office Property
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6.15
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Material Adverse Effect
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3.8(a)
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Materially Burdensome Regulatory
Condition
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6.1(b)
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Merger
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Recitals
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A-v
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Defined Term
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Section
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Merger Consideration
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1.4(c)
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Mixed Election
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2.2(b)
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NCBCA
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1.1(a)
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Non-Election
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2.2(b)
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Non-Election Shares
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2.2(a)
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Other Regulatory Approvals
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3.4
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Owned Properties
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3.17
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Permitted Encumbrances
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3.17
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Policies, Practices and Procedures
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3.15(b)
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Proposed Retention Agreements
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3.11(i)
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Proxy Statement
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3.4
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Real Property
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3.17
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Regulatory Agencies
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3.5(a)
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Representative
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2.2(b)
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Retention Agreements
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3.11(i)
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Revised Total Stock Issuance Number
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2.2(b)
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Sarbanes-Oxley Act
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3.5(c)
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SBA
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3.4
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SEC
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3.4
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Securities Act
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3.2(a)
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Shortfall Number
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2.2(e)
|
Starting Date
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8.1(g)
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Stock Consideration
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1.4(c)
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Stock Election
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2.2(b)
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Stock Election Number
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2.2(a)
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Stock Election Shares
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2.2(a)
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Subsidiary
|
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3.1(c)
|
Surviving Corporation
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Recitals
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Takeover Statutes
|
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3.22
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Tax Return
|
|
3.10(c)
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Tax(es)
|
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3.10(b)
|
Termination Fee
|
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8.3(b)
|
Total Stock Issuance Number
|
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2.2(b)
|
Trust Account Common
Shares
|
|
1.4(b)
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Voting Agreement
|
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Recitals
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Voting Debt
|
|
3.2(a)
|
A-vi
AGREEMENT
AND PLAN OF MERGER
AGREEMENT AND PLAN OF MERGER, dated as of June 1, 2006
(this Agreement), by and between GBC BANCORP, INC.,
a Georgia corporation (GBC), and FIRST CHARTER
CORPORATION, a North Carolina corporation (First
Charter).
W I T N E
S S E T H:
WHEREAS, the Boards of Directors of GBC and First Charter have
determined that it is in the best interests of their respective
companies and their shareholders to consummate the strategic
business combination transaction provided for in this Agreement
in which GBC will, on the terms and subject to the conditions
set forth in this Agreement, merge with and into First Charter
(the Merger), so that First Charter is the surviving
corporation in the Merger (sometimes referred to in such
capacity as the Surviving Corporation);
WHEREAS, for federal income Tax purposes, it is intended that
the Merger shall qualify as a reorganization under the
provisions of Section 368(a) of the Internal Revenue Code
of 1986, as amended (the Code), and this Agreement
is intended to be and is adopted as a plan of
reorganization for purposes of Sections 354 and 361
of the Code; and
WHEREAS, as an inducement and condition to the entrance of First
Charter into this Agreement, each of the Directors and Executive
Officers of GBC has agreed to enter into a Voting Agreement in
the form set forth in Exhibit A (the Voting
Agreement) pursuant to which they have agreed to vote in
favor of the Merger;
WHEREAS, the parties desire to make certain representations,
warranties and agreements in connection with the Merger and also
to prescribe certain conditions to the Merger.
NOW, THEREFORE, in consideration of the mutual covenants,
representations, warranties and agreements contained in this
Agreement, and other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, and
intending to be legally bound hereby, the parties agree as
follows:
ARTICLE I
THE MERGER
1.1 The Merger.
(a) Subject to the terms and conditions of this Agreement,
in accordance with the North Carolina Business Corporation Act
(the NCBCA) and the Georgia Business Corporation
Code (the GBCC), at the Effective Time GBC shall
merge with and into First Charter. First Charter shall be the
Surviving Corporation in the Merger and shall continue its
corporate existence under the laws of the State of North
Carolina. As of the Effective Time, the separate corporate
existence of GBC shall cease.
(b) First Charter may at any time change the method of
effecting the combination (including by providing for the merger
of GBC and a wholly owned subsidiary of First Charter) if and to
the extent requested by First Charter and consented to by GBC
(such consent not to be unreasonably withheld or delayed);
provided, however, that no such change shall (i) alter or
change the amount or kind of the Merger Consideration provided
for in this Agreement, (ii) adversely affect the Tax
treatment of GBCs shareholders as a result of receiving
the Merger Consideration or the Tax treatment of either party
pursuant to this Agreement or (iii) materially impede or
delay consummation of the transactions contemplated by this
Agreement.
1.2 Effective Time. The
Merger shall become effective as set forth in the articles of
merger (the Articles of Merger) that shall be
filed with the Secretary of State of the State of North Carolina
and the Secretary of State of the State of Georgia on the
Closing Date. The term Effective Time shall
be the date and time when the Merger becomes effective as set
forth in the Articles of Merger.
1.3 Effects of the
Merger. At and after the Effective Time, the
Merger shall have the effects set forth in
Section 55-11-06
of the NCBCA and
Section 14-2-1106
of the GBCC.
A-1
1.4 Conversion of GBC Common
Stock. At the Effective Time, by virtue of
the Merger and without any action on the part of First Charter,
GBC or the holder of any of the following securities:
(a) Each share of common stock, no par value per share, of
First Charter (the First Charter Common
Stock) issued and outstanding immediately prior to the
Effective Time shall remain issued and outstanding and shall not
be affected by the Merger.
(b) All shares of common stock, par value $1.00 per
share, of GBC issued and outstanding immediately prior to the
Effective Time (the GBC Common Stock) that
are owned by GBC or First Charter (other than shares of GBC
Common Stock held in trust accounts, managed accounts and the
like, or otherwise held in a fiduciary or agency capacity, that
are beneficially owned by third parties (any such shares,
Trust Account Common Shares) and
other than shares of GBC Common Stock held, directly or
indirectly, by GBC or First Charter in respect of a debt
previously contracted (any such shares, DPC Common
Shares)) shall be cancelled and shall cease to exist
and no stock of First Charter or other consideration shall be
delivered in exchange therefor.
(c) Subject to Section 1.4(e), each share of
the GBC Common Stock, except for shares of GBC Common Stock
owned by GBC or First Charter (other than
Trust Account Common Shares and DPC Common Shares),
shall be converted, in accordance with the procedures set forth
in Article II, into the right to receive at the
election of the holder thereof as provided in
Section 2.2 either, (i) 1.989 shares (the
Exchange Ratio) of First Charter Common Stock
(the Stock Consideration), (ii) an
amount in cash equal to $47.74, without interest (the
Cash Consideration) or (iii) a
combination of the Cash Consideration and the Stock
Consideration as provided in Section 2.2 (the
Cash/Stock Consideration). The Cash
Consideration, the Stock Consideration and the Cash/Stock
Consideration are sometimes referred to herein collectively as
the Merger Consideration.
(d) All of the shares of GBC Common Stock converted into
the right to receive the Merger Consideration pursuant to this
Article I shall no longer be outstanding and shall
automatically be cancelled and shall cease to exist as of the
Effective Time, and each certificate previously representing any
such shares of GBC Common Stock (each, a
Certificate) shall thereafter represent only the
right to receive the Merger Consideration
and/or cash
in lieu of fractional shares, into which the shares of GBC
Common Stock represented by such Certificate have been converted
pursuant to this Section 1.4 and Section 2.4(f), as
well as any dividends to which holders of GBC Common Stock
become entitled in accordance with Section 2.4(c).
(e) If, between the date of this Agreement and the
Effective Time, the outstanding shares of First Charter Common
Stock shall have been increased, decreased, changed into or
exchanged for a different number or kind of shares or securities
as a result of a reorganization, recapitalization,
reclassification, stock dividend, stock split, reverse stock
split, or other similar change in capitalization, an appropriate
and proportionate adjustment shall be made to the Stock
Consideration.
1.5 Stock Options. All
options to purchase shares of GBC Common Stock (the GBC
Options) under any of its option plans (collectively, the
GBC Stock Plans) shall have been exercised for
shares of GBC Common Stock or shall have been extinguished prior
to the Closing, such that no GBC Options are outstanding at the
Effective Time.
1.6 Articles of Incorporation of First
Charter. At the Effective Time, the First
Charter Amended and Restated Articles of Incorporation (the
First Charter Articles) shall be the articles of
incorporation of the Surviving Corporation until thereafter
amended in accordance with applicable law.
1.7 Bylaws of First
Charter. At the Effective Time, the bylaws of
First Charter (the First Charter Bylaws) shall be
the bylaws of the Surviving Corporation until thereafter amended
in accordance with applicable law.
1.8 Tax Consequences. It is
intended that the Merger shall constitute a
reorganization within the meaning of
Section 368(a) of the Code, and that this Agreement shall
constitute a plan of reorganization for purposes of
Sections 354 and 361 of the Code.
A-2
ARTICLE II
DELIVERY OF MERGER CONSIDERATION
2.1 Exchange Agent. Prior to
the Effective Time, First Charter shall appoint a bank or trust
company, or First Charters transfer agent, pursuant to an
agreement (the Exchange Agent Agreement) to
act as exchange agent (the Exchange Agent)
hereunder.
2.2 Election Procedures.
(a) Holders of GBC Common Stock may elect to receive shares
of First Charter Common Stock or cash (in either case without
interest) in exchange for their shares of GBC Common Stock in
accordance with the following procedures, provided that,
in the aggregate and subject to the provisions of
Section 2.4(f), 2,975,000 shares of First
Charter Common Stock shall be issued as Stock Consideration in
the Merger (the Total Stock Issuance Number)
(unless adjusted pursuant to Section 8.1(g) (such
revised number of shares is herein referred to as the
Revised Total Stock Issuance Number)). Shares
of GBC Common Stock as to which a Cash Election (including,
pursuant to a Mixed Election) has been made are referred to
herein as Cash Election Shares. Shares of GBC
Common Stock as to which a Stock Election has been made
(including, pursuant to a Mixed Election) are referred to as
Stock Election Shares. Shares of GBC Common Stock as
to which no election has been made (or as to which an Election
Form is not returned properly completed) are referred to herein
as Non-Election Shares. The aggregate number
of shares of First Charter Common Stock that would be issuable
giving effect to the aggregate Stock Elections that are made is
referred to herein as the Stock Election
Number.
(b) An election form and other appropriate and customary
transmittal materials (which shall specify that delivery shall
be effected, and risk of loss and title to the Certificates
shall pass, only upon proper delivery of such Certificates to
the Exchange Agent), in such form as GBC and First Charter shall
mutually agree (Election Form), shall be
mailed no more than 40 business days and no less than 20
business days prior to the anticipated Effective Time or on such
earlier date as GBC and First Charter shall mutually agree (the
Mailing Date) to each holder of record of GBC
Common Stock as of five business days prior to the Mailing Date
(the Election Form Record Date). Each
Election Form shall permit such holder, subject to the
allocation and election procedures set forth in this
Section 2.2, to (i) elect to receive the Cash
Consideration for all of the shares of GBC Common Stock held by
such holder (a Cash Election), in accordance
with Section 1.4(c), (ii) elect to receive the
Stock Consideration for all of such shares (a Stock
Election), in accordance with
Section 1.4(c) or as adjusted in accordance with
Section 8.1(g) or as otherwise determined by the
parties to this Agreement, (iii) elect to receive the Stock
Consideration for a part of such holders GBC Common Stock
and the Cash Consideration for the remaining part of such
holders GBC Common Stock (a Mixed
Election) or (iv) indicate that such record
holder has no preference as to the receipt of cash or First
Charter Common Stock for such shares (a
Non-Election). A holder of record of shares
of First Charter Common Stock who holds such shares as nominee,
trustee or in another representative capacity (a
Representative) may submit multiple Election
Forms, provided that each such Election Form covers all the
shares of GBC Common Stock held by such Representative for a
particular beneficial owner. Any shares of GBC Common Stock with
respect to which the holder thereof has not, as of the Election
Deadline, made an election by submission to the Exchange Agent
of an effective, properly completed Election Form shall be
deemed Non-Election Shares.
(c) To be effective, a properly completed Election Form
shall be submitted to the Exchange Agent on or before
5:00 p.m., Charlotte, North Carolina time, on the
25th day following the Mailing Date (or such other time and
date as First Charter and GBC may mutually agree) (the
Election Deadline); provided,
however, that the Election Deadline may not occur on or
after the Closing Date. First Charter shall use all reasonable
efforts to make available as promptly as possible an Election
Form to any holder of record of GBC Common Stock who requests
such Election Form following the initial mailing of the Election
Forms and prior to the Election Deadline. GBC shall provide to
the Exchange Agent all information reasonably necessary for it
to perform as specified herein. An election shall have been
properly made only if the Exchange Agent shall have actually
received a properly completed Election Form by the Election
Deadline. An Election Form shall be deemed properly completed
only if accompanied by one or more Certificates (or customary
affidavits and
A-3
indemnification regarding the loss or destruction of such
Certificates or the guaranteed delivery of such Certificates)
representing all shares of GBC Common Stock covered by such
Election Form, together with duly executed transmittal materials
included with the Election Form. If a GBC shareholder either
(i) does not submit a properly completed Election Form in a
timely fashion or (ii) revokes its Election Form prior to
the Election Deadline (without later submitting a properly
completed Election Form prior to the Election Deadline), the
shares of GBC Common Stock held by such shareholder shall be
designated as Non-Election Shares. Any Election Form may be
revoked or changed by the person submitting such Election Form
to the Exchange Agent by written notice to the Exchange Agent
only if such notice of revocation or change is actually received
by the Exchange Agent at or prior to the Election Deadline.
First Charter shall cause the Certificate or Certificates
relating to any revoked Election Form to be promptly returned
without charge to the person submitting the Election Form to the
Exchange Agent. Subject to the terms of this Agreement and of
the Election Form, the Exchange Agent shall have discretion to
determine when any election, modification or revocation is
received and whether any such election, modification or
revocation has been properly made.
(d) If the Stock Election Number would result in the Stock
Consideration exceeding the Total Stock Issuance Number or the
Revised Total Stock Issuance Number, as applicable, then all
Cash Election Shares and all Non-Election Shares shall be
converted into the right to receive the Cash Consideration, and
each holder of Stock Election Shares will be entitled to receive
the Stock Consideration only with respect to that number of
Stock Election Shares held by such holder (rounded to the
nearest whole share) utilizing a percentage such that when all
Stock Election Shares are converted the aggregate Stock
Consideration issued in the Merger shall equal the Total Stock
Issuance Number or the Revised Total Stock Issuance Number, as
applicable, with the remaining number of such holders
Stock Election Shares being converted into the right to receive
the Cash Consideration.
(e) If the Stock Election Number would result in the Stock
Consideration being less than the Total Stock Issuance Number or
the Revised Total Stock Issuance Number, as applicable (the
amount by which the Total Stock Issuance Number or the Revised
Total Stock Issuance Number, as applicable, exceeds the Stock
Election Number being referred to herein as the
Shortfall Number), then all Stock Election
Shares shall be converted into the right to receive the Stock
Consideration and the Non-Election Shares and Cash Election
Shares shall be treated in the following manner: (i) if the
Shortfall Number is less than or equal to the number of
Non-Election Shares, then all Cash Election Shares shall be
converted into the right to receive the Cash Consideration and
each holder of Non-Election Shares shall receive the Stock
Consideration in respect of that number of Non-Election Shares
held by such holder (rounded to the nearest whole share)
utilizing a percentage such that when all Non-Election Shares
are converted the aggregated Stock Consideration issued in the
Merger shall equal the Total Stock Issuance Number or the
Revised Total Stock Issuance Number, as applicable, with the
remaining number of such holders Non-Election Shares being
converted into the right to receive the Cash Consideration; or
(ii) if the Shortfall Number exceeds the number of
Non-Election Shares, then all Non-Election Shares shall be
converted into the right to receive the Stock Consideration, and
each holder of Cash Election Shares shall receive the Stock
Consideration in respect of that number of Cash Election Shares
held by such holder (rounded to the nearest whole share)
utilizing a percentage such that when all Cash Election Shares
are converted the aggregate Stock Consideration issued in the
Merger shall equal the Total Stock Issuance Number or the
Revised Total Stock Issuance Number, as applicable, with the
remaining number of such holders Cash Election Shares
being converted into the right to receive the Cash Consideration.
2.3 Deposit of Merger
Consideration. At or prior to the Effective
Time, First Charter shall deposit, or shall cause to be
deposited, with the Exchange Agent (a) certificates
representing the number of shares of First Charter Common Stock
sufficient to deliver, and First Charter shall instruct the
Exchange Agent to timely deliver, the aggregate Stock
Consideration, and (b) immediately available funds equal to
the aggregate Cash Consideration (together with, to the extent
then determinable, any cash payable in lieu of fractional shares
pursuant to Section 2.4(f)) (collectively, the
Exchange Fund) and First Charter shall
instruct the Exchange Agent to timely pay the Cash
Consideration, and such cash in lieu of fractional shares, in
accordance with this Agreement.
A-4
2.4 Delivery of Merger Consideration.
(a) As soon as reasonably practicable after the Effective
Time, the Exchange Agent shall mail to each holder of record of
Certificate(s) that immediately prior to the Effective Time
represented outstanding shares of GBC Common Stock whose shares
were converted into the right to receive the Merger
Consideration pursuant to Section 1.4 and any cash
in lieu of fractional shares of First Charter Common Stock to be
issued or paid in consideration therefor (i) a letter of
transmittal (which shall specify that delivery shall be
effected, and risk of loss and title to Certificate(s) shall
pass, only upon delivery of Certificate(s) (or affidavits of
loss in lieu of such Certificates) to the Exchange Agent and
shall be substantially in such form and have such other
provisions as shall be prescribed by the Exchange Agent
Agreement (the Letter of Transmittal) and
(ii) instructions for use in surrendering Certificate(s) in
exchange for the Merger Consideration and any cash in lieu of
fractional shares of First Charter Common Stock to be issued or
paid in consideration therefor in accordance with
Section 2.4(f) upon surrender of such Certificate
and any dividends or distributions to which such holder is
entitled pursuant to Section 2.4(c).
(b) Upon surrender to the Exchange Agent of its Certificate
or Certificates, accompanied by a properly completed Letter of
Transmittal, a holder of GBC Common Stock will be entitled to
receive promptly after the Effective Time the Merger
Consideration (with the aggregate Cash Consideration paid to
each such holder rounded to the nearest whole cent) and any cash
in lieu of fractional shares of First Charter Common Stock to be
issued or paid in consideration therefor in respect of the
shares of GBC Common Stock represented by its Certificate or
Certificates. Until so surrendered, each such Certificate shall
represent after the Effective Time, for all purposes, only the
right to receive the Merger Consideration and any cash in lieu
of fractional shares of First Charter Common Stock to be issued
or paid in consideration therefor upon surrender of such
Certificate in accordance with, and any dividends or
distributions to which such holder is entitled pursuant to, this
Article II.
(c) No dividends or other distributions with respect to
First Charter Common Stock shall be paid to the holder of any
unsurrendered Certificate with respect to the shares of First
Charter Common Stock represented thereby, in each case until the
surrender of such Certificate in accordance with this
Article II. Subject to the effect of applicable
abandoned property, escheat or similar laws, following surrender
of any such Certificate in accordance with this
Article II, the record holder thereof shall be
entitled to receive, without interest, (i) the amount of
dividends or other distributions with a record date after the
Effective Time theretofore payable with respect to the whole
shares of First Charter Common Stock represented by such
Certificate and not paid
and/or
(ii) at the appropriate payment date, the amount of
dividends or other distributions payable with respect to shares
of First Charter Common Stock represented by such Certificate
with a record date after the Effective Time (but before such
surrender date) and with a payment date subsequent to the
issuance of the First Charter Common Stock issuable with respect
to such Certificate.
(d) In the event of a transfer of ownership of a
Certificate representing GBC Common Stock that is not registered
in the stock transfer records of GBC, the proper amount of cash
and/or
shares of First Charter Common Stock shall be paid or issued in
exchange therefor to a person other than the person in whose
name the Certificate so surrendered is registered if the
Certificate formerly representing such GBC Common Stock shall be
properly endorsed or otherwise be in proper form for transfer
and the person requesting such payment or issuance shall pay any
transfer or other similar Taxes required by reason of the
payment or issuance to a person other than the registered holder
of the Certificate or establish to the satisfaction of First
Charter that the Tax has been paid or is not applicable. The
Exchange Agent (or, subsequent to the first anniversary of the
Effective Time, First Charter) shall be entitled to deduct and
withhold from the cash portion of the Merger Consideration and
any cash in lieu of fractional shares of First Charter Common
Stock otherwise payable pursuant to this Agreement to any holder
of GBC Common Stock such amounts as the Exchange Agent or First
Charter, as the case may be, is required to deduct and withhold
under the Code, or any provision of state, local or foreign Tax
law, with respect to the making of such payment. To the extent
the amounts are so withheld by the Exchange Agent or First
Charter, as the case may be, such withheld amounts shall be
treated for all purposes of this Agreement as having been paid
to the holder of shares of GBC Common Stock in respect of whom
such deduction and withholding was made by the Exchange Agent or
First Charter, as the case may be.
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(e) After the Effective Time, there shall be no transfers
on the stock transfer books of GBC of the shares of GBC Common
Stock that were issued and outstanding immediately prior to the
Effective Time other than to settle transfers of GBC Common
Stock that occurred prior to the Effective Time. If, after the
Effective Time, Certificates representing such shares are
presented for transfer to the Exchange Agent, they shall be
cancelled and exchanged for the Merger Consideration and any
cash in lieu of fractional shares of First Charter Common Stock
to be issued or paid in consideration therefor in accordance
with the procedures set forth in this Article II.
(f) Notwithstanding anything to the contrary contained in
this Agreement, no certificates or scrip representing fractional
shares of First Charter Common Stock shall be issued upon the
surrender of Certificates for exchange, no dividend or
distribution with respect to First Charter Common Stock shall be
payable on or with respect to any fractional share, and such
fractional share interests shall not entitle the owner thereof
to vote or to any other rights of a shareholder of First
Charter. In lieu of the issuance of any such fractional share,
First Charter shall pay to each former shareholder of GBC who
otherwise would be entitled to receive such fractional share an
amount in cash (rounded to the nearest cent) determined by
multiplying (i) the closing price of a share of First
Charter Common Stock on the Nasdaq National Market on the date
of the Effective Time (the First Charter Closing
Price) by (ii) the fraction of a share (after
taking into account all shares of GBC Common Stock held by such
holder at the Effective Time and rounded to the nearest
thousandth when expressed in decimal form) of First Charter
Common Stock to which such holder would otherwise be entitled to
receive pursuant to Section 1.4.
(g) Any portion of the Exchange Fund that remains unclaimed
by the shareholders of GBC as of the first anniversary of the
Effective Time may be paid to First Charter. In such event, any
former shareholders of GBC who have not theretofore complied
with this Article II shall thereafter look only to
First Charter with respect to the Merger Consideration, any cash
in lieu of any fractional shares and any unpaid dividends and
distributions on the First Charter Common Stock deliverable in
respect of each share of GBC Common Stock such shareholder holds
as determined pursuant to this Agreement, in each case, without
any interest thereon. Notwithstanding the foregoing, none of
First Charter, GBC, the Exchange Agent or any other person shall
be liable to any former holder of shares of GBC Common Stock for
any amount delivered in good faith to a public official pursuant
to applicable abandoned property, escheat or similar laws.
(h) In the event any Certificate shall have been lost,
stolen or destroyed, upon the making of an affidavit of that
fact by the person claiming such Certificate to be lost, stolen
or destroyed and, if reasonably required by First Charter or the
Exchange Agent, the posting by such person of a bond in such
amount as First Charter may determine is reasonably necessary as
indemnity against any claim that may be made against it with
respect to such Certificate, the Exchange Agent will issue in
exchange for such lost, stolen or destroyed Certificate the
Merger Consideration deliverable in respect thereof pursuant to
this Agreement.
2.5 Dissenting
Shareholders. Each holder of GBC Common Stock
shall be entitled to exercise dissenters rights of
appraisal in accordance with and as contemplated by
Sections 14-2-1301
et seq. of the GBCC. Any holder of GBC Common Stock who perfects
his dissenters rights in accordance with and as
contemplated by
Sections 14-2-1301
et seq. of the GBCC shall be entitled to receive the value of
such GBC Common Stock in cash as determined pursuant to such
provisions; provided, however, that no such
payment shall be made to any dissenting shareholder unless and
until such dissenting shareholder has complied with
Sections 14-2-1301
et seq. of the GBCC and surrendered to First Charter the
certificate or certificates representing the shares of GBC
Common Stock for which payment is being made. If after the
Effective Time a dissenting shareholder of GBC fails to perfect,
or effectively withdraws or loses, his right to appraisal and
payment for his shares of GBC Common Stock, First Charter shall
issue and deliver the consideration to which such holder of GBC
Common Stock is entitled under this Agreement (without interest)
upon surrender by such holder of the certificate or certificates
representing the shares of GBC Common Stock for which payment is
being made.
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ARTICLE III
REPRESENTATIONS
AND WARRANTIES OF GBC
Except as disclosed in the disclosure schedule (the GBC
Disclosure Schedule) delivered by GBC to First Charter
prior to the execution of this Agreement (which schedule sets
forth, among other things, items the disclosure of which is
necessary or appropriate either in response to an express
disclosure requirement contained in a provision hereof or as an
exception to one or more representations or warranties contained
in this Article III, or to one or more of GBCs
covenants contained herein, provided, however, the
mere inclusion of an item in such schedule as an exception to a
representation or warranty shall not be deemed an admission that
such item represents a material exception or material fact,
event or circumstance or that such item has had or would be
reasonably likely to have a Material Adverse Effect (as defined
in Section 3.8) on GBC). No representation or
warranty of GBC contained in this Article III (other
than representations and warranties contained in
Sections 3.3, 3.7, 3.11(b),
3.11(c) and 3.24 which shall be true in all
respects and the representations and warranties contained in
Section 3.2 and Section 3.6, which shall
be deemed untrue and incorrect if not true and correct except to
a de minimus extent) shall be deemed untrue or incorrect,
and no party hereto shall be deemed to have breached a
representation or warranty, as a consequence of the existence of
any fact, event or circumstance unless such fact, circumstance
or event, individually or taken together with all other facts,
events or circumstances has had, or is reasonably likely to
have, a Material Adverse Effect with respect to GBC. GBC hereby
represents and warrants to First Charter as follows:
3.1 Corporate Organization.
(a) GBC is a corporation duly incorporated, validly
existing and in good standing under the laws of the State of
Georgia. GBC has the corporate power and authority to own or
lease all of its properties and assets and to carry on its
business as it is now being conducted, and is duly licensed or
qualified to do business in each jurisdiction in which the
nature of the business conducted by it or the character or
location of the properties and assets owned or leased by it
makes such licensing or qualification necessary.
(b) GBC is duly registered as a bank holding company under
the Bank Holding Company Act of 1956, as amended (the
BHC Act), and the Georgia Bank Holding
Company Act. True, complete and correct copies of the Articles
of Incorporation of GBC, as amended (the GBC
Articles), and the Bylaws of GBC (the GBC
Bylaws), as in effect as of the date of this
Agreement, have previously been made available to First Charter.
Gwinnett Banking Company (Gwinnett Bank) is
incorporated under the laws of the State of Georgia and is
subject to examination by the Georgia Department of Banking and
Finance (the GDBF)
(c) Each of GBCs Subsidiaries (i) is duly
incorporated or duly formed, as applicable to each such
Subsidiary, and validly existing under the laws of its
jurisdiction of organization, (ii) is duly licensed or
qualified to do business and in good standing in all
jurisdictions (whether federal, state, local or foreign) where
its ownership or leasing of property or the conduct of its
business requires it to be so licensed or qualified and
(iii) has all requisite corporate power or other power and
authority to own or lease its properties and assets and to carry
on its business as now conducted. The articles of incorporation,
bylaws and similar governing documents of each GBC Subsidiary,
copies of which have previously been made available to First
Charter, are true, complete and correct copies of such documents
as of the date of this Agreement. As used in this Agreement, the
word Subsidiary, when used with respect to
either party, means any bank, corporation, partnership, limited
liability company or other organization, whether incorporated or
unincorporated, that is consolidated with such party for
financial reporting purposes under U.S. generally accepted
accounting principles (GAAP), and the terms
GBC Subsidiary and First Charter
Subsidiary shall mean any direct or indirect
Subsidiary of GBC or First Charter, respectively.
(d) The deposit accounts of Gwinnett Bank are insured by
the Federal Deposit Insurance Corporation (the
FDIC) through the Deposit Insurance Fund to
the fullest extent permitted by law, and all premiums and
assessments required to be paid in connection therewith have
been paid when due.
(e) The minute books of GBC and each of its Subsidiaries
previously made available to First Charter contain true,
complete and correct records of all meetings and other corporate
actions held or taken since
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December 31, 2003 of their respective shareholders and
Boards of Directors (including committees of their respective
Boards of Directors).
3.2 Capitalization.
(a) The authorized capital stock of GBC consists of
3,000,000 shares of GBC Common Stock, of which, as of
June 1, 2006 (the GBC Capitalization
Date), 2,096,633 shares were issued and
outstanding. As of the GBC Capitalization Date, no shares of GBC
Common Stock were reserved for issuance except for
428,000 shares of GBC Common Stock reserved for issuance in
connection with stock options under the GBC Stock Plans. As of
the GBC Capitalization Date, GBC has outstanding options to
purchase 39,975 shares of GBC Common Stock. All of the
issued and outstanding shares of GBC Common Stock have been duly
authorized and validly issued and are fully paid, nonassessable
and free of preemptive rights, with no personal liability
attaching to the ownership thereof. As of the date of this
Agreement, no bonds, debentures, notes or other indebtedness
having the right to vote on any matters on which shareholders
may vote (Voting Debt) of GBC are issued or
outstanding. As of the date of this Agreement, except pursuant
to this Agreement, including with respect to the GBC Stock Plans
as set forth herein, GBC does not have and is not bound by any
outstanding subscriptions, options, warrants, calls, rights,
commitments or agreements of any character calling for the
purchase or issuance of, or the payment of any amount based on,
any shares of GBC Common Stock, Voting Debt or any other equity
securities of GBC or any securities representing the right to
purchase or otherwise receive any shares of GBC Common Stock,
Voting Debt or other equity securities of GBC. As of the date of
this Agreement, there are no contractual obligations of GBC or
any of its Subsidiaries (i) to repurchase, redeem or
otherwise acquire any shares of capital stock of GBC or any
equity security of GBC or its Subsidiaries or any securities
representing the right to purchase or otherwise receive any
shares of capital stock or any other equity security of GBC or
its Subsidiaries or (ii) pursuant to which GBC or any of
its Subsidiaries is or could be required to register shares of
GBC capital stock or other securities under the Securities Act
of 1933, as amended (the Securities Act). GBC
has provided First Charter with a true, complete and correct
list of the aggregate number of shares of GBC Common Stock
issuable upon the exercise of each stock option granted under
the GBC Stock Plans that was outstanding as of the GBC
Capitalization Date and the exercise price for each such GBC
stock option. Other than the GBC Options, no equity-based awards
are outstanding as of the GBC Capitalization Date. Since
January 1, 2006 through the date hereof, GBC has not
(A) issued or repurchased any shares of GBC Common Stock,
Voting Debt or other equity securities of GBC other than the
issuance of shares of GBC Common Stock in connection with the
exercise of stock options to purchase GBC Common Stock granted
under the GBC Stock Plans that were outstanding on
January 1, 2006 or (B) issued or awarded any options,
restricted shares or any other equity-based awards under any of
the GBC Stock Plans.
(b) Except for any director qualifying shares, all of the
issued and outstanding shares of capital stock or other equity
ownership interests of each Subsidiary of GBC are owned by GBC,
directly or indirectly, free and clear of any material liens,
pledges, charges and security interests and similar encumbrances
(Liens), and all of such shares or equity
ownership interests are duly authorized and validly issued and
are fully paid, nonassessable (subject to 12 U.S.C.
§ 55) and free of preemptive rights. No such GBC
Subsidiary has or is bound by any outstanding subscriptions,
options, warrants, calls, commitments or agreements of any
character calling for the purchase or issuance of any shares of
capital stock or any other equity security of such Subsidiary or
any securities representing the right to purchase or otherwise
receive any shares of capital stock or any other equity security
of such Subsidiary.
3.3 Authority; No Violation.
(a) GBC has requisite corporate power and authority to
execute and deliver this Agreement and to consummate the
transactions contemplated hereby and thereby. The execution and
delivery of this Agreement and the consummation of the
transactions contemplated hereby and thereby have been duly,
validly and unanimously approved by the Board of Directors of
GBC (the GBC Board). The GBC Board has
determined that the Merger, on substantially the terms and
conditions set forth in this Agreement, is advisable and in the
best interests of GBC and its shareholders and has directed that
the Merger, on substantially the terms and conditions set forth
in this Agreement, be submitted to GBCs shareholders for
consideration at a duly held
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meeting of such shareholders and, except for the approval of
this Agreement by the affirmative vote of the holders of a
majority of the outstanding shares of GBC Common Stock entitled
to vote at such meeting, no other corporate proceedings on the
part of GBC are necessary to approve this Agreement or to
consummate the transactions contemplated hereby or thereby. This
Agreement has been duly and validly executed and delivered by
GBC and (assuming due authorization, execution and delivery by
First Charter) constitute the valid and binding obligation of
GBC, enforceable against GBC in accordance with their terms
(except as may be limited by bankruptcy, insolvency, moratorium,
reorganization or similar laws affecting the rights of creditors
generally and subject to general principles of equity).
(b) Neither the execution and delivery of this Agreement by
GBC nor the consummation by GBC of the transactions contemplated
hereby or thereby, nor compliance by GBC with any of the terms
or provisions of this Agreement, will (i) violate any
provision of the GBC Charter or the GBC Bylaws or
(ii) assuming that the consents, approvals and filings
referred to in Section 3.4 are duly obtained
and/or made,
(A) violate any statute, code, ordinance, rule, regulation,
judgment, order, writ, decree or Injunction applicable to GBC,
any of its Subsidiaries or any of their respective properties or
assets or (B) violate, conflict with, result in a breach of
any provision of or the loss of any benefit under, constitute a
default (or an event which, with notice or lapse of time, or
both, would constitute a default) under, result in the
termination of or a right of termination or cancellation under,
accelerate the performance required by, or result in the
creation of any Lien upon any of the respective properties or
assets of GBC or any of its Subsidiaries under, any of the
terms, conditions or provisions of any note, bond, mortgage,
indenture, deed of trust, license, lease, affinity or other
partnership or joint marketing agreement, agreement, bylaw or
other agreement or other instrument or obligation to which GBC
or any of its Subsidiaries is a party or by which any of them or
any of their respective properties or assets is bound.
3.4 Consents and
Approvals. Except for (i) the filing of
applications and notices, as applicable, with the Board of
Governors of the Federal Reserve System (the Federal
Reserve Board) under the BHC Act and approval of such
applications and notices, (ii) the filing of any required
applications, filings or notices with the FDIC, the GDBF and any
other federal or state banking, insurance or other regulatory or
self-regulatory authorities or any courts, administrative
agencies or commissions or other governmental authorities or
instrumentalities (each a Governmental
Entity) and approval of such applications, filings and
notices (the Other Regulatory Approvals),
(iii) the filing with the Securities and Exchange
Commission (the SEC) of a Proxy Statement in
definitive form relating to the meeting of GBCs
shareholders to be held in connection with this Agreement and
the transactions contemplated by this Agreement (the
Proxy Statement) and of a registration
statement on
Form S-4
(the
Form S-4)
in which the Proxy Statement will be included as a prospectus,
and declaration of effectiveness of the
Form S-4
and the filing and effectiveness of the registration statement
contemplated by Section 1.5(e), (iv) the filing
of the Articles of Merger with the Secretary of State of the
State of North Carolina pursuant to the NCBCA and with the
Secretary of State of the State of Georgia pursuant to the GBCC,
(v) any consents, authorizations, approvals, filings or
exemptions in connection with compliance with the rules and
regulations of the Nasdaq National Market, or that are required
under consumer finance, mortgage banking and other similar laws,
and (vi) such filings and approvals as are required to be
made or obtained under the securities or Blue Sky
laws of various states in connection with the issuance of the
shares of First Charter Common Stock pursuant to this Agreement
and approval of listing of such First Charter Common Stock with
the Nasdaq National Market, no consents or approvals of or
filings or registrations with any Governmental Entity are
necessary in connection with the consummation by GBC of the
Merger and the other transactions contemplated by this
Agreement. No consents or approvals of or filings or
registrations with any Governmental Entity are necessary in
connection with the execution and delivery by GBC of this
Agreement.
3.5 Reports; Regulatory Matters.
(a) GBC and each of its Subsidiaries have timely filed all
reports, registrations and statements, together with any
amendments required to be made with respect thereto, that they
were required to file since January 1, 2003 with
(i) the Federal Reserve Board, (ii) the FDIC,
(iii) the GDBF, (iv) any state insurance commission or
other state regulatory authority and (v) the SEC
(collectively, Regulatory Agencies) and with
each other applicable Governmental Entity, and all other reports
and statements required to be filed by them since
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January 1, 2003, including any report or statement required
to be filed pursuant to the laws, rules or regulations of the
United States, any state, any foreign entity, or any Regulatory
Agency or Governmental Entity, and have paid all fees and
assessments due and payable in connection therewith. Except for
normal examinations conducted by a Regulatory Agency or
Governmental Entity in the ordinary course of the business of
GBC and its Subsidiaries, no Regulatory Agency or Governmental
Entity has initiated since January 1, 2003 or has pending
any proceeding, enforcement action or, to the knowledge of GBC,
investigation into the business, disclosures or operations of
GBC or any of its Subsidiaries. Since January 1, 2003, no
Regulatory Agency or Governmental Entity has resolved any
proceeding, enforcement action or, to the knowledge of GBC,
investigation into the business, disclosures or operations of
GBC or any of its Subsidiaries. There is no unresolved
violation, criticism, comment or exception by any Regulatory
Agency or Governmental Entity with respect to any report or
statement relating to any examinations or inspections of GBC or
any of its Subsidiaries. Since January 1, 2003, there has
been no formal or informal inquiries by, or disagreements or
disputes with, any Regulatory Agency or Governmental Entity with
respect to the business, operations, policies or procedures of
GBC or any of its Subsidiaries (other than normal examinations
conducted by a Regulatory Agency or Governmental Entity in
GBCs ordinary course of business).
(b) Neither GBC nor any of its Subsidiaries is subject to
any cease-and-desist or other order or enforcement action issued
by, or is a party to any written agreement, consent agreement or
memorandum of understanding with, or is a party to any
commitment letter or similar undertaking to, or is subject to
any order or directive by, or has been ordered to pay any civil
money penalty by, or has been since January 1, 2003 a
recipient of any supervisory letter from, or since
January 1, 2003 has adopted any policies, procedures or
board resolutions at the request or suggestion of, any
Regulatory Agency or other Governmental Entity that currently
restricts in any material respect the conduct of its business or
that in any material manner relates to its capital adequacy, its
ability to pay dividends, its credit, risk management or
compliance policies, its internal controls, its management or
its business (or, as applicable, its operations as a financial
subsidiary of a national bank under the Gramm-Leach-Bliley Act
of 1999), other than those of general application that apply to
similarly situated bank holding companies or their Subsidiaries
(each item in this sentence, a GBC Regulatory
Agreement), nor has GBC or any of its Subsidiaries
been advised since January 1, 2003 by any Regulatory Agency
or other Governmental Entity that it is considering issuing,
initiating, ordering, or requesting any such GBC Regulatory
Agreement. To the knowledge of GBC there has not been any event
or occurrence since January 1, 2003 that would result in a
determination that Gwinnett Bank is not well
capitalized and well managed as a matter of
U.S. federal banking law.
(c) GBC has previously made available to First Charter an
accurate and complete copy of each (i) final registration
statement, prospectus, report, schedule and definitive proxy
statement filed with or furnished to the SEC by GBC since
January 1, 2003 pursuant to the Securities Act or the
Securities Exchange Act of 1934, as amended (the
Exchange Act), and prior to the date of this
Agreement (the GBC SEC Reports) and
(ii) communication mailed by GBC to its shareholders since
January 1, 2003 and prior to the date of this Agreement. No
such GBC SEC Report or communication, at the time filed,
furnished or communicated (and, in the case of registration
statements and proxy statements, on the dates of effectiveness
and the dates of the relevant meetings, respectively), contained
any untrue statement of a material fact or omitted to state any
material fact required to be stated therein or necessary in
order to make the statements made therein, in light of the
circumstances in which they were made, not misleading, except
that information as of a later date (but before the date of this
Agreement) shall be deemed to modify information as of an
earlier date. As of their respective dates, all GBC SEC Reports
complied as to form in all material respects with the published
rules and regulations of the SEC with respect thereto. No
executive officer of GBC has failed in any respect to make the
certifications required of him or her under Section 302 or
906 of the Sarbanes-Oxley Act of 2002 (the
Sarbanes-Oxley Act).
3.6 Financial Statements.
(a) The financial statements of GBC and its Subsidiaries
included (or incorporated by reference) in the GBC SEC Reports
(including the related notes, where applicable) (i) have
been prepared from, and are in accordance with, the books and
records of GBC and its Subsidiaries, (ii) fairly present in
all material respects the consolidated results of operations,
cash flows, changes in shareholders equity and consolidated
financial
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position of GBC and its Subsidiaries for the respective fiscal
periods or as of the respective dates therein set forth (subject
in the case of unaudited statements to recurring year-end audit
adjustments normal in nature and amount), (iii) complied as
to form, as of their respective dates of filing with the SEC, in
all material respects with applicable accounting requirements
and with the published rules and regulations of the SEC with
respect thereto, and (iv) have been prepared in accordance
with GAAP consistently applied during the periods involved,
except, in each case, as indicated in such statements or in the
notes thereto. The books and records of GBC and its Subsidiaries
have been, and are being, maintained in all material respects in
accordance with GAAP and any other applicable legal and
accounting requirements and reflect only actual transactions.
Mauldin & Jenkins, LLC has served as independent
registered public accountants for GBC for all periods covered in
the GBC SEC Reports; such firm has not resigned or been
dismissed as independent public accountants of GBC as a result
of or in connection with any disagreements with GBC on a matter
of accounting principles or practices, financial statement
disclosure or auditing scope or procedure.
(b) Neither GBC nor any of its Subsidiaries has any
material liability of any nature whatsoever (whether absolute,
accrued, contingent or otherwise and whether due or to become
due), except for those liabilities that are reflected or
reserved against on the consolidated balance sheet of GBC
included in its Quarterly Report on
Form 10-QSB
for the fiscal quarter ended March 31, 2006 (including any
notes thereto) and for liabilities incurred in the ordinary
course of business consistent with past practice since
March 31, 2006 or in connection with this Agreement and the
transactions contemplated hereby.
(c) The records, systems, controls, data and information of
GBC and its Subsidiaries are recorded, stored, maintained and
operated under means (including any electronic, mechanical or
photographic process, whether computerized or not) that are
under the exclusive ownership and direct control of GBC or its
Subsidiaries or accountants (including all means of access
thereto and therefrom), except for any non-exclusive ownership
and non-direct control that would not reasonably be expected to
have a material adverse effect on the system of internal
accounting controls described below in this
Section 3.6(c). GBC has implemented and maintains
disclosure controls and procedures (as defined in
Rule 13a-15(e)
of the Exchange Act).
(d) Since December 31, 2005, (i) through the date
hereof, neither GBC nor any of its Subsidiaries nor, to the
knowledge of the officers of GBC, any director, officer,
employee, auditor, accountant or representative of GBC or any of
its Subsidiaries has received or otherwise had or obtained
knowledge of any material complaint, allegation, assertion or
claim, whether written or oral, regarding the accounting or
auditing practices, procedures, methodologies or methods of GBC
or any of its Subsidiaries or their respective internal
accounting controls, including any material complaint,
allegation, assertion or claim that GBC or any of its
Subsidiaries has engaged in questionable accounting or auditing
practices, and (ii) no attorney representing GBC or any of
its Subsidiaries, whether or not employed by GBC or any of its
Subsidiaries, has reported evidence of a material violation of
securities laws, breach of fiduciary duty or similar violation
by GBC or any of its officers, directors, employees or agents to
the GBC Board or any committee thereof or to any director or
officer of GBC.
3.7 Brokers
Fees. Neither GBC nor any GBC Subsidiary nor
any of their respective officers or directors has employed any
broker or finder or incurred any liability for any brokers
fees, commissions or finders fees in connection with the
Merger or related transactions contemplated by this Agreement,
other than as set forth on Section 3.7 of the GBC
Disclosure Schedule and pursuant to letter agreements, true,
complete and correct copies of which have been previously
delivered to First Charter. The only brokers or finders entitled
to any payment from GBC or any GBC Subsidiary in connection with
the Merger and related transactions are Sandler
ONeill & Partners, L.P. and Burke Capital Group,
L.L.C. and in the aggregate amounts set forth on
Section 3.7 of the GBC Disclosure Schedule.
3.8 Absence of Certain Changes or
Events.
(a) Since December 31, 2005, no event or events have
occurred that have had or are reasonably likely to have, either
individually or in the aggregate, a Material Adverse Effect on
GBC. As used in this Agreement, the term Material
Adverse Effect means, with respect to First Charter,
GBC or the Surviving Corporation, as the case may be, a material
adverse effect on (i) the business, results of operations
or financial condition of such party and its Subsidiaries taken
as a whole (provided, however, that, with respect
to this clause (i),
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Material Adverse Effect shall not be deemed to include effects
to the extent resulting from (A) changes, after the date
hereof, in generally accepted accounting principles or
regulatory accounting requirements applicable to banks or
savings associations and their holding companies, generally,
(B) changes, after the date hereof, in laws, rules or
regulations of general applicability to banks or savings
associations and their holding companies, generally, or
interpretations thereof by courts or Governmental Entities,
(C) changes, after the date hereof, in global or national
political conditions (including the outbreak of war or acts of
terrorism) or in general economic or market conditions affecting
banks, savings associations or their holding companies generally
except to the extent that such changes in general economic or
market conditions have a materially disproportionate adverse
effect on such party or (D) consummation or public
disclosure of this Agreement or the transactions contemplated
hereby), or (ii) the ability of such party to timely
consummate the transactions contemplated by this Agreement.
(b) Since December 31, 2005 through and including the
date of this Agreement, GBC and its Subsidiaries have carried on
their respective businesses in all material respects in the
ordinary course of business consistent with their past practice.
(c) Except as set forth on Section 3.9 of the
GBC Disclosure Schedule, since December 31, 2005, neither
GBC nor any of its Subsidiaries has (i) except for
(A) normal increases for employees (other than officers
subject to the reporting requirements of Section 16(a) of
the Exchange Act) made in the ordinary course of business
consistent with past practice or (B) as required by
applicable law or pre-existing contractual obligations,
increased the wages, salaries, compensation, pension, or other
fringe benefits or perquisites payable to any executive officer,
employee, or director from the amount thereof in effect as of
December 31, 2005, granted any severance or termination
pay, entered into any contract to make or grant any severance or
termination pay (in each case, except as required under the
terms of agreements or severance plans listed on
Section 3.11 of the GBC Disclosure Schedule, as in
effect as of the date hereof), or paid any bonus other than the
customary year-end bonuses in amounts consistent with past
practice, (ii) granted any options to purchase shares of
GBC Common Stock, any restricted shares of GBC Common Stock or
any right to acquire any shares of its capital stock to any
executive officer, director or employee other than grants to
employees (other than officers subject to the reporting
requirements of Section 16(a) of the Exchange Act) made in
the ordinary course of business consistent with past practice
under the GBC Stock Plans, (iii) changed any accounting
methods, principles or practices of GBC or its Subsidiaries
affecting its assets, liabilities or businesses, including any
reserving, renewal or residual method, practice or policy or
(iv) suffered any strike, work stoppage, slow-down, or
other labor disturbance.
3.9 Legal Proceedings.
(a) Except as disclosed on Section 3.9 of the
GBC Disclosure Schedule and for routine loan collection or
foreclosure actions initiated by Gwinnett Bank in the ordinary
course of its business, neither GBC nor any of its Subsidiaries
is a party to any, and there are no pending or, to the best of
GBCs knowledge, threatened, legal, administrative,
arbitral or other material proceedings, claims, actions or
governmental or regulatory investigations of any nature against
GBC or any of its Subsidiaries. None of the proceedings, claims,
actions or governmental or regulatory investigations set forth
on Section 3.9 of the GBC Disclosure Schedule would
reasonably be expected to have a Material Adverse Effect on GBC.
(b) There is no Injunction, judgment, or regulatory
restriction (other than those of general application that apply
to similarly situated bank holding companies or their
Subsidiaries) imposed upon GBC, any of its Subsidiaries or the
assets of GBC or any of its Subsidiaries.
3.10 Taxes and Tax Returns.
(a) Each of GBC and its Subsidiaries has duly and timely
filed (including all applicable extensions) all Tax Returns
required to be filed by it on or prior to the date of this
Agreement (all such returns being accurate and complete in all
material respects), has paid all Taxes shown thereon as arising
and has duly paid or made provision for the payment of all Taxes
that have been incurred or are due or claimed to be due from it
by federal, state, foreign or local taxing authorities other
than Taxes that are not yet delinquent or are being contested in
good faith, have not been finally determined and have been
adequately reserved against. The
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federal income Tax returns of GBC and its Subsidiaries have
never been examined by the Internal Revenue Service (the
IRS). There are no material disputes pending,
or claims asserted, for Taxes or assessments upon GBC or any of
its Subsidiaries for which GBC does not have reserves that are
adequate under GAAP. Neither GBC nor any of its Subsidiaries is
a party to or is bound by any extension, waiver of statute of
limitations, consent, Tax sharing, allocation or indemnification
agreement or arrangement (other than such an agreement or
arrangement exclusively between or among GBC and its
Subsidiaries). Within the past five years, neither GBC nor any
of its Subsidiaries has been a distributing
corporation or a controlled corporation in a
distribution intended to qualify under Section 355(a) of
the Code. Neither GBC nor any of its Subsidiaries is required to
include in income any adjustment pursuant to Section 481(a)
of the Code, no such adjustment has been proposed by the IRS and
no pending request for permission to change any accounting
method has been submitted by GBC or any of its Subsidiaries.
Neither GBC nor any of its Subsidiaries has participated in a
reportable transaction within the meaning of
Treasury
Regulation Section 1.6011-4(b)(1).
(b) As used in this Agreement, the term
Tax or Taxes means
(i) all federal, state, local, and foreign income, excise,
gross receipts, gross income, ad valorem, profits, gains,
property, capital, sales, transfer, use, payroll, employment,
severance, withholding, duties, intangibles, franchise, backup
withholding, value added and other taxes, charges, levies or
like assessments together with all penalties and additions to
tax and interest thereon and (ii) any liability for Taxes
described in clause (i) above under Treasury
Regulation Section 1.1502-6
(or any similar provision of state, local or foreign law).
(c) As used in this Agreement, the term Tax
Return means a report, return or other information
(including any amendments) required to be supplied to a
governmental entity with respect to Taxes including, where
permitted or required, combined or consolidated returns for any
group of entities that includes GBC or any of its Subsidiaries.
3.11 Employee Matters.
(a) Section 3.11 of the GBC Disclosure Schedule
sets forth a true, complete and correct list of each
employee benefit plan as defined in
Section 3(3) of the Employee Retirement Income Security Act
of 1974, as amended (ERISA), whether or not
subject to ERISA, and each employment, consulting, bonus,
incentive or deferred compensation, vacation, stock option or
other equity-based, severance, termination, retention, change of
control, profit-sharing, fringe benefit or other similar plan,
program, agreement or commitment for the benefit of any
employee, former employee, director or former director of GBC or
any of its Subsidiaries entered into, maintained or contributed
to by GBC or any of its Subsidiaries or to which GBC or any of
its Subsidiaries is, or within the past six years has been,
obligated to contribute (such plans, programs, agreements and
commitments, herein referred to as the GBC Benefit
Plans).
(b) With respect to each GBC Benefit Plan, GBC has made
available to First Charter true, complete and correct copies of
the following (as applicable): (i) the written document
evidencing such GBC Benefit Plan or, with respect to any such
plan that is not in writing, a written description thereof;
(ii) the summary plan description; (iii) the most
recent annual report, financial statement
and/or
actuarial report; (iv) the most recent determination letter
from the IRS; (v) the three most recent Form 5500
required to have been filed with the IRS, including all
schedules thereto; (vi) any related trust agreements,
insurance contracts or documents of any other funding
arrangements; (vii) any notices to or from the IRS or any
office or representative of the Department of Labor relating to
any compliance issues in respect of any such GBC Benefit Plan;
(viii) all amendments, modifications or supplements to any
such document; and (ix) a list of each person who has
options to purchase GBC Common Stock or has units outstanding
under the GBC Director Deferred Stock Unit Plan, noting for each
person the number of options or Deferred Fee Units available and
the strike price associated therewith. Section 3.11(b) of
the GBC Disclosure Schedule sets forth the accrued liability for
the GBC Director Deferred Stock Unit Plan and any other GBC
phantom-stock Benefit Plans.
(c) GBC and each of its Subsidiaries have operated and
administered each GBC Benefit Plan in substantial compliance
with all applicable laws and the terms of each such plan. Each
GBC Benefit Plan that is intended to be qualified
under Section 401
and/or 409
of the Code has received a favorable determination letter from
the IRS to such effect and, to the knowledge of GBC, no fact,
circumstance or event has occurred or exists since the date of
such determination letter that would reasonably be expected to
adversely affect the
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qualified status of any such GBC Benefit Plan. Each GBC Benefit
Plan that is an employee pension benefit plan as
defined in Section 3(2)(A) of ERISA and is not qualified
under Code Section 401(a) is exempt from Part 2, 3 and
4 of Title I of ERISA as an unfunded plan that is
maintained primarily for the purpose of providing deferred
compensation or life insurance for a select group of management
or highly compensated employees, pursuant to
Sections 201(2), 301(a)(3) and 401(a)(1) of ERISA, and for
each such plan the GBC Benefit Schedule contains (i) the
accrued liability for such plan, (ii) a list of assets
which are maintained or used to informally fund such plan,
(iii) an analysis of the emerging liabilities of the SERPs
and (iv) an analysis of the cash surrender value of the
split dollar insurance policies held pursuant to the SERPs. Any
trust agreement supporting such plan has been provided under
Section 3.11(b)(vi) of this Agreement. There are no
pending or, to the knowledge of GBC, threatened or anticipated
claims by, on behalf of or against any of the GBC Benefit Plans
or any assets thereof (other than routine claims for benefits).
All contributions, premiums and other payments required to be
made with respect to any GBC Benefit Plan have been made on or
before their due dates under applicable law and the terms of
such GBC Benefit Plan, and with respect to any such
contributions, premiums or other payments required to be made
with respect to any GBC Benefit Plan that are not yet due, to
the extent required by GAAP, adequate reserves are reflected on
the consolidated balance sheet of GBC included in the Quarterly
Report on
Form 10-QSB
for the fiscal quarter ended March 31, 2006 (including any
notes thereto) or liability therefor was incurred in the
ordinary course of business consistent with past practice since
March 31, 2006.
(d) No GBC Benefit Plan is subject to Section 412 of
the Code or Section 302 or Title IV of ERISA or is a
multiemployer plan or multiple employer plan within the meaning
of Sections 4001(a)(3) or 4063/4064 of ERISA, respectively.
Neither GBC nor any of its Subsidiaries has incurred, either
directly or indirectly (including as a result of any
indemnification or joint and several liability obligation), any
liability pursuant to Title I or IV of ERISA or the
penalty tax, excise tax or joint and several liability
provisions of the Code relating to employee benefit plans, in
each case, with respect to the GBC Benefit Plans and no event,
transaction or condition has occurred or exists that could
reasonably be expected to result in any such liability to GBC or
any of its Subsidiaries.
(e) Except as disclosed on Section 3.11(e) of
the GBC Disclosure Schedule, neither the execution or delivery
of this Agreement nor the consummation of the transactions
contemplated by this Agreement will, either alone or in
conjunction with any other event, (i) result in any payment
or benefit becoming due or payable, or required to be provided,
to any director, employee or independent contractor of GBC or
any of its Subsidiaries, (ii) increase the amount or value
of any benefit or compensation otherwise payable or required to
be provided to any such director, employee or independent
contractor, (iii) result in the acceleration of the time of
payment, vesting or funding of any such benefit or compensation
or (iv) result in any amount failing to be deductible by
reason of Section 280G of the Code.
(f) No prohibited transaction within the meaning of
Section 406 of ERISA or Section 4975 of the Code, or
breach of fiduciary duty under Title I of ERISA has
occurred with respect to any GBC Benefit Plan or with respect to
GBC.
(g) No payment made or to be made in respect of any
employee or former employee of GBC or any of its Subsidiaries
would reasonably be expected to be nondeductible by reason of
Section 162(m) of the Code.
(h) Neither GBC nor any of its Subsidiaries is a party to
or bound by any labor or collective bargaining agreement and
there are no organizational campaigns, petitions or other
unionization activities seeking recognition of a collective
bargaining unit with respect to, or otherwise attempting to
represent, any of the employees of GBC or any of its
Subsidiaries. There are no labor related controversies, strikes,
slowdowns, walkouts or other work stoppages pending or, to the
knowledge of GBC, threatened and neither GBC nor any of its
Subsidiaries has experienced any such labor related controversy,
strike, slowdown, walkout or other work stoppage within the past
three years. Neither GBC nor any of its Subsidiaries is a party
to, or otherwise bound by, any consent decree with, or citation
by, any Governmental Entity relating to employees or employment
practices. Each of GBC and its Subsidiaries are in compliance in
all material respects with all applicable laws, statutes,
orders, rules, regulations, policies or guidelines of any
Governmental Entity relating to labor,
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employment, termination of employment or similar matters and
have not engaged in any unfair labor practices or similar
prohibited practices.
(i) Section 3.11 of the GBC Disclosure Schedule
sets forth a true, complete and correct list of employment
agreements with each of GBCs key executives, copies of
which have been delivered to First Charter. In addition,
Section 3.11 of the GBC Disclosure Schedule contains
a list of the GBC Executives that have entered into retention
agreements (the Executed Retention
Agreements), copies of which have been delivered to
First Charter, and a list of executives that will be required to
enter into retention agreements (the Proposed Retention
Agreements and together with the Executed Retention
Agreements, the Retention Agreements)
substantially upon the terms described in the disclosure
schedule. Each of the employment agreements and Executed
Retention Agreements is, and the Proposed Retention Agreements
when executed will be, valid and binding and in full force and
effect.
(j) Except as disclosed in the GBC Disclosure Schedule
(which shall contain the actuarial present value of all such
benefits), neither GBC nor its Subsidiaries (i) provides
health or welfare benefits for any retired or former employee or
(ii) is obligated to provide health or welfare benefits to
any active employees after their retirement or other termination
of service, unless required to do so under Section 601 et
seq. of ERISA and Section 4980B of the Code.
3.12 Compliance with Applicable Law.
(a) GBC, Gwinnett Bank and each of GBCs other
Subsidiaries hold all material licenses, franchises, permits and
authorizations necessary for the lawful conduct of their
respective businesses under and pursuant to each, and have
complied in all respects with and are not in default in any
material respect under any, applicable law, statute, order,
rule, regulation, policy or guideline of any Governmental Entity
relating to GBC or any of its Subsidiaries. Other than as
required by (and in conformity with) law, neither GBC nor any
GBC Subsidiary acts as a fiduciary for any Person, or
administers any account for which it acts as a fiduciary,
including as a trustee, agent, custodian, personal
representative, guardian, conservator or investment advisor.
(b) Since the enactment of the Sarbanes-Oxley Act, GBC has
been and is in compliance in all material respects with the
applicable provisions of the Sarbanes-Oxley Act.
Section 3.12(b) of the GBC Disclosure Schedule sets
forth, as of the date hereof, a schedule of all officers and
directors of GBC who have outstanding loans from GBC or its
Subsidiaries, and there has been no default on, or forgiveness
or waiver of, in whole or in part, any such loan during the two
years immediately preceding the date hereof.
3.13 Certain Contracts.
(a) Except as disclosed on Section 3.13 of the
GBC Disclosure Schedule, neither GBC nor any of its Subsidiaries
is a party to or bound by any contract, arrangement, commitment
or understanding (whether written or oral) (i) with respect
to the employment of any directors, officers, employees or
consultants, other than in the ordinary course of business
consistent with past practice, (ii) which, upon execution
of this Agreement or consummation or shareholder approval of the
transactions contemplated by this Agreement will (either alone
or upon the occurrence of any additional acts or events) result
in any payment or benefits (whether of severance pay or
otherwise) becoming due from First Charter, GBC, the Surviving
Corporation, or any of their respective Subsidiaries to any
officer or employee of GBC or any Subsidiary thereof,
(iii) that is a material contract (as such term
is defined in Item 601(b)(10) of
Regulation S-K
of the SEC) to be performed after the date of this Agreement
that has not been filed or incorporated by reference in the GBC
SEC Reports filed prior to the date hereof, (iv) that
materially restricts the conduct of any line of business by GBC
or, to the knowledge of GBC, upon consummation of the Merger
will materially restrict the ability of the Surviving
Corporation to engage in any line of business in which a bank
holding company may lawfully engage, (v) with or to a labor
union or guild (including any collective bargaining agreement),
or (vi) including any stock option plan or benefits plan in
which any of the benefits of which will be increased, or the
vesting of the benefits of which will be accelerated, by the
execution of this Agreement, the occurrence of any shareholder
approval or the consummation of any of the transactions
contemplated by this Agreement, or the value of any of the
benefits of which will be calculated on the basis of or affected
by any of the transactions contemplated by this Agreement. No
such agreement will give any party to that agreement the right
to terminate or renegotiate the
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terms of, that agreement. Each contract, arrangement, commitment
or understanding of the type described in this
Section 3.13(a), whether or not set forth in the GBC
Disclosure Schedule, is referred to as an GBC
Contract, and neither GBC nor any of its Subsidiaries
knows of, or has received notice of, any violation of any GBC
Contract by any of the other parties thereto.
(b) (i) Each GBC Contract is valid and binding on GBC
or its applicable Subsidiary and is in full force and effect,
(ii) GBC and each of its Subsidiaries has in all material
respects performed all obligations required to be performed by
it to date under each GBC Contract, and (iii) no event or
condition exists that constitutes or, after notice or lapse of
time or both, will constitute, a material default on the part of
GBC or any of its Subsidiaries under any such GBC Contract.
(c) Neither GBC nor any of its Subsidiaries is a party to
any agreement prohibiting or restricting such entity from
engaging in any business activities in any geographic area, line
of business or otherwise in competition with any other person.
3.14 Risk Management Instruments.
(a) Derivative Transactions means any
swap transaction, option, warrant, forward purchase or sale
transaction, futures transaction, cap transaction, floor
transaction or collar transaction relating to one or more
currencies, commodities, bonds, equity securities, loans,
interest rates, prices, values, or other financial or
non-financial assets, credit-related events or conditions or any
indexes, or any other similar transaction or combination of any
of these transactions, including collateralized mortgage
obligations or other similar instruments or any debt or equity
instruments evidencing or embedding any such types of
transactions, and any related credit support, collateral or
other similar arrangements related to such transactions;
provided that, for the avoidance of doubt, the term
Derivative Transactions shall not include any
GBC Stock Option.
(b) A list of each Derivative Transaction involving more
than $10,000 is identified on Section 3.14 of the
GBC Disclosure Schedule. All Derivative Transactions, whether
entered into for the account of GBC or any of its Subsidiaries
or for the account of a customer of GBC or any of its
Subsidiaries, were entered into in the ordinary course of
business consistent with past practice and in accordance with
prudent banking practice and applicable laws, rules, regulations
and policies of any Regulatory Authority and in accordance with
the investment, securities, commodities, risk management and
other policies, practices and procedures employed by GBC and its
Subsidiaries, and with counterparties believed at the time to be
financially responsible and able to understand (either alone or
in consultation with their advisers) and to bear the risks of
such Derivative Transactions. All of such Derivative
Transactions are legal, valid and binding obligations of GBC or
one of its Subsidiaries enforceable against it in accordance
with their terms (except as may be limited by bankruptcy,
insolvency, moratorium, reorganization or similar laws affecting
the rights of creditors generally and subject to general
principles of equity), and are in full force and effect. GBC and
its Subsidiaries have duly performed their obligations under the
Derivative Transactions to the extent that such obligations to
perform have accrued and, to GBCs knowledge, there are no
breaches, violations or defaults or allegations or assertions of
such by any party thereunder.
3.15 Investment Securities and
Commodities.
(a) Each of GBC and its Subsidiaries has good title to all
securities and commodities owned by it (except those sold under
repurchase agreements or held in any fiduciary or agency
capacity), free and clear of any Liens, except to the extent
such securities or commodities are pledged in the ordinary
course of business to secure obligations of GBC or its
Subsidiaries. Such securities and commodities are valued on the
books of GBC in accordance with GAAP in all material respects.
(b) GBC and its Subsidiaries and their respective
businesses employ investment, securities, commodities, risk
management and other policies, practices and procedures (the
Policies, Practices and Procedures) which GBC
believes are prudent and reasonable in the context of such
businesses. Prior to the date hereof, GBC has made available to
First Charter in writing the material Policies, Practices and
Procedures.
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3.16 Loan Portfolio.
(a) Section 3.16(a) of the GBC Disclosure
Schedule sets forth (i) the aggregate outstanding principal
amount, as of March 31, 2006, of all loan agreements, notes
or borrowing arrangements (including leases, credit
enhancements, commitments, guarantees and interest-bearing
assets) payable to GBC or its Subsidiaries (collectively,
Loans), other than non-accrual
Loans, and (ii) the aggregate outstanding principal amount,
as of March 31, 2006, of all non-accrual Loans.
As of March 31, 2006, GBC and its Subsidiaries, taken as a
whole, did not have outstanding Loans and assets classified as
Other Real Estate Owned with an aggregate then
outstanding, fully committed principal amount in excess of that
amount set forth on Section 3.16(a) of the GBC
Disclosure Schedule, net of specific reserves with respect to
such Loans and assets, that were designated as of such date by
GBC as Special Mention, Substandard,
Doubtful, Loss, or words of similar
import (Criticized Assets).
Section 3.16(a) of the GBC Disclosure Schedule sets
forth (A) a summary of Criticized Assets as of
March 31, 2006, by category of Loan (e.g., commercial,
consumer, etc.), together with the aggregate principal amount of
such Loans by category and the amount of specific reserves with
respect to each such category of Loans and (B) each asset
of GBC or any of its Subsidiaries that, as of March 31,
2006, is classified as Other Real Estate Owned and
the book value thereof.
(b) Each Loan (i) is evidenced by notes, agreements or
other evidences of indebtedness which are true, genuine and what
they purport to be, (ii) to the extent secured, has been
secured by valid liens and security interests which have been
perfected and (iii) is the legal, valid and binding
obligation of the obligor named therein, enforceable in
accordance with its terms (except as may be limited by
bankruptcy, insolvency, moratorium, reorganization or similar
laws affecting the rights of creditors generally and subject to
general principles of equity). All Loans originated by GBC or
its Subsidiaries, and all such Loans purchased by GBC or its
Subsidiaries, were made or purchased in accordance with
customary lending standards. All such Loans (and any related
guarantees) and payments due thereunder are, and on the Closing
Date will be, free and clear of any Lien, and GBC or its
Subsidiaries has complied in all material respects, and on the
Closing Date will have complied in all material respects, with
all laws and regulations relating to such Loans.
3.17 Property. GBC or one of
its Subsidiaries (a) has good and marketable title to all
the properties and assets reflected in the latest audited
balance sheet included in such GBC SEC Reports as being owned by
GBC or one of its Subsidiaries or acquired after the date
thereof (except properties sold or otherwise disposed of since
the date thereof in the ordinary course of business) (the
Owned Properties), free and clear of all
Liens of any nature whatsoever, except (i) statutory Liens
securing payments not yet due, (ii) Liens for real property
taxes not yet due and payable, (iii) easements, rights of
way, and other similar encumbrances that do not materially
affect the use of the properties or assets subject thereto or
affected thereby or otherwise materially impair business
operations at such properties and (iv) such imperfections
or irregularities of title or Liens as do not materially affect
the use of the properties or assets subject thereto or affected
thereby or otherwise materially impair business operations at
such properties (collectively, Permitted
Encumbrances), and (b) is the lessee of all
leasehold estates reflected in the latest audited financial
statements included in such GBC SEC Reports or acquired after
the date thereof (except for leases that have expired by their
terms since the date thereof) (the Leased
Properties and, collectively with the Owned
Properties, the Real Property), free and
clear of all Liens of any nature whatsoever, except for
Permitted Encumbrances, and is in possession of the properties
purported to be leased thereunder, and each such lease is valid
without default thereunder by the lessee or, to GBCs
knowledge, the lessor. The Real Property is in material
compliance with all applicable zoning laws and building codes,
and the buildings and improvements located on the Real Property
are in good operating condition and in a state of good working
order, ordinary wear and tear excepted. There are no pending or,
to the knowledge of GBC, threatened condemnation proceedings
against the Real Property. GBC and its Subsidiaries are in
compliance with all applicable health and safety related
requirements for the Real Property, including those under the
Americans with Disabilities Act of 1990 and the Occupational
Health and Safety Act of 1970.
GBC currently maintains insurance on all its property, including
the Real Property in amounts, scope and coverage reasonably
necessary for its operations. GBC has not received any notice of
termination, nonrenewal or premium adjustment for such policies.
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3.18 Intellectual
Property. GBC and each of its Subsidiaries
owns, or is licensed to use (in each case, free and clear of any
Liens), all Intellectual Property used in or necessary for the
conduct of its business as currently conducted. The use of any
Intellectual Property by GBC and its Subsidiaries does not, to
the knowledge of GBC, infringe on or otherwise violate the
rights of any person and is in accordance with any applicable
license pursuant to which GBC or any Subsidiary acquired the
right to use any Intellectual Property. To GBCs knowledge,
no person is challenging, infringing on or otherwise violating
any right of GBC or any of its Subsidiaries with respect to any
Intellectual Property owned by
and/or
licensed to GBC or its Subsidiaries. Neither GBC nor any of its
Subsidiaries has received any written notice of any pending
claim with respect to any Intellectual Property used by GBC and
its Subsidiaries and, to GBCs knowledge, no Intellectual
Property owned
and/or
licensed by GBC or its Subsidiaries is being used or enforced in
a manner that would result in the abandonment, cancellation or
unenforceability of such Intellectual Property. Except as
disclosed on Section 3.18 of the GBC Disclosure
Schedule, consummation of the Merger will not give any party to
any license, software agreement or lease or similar arrangement
the right to terminate or renegotiate such agreement. For
purposes of this Agreement, Intellectual
Property means trademarks, service marks, brand names,
certification marks, trade dress and other indications of
origin, the goodwill associated with the foregoing and
registrations in any jurisdiction of, and applications in any
jurisdiction to register, the foregoing, including any
extension, modification or renewal of any such registration or
application; inventions, discoveries and ideas, whether
patentable or not, in any jurisdiction; patents, applications
for patents (including divisions, continuations, continuations
in part and renewal applications), and any renewals, extensions
or reissues thereof, in any jurisdiction; nonpublic information,
trade secrets and confidential information and rights in any
jurisdiction to limit the use or disclosure thereof by any
person; writings and other works, whether copyrightable or not,
in any jurisdiction; and registrations or applications for
registration of copyrights in any jurisdiction, and any renewals
or extensions thereof; and any similar intellectual property or
proprietary rights.
3.19 Environmental
Liability. There are no legal,
administrative, arbitral or other proceedings, claims, actions,
causes of action or notices with respect to any environmental,
health or safety matters or any private or governmental
environmental, health or safety investigations or remediation
activities of any nature seeking to impose, or that are
reasonably likely to result in, any liability or obligation of
GBC or any of its Subsidiaries arising under common law or under
any local, state or federal environmental, health or safety
statute, regulation or ordinance, including the Comprehensive
Environmental Response, Compensation and Liability Act of 1980,
as amended, pending or, to GBCs knowledge, threatened
against GBC or any of its Subsidiaries. There is no reasonable
basis for, or circumstances that are reasonably likely to give
rise to, any such proceeding, claim, action, investigation or
remediation by any Governmental Entity or any third party that
would give rise to any liability or obligation on the part of
GBC or any of its Subsidiaries. Neither GBC nor any of its
Subsidiaries is subject to any agreement, order, judgment,
decree, letter or memorandum by or with any Governmental Entity
or third party imposing any liability or obligation with respect
to any of the foregoing.
3.20 Leases. Section 3.20
of the GBC Disclosure Schedule sets forth a list and summary of
terms of each personal and real property lease involving annual
payments in excess of $50,000 to which GBC or any Subsidiary is
a party. Each of these agreements is in full force and effect.
Copies of each of these leases has been made available to First
Charter.
3.21 Securitizations. Except
as provided on Section 3.21 of the GBC Disclosure
Schedule, GBC is not a party to any agreement securitizing any
of its assets.
3.22 State Takeover
Laws. The GBC Board has unanimously approved
this Agreement and the transactions contemplated hereby and
thereby as required to render inapplicable to such agreements
and transactions
Section 14-2-1111
of the GBCC and, to the knowledge of GBC, (a) any similar
moratorium, control share, fair
price, takeover or interested
shareholder law (any such laws, Takeover
Statutes) or (b) the GBC Articles, GBC Bylaws or
any other agreement to which GBC is a party.
3.23 Reorganization;
Approvals. As of the date of this Agreement,
GBC (a) is not aware of any fact or circumstance that could
reasonably be expected to prevent the Merger from qualifying as
a reorganization within the meaning of
Section 368(a) of the Code, and (b) knows of no reason
why all regulatory approvals
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from any Governmental Entity required for the consummation of
the transactions contemplated by this Agreement should not be
obtained on a timely basis.
3.24 Opinion. Prior to the
execution of this Agreement, the GBC Board has received an
opinion from Sandler ONeill & Partners, L.P. to
the effect that as of the date thereof and based upon and
subject to the matters set forth therein, the Merger
Consideration is fair to the shareholders of GBC from a
financial point of view. Such opinion has not been amended or
rescinded as of the date of this Agreement.
3.25 GBC Information. The
information relating to GBC and its Subsidiaries that is
provided by GBC or its representatives for inclusion in the
Proxy Statement and the
Form S-4,
or in any application, notification or other document filed with
any other Regulatory Agency or other Governmental Entity in
connection with the transactions contemplated by this Agreement,
will not contain any untrue statement of a material fact or omit
to state a material fact necessary to make the statements
therein, in light of the circumstances in which they are made,
not misleading. The portions of the Proxy Statement relating to
GBC and other portions within the reasonable control of GBC will
comply in all material respects with the provisions of the
Exchange Act and the rules and regulations thereunder.
ARTICLE IV
REPRESENTATIONS
AND WARRANTIES OF FIRST CHARTER
Except as disclosed in the disclosure schedule (the
First Charter Disclosure Schedule) delivered
by First Charter to GBC prior to the execution of this Agreement
(which schedule sets forth, among other things, items the
disclosure of which is necessary or appropriate either in
response to an express disclosure requirement contained in a
provision hereof or as an exception to one or more
representations or warranties contained in this
Article IV, or to one or more of First
Charters covenants contained herein, provided,
however, the mere inclusion of an item in such schedule
as an exception to a representation or warranty shall not be
deemed an admission that such item represents a material
exception or material fact, event or circumstance or that such
item has had or would be reasonably likely to have a Material
Adverse Effect on First Charter). No representation or warranty
of First Charter contained in this Article IV (other
than representations and warranties contained in
Section 4.3 and Section 4.13 which shall
be true in all respects and the representations and warranties
contained in Section 4.2 and
Section 4.6, which shall be deemed untrue and
incorrect if not true and correct except to a de minimus
extent) shall be deemed untrue or incorrect, and no party hereto
shall be deemed to have breached a representation or warranty,
as a consequence of the existence of any fact, event or
circumstance unless such fact, circumstance or event,
individually or taken together with all other facts, events or
circumstances has had, or is reasonably likely to have, a
Material Adverse Effect with respect to First Charter. First
Charter hereby represents and warrants to GBC as follows:
4.1 Corporate Organization.
(a) First Charter is a corporation duly incorporated,
validly existing and in good standing under the laws of the
State of North Carolina. First Charter has the corporate power
and authority to own or lease all of its properties and assets
and to carry on its business as it is now being conducted, and
is duly licensed or qualified to do business in each
jurisdiction in which the nature of the business conducted by it
or the character or location of the properties and assets owned
or leased by it makes such licensing or qualification necessary.
(b) First Charter is duly registered as a bank holding
company under the BHC Act and meets the applicable requirements
for qualification as such. True, complete and correct copies of
the First Charter Articles and First Charter Bylaws, as in
effect as of the date of this Agreement, have previously been
made available to GBC.
(c) First Charter Bank and each other First Charter
Subsidiary (i) is duly incorporated or duly formed, as
applicable to each such Subsidiary, and validly existing under
the laws of its jurisdiction of organization, (ii) is duly
qualified to do business and in good standing in all
jurisdictions (whether federal, state, local or foreign) where
its ownership or leasing of property or the conduct of its
business requires it to be so qualified, and
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(iii) has all requisite corporate power or other power and
authority to own or lease its properties and assets and to carry
on its business as now conducted.
4.2 Capitalization.
(a) The authorized capital stock of First Charter consists
of 100,000,000 shares of First Charter Common Stock, of
which, as of April 30, 2006 (the First Charter
Capitalization Date), 31,015,764 shares were
issued and outstanding, and 2,000,000 shares of preferred
stock, no par value (the First Charter Preferred
Stock), of which, as of the First Charter
Capitalization Date, no shares were issued and outstanding. As
of the First Charter Capitalization Date, no shares of First
Charter Common Stock or First Charter Preferred Stock were
reserved for issuance, except for (i) 4,507,901 shares
of First Charter Common Stock reserved for issuance upon
exercise of options issued pursuant to employee and director
stock plans of First Charter or a Subsidiary of First Charter in
effect as of the date of this Agreement (the First
Charter Stock Plans) and (ii) shares of junior
participating preferred stock and common stock pursuant to the
Stockholder Protection Rights Agreement dated July 19,
2000. All of the issued and outstanding shares of First Charter
Common Stock have been duly authorized and validly issued and
are fully paid, nonassessable and free of preemptive rights,
with no personal liability attaching to the ownership thereof.
As of the date of this Agreement, no Voting Debt of First
Charter is issued or outstanding. As of the First Charter
Capitalization Date, except pursuant to this Agreement, the
First Charter Stock Plans and stock repurchase plans entered
into by First Charter from time to time, First Charter does not
have and is not bound by any outstanding subscriptions, options,
warrants, calls, rights, commitments or agreements of any
character calling for the purchase or issuance of any shares of
First Charter Common Stock, First Charter Preferred Stock,
Voting Debt of First Charter or any other equity securities of
First Charter or any securities representing the right to
purchase or otherwise receive any shares of First Charter Common
Stock, First Charter Preferred Stock, Voting Debt of First
Charter or other equity securities of First Charter. The shares
of First Charter Common Stock to be issued pursuant to the
Merger will be duly authorized and validly issued and, at the
Effective Time, all such shares will be fully paid,
nonassessable and free of preemptive rights, with no personal
liability attaching to the ownership thereof.
(b) Except for director qualifying shares, all of the
issued and outstanding shares of capital stock or other equity
ownership interests of each Subsidiary of First Charter are
owned by First Charter, directly or indirectly, free and clear
of any Liens, and all of such shares or equity ownership
interests are duly authorized and validly issued and are fully
paid, nonassessable (subject to 12 U.S.C.
§ 55) and free of preemptive rights. No such
First Charter Subsidiary has or is bound by any outstanding
subscriptions, options, warrants, calls, commitments or
agreements of any character calling for the purchase or issuance
of any shares of capital stock or any other equity security of
such Subsidiary or any securities representing the right to
purchase or otherwise receive any shares of capital stock or any
other equity security of such Subsidiary.
4.3 Authority; No Violation.
(a) First Charter has, or will receive, requisite corporate
power and authority to execute and deliver this Agreement and to
consummate the transactions contemplated hereby and thereby. The
execution and delivery of this Agreement and the consummation of
the transactions contemplated hereby and thereby have been duly
and validly approved by the Board of Directors of First Charter
(by the unanimous vote of all directors present) and no other
corporate proceedings on the part of First Charter are necessary
to approve this Agreement or to consummate the transactions
contemplated hereby or thereby. This Agreement has been duly and
validly executed and delivered by First Charter and (assuming
due authorization, execution and delivery by GBC) constitute the
valid and binding obligations of First Charter, enforceable
against First Charter in accordance with their terms (except as
may be limited by bankruptcy, insolvency, moratorium,
reorganization or similar laws affecting the rights of creditors
generally and subject to general principles of equity).
(b) Neither the execution and delivery of this Agreement by
First Charter, nor the consummation by First Charter of the
transactions contemplated hereby or thereby, nor compliance by
First Charter with any of the terms or provisions of this
Agreement, will (i) violate any provision of the First
Charter Articles or the First Charter Bylaws or
(ii) assuming that the consents, approvals and filings
referred to in Section 4.4 are duly obtained
and/or made,
(A) violate any statute, code, ordinance, rule, regulation,
judgment, order, writ, decree or Injunction applicable to First
Charter, any of its Subsidiaries or any of their respective
properties or assets
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or (B) violate, conflict with, result in a breach of any
provision of or the loss of any benefit under, constitute a
default (or an event which, with notice or lapse of time, or
both, would constitute a default) under, result in the
termination of or a right of termination or cancellation under,
accelerate the performance required by, or result in the
creation of any Lien upon any of the respective properties or
assets of First Charter or any of its Subsidiaries under, any of
the terms, conditions or provisions of any note, bond, mortgage,
indenture, deed of trust, license, lease, agreement or other
instrument or obligation to which First Charter or any of its
Subsidiaries is a party or by which any of them or any of their
respective properties or assets is bound. Neither First Charter
nor any of its Subsidiaries is a party to or bound by any
contract, arrangement, commitment or understanding (whether
written or oral) that, to the knowledge of First Charter, upon
consummation of the Merger will materially restrict the ability
of the Surviving Corporation to engage in any line of business
currently conducted by GBC or its Subsidiaries.
4.4 Consents and
Approvals. Except for (i) the filing of
applications and notices, as applicable, with the Federal
Reserve Board under the BHC Act and the Office of the
Commissioner of Banks of the State of North Carolina and
approval of such applications and notices, (ii) the Other
Regulatory Approvals, (iii) the filing with the SEC of the
Proxy Statement and the filing and declaration of effectiveness
of the
Form S-4
and the filing and effectiveness of the registration statement
contemplated by Section 1.5(e), (iv) the filing
of the Articles of Merger with the Secretary of State of the
State of North Carolina pursuant to the NCBCA and the filing of
the Articles of Merger with the Secretary of State of the State
of Georgia pursuant to the GBCC, (v) and the rules of the
Nasdaq National Market, or that are required under consumer
finance, mortgage banking and other similar laws, and
(vi) such filings and approvals as are required to be made
or obtained under the securities or Blue Sky laws of
various states in connection with the issuance of the shares of
First Charter Common Stock pursuant to this Agreement and
approval of listing of such First Charter Common Stock with the
Nasdaq National Market, no consents or approvals of or filings
or registrations with any Governmental Entity are necessary in
connection with the consummation by First Charter of the Merger
and the other transactions contemplated by this Agreement. No
consents or approvals of or filings or registrations with any
Governmental Entity are necessary in connection with the
execution and delivery by First Charter of this Agreement.
4.5 Reports; Regulatory
Matters. Except as disclosed in
Section 4.5 of the First Charter Disclosure Schedule:
(a) First Charter and each of its Subsidiaries have timely
filed all reports, registrations and statements, together with
any amendments required to be made with respect thereto, that
they were required to file since January 1, 2003 with the
Regulatory Agencies and each other applicable Governmental
Entity, and all other reports and statements required to be
filed by them since January 1, 2003, including any report
or statement required to be filed pursuant to the laws, rules or
regulations of the United States, any state, any foreign entity
or any Regulatory Agency, and have paid all fees and assessments
due and payable in connection therewith. Except for normal
examinations conducted by a Regulatory Agency or Governmental
Entity in the ordinary course of the business of First Charter
and its Subsidiaries, no Regulatory Agency or Governmental
Entity has initiated since January 1, 2003 or has pending
any proceeding, enforcement action or, to the knowledge of First
Charter, investigation into the business, disclosures or
operations of First Charter or any of its Subsidiaries. Since
January 1, 2003, no Regulatory Agency or Governmental
Entity has resolved any proceeding, enforcement action or, to
the knowledge of First Charter, investigation into the business,
disclosures or operations of First Charter or any of its
Subsidiaries. There is no unresolved violation, criticism or
exception by any Regulatory Agency or Governmental Entity with
respect to any report or statement relating to any examinations
or inspections of First Charter or any of its Subsidiaries.
Since January 1, 2003, there has been no formal or informal
inquiries by, or disagreements or disputes with, any Regulatory
Agency or Governmental Entity with respect to the business,
operations, policies or procedures of First Charter or any of
its Subsidiaries (other than normal examinations conducted by a
Regulatory Agency or Governmental Entity in First Charters
ordinary course of business).
(b) Except as described in First Charter SEC Reports,
neither First Charter nor any of its Subsidiaries is subject to
any
cease-and-desist
or other order or enforcement action issued by, or is a party to
any written agreement, consent agreement or memorandum of
understanding with, or is a party to any commitment letter
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or similar undertaking to, or is subject to any order or
directive by, or has been since January 1, 2003 a recipient
of any supervisory letter from, or has been ordered to pay any
civil money penalty by, or since January 1, 2003 has
adopted any policies, procedures or board resolutions at the
request or suggestion of, any Regulatory Agency or other
Governmental Entity that currently restricts in any material
respect the conduct of its business or that in any material
manner relates to its capital adequacy, its ability to pay
dividends, its credit, risk management or compliance policies,
its internal controls, its management or its business, other
than those of general application that apply to bank holding
companies or their Subsidiaries (each, a First Charter
Regulatory Agreement), nor has First Charter or any of
its Subsidiaries been advised since January 1, 2003 by any
Regulatory Agency or other Governmental Entity that it is
considering issuing, initiating, ordering or requesting any such
First Charter Regulatory Agreement.
(c) First Charter has previously made available to GBC an
accurate and complete copy of each (i) final registration
statement, prospectus, report, schedule and definitive proxy
statement filed with or furnished to the SEC by First Charter
pursuant to the Securities Act or the Exchange Act and prior to
the date of this Agreement (the First Charter SEC
Reports) and (ii) communication mailed by First
Charter to its shareholders since January 1, 2003 and prior
to the date of this Agreement. No such First Charter SEC Report
or communication, at the time filed, furnished or communicated
(and, in the case of registration statements and proxy
statements, on the dates of effectiveness and the dates of the
relevant meetings, respectively), contained any untrue statement
of a material fact or omitted to state any material fact
required to be stated therein or necessary in order to make the
statements made therein, in light of the circumstances in which
they were made, not misleading, except that information as of a
later date (but before the date of this Agreement) shall be
deemed to modify information as of an earlier date. As of their
respective dates, all First Charter SEC Reports complied as to
form in all material respects with the published rules and
regulations of the SEC with respect thereto. No executive
officer of First Charter has failed in any respect to make the
certifications required of him or her under Section 302 or
906 of the Sarbanes-Oxley Act.
4.6 Financial Statements.
(a) The financial statements of First Charter and its
Subsidiaries included (or incorporated by reference) in the
First Charter SEC Reports (including the related notes, where
applicable) (i) have been prepared from, and are in
accordance with, the books and records of First Charter and its
Subsidiaries; (ii) fairly present in all material respects
the consolidated results of operations, cash flows, changes in
shareholders equity and consolidated financial position of
First Charter and its Subsidiaries for the respective fiscal
periods or as of the respective dates therein set forth (subject
in the case of unaudited statements to recurring year-end audit
adjustments normal in nature and amount); (iii) complied as
to form, as of their respective dates of filing with the SEC, in
all material respects with applicable accounting requirements
and with the published rules and regulations of the SEC with
respect thereto; and (iv) have been prepared in accordance
with GAAP consistently applied during the periods involved,
except, in each case, as indicated in such statements or in the
notes thereto. The books and records of First Charter and its
Subsidiaries have been, and are being, maintained in all
material respects in accordance with GAAP and any other
applicable legal and accounting requirements and reflect only
actual transactions. KPMG has served as independent registered
public accountant for First Charter for all periods covered in
the First Charter SEC Reports; such firm has not resigned or
been dismissed as independent public accountants of First
Charter as a result of or in connection with any disagreements
with First Charter on a matter of accounting principles or
practices, financial statement disclosure or auditing scope or
procedure.
(b) Neither First Charter nor any of its Subsidiaries has
any material liability of any nature whatsoever (whether
absolute, accrued, contingent or otherwise and whether due or to
become due), except for those liabilities that are reflected or
reserved against on the consolidated balance sheet of First
Charter included in its Quarterly Report on
Form 10-Q
for the quarterly period ended March 31, 2006 (including
any notes thereto) and for liabilities incurred in the ordinary
course of business consistent with past practice since
March 31, 2006 or in connection with this Agreement and the
transactions contemplated hereby.
(c) The records, systems, controls, data and information of
First Charter and its Subsidiaries are recorded, stored,
maintained and operated under means (including any electronic,
mechanical or photographic process,
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whether computerized or not) that are under the exclusive
ownership and direct control of First Charter or its
Subsidiaries or accountants (including all means of access
thereto and therefrom), except for any non-exclusive ownership
and non-direct control that would not reasonably be expected to
have a material adverse effect on the system of internal
accounting controls described below in this
Section 4.6(c). First Charter has implemented and
maintains disclosure controls and procedures (as defined in
Rule 13a-15(e)
of the Exchange Act).
(d) Since December 31, 2005, (i) through the date
hereof, neither First Charter nor any of its Subsidiaries nor,
to the knowledge of the officers of First Charter, any director,
officer, employee, auditor, accountant or representative of
First Charter or any of its Subsidiaries has received or
otherwise had or obtained knowledge of any material complaint,
allegation, assertion or claim, whether written or oral,
regarding the accounting or auditing practices, procedures,
methodologies or methods of First Charter or any of its
Subsidiaries or their respective internal accounting controls,
including any material complaint, allegation, assertion or claim
that First Charter or any of its Subsidiaries has engaged in
questionable accounting or auditing practices, and (ii) no
attorney representing First Charter or any of its Subsidiaries,
whether or not employed by First Charter or any of its
Subsidiaries, has reported evidence of a material violation of
securities laws, breach of fiduciary duty or similar violation
by First Charter or any of its officers, directors, employees or
agents to the Board of Directors of First Charter or any
committee thereof or to any director or officer of First Charter.
4.7 Brokers
Fees. Neither First Charter nor any First
Charter Subsidiary nor any of their respective officers or
directors has employed any broker or finder or incurred any
liability for any brokers fees, commissions or
finders fees in connection with the Merger or related
transactions contemplated by this Agreement, other than as set
forth on Section 4.7 of the First Charter Disclosure
Schedule.
4.8 Absence of Certain Changes or
Events.
(a) Since December 31, 2005, no event or events have
occurred that have had or are reasonably likely to have a
Material Adverse Effect on First Charter.
(b) Since December 31, 2005 through and including the
date of this Agreement, First Charter and its Subsidiaries have
carried on their respective businesses in all material respects
in the ordinary course of business consistent with their past
practice.
4.9 Legal Proceedings.
(a) Except as provided in the financial statements of First
Charter or in Section 4.9 of the First Charter
Disclosure Schedule, none of First Charter or any of its
Subsidiaries is a party to any, and there are no material
pending or, to the best of First Charters knowledge,
threatened, legal, administrative, arbitral or other
proceedings, claims, actions or governmental or regulatory
investigations of any nature against First Charter or any of its
Subsidiaries.
(b) There is no injunction, judgment, or regulatory
restriction (other than those of general application that apply
to similarly situated bank holding companies or their
Subsidiaries) imposed upon First Charter, any of its
Subsidiaries or the assets of First Charter or any of its
Subsidiaries.
4.10 Taxes and Tax
Returns. Except as provided in the financial
statements of First Charter or in Section 4.10 of
the First Charter Disclosure Schedule, each of First Charter and
its Subsidiaries has duly and timely filed (including all
applicable extensions) all material Tax Returns required to be
filed by it on or prior to the date of this Agreement (all such
returns being accurate and complete in all material respects),
has paid all Taxes shown thereon as arising and has duly paid or
made provision for the payment of all material Taxes that have
been incurred or are due or claimed to be due from it by
federal, state, foreign or local taxing authorities other than
Taxes that are not yet delinquent or are being contested in good
faith, have not been finally determined and have been adequately
reserved against. There are no material disputes pending, or
claims asserted, for Taxes or assessments upon First Charter or
any of its Subsidiaries for which First Charter does not have
reserves that are adequate under GAAP.
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4.11 Compliance with Applicable Law.
(a) First Charter and each of its Subsidiaries hold all
material licenses, franchises, permits and authorizations
necessary for the lawful conduct of their respective businesses
under and pursuant to each, and have complied in all respects
with and are not in default in any material respect under any,
applicable law, statute, order, rule, regulation, policy or
guideline of any Governmental Entity relating to First Charter
or any of its Subsidiaries.
(b) Since the enactment of the Sarbanes-Oxley Act, First
Charter has been and is in compliance in all material respects
with (i) the applicable provisions of the Sarbanes-Oxley
Act and (ii) the applicable listing and corporate
governance rules and regulations of the Nasdaq National Market.
4.12 Reorganization;
Approvals. As of the date of this Agreement,
First Charter (a) is not aware of any fact or circumstance
that could reasonably be expected to prevent the Merger from
qualifying as a reorganization within the meaning of
Section 368(a) of the Code and (b) knows of no reason
why all regulatory approvals from any Governmental Entity
required for the consummation of the transactions contemplated
by this Agreement should not be obtained on a timely basis.
4.13 Aggregate Cash
Consideration. First Charter has, or will
have, available to it sufficient funds to deliver the aggregate
Cash Consideration.
4.14 First Charter
Information. The information relating to
First Charter and its Subsidiaries that is provided by First
Charter or its representatives for inclusion in the Proxy
Statement and the
Form S-4,
or in any application, notification or other document filed with
any other Regulatory Agency or other Governmental Entity in
connection with the transactions contemplated by this Agreement,
will not contain any untrue statement of a material fact or omit
to state a material fact necessary to make the statements
therein, in light of the circumstances in which they are made,
not misleading. The portions of the Proxy Statement relating to
First Charter and other portions within the reasonable control
of First Charter will comply in all material respects with the
provisions of the Exchange Act and the rules and regulations
thereunder. The
Form S-4
will comply in all material respects with the provisions of the
Securities Act and the rules and regulations thereunder.
ARTICLE V
COVENANTS
RELATING TO CONDUCT OF BUSINESS
5.1 Conduct of Businesses Prior to the
Effective Time. Except as expressly
contemplated by or permitted by this Agreement or with the prior
written consent of First Charter, during the period from the
date of this Agreement to the Effective Time, GBC shall, and
shall cause each GBC Subsidiary, to:
(a) conduct its business in the ordinary course in all
material respects;
(b) use reasonable best efforts to maintain and preserve
intact its business organization and advantageous business
relationships and retain the services of its key officers and
key employees;
(c) take no action that is intended to or would reasonably
be expected to adversely affect or materially delay the ability
of either GBC or First Charter to obtain any necessary approvals
of any Regulatory Agency or other Governmental Entity required
for the transactions contemplated hereby or to perform its
covenants and agreements under this Agreement or to consummate
the transactions contemplated hereby or thereby.
(d) enter into loan and deposit transactions only in
accordance with sound credit practices and only on terms and
conditions that are not materially more favorable than those
available to the borrower or depositor, as the case may be, from
competitive sources in arms-length transactions in the
ordinary course of business and consistent with sound banking
practices and policies and applicable law, and GBC shall obtain
the prior consent of First Charter, which consent shall not be
unreasonably withheld or delayed, for all new extensions of
credit or lending relationships in excess of $2,500,000 to any
person;
(e) consistent with past practice, maintain an allowance
for loan and lease losses that is adequate in all material
respects under applicable law and the requirements of GAAP to
provide for possible losses,
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net of recoveries relating to loans previously charged off, on
loans outstanding (including accrued interest receivable);
(f) maintain all of its assets necessary for the conduct of
its business in good operating condition and repair, reasonable
wear and tear and damage by fire or unavoidable casualty
excepted, and maintain policies of insurance upon its assets and
with respect to the conduct of its business in amounts and kinds
comparable to that in effect on the date of this Agreement and
pay all premiums on such policies when due;
(g) not buy or sell any security held, or intended to be
held, for investment other than securities issued by the United
States or any agency thereof with maturities of less than
two (2) years, but such restriction shall not affect the
buying and selling by GBC Bank of Federal Funds or the
reinvestment of dividends paid on any securities owned by GBC
Bank as of the date of this Agreement;
(h) file in a timely manner all required filings with all
Regulatory Agencies and cause such filings to be true and
correct in all material aspects; and
(i) maintain its books, accounts and records in the usual,
regular and ordinary manner, on a basis consistent with prior
years and comply with applicable laws.
5.2 GBC Forbearances. During
the period from the date of this Agreement to the Effective
Time, except as set forth in the GBC Disclosure Schedule and
except as expressly contemplated or permitted by this Agreement,
GBC shall not, and shall not permit any of its Subsidiaries to,
without the prior written consent of First Charter:
(a) other than in the ordinary course of business
consistent with past practice, incur any indebtedness for
borrowed money, assume, guarantee, endorse or otherwise as an
accommodation become responsible for the obligations of any
other individual, corporation or other entity, or make any loan
or advance or capital contribution to, or investment in, any
person (it being understood and agreed that incurrence of
indebtedness in the ordinary course of business consistent with
past practice shall include the creation of deposit liabilities,
purchases of Federal funds, sales of certificates of deposit and
entering into repurchase agreements fully secured by
U.S. government or agency securities);
(b) (i) adjust, split, combine or reclassify any of
its capital stock;
(ii) make, declare or pay any dividend, or make any other
distribution on, or directly or indirectly redeem, purchase or
otherwise acquire, any shares of its capital stock or any
securities or obligations convertible (whether currently
convertible or convertible only after the passage of time or the
occurrence of certain events) into or exchangeable for any
shares of its capital stock (except (A) dividends paid by
any of the Subsidiaries of GBC to GBC or to any of its
wholly-owned Subsidiaries, and (B) the acceptance of shares
of GBC Common Stock in payment of the exercise price or
withholding taxes incurred by any employee or director in
connection with the exercise of stock options (or settlement of
other equity-based awards in respect of) GBC Common Stock
granted under a GBC Stock Plan, in each case in accordance with
past practice and the terms of the applicable GBC Stock Plan and
related award agreements);
(iii) grant any stock options, restricted shares or other
equity-based award with respect to shares of GBC Common Stock
under any of the GBC Stock Plans, the GBC Director Deferred
Stock Unit Plan, or otherwise, or grant any individual,
corporation or other entity any right to acquire any shares of
its capital stock; or
(iv) issue any additional shares of capital stock or other
securities except pursuant to the exercise of stock options or
the settlement of other equity-based awards granted under a GBC
Stock Plan that are outstanding as of the date of this Agreement.
(c) except as required by applicable law or the terms of
any GBC Benefit Plan as in effect on the date of this Agreement
and, solely with respect to employees that are not officers or
directors of GBC, except for normal increases made in the
ordinary course of business consistent with past practice,
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(i) increase the wages, salaries, incentive compensation or
incentive compensation opportunities of any employee of GBC or
any of its Subsidiaries, or, except for payments in the ordinary
course of business consistent with past practice, pay or
provide, or increase or accelerate the accrual rate, vesting or
timing of payment or funding of, any compensation, benefits or
other rights of any employee of GBC or any of its Subsidiaries
or (ii) establish, adopt, or become a party to any new
employee benefit or compensation plan, program, commitment or
agreement or amend any GBC Benefit Plan;
(d) sell, transfer, mortgage, encumber or otherwise dispose
of any material amount of its properties or assets to any
individual, corporation or other entity other than a Subsidiary
or cancel, release or assign any material amount of indebtedness
to any such person or any claims held by any such person, in
each case other than in the ordinary course of business
consistent with past practice or pursuant to contracts in force
at the date of this Agreement;
(e) enter into any new line of business or change in any
material respect its lending, investment, underwriting, risk and
asset liability management and other banking, operating and
servicing policies, except as required by applicable law,
regulation or policies imposed by any Governmental Entity;
(f) make any material investment either by purchase of
stock or securities, contributions to capital, property
transfers, or purchase of any property or assets of any other
individual, corporation or other entity;
(g) take any action, or knowingly fail to take any action,
which action or failure to act is reasonably likely to prevent
the Merger from qualifying as a reorganization within the
meaning of Section 368(a) of the Code;
(h) amend the GBC Articles or GBC Bylaws, or otherwise take
any action to exempt any person (other than First Charter or its
Subsidiaries) or any action taken by any person from any
Takeover Statute or similarly restrictive provisions of its
organizational documents or terminate, amend or waive any
provisions of any confidentiality or standstill agreements in
place with any third parties;
(i) other than in prior consultation with First Charter,
restructure or materially change its investment securities
portfolio or its gap position, through purchases, sales or
otherwise, or the manner in which the portfolio is classified or
reported;
(j) commence or settle any material claim, action or
proceeding;
(k) take any action or fail to take any action that is
intended or may reasonably be expected to result in any of the
conditions to the Merger set forth in Article VII
not being satisfied;
(l) implement or adopt any material change in its tax
accounting or financial accounting principles, practices or
methods, other than as may be required by applicable law, GAAP
or regulatory guidelines;
(m) file or amend any Tax Return other than in the ordinary
course of business, make any significant change in any method of
Tax or accounting, make or change any material Tax election, or
settle or compromise any material Tax liability;
(n) incur any single expense in excess of $200,000;
(o) modify, amend or otherwise change the terms of the
employment agreements and Retention Agreements referenced in
Section 3.11(i); or
(p) agree to take, make any commitment to take, or adopt
any resolutions of its board of directors in support of, any of
the actions prohibited by this Section 5.2.
5.3 First Charter
Forbearances. Except as expressly permitted
by this Agreement or with the prior written consent of GBC,
during the period from the date of this Agreement to the
Effective Time, First Charter shall not, and shall not permit
any of its Subsidiaries to, (a) amend, repeal or otherwise
modify any provision of the First Charter Articles or the First
Charter Bylaws in a manner that would adversely effect GBC, the
shareholders of GBC or the transactions contemplated by this
Agreement; (b) take any action, or knowingly fail to take
any action, which action or failure to act is reasonably likely
to prevent the Merger from qualifying
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as a reorganization within the meaning of Section 368(a) of
the Code; (c) take any action that is intended or may
reasonably be expected to result in any of the conditions to the
Merger set forth in Article VII not being satisfied;
(d) take any action that would be reasonably expected to
prevent, materially impede or materially delay the consummation
of the transactions contemplated by this Agreement;
(e) agree to take, make any commitment to take, or adopt
any resolutions of its board of directors in support of, any of
the actions prohibited by this Section 5.3;
(f) declare, set aside, make or pay any extraordinary
special dividends on First Charter Common Stock or make any
other extraordinary or special distributions in respect of any
of its capital stock; or (g) enter into any agreement to
acquire all or substantially all of the capital stock or assets
of any other person or business unless such transaction would
not be expected to delay completion of the Merger beyond the
date specified in Section 8.1(c) hereto, or
materially impair the prospects of completing the Merger
pursuant to this Agreement.
ARTICLE VI
ADDITIONAL
AGREEMENTS
6.1 Regulatory Matters.
(a) First Charter and GBC shall promptly prepare and file
with the SEC the
Form S-4,
in which the Proxy Statement will be included as a prospectus.
Each of First Charter and GBC shall use its reasonable best
efforts to have the
Form S-4
declared effective under the Securities Act as promptly as
practicable after such filing, and GBC shall thereafter mail or
deliver the Proxy Statement to its shareholders. First Charter
shall also use its reasonable best efforts to obtain all
necessary state securities law or Blue Sky permits
and approvals required to carry out the transactions
contemplated by this Agreement, and GBC shall furnish all
information concerning GBC and the holders of GBC Common Stock
as may be reasonably requested in connection with any such
action.
(b) The parties shall cooperate with each other and use
their respective reasonable best efforts to promptly prepare and
file all necessary documentation, to effect all applications,
notices, petitions and filings, to obtain as promptly as
practicable all permits, consents, approvals and authorizations
of all third parties and Governmental Entities that are
necessary or advisable to consummate the transactions
contemplated by this Agreement (including the Merger), and to
comply with the terms and conditions of all such permits,
consents, approvals and authorizations of all such third parties
or Governmental Entities. GBC and First Charter shall have the
right to review in advance, and, to the extent practicable, each
will consult the other on, in each case subject to applicable
laws relating to the confidentiality of information, all the
information relating to GBC or First Charter, as the case may
be, and any of their respective Subsidiaries, which appear in
any filing made with, or written materials submitted to, any
third party or any Governmental Entity in connection with the
transactions contemplated by this Agreement. In exercising the
foregoing right, each of the parties shall act reasonably and as
promptly as practicable. The parties shall consult with each
other with respect to the obtaining of all permits, consents,
approvals and authorizations of all third parties and
Governmental Entities necessary or advisable to consummate the
transactions contemplated by this Agreement and each party will
keep the other apprised of the status of matters relating to
completion of the transactions contemplated by this Agreement.
Notwithstanding the foregoing, nothing contained herein shall be
deemed to require First Charter to take any action, or commit to
take any action, or agree to any condition or restriction, in
connection with obtaining the foregoing permits, consents,
approvals and authorizations of third parties or Governmental
Entities, that would reasonably be expected to have a Material
Adverse Effect (measured on a scale relative to GBC) on either
First Charter or GBC (a Materially Burdensome
Regulatory Condition).
(c) Each of First Charter and GBC shall, upon request,
furnish to the other all information concerning itself, its
Subsidiaries, directors, officers and shareholders and such
other matters as may be reasonably necessary or advisable in
connection with the Proxy Statement, the
Form S-4
or any other statement, filing, notice or application made by or
on behalf of First Charter, GBC or any of their respective
Subsidiaries to any Governmental Entity in connection with the
Merger and the other transactions contemplated by this Agreement.
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(d) Each of First Charter and GBC shall promptly advise the
other upon receiving any communication from any Governmental
Entity the consent or approval of which is required for
consummation of the transactions contemplated by this Agreement
that causes such party to believe that there is a reasonable
likelihood that any First Charter Requisite Regulatory Approval
or GBC Requisite Regulatory Approval, respectively, will not be
obtained or that the receipt of any such approval may be
materially delayed.
6.2 Access to Information;
Confidentiality.
(a) Upon reasonable notice and subject to applicable laws
relating to the confidentiality of information, each of GBC and
First Charter shall, and shall cause each of its Subsidiaries
to, afford to the officers, employees, accountants, counsel,
advisors, agents and other representatives of the other party,
reasonable access, during normal business hours during the
period prior to the Effective Time, to all its properties,
books, contracts, commitments and records, and, during such
period, such party shall, and shall cause its Subsidiaries to,
make available to the other party (i) a copy of each
report, schedule, registration statement and other document
filed or received by it during such period pursuant to the
requirements of federal securities laws or federal or state
banking or insurance laws (other than reports or documents that
such party is not permitted to disclose under applicable law)
and (ii) all other information concerning its business,
properties and personnel as the other party may reasonably
request (in the case of a request by GBC, information concerning
First Charter that is reasonably related to the prospective
value of First Charter Common Stock or to First Charters
ability to consummate the transactions contemplated hereby).
Neither GBC nor First Charter, nor any of their Subsidiaries,
shall be required to provide access to or to disclose
information where such access or disclosure would jeopardize the
attorney-client privilege of such party or its Subsidiaries or
contravene any law, rule, regulation, order, judgment, decree,
fiduciary duty or binding agreement entered into prior to the
date of this Agreement. The parties shall make appropriate
substitute disclosure arrangements under circumstances in which
the restrictions of the preceding sentence apply. GBC shall
provide First Charter with monthly financial statements as
requested by First Charter.
(b) Each party shall, and shall cause its respective agents
and representatives to, maintain in confidence all information
received from the other party (other than disclosure to that
partys agents and representatives in connection with the
evaluation and consummation of the Merger) in connection with
this Agreement or the Merger (including the existence and terms
of this Agreement) and use such information solely to evaluate
the Merger, unless (a) such information is already known to
the receiving party or its agents and representatives,
(b) such information is subsequently disclosed to the
receiving party or its agents and representatives by a third
party that, to the knowledge of the receiving party, is not
bound by a duty of confidentiality, (c) such information
becomes publicly available through no fault of the receiving
party, (d) the receiving party in good faith believes that
the use of such information is necessary or appropriate in
making any filing or obtaining any consent required for the
Merger (in which case the receiving party shall advise the other
party before making the disclosure) or (e) the receiving
party in good faith believes that the furnishing or use of such
information is required by or necessary or appropriate in
connection with any applicable laws or any listing or trading
agreement concerning its publicly traded securities (in which
case the receiving party shall advise the other party before
making the disclosure).
All information and materials provided pursuant to this
Agreement shall be subject to the provisions of the
Confidentiality Agreements entered into between each of the
Parties and Burke Capital dated April 3, 2006 and
May 23, 2006 (collectively, the Confidentiality
Agreement).
(c) No investigation by a party hereto or its
representatives shall affect the representations and warranties
of the other party set forth in this Agreement.
6.3 Shareholder
Approval. GBC shall call a meeting of its
shareholders (the GBC Shareholder Meeting) to
be held as soon as reasonably practicable for the purpose of
obtaining the requisite shareholder approval required in
connection with the Merger, on substantially the terms and
conditions set forth in this Agreement, and shall use its
reasonable best efforts to cause such meeting to occur as soon
as reasonably practicable. The GBC Board shall use its
reasonable best efforts to obtain from its shareholders the
shareholder vote approving the Merger, on substantially the
terms and conditions set forth in this Agreement, required to
consummate the transactions contemplated by this Agreement. GBC
shall submit this Agreement to its
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shareholders at the shareholder meeting even if the GBC Board
shall have withdrawn, modified or qualified its recommendation.
The GBC Board has adopted resolutions approving the Merger, on
substantially the terms and conditions set forth in this
Agreement, and directing that the Merger, on such terms and
conditions, be submitted to GBCs shareholders for their
consideration.
6.4 Affiliates. GBC shall
use its reasonable best efforts to cause each director,
executive officer and other person who is an
affiliate (for purposes of Rule 145 under the
Securities Act) of GBC to deliver to First Charter, as soon as
practicable after the date of this Agreement, and prior to the
date of the meeting of the GBC shareholders to be held pursuant
to Section 6.3, a written agreement, in the form of
Exhibit B.
6.5 Nasdaq Listing. First
Charter shall cause the shares of First Charter Common Stock to
be issued in the Merger to be approved for listing on the Nasdaq
National Market, subject to official notice of issuance, prior
to the Effective Time.
6.6 Employee Matters.
(a) After the Closing Date, First Charter shall not
maintain any GBC Benefit Plan that is an employee pension
benefit plan in Section 3(2)(A) of ERISA and which is
qualified under Code Section 401(a), and any such plan may
be terminated or merged into similar plans maintained by First
Charter. For the one-year period following the Effective Time,
First Charter shall, or shall cause its applicable Subsidiaries
to, provide to those individuals actively employed by GBC or one
of its Subsidiaries as of the Effective Time (collectively, the
Covered Employees) with employee benefits,
rates of base salary or hourly wage and annual bonus
opportunities that are substantially similar, in the aggregate,
to the aggregate rates of base salary or hourly wage provided to
such Covered Employees and the aggregate employee benefits and
annual bonus opportunities provided to such Covered Employees
under the GBC Benefit Plans as in effect immediately prior to
the Effective Time; provided that nothing herein shall
limit the right of First Charter or any of its Subsidiaries to
terminate the employment of any Covered Employee at any time or
require First Charter or any of its Subsidiaries to provide any
such employee benefits, rates of base salary or hourly wage or
annual bonus opportunities for any period following any such
termination. Except where such benefit is duplicated by
substantially similar benefits provided by First Charter to its
employees immediately prior to the Closing Date, First Charter
or any of its Subsidiaries shall continue to provide any fringe
benefits described on Section 3.11 of the GBC
Disclosure Schedule to the respective Covered Employee for a
period of one year after Closing.
(b) To the extent that a Covered Employee becomes eligible
to participate in an employee benefit plan maintained by First
Charter or any of its Subsidiaries, other than GBC or its
Subsidiaries, First Charter shall cause such employee benefit
plan to (i) recognize the service of such Covered Employee
with GBC or its Subsidiaries for purposes of eligibility and
vesting and, except under defined benefit pension plans, benefit
accrual under such employee benefit plan of First Charter or any
of its Subsidiaries to the same extent such service was
recognized immediately prior to the Effective Time under a
comparable GBC Benefit Plan in which such Covered Employee was a
participant immediately prior to the Effective Time or, if there
is no such comparable benefit plan, to the same extent such
service was recognized under the Gwinnett Banking Company 401(k)
Employee Stock Ownership Plan immediately prior to the Effective
Time; provided that such recognition of service shall not
operate to duplicate any benefits with respect to the Covered
Employee, and (ii) with respect to any health, dental or
vision plan of First Charter or any of its Subsidiaries (other
than GBC and its Subsidiaries) in which any Covered Employee is
eligible to participate in the plan year that includes the year
in which such Covered Employee is eligible to participate,
(x) cause any pre-existing condition limitations under such
First Charter or Subsidiary plan to be waived with respect to
such Covered Employee to the extent such limitation would have
been waived or satisfied under the GBC Benefit Plan in which
such Covered Employee participated immediately prior to the
Effective Time, and (y) recognize any medical or other
health expenses incurred by such Covered Employee in the year
that includes the Closing Date for purposes of any applicable
deductible and annual
out-of-pocket
expense requirements under any such health, dental or vision
plan of First Charter or any of its Subsidiaries. In addition,
each employee of GBC that is retained by First Charter as of the
Effective Time shall receive a one-time $3,000 payment to offset
the difference in costs associated with the transition to First
Charters health plan.
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(c) First Charter agrees to honor all unpaid liabilities
accrued under all employment agreements, consulting agreements,
severance agreements and deferred compensation agreements that
GBC or its Subsidiaries have with their current and former
employees and directors and which have been disclosed to First
Charter on the GBC Disclosure Schedule, including any Executive
Supplemental Retirement Agreement, as amended June 1, 2006
and Life Insurance Endorsement Method Split Dollar Plan
Agreement, except all as may be amended, superceded or replaced
pursuant to the employment or retention agreements referenced in
Section 7.2(e). GBC expressly assigns any and all of
its rights under such agreements to First Charter.
6.7 Indemnification; Directors and
Officers Insurance.
(a) In the event of any threatened or actual claim, action,
suit, proceeding or investigation, whether civil, criminal or
administrative (a Claim), including any such
Claim in which any individual who is now, or has been at any
time prior to the date of this Agreement, or who becomes prior
to the Effective Time, a director, officer or employee of GBC or
any of its Subsidiaries or who is or was serving at the request
of GBC or any of its Subsidiaries as a director, officer or
employee of another person (the Indemnified
Parties), is, or is threatened to be, made a party
based in whole or in part on, or arising in whole or in part out
of, or pertaining to (i) the fact that he is or was a
director, officer or employee of GBC or any of its Subsidiaries
prior to the Effective Time or (ii) this Agreement or any
of the transactions contemplated by this Agreement, whether
asserted or arising before or after the Effective Time, the
parties shall cooperate and use their reasonable best efforts to
defend against and respond thereto. All rights to
indemnification and exculpation from liabilities for acts or
omissions occurring at or prior to the Effective Time now
existing in favor of any Indemnified Party as provided in their
respective certificates or articles of incorporation or bylaws
(or comparable organizational documents), and any existing
indemnification agreements set forth on Section 6.7
of the GBC Disclosure Schedule, shall survive the Merger and
shall continue in full force and effect in accordance with their
terms, and shall not be amended, repealed or otherwise modified
after the Effective Time in any manner that would adversely
affect the rights thereunder of such individuals for acts or
omissions occurring at or prior to the Effective Time or taken
at the request of First Charter pursuant to
Section 6.8 hereof, it being understood that nothing
in this sentence shall require any amendment to the articles of
incorporation or bylaws of the Surviving Corporation.
(b) From and after the Effective Time, the Surviving
Corporation shall, to the fullest extent permitted by applicable
law, indemnify, defend and hold harmless, and provide
advancement of expenses to, each Indemnified Party against all
losses, claims, damages, costs, expenses, liabilities or
judgments or amounts that are paid in settlement of or in
connection with any Claim based in whole or in part on or
arising in whole or in part out of the fact that such person is
or was a director, officer or employee of GBC or any Subsidiary
of GBC, and pertaining to any matter existing or occurring, or
any acts or omissions occurring, at or prior to the Effective
Time, whether asserted or claimed prior to, or at or after, the
Effective Time (including matters, acts or omissions occurring
in connection with the approval of this Agreement and the
consummation of the transactions contemplated hereby) or taken
at the request of First Charter pursuant to
Section 6.8 hereof.
(c) First Charter shall cause the individuals serving as
officers and directors of GBC or any of its Subsidiaries
immediately prior to the Effective Time to be covered for a
period of three years from the Effective Time by the
directors and officers liability insurance policy
maintained by GBC (provided that First Charter may
substitute therefor policies of at least the same coverage and
amounts containing terms and conditions that are not less
advantageous than such policy) with respect to acts or omissions
occurring prior to the Effective Time that were committed by
such officers and directors in their capacity as such;
provided that in no event shall First Charter be required
to expend annually in the aggregate an amount in excess of 125%
of the annual premiums currently paid by GBC (which current
amount is set forth on Section 6.7 of the GBC
Disclosure Schedule) for such insurance (the Insurance
Amount), and provided further that if
First Charter is unable to maintain such policy (or such
substitute policy) as a result of the preceding proviso, First
Charter shall obtain as much comparable insurance as is
available for the Insurance Amount.
(d) The provisions of this Section 6.7 shall
survive the Effective Time and are intended to be for the
benefit of, and shall be enforceable by, each Indemnified Party
and his or her heirs and representatives.
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6.8 Additional
Agreements. In case at any time after the
Effective Time any further action is necessary or desirable to
carry out the purposes of this Agreement (including any merger
between a Subsidiary of First Charter, on the one hand, and a
Subsidiary of GBC, on the other) or to vest the Surviving
Corporation with full title to all properties, assets, rights,
approvals, immunities and franchises of either party to the
Merger, the proper officers and directors of each party and
their respective Subsidiaries shall, at First Charters
sole expense, take all such necessary action as may be
reasonably requested by First Charter.
6.9 Advice of Changes. Each
of First Charter and GBC shall promptly advise the other of any
change or event (a) having or reasonably likely to have a
Material Adverse Effect on it or (b) that it believes would
or would be reasonably likely to cause or constitute a material
breach of any of its representations, warranties or covenants
contained in this Agreement; provided, however,
that no such notification shall affect the representations,
warranties, covenants or agreements of the parties (or remedies
with respect thereto) or the conditions to the obligations of
the parties under this Agreement; provided further
that a failure to comply with this Section 6.9 shall
not constitute a breach of this Agreement or the failure of any
condition set forth in Article VII to be satisfied
unless the underlying Material Adverse Effect or material breach
would independently result in the failure of a condition set
forth in Article VII to be satisfied.
6.10 No Solicitation.
(a) None of GBC, its Subsidiaries or any officer, director,
employee, agent or representative (including any investment
banker, financial advisor, attorney, accountant or other
retained representative) of GBC or any of its Subsidiaries shall
directly or indirectly (i) solicit, initiate, encourage,
facilitate (including by way of furnishing information) or take
any other action designed to facilitate any inquiries or
proposals regarding any merger, share exchange, consolidation,
sale of assets, sale of shares of capital stock (including by
way of a tender offer) or similar transactions involving GBC or
any of its Subsidiaries that, if consummated, would constitute
an Alternative Transaction (any of the foregoing inquiries or
proposals being referred to herein as an Alternative
Proposal), (ii) participate in any discussions or
negotiations regarding an Alternative Transaction or
(iii) enter into any agreement regarding any Alternative
Transaction. Notwithstanding the foregoing, the GBC Board and
its investment bankers shall be permitted, prior to the meeting
of GBC shareholders to be held pursuant to
Section 6.3, and subject to compliance with the
other terms of this Section 6.10 and to first
entering into a confidentiality agreement with the person
proposing such Alternative Proposal on terms substantially
similar to, and no less favorable to GBC than, those contained
in the Confidentiality Agreement, to consider and participate in
discussions and negotiations with respect to a bona fide
Alternative Proposal received by GBC, if and only to the extent
that and so long as the GBC Board reasonably determines in good
faith (after consultation with outside legal counsel and
financial advisors) that failure to do so would cause it to
violate its fiduciary duties.
As used in this Agreement, Alternative
Transaction means any of (w) a transaction
pursuant to which any person (or group of persons) (other than
First Charter or its affiliates), directly or indirectly,
acquires or would acquire more than 25% of the outstanding
shares of GBC Common Stock or outstanding voting power or of any
new series or new class of preferred stock that would be
entitled to a class or series vote with respect to the Merger,
whether from GBC or pursuant to a tender offer or exchange offer
or otherwise, (x) a merger, share exchange, consolidation
or other business combination involving GBC (other than the
Merger), (y) any transaction pursuant to which any person
(or group of persons) (other than First Charter or its
affiliates) acquires or would acquire control of assets
(including for this purpose the outstanding equity securities of
subsidiaries of GBC and securities of the entity surviving any
merger or business combination including any of GBCs
Subsidiaries) of GBC, or any of its Subsidiaries representing
more than 25% of the fair market value of all the assets, net
revenues or net income of GBC and its Subsidiaries, taken as a
whole, immediately prior to such transaction, or (z) any
other consolidation, business combination, recapitalization or
similar transaction involving GBC or any of its Subsidiaries,
other than the transactions contemplated by this Agreement, as a
result of which the holders of shares of GBC immediately prior
to such transactions do not, in the aggregate, own at least 75%
of the outstanding shares of common stock and the outstanding
voting power of the surviving or resulting entity in such
transaction immediately after the consummation thereof in
substantially the same proportion as such holders held the
shares of GBC Common Stock immediately prior to the consummation
thereof.
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(b) GBC shall notify First Charter promptly (but in no
event later than 24 hours) after receipt of any Alternative
Proposal, or any material modification of or material amendment
to any Alternative Proposal, or any request for nonpublic
information relating to GBC or any of its Subsidiaries or for
access to the properties, books or records of GBC or any
Subsidiary by any person that informs the GBC Board or any
Subsidiary that it is considering making, or has made, an
Alternative Proposal. Such notice to First Charter shall be made
orally and in writing, and shall indicate the identity of the
Person making the Alternative Proposal or intending to make or
considering making an Alternative Proposal or requesting
non-public information or access to the books and records of GBC
or any Subsidiary, and the material terms of any such
Alternative Proposal or modification or amendment to an
Alternative Proposal. GBC shall keep First Charter fully
informed, on a current basis, of any material changes in the
status and any material changes or modifications in the terms of
any such Alternative Proposal, indication or request. GBC shall
also promptly, and in any event within 24 hours, notify
First Charter, orally and in writing, if it enters into
discussions or negotiations concerning any Alternative Proposal
in accordance with Section 6.10(a).
(c) GBC and its Subsidiaries shall immediately cease and
cause to be terminated any existing discussions or negotiations
with any Persons (other than First Charter) conducted heretofore
with respect to any of the foregoing, and shall use reasonable
best efforts to cause all Persons other than First Charter who
have been furnished confidential information regarding GBC in
connection with the solicitation of or discussions regarding an
Alternative Proposal within the 12 months prior to the date
hereof promptly to return or destroy such information. GBC
agrees not to, and to cause its Subsidiaries not to, release any
third party from the confidentiality and standstill provisions
of any agreement to which GBC or its Subsidiaries is or may
become a party, and shall immediately take all steps necessary
to terminate any approval that may have been heretofore given
under any such provisions authorizing any person to make an
Alternative Proposal. Neither GBC nor the GBC Board shall
approve or take any action to render inapplicable to any
Alternative Proposal or Alternative Transaction
Section 14-2-1111
of the GBCC and any similar Takeover Statutes.
(d) GBC shall ensure that the officers, directors and all
employees, agents and representatives (including any investment
bankers, financial advisors, attorneys, accountants or other
retained representatives) of GBC or its Subsidiaries are aware
of the restrictions described in this Section 6.10
as reasonably necessary to avoid violations thereof. It is
understood that any violation of the restrictions set forth in
this Section 6.10 by any officer, director,
employee, agent or representative (including any investment
banker, financial advisor, attorney, accountant or other
retained representative) of GBC or its Subsidiaries, at the
direction or with the consent of GBC or its Subsidiaries, shall
be deemed to be a breach of this Section 6.10 by GBC.
(e) Nothing contained in this Section 6.10 shall
prohibit GBC or its Subsidiaries from taking and disclosing to
its shareholders a position required by
Rule 14e-2(a)
or
Rule 14d-9
promulgated under the Exchange Act.
6.11 Directorship; Advisory
Board. First Charter shall, prior to the
Effective Time, take such actions as may be required to appoint
an individual mutually agreed by GBC and First Charter to the
Board of Directors of the Surviving Corporation as of the
Effective Time, and, to the extent so required, shall increase
the size of the First Charter Board of Directors to permit the
foregoing. Each of the members of the GBC Board will be asked to
serve on a First Charter local advisory board for the region
formerly served by GBC.
6.12 Restructuring
Efforts. If GBC shall have failed to obtain
the requisite vote or votes of its shareholders for the
consummation of the transactions contemplated by this Agreement
at a duly held meeting of its shareholders or at any adjournment
or postponement thereof, then, unless this Agreement shall have
been terminated pursuant to its terms, each of the parties shall
in good faith use its reasonable best efforts to negotiate a
restructuring of the transaction provided for herein (it being
understood that neither party shall have any obligation to alter
or change the amount or kind of the Merger Consideration in a
manner adverse to such party or its shareholders) and to
resubmit the transaction to GBCs shareholders for
approval, with the timing of such resubmission to be determined
at the request of First Charter.
6.13 Press Releases. Prior
to the Effective Time, GBC and First Charter shall consult with
each other as to the form and substance of any press release or
other public disclosure material related to this Agreement;
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provided that nothing in this Agreement shall be deemed
to prohibit either party from making any disclosure that it
deems necessary to comply with provisions of law.
6.14 Reasonable Best Efforts;
Cooperation. Each of GBC and First Charter
agrees to exercise good faith and use its reasonable best
efforts to satisfy the various covenants and conditions to
Closing in this Agreement, and to consummate the transactions
contemplated hereby as promptly as possible.
6.15 Main Office
Property. At Closing, Gwinnett Bank shall
acquire by limited warranty deed fee simple title to the real
property commonly known as 165 Nash Street, Lawrenceville,
Georgia (the Main Office Property), free and
clear of any and all encumbrances whatsoever except for existing
covenants, conditions and restrictions of public record that do
not unreasonably interfere with Gwinnett Banks current
occupancy and operation of the Main Office Property. The
purchase price of the Main Office Property shall equal the fair
market value of the Main Office Property as determined by the
average of two complete commercial appraisals that conform to
UFPAP standards completed by independent MAI certified
commercial appraisers who shall be separately selected by GBC
and First Charter. The purchase price shall also be subject to
credits and prorations of taxes, utilities and rents, as
applicable, that are generally considered reasonable, customary
and standard in the Lawrenceville, Georgia area. If there is
less than a 10% difference between the two appraisals, the
purchase price shall be the average of the two. If there is more
than a 10% difference between the two appraisals, GBC and First
Charter shall together select a third qualified appraiser
(i.e., an MAI certified commercial appraiser) within five
(5) days to solely determine the purchase price. Within
twenty (20) days after its appointment, the third appraiser
shall reach and communicate to the parties in writing a decision
as to the determination of the purchase price of the Main Office
Property, which may not exceed the highest of the first two
appraisals or be less than the lowest of the first two
appraisals. The third appraisers decision shall be based
on its estimate of the fair market value of the Main Office
Property and shall be final, dispositive and binding upon the
parties. GBC shall consult with First Charter during, and shall
allow First Charter to participate in, the negotiation of the
contract with the current owner of the Main Office Property for
the purchase and sale thereof. Gwinnett Bank shall require that
the seller of the Main Office Property must (a) deliver at
the closing documents customarily used at a closing of a
transaction of this nature and those required by Gwinnett
Banks title insurance company and (b) provide in the
purchase agreement representations, warranties and covenants
customary in a transaction of this nature between unaffiliated
parties. In no event shall GBC execute a contract for purchase
and sale of the Main Office Property, or any amendment or
addendum thereto, without First Charters prior approval
(which approval shall not be unreasonably withheld or delayed)
of the contract or any amendment or addendum thereto, as the
case may be, and all terms and conditions set forth thereon. Nor
shall GBC under any circumstances close the transaction to
acquire the Main Office Property without First Charters
prior approval (which approval shall not be unreasonably
withheld or delayed) of the status of the title and physical
condition of the Main Office Property as disclosed by standard
due diligence including the review of: a current title
commitment and endorsements thereof; a current survey; current
reports of physical inspections of improvements; and an
environmental assessment.
ARTICLE VII
CONDITIONS
PRECEDENT
7.1 Conditions to Each Partys Obligation
To Effect the Merger. The respective
obligations of the parties to effect the Merger shall be subject
to the satisfaction at or prior to the Effective Time of the
following conditions:
(a) Shareholder Approval. The
Merger, on substantially the terms and conditions set forth in
this Agreement, shall have been approved by the requisite
affirmative vote of the holders of GBC Common Stock entitled to
vote thereon.
(b) Nasdaq Listing. The shares of
First Charter Common Stock to be issued to the holders of GBC
Common Stock upon consummation of the Merger shall have been
authorized for listing on the Nasdaq National Market, subject to
official notice of issuance.
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(c) Form S-4. The
Form S-4
shall have become effective under the Securities Act and no stop
order suspending the effectiveness of the
Form S-4
shall have been issued and no proceedings for that purpose shall
have been initiated or threatened by the SEC.
(d) No Injunctions or Restraints;
Illegality. No order, injunction or decree
issued by any court or agency of competent jurisdiction or other
legal restraint or prohibition (an
Injunction) preventing the consummation of
the Merger or any of the other transactions contemplated by this
Agreement shall be in effect. No statute, rule, regulation,
order, Injunction or decree shall have been enacted, entered,
promulgated or enforced by any Governmental Entity that
prohibits or makes illegal consummation of the Merger.
7.2 Conditions to Obligations of First
Charter. The obligation of First Charter to
effect the Merger is also subject to the satisfaction, or waiver
by First Charter, at or prior to the Effective Time, of the
following conditions:
(a) Representations and
Warranties. The representations and
warranties of GBC set forth in this Agreement shall be true and
correct as of the date of this Agreement and as of the Effective
Time as though made on and as of the Effective Time (except that
representations and warranties that by their terms speak
specifically as of the date of this Agreement or another date
shall be true and correct as of such date); and First Charter
shall have received a certificate signed on behalf of GBC by the
Chief Executive Officer or the Chief Financial Officer of GBC to
the foregoing effect.
(b) Performance of Obligations of
GBC. GBC shall have performed in all material
respects all obligations required to be performed by it under
this Agreement at or prior to the Effective Time; and First
Charter shall have received a certificate signed on behalf of
GBC by the Chief Executive Officer or the Chief Financial
Officer of GBC to such effect.
(c) Regulatory Approvals. All
regulatory approvals set forth in Section 4.4
required to consummate the transactions contemplated by this
Agreement, including the Merger, shall have been obtained and
shall remain in full force and effect and all statutory waiting
periods in respect thereof shall have expired (all such
approvals and the expiration of all such waiting periods being
referred as the First Charter Requisite Regulatory
Approvals), and no such regulatory approval shall have
resulted in the imposition of any Materially Burdensome
Regulatory Condition.
(d) No Investigations or
Litigation. There shall be no
(i) investigation (formal or informal) by any Governmental
Entity regarding or involving GBC, Gwinnett Bank or any aspect
of GBCs business or (ii) claim, litigation,
arbitration or administrative proceeding brought by a
third-party seeking any injunction, writ, order, ruling,
judgment, decision or decree or similar legal or arbitral
adjudication seeking to limit First Charters business
activities as a result of the consummation of the Merger or any
of the transactions contemplated by this Agreement that has not
been settled on terms satisfactory to First Charter.
(e) Employment and Retention
Agreements. The employment agreement with
Larry D. Key in the form of Exhibit C and the
retention agreements with Katrina M. Winberg and Michael L.
Couch in the form of Exhibit D and
Exhibit E, as applicable, and the other nine
retention agreements referenced in Section 3.11(i)
of the GBC Disclosure Schedules shall be in full force and
effect, and First Charter shall have received no notice of any
intent to modify or terminate any of those agreements.
(f) GBC Options. All GBC Options
have been exercised or extinguished and no such GBC Options
remain outstanding.
(g) GBC 401(k) Plan. The Gwinnett
Bank 401(k) Employee Stock Ownership Plan shall have been
terminated as of or prior to the Effective Time.
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7.3 Conditions to Obligations of
GBC. The obligation of GBC to effect the
Merger is also subject to the satisfaction or waiver by GBC at
or prior to the Effective Time of the following conditions:
(a) Representations and
Warranties. The representations and
warranties of First Charter set forth in this Agreement shall be
true and correct as of the date of this Agreement and as of the
Effective Time as though made on and as of the Effective Time
(except that representations and warranties that by their terms
speak specifically as of the date of this Agreement or another
date shall be true and correct as of such date); and GBC shall
have received a certificate signed on behalf of First Charter by
the Chief Executive Officer or the Chief Financial Officer of
First Charter to the foregoing effect.
(b) Performance of Obligations of First
Charter. First Charter shall have performed
in all material respects all obligations required to be
performed by it under this Agreement at or prior to the
Effective Time, and GBC shall have received a certificate signed
on behalf of First Charter by the Chief Executive Officer or the
Chief Financial Officer of First Charter to such effect.
(c) Federal Tax Opinion. GBC shall
have received the opinion of its counsel, Womble Carlyle
Sandridge & Rice, PLLC, in form and substance
reasonably satisfactory to GBC, dated the Closing Date,
substantially to the effect that, on the basis of facts,
representations and assumptions set forth in such opinion that
are consistent with the state of facts existing at the Effective
Time, (i) the Merger will be treated as a reorganization
within the meaning of Section 368(a) of the Code and
(ii) except to the extent of any cash consideration
received in the Merger and except with respect to cash received
in lieu of fractional share interests in First Charter Common
Stock, no gain or loss will be recognized by any of the holders
of GBC Common Stock in the Merger. In rendering such opinion,
counsel may require and rely upon customary representations
contained in certificates of officers of GBC and First Charter.
(d) Regulatory Approvals. All
regulatory approvals set forth in Section 3.4
required to consummate the transactions contemplated by this
Agreement, including the Merger, shall have been obtained and
shall remain in full force and effect and all statutory waiting
periods in respect thereof shall have expired (all such
approvals and the expiration of all such waiting periods being
referred as the GBC Requisite Regulatory
Approvals).
ARTICLE VIII
TERMINATION
AND AMENDMENT
8.1 Termination. This
Agreement may be terminated at any time prior to the Effective
Time, whether before or after approval of the matters presented
in connection with the Merger by the shareholders of GBC or
First Charter:
(a) Mutual Consent. By mutual
consent of GBC and First Charter in a written instrument
authorized by the boards of directors of GBC and First Charter;
(b) No Regulatory Approval. By
either GBC or First Charter, if any Governmental Entity that
must grant a First Charter Requisite Regulatory Approval or a
GBC Requisite Regulatory Approval has denied approval of the
Merger and such denial has become final and nonappealable or any
Governmental Entity of competent jurisdiction shall have issued
a final and nonappealable order permanently enjoining or
otherwise prohibiting the consummation of the transactions
contemplated by this Agreement;
(c) Delay. By either GBC or First
Charter, if the Merger shall not have been consummated on or
before April 30, 2007 unless the failure of the Closing to
occur by such date shall be due to the failure of the party
seeking to terminate this Agreement to perform or observe the
covenants and agreements of such party set forth in this
Agreement;
(d) Material Breach of Representation, Warranty or
Covenant. By either First Charter or GBC
(provided that the terminating party is not then in
material breach of any representation, warranty, covenant or
other agreement contained herein), if there shall have been a
breach of any of the covenants or agreements or any of the
representations or warranties set forth in this Agreement on the
part of GBC,
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in the case of a termination by First Charter, or First Charter,
in the case of a termination by GBC, which breach, either
individually or in the aggregate, would result in, if occurring
or continuing on the Closing Date, the failure of the conditions
set forth in Section 7.2 or Section 7.3,
as the case may be, and which is not cured within 30 days
following written notice to the party committing such breach or
by its nature or timing cannot be cured within such time period;
(e) Failure to Recommend. By First
Charter, if the GBC Board shall have (i) failed to
recommend in the Proxy Statement the approval and adoption of
this Agreement, or (ii) in a manner adverse to First
Charter, (A) withdrawn, modified or qualified, or proposed
to withdraw, modify or qualify, the recommendation by the GBC
Board of this Agreement
and/or the
Merger to GBCs shareholders, (B) taken any public
action or made any public statement in connection with the
meeting of GBC shareholders to be held pursuant to
Section 6.3 inconsistent with such recommendation or
(C) recommended any Alternative Proposal (or, in the case
of clause (ii), resolved to take any such action), whether
or not permitted by the terms hereof; or
(f) Breach of Certain
Obligations. By either First Charter or GBC,
if its Board of Directors determines in good faith by a majority
vote that the other party has substantially engaged in bad faith
in breach of its obligations under Section 6.13 of
this Agreement;
(g) Decrease in First Charter Average Share
Price. By the GBC Board, upon written notice
to First Charter on the business day immediately following the
Determination Date, if both of the following conditions have
been satisfied: (i) the Average Closing Price of First
Charter Common Stock on the Determination Date is less than
$20.35 (the First Charter Floor Price); and
(ii)(A) the quotient obtained by dividing the Average Closing
Price of First Charter Common Stock by the Initial Stock Value
(the First Charter Ratio) is less than
(B) the quotient obtained by dividing the Index Price as of
the Determination Date by the Index Price on the Starting Date
and then subtracting 0.15 from the quotient so obtained in this
clause (B) (the First Charter Index
Ratio). If written notice is not received by First
Charter within the notice period required in this
Section 8.1(g), then GBCs right to terminate
this Agreement under this Section 8.1(g) shall
expire.
If GBC elects to exercise its termination right pursuant to this
Section 8.1(g), First Charter shall have the option,
exercisable within five business days of receipt thereof, to
increase the Total Stock Issuance Number to the Revised Total
Stock Issuance Number. The Revised Total Stock Issuance Number
shall equal the product of the Total Stock Issuance Number
multiplied by the quotient of the lesser of (x) a number
(rounded to three decimals) equal to a quotient, the numerator
of which is the First Charter Floor Price multiplied by the
Exchange Ratio and the denominator of which is the Average
Closing Price of First Charter Common Stock, and (y) a
number (rounded to three decimals) equal to a quotient, the
numerator of which is the First Charter Index Ratio multiplied
by the Exchange Ratio and the denominator of which is the First
Charter Ratio within five business days after receipt of such
notice, divided by the Exchange Ratio. If First Charter elects
to exercise its option to increase the consideration in
accordance with the terms of the previous sentence within the
aforementioned five-business-day period, it shall give prompt
written notice to GBC of such election and the Revised Total
Stock Issuance Number, at which time the GBC Board shall have no
further right to terminate this Agreement pursuant to this
Section 8.1(g), and this Agreement shall remain in
effect in accordance with its terms (except the Total Stock
Issuance Number shall have been modified as provided in this
Section 8.1(g), and any references in this Agreement
to the Total Stock Issuance Number shall thereafter
be deemed to refer to the Revised Total Stock Issuance Number).
For purposes of this Section 8.1(g), the following
terms have the meanings indicated below:
Average Closing Price means the
average of the daily last sale prices of First Charter Common
Stock as reported on the Nasdaq National Market (excluding sale
prices of First Charter Common Stock during
extended-hours
trading) for the 10 consecutive full trading days in which such
shares are traded on the Nasdaq National Market at the close of
trading on the Determination Date.
Determination Date means six business
days prior to the Closing Date.
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Index Price means the closing sales
price of the Nasdaq Bank Index (Symbol: CBNK), as reported on
the Nasdaq National Market on the applicable date.
Initial Stock Value means $23.94.
Starting Date means the last full day
on which the Nasdaq National Market was open for trading before
the execution of this Agreement.
The party desiring to terminate this Agreement pursuant to
clause (b), (c), (d), (e) or (f) of this
Section 8.1 shall give written notice of such
termination to the other party in accordance with
Section 9.3, specifying the provision or provisions
hereof pursuant to which such termination is effected.
8.2 Effect of
Termination. In the event of termination of
this Agreement by either GBC or First Charter as provided in
Section 8.1, this Agreement shall forthwith become
void and have no effect, and none of GBC, First Charter, any of
their respective Subsidiaries or any of the officers or
directors of any of them shall have any liability of any nature
whatsoever under this Agreement, or in connection with the
transactions contemplated by this Agreement, except that
(i) Sections 6.2(b), 8.2, 8.3,
9.7 and 9.8 shall survive any termination of this
Agreement and (ii) neither GBC nor First Charter shall be
relieved or released from any liabilities or damages arising out
of its willful breach of any provision of this Agreement.
8.3 Fees and Expenses.
(a) Except as set forth in Section 8.3(b), and
except with respect to costs and expenses of printing and
mailing the Proxy Statement and all filing and other fees paid
to the SEC in connection with the Merger, which shall be borne
equally by GBC and First Charter, all fees and expenses incurred
in connection with the Merger, this Agreement, and the
transactions contemplated by this Agreement shall be paid by the
party incurring such fees or expenses, whether or not the Merger
is consummated.
(b) GBC shall promptly pay to First Charter a termination
fee in the amount of $3,570,000, plus all of the reasonable
actual expenses incurred by First Charter in connection with the
proposed transaction, in immediately available federal funds if:
(i) (A) this Agreement is terminated by First Charter
pursuant to Section 8.1(d), 8.1(e) or
8.1(f); and (B)(1) prior to such termination, an
Alternative Transaction with respect to GBC was commenced,
publicly proposed or publicly disclosed (or an Alternative
Proposal is received); and (2) within 12 months after
such termination, GBC shall have entered into a definitive
written agreement relating to an Alternative Transaction or any
Alternative Transaction shall have been consummated; or
(ii) after receiving an Alternative Proposal, GBCs
Board or Directors (the GBC Board) does not
take action to convene the GBC Shareholders Meeting
and/or
recommend that GBC shareholders adopt this Agreement; and within
12 months after such receipt, GBC shall have entered into a
definitive written agreement relating to an Alternative
Transaction or any Alternative Transaction shall have been
consummated; provided, however, that First Charter
shall not be entitled to a termination fee pursuant to this
Section 8.3(b) if:
(A) this Agreement shall have been terminated pursuant to
Section 8.1(a) or Section 8.1(b); or
(B) GBC shall have terminated this Agreement pursuant to
Section 8.1(d) or Section 8.1(g).
(iii) Upon payment of the fee described in this
Section 8.3(b), GBC shall have no further liability
to First Charter at law or in equity with respect to such
termination, or with respect to GBC Boards failure to take
action to convene the GBC Shareholders Meeting
and/or
recommend that GBC shareholders adopt this Agreement.
(c) GBC acknowledges that the agreements contained in this
Section 8.3 are an integral part of the transactions
contemplated by this Agreement, and that, without these
agreements, First Charter would not enter into this Agreement.
Accordingly, if GBC fails to pay timely any amount due pursuant
to this Section 8.3 and, in order to obtain such
payment, First Charter commences a suit that results in a
judgment against GBC for the amount payable to First Charter
pursuant to this Section 8.3, GBC shall pay to First
Charter its reasonable,
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out-of-pocket
costs and expenses (including attorneys fees and expenses)
in connection with such suit, together with interest on the
amount so payable at the applicable Federal Funds rate.
8.4 Amendment. This
Agreement may be amended by the parties, by action taken or
authorized by their respective Boards of Directors, at any time
before or after approval of the matters presented in connection
with Merger by the shareholders of GBC; provided,
however, that after any approval of the transactions
contemplated by this Agreement by the shareholders of GBC, there
may not be, without further approval of such shareholders, any
amendment of this Agreement that (a) alters or changes the
amount or the form of the consideration to be delivered under
this Agreement to the holders of GBC Common Stock,
(b) alters or changes any term of the certificate of
incorporation of the Surviving Corporation or (c) alters or
changes any of the terms and conditions of this Agreement if
such alteration or change would adversely affect the holders of
any securities of GBC, in each case other than as contemplated
by this Agreement. This Agreement may not be amended except by
an instrument in writing signed on behalf of each of the parties.
8.5 Extension; Waiver. At
any time prior to the Effective Time, the parties, by action
taken or authorized by their respective Board of Directors, may,
to the extent legally allowed, (a) extend the time for the
performance of any of the obligations or other acts of the other
party, (b) waive any inaccuracies in the representations
and warranties contained in this Agreement or (c) waive
compliance with any of the agreements or conditions contained in
this Agreement. Any agreement on the part of a party to any such
extension or waiver shall be valid only if set forth in a
written instrument signed on behalf of such party, but such
extension or waiver or failure to insist on strict compliance
with an obligation, covenant, agreement or condition shall not
operate as a waiver of, or estoppel with respect to, any
subsequent or other failure.
ARTICLE IX
GENERAL
PROVISIONS
9.1 Closing. On the terms
and subject to conditions set forth in this Agreement, the
closing of the Merger (the Closing) shall
take place at 10:00 a.m. on a date and at a place to be
specified by the parties, which date shall be no later than five
business days after the satisfaction or waiver (subject to
applicable law) of the latest to occur of the conditions set
forth in Article VII (other than those conditions
that by their nature are to be satisfied or waived at the
Closing), unless extended by mutual agreement of the parties
(the Closing Date). If the conditions set
forth in Article VII are satisfied or waived during
the two weeks immediately prior to the end of a fiscal quarter
of First Charter, then First Charter may postpone the Closing
until the first full week after the end of that fiscal quarter.
9.2 Nonsurvival of Representations, Warranties
and Agreements. None of the representations,
warranties, covenants and agreements set forth in this Agreement
or in any instrument delivered pursuant to this Agreement shall
survive the Effective Time, except for Section 6.8
and for those other covenants and agreements contained in this
Agreement that by their terms apply or are to be performed in
whole or in part after the Effective Time.
9.3 Notices. All notices and
other communications in connection with this Agreement shall be
in writing and shall be deemed given if delivered personally,
sent via facsimile (with confirmation), mailed by registered or
certified mail (return receipt requested) or delivered by an
express courier (with confirmation) to the parties at the
following addresses (or at such other address for a party as
shall be specified by like notice):
(a) if to GBC, to:
GBC Bancorp, Inc.
165 Nash Street
Lawrenceville, Georgia 30045
Attention: Larry D. Key
Facsimile:
(770) 995-6017
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with a copy to:
Womble Caryle Sandridge & Rice
104 South Main Street, Suite 700
Greenville, South Carolina 29601
Attention: Elizabeth O. Derrick
Facsimile:
(864) 255-5489
and
(b) if to First Charter, to:
First Charter Corporation
10200 David Taylor Drive
Charlotte, North Carolina 28262
Attention: Stephen J. Antal
Facsimile:
(704) 688-2282
with a copy to:
Helms Mulliss & Wicker, PLLC
201 North Tryon Street, Suite 3000
Charlotte, North Carolina 28202
Attention: Richard W. Viola
Facsimile:
(704) 343-2300
9.4 Interpretation. When a
reference is made in this Agreement to Articles, Sections,
Exhibits or Schedules, such reference shall be to an Article or
Section of or Exhibit or Schedule to this Agreement unless
otherwise indicated. The table of contents and headings
contained in this Agreement are for reference purposes only and
shall not affect in any way the meaning or interpretation of
this Agreement. Whenever the words include,
includes or including are used in this
Agreement, they shall be deemed to be followed by the words
without limitation. The GBC Disclosure Schedule and
the First Charter Disclosure Schedule, as well as all other
schedules and all exhibits hereto, shall be deemed part of this
Agreement and included in any reference to this Agreement. This
Agreement shall not be interpreted or construed to require any
person to take any action, or fail to take any action, if to do
so would violate any applicable law. For purposes of this
Agreement, (a) person means an
individual, corporation, partnership, limited liability company,
joint venture, association, trust, unincorporated organization
or other entity (including its permitted successors and assigns)
and (b) knowledge of any person that is
not an individual means the actual knowledge (without
investigation) of such persons directors and executive
officers.
9.5 Counterparts. This
Agreement may be executed in two or more counterparts, all of
which shall be considered one and the same agreement and shall
become effective when counterparts have been signed by each of
the parties and delivered to the other party, it being
understood that each party need not sign the same counterpart.
9.6 Entire Agreement. This
Agreement (including the documents and the instruments referred
to in this Agreement), together with the Confidentiality
Agreement, constitutes the entire agreement and supersedes all
prior agreements and understandings, both written and oral,
between the parties with respect to the subject matter of this
Agreement, other than the Confidentiality Agreement.
9.7 Governing Law;
Jurisdiction. This Agreement shall be
governed and construed in accordance with the internal laws of
the State of North Carolina applicable to contracts made and
wholly performed within such state, without regard to any
applicable
conflicts-of-law
principles, except to the extent that the NCBCA or the GBCC
applies. The parties hereto agree that any suit, action or
proceeding brought by either party to enforce any provision of,
or based on any matter arising out of or in connection with,
this Agreement or the transactions contemplated hereby shall be
brought in any federal or state court located in Charlotte,
North Carolina. Each of the parties hereto submits to the
jurisdiction of any such court in any suit, action or proceeding
seeking to enforce any provision of, or based on any matter
arising out of, or in connection with,
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this Agreement or the transactions contemplated hereby and
hereby irrevocably waives the benefit of jurisdiction derived
from present or future domicile or otherwise in such action or
proceeding. Each party hereto irrevocably waives, to the fullest
extent permitted by law, any objection that it may now or
hereafter have to the laying of the venue of any such suit,
action or proceeding in any such court or that any such suit,
action or proceeding brought in any such court has been brought
in an inconvenient forum.
9.8 Publicity. As further
provided in Section 6.13, neither GBC nor First
Charter shall, and neither GBC nor First Charter shall permit
any of its Subsidiaries or agents to, issue or cause the
publication of any press release or other public announcement
with respect to, or otherwise make any public statement
concerning, the transactions contemplated by this Agreement
without the prior consent (which consent shall not be
unreasonably withheld) of First Charter, in the case of a
proposed announcement or statement by GBC, or GBC, in the case
of a proposed announcement or statement by First Charter;
provided, however, that either party may, without
the prior consent of the other party (but after prior
consultation with the other party to the extent practicable
under the circumstances) issue or cause the publication of any
press release or other public announcement to the extent
required by law or by the rules and regulations of the Nasdaq
National Market.
9.9 Assignment; Third-Party
Beneficiaries. Neither this Agreement nor any
of the rights, interests or obligations under this Agreement
shall be assigned by either of the parties (whether by operation
of law or otherwise) without the prior written consent of the
other party. Subject to the preceding sentence, this Agreement
shall be binding upon, inure to the benefit of and be
enforceable by each of the parties and their respective
successors and assigns. Except as otherwise specifically
provided in Section 6.7, this Agreement (including
the documents and instruments referred to in this Agreement) is
not intended to and does not confer upon any person other than
the parties hereto any rights or remedies under this Agreement.
Remainder of Page Intentionally Left Blank
A-40
IN WITNESS WHEREOF, GBC and First Charter have caused this
Agreement to be executed by their respective officers thereunto
duly authorized as of the date first above written.
GBC BANCORP, INC.
Name: Larry D. Key
|
|
|
|
Title:
|
President and Chief Executive Officer
|
FIRST CHARTER CORPORATION
|
|
|
|
By:
|
/s/ Robert
E. James, Jr.
|
Name: Robert E. James, Jr.
|
|
|
|
Title:
|
President and Chief Executive Officer
|
A-41
Form of
Affiliate Letter
First Charter Corporation
Ladies and Gentlemen:
I have been advised that as of the date hereof I may be deemed
to be an affiliate of GBC Bancorp, Inc., a Georgia
corporation (GBC), as the term
affiliate is defined for purposes of
paragraphs (c) and (d) of Rule 145 of the
rules and regulations (the Rules and
Regulations) of the Securities and Exchange Commission
(the Commission) under the Securities Act of
1933, as amended (the Act). I have been
further advised that pursuant to the terms of the Agreement and
Plan of Merger dated as of June 1, 2006 (the
Merger Agreement), by and between First
Charter Corporation, a North Carolina corporation
(First Charter), and GBC, GBC shall be merged
with and into First Charter (the Merger). All
terms used in this letter but not defined herein shall have the
meanings ascribed thereto in the Merger Agreement.
I represent, warrant and covenant to First Charter that in the
event I receive any First Charter Common Stock as a result of
the Merger:
(a) I shall not make any sale, transfer or other
disposition of First Charter Common Stock in violation of the
Act or the Rules and Regulations.
(b) I have carefully read this letter and the Merger
Agreement and discussed its requirements and other applicable
limitations upon my ability to sell, transfer or otherwise
dispose of First Charter Common Stock to the extent I believed
necessary with my counsel or counsel for GBC.
(c) I have been advised that the issuance of First Charter
Common Stock to me pursuant to the Merger will be registered
with the Commission under the Act on a Registration Statement on
Form S-4.
However, I have also been advised that, since at the time the
Merger will be submitted for a vote of the shareholders of GBC I
may be deemed to have been an affiliate of GBC and the
distribution by me of First Charter Common Stock has not been
registered under the Act, I may not sell, transfer or otherwise
dispose of First Charter Common Stock issued to me in the Merger
unless (i) such sale, transfer or other disposition has
been registered under the Act, (ii) such sale, transfer or
other disposition is made in conformity with the volume and
other limitations of Rule 145 promulgated by the Commission
under the Act or (iii) in the opinion of counsel reasonably
acceptable to First Charter, such sale, transfer or other
disposition is otherwise exempt from registration under the Act.
(d) I understand that First Charter is under no obligation
to register the sale, transfer or other disposition of First
Charter Common Stock by me or on my behalf under the Act or to
take any other action necessary in order to make compliance with
an exemption from such registration available.
(e) I also understand that stop transfer instructions will
be given to First Charters transfer agents with respect to
First Charter Common Stock and that there will be placed on the
certificates for First Charter Common Stock issued to me, or any
substitutions therefor, a legend stating in substance:
The securities represented by this certificate have been
issued in a transaction to which Rule 145 promulgated under
the Securities Act of 1933 applies and may only be sold or
otherwise transferred in compliance with the requirements of
Rule 145 or pursuant to a registration statement under that
act or an exemption from such registration.
(f) I also understand that unless the transfer by me of my
First Charter Common Stock has been registered under the Act or
is a sale made in conformity with the provisions of
Rule 145, First Charter reserves the right to put the
following legend on the certificates issued to my transferee:
The shares represented by this certificate have not been
registered under the Securities Act of 1933 and were acquired
from a person who received such shares in a transaction to which
Rule 145
A-42
promulgated under the Securities Act of 1933 applies. The shares
have been acquired by the holder not with a view to, or for
resale in connection with, any distribution thereof within the
meaning of the Securities Act of 1933 and may not be sold,
pledged or otherwise transferred except in accordance with an
exemption from the registration requirements of the Securities
Act of 1933.
It is understood and agreed that the legends set forth above
shall be removed by delivery of substitute certificates without
such legend,
and/or the
issuance of a letter to First Charters transfer agent
removing such stop transfer instructions, and the above
restrictions on sale will cease to apply, if (A) one year
(or such other period as may be required by Rule 145(d)(2)
under the Securities Act or any successor thereto) shall have
elapsed from the Closing Date and the provisions of such Rule
are then available to me; or (B) if two years (or such
other period as may be required by Rule 145(d)(3) under the
Securities Act or any successor thereto) shall have elapsed from
the Effective Time and the provisions of such Rule are then
available to me; or (C) I shall have delivered to First
Charter (1) a copy of a letter from the staff of the
Commission, or an opinion of counsel in form and substance
reasonably satisfactory to First Charter, or other evidence
reasonably satisfactory to First Charter, to the effect that
such legend
and/or stop
transfer instructions are not required for purposes of the
Securities Act or (2) reasonably satisfactory evidence or
representations that the securities represented by such
certificates are being or have been transferred in a transaction
made in conformity with the provisions of Rule 145 under
the Securities Act or pursuant to an effective registration
under the Securities Act.
I recognize and agree that the foregoing provisions also apply
to (i) my spouse, (ii) any relative of mine or my
spouse occupying my home, (iii) any trust or estate in
which I, my spouse or any such relative owns at least 10%
beneficial interest or of which any of us serves as trustee,
executor or in any similar capacity and (iv) any corporate
or other organization in which I, my spouse or any such
relative owns at least 10% of any class of equity securities or
of the equity interest.
It is understood and agreed that this Letter Agreement shall
terminate and be of no further force and effect if the Merger
Agreement is terminated in accordance with its terms.
Execution of this letter should not be construed as an admission
on my part that I am an affiliate of GBC as
described in the first paragraph of this letter or as a waiver
of any rights I may have to object to any claim that I am such
an affiliate on or after the date of this letter.
Very truly yours,
By: _
_
Name:
Accepted this day of
,
2006
First Charter Corporation
By: _
_
Name:
Title:
A-43
Appendix B
[LETTERHEAD
OF SANDLER ONEILL & PARTNERS, L.P.]
June 1,
2006
Board of Directors
GBC Bancorp, Inc.
165 Nash Street
Lawrenceville, GA 30045
Ladies and
Gentlemen:
GBC Bancorp, Inc. (GBC) and First Charter
Corporation (First Charter) have entered into an
Agreement and Plan of Merger, dated as of June 1, 2006 (the
Agreement), pursuant to which GBC will be merged
with and into First Charter with First Charter as the surviving
entity (the Merger). Under the terms of the
Agreement, upon consummation of the Merger, each share of GBC
common stock, par value $1.00 per share, issued and outstanding
immediately prior to the Merger (the GBC Common
Stock), other than certain shares specified in the
Agreement, will be converted into the right to receive, at the
election of the holder thereof (a) cash in an amount equal
to $47.74 per share without interest (the Cash
Consideration), (b) 1.989 shares of First
Charter common stock, no par value per share (the Stock
Consideration and such common stock the First
Charter Common Stock) or (c) a combination of the
Cash Consideration and the Stock Consideration (the
Cash/Stock Consideration and together with the Cash
Consideration and the Stock Consideration, the Merger
Consideration), subject to the election and proration
procedures set forth in the Agreement which provide generally,
among other things, that 2,975,000 shares of First Charter
Common Stock will be issued as Stock Consideration and
$30.6 million will be the Cash Consideration. You have
requested our opinion as to the fairness, from a financial point
of view, of the Merger Consideration to the holders of GBC
Common Stock.
Sandler ONeill & Partners, L.P., as part of its
investment banking business, is regularly engaged in the
valuation of financial institutions and their securities in
connection with mergers and acquisitions and other corporate
transactions. In connection with this opinion, we have reviewed,
among other things: (i) the Agreement; (ii) certain
publicly available financial statements and other historical
financial information of GBC that we deemed relevant;
(iii) certain publicly available financial statements and
other historical financial information of First Charter that we
deemed relevant; (iv) internal financial projections for
GBC for the years ending December 31, 2006 through
December 31, 2010 prepared by and reviewed with senior
management of GBC; (v) consensus earnings per share
estimates for First Charter for the years ending
December 31, 2006 and 2007 as published by First Call and
discussed with the senior management of First Charter; and, for
the years ending December 31, 2008 through
December 31, 2010, an assumed earnings per share annual
growth rate as discussed with senior management of First
Charter; (vi) the pro forma financial impact of the Merger
based on assumptions relating to transaction expenses, purchase
accounting adjustments and cost savings determined by the senior
managements of GBC and First Charter; (vii) a comparison of
certain financial and stock market information for GBC with
similar publicly available information for certain other
companies the securities of which are publicly traded;
(viii) the publicly reported historical price and trading
activity for First Charters common stock, including a
comparison of certain financial and stock market information for
First Charter with similar publicly available information for
certain other companies the securities of which are publicly
traded; (ix) to the extent publicly available, the
financial terms of certain recent business combinations in
involving commercial banks and thrifts as the selling entity;
(x) the current market environment generally and the
banking environment in particular; and (xi) such other
information, financial studies, analyses and investigations and
financial, economic and market criteria as we considered
relevant. We also discussed with certain members of senior
management of GBC the business, financial condition, results of
operations and prospects of GBC and held similar discussions
with certain members of senior management of First Charter
regarding the business, financial condition, results of
operations and prospects of First Charter.
B-1
In performing our review, we have relied upon the accuracy and
completeness of all of the financial and other information that
was available to us from public sources, that was provided to us
by GBC and First Charter or their respective representatives or
that was otherwise reviewed by us and have assumed such accuracy
and completeness for purposes of rendering this opinion. We have
further relied on the assurances of management of GBC and First
Charter that they are not aware of any facts or circumstances
that would make any of such information inaccurate or
misleading. We have not been asked to and have not undertaken an
independent verification of any of such information and we do
not assume any responsibility or liability for the accuracy or
completeness thereof. We did not make an independent evaluation
or appraisal of the specific assets, the collateral securing
assets or the liabilities (contingent or otherwise) of GBC or
First Charter or any of their subsidiaries, or the
collectibility of any such assets, nor have we been furnished
with any such evaluations or appraisals. We did not make an
independent evaluation of the adequacy of the allowance for loan
losses of GBC and First Charter nor have we reviewed any
individual credit files relating to GBC or First Charter. We
have assumed, with your consent, that the respective allowances
for loan losses for both GBC and First Charter are adequate to
cover such losses and will be adequate on a pro forma basis for
the combined entity. With respect to the financial projections
for GBC and First Charter and all projections of transaction
costs, purchase accounting adjustments and expected cost savings
prepared by and/or reviewed with the managements of GBC and
First Charter and used by Sandler ONeill in its analyses,
GBCs and First Charters managements confirmed to us
that they reflected the best currently available estimates and
judgments of the respective managements of the respective future
financial performances of GBC and First Charter and we assumed
that such performances would be achieved. We express no opinion
as to such financial projections or the assumptions on which
they are based. We have also assumed that there has been no
material change in GBCs and First Charters assets,
financial condition, results of operations, business or
prospects since the date of the most recent financial statements
made available to us. We have assumed in all respects material
to our analysis that GBC and First Charter will remain as going
concerns for all periods relevant to our analyses, that all of
the representations and warranties contained in the Agreement
and all related agreements are true and correct, that each party
to the agreements will perform all of the covenants required to
be performed by such party under the agreements, that the
conditions precedent in the agreements are not waived and that
the Merger will qualify as a tax-free reorganization for federal
income tax purposes. Finally, with your consent, we have relied
upon the advice GBC has received from its legal, accounting and
tax advisors as to all legal, accounting and tax matters
relating to the Merger and the other transactions contemplated
by the Agreement.
Our opinion is necessarily based on financial, economic, market
and other conditions as in effect on, and the information made
available to us as of, the date hereof. Events occurring after
the date hereof could materially affect this opinion. We have
not undertaken to update, revise, reaffirm or withdraw this
opinion or otherwise comment upon events occurring after the
date hereof. We are expressing no opinion herein as to what the
value of First Charters common stock will be when issued
to GBCs shareholders pursuant to the Agreement or the
prices at which GBCs or First Charters common stock
may trade at any time.
We have acted as GBCs financial advisor in connection with
the Merger and will receive a fee for our services, a
substantial portion of which is contingent upon consummation of
the Merger. We will also receive a fee for rendering this
opinion. GBC has also agreed to indemnify us against certain
liabilities arising out of our engagement.
In the ordinary course of our business as a broker-dealer, we
may purchase securities from and sell securities to GBC and
First Charter and their affiliates. We may also actively trade
the equity or debt securities of GBC and First Charter or their
affiliates for our own account and for the accounts of our
customers and, accordingly, may at any time hold a long or short
position in such securities.
Our opinion is directed to the Board of Directors of GBC in
connection with its consideration of the Merger and does not
constitute a recommendation to any shareholder of GBC as to how
such shareholder should vote at any meeting of shareholders
called to consider and vote upon the Merger or the form of
consideration such shareholder should elect in the Merger. Our
opinion is directed only to the fairness, from a financial point
of view, of the Merger Consideration to holders of GBC Common
Stock and does not address the underlying business decision of
GBC to engage in the Merger, the relative merits of the Merger
as compared to any other alternative business strategies that
might exist for GBC or the effect of any other
B-2
transaction in which GBC might engage. Our opinion is not to be
quoted or referred to, in whole or in part, in a registration
statement, prospectus, proxy statement or in any other document,
nor shall this opinion be used for any other purposes, without
Sandler ONeills prior written consent.
Based upon and subject to the foregoing, it is our opinion that,
as of the date hereof, the Merger Consideration is fair to the
holders of GBC Common Stock from a financial point of view.
Very truly yours,
/s/ Sandler ONeill & Partners, L.P.
B-3
Appendix C
Georgia
Business Corporation Code
Article 13.
Dissenters Rights
Part 1.
Right to Dissent and Obtain payment for Shares
14-2-1301. DEFINITIONS As
used in this article, the term:
(1) Beneficial shareholder means the person who
is a beneficial owner of shares held in a voting trust or by a
nominee as the record shareholder.
(2) Corporate action means the transaction or
other action by the corporation that creates dissenters
rights under Code
Section 14-2-1302.
(3) Corporation means the issuer of shares held
by a dissenter before the corporate action, or the surviving or
acquiring corporation by merger or share exchange of that issuer.
(4) Dissenter means a shareholder who is
entitled to dissent from corporate action under Code
Section 14-2-1302
and who exercises that right when and in the manner required by
Code
Sections 14-2-1320
through 14-2-1327.
(5) Fair value, with respect to a
dissenters 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. RIGHT TO
DISSENT (a) A record shareholder of
the corporation is entitled to dissent from, and obtain payment
of the fair value of his or her shares in the event of, any of
the following corporate actions:
(1) Consummation of a plan of merger to which the
corporation is a party:
(A) If approval of the 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;
C-1
(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
dissenters rights.
(c) Notwithstanding any other provision of this article,
there shall be no right of dissent in favor of the holder of
shares of any class or series which, at the record date fixed to
determine the shareholders entitled to receive notice of and to
vote at a meeting at which a plan of merger or share exchange or
a sale or exchange of property or an amendment of the articles
of incorporation is to be acted on, were either listed on a
national securities exchange or held of record by more than
2,000 shareholders, unless:
(1) In the case of a plan of merger or share exchange, the
holders of shares of the class or series are required under the
plan of merger or share exchange to accept for their shares
anything except shares of the surviving corporation or another
publicly held corporation which at the effective date of the
merger or share exchange are either listed on a national
securities exchange or held of record by more than
2,000 shareholders, except for scrip or cash payments in
lieu of fractional shares; or
(2) The articles of incorporation or a resolution of the
board of directors approving the transaction provides otherwise.
14-2-1303. DISSENT BY NOMINEES AND
BENEFICIAL OWNERS A record shareholder may
assert dissenters rights as to fewer than all the shares
registered in his 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.
Part 2.
Procedure for Exercise of Dissenters Rights
14-2-1320. NOTICE OF DISSENTERS
RIGHTS (a) If proposed corporate
action creating dissenters rights under Code
Section 14-2-1302
is submitted to a vote at a shareholders meeting, the
meeting notice must state that shareholders are or may be
entitled to assert dissenters rights under this article
and be accompanied by a copy of this article.
(b) If corporate action creating dissenters rights
under Code
Section 14-2-1302
is taken without a vote of shareholders, the corporation shall
notify in writing all shareholders entitled to assert
dissenters rights that the action was taken and send them
the dissenters notice described in Code
Section 14-2-1322
no later than ten days after the corporate action was taken.
C-2
14-2-1321. NOTICE OF INTENT TO DEMAND
PAYMENT (a) If proposed corporate
action creating dissenters rights under Code
Section 14-2-1302
is submitted to a vote at a shareholders meeting, a record
shareholder who wishes to assert dissenters rights:
(1) Must deliver to the corporation before the vote is
taken written notice of his intent to demand payment for his
shares if the proposed action is effectuated; and
(2) Must not vote his shares in favor of the proposed
action.
(b) A record shareholder who does not satisfy the
requirements of subsection (a) of this Code section is not
entitled to payment for his shares under this article
14-2-1322. DISSENTERS
NOTICE (a) If proposed corporate
action creating dissenters rights under Code
Section 14-2-1302
is authorized at a shareholders meeting, the corporation
shall deliver a written dissenters notice to all
shareholders who satisfied the requirements of Code
Section 14-2-1321.
(b) The dissenters notice must be sent no later than
ten days after the corporate action was taken and must:
(1) State where the payment demand must be sent and where
and when certificates for certificated shares must be deposited;
(2) Inform holders of uncertificated shares to what extent
transfer of the shares will be restricted after the payment
demand is received;
(3) Set a date by which the corporation must receive the
payment demand, which date may not be fewer than 30 nor more
than 60 days after the date the notice required in
subsection (a) of this Code section is
delivered; and
(4) Be accompanied by a copy of this article.
14-2-1323. DUTY TO DEMAND
PAYMENT (a) A record shareholder sent
a dissenters notice described in Code
Section 14-2-1322
must demand payment and deposit his 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. SHARE
RESTRICTIONS (a) The corporation may
restrict the transfer of uncertificated shares from the date the
demand for their payment is received until the proposed
corporate action is taken or the restrictions released under
Code
Section 14-2-1326.
(b) The person for whom dissenters rights are
asserted as to uncertificated shares retains all other rights of
a shareholder until these rights are canceled or modified by the
taking of the proposed corporate action.
14-2-1325. OFFER OF
PAYMENT (a) Except as provided in Code
Section 14-2-1327,
within ten days of the later of the date the proposed corporate
action is taken or receipt of a payment demand, the corporation
shall 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 corporations balance sheet as of the end of a
fiscal year ending not more than 16 months before the date
of payment, an income statement for that year, a statement of
changes in shareholders equity for that year, and the
latest available interim financial statements, if any;
(2) A statement of the corporations estimate of the
fair value of the shares;
C-3
(3) An explanation of how the interest was calculated;
(4) A statement of the dissenters right to demand
payment under Code
Section 14-2-1327; and
(5) A copy of this article.
(c) If the shareholder accepts the corporations offer
by written notice to the corporation within 30 days after
the corporations 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. FAILURE TO TAKE
ACTION (a) If the corporation does not
take the proposed action within 60 days after the date set
for demanding payment and depositing share certificates, the
corporation shall return the deposited certificates and release
the transfer restrictions imposed on uncertificated shares.
(b) If, after returning deposited certificates and
releasing transfer restrictions, the corporation takes the
proposed action, it must send a new dissenters# notice under
Code
Section 14-2-1322
and repeat the payment demand procedure.
14-2-1327. PROCEDURE IF SHAREHOLDER
DISSATISFIED WITH PAYMENT OR
OFFER (a) A dissenter may notify the
corporation in writing of his 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
corporations 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.
Part 3.
Judicial Appraisal of Shares
14-2-1330. COURT
ACTION (a) If a demand for payment
under Code
Section 14-2-1327
remains unsettled, the corporation shall commence a proceeding
within 60 days after receiving the payment demand and
petition the court to determine the fair value of the shares and
accrued interest. If the corporation does not commence the
proceeding within the 60 day period, it shall pay each
dissenter whose demand remains unsettled the amount demanded.
(b) The corporation shall commence the proceeding, which
shall be a nonjury equitable valuation proceeding, in the
superior court of the county where a corporations
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-4
(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. COURT COSTS AND COUNSEL
FEES (a) The court in an appraisal
proceeding commenced under Code
Section 14-2-1330
shall determine all costs of the proceeding, including the
reasonable compensation and expenses of appraisers appointed by
the court, but not including fees and expenses of attorneys and
experts for the respective parties. The court shall assess the
costs against the corporation, except that the court may assess
the costs against all or some of the dissenters, in amounts the
court finds equitable, to the extent the court finds the
dissenters acted arbitrarily, vexatiously, or not in good faith
in demanding payment under Code
Section 14-2-1327.
(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. LIMITATION OF
ACTIONS No action by any dissenter to
enforce dissenters rights shall be brought more than three
years after the corporate action was taken, regardless of
whether notice of the corporate action and of the right to
dissent was given by the corporation in compliance with the
provisions of Code
Section 14-2-1320
and Code
Section 14-2-1322.
C-5
Appendix D
Execution Copy
VOTING
AGREEMENT
dated as of
June 1, 2006
among
FIRST CHARTER CORPORATION
and
THE SHAREHOLDERS NAMED HEREIN
TABLE OF
CONTENTS
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Page
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ARTICLE 1 GRANT OF
PROXY; VOTING AGREEMENT
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D-1
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1
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.1
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Voting Agreement
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D-1
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1
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.2
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Irrevocable Proxy
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D-1
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ARTICLE 2 REPRESENTATIONS
AND WARRANTIES OF THE SHAREHOLDERS
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D-1
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2
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.1
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Existence and Power
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D-1
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2
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.2
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Authorization
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D-2
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2
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.3
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Noncontravention
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D-2
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2
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.4
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Ownership of Shares
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D-2
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ARTICLE 3 REPRESENTATIONS
AND WARRANTIES OF BUYER
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D-2
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3
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.1
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Corporate Existence and Power
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D-2
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3
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.2
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Corporate Authorization
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D-2
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3
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.3
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Noncontravention
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D-2
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ARTICLE 4 COVENANTS
OF THE SHAREHOLDERS
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D-3
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4
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.1
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No Proxies For or Encumbrances on
Shares
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D-3
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4
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.2
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Appraisal Rights
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D-3
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4
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.3
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Non-Interference
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D-3
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4
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.4
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Additional Shares
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D-3
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ARTICLE 5 MISCELLANEOUS
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D-3
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5
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.1
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Amendments; Waivers; Termination
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D-3
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5
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.2
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Successors and Assigns
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D-3
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5
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.3
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Governing Law; Venue; Waiver of
Jury Trial; Notice
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D-3
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5
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.4
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Counterparts; Effectiveness; Third
Party Beneficiaries
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D-4
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5
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.5
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Severability
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D-4
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5
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.6
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Specific Performance
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D-4
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5
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.7
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Interpretation
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D-4
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5
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.8
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Entire Agreement
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D-4
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D-i
VOTING
AGREEMENT
VOTING AGREEMENT (this Agreement)
dated as of June 1, 2006 among the parties set forth on
Exhibit A (collectively, the
Shareholders), and First Charter
Corporation, a North Carolina corporation
(Buyer).
WHEREAS, each of the Shareholders is a shareholder of GBC
Bancorp, Inc, a Georgia corporation (the
Company); and
WHEREAS, in order to induce Buyer to enter into that certain
Merger Agreement of even date herewith (the Merger
Agreement) between the Company and Buyer, Buyer
has requested that each Shareholder, and each Shareholder has
agreed to, enter into this Agreement.
NOW, THEREFORE, the parties agree as follows:
ARTICLE 1
GRANT OF PROXY; VOTING AGREEMENT
1.1 Voting Agreement. Each
Shareholder hereby agrees that, at any meeting of the
Shareholders of the Company, however called, and at any
adjournment thereof, in any action by written consent of the
Shareholders of the Company, or in any other circumstances upon
which such Shareholders vote, consent or approval is
sought, such Shareholder shall appear at such meeting or
otherwise cause the shares of common stock of GBC Bancorp, Inc
owned beneficially by such Shareholder (for each Shareholder,
the Shares) to be counted as present
for purposes of calculating a quorum, and each Shareholder shall
execute and deliver to the Company written consents with respect
to, or to vote its Shares: (a) in favor of the approval and
adoption of the Merger Agreement (or any amended version
thereof), the Merger and the other transactions contemplated
thereby, (b) against any action or agreement that is or
would be reasonably likely to result in any condition to the
Companys obligations or the Buyers obligations under
the Merger Agreement not being fulfilled and (c) against
any Alternative Proposal.
1.2 Irrevocable Proxy. Each
Shareholder hereby revokes any and all previous proxies granted
with respect to its Shares. Each Shareholder hereby grants a
proxy appointing Buyer and each of its designees, and each of
them individually, as such Shareholders
attorney-in-fact
and proxy, with full power of substitution, for and in such
Shareholders name, to vote, express, consent or dissent,
or otherwise to utilize such voting power in the manner
contemplated by Section 1.1 as Buyer or its proxy or
substitute shall, in Buyers sole discretion, deem proper
with respect to its Shares. Each Shareholder hereby confirms
that the proxy granted by such Shareholder pursuant to this
Article 1 is, subject to the last sentence of this
Section 1.2, irrevocable and is coupled with an
interest, and is granted in consideration of Buyer entering into
this Agreement and the Merger Agreement. If any Shareholder
fails for any reason to consent or vote its Shares in accordance
with the requirements of Section 1.1 above (or
anticipatorily breaches such section), then Buyer shall have the
right to consent or vote such Shareholders Shares in
accordance with the provisions of Section 1.1. The
proxy granted by each Shareholder shall be revoked upon
termination of this Agreement in accordance with its terms.
ARTICLE 2
REPRESENTATIONS AND WARRANTIES OF THE SHAREHOLDERS
Each Shareholder, severally as to such Shareholder only and not
jointly, represents and warrants to Buyer that:
2.1 Existence and
Power. Such Shareholder is an individual and
has full legal capacity, or is a corporation duly incorporated
or a limited liability company or a limited partnership duly
organized, validly existing and in good standing (where
applicable) under the laws of its jurisdiction and has all
corporate or partnership powers and all material governmental
licenses, authorizations, permits, consents and approvals
required to carry on its business as now conducted.
D-1
2.2 Authorization. The
execution, delivery and performance by such Shareholder of this
Agreement and the consummation by such Shareholder of the
transactions contemplated to be consummated by such Shareholder
hereby are within such Shareholders legal capacity (if an
individual), or corporate or limited partnership, as applicable,
powers and have, to the extent applicable, been duly authorized
by all necessary corporate or partnership, as applicable, action
on the part of such Shareholder. This Agreement constitutes a
valid and binding Agreement of such Shareholder, enforceable
against such Shareholder in accordance with its terms,
(a) except as may be limited by bankruptcy, insolvency,
moratorium or other similar laws affecting or relating to
enforcement of creditors rights generally and
(b) subject to general principles of equity.
2.3 Noncontravention. The
execution, delivery and performance by such Shareholder of this
Agreement and the consummation by such Shareholder of the
transactions contemplated hereby do not and will not
(a) with respect to entities only, violate the certificate
of incorporation or bylaws or limited partnership agreement, as
applicable, of such Shareholder, (b) violate any applicable
law, rule, regulation, judgment, injunction, order or decree or
(c) require any consent or other action by any party that
has not been obtained or taken, or that will not have been
obtained or taken when required to been obtained or taken, under
any provision of any agreement or other instrument binding on
such Shareholder.
2.4 Ownership of
Shares. Such Shareholder is the record owner
of the number of Shares set forth opposite its name on
Exhibit A hereto, free and clear of any Lien and any
other limitation or restriction (including any restriction on
the right to vote or otherwise dispose of any such securities).
Except as set forth herein, none of such Shareholders
Shares is subject to any voting trust or other agreement or
arrangement with respect to the voting of such securities.
Except as set forth on Exhibit A, such Shareholder
does not beneficially own any other capital stock or equity
securities of the Company, including any securities convertible
into or exercisable for such capital stock (collectively,
including the Shares, the Company
Securities).
ARTICLE 3
REPRESENTATIONS AND WARRANTIES OF BUYER
Buyer represents and warrants to the Shareholders:
3.1 Corporate Existence and
Power. Buyer is a corporation duly
incorporated, validly existing and in good standing under the
laws of its jurisdiction and has all corporate powers and all
material governmental licenses, authorizations, permits,
consents and approvals required to carry on its business as now
conducted.
3.2 Corporate
Authorization. The execution, delivery and
performance by Buyer of this Agreement and the Merger Agreement
and the consummation by Buyer of the transactions contemplated
hereby and thereby are within the corporate powers of Buyer and
have been duly authorized by all necessary corporate action.
This Agreement and the Merger Agreement each constitutes a valid
and binding agreement of Buyer, enforceable against Buyer in
accordance with its terms, (a) except as may be limited by
bankruptcy, insolvency, moratorium or other similar laws
affecting or relating to enforcement of creditors rights
generally and (b) subject to general principles of equity.
3.3 Noncontravention. The
execution, delivery and performance by Buyer of this Agreement
and the Merger Agreement and the consummation by Buyer of the
transactions contemplated hereby and thereby do not and will not
(a) violate the certificate of incorporation or bylaws of
Buyer, (b) violate any applicable law, rule, regulation,
judgment, injunction, order or decree or (c) require any
consent or other action by any party that has not been obtained
or taken, or that will not have been obtained or taken when
required to been obtained or taken, under any provision of any
agreement or other instrument binding on Buyer.
D-2
ARTICLE 4
COVENANTS OF
THE SHAREHOLDERS
Each Shareholder hereby covenants and agrees that:
4.1 No Proxies For or Encumbrances on
Shares. Except pursuant to the terms of this
Agreement, such Shareholder shall not, without the prior written
consent of Buyer (such consent not to be unreasonably withheld
with respect to clause (b) only), directly or indirectly,
(a) grant any proxies or enter into any voting trust or
other agreement or arrangement with respect to the voting of any
of its Shares or (b) acquire, sell, assign, transfer,
encumber or otherwise dispose of, or enter into any contract,
option or other arrangement or understanding with respect to the
direct or indirect acquisition or sale, assignment transfer,
encumbrance or other disposition of (collectively, a
Transfer), any of its Company
Securities during the term of this Agreement. Any Transfer
pursuant to which the transferee does not agree to be bound in
writing by this Agreement as if a party hereto shall be null and
void.
4.2 Appraisal Rights. Such
Shareholder irrevocably waives and agrees not to exercise any
rights (including, without limitation, under
Sections 14-2-1301
et seq. of the GBCC) to demand appraisal of any of its Shares
that may arise with respect to the Merger.
4.3 Non-Interference. Such
Shareholder agrees that before the termination of this
Agreement, such Shareholder shall not take any action that would
make any representation or warranty of such Shareholder
contained herein untrue or incorrect or have the effect of
preventing, impeding, interfering with or adversely affecting
the performance by such Shareholder of its obligations under
this Agreement.
4.4 Additional Shares. Such
Shareholder will promptly notify Buyer of any new Company
Securities acquired directly or beneficially by such
Shareholder, if any, after the date hereof and before the
termination of this Agreement. Any such Company Securities shall
automatically become subject to the terms of this Agreement.
ARTICLE 5
MISCELLANEOUS
5.1 Amendments; Waivers;
Termination. Any provision of this Agreement
may be amended or waived only if such amendment or waiver is in
writing and is signed, in the case of an amendment, by each
party to this Agreement or in the case of a waiver, by the party
against whom the waiver is to be effective. No failure or delay
by any party in exercising any right, power or privilege
hereunder shall operate as a waiver thereof nor shall any single
or partial exercise thereof preclude any other or further
exercise thereof or the exercise of any other right, power or
privilege. The rights and remedies herein provided shall be
cumulative and not exclusive of any rights or remedies provided
by law. This Agreement shall terminate upon the termination of
the Merger Agreement in accordance with its terms.
5.2 Successors and
Assigns. The provisions of this Agreement
shall be binding upon and inure to the benefit of the parties
hereto and their respective successors and assigns;
provided that no Shareholder may assign, delegate or
otherwise transfer any of its rights or obligations under this
Agreement without the prior written consent of the Buyer. Any
such assignment, delegation or transfer without such consent is
null and void.
5.3 Governing Law; Venue; Waiver of Jury Trial;
Notice. This Agreement shall be construed in
accordance with and governed by the laws of the State of North
Carolina. The parties hereto agree that any suit, action or
proceeding brought by any party to enforce any provision of, or
based on any matter arising out of or in connection with, this
Agreement or the transactions contemplated hereby shall be
brought in any federal or state court located in Charlotte,
North Carolina. THE PARTIES HERETO IRREVOCABLY WAIVE ANY AND
ALL RIGHTS TO TRIAL BY JURY IN ANY LEGAL PROCEEDING ARISING OUT
OF OR RELATED TO THIS AGREEMENT. Any notice to
Buyer shall be made as set forth in Section 9.3 of
the Merger Agreement and any notice to any Shareholder shall be
made to the address set forth
D-3
opposite such Shareholders name on Exhibit A.
Each party agrees that service of process on such party as
provided in the foregoing sentence shall be deemed effective
service of process on such party.
5.4 Counterparts; Effectiveness; Third Party
Beneficiaries. This Agreement may be signed
in any number of counterparts (including by fax), each of which
shall be an original, with the same effect as if the signatures
thereto and hereto were upon the same instrument. This Agreement
shall become effective when each party hereto shall have signed
the Agreement. No provision of this Agreement is intended to
confer upon any party other than the parties hereto any rights
or remedies hereunder.
5.5 Severability. If any
term, provision or covenant of this Agreement is held by a court
of competent jurisdiction or other authority to be invalid, void
or unenforceable, the remainder of the terms, provisions and
covenants of this Agreement shall remain in full force and
effect and shall in no way be affected, impaired or invalidated.
5.6 Specific
Performance. The parties hereto agree that
irreparable damage would occur if any provision of this
Agreement is not performed in accordance with the terms hereof
and that the parties shall be entitled to specific performance
of the terms hereof in addition to any other remedy to which
they are entitled at law or in equity.
5.7 Interpretation. Capitalized
terms used but not defined herein shall have the respective
meanings set forth in the Merger Agreement. When a reference is
made in this Agreement to Articles, Sections or Exhibits, such
reference shall be to an Article or Section of or Exhibit to
this Agreement unless otherwise indicated. The table of contents
and headings contained in this Agreement are for reference
purposes only and shall not affect in any way the meaning or
interpretation of this Agreement. Whenever the words
include, includes or
including are used in this Agreement, they shall be
deemed to be followed by the words without
limitation.
5.8 Entire Agreement. This
Agreement constitutes the entire agreement between the parties
with respect to the subject matter of this Agreement and
supersedes all prior agreements and understandings, both oral
and written, between the parties with respect to the subject
matter of this Agreement.
[Signature
Pages Follow]
D-4
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be duly executed as of the day and year first above
written.
FIRST CHARTER CORPORATION
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By:
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/s/ Robert E. James, Jr.
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Robert E. James, Jr.
President and Chief Executive Officer
/s/ Larry D. Key
Larry
D. Key
/s/ John T. Hopkins III
John T. Hopkins III
/s/ James B. Ballard
James B. Ballard
/s/ Jerry M. Boles
Jerry M. Boles
/s/ W. H. Britt
W. H. Britt
/s/ Richard F. Combs
Richard F. Combs
/s/ W. Grant Hayes
W. Grant Hayes
/s/ Douglas A. Langley
Douglas A. Langley
/s/ Norris J. Nash
Norris J. Nash
/s/ J. Joseph Powell
J. Joseph Powell
/s/ William S. Stanton, Jr.
William S. Stanton, Jr.
/s/ Michael A. Roy
Michael A. Roy
D-5
Exhibit A
Shares
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Shareholder Name
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Number of Common
Shares
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Address
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Larry D. Key
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82,323
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3330 Jim Moore Road
Dacula, Georgia 30019
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John T. Hopkins III
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60,510
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6504 Yacht Club Road
Flower Branch, Georgia 30542
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James B. Ballard
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44,764
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2400 Bagley Road
Cummings, Georgia 30040
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Jerry M. Boles
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31,700
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4435 Pemberton Cove
Alpharetta, Georgia 30022
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W. H. Britt
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23,026
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3260 Brisco Road
Loganville, Georgia 30022
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Richard F. Combs
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63,643
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1985 Burgundy Drive
Braselton, Georgia 30045
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W. Grant Hayes
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11,000
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412 Summit Ridge Drive
Lawrenceville, Georgia 30045
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Douglas A. Langley
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36,500
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270 Constitution Boulevard
Lawrenceville, Georgia 30045
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Norris J. Nash
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53,813
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1176 Oleander Drive
Lilburn, Georgia 30247
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J. Joseph Powell
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47,765
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2335 Bagley Road
Cummings, Georgia 30041
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William S. Stanton, Jr.
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49,210
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5081 Hodgrins Place
Lilburn, Georgia 30047
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Michael A. Roy
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53,531
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D-6
REPORT OF
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
TO THE BOARD OF DIRECTORS
GBC BANCORP, INC.
LAWRENCEVILLE, GEORGIA
We have audited the accompanying consolidated balance sheets of
GBC BANCORP, INC. AND SUBSIDIARY as of December 31, 2005
and 2004, and the related consolidated statements of income,
comprehensive income, stockholders equity, and cash flows
for each of the two years in the period ended December 31,
2005. These financial statements are the responsibility of the
Companys management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with the standards of the
Public Company Accounting Oversight Board (United States). Those
standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are
free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in
the financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by
management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred
to above present fairly, in all material respects, the financial
position of GBC Bancorp, Inc. and subsidiary as of
December 31, 2005 and 2004, and the results of their
operations and their cash flows for each of the two years in the
period ended December 31, 2005, in conformity with
accounting principles generally accepted in the United States of
America.
/s/ MAULDIN &
JENKINS, LLC
Atlanta, Georgia
January 13, 2006
E-1
GBC
BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 2005 AND 2004
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2005
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2004
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ASSETS
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Cash and due from banks
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$
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3,800,741
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$
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5,390,288
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Federal funds sold
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16,656,000
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17,694,000
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Securities
available-for-sale
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32,410,839
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31,000,002
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Loans, net of unearned income
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319,154,751
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252,576,451
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Less allowance for loan losses
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3,701,532
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3,775,167
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Loans, net
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315,453,219
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248,801,284
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Premises and equipment, net
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292,640
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377,698
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Cash surrender value of life
insurance
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5,719,750
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5,531,553
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Other real estate owned
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1,194,430
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Other assets
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5,372,422
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3,945,566
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TOTAL ASSETS
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$
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379,705,611
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$
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313,934,821
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LIABILITIES AND
SHAREHOLDERS EQUITY
|
Deposits
|
|
|
|
|
|
|
|
|
Noninterest-bearing
|
|
$
|
29,509,478
|
|
|
$
|
23,566,177
|
|
Interest-bearing
|
|
|
311,661,255
|
|
|
|
258,769,949
|
|
|
|
|
|
|
|
|
|
|
Total deposits
|
|
|
341,170,733
|
|
|
|
282,336,126
|
|
Securities sold under repurchase
agreements
|
|
|
829,341
|
|
|
|
1,819,469
|
|
Other liabilities
|
|
|
4,712,304
|
|
|
|
3,040,151
|
|
|
|
|
|
|
|
|
|
|
TOTAL LIABILITIES
|
|
|
346,712,378
|
|
|
|
287,195,746
|
|
|
|
|
|
|
|
|
|
|
Commitments and contingencies
|
|
|
|
|
|
|
|
|
Shareholders equity
|
|
|
|
|
|
|
|
|
Common stock, par value $1;
3,000,000 shares authorized; 1,772,708 and 1,726,608 issued
and outstanding, respectively
|
|
|
1,772,708
|
|
|
|
1,726,608
|
|
Capital surplus
|
|
|
18,709,280
|
|
|
|
18,214,005
|
|
Retained earnings
|
|
|
12,948,574
|
|
|
|
6,747,782
|
|
Accumulated other comprehensive
income
|
|
|
(437,329
|
)
|
|
|
50,680
|
|
|
|
|
|
|
|
|
|
|
TOTAL SHAREHOLDERS EQUITY
|
|
|
32,993,233
|
|
|
|
26,739,075
|
|
|
|
|
|
|
|
|
|
|
TOTAL LIABILITIES AND
SHAREHOLDERS EQUITY
|
|
$
|
379,705,611
|
|
|
$
|
313,934,821
|
|
|
|
|
|
|
|
|
|
|
See notes to consolidated financial statements.
E-2
GBC
BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME
YEARS ENDED DECEMBER 31, 2005 AND 2004
|
|
|
|
|
|
|
|
|
|
|
2005
|
|
|
2004
|
|
|
INTEREST INCOME
|
|
|
|
|
|
|
|
|
Loans, including fees
|
|
$
|
23,527,440
|
|
|
$
|
15,632,590
|
|
Securities:
|
|
|
|
|
|
|
|
|
Taxable
|
|
|
1,160,012
|
|
|
|
908,496
|
|
Nontaxable
|
|
|
193,726
|
|
|
|
194,575
|
|
Federal funds sold
|
|
|
311,222
|
|
|
|
113,090
|
|
|
|
|
|
|
|
|
|
|
TOTAL INTEREST INCOME
|
|
|
25,192,400
|
|
|
|
16,848,751
|
|
|
|
|
|
|
|
|
|
|
INTEREST EXPENSE
|
|
|
|
|
|
|
|
|
Deposits
|
|
|
9,266,347
|
|
|
|
5,610,440
|
|
Securities sold under repurchase
agreements
|
|
|
57,968
|
|
|
|
14,733
|
|
|
|
|
|
|
|
|
|
|
TOTAL INTEREST EXPENSE
|
|
|
9,324,315
|
|
|
|
5,625,173
|
|
|
|
|
|
|
|
|
|
|
NET INTEREST INCOME
|
|
|
15,868,085
|
|
|
|
11,223,578
|
|
PROVISION FOR LOAN LOSSES
|
|
|
852,823
|
|
|
|
797,824
|
|
|
|
|
|
|
|
|
|
|
NET INTEREST INCOME AFTER
PROVISION FOR LOAN LOSSES
|
|
|
15,015,262
|
|
|
|
10,425,754
|
|
|
|
|
|
|
|
|
|
|
OTHER INCOME
|
|
|
|
|
|
|
|
|
Service charges on deposit accounts
|
|
|
191,894
|
|
|
|
183,843
|
|
Loss on sale of securities
available-for-sale
|
|
|
|
|
|
|
20,254
|
|
Gain on sale of loans
|
|
|
1,905,834
|
|
|
|
1,182,888
|
|
Other operating income
|
|
|
885,462
|
|
|
|
428,457
|
|
|
|
|
|
|
|
|
|
|
TOTAL OTHER INCOME
|
|
|
2,983,190
|
|
|
|
1,815,442
|
|
|
|
|
|
|
|
|
|
|
OTHER EXPENSES
|
|
|
|
|
|
|
|
|
Salaries and employee benefits
|
|
|
5,360,730
|
|
|
|
4,691,778
|
|
Equipment and occupancy expenses
|
|
|
834,755
|
|
|
|
860,683
|
|
Other operating expenses
|
|
|
2,160,673
|
|
|
|
1,656,960
|
|
|
|
|
|
|
|
|
|
|
TOTAL OTHER EXPENSES
|
|
|
8,356,158
|
|
|
|
7,209,421
|
|
|
|
|
|
|
|
|
|
|
INCOME BEFORE INCOME TAXES
|
|
|
9,642,294
|
|
|
|
5,031,775
|
|
INCOME TAX EXPENSE
|
|
|
3,441,501
|
|
|
|
1,708,624
|
|
|
|
|
|
|
|
|
|
|
NET INCOME
|
|
$
|
6,200,793
|
|
|
$
|
3,323,151
|
|
|
|
|
|
|
|
|
|
|
BASIC EARNINGS PER SHARE
|
|
$
|
3.54
|
|
|
$
|
1.93
|
|
|
|
|
|
|
|
|
|
|
DILUTED EARNINGS PER SHARE
|
|
$
|
3.17
|
|
|
$
|
1.84
|
|
|
|
|
|
|
|
|
|
|
See notes to consolidated financial statements.
E-3
GBC
BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
YEARS ENDED DECEMBER 31, 2005 AND 2004
|
|
|
|
|
|
|
|
|
|
|
2005
|
|
|
2004
|
|
|
NET INCOME
|
|
$
|
6,200,793
|
|
|
$
|
3,323,151
|
|
OTHER COMPREHENSIVE INCOME (LOSS):
|
|
|
|
|
|
|
|
|
Unrealized holding gains (losses)
on securities
available-for-sale
arising during period, net of tax (benefits) of $(299,103) and
$(20,715), respectively
|
|
|
(488,010
|
)
|
|
|
(33,797
|
)
|
Reclassification adjustment for
losses realized in net income, net of tax benefits of $7,696
|
|
|
|
|
|
|
(12,558
|
)
|
|
|
|
|
|
|
|
|
|
OTHER COMPREHENSIVE INCOME (LOSS)
|
|
|
(488,010
|
)
|
|
|
(46,355
|
)
|
|
|
|
|
|
|
|
|
|
COMPREHENSIVE INCOME
|
|
$
|
5,712,783
|
|
|
$
|
3,276,796
|
|
|
|
|
|
|
|
|
|
|
See notes to consolidated financial statements.
E-4
GBC
BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF SHAREHOLDERS EQUITY
YEARS ENDED DECEMBER 31, 2005 AND 2004
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
|
|
|
Total
|
|
|
|
Common Stock
|
|
|
Capital
|
|
|
Retained
|
|
|
Comprehensive
|
|
|
Shareholders
|
|
|
|
Shares
|
|
|
Par Value
|
|
|
Surplus
|
|
|
Earnings
|
|
|
Income (Loss)
|
|
|
Equity
|
|
|
BALANCE, DECEMBER 31, 2003
|
|
|
1,712,408
|
|
|
|
1,712,408
|
|
|
|
18,083,005
|
|
|
|
3,424,631
|
|
|
|
97,035
|
|
|
|
23,317,078
|
|
Net income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,323,151
|
|
|
|
|
|
|
|
3,323,151
|
|
Stock options exercised
|
|
|
14,200
|
|
|
|
14,200
|
|
|
|
131,000
|
|
|
|
|
|
|
|
|
|
|
|
145,200
|
|
Other comprehensive loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(46,355
|
)
|
|
|
(46,354
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
BALANCE, DECEMBER 31, 2004
|
|
|
1,726,608
|
|
|
$
|
1,726,608
|
|
|
$
|
18,214,005
|
|
|
$
|
6,747,782
|
|
|
$
|
50,680
|
|
|
$
|
26,739,075
|
|
Net income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6,200,793
|
|
|
|
|
|
|
|
6,200,793
|
|
Stock options exercised
|
|
|
46,100
|
|
|
|
46,100
|
|
|
|
495,275
|
|
|
|
|
|
|
|
|
|
|
|
541,375
|
|
Other comprehensive loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(488,010
|
)
|
|
|
(488,010
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
BALANCE, DECEMBER 31, 2005
|
|
|
1,772,708
|
|
|
$
|
1,772,708
|
|
|
$
|
18,709,280
|
|
|
$
|
12,948,575
|
|
|
$
|
(437,330
|
)
|
|
$
|
32,993,233
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See notes to consolidated financial statements.
E-5
GBC
BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 2005 AND 2004
|
|
|
|
|
|
|
|
|
|
|
2005
|
|
|
2004
|
|
|
OPERATING ACTIVITIES
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
6,200,793
|
|
|
$
|
3,323,151
|
|
Adjustments to reconcile net
income to net cash provided by operating activities:
|
|
|
|
|
|
|
|
|
Depreciation
|
|
|
144,483
|
|
|
|
189,869
|
|
Deferred income taxes
|
|
|
(272,736
|
)
|
|
|
(623,674
|
)
|
Gain on sale of other real estate
|
|
|
(49,068
|
)
|
|
|
24,190
|
|
Gain on sale of loans
|
|
|
(1,905,834
|
|
|
|
(1,182,888
|
)
|
Loans originated for sale
|
|
|
(16,202,000
|
)
|
|
|
(13,231,732
|
)
|
Proceeds from sale of loans
|
|
|
18,107,834
|
|
|
|
14,414,620
|
|
Loss on sale of securities
available-for-sale
|
|
|
|
|
|
|
(20,254
|
)
|
Provision for loan losses
|
|
|
852,823
|
|
|
|
797,824
|
|
Increase in interest receivable
|
|
|
(891,621
|
)
|
|
|
(505,665
|
)
|
Increase (Decrease) in interest
payable
|
|
|
444,301
|
|
|
|
41,924
|
|
Increase in income taxes payable
|
|
|
98,124
|
|
|
|
20,690
|
|
Net other operating activities
|
|
|
1,166,332
|
|
|
|
1,133,538
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by operating
activities
|
|
|
7,693,431
|
|
|
|
4,381,593
|
|
|
|
|
|
|
|
|
|
|
INVESTING ACTIVITIES
|
|
|
|
|
|
|
|
|
Purchases of securities
available-for-sale
|
|
|
(4,025,198
|
)
|
|
|
(15,887,002
|
)
|
Proceeds from maturities of
securities
available-for-sale
|
|
|
1,827,248
|
|
|
|
5,709,976
|
|
Proceeds from sale of securities
available-for-sale
|
|
|
|
|
|
|
1,623,736
|
|
Net (increase) decrease in federal
funds sold
|
|
|
1,038,000
|
|
|
|
(16,158,000
|
)
|
Net increase in loans
|
|
|
(68,056,370
|
)
|
|
|
(38,685,591
|
)
|
Purchase of premises and equipment
|
|
|
(59,425
|
)
|
|
|
(71,950
|
)
|
Proceeds from sale of other real
estate
|
|
|
1,795,110
|
|
|
|
67,001
|
|
Purchase of life insurance policies
|
|
|
(188,197
|
)
|
|
|
(859,937
|
)
|
|
|
|
|
|
|
|
|
|
Net cash used in investing
activities
|
|
|
(67,668,832
|
)
|
|
|
(64,261,767
|
)
|
|
|
|
|
|
|
|
|
|
FINANCING ACTIVITIES
|
|
|
|
|
|
|
|
|
Net increase in deposits
|
|
|
58,834,607
|
|
|
|
60,285,085
|
|
Net increase in securities sold
under repurchase agreements
|
|
|
(990,128
|
)
|
|
|
1,466,670
|
|
Net Proceeds from exercise of
stock options
|
|
|
541,375
|
|
|
|
145,200
|
|
Proceeds from the issuance of
common stock
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by financing
activities
|
|
|
58,385,854
|
|
|
|
61,896,955
|
|
|
|
|
|
|
|
|
|
|
Net increase (decrease) in cash
and due from banks
|
|
|
(1,589,547
|
)
|
|
|
2,016,781
|
|
Cash and due from banks at
beginning of year
|
|
|
5,390,288
|
|
|
|
3,373,507
|
|
|
|
|
|
|
|
|
|
|
Cash and due from banks at end of
year
|
|
$
|
3,800,741
|
|
|
$
|
5,390,288
|
|
|
|
|
|
|
|
|
|
|
SUPPLEMENTAL DISCLOSURES
|
|
|
|
|
|
|
|
|
Cash paid for:
|
|
|
|
|
|
|
|
|
Interest
|
|
$
|
8,880,114
|
|
|
$
|
5,583,249
|
|
Income taxes
|
|
$
|
3,616,113
|
|
|
$
|
2,316,608
|
|
NONCASH TRANSACTION
|
|
|
|
|
|
|
|
|
Principal balances of loans
transferred to other real estate owned
|
|
$
|
507,864
|
|
|
$
|
1,194,430
|
|
See notes to consolidated financial statements.
E-6
GBC
BANCORP, INC. AND SUBSIDIARY
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
|
|
NOTE 1.
|
SUMMARY
OF SIGNIFICANT ACCOUNTING POLICIES
|
NATURE
OF OPERATIONS
GBC Bancorp, Inc. (the Company) is a bank holding
company whose principal activity is the ownership and management
of its wholly-owned subsidiary, Gwinnett Banking Company (the
Bank). The Bank is a commercial bank located in
Lawrenceville, Gwinnett County, Georgia with a branch in
Alpharetta, Fulton County, Georgia. The Bank provides a full
range of banking services in its primary market area of Gwinnett
County and surrounding counties.
BASIS
OF PRESENTATION AND ACCOUNTING ESTIMATES
The consolidated financial statements include the accounts of
the Company and its subsidiary. Significant intercompany
transactions and balances have been eliminated in consolidation.
In preparing the consolidated financial statements in accordance
with accounting principles generally accepted in the United
States of America, management is required to make estimates and
assumptions that affect the reported amounts of assets and
liabilities and the disclosure of contingent assets and
liabilities as of the balance sheet date 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 loan losses, the valuation of foreclosed real estate, and
contingent assets and liabilities. The determination of the
adequacy of the allowance for loan losses is based on estimates
that are susceptible to significant changes in the economic
environment and market conditions. In connection with the
determination of the estimated losses on loans and the valuation
of foreclosed real estate, management obtains independent
appraisals for significant collateral.
CASH,
DUE FROM BANKS AND CASH FLOWS
For purposes of reporting cash flows, cash and due from banks
include cash on hand, cash items in process of collection and
amounts due from banks. Cash flows from loans, federal funds
sold, deposits, and securities sold under repurchase agreements
are reported net.
The Bank is required to maintain reserve balances in cash or on
deposit with the Federal Reserve Bank, based on a percentage of
deposits. The total of those reserve balances was approximately
$449,000 and $183,000 at December 31, 2005 and 2004,
respectively.
SECURITIES
SOLD UNDER REPURCHASE AGREEMENTS
Securities sold under repurchase agreements are generally
accounted for as collateralized financing transactions. They are
recorded at the amount the security was sold plus accrued
interest. The Company monitors its exposure with respect to
securities sold under repurchase agreements, and request for the
return of excess securities held by the counterparty is made
when deemed necessary.
SECURITIES
Debt securities that management has the positive intent and
ability to hold to maturity are classified as held to maturity
and recorded at amortized cost. Securities not classified as
held to maturity are classified as available for sale and
recorded at fair value with unrealized gains and losses excluded
from earnings and reported in accumulated other comprehensive
income, net of the related deferred tax effect.
The amortization of premiums and accretion of discounts are
recognized in interest income using the interest method over the
life of the securities. Realized gains and losses, determined on
the basis of the cost of
E-7
GBC
BANCORP, INC. AND SUBSIDIARY
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
specific securities sold, are included in earnings on the
settlement date. Declines in the fair value of securities below
their cost that are deemed to be other than temporary are
reflected in earnings as realized losses. In estimating
other-than-temporary
impairment losses, management considers (1) the length of
time and the extent to which the fair value has been less than
cost, (2) the financial condition and near-term prospects
of the issuer, and (3) the intent and ability of the
Company to retain its investment in the issuer for a period of
time sufficient to allow for any anticipated recovery in fair
value.
LOANS
Loans are reported at their outstanding principal balances less
deferred fees and the allowance for loan losses. Interest income
is accrued on the outstanding principal balance.
The accrual of interest on loans is discontinued when, in
managements opinion, the borrower may be unable to meet
payments as they become due, unless the loan is well-secured.
All interest accrued but not collected for loans that are placed
on nonaccrual or charged off is reversed against interest
income, unless management believes that the accrued interest is
recoverable through the liquidation of collateral. Interest
income on nonaccrual loans is recognized on the cash-basis or
cost-recovery method, until the loans are returned to accrual
status. Loans are returned to accrual status when all the
principal and interest amounts are brought current and future
payments are reasonably assured.
A loan is considered impaired when it is probable, based on
current information and events, the Company will be unable to
collect all principal and interest payments due in accordance
with the contractual terms of the loan agreement. Impaired loans
are measured by either the present value of expected future cash
flows discounted at the loans effective interest rate, the
loans obtainable market price, or the fair value of the
collateral if the loan is collateral dependent. The amount of
impairment, if any, and any subsequent changes are included in
the allowance for loan losses. Interest on accruing impaired
loans is recognized as long as such loans do not meet the
criteria for nonaccrual status.
ALLOWANCE
FOR LOAN LOSSES
The allowance for loan losses is established through a provision
for loan losses charged to expense. Loan losses are charged
against the allowance when management believes the
collectibility of the principal is unlikely. Subsequent
recoveries, if any, are credited to the allowance.
The allowance is an amount that management believes will be
adequate to absorb estimated losses relating to specifically
identified loans, as well as probable credit losses inherent in
the balance of the loan portfolio, based on an evaluation of the
collectibility of existing loans and prior loss experience. This
evaluation also takes into consideration such factors as changes
in the nature and volume of the loan portfolio, overall
portfolio quality, review of specific problem loans,
concentrations and current economic conditions that may affect
the borrowers ability to pay. This evaluation does not
include the effects of expected losses on specific loans or
groups of loans that are related to future events or expected
changes in economic conditions. While management uses the best
information available to make its evaluation, future adjustments
to the allowance may be necessary if there are significant
changes in economic conditions. In addition, regulatory
agencies, as an integral part of their examination process,
periodically review the Banks allowance for loan losses,
and may require the Bank to make additions to the allowance
based on their judgment about information available to them at
the time of their examinations.
The allowance consists of specific, general and unallocated
components. The specific component relates to loans that are
classified as either doubtful, substandard or special mention.
For such loans that are also classified as impaired, an
allowance is established when the discounted cash flows (or
collateral value or observable market price) of the impaired
loan is lower than the carrying value of that loan. The general
component covers non-classified loans and is based on historical
loss experience adjusted for qualitative
E-8
GBC
BANCORP, INC. AND SUBSIDIARY
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
factors. An unallocated component is maintained to cover
uncertainties that could affect managements estimate of
probable losses. The unallocated component of the allowance
reflects the margin of imprecision inherent in the underlying
assumptions used in the methodologies for estimating specific
and general losses in the portfolio.
PREMISES
AND EQUIPMENT
Premises and equipment are carried at cost less accumulated
depreciation. Depreciation is computed by the straight-line
method over the estimated useful lives of the assets.
OTHER
REAL ESTATE OWNED
Other real estate owned represents properties acquired through
or in lieu of foreclosure and is initially recorded at the lower
of cost or fair value less estimated costs to sell. Any
write-down to fair value at the time of transfer to other real
estate owned is charged to the allowance for loan losses. Costs
of improvements are capitalized, whereas costs relating to
holding other real estate owned and subsequent adjustments to
the value are expensed. There was no other real estate owned at
December 31, 2005 and the carrying amount of other real
estate owned at December 31, 2004 was $1,194,430.
GAIN
ON SALE OF LOANS
The Company originates and sells participations in certain
loans. Gains are recognized at the time the sale is consummated.
The amount of gain recognized on the sale of a specific loan is
equal to the percentage resulting from determining the fair
value of the portion of the loan sold relative to the fair value
of the entire loan. Losses are recognized at the time the loan
is identified as held for sale and the loans carrying
value exceeds its fair value.
INCOME
TAXES
Deferred income tax assets and liabilities are determined using
the balance sheet method. Under this method, the net deferred
tax asset or liability is determined based on the tax effects of
the temporary differences between the book and tax bases of the
various balance sheet assets and liabilities and gives current
recognition to changes in tax rates and laws.
STOCK-BASED
COMPENSATION
Statement of Financial Accounting Standards (SFAS) No. 123,
Accounting for Stock-Based Compensation, encourages all entities
to adopt a fair value based method of accounting for employee
stock compensation plans whereby compensation cost is measured
at the grant date based on the value of the award and is
recognized over the service period, which is usually the vesting
period. However, it also allows an entity to continue to measure
compensation cost for those plans using the intrinsic value
based method of accounting prescribed by Accounting Principles
Board Opinion No. 25, Accounting for Stock Issued to
Employees, whereby compensation cost is the excess, if any, of
the quoted market price of the stock at the grant date over the
amount an employee must pay to acquire the stock. The Company
has elected to continue with the accounting methodology of
Opinion No. 25. No stock-based employee compensation cost
is reflected in net income, as all options granted under the
plans had an exercise price equal to the market value of the
underlying stock on the date of grant.
E-9
GBC
BANCORP, INC. AND SUBSIDIARY
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The following table illustrates the effect on net income and
earnings per share if the Company had applied the fair value
recognition provisions of FASB Statement No. 123 to
stock-based employee compensation.
|
|
|
|
|
|
|
|
|
|
|
Years Ended December
31,
|
|
|
|
2005
|
|
|
2004
|
|
|
Net income, as reported
|
|
$
|
6,200,792
|
|
|
$
|
3,323,151
|
|
Deduct: Total stock-based employee
compensation expense determined under fair value based method
for all awards, net of related tax effects
|
|
|
|
|
|
|
(389,457
|
)
|
|
|
|
|
|
|
|
|
|
Pro forma net income
|
|
$
|
6,200,792
|
|
|
$
|
2,933,694
|
|
|
|
|
|
|
|
|
|
|
Earnings per share:
|
|
|
|
|
|
|
|
|
Basic as reported
|
|
$
|
3.54
|
|
|
$
|
1.93
|
|
|
|
|
|
|
|
|
|
|
Basic pro forma
|
|
$
|
3.54
|
|
|
$
|
1.71
|
|
|
|
|
|
|
|
|
|
|
Diluted as
reported
|
|
$
|
3.17
|
|
|
$
|
1.84
|
|
|
|
|
|
|
|
|
|
|
Diluted pro forma
|
|
$
|
3.17
|
|
|
$
|
1.62
|
|
|
|
|
|
|
|
|
|
|
EARNINGS
PER SHARE
Basic earnings per share are computed by dividing net income by
the weighted average number of shares of common stock
outstanding. Diluted earnings per share are computed by dividing
net income by the sum of the weighted-average number of shares
of common stock outstanding and potential common shares.
Potential common shares consist of stock options.
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.
RECENT
ACCOUNTING STANDARDS
In December 2004, the Financial Accounting Standards Board
(FASB) issued Statement No. 123R, Share-Based Payment, a
revision of FASB Statement No. 123, Accounting for
Stock-Based Compensation. This Statement supersedes APB Opinion
No. 25, Accounting for Stock Issued to Employees, and its
related implementation guidance. This Statement establishes
standards for the accounting for transactions in which an entity
exchanges its equity instruments for goods or services. It also
addresses transactions in which an entity incurs liabilities in
exchange for goods or services that are based on the fair value
of the entitys equity instruments or that may be settled
by the issuance of those equity instruments. This Statement
focuses primarily on accounting for transactions in which an
entity obtains employee services in share-based payment
transactions such as the issuance of stock options in exchange
for employee services. This Statement requires a public entity
to measure the cost of employee services received in exchange
for an award of equity instruments based on the grant-date fair
value of the award (with limited exceptions). That cost will be
recognized over the period during which an employee is required
to provide service in exchange for the
award the requisite service period (usually the
vesting period). The Company has elected to continue with the
accounting methodology of Opinion No. 25 until adoption of
this standard is required. The effects of this change are
reflected, on a proforma basis above under the caption
Stock Based compensation.
E-10
GBC
BANCORP, INC. AND SUBSIDIARY
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The amortized cost and fair value of securities available for
sale are summarized as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross
|
|
|
Gross
|
|
|
|
|
|
|
Amortized
|
|
|
Unrealized
|
|
|
Unrealized
|
|
|
Fair
|
|
|
|
Cost
|
|
|
Gains
|
|
|
Losses
|
|
|
Value
|
|
|
DECEMBER 31, 2005:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. TREASURY AND
U.S. GOVERNMENT AGENCIES
|
|
$
|
22,756,153
|
|
|
$
|
|
|
|
$
|
(549,979
|
)
|
|
$
|
22,206,174
|
|
STATE AND MUNICIPAL
|
|
|
5,549,634
|
|
|
|
4,589
|
|
|
|
(84,114
|
)
|
|
|
5,470,109
|
|
MORTGAGE-BACKED SECURITIES
|
|
|
4,810,422
|
|
|
|
6,102
|
|
|
|
(81,968
|
)
|
|
|
4,734,556
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
33,116,209
|
|
|
$
|
10,691
|
|
|
$
|
(716,061
|
)
|
|
$
|
32,410,839
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2004:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Treasury and
U.S. Government agencies
|
|
$
|
20,705,016
|
|
|
$
|
94,883
|
|
|
$
|
(85,161
|
)
|
|
$
|
20,714,738
|
|
State and municipal
|
|
|
5,569,806
|
|
|
|
64,529
|
|
|
|
(22,178
|
)
|
|
|
5,612,157
|
|
Mortgage-backed securities
|
|
|
4,643,439
|
|
|
|
36,469
|
|
|
|
(6,801
|
)
|
|
|
4,673,107
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
30,918,261
|
|
|
$
|
195,881
|
|
|
$
|
(114,140
|
)
|
|
$
|
31,000,002
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Securities with a carrying value of $4,367,774 and $3,657,364 at
December 31, 2005 and 2004, respectively, were pledged to
secure public deposits and for other purposes required or
permitted by law.
Gains and losses on sales of securities available for sale
consist of the following:
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2005
|
|
|
2004
|
|
|
Gross Gains
|
|
$
|
|
|
|
$
|
20,254
|
|
Gross losses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net realized gains
|
|
$
|
|
|
|
$
|
20,254
|
|
|
|
|
|
|
|
|
|
|
The amortized cost and fair value of securities as of
December 31, 2005 by contractual maturity are shown below.
Actual maturities may differ from contractual maturities because
the mortgages underlying the securities may be called or repaid
without penalty; therefore, these securities are not included in
the maturity categories in the following summary.
|
|
|
|
|
|
|
|
|
|
|
Amortized
|
|
|
Fair
|
|
|
|
Cost
|
|
|
Value
|
|
|
Due from one to five years
|
|
$
|
10,403,611
|
|
|
$
|
10,149,182
|
|
Due from five to ten years
|
|
|
17,446,135
|
|
|
|
17,071,397
|
|
Due after ten years
|
|
|
456,041
|
|
|
|
455,704
|
|
Mortgage-backed securities
|
|
|
4,810,422
|
|
|
|
4,734,556
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
33,116,209
|
|
|
$
|
32,410,839
|
|
|
|
|
|
|
|
|
|
|
E-11
GBC
BANCORP, INC. AND SUBSIDIARY
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The following table shows the gross unrealized losses and fair
value of securities, aggregated by category and length of time
that securities have been in a continuous unrealized loss
position at December 31, 2005 and 2004.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Less Than Twelve
Months
|
|
|
Over Twelve Months
|
|
|
|
Gross
|
|
|
|
|
|
Gross
|
|
|
|
|
|
|
Unrealized
|
|
|
Fair
|
|
|
Unrealized
|
|
|
Fair
|
|
|
|
Losses
|
|
|
Value
|
|
|
Losses
|
|
|
Value
|
|
|
DECEMBER 31, 2005:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. GOVERNMENT AND FEDERAL
AGENCIES
|
|
$
|
(210,118
|
)
|
|
$
|
11,471,764
|
|
|
$
|
(339,861
|
)
|
|
$
|
10,734,410
|
|
STATE AND MUNICIPAL SECURITIES
|
|
|
(42,142
|
)
|
|
|
3,264,548
|
|
|
|
(41,972
|
)
|
|
|
1,133,031
|
|
MORTGAGE-BACKED SECURITIES
|
|
|
(53,568
|
)
|
|
|
3,731,337
|
|
|
|
(28,400
|
)
|
|
|
566,981
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
TOTAL SECURITIES
|
|
$
|
(305,828
|
)
|
|
$
|
18,467,649
|
|
|
$
|
(410,233
|
)
|
|
$
|
12,434,422
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2004:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Government and federal
agencies
|
|
$
|
(64,370
|
)
|
|
$
|
11,980,018
|
|
|
$
|
(20,791
|
)
|
|
$
|
972,900
|
|
State and municipal securities
|
|
|
(7,029
|
)
|
|
|
515,474
|
|
|
|
(15,149
|
)
|
|
|
920,478
|
|
Mortgage-backed securities
|
|
|
(6,801
|
)
|
|
|
784,092
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total securities
|
|
$
|
(78,200
|
)
|
|
$
|
13,279,584
|
|
|
$
|
(35,940
|
)
|
|
$
|
1,893,378
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Management evaluates securities for
other-than-temporary
impairment at least on a quarterly basis, and more frequently
when economic or market concerns warrant such evaluation. The
unrealized losses in the portfolio are believed to be temporary
due to all securities meeting the criteria of acceptable
investment grade and all being backed by government agencies or
municipalities. In the event that these securities are held to
maturity, no losses should be realized. At December 31,
2005, two debt securities had unrealized losses with aggregate
depreciation of 5.15% and 5.24% from the Companys
amortized cost basis. The market value of these two securities
totaled $1,422,050.
The composition of loans is summarized as follows:
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2005
|
|
|
2004
|
|
|
Commercial
|
|
$
|
58,086,912
|
|
|
$
|
49,989,542
|
|
Commercial loans secured by real
estate
|
|
|
86,246,284
|
|
|
|
57,785,798
|
|
Construction loans secured by real
estate
|
|
|
167,197,192
|
|
|
|
137,698,199
|
|
Consumer installment and other
|
|
|
7,909,665
|
|
|
|
7,472,078
|
|
|
|
|
|
|
|
|
|
|
|
|
|
319,440,053
|
|
|
|
252,945,617
|
|
Deferred fees
|
|
|
(285,306
|
)
|
|
|
(369,166
|
)
|
Allowance for loan losses
|
|
|
(3,701,532
|
)
|
|
|
(3,775,167
|
)
|
|
|
|
|
|
|
|
|
|
Loans, net
|
|
$
|
315,453,215
|
|
|
$
|
248,801,284
|
|
|
|
|
|
|
|
|
|
|
E-12
GBC
BANCORP, INC. AND SUBSIDIARY
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Changes in the allowance for loan losses are as follows:
|
|
|
|
|
|
|
|
|
|
|
Years Ended December
31,
|
|
|
|
2005
|
|
|
2004
|
|
|
Balance, beginning of year
|
|
$
|
3,775,167
|
|
|
$
|
3,029,508
|
|
Provision for loan losses
|
|
|
852,823
|
|
|
|
797,824
|
|
Loans charged off
|
|
|
(926,470
|
)
|
|
|
(64,513
|
)
|
Recoveries of loans previously
charged off
|
|
|
12
|
|
|
|
12,348
|
|
|
|
|
|
|
|
|
|
|
Balance, end of year
|
|
$
|
3,701,532
|
|
|
$
|
3,775,167
|
|
|
|
|
|
|
|
|
|
|
The total recorded investment in impaired loans, consisting
solely of loans on nonaccrual status, was $1,961,144 and
$2,144,603 at December 31, 2005 and 2004, respectively.
There were no impaired loans that had related allowances for
loan losses determined in accordance with
SFAS No. 114, Accounting by Creditors for Impairment
of a Loan, at December 31, 2005 and 2004. The average
recorded investment in impaired loans for 2005 and 2004 was
$2,162,953 and $1,602,000, respectively. Interest income
recognized on impaired loans for cash payments received was not
material for the years ended 2005 and 2004. The reduction in
interest income as a result of impaired loans was $69,542 and
$63,747 for the years ended December 31, 2005 and 2004.
Total loans past due ninety days or more and still accruing
totaled $366,941 and $34,000 at December 31, 2005 and 2004,
respectively.
In the ordinary course of business, the Company has granted
loans to certain related parties, including directors, executive
officers, and their affiliates. The interest rates on these
loans were substantially the same as rates prevailing at the
time of the transaction and repayment terms are customary for
the type of loan. Changes in related party loans for the year
ended December 31, 2005 are as follows:
|
|
|
|
|
Balance, beginning of year
|
|
$
|
10,004,315
|
|
Advances
|
|
|
13,974,228
|
|
Repayments
|
|
|
(6,009,988
|
)
|
|
|
|
|
|
Balance, end of year
|
|
$
|
17,968,555
|
|
|
|
|
|
|
|
|
NOTE 4.
|
PREMISES
AND EQUIPMENT
|
Premises and equipment are summarized as follows:
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2005
|
|
|
2004
|
|
|
Equipment
|
|
$
|
1,660,578
|
|
|
$
|
1,610,399
|
|
Leasehold improvements
|
|
|
331,586
|
|
|
|
322,342
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,992,164
|
|
|
|
1,932,741
|
|
Accumulated depreciation
|
|
|
(1,699,524
|
)
|
|
|
(1,555,043
|
)
|
|
|
|
|
|
|
|
|
|
|
|
$
|
292,640
|
|
|
$
|
377,698
|
|
|
|
|
|
|
|
|
|
|
E-13
GBC
BANCORP, INC. AND SUBSIDIARY
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The aggregate amount of time deposits in denominations of
$100,000 or more at December 31, 2005 and 2004 was
$81,764,858 and $79,855,295, respectively. The Company had
brokered and bulletin board certificates of deposit at
December 31, 2005 and 2004 of $132,078,142 and
$111,548,301, respectively. The scheduled maturities of time
deposits at December 31, 2005 are as follows:
|
|
|
|
|
2006
|
|
$
|
227,337,868
|
|
2007
|
|
|
12,544,452
|
|
2008
|
|
|
1,923,989
|
|
2009
|
|
|
4,005,923
|
|
2010
|
|
|
1,779,479
|
|
|
|
|
|
|
|
|
$
|
247,591,711
|
|
|
|
|
|
|
|
|
NOTE 6.
|
SECURITIES
SOLD UNDER REPURCHASE AGREEMENTS
|
Securities sold under repurchase agreements, which are secured
borrowings, generally mature within one to four days from the
transaction date. Securities sold under repurchase agreements
are reflected at the amount of cash received in connection with
the transactions. The Company may be required to provide
additional collateral based on the fair value of the underlying
securities. The Company monitors the fair value of the
underlying securities on a daily basis. Securities sold under
repurchase agreements at December 31, 2005 and 2004 were
$829,341 and $1,819,469, respectively.
|
|
NOTE 7.
|
DEFERRED
COMPENSATION PLANS
|
The Company has a deferred compensation plan providing for death
and retirement benefits for its executive officers. The
estimated amounts to be paid under the compensation plan are
being funded through the purchase of life insurance policies on
the executive officers. The balance of the policy cash surrender
values at December 31, 2005 and 2004 is $5,719,750 and
$5,531,553, respectively. Income recognized on the policies
amounted to $188,197 and $189,937 for the years ended
December 31, 2005 and 2004, respectively. Deferred
compensation expense recognized for the years ended
December 31, 2005 and 2004 amounted to $639,031 and
$560,090, respectively. Accrued deferred compensation of
$1,540,773 and $901,742 is included in other liabilities as of
December 31, 2005 and 2004, respectively.
Effective January 1, 2001, the Company established a
Deferred Stock Unit plan in which members of the
Board of Directors and Executive Officers may choose to receive
deferred fee units as consideration for their
directors fees in lieu of cash. The deferred fee units
assigned to the members equal the number of shares of common
stock that could be purchased at the fair market value with the
amount of fees deferred. When a member terminates service as a
director or there is a change in control of the Company, the
units will be settled in cash at the fair market value of the
Companys common stock. The member may receive a lump sum
cash payment for the value of the units or defer cash payments
for a period of up to ten years. At December 31, 2005 and
2004, 45,044 and 36,605 units, respectively, have been
assigned to the members under this plan. The fair market value
of the units included in other liabilities amounted to
$1,125,383 and $628,900 at December 31, 2005 and 2004,
respectively. The units are not considered to be potential
common shares.
E-14
GBC
BANCORP, INC. AND SUBSIDIARY
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Income tax expense consists of the following:
|
|
|
|
|
|
|
|
|
|
|
Years Ended December
31,
|
|
|
|
2005
|
|
|
2004
|
|
|
Current
|
|
$
|
3,714,237
|
|
|
$
|
2,332,298
|
|
Deferred
|
|
|
(272,736
|
)
|
|
|
(623,674
|
)
|
|
|
|
|
|
|
|
|
|
Income tax expense
|
|
$
|
3,441,501
|
|
|
$
|
1,708,624
|
|
|
|
|
|
|
|
|
|
|
The Companys income tax expense differs from the amounts
computed by applying the federal income tax statutory rates to
income before income taxes. A reconciliation of the differences
is as follows:
|
|
|
|
|
|
|
|
|
|
|
Years Ended December
31,
|
|
|
|
2005
|
|
|
2004
|
|
|
Income taxes at statutory federal
rate
|
|
$
|
3,278,381
|
|
|
$
|
1,710,803
|
|
Tax-exempt income
|
|
|
(129,662
|
)
|
|
|
(130,550
|
)
|
State income taxes, net
|
|
|
276,368
|
|
|
|
121,862
|
|
Other
|
|
|
16,414
|
|
|
|
6,509
|
|
|
|
|
|
|
|
|
|
|
Income tax expense
|
|
$
|
3,441,501
|
|
|
$
|
1,708,624
|
|
|
|
|
|
|
|
|
|
|
The components of deferred income taxes are as follows:
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2005
|
|
|
2004
|
|
|
Deferred tax assets:
|
|
|
|
|
|
|
|
|
Loan loss reserves
|
|
$
|
1,270,217
|
|
|
$
|
1,392,563
|
|
Loan fees
|
|
|
107,663
|
|
|
|
139,308
|
|
Depreciation
|
|
|
15,748
|
|
|
|
17,516
|
|
Deferred compensation
|
|
|
1,006,096
|
|
|
|
577,600
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,399,724
|
|
|
|
2,126,987
|
|
|
|
|
|
|
|
|
|
|
Deferred tax assets (liabilities),
securities available for sale
|
|
|
268,041
|
|
|
|
(31,061
|
)
|
|
|
|
|
|
|
|
|
|
Net deferred tax assets
|
|
$
|
2,667,765
|
|
|
$
|
2,095,926
|
|
|
|
|
|
|
|
|
|
|
|
|
NOTE 9.
|
RELATED
PARTY TRANSACTIONS AND LEASES
|
The Company leases its main office banking facilities under a
noncancelable operating lease agreement from GBC Properties,
LLC, a partnership formed by the organizers of the Company. The
lease term is for fifteen years with the monthly rental payment
adjusting every fifth year for changes in the Consumer Price
Index. The Company also leases its branch facilities under a
noncancelable operating lease from a third party. The initial
lease term is for five years with the monthly rental payment
increasing every year by 3%. The lease also includes two
five-year extension terms. Both lease agreements require the
Company to pay normal operating and occupancy expenses of the
facilities. The total minimum rental commitments under the
leases at December 31, 2005 are due as follows:
|
|
|
|
|
During the next five years
|
|
$
|
1,990,680
|
|
During the remaining term of the
leases
|
|
|
1,704,084
|
|
|
|
|
|
|
|
|
$
|
3,694,764
|
|
|
|
|
|
|
E-15
GBC
BANCORP, INC. AND SUBSIDIARY
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Total rental expense is summarized as follows:
|
|
|
|
|
|
|
|
|
|
|
Years Ended
|
|
|
|
December 31,
|
|
|
|
2005
|
|
|
2004
|
|
|
GBC Properties, LLC
|
|
$
|
286,596
|
|
|
$
|
286,596
|
|
Other third parties
|
|
|
115,098
|
|
|
|
115,042
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
401,694
|
|
|
$
|
401,638
|
|
|
|
|
|
|
|
|
|
|
|
|
NOTE 10.
|
STOCK-BASED
COMPENSATION
|
The Company has reserved 428,000 shares of common stock for
issuance to employees and directors under an incentive stock
option plan. The options granted are exercisable at a price
equal to fair value on the date of grant and expire ten years
from the grant date.
Other pertinent information related to the options is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December
31,
|
|
|
2005
|
|
2004
|
|
|
|
|
Weighted-
|
|
|
|
Weighted-
|
|
|
|
|
Average
|
|
|
|
Average
|
|
|
|
|
Exercise
|
|
|
|
Exercise
|
|
|
Number
|
|
Price
|
|
Number
|
|
Price
|
|
Under option, beginning of year
|
|
|
410,000
|
|
|
$
|
12.97
|
|
|
|
336,800
|
|
|
$
|
11.80
|
|
Granted
|
|
|
|
|
|
|
|
|
|
|
87,400
|
|
|
|
17.00
|
|
Exercised
|
|
|
(46,100
|
)
|
|
|
11.74
|
|
|
|
(14,200
|
)
|
|
|
10.23
|
|
Terminated
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Under option, end of year
|
|
|
363,900
|
|
|
$
|
12.85
|
|
|
|
410,000
|
|
|
$
|
12.97
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable, end of year
|
|
|
363,900
|
|
|
$
|
12.85
|
|
|
|
410,000
|
|
|
$
|
12.97
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average fair value of
options granted during the year
|
|
|
|
|
|
$
|
|
|
|
|
|
|
|
$
|
7.19
|
|
Information pertaining to options outstanding at
December 31, 2005 is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options Outstanding
|
|
Options Exercisable
|
|
|
|
|
Weighted-
|
|
|
|
|
|
|
|
|
|
|
Average
|
|
Weighted-
|
|
|
|
Weighted-
|
|
|
|
|
Remaining
|
|
Average
|
|
|
|
Average
|
Range of
|
|
Number
|
|
Contractual
|
|
Exercise
|
|
Number
|
|
Exercise
|
Exercise Prices
|
|
Outstanding
|
|
Life
|
|
Price
|
|
Exercisable
|
|
Price
|
|
$10.00 - $17.00
|
|
|
363,900
|
|
|
|
5.89
|
|
|
$
|
12.85
|
|
|
|
363,900
|
|
|
$
|
12.85
|
|
No options were granted in 2005. The fair value of each option
grant is estimated on the date of grant using the Black-Scholes
option-pricing model with the following weighted-average
assumptions:
|
|
|
|
|
|
|
Year Ended
|
|
|
|
December 31,
|
|
|
|
2004
|
|
|
Dividend yield
|
|
|
0
|
|
Expected life
|
|
|
10
|
|
Expected volatility
|
|
|
15.88
|
%
|
Risk-free interest rate
|
|
|
5.00
|
%
|
E-16
GBC
BANCORP, INC. AND SUBSIDIARY
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
NOTE 11.
|
EARNINGS
PER SHARE
|
Presented below is a summary of the components used to calculate
basic and diluted earnings per share.
|
|
|
|
|
|
|
|
|
|
|
Years Ended December
31,
|
|
|
|
2005
|
|
|
2004
|
|
|
Basic Earnings Per Share:
|
|
|
|
|
|
|
|
|
Weighted average common shares
outstanding
|
|
|
1,753,453
|
|
|
|
1,720,330
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
6,200,792
|
|
|
$
|
3,323,151
|
|
|
|
|
|
|
|
|
|
|
Basic earnings per share
|
|
$
|
3.54
|
|
|
$
|
1.93
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December
31,
|
|
|
|
2005
|
|
|
2004
|
|
|
Diluted Earnings Per Share:
|
|
|
|
|
|
|
|
|
Weighted average common shares
outstanding
|
|
|
1,753,453
|
|
|
|
1,720,330
|
|
Net effect of the assumed exercise
of stock options based on the treasury stock method using
average market prices for the year
|
|
|
200,224
|
|
|
|
89,338
|
|
|
|
|
|
|
|
|
|
|
Total weighted average common
shares and common stock equivalents outstanding
|
|
|
1,953,677
|
|
|
|
1,809,668
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
6,200,792
|
|
|
$
|
3,323,151
|
|
|
|
|
|
|
|
|
|
|
Diluted earnings per share
|
|
$
|
3.17
|
|
|
$
|
1.84
|
|
|
|
|
|
|
|
|
|
|
|
|
NOTE 12.
|
COMMITMENTS
AND CONTINGENCIES
|
LOAN
COMMITMENTS
The Company is a party to financial instruments with off-balance
sheet risk in the normal course of business to meet the
financing needs of its customers. These financial instruments
include commitments to extend credit and standby letters of
credit. They involve, to varying degrees, elements of credit
risk and interest rate risk in excess of the amount recognized
in the balance sheets. The majority of all commitments to extend
credit and standby letters of credit are variable rate
instruments.
The Companys exposure to credit loss in the event of
nonperformance by the other party to the financial instrument
for commitments to extend credit and standby letters of credit
is represented by the contractual amount of those instruments.
The Company uses the same credit policies in making commitments
as they do for on-balance sheet instruments. A summary of the
Companys commitments is as follows:
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2005
|
|
|
2004
|
|
|
Financial standby letters of credit
|
|
$
|
4,606,625
|
|
|
$
|
4,607,425
|
|
Commitments to extend credit
|
|
|
115,581,935
|
|
|
|
98,888,244
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
120,188,560
|
|
|
$
|
103,495,669
|
|
|
|
|
|
|
|
|
|
|
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 amount
of collateral obtained, if deemed necessary by the Company upon
extension of credit, is
E-17
GBC
BANCORP, INC. AND SUBSIDIARY
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
based on managements credit evaluation of the party.
Collateral held varies, but may include accounts receivable,
inventory, property and equipment, residential real estate and
income-producing commercial properties.
Standby letters of credit are conditional commitments issued by
the Company to guarantee the performance of a customer to a
third party. Those guarantees are primarily issued to support
public and private borrowing arrangements. The credit risk
involved in issuing letters of credit is essentially the same as
that involved in extending loans to customers. Collateral held
varies as specified above and is required in instances which the
Company deems necessary.
CONTINGENCIES
In the normal course of business, the Company is involved in
various legal proceedings. In the opinion of management, any
liability resulting from such proceedings would not have a
material effect on the Companys financial statements.
|
|
NOTE 13.
|
CONCENTRATIONS
OF CREDIT
|
The Company originates primarily commercial, residential, and
consumer loans to customers in Gwinnett County and surrounding
counties. The ability of the majority of the Companys
customers to honor their contractual loan obligations is
dependent on the economy in these areas.
Eighty percent of the Companys loan portfolio is
concentrated in loans secured by real estate, of which a
substantial portion is secured by real estate in the
Companys primary market area. Accordingly, the ultimate
collectibility of the loan portfolio is susceptible to changes
in market conditions in the Companys primary market area.
The other significant concentrations of credit by type of loan
are set forth in Note 3.
The Company does not generally extend credit to any single
borrower or group of related borrowers in excess of 25% of
statutory capital, or approximately $6,000,000.
|
|
NOTE 14.
|
REGULATORY
MATTERS
|
The Bank is subject to certain restrictions on the amount of
dividends that may be declared without prior regulatory
approval. At December 31, 2005, approximately $3,100,000 of
dividends could be declared without regulatory approval.
The Company and the Bank are subject to various regulatory
capital requirements administered by the federal banking
agencies. Failure to meet minimum capital requirements can
initiate certain mandatory, and possibly additional
discretionary actions by regulators that, if undertaken, could
have a direct material effect on the consolidated financial
statements. Under capital adequacy guidelines and the regulatory
framework for prompt corrective action, the Company and Bank
must meet specific capital guidelines that involve quantitative
measures of the Company and Banks assets, liabilities, and
certain off-balance sheet items as calculated under regulatory
accounting practices. Capital amounts and classification are
also subject to qualitative judgments by the regulators about
components, risk weightings, and other factors.
Quantitative measures established by regulation to ensure
capital adequacy require the Company and the Bank to maintain
minimum amounts and ratios of Total and Tier I capital to
risk-weighted assets, as defined and of Tier I capital to
average assets. Management believes, as of December 31,
2005 and 2004, the Company and the Bank met all capital adequacy
requirements to which they are subject.
As of December 31, 2005, the most recent notification from
the Federal Deposit Insurance Corporation categorized the Bank
as well capitalized under the regulatory framework for prompt
corrective action. To be categorized as well capitalized, the
Bank must maintain minimum total risk-based, Tier I
risk-based, and Tier I leverage ratios as set forth in the
following table. There are no conditions or events since that
notification that
E-18
GBC
BANCORP, INC. AND SUBSIDIARY
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
management believes have changed the Banks category.
Prompt corrective provisions are not applicable to bank holding
companies.
The Company and the Banks actual capital amounts and
ratios are presented in the following table:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
To Be Well
|
|
|
|
|
|
|
For Capital
|
|
|
Capitalized Under
|
|
|
|
|
|
|
Adequacy
|
|
|
Prompt Corrective
|
|
|
|
Actual
|
|
|
Purposes
|
|
|
Action Provisions
|
|
|
|
Amount
|
|
|
Ratio
|
|
|
Amount
|
|
|
Ratio
|
|
|
Amount
|
|
|
Ratio
|
|
|
|
(Dollars in thousands)
|
|
|
DECEMBER 31, 2005:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
TOTAL CAPITAL TO RISK WEIGHTED
ASSETS:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CONSOLIDATED
|
|
$
|
37,132
|
|
|
|
10.98
|
%
|
|
$
|
27,055
|
|
|
|
8
|
%
|
|
$
|
NA
|
|
|
|
NA
|
|
BANK
|
|
$
|
35,996
|
|
|
|
10.65
|
%
|
|
$
|
27,055
|
|
|
|
8
|
%
|
|
$
|
33,819
|
|
|
|
10
|
%
|
TIER I CAPITAL TO RISK
WEIGHTED ASSETS:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CONSOLIDATED
|
|
$
|
33,430
|
|
|
|
9.88
|
%
|
|
$
|
13,527
|
|
|
|
4
|
%
|
|
$
|
NA
|
|
|
|
NA
|
|
BANK
|
|
$
|
32,294
|
|
|
|
9.55
|
%
|
|
$
|
13,527
|
|
|
|
4
|
%
|
|
$
|
20,291
|
|
|
|
6
|
%
|
TIER I CAPITAL TO AVERAGE
ASSETS:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CONSOLIDATED
|
|
$
|
33,430
|
|
|
|
9.08
|
%
|
|
$
|
14,734
|
|
|
|
4
|
%
|
|
$
|
NA
|
|
|
|
NA
|
|
BANK
|
|
$
|
32,294
|
|
|
|
8.77
|
%
|
|
$
|
14,734
|
|
|
|
4
|
%
|
|
$
|
18,418
|
|
|
|
5
|
%
|
December 31, 2004:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Capital to Risk Weighted
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated
|
|
$
|
30,052
|
|
|
|
11.18
|
%
|
|
$
|
21,498
|
|
|
|
8
|
%
|
|
$
|
N/A
|
|
|
|
N/A
|
|
Bank
|
|
$
|
29,373
|
|
|
|
10.93
|
%
|
|
$
|
21,498
|
|
|
|
8
|
%
|
|
$
|
26,872
|
|
|
|
10
|
%
|
Tier I Capital to Risk
Weighted Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated
|
|
$
|
26,688
|
|
|
|
9.93
|
%
|
|
$
|
10,749
|
|
|
|
4
|
%
|
|
$
|
N/A
|
|
|
|
N/A
|
|
Bank
|
|
$
|
26,009
|
|
|
|
9.68
|
%
|
|
$
|
10,749
|
|
|
|
4
|
%
|
|
$
|
16,123
|
|
|
|
6
|
%
|
Tier I Capital to Average
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated
|
|
$
|
26,688
|
|
|
|
8.75
|
%
|
|
$
|
12,196
|
|
|
|
4
|
%
|
|
$
|
N/A
|
|
|
|
N/A
|
|
Bank
|
|
$
|
26,009
|
|
|
|
8.53
|
%
|
|
$
|
12,196
|
|
|
|
4
|
%
|
|
$
|
15,245
|
|
|
|
5
|
%
|
|
|
NOTE 15.
|
FAIR
VALUE OF FINANCIAL INSTRUMENTS
|
The fair value of a financial instrument is the current amount
that would be exchanged between willing parties, other than in a
forced liquidation. Fair value is best determined based upon
quoted market prices. However, in many instances, there are no
quoted market prices for the Companys various financial
instruments. In cases where quoted market prices are not
available, fair value is based on discounted cash flows or other
valuation techniques. These techniques are significantly
affected by the assumptions used, including the discount rate
and estimates of future cash flows. Accordingly, the fair value
estimates may not be realized in an immediate settlement of the
instrument. SFAS No. 107, Disclosures about Fair
Values of Financial Instruments, excludes certain financial
instruments and all nonfinancial instruments from its disclosure
requirements. Accordingly, the aggregate fair value amounts
presented may not necessarily represent the underlying fair
value of the Company.
CASH, DUE FROM BANKS AND FEDERAL FUNDS
SOLD: The carrying amounts of cash, due from
banks, and federal funds sold approximate fair values.
SECURITIES: Fair values for securities are
based on available quoted market prices.
E-19
GBC
BANCORP, INC. AND SUBSIDIARY
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
LOANS: The carrying amount of variable-rate
loans that reprice frequently and have no significant change in
credit risk approximates fair value. The fair value of fixed
rate loans is estimated based on discounted contractual cash
flows using interest rates currently being offered for loans
with similar terms to borrowers with similar credit quality. The
fair value for impaired loans is estimated based on discounted
contractual cash flows or underlying collateral values, where
applicable.
DEPOSITS: The carrying amount of demand
deposits, savings deposits, and variable-rate certificates of
deposit approximates fair value. The fair value of fixed-rate
certificates of deposit is estimated based on discounted
contractual cash flows using interest rates currently being
offered for certificates of similar maturities.
SECURITIES SOLD UNDER REPURCHASE
AGREEMENTS: The carrying amounts of securities
sold under repurchase agreements approximate fair value.
ACCRUED INTEREST: The carrying amount of
accrued interest approximates their fair values.
OFF-BALANCE SHEET INSTRUMENTS: The carrying
amount of commitments to extend credit and standby letters of
credit approximates fair value. The carrying amount of the
off-balance sheet financial instruments is based on fees charged
to enter into such agreements. Since the majority of the
Companys off-balance sheet instruments consist of
nonfee-producing, variable-rate commitments, the Company has
determined they do not have a distinguishable fair value.
The carrying amounts and estimated fair values of the
Companys financial instruments were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2005
|
|
|
December 31, 2004
|
|
|
|
Carrying
|
|
|
Fair
|
|
|
Carrying
|
|
|
Fair
|
|
|
|
Amount
|
|
|
Value
|
|
|
Amount
|
|
|
Value
|
|
|
FINANCIAL ASSETS:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash, due from banks, and federal
funds sold
|
|
$
|
20,456,741
|
|
|
$
|
20,456,741
|
|
|
$
|
23,084,288
|
|
|
$
|
23,084,288
|
|
Securities available for sale
|
|
|
32,410,839
|
|
|
|
32,410,839
|
|
|
|
31,000,002
|
|
|
|
31,000,002
|
|
Loans
|
|
|
319,154,750
|
|
|
|
318,040,000
|
|
|
|
252,576,451
|
|
|
|
251,712,000
|
|
Reserve for loan losses
|
|
|
(3,701,532
|
)
|
|
|
|
|
|
|
(3,775,167
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans, net
|
|
|
315,453,218
|
|
|
|
318,040,000
|
|
|
|
248,801,284
|
|
|
|
251,712,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accrued interest receivable
|
|
|
2,484,779
|
|
|
|
2,484,779
|
|
|
|
1,593,159
|
|
|
|
1,593,159
|
|
FINANCIAL LIABILITIES:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deposits
|
|
|
341,170,733
|
|
|
|
340,346,000
|
|
|
|
282,336,126
|
|
|
|
282,829,000
|
|
Accrued interest payable
|
|
|
870,833
|
|
|
|
870,833
|
|
|
|
426,632
|
|
|
|
426,632
|
|
Securities sold under repurchase
agreements
|
|
|
829,341
|
|
|
|
829,341
|
|
|
|
1,819,469
|
|
|
|
1,819,469
|
|
E-20
GBC
BANCORP, INC. AND SUBSIDIARY
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
NOTE 16.
|
SUPPLEMENTAL
FINANCIAL DATA
|
Components of other operating income and expenses in excess of
1% of total revenue are as follows:
|
|
|
|
|
|
|
|
|
|
|
Years Ended
|
|
|
|
December 31,
|
|
|
|
2005
|
|
|
2004
|
|
|
Other operating income:
|
|
|
|
|
|
|
|
|
Mortgage origination fees
|
|
$
|
169,418
|
|
|
$
|
168,683
|
|
Income on life insurance policies
|
|
|
188,197
|
|
|
|
189,937
|
|
Other operating expenses:
|
|
|
|
|
|
|
|
|
Professional and consulting
|
|
|
290,043
|
|
|
|
227,775
|
|
Directors fees
|
|
|
448,188
|
|
|
|
200,000
|
|
Data processing
|
|
|
232,451
|
|
|
|
198,845
|
|
|
|
NOTE 17.
|
PARENT
COMPANY FINANCIAL INFORMATION
|
The following information presents the condensed balance sheets,
statements of income and cash flows of GBC Bancorp, Inc., as of
and for the years ended December 31, 2005 and 2004.
CONDENSED
BALANCE SHEETS
|
|
|
|
|
|
|
|
|
|
|
2005
|
|
|
2004
|
|
|
ASSETS
|
Cash
|
|
$
|
1,085,790
|
|
|
$
|
647,817
|
|
Investment in subsidiary
|
|
|
31,856,545
|
|
|
|
26,059,778
|
|
Other assets
|
|
|
50,898
|
|
|
|
31,480
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
32,993,233
|
|
|
$
|
26,739,075
|
|
|
|
|
|
|
|
|
|
|
TOTAL SHAREHOLDERS EQUITY
|
|
$
|
32,993,233
|
|
|
$
|
26,739,075
|
|
|
|
|
|
|
|
|
|
|
CONDENSED
STATEMENTS OF INCOME
|
|
|
|
|
|
|
|
|
|
|
2005
|
|
|
2004
|
|
|
EXPENSES, OTHER
|
|
$
|
134,882
|
|
|
$
|
83,419
|
|
|
|
|
|
|
|
|
|
|
LOSS BEFORE INCOME TAX BENEFIT AND
EQUITY IN UNDISTRIBUTED EARNINGS OF SUBSIDIARY
|
|
|
(134,882
|
)
|
|
|
(83,419
|
)
|
INCOME TAX BENEFIT
|
|
|
(50,898
|
)
|
|
|
(31,480
|
)
|
|
|
|
|
|
|
|
|
|
LOSS BEFORE EQUITY IN
UNDISTRIBUTED EARNINGS OF SUBSIDIARY
|
|
|
(83,984
|
)
|
|
|
(51,939
|
)
|
EQUITY IN UNDISTRIBUTED EARNINGS
OF SUBSIDIARY
|
|
|
6,284,776
|
|
|
|
3,375,090
|
|
|
|
|
|
|
|
|
|
|
NET INCOME
|
|
$
|
6,200,792
|
|
|
$
|
3,323,151
|
|
|
|
|
|
|
|
|
|
|
E-21
GBC
BANCORP, INC. AND SUBSIDIARY
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
CONDENSED
STATEMENTS OF CASH FLOWS
|
|
|
|
|
|
|
|
|
|
|
2005
|
|
|
2004
|
|
|
OPERATING ACTIVITIES
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
6,200,792
|
|
|
$
|
3,323,151
|
|
Adjustments to reconcile net
income to net cash used in operating activities:
|
|
|
|
|
|
|
|
|
Equity in undistributed earnings
of subsidiary
|
|
|
(6,284,776
|
)
|
|
|
(3,375,090
|
)
|
Net other operating activities
|
|
|
(19,418
|
)
|
|
|
(2,090
|
)
|
|
|
|
|
|
|
|
|
|
Net cash used in operating
activities
|
|
|
(103,402
|
)
|
|
|
(54,029
|
)
|
|
|
|
|
|
|
|
|
|
FINANCING ACTIVITIES
|
|
|
|
|
|
|
|
|
Proceeds from exercise of stock
options
|
|
|
541,375
|
|
|
|
145,200
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by financing
activities
|
|
|
541,375
|
|
|
|
145,200
|
|
|
|
|
|
|
|
|
|
|
Net increase in cash
|
|
|
437,973
|
|
|
|
91,171
|
|
Cash at beginning of year
|
|
|
647,817
|
|
|
|
556,646
|
|
|
|
|
|
|
|
|
|
|
Cash at end of year
|
|
$
|
1,085,790
|
|
|
$
|
647,817
|
|
|
|
|
|
|
|
|
|
|
E-22
GBC
BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEET
MARCH 31, 2006
|
|
|
|
|
|
|
(Unaudited)
|
|
|
ASSETS
|
Cash and due from banks
|
|
$
|
7,048,541
|
|
Federal funds sold
|
|
|
18,735,000
|
|
Securities
available-for-sale,
at fair value
|
|
|
32,114,306
|
|
Loans
|
|
|
352,361,835
|
|
Less allowance for loan losses
|
|
|
4,093,513
|
|
|
|
|
|
|
Loans, net
|
|
|
348,268,322
|
|
Premises and equipment
|
|
|
293,337
|
|
Cash surrender value of life
insurance
|
|
|
5,766,719
|
|
Accrued interest receivable
|
|
|
2,688,156
|
|
Other assets
|
|
|
3,407,882
|
|
|
|
|
|
|
TOTAL ASSETS
|
|
$
|
418,322,263
|
|
|
|
|
|
|
|
LIABILITIES AND
SHAREHOLDERS EQUITY
|
DEPOSITS
|
|
|
|
|
Noninterest-bearing
|
|
$
|
29,480,213
|
|
Interest-bearing
|
|
|
345,950,310
|
|
|
|
|
|
|
TOTAL DEPOSITS
|
|
|
375,430,523
|
|
Securities sold under repurchase
agreements
|
|
|
2,771,737
|
|
Accrued interest payable
|
|
|
1,166,329
|
|
Other liabilities
|
|
|
4,514,071
|
|
|
|
|
|
|
TOTAL LIABILITIES
|
|
|
383,882,660
|
|
|
|
|
|
|
COMMITMENTS AND CONTINGENCIES
|
|
|
|
|
SHAREHOLDERS EQUITY
|
|
|
|
|
Common stock, par value $1;
3,000,000 shares authorized; 1,772,708 shares issued
and outstanding
|
|
|
1,772,708
|
|
Capital surplus
|
|
|
18,709,280
|
|
Retained earnings
|
|
|
14,518,325
|
|
Accumulated other comprehensive
income
|
|
|
(560,710
|
)
|
|
|
|
|
|
TOTAL SHAREHOLDERS EQUITY
|
|
|
34,439,603
|
|
|
|
|
|
|
TOTAL LIABILITIES AND
SHAREHOLDERS EQUITY
|
|
$
|
418,322,263
|
|
|
|
|
|
|
See notes to consolidated financial statements.
E-23
GBC
BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME
THREE MONTHS ENDED MARCH 31, 2006 AND 2005
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
|
March 31,
|
|
|
|
2006
|
|
|
2005
|
|
|
|
(Unaudited)
|
|
|
INTEREST INCOME
|
|
|
|
|
|
|
|
|
Loans
|
|
$
|
7,543,842
|
|
|
$
|
4,967,666
|
|
Taxable securities
|
|
|
304,313
|
|
|
|
275,003
|
|
Nontaxable securities
|
|
|
48,319
|
|
|
|
48,637
|
|
Federal funds sold
|
|
|
155,801
|
|
|
|
56,674
|
|
|
|
|
|
|
|
|
|
|
TOTAL INTEREST INCOME
|
|
|
8,052,275
|
|
|
|
5,347,980
|
|
|
|
|
|
|
|
|
|
|
INTEREST EXPENSE
|
|
|
|
|
|
|
|
|
Deposits
|
|
|
3,349,156
|
|
|
|
1,778,429
|
|
Repurchase agreements
|
|
|
15,724
|
|
|
|
10,789
|
|
|
|
|
|
|
|
|
|
|
TOTAL INTEREST EXPENSE
|
|
|
3,364,880
|
|
|
|
1,789,218
|
|
|
|
|
|
|
|
|
|
|
NET INTEREST INCOME
|
|
|
4,687,395
|
|
|
|
3,558,762
|
|
PROVISION FOR LOAN LOSSES
|
|
|
451,069
|
|
|
|
255,687
|
|
|
|
|
|
|
|
|
|
|
NET INTEREST INCOME AFTER
PROVISION FOR LOAN LOSSES
|
|
|
4,236,326
|
|
|
|
3,303,075
|
|
|
|
|
|
|
|
|
|
|
OTHER INCOME
|
|
|
|
|
|
|
|
|
Service charges on deposit accounts
|
|
|
57,403
|
|
|
|
41,768
|
|
Gain on Sale of Loans
|
|
|
159,862
|
|
|
|
520,409
|
|
Gain on Sale of Other Real estate
owned
|
|
|
15,370
|
|
|
|
43,748
|
|
Other operating income
|
|
|
211,248
|
|
|
|
91,558
|
|
|
|
|
|
|
|
|
|
|
TOTAL OTHER INCOME
|
|
|
443,883
|
|
|
|
697,483
|
|
|
|
|
|
|
|
|
|
|
OTHER EXPENSES
|
|
|
|
|
|
|
|
|
Salaries and employee benefits
|
|
|
1,526,405
|
|
|
|
1,340,886
|
|
Equipment and occupancy expenses
|
|
|
180,459
|
|
|
|
212,889
|
|
Other operating expenses
|
|
|
494,421
|
|
|
|
509,031
|
|
|
|
|
|
|
|
|
|
|
TOTAL OTHER EXPENSES
|
|
|
2,201,285
|
|
|
|
2,062,806
|
|
|
|
|
|
|
|
|
|
|
NET INCOME BEFORE INCOME TAXES
|
|
|
2,478,924
|
|
|
|
1,937,752
|
|
INCOME TAX EXPENSE
|
|
|
909,173
|
|
|
|
702,000
|
|
|
|
|
|
|
|
|
|
|
NET INCOME
|
|
|
1,569,751
|
|
|
|
1,235,752
|
|
|
|
|
|
|
|
|
|
|
OTHER COMPREHENSIVE LOSS:
|
|
|
|
|
|
|
|
|
Unrealized losses on securities
available-for-sale arising during period, net of tax
|
|
|
(123,381
|
)
|
|
|
(332,245
|
)
|
|
|
|
|
|
|
|
|
|
COMPREHENSIVE INCOME
|
|
$
|
1,446,370
|
|
|
$
|
903,507
|
|
|
|
|
|
|
|
|
|
|
BASIC EARNINGS PER SHARE
|
|
$
|
0.89
|
|
|
$
|
0.71
|
|
|
|
|
|
|
|
|
|
|
DILUTED EARNINGS PER SHARE
|
|
$
|
0.81
|
|
|
$
|
0.67
|
|
|
|
|
|
|
|
|
|
|
CASH DIVIDENDS PER SHARE
|
|
$
|
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
See notes to consolidated financial statements.
E-24
GBC
BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
THREE MONTHS ENDED MARCH 31, 2006 AND 2005
|
|
|
|
|
|
|
|
|
|
|
2006
|
|
|
2005
|
|
|
|
(Unaudited)
|
|
|
OPERATING ACTIVITIES
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
1,569,751
|
|
|
$
|
1,235,752
|
|
Adjustments to reconcile net
income to net cash provided by operating activities:
|
|
|
|
|
|
|
|
|
Depreciation
|
|
|
29,624
|
|
|
|
39,735
|
|
Provision for loan losses
|
|
|
451,069
|
|
|
|
255,687
|
|
Gain on Sale of Other Real Estate
Owned
|
|
|
(15,370
|
)
|
|
|
(43,748
|
)
|
Gain on Sale of Loans
|
|
|
(159,863
|
)
|
|
|
(520,409
|
)
|
Loans originated for sale
|
|
|
(1,654,500
|
)
|
|
|
(4,013,971
|
)
|
Proceeds from sale of loans
|
|
|
1,814,363
|
|
|
|
4,534,380
|
|
Increase in interest receivable
|
|
|
(203,378
|
)
|
|
|
(195,924
|
)
|
Increase in interest payable
|
|
|
295,496
|
|
|
|
117,722
|
|
Increase in taxes payable
|
|
|
652,779
|
|
|
|
575,386
|
|
Net other operating activities
|
|
|
37,913
|
|
|
|
(100,927
|
)
|
|
|
|
|
|
|
|
|
|
Net cash provided by operating
activities
|
|
|
2,817,884
|
|
|
|
1,883,683
|
|
|
|
|
|
|
|
|
|
|
INVESTING ACTIVITIES
|
|
|
|
|
|
|
|
|
Purchases of securities
available-for-sale
|
|
|
|
|
|
|
|
|
Proceeds from maturities of
securities
available-for-sale
|
|
|
125,794
|
|
|
|
202,254
|
|
Net (increase) decrease in federal
funds sold
|
|
|
(2,079,000
|
)
|
|
|
8,000,000
|
|
Net increase in loans
|
|
|
(34,616,803
|
)
|
|
|
(30,828,619
|
)
|
Proceeds from sale of Other Real
Estate Owned
|
|
|
875,029
|
|
|
|
1,194,430
|
|
Increase in cash surrender value
of life insurance
|
|
|
(46,969
|
)
|
|
|
(47,670
|
)
|
Purchase of premises and equipment
|
|
|
(30,321
|
)
|
|
|
(2,925
|
)
|
|
|
|
|
|
|
|
|
|
Net cash used in investing
activities
|
|
|
(35,772,270
|
)
|
|
|
(21,482,530
|
)
|
|
|
|
|
|
|
|
|
|
FINANCING ACTIVITIES
|
|
|
|
|
|
|
|
|
Net increase in deposits
|
|
|
34,259,790
|
|
|
|
17,814,689
|
|
Net increase (decrease) in
securities sold under repurchase agreements
|
|
|
1,942,396
|
|
|
|
(231,450
|
)
|
Net proceeds from the exercise of
stock options
|
|
|
|
|
|
|
292,500
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by financing
activities
|
|
|
36,202,186
|
|
|
|
17,875,739
|
|
|
|
|
|
|
|
|
|
|
Net increase (decrease) in cash
and due from banks
|
|
|
3,247,800
|
|
|
|
(1,723,108
|
)
|
Cash and due from banks at
beginning of period
|
|
|
3,800,741
|
|
|
|
5,390,288
|
|
|
|
|
|
|
|
|
|
|
Cash and due from banks at end of
period
|
|
$
|
7,048,541
|
|
|
$
|
3,667,180
|
|
|
|
|
|
|
|
|
|
|
SUPPLEMENTAL DISCLOSURES OF CASH
FLOW INFORMATION
|
|
|
|
|
|
|
|
|
Cash paid during the period for:
|
|
|
|
|
|
|
|
|
Interest
|
|
$
|
3,069,384
|
|
|
$
|
1,671,496
|
|
Income taxes
|
|
$
|
361,269
|
|
|
$
|
147,614
|
|
NONCASH TRANSACTIONS
|
|
|
|
|
|
|
|
|
Loans transferred to other real
estate owned
|
|
$
|
1,350,631
|
|
|
$
|
|
|
See notes to consolidated financial statements.
E-25
GBC
BANCORP, INC. AND SUBSIDIARY
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
|
|
NOTE 1.
|
NATURE OF
BUSINESS AND BASIS OF PRESENTATION
|
The consolidated financial information for GBC Bancorp, Inc.
(the Company) included herein is unaudited; however,
such information reflects all adjustments (consisting solely of
normal recurring adjustments) which are, in the opinion of
management, necessary for a fair statement of results for the
interim period.
The results of operations for the three month period ended
March 31, 2006 are not necessarily indicative of the
results to be expected for the full year.
|
|
NOTE 2.
|
EARNINGS
PER SHARE
|
Presented below is a summary of the components used to calculate
basic and diluted earnings per common share.
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
|
March 31
|
|
|
|
2006
|
|
|
2005
|
|
|
Basic Earnings Per Share:
|
|
|
|
|
|
|
|
|
Weighted average common shares
outstanding
|
|
|
1,772,708
|
|
|
|
1,739,608
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
1,772,708
|
|
|
$
|
1,235,752
|
|
|
|
|
|
|
|
|
|
|
Basic earnings per share
|
|
$
|
.89
|
|
|
$
|
.71
|
|
|
|
|
|
|
|
|
|
|
Diluted Earnings Per Share:
|
|
|
|
|
|
|
|
|
Weighted average common shares
outstanding
|
|
|
1,772,708
|
|
|
|
1,739,608
|
|
Net effect of the assumed exercise
of stock options based on the treasury stock method using
average market prices
|
|
|
174,598
|
|
|
|
94,247
|
|
|
|
|
|
|
|
|
|
|
Total weighted average common
shares and common stock equivalents outstanding
|
|
|
1,947,306
|
|
|
|
1,833,855
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
1,569,751
|
|
|
$
|
1,235,752
|
|
|
|
|
|
|
|
|
|
|
Diluted earnings per share
|
|
$
|
.81
|
|
|
$
|
.67
|
|
|
|
|
|
|
|
|
|
|
|
|
NOTE 3.
|
STOCK-BASED
COMPENSATION PLAN
|
At March 31, 2005, the Company has a stock-based
compensation plan that includes employees and directors. Prior
to January 1, 2006, the Company accounted for the plan
under the recognition and measurement provisions of APB Opinion
No. 25, Accounting for Stock Issued to Employees, and
related interpretations, as permitted by FASB Statement
No. 123, Accounting for Stock-Based Compensation. No
stock-based employee compensation cost was recognized in the
Statement of Operations for the three months ended
March 31, 2005, as all options granted under the plan had
an exercise price equal to the market value of the underlying
common stock on the date of grant. Effective January 1,
2006, the Company adopted the fair value recognition provisions
of FASB Statement No. 123(R), Share-Based Payment, using
the modified-prospective-transition method. Under that
transition method, compensation cost recognized includes:
(a) compensation cost for all share-based payments granted
prior to, but not yet vested as of January 1, 2006, based
on the grant date fair value estimated in accordance with the
original provisions of Statement 123, and
(b) compensation cost for all share-based payments granted
subsequent to January 1, 2006, based on the grant-date fair
value estimated in accordance with the provisions of
Statement 123(R). No stock options were granted or no
previously granted options vested during the three months ended
March 31, 2006 or 2005, therefore no compensation cost was
recognized. The adoption of this provisions of
Statement 123(R) did not have a material affect on the
financial statements.
E-26
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
|
|
Item 20.
|
Indemnification
of Directors and Officers.
|
First Charters Amended and Restated Articles of
Incorporation and First Charters Amended and Restated
Bylaws provide that, in addition to the indemnification of
directors and officers otherwise provided by the North Carolina
Business Corporation Act (the NCBCA), First Charter
shall, under certain circumstances, indemnify its directors,
executive officers and certain other designated officers against
any and all liability and expenses, including reasonable
attorneys fees, in any proceeding (including without
limitation a proceeding brought by or on behalf of First Charter
itself) arising out of their status or activities as directors
and officers, except for liability or litigation expense
incurred on account of activities of such person which at the
time taken were known or believed by such person to be clearly
in conflict with the best interests of First Charter. First
Charters Bylaws further provide that First Charter shall
also indemnify such person for reasonable costs, expenses and
attorneys fees incurred in connection with the enforcement
of the rights to indemnification granted in the Bylaws, if it is
determined in accordance with the procedures set forth in the
Bylaws that such person is entitled to indemnification
thereunder. Pursuant to the Bylaws and as authorized by statute,
First Charter maintains insurance on behalf of its directors and
officers against liability asserted against such persons in such
capacity whether or not such directors or officers have the
right to indemnification pursuant to the bylaw or otherwise. In
addition, First Charters Articles of Incorporation prevent
the recovery by First Charter or any of its shareholders of
monetary damages against its directors to the fullest extent
permitted by the NCBCA.
In addition to the above-described provisions,
Sections 55-8-50
through 55-8-58 of the NCBCA contain provisions prescribing the
extent to which directors and officers shall or may be
indemnified.
Section 55-8-51
of the NCBCA permits a corporation, with certain exceptions, to
indemnify a current or former director against liability if
(i) he conducted himself in good faith, (ii) he
reasonably believed (x) in the case of conduct in his
official capacity with the corporation, that his conduct was in
the best interests of the corporation and (y) in all other
cases his conduct was at least not opposed to the
corporations best interests, and (iii) in the case of
any criminal proceeding, he had no reasonable cause to believe
his conduct was unlawful. A corporation may not indemnify a
director in connection with a proceeding by or in the right of
the corporation in which the director was adjudged liable to the
corporation or in connection with a proceeding charging improper
personal benefit to him, whether or not involving action in his
official capacity, in which he was adjudged liable on the basis
that a personal benefit was improperly received by him. The
above standard of conduct is determined by the Board of
Directors or a committee thereof or special legal counsel or the
shareholders as prescribed in
Section 55-8-55.
Sections 55-8-52
and 55-8-56 of the NCBCA require a corporation to indemnify a
director or officer in the defense of any proceeding to which he
was a party because of his capacity as a director or officer
against reasonable expenses when he is wholly successful, on the
merits or otherwise, in his defense, unless the articles of
incorporation provide otherwise. Upon application, the court may
order indemnification of the director or officer if the court
determines that he is entitled to mandatory indemnification
under
Section 55-8-52,
in which case the court shall also order the corporation to pay
the reasonable expenses incurred to obtain court-ordered
indemnification or if he is adjudged fairly and reasonably so
entitled in view of all relevant circumstances under
Section 55-8-54.
Section 55-8-56
allows a corporation to indemnify and advance expenses to an
officer, employee or agent who is not a director to the same
extent, consistent with public policy, as a director or as
otherwise set forth in the corporations articles of
incorporation or bylaws or by resolution of the board of
directors or contract.
In addition,
Section 55-8-57
permits a corporation to provide for indemnification of
directors, officers, employees or agents, in its articles of
incorporation or bylaws or by contract or resolution, against
liability in various proceedings and to purchase and maintain
insurance policies on behalf of these individuals.
II-1
|
|
Item 21.
|
Exhibits
and Financial Statement Schedules.
|
|
|
|
|
|
Exhibit
|
|
Description
|
|
|
2
|
.1
|
|
Agreement and Plan of Merger,
dated as of June 1, 2006, by and between First Charter
Corporation and GBC Bancorp, Inc., incorporated by reference to
Exhibit 2.1 of First Charters Current Report on
Form 8-K
filed June 6, 2006 (Commission File
No. 0-15829)
|
|
3
|
.1
|
|
Amended and Restated Articles of
Incorporation of First Charter Corporation, incorporated herein
by reference to Exhibit 3.1 of First Charters
Quarterly Report on
Form 10-Q
for the quarter ended March 31, 2004 (Commission File
No. 0-15829)
|
|
3
|
.2
|
|
Amended and Restated By-laws of
First Charter Corporation, incorporated herein by reference to
Exhibit 3.2 of First Charters Quarterly Report on
Form 10-Q
for the quarter ended March 31, 2004 (Commission File No.
0-15829)
|
|
4
|
.1
|
|
Specimen Certificate of First
Charter Common Stock
|
|
5
|
.1
|
|
Opinion of Helms
Mulliss & Wicker, PLLC as to the validity of the shares
of First Charter Corporation common stock*
|
|
8
|
.1
|
|
Opinion of Womble Carlyle
Sandridge & Rice, PLLC as to tax matters*
|
|
23
|
.1
|
|
Consent of Helms
Mulliss & Wicker, PLLC (included in Exhibit 5.1)
|
|
23
|
.2
|
|
Consent of Womble Carlyle
Sandridge & Rice, PLLC (included in Exhibit 8.1)
|
|
23
|
.3
|
|
Consent of KPMG LLP
|
|
23
|
.4
|
|
Consent of Mauldin &
Jenkins, LLP
|
|
24
|
.1
|
|
Power of Attorney (included on
signature page)
|
|
99
|
.1
|
|
Voting Agreement dated as of
June 1, 2006 by and among First Charter Corporation and
those certain Shareholders set forth therein (incorporated by
reference to Exhibit C of the Schedule 13D filed by
First Charter on June 12, 2006 with respect to GBC Bancorp,
Inc. common stock)
|
|
99
|
.2
|
|
Form of proxy card for the special
meeting of the shareholders of GBC Bancorp, Inc.*
|
|
99
|
.3
|
|
Consent of Sandler
ONeill & Partners, L.P.
|
|
|
* |
To be filed by amendment.
|
The undersigned Registrant hereby undertakes:
(a) To file, during any period in which offers or sales are
being made, a post-effective amendment to this registration
statement:
(1) To include any prospectus required by
Section 10(a)(3) of the Securities Act of 1933.
(2) To reflect in the prospectus any facts or events
arising after the effective date of the registration statement
(or the most recent post-effective amendment thereof) which,
individually or in the aggregate, represent a fundamental change
in the information set forth in the registration statement.
Notwithstanding the foregoing, any increase or decrease in
volume of securities offered (if the total dollar value of
securities offered would not exceed that which was registered)
and any deviation from the low or high end of the estimated
maximum offering range may be reflected in the form of
prospectus filed with the Commission pursuant to
Rule 424(b) if, in the aggregate, the changes in volume and
price represent no more than 20 percent change in the
maximum aggregate offering price set forth in the
Calculation of Registration Fee table in the
effective registration statement.
(3) To include any material information with respect to the
plan of distribution not previously disclosed in the
registration statement or any material change to such
information in the registration statement.
(b) That, for the purpose of determining any liability
under the Securities Act of 1933, each such post-effective
amendment shall be deemed to be a new registration statement
relating to the securities
II-2
offered therein, and the offering of such securities at that
time shall be deemed to be the initial bona fide offering
thereof.
(c) To remove from registration by means of a
post-effective amendment any of the securities being registered
which remain unsold at the termination of the offering.
(d) For purposes of determining any liability under the
Securities Act, each filing of the Registrants annual
report pursuant to Section 13(a) or Section 15(d) of
the Securities Exchange Act of 1934 (and, where applicable, each
filing of an employee benefit plans annual report pursuant
to Section 15(d) of the Exchange Act) that is incorporated
by reference in the registration statement shall be deemed to be
a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall
be deemed to be the initial bona fide offering thereof.
(e) That prior to any public reoffering of the securities
registered hereunder through use of a prospectus which is a part
of this registration statement, by any person or party who is
deemed to be an underwriter within the meaning of
Rule 145(c), the Registrant undertakes that such reoffering
prospectus will contain the information called for by the
applicable registration form with respect to reofferings by
persons who may be deemed underwriters, in addition to the
information called for by the other Items of the applicable form.
(f) That every prospectus (1) that is filed pursuant
to paragraph (e) immediately preceding, or
(2) that purports to meet the requirements of
Section 10(a)(3) of the Securities Act of 1933 and is used
in connection with an offering of securities subject to
Rule 415, will be filed as a part of an amendment to the
registration statement and will not be used until such amendment
is effective, and that, for purposes of determining any
liability under the Securities Act of 1933, each such
post-effective amendment shall be deemed to be a new
registration statement relating to the securities offered
therein, and the offering of such securities at that time shall
be deemed to be the initial bona fide offering thereof.
(g) Insofar as indemnification for liabilities arising
under the Securities Act of 1933 may be permitted to directors,
officers and controlling persons of the Registrant pursuant to
the provisions described in Item 20 above, or otherwise,
the Registrant has been advised that in the opinion of the
Commission such indemnification is against public policy as
expressed in the Securities Act of 1933 and is, therefore,
unenforceable. If a claim for indemnification against such
liabilities (other than the payment by the Registrant of
expenses incurred or paid by a director, officer or controlling
person of the Registrant in the successful defense of any
action, suit or proceeding) is asserted by such director,
officer or controlling person in connection with the securities
being registered, the Registrant will, unless in the opinion of
its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the
question of whether such indemnification by it is against public
policy as expressed in the Securities Act of 1933 and will be
governed by the final adjudication of such issue.
(h) To respond to requests for information that is
incorporated by reference into the prospectus pursuant to
Items 4, 10(b), 11, or 13 of this Form, within one
business day of receipt of such request, and to send the
incorporated documents by first class mail or other equally
prompt means. This includes information contained in documents
filed subsequent to the effective date of the registration
statement through the date of responding to the request.
(i) To supply by means of a post-effective amendment all
information concerning a transaction, and the Company being
acquired involved therein, that was not the subject of and
included in the registration statement when it became effective.
II-3
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as
amended, the Registrant has duly caused this registration
statement to be signed on its behalf by the undersigned,
thereunto duly authorized, in the city of Charlotte, state of
North Carolina on July 17, 2006.
FIRST CHARTER CORPORATION
(Registrant)
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By:
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/s/ Robert
E. James, Jr.
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Robert E. James, Jr., President and
Chief Executive Officer (Principal Executive
Officer duly authorized to sign on behalf of
the Registrant)
KNOW ALL MEN BY THESE PRESENTS, that each individual whose
signature appears below and on the following page hereby
constitutes and appoints Robert E. James, Jr., Charles A.
Caswell and Stephen J. Antal, and each of them as his or her
true and lawful
attorneys-in-fact
and agents, with full power of substitution and resubstitution,
for him or her and in his or her name, place and stead, in any
and all capacities, to sign any and all amendments (including
post-effective amendments) to this registration statement, and
to file the same, with any and all exhibits thereto, and all
other documents in connection therewith, with the Securities and
Exchange Commission, and hereby grants to such
attorneys-in-fact
and agents, and each of them, full power and authority to do and
perform each and every act and thing requisite and necessary to
be done in and about the premises, as fully to all intents and
purposes as he or she might or could do in person, and hereby
ratifies and confirms all that said
attorneys-in-fact
and agents, or any of them, or their or his substitute or
substitutes, may lawfully do or cause to be done by virtue
hereof.
Pursuant to the requirements of the Securities Act of 1933, as
amended, this registration statement has been signed below by
the following persons in the capacities and on the dates
indicated.
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Signature
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Title
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Date
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/s/ Robert
E. James,
Jr.
(Robert
E James, Jr.)
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President, Chief Executive Officer
and Director (Principal Executive Officer)
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July 17, 2006
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/s/ James
E. Burt,
III
(James
E. Burt, III)
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Chairman of the Board and Director
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July 17, 2006
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/s/ Michael
R. Coltrane
(Michael
R. Coltrane)
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Vice Chairman of the Board and
Director
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July 17, 2006
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/s/ Charles
A. Caswell
(Charles
A. Caswell)
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Executive Vice President, Chief
Financial Officer and Treasurer (Principal Financial and
Accounting Officer)
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July 17, 2006
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/s/ William
R. Black
(William
R. Black)
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Director
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July 17, 2006
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/s/ John
J. Godbold,
Jr.
(John
J. Godbold, Jr.)
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Director
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July 17, 2006
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/s/ Charles
A. James
(Charles
A. James)
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Director
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July 17, 2006
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II-4
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Signature
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Title
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Date
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/s/ Walter
H. Jones,
Jr.
(Walter
H. Jones, Jr.)
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Director
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July 17, 2006
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/s/ Samuel
C. King,
Jr.
(Samuel
C. King, Jr.)
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Director
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July 17, 2006
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/s/ Jerry
E. McGee
(Jerry
E. McGee)
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Director
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July 17, 2006
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/s/ Ellen
L.
Messinger
(Ellen
L. Messinger)
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Director
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July 17, 2006
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/s/ Hugh
H. Morrison
(Hugh
H. Morrison)
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Director
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July 17, 2006
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/s/ Thomas
R. Revels
(Thomas
R. Revels)
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Director
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July 17, 2006
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/s/ L.
D. Warlick,
Jr.
(L.
D. Warlick, Jr.)
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Director
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July 17, 2006
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/s/ William
W. Waters
(William
W. Waters)
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Director
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July 17, 2006
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II-5
EXHIBIT INDEX
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Exhibit
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Description
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2
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.1
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Agreement and Plan of Merger,
dated as of June 1, 2006, by and between First Charter
Corporation and GBC Bancorp, Inc., incorporated by reference to
Exhibit 2.1 of First Charters Current Report on
Form 8-K
filed June 6, 2006 (Commission File
No. 0-15829)
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3
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.1
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Amended and Restated Articles of
Incorporation of First Charter Corporation, incorporated herein
by reference to Exhibit 3.1 of First Charters
Quarterly Report on
Form 10-Q
for the quarter ended March 31, 2004 (Commission File
No. 0-15829)
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3
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.2
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Amended and Restated By-laws of
First Charter Corporation, incorporated herein by reference to
Exhibit 3.2 of First Charters Quarterly Report on
Form 10-Q
for the quarter ended March 31, 2004 (Commission File No.
0-15829)
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4
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.1
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Specimen Certificate of First
Charter Common Stock
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5
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.1
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Opinion of Helms
Mulliss & Wicker, PLLC as to the validity of the shares
of First Charter Corporation common stock*
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8
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.1
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Opinion of Womble Carlyle
Sandridge & Rice, PLLC as to tax matters*
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23
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.1
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Consent of Helms
Mulliss & Wicker, PLLC (included in Exhibit 5.1)
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23
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.2
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Consent of Womble Carlyle
Sandridge & Rice, PLLC (included in Exhibit 8.1)
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23
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.3
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Consent of KPMG LLP
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23
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.4
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Consent of Mauldin &
Jenkins, LLP
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24
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.1
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Power of Attorney (included on
signature page)
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99
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.1
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Voting Agreement dated as of
June 1, 2006 by and among First Charter Corporation and
those certain Shareholders set forth therein (incorporated by
reference to Exhibit C of the Schedule 13D filed by
First Charter on June 12, 2006 with respect to GBC Bancorp,
Inc. common stock)
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99
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.2
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Form of proxy card for the special
meeting of the shareholders of GBC Bancorp, Inc.*
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99
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.3
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Consent of Sandler
ONeill & Partners, L.P.
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* |
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To be filed by amendment |
II-6