SCHEDULE 14A
(Rule 14a-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934
Filed by the Registrant
Filed by a Party other than the Registrant
Check the appropriate box:
Preliminary Proxy Statement
Confidential, for Use of the Commission
Only (as permitted by Rule 14a-6(e)(2)
Definitive Proxy Statement
Definitive Additional Materials
Soliciting Material Pursuant to Rule 14a-11(c) or Rule 14a-12
GOLDEN ISLES FINANCIAL HOLDINGS, INC.
(Name of Registrant as Specified in Its Charter)
Name of Person(s) Filing Proxy Statement, if other than the
Registrant)
Payment of Filing Fee (Check the appropriate box):
No fee required.
Fee computed on table below per Exchange Act Rules 14a-6(i)(4)
and 0-11.
(1) Title of each class of securities to which transaction
applies:
(2) Aggregate number of securities to which transaction applies:
(3) Per unit price or other underlying value of transaction
computed pursuant to Exchange Act Rule 0-11 (Set forth the amount
on which the filing fee is calculated and state how it was
determined):
(4) Proposed maximum aggregate value of transaction:
(5) Total fee paid:
Fee paid previously with preliminary materials.
Check box if any part of the fee is offset as provided by
Exchange Act Rule 0-11(a)(2) and identify the filing for which the
offsetting fee was paid previously. Identify the previous filing
by registration statement number, or the Form or Schedule and the
date of its filing.
(1) Amount Previously Paid:
(2) Form, Schedule or Registration Statement No.:
(3) Filing Party:
(4) Date Filed:
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
GOLDEN ISLES FINANCIAL HOLDINGS, INC.
Notice is hereby given that a special meeting of
shareholders of Golden Isles Financial Holdings, Inc. (the
Company) will be held on March 11, 1997, at 10:00 a.m., local
time, at the Embassy Suites Hotel, 500 Mall Boulevard, Brunswick,
Georgia 31520, pursuant to a demand delivered to the Secretary of
the Company by more than 25% of the shareholders of the Company
for the purpose of considering and voting on the following
matters, all of which are described in the attached proxy
statement:
Proposal A:
1. That the number of members constituting the full Board of
Directors be fixed at six (a decrease of two members);
2. That each of J. Thomas Whelchel, Michael D. Hodges, C.
Kermit Keenum and L. McRee Harden be removed as members of
the Board of Directors;
3. That Article 3, Section 3.6 of the bylaws of the Company be
amended to state that the shareholders of the Company shall
have the right to fill a vacancy on the Board of Directors
(created by the removal of a director) at a special meeting
or an annual meeting; and
4. That two persons nominated by Gregory S. Junkin, Paul D.
Lockyer and Scott A. Junkin be elected to fill the two
vacancies on the Board of Directors.
Proposal B:
5. That the number of members constituting the full Board of
Directors be fixed at 13 (an increase of five members); and
6. That five persons nominated by Gregory S. Junkin, Paul D.
Lockyer and Scott A. Junkin be elected to fill the five
vacancies on the Board of Directors resulting from the
increase in the number of directors.
Such other matters as may properly come before the meeting and any
adjournment thereof.
Only shareholders of record at the close of business on
Wednesday, January 29, 1997, shall be entitled to notice of and to
vote at the meeting and any adjournment thereof.
The Board of Directors would like to have as many
shareholders as possible represented at the special meeting.
Accordingly, you are asked to sign and return the enclosed proxy
at your earliest convenience. You may change or withdraw your
proxy at any time prior to the voting at the meeting, including if
you attend the meeting and wish to vote in person.
By order of the Board of Directors and Jimmy D. Veal,
Secretary.
GOLDEN ISLES FINANCIAL HOLDINGS, INC.
By: /s/ Jimmy D. Veal
Jimmy D. Veal, Secretary
St. Simons Island, GA
February , 1997
SUMMARY
This proxy statement is furnished in connection with two (2)
alternative proposals (Proposal A and Proposal B) to be voted upon
by shareholders of Golden Isles Financial Holdings, Inc. (the
Company). THE EFFECT OF EITHER PROPOSAL, IF ADOPTED BY
SHAREHOLDERS OF THE COMPANY, WOULD BE TO ENABLE MR. GREGORY S.
JUNKIN AND MR. PAUL D. LOCKYER TO REGAIN CONTROL OF MANAGEMENT OF
THE COMPANY. Under both proposals, persons nominated by Gregory
S. Junkin (Mr. Junkin), Paul D. Lockyer (Mr. Lockyer) and Scott A.
Junkin (collectively, the Junkin Group) would be elected to fill
vacancies on the Board of Directors of the Company created by
adoption of either of those proposals. Mr. Junkin and Mr. Lockyer
both served as executive officers of the Company prior to their
dismissal on October 17, 1996, at which time their employment was
terminated by the Board of Directors of the Company for reasons
more particularly discussed hereinafter (see Dismissal of Mr.
Junkin and Mr. Lockyer).
THE BOARD OF DIRECTORS OF THE COMPANY, EXCEPTING ONLY
MESSRS. JUNKIN AND LOCKYER, OPPOSE BOTH OF THE PROPOSALS AND
SOLICITS YOUR PROXY BY MARKING THE PROXY CARD TO VOTE AGAINST ALL
PARTS OF PROPOSAL A AND PROPOSAL B.
INTRODUCTION
This proxy statement is furnished in connection with the
solicitation of proxies by the Board of Directors of Golden Isles
Financial Holdings, Inc. (the Company) for use at the special
meeting of the shareholders of the Company (the Special Meeting)
to be held on March 11, 1997, at 10:00 a.m. at the Embassy Suites
Hotel, 500 Mall Boulevard, Brunswick, Georgia 31525, and any
adjournment thereof, for the purposes set forth in the
accompanying notice of the meeting.
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The meeting is being called pursuant to the written demand
of approximately 28% of the shareholders of the Company, at the
request of the Junkin Group delivered to the Company on January
17, 1997. The accompanying notice was previously sent to you by
Mr. Junkin, designated in the request as Officer of Persons
Calling the Meeting. The Special Meeting has subsequently been
called by the Board of Directors of the Company at a duly called
board meeting on January 29, 1997. Accordingly, the Company is
sending you an additional notice of the Special Meeting of the
shareholders.
At the Special Meeting, shareholders of the Company will be
asked to vote on alternative Proposals A and B, more particularly
set forth hereinafter. The Junkin Group has stated that it will
solicit proxies from shareholders in support of Proposals A and/or
B. THE ENCLOSED PROXY IS SOLICITED ON BEHALF OF THE BOARD OF
DIRECTORS OF THE COMPANY IN OPPOSITION TO PROPOSALS A AND B. At
the January 29, 1997, Board of Directors meeting, where the
solicitation of this proxy was authorized, the directors voted six
to two to solicit proxies of shareholders to vote AGAINST Proposal
A and Proposal B. At the meeting, all directors voted to
opposeProposals A and B except Messrs. Junkin and Lockyer. The
Board of Directors of the Company, excepting only Messrs. Junkin
and Lockyer, recommends a vote AGAINST Proposal A and Proposal B.
The expense of this solicitation, including the cost of
preparing and mailing this proxy statement, will be paid by the
Company. Copies of solicitation material may be furnished to
banks, brokerage houses and other custodians, nominees and
fiduciaries for forwarding to beneficial owners of shares of the
Company's common stock, and normal handling charges will be paid
for such forwarding service.
In addition to solicitation by mail, directors L. McRee
Harden, Michael D. Hodges, Russell C. Jacobs, Jr., C. Kermit
Keenum, Jimmy D. Veal, and J. Thomas Whelchel and regular
employees of the Company and its subsidiaries, The First Bank of
Brunswick (the Bank), First Bank Mortgage Corporation and First
Credit Service Corporation may solicit proxies. In addition,
other persons that may be engaged by the directors and management
of the Company and its subsidiaries to solicit proxies include,
but are not limited to, other shareholders who have indicated a
desire to aid the present management of the Company. Such
individuals may solicit proxies in person or by telephone or
telecopy from shareholders who have been provided prior to such
solicitation with a copy of this proxy statement.
Only shareholders of record at the close of business on
January 29, 1997, or their duly appointed representatives, are
entitled to vote at the special meeting or any adjournment
thereof. As of that date, the Company had outstanding and
entitled to vote 2,344,302 shares of its no par value common
stock. Each shareholder is entitled to one vote per share owned.
Any proxy given pursuant to this solicitation may be revoked
by any shareholder who attends the meeting and gives notice of his
or her election to vote in person, without complying with any
other formalities. In addition, any proxy given pursuant to this
solicitation may be revoked prior to the meeting by delivering an
instrument revoking it, or a duly executed proxy bearing a later
date, to the Secretary of the Company. If the proxy is properly
completed and returned by the shareholder and is not revoked, it
will be voted at the meeting in the manner specified therein. If
the proxy is returned without any choice being specified, it will
be voted AGAINST all the Proposals presented at the special
meeting, and in the proxy-holder's discretion with regard to any
other matters that may properly come before the meeting.
BACKGROUND OF SPECIAL MEETING
Golden Isles Financial Holdings, Inc. was incorporated under
the laws of the State of Georgia on September 8, 1987, but
conducted only organizational activities until its initial public
offering closed on January 31, 1990. The Company used the
proceeds of the offering to capitalize and acquire all of the
capital stock of The First Bank of Brunswick, Brunswick, Georgia
(the Bank), a state bank organized under the laws of the State of
Georgia.
The Bank opened for business on July 2, 1990, to engage in a
general commercial banking business in Glynn County, Georgia. Mr.
Paul D. Lockyer was the first President of the Bank and continued
as President of the Bank until October 17, 1996.
In September of 1993, the Company received approval to
establish and operate First Bank Mortgage Corporation (FBMC) as a
wholly-owned subsidiary of the Company to engage in originating,
making, acquiring and servicing mortgage loans. Also, in
September of 1993, the Company received approval to establish and
operate First Credit Service Corporation (FCC) as a wholly-owned
subsidiary of the Company to engage in the making of consumer
loans.
On June 6, 1994, Mr. Junkin assumed the position of a full-time
salaried Chief Executive Officer of the Company, FBMC and
FCC. The original purpose of forming the Company was to establish
the Bank as a community bank engaging in the general banking
business in and around Glynn County, Georgia. FBMC was organized
for the purpose of engaging in the mortgage lending business in
Southeast Georgia, and FCC was organized for the purpose of
engaging in the consumer loan business in Southeast Georgia and
presently has offices in Brunswick, Kingsland, Savannah, Waycross,
and Martinez, Georgia.
LOSSES AND EXPENSES
The Company experienced substantial losses under the
leadership of Messrs. Junkin and Lockyer. On December 31, 1994,
six months after Mr. Junkin assumed the role of full-time Chief
Executive Officer of the Company, the Company and its subsidiaries
had reached total assets of $60,358,093 and had a net income for
the year of $246,222. At year-end December 31, 1995, profits on a
consolidated basis fell to $12,898 for the year, or only $.01 per
share. For the first quarter ending March 31, 1996, the Company
had an unaudited net loss of $76,578 or a loss of $.03 per share;
for the second quarter ended June 30, 1996, the Company had an
unaudited net loss of $69,745 or a loss of $.03 per share; and for
the third quarter ended on September 30, 1996, the Company had an
unaudited net loss of $280,442 or $.12 a share. Thus, for the
nine-month period ending September 30, 1996, the Company had an
unaudited net loss of $426,765 or a loss of $.18 per share.
Profits of the Company were $105,431 for the six month period
ended June 30, 1994, the six month period immediately preceding
Mr. Junkin becoming a full-time Chief Executive Officer of the
Company. For the nine month period ended September 30, 1996, the
nine month period immediately preceding the termination of Mr.
Junkin and Mr. Lockyer, the Company experienced losses totaling
$426,765. Management anticipates an additional loss for the
fourth quarter of 1996, and the unaudited results of the fourth
quarter and the year will be announced before the Special Meeting.
The recent deterioration of the Companys financial condition
is largely attributable to the losses of FBMC, the Company's
wholly-owned mortgage company. First Bank Mortgage Corporation
has incurred an operating loss for the nine month period ended
September 30, 1996 of $543,435, including a loss in September of
$147,738, which also includes provisions of $115,000 for loan
losses and restructuring costs. This does not include any actual
loan losses which may occur. This is far below the year to date
profit of $56,422 which was budgeted. This company was off budget
by $599,857. This business was started in late 1993 and, over the
past three years, through September 30, 1996, has lost $1,065,895.
The financial condition of the company has also been
adversely impacted by excessive expenses incurred by the company
at the holding company level. Non-interest expense for the
Company through September 30, 1996, was $650,729, which the Board
of Directors considers to be inordinately high. The Company
received no income to offset those expenses other than from within
the Company.
The Company has not declared a cash dividend since it
commenced operations in July 1990.
FBMC ACTIVITIES
In its inception, the Board of Directors felt FBMC was
established to generate and close long term real estate mortgages
to be sold to investors with FBMC receiving fee income for the
service. In the prospectus dated May 31, 1994, used for the
company's secondary stock offering, the Company's service area was
defined as the Southeast quadrant of Georgia. During 1996, the
Board of Directors learned FBMC was funding loans in states
outside of Georgia and as far west as Arkansas. The Board of
Directors was advised loans were being purchased with commitments
from long term investors in place to purchase the loans from FBMC,
thereby insuring the Company was not exposed to risk of nonpayment
or interest rate risk. The Board of Directors discovered in July
1996 that loans were in fact being purchased without commitments
from long term investors to purchase the loans from FBMC, contrary
to the Board's earlier understanding.
During 1996, the directors of the Company became concerned
about FBMC's national mortgage warehouse lending business. Mr.
Junkin and Mr. Lockyer had repeatedly assured the other directors
there was no risk involved in this type of lending unless a fraud
was perpetrated on the Company. The Board of Directors was
advised by Messrs. Junkin and Lockyer that each loan being made
was secured by proper assignment of notes and security deed
instruments, and when each loan was funded by the Company, the
Company had a forward commitment from an investor to purchase that
loan.
In late summer or early fall, the Bank's loan committee
learned a company in Arkansas had an outstanding loan balance of
approximately $2.5 million owed to FBMC which was past due, and
the borrower was unable to repay the loan. It was then discovered
by the directors that no commitments were in place to purchase the
loans, and proper collateral loan documents had not been assigned
to FBMC. There was no way to enforce payment. This situation
essentially created unsecured loans by FBMC. Although these loans
were arranged by FBMC, the Bank actually advanced the money to the
Arkansas mortgage originator without customary Bank loan committee
approval, and the advance was booked by the Bank as a repurchase
agreement with FBMC. As a result, repayment of the indebtedness
is dependent upon the financial condition of the borrower,
contrary to the understanding of the Board of Directors. The
board learned that the amount of the loans outstanding to this
borrower had been as high as $4.3 million. Through efforts of
bank personnel, a substantial portion of these loans has been
collected, and there now remains approximately $610,000 unpaid and
FBMC has purchased the loans from the Bank. The loans funded by
the Bank are being serviced by the Arkansas company, but regular
payments of principal and interest are not being paid to FBMC. It
is hoped but is uncertain that these loans will be repaid.
Former management of the company also involved FBMC in a
business known as BC&D Paper without adequate discussion with the
Board of Directors. BC&D Paper involved the making or purchasing
of loans at high interest rates to individuals who could not
qualify under the credit standards of the Bank. Some of these
loans were originated by FBMC and assigned to the Bank under a
repurchase warehouse line of credit. In essence, the Bank's money
was being lent for substandard credits which the Bank itself would
not lend. These loans were never presented to the Bank's Loan
Committee and were never approved by its Board of Directors.
FBMC had employed a large number of employees, as high as
43, obviously in anticipation of a growth in business, rather than
employing the personnel needed to service its business and adding
to its staff as business grew. The business did not grow as
anticipated, and the losses mounted. Planning for FBMC's growth
appears to have been erroneous. FBMC failed to meet the budget
submitted to its Board of Directors for the nine months ended
September 30, 1996, by approximately $600,000.
In May 1996, at the direction of Mr. Junkin, FBMC entered
into a lease in the First Federal Building in Brunswick, Georgia,
again without Board knowledge or approval. The effect of this was
to move FBMC from its quarters in the St. Simons Island branch of
the Bank, where it was housed at no cost to the Company, to leased
space having an annual rental cost to the Company of $95,350. The
leased space was then redecorated and furnished at a cost of
approximately $186,724. These expenditures were made without the
knowledge or approval of the Board.
BUILDING PURCHASE
In late 1995, Mr. Lockyer initiated discussions with the
Board regarding the purchase of an office building located at 200
Plantation Chase, St. Simons Island, Georgia. This office
building was owned by a partnership consisting of Mr. Junkin and
two other individuals. After receiving a third party appraisal
of $355,000, the Board approved and closed the purchase of 200
Plantation Chase for $350,000. Subsequent to the purchase, Mr.
Junkin and/or Mr. Lockyer had 200 Plantation Chase redecorated and
refurnished at a cost of $174,535 to the Company without the
knowledge or approval of the Board.
DISMISSAL OF MR. JUNKIN AND MR. LOCKYER
On October 17, 1996, the Board of Directors, by a vote of
six to two, removed Messrs. Junkin and Lockyer as officers of the
Company and subsidiaries and removed Messrs. Junkin and Lockyer as
directors of all the subsidiary companies. The decision to
terminate Messrs. Junkin and Lockyer was based primarily upon
continuing losses of FBMC and excessive costs incurred in the
operation of the holding company.
Other important factors leading to the Board's decision
were: (a) imprudent use of company funds, (b) failure to consult
with or obtain Board approval before taking significant action,
(c) expending significant company monies without Board approval,
(d) misleading the Board, (e) exposing the company to substantial
risks of loss and (f) failing to exercise what the Board considers
sound management practices. Mr. Lockyer had an employment
contract with the Bank which provided that in the event of his
termination, he would receive severance pay of one year's salary.
Immediately following his termination, Mr. Lockyer demanded
payment and the Bank paid him $145,000 in fulfillment of its
obligations under the employment contract.
Mr. J. Thomas Whelchel was elected Acting Chairman of the
Board and Chief Executive Officer of the Company. Mr. Michael D.
Hodges was elected President and Chief Executive Officer of the
Bank.
FINDINGS AND EVENTS AFTER TERMINATION OF MESSRS. JUNKIN AND
LOCKYER
On October 18, 1996, the Board of Directors, through the new
executive officers, began independently reviewing the FBMC losses,
the high expenses of the holding company with no revenue, and the
action which should be taken to rectifthese problems. The Board
of Directors also engaged Arthur Andersen, LLP (Arthur Andersen),
a national accounting firm, to investigate these matters and to
assist in evaluating possible solutions.
1. Arthur Andersen found that during 1995-1996 the
Company and its subsidiaries had paid $846,828 to one company for
furniture and interior decorating costs. These amounts were paid
with no evidence of competitive bids, without alternate proposals
from other firms, without a projected budget, and without approval
of the Board of Directors. The furniture in Mr. Junkin's office
at 200 Plantation Chase alone cost $27,781.
2. In August of 1996, FBMC entered into a two-year lease
for office space on the third floor of the First Federal Plaza in
Brunswick, Georgia, at a cost of $7,946 a month, and $186,724 was
spent on decorating expenses. FBMC moved from the St. Simons
Island branch of the Bank, and the space in the St. Simons branch
was left vacant. The move, the lease and the decorating expenses
were not approved by the Board of Directors.
3. Prior to the time Mr. Junkin became an employee of
the Company, he directed the Company's accountant to add him, his
family, and his personal secretary (none of whom were employed by
the Company) to the Company's group health insurance plan, and
directed that the Company pay their entire premium. This practice
was criticized by the Company's external auditors, and the Board
of Directors of the Company in June 1993 obtained Mr. Junkin's
assurance this practice would stop. In fact, the Board learned
that he continued this practice until his employment on June 6,
1994. After he became an employee of the Company, Mr. Junkin was
eligible for coverage under the Company policy whereby the Company
would pay part of the premium, with the remainder to be paid by
him. Mr. Junkin directed the Company's accountant to pay the
entire premium for him, his family, and his secretary. All other
employees of the Company pay their share of health insurance
premiums for themselves and their families.
4. On March 20, 1996, Mr. Junkin had the Company
purchase from himself and his partners certain furniture located
in the main office of the Company at a cost of $14,000. Arthur
Andersen found that no appraisal or independent valuation of the
furniture was made. At the time this furniture was purchased, the
Company building was being decorated at a cost of $174,536. After
the furniture was purchased from Mr. Junkin and his partners for
$14,000, some, if not most, of it was removed and it is not now in
the possession of the Company.
5. Arthur Andersen found that Mr. Junkin and Mr. Lockyer
were approving each other's expense accounts. In 1995 and through
the date of his removal from office, the Company had reimbursed
Mr. Junkin, in addition to his salary, in excess of $30,000,
mostly for meals and travel. This included nine trips to Phoenix,
Arizona, which were identified only as "meeting with
shareholders," meetings with market-makers," or GIFH business."
Company records show only four shareholders of record in Arizona
out of approximately 1,000 total shareholders. The Board of
Directors knows of no Company business in Arizona, and the Company
has no market-makers in Arizona. Use of Company funds in this
manner and the practice of Company officials approving each
other's personal expense reimbursements was poor management
practice and leads to abuses.
6. In addition to investigating the source of the high
expenses of the Company and FBMC, the Board of Directors asked
Arthur Andersen, LLP to study the strategic direction of FBMC and
to make recommendations on how FBMC should be structured.
Andersen Consulting, through its mortgage consultant, recommended
that FBMC cease its high risk business of nationwide wholesale
BC&D" mortgage lending and focus on originating or brokering
retail mortgage loans in the local market and wholesale lending
activities confined to the Company market area in which it has
some personal knowledge of the market. Also, Arthur Andersen
recommended that the mortgage company, as a separate business, be
discontinued and that the mortgage operation be moved back into
and become a part of the Bank. Management would be under the
Bank, and duplication of certain expenses, including some
personnel and occupancy expenses, would be eliminated.
A copy of the draft of the report of Arthur Andersen, with
the consent of Arthur Andersen, is attached hereto as Exhibit A.
The Federal Reserve Bank of Atlanta originally was scheduled
to perform an examination of the Company in early 1997. The
Georgia Department of Banking and Finance requested an
acceleration of that audit to November 4, 1996. After
approximately two weeks of examination, the Georgia Department of
Banking and Finance and the Federal Reserve Bank suspended their
exam so that Arthur Andersen, LLP could commence work.
Representatives of the Georgia Department of Banking & Finance,
the Federal Reserve Bank of Atlanta, and the Federal Deposit
Insurance Company asked for and attended a December 9, 1996
meeting of the Board of Directors to discuss its findings on the
suspended examination. During the meeting, the regulators urged
the Board of Directors to address problems determined during the
examination process by adopting a lengthy resolution. The Board
of Directors, with all members attending, unanimously adopted the
following resolution:
BOARD RESOLUTION
1. Within 30 days from the adoption date of this
resolution, the Board will develop and submit to the supervisory
authorities a management plan for the parent company and each of
its subsidiaries. In developing that plan, the Board will
identify the positions considered necessary at each company along
with the responsibilities and duties of those positions. The plan
must include:
a. The type and number of management positions needed
to manage the affairs of the parent and each subsidiary,
including the development of an organizational chart
reflecting the management structure;
b. A clear and concise description of the required
level of education, experience, and level of compensation
for each management position;
c. An evaluation of each officer currently serving
in a management position to determine whether those
individuals possess the ability, education, experience, and
other qualifications required to perform present and
anticipated duties, including establishment and enforcement
of sound policies and practices;
d. Identification and establishment of such Board
committees at the parent and at each subsidiary as may be
necessary to provide guidance and oversight to active
management;
e. A plan of action to recruit and hire any
additional or replacement personnel with the requisite
ability, experience, and other qualifications, which the
Board deems necessary to fill management positions;
f. At a minimum, the Board shall review the role of
each company's chairman, chief executive officer, chief
lending officer, and chief financial officer. One
individual may hold more than one position; however, the
duties assigned to the combined positions shall not be of
such responsibility as to diminish the effectiveness of any
one position;
g. Authorities of each management position and of
each Board committee are to be expressly granted by the
respective Boards of the companies;
h. Upon the resignation, termination, and/or hiring
of any management personnel including Board members, the
Board will notify the supervisory authorities of each such
event. Such notice will include the information on each
individual the Board used in making a decision to hire that
person.
2. The Board will review the results or recommendations
from the current engagement of Arthur Andersen, LLP regarding
appropriate internal routine and controls, accounting systems,
policies and procedures, internal loan review, internal audit and
any other areas and develop appropriate steps or procedures to
strengthen noted weaknesses. The results of the Board's review
and the Board's plans or procedures to strengthen noted weaknesses
will be supplied to the supervisory authorities within 30 days.
3. The Board will supply to the supervisory authorities
the results, interim and/or final, of any audit, investigation, or
review conducted at the parent or any subsidiary, performed in
addition to the regular annual independent audit, within 15 days
of receipt.
4. After considering the results and recommendations
from the current engagement of Arthur Andersen, LLP, the Board
will review the scope and adequacy of the annual independent audit
as performed for the prior year end, and as proposed for 1996,
with particular emphasis on the adequacy of the review of internal
routine and controls. Based on the results of this review, the
Board will take appropriate steps to expand the scope of the
proposed 1996 independent audit if necessary to include any of the
areas noted in 2 above not covered in the current engagement of
Arthur Andersen LLP. The results of the Board's review will be
provided to the supervisory authorities within 60 days of the
adoption of this resolution.
5. The Board will notify the external auditor in writing
that his or her responsibility is to the entire Board and then any
findings or recommendations should be made directly to the entire
Board.
6. The Board will develop a strategic plan for the
parent and each subsidiary covering a three to five year period.
These plans will be supported by annual business plans that
include an annual budgeting process including projected balance
sheets. This budget must take into account the maintenance of
adequate liquidity, adequate capital, and adequate reserves for
loan loss in the bank and in the consolidated entity. Debt
service requirements must be reflected as well. The strategic
plan and the 1997 business plan and budget will be submitted to
the supervisory authorities for review as soon as possible but no
later than January 31, 1997.
7. The parent and each of its subsidiaries will charge
off all assets reflected as Loss on the agenda presented to the
Board on December 9, 1996. The Board also commits to immediately
charge off any other losses that come to its attention through any
supervisory authority examination or inspection, any internal or
external audit, or in any other manner. In addition, each entity
will make provisions to the respective loan loss reserve accounts
to bring them to adequacy before December 31, 1996.
8. The Board will further undertake to assure that the
parent's and each subsidiary's books are stated in accordance with
generally accepted accounting principals by December 31, 1996.
Specifically, the Board will conduct a review, either
independently or through the scope of the 1996 independent audit,
of the assets and lease obligations of the various companies to
locate any improperly capitalized expenses, and to determine that
assets and liabilities are properly booked.
9. The Boards of the parent and of the bank subsidiary
will not declare or pay any cash or property dividend or any other
form of capital distribution without the prior written consent of
the supervisory authorities.
10. The parent will not incur any additional debt after
this resolution is adopted without prior notification to the
supervisory authorities. Such notification must occur at least 15
days prior to the date on which the company wishes to incur the
additional debt. Additional debt does not include draws on
existing debt arrangements. Any debt incurred or renewed between
November 15, 1996, and the date of adoption of this resolution
will be immediately reported to the supervisory authorities.
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11. The company will not reduce its capital by purchasing
or redeeming treasury stock without prior notification to the
supervisory authorities. Such notification must occur at least 15
days prior to the date on which the company wishes to purchase or
redeem the stock.
12. The Board will review its obligations with respect to
reporting suspicious activity and will file all Suspicious
Activity Reports as required. This item is intended to cover
matters currently known or that become known to the Board.
13. Beginning 30 days from the date of adoption and every
30 days thereafter, the Board will report progress on each item of
this resolution to the supervisory authorities. Each progress
report will include copies of any correspondence from Golden Isles
Financial Holdings, Inc. to the Securities and Exchange Commission
and/or to the company's shareholders.
PLAN OF BOARD OF DIRECTORS FOR THE FUTURE
It is the intent of the Board of Directors to proceed to
return the Company to profitability, while not subjecting the
Company's capital to extraordinary risks. The major tenets of
this restructuring effort will be as follows:
a. The mortgage company (FBMC) will be closed as a
separate entity. The mortgage company employees and operations
will be returned to a part of the Bank. The wholesale national
BC&D mortgage business will be discontinued, and the mortgage
company will focus on originating or brokering retail mortgages in
the local and surrounding area and wholesale mortgage activities
will be conducted as market conditions warrant.
b. Most expenses of the holding company will be
eliminated, with only minimal and necessary functions performed.
Many functions will be delegated to employees of the various
subsidiaries of the holding company. The holding company will
retain a Chief Executive Officer and some administrative staff,
but these responsibilities will be limited to functions which are
essential to the holding company's role.
c. The First Bank of Brunswick made an unaudited pre-tax
profit in 1996 of approximately $902,771. The Board of Directors
intends to focus on this flagship subsidiary of the Company and
continue efforts to grow it as a profitable community bank serving
the needs of our local and surrounding communities. Ricki Helfer,
Chairman of the Federal Deposit Insurance Corporation, in the
Quarterly Banking Profile dated December 13, 1996, stated through
the third quarter of 1996, commercial banks in the United States
continued to enjoy extraordinary profitability. The J.C. Bradford
& Co. Community Financial Institutions Stock Price Index increased
15.36% during 1996. The Board of Directors has determined that
the Bank is the foundation upon which profitability of the entire
Company can be built and thereby increase the price of the
Company's stock. As conditions warrant and the Company
stabilizes, the Board will look to other investment opportunities,
including acquisition of other banks.
d. First Credit Service Corporation is continuing to
grow and has a sound loan portfolio. The Board of Directors
expects it to contribute to the profitability of the Company in
1997. The Board plans to emphasize its efforts and resources to
continue the progress of First Credit Service Corporation in the
consumer lending area.
It is the opinion of the majority of your Board of Directors
that the Company has not made adequate progress under the
direction of Mr. Junkin and Mr. Lockyer. Profits have eroded and
have resulted in larger and larger quarter to quarter losses. It
is also the opinion of a majority of the Board that excessive
risks have been incurred without proper understanding by previous
management of the exposure to loss, or appropriate explanation to
the Board. Mr. Junkin and Mr. Lockyer have not expended Company
funds in a manner the majority of the Board considers prudent or
well planned. The majority of the Board believes that as a
direct result of Mr. Junkin's and Mr. Lockyer's management, there
has been an erosion of profitability and loss of stock value. The
Board of Directors believes the Company has two solid core
businesses which, if operated with good expense controls, can
produce a profitable company and give the shareholders a good
return on their investment. However, it will take the Board of
Directors some time to implement these plans and reduce costs.
Cost reduction itself produces extra expenses in the short-run,
such as severance pay to Mr. Lockyer, termination of the lease of
the First Federal space and loss of the investment in leasehold
improvement, severance pay to other employees, and expenses of
dealing with this Special Meeting as well as other potential proxy
contests which may ensue.
EFFECT OF PASSAGE OF PROPOSALS A OR B
Under the bylaws of the Company, the number of directors
shall be no fewer than three nor more than twenty-five persons
with the exact number to be fixed and determined from time to time
by resolution of the board of directors or by resolution of the
shareholders at any annual meeting or special meeting of the
shareholders. The Board of Directors has set the number of
directors at eight. Presently all vacancies on the board are
filled by L. McRee Harden, C. Kermit Keenum, Jimmy D. Veal,
Michael D. Hodges, Russell C. Jacobs, Jr., J. Thomas Whelchel,
Gregory S. Junkin and Paul D. Lockyer.
Under the bylaws of the Company, a director may be removed
between annual meetings of shareholders only by a vote of the
holders of the shares entitled to vote at a duly called
shareholders meeting, i.e., by a vote of all of the
shareholders.
If Proposal A(1) is adopted by a vote of all
shareholders, the effect will be for the Board of Directors to be
reduced from eight to six directors. If Proposal A(2) is adopted
by of all shareholders, Messrs. J. Thomas Whelchel, Michael D.
Hodges, C. Kermit Keenum and L. McRee harden will be removed as
Directors. If Proposal A(3) is adopted by a vote of a majority of
the shares present at the meeting, it will be clear that
additional directors can be elected at the meeting. If all of the
above proposals are adopted, two persons will be nominated for
directors to fill the two vacancies created by the removal of four
directors and reduction of the number of directors. The persons
nominated for director that receive the highest number of votes
will be elected. IF THE TWO PERSONS NOMINATED BY THE JUNKIN GROUP
ARE THEN ELECTED, THE JUNKIN GROUP WILL ELECT FOUR OF THE SIX
DIRECTORS AND WILL HAVE CONTROL OF THE COMPANY AND WOULD HAVE THE
POWER TO RETURN MR. JUNKIN AND MR. LOCKYER TO THEIR PRIOR
MANAGEMENT POSITIONS. IT IS THE EXPRESS STATED INTENT OF MESSRS.
JUNKIN AND LOCKYER TO CONTINUE THE SAME HISTORIC MANAGEMENT
PRACTICES WHICH RESULTED IN THE EXISTING LOSSES TO THE COMPANY.
If Proposal B(5) is adopted by a majority of the shares
voting at the meeting, the Board of Directors will be expanded
from eight to thirteen members. If Proposal B(5) is adopted and
the persons nominated by the Junkin Group receive the highest
number of votes, they will be elected as directors. If so elected
the five persons nominated by the Junkin Group, with Mr. Junkin
and Mr. Lockyer will constitute seven members of the thirteen
member Board of Directors. THE EFFECT WILL BE THAT THE JUNKIN
GROUP WILL ELECT A MAJORITY OF THE BOARD OF DIRECTORS, AND WOULD
HAVE THE POWER TO RETURN MR. JUNKIN AND MR. LOCKYER TO THEIR PRIOR
MANAGEMENT POSITIONS. IT IS THE EXPRESS STATED INTENT OF MESSRS.
JUNKIN AND LOCKYER TO CONTINUE THE SAME HISTORIC MANAGEMENT
PRACTICES WHICH RESULTED IN THE EXISTING LOSSES TO THE COMPANY.
All members of the Board of Directors, except Messrs. Junkin and
Lockyer, believe that the number of directors should not be
changed and no director should be removed. The Board of Directors
has voted 6 for and 2 against to recommend to the shareholders to
vote AGAINST Proposals A(1), A(2), A(3) and B(5). The effect of
this vote will be to leave the Board of Directors as it is and
allow the majority of directors to pursue the new direction of the
Company set out in this statement.
IMPORTANCE OF YOUR VOTE
The entire Board of Directors, except for Messrs. Junkin and
Lockyer, recommend to the shareholders that they vote AGAINST all
proposals, including Proposals A(1), A(2), A(3) and B(5) as set
out in the proxy card included herein. The Board of Directors
solicits your proxy to vote against these proposals and asks that
you immediately sign, date and return the proxy in the self-addressed envelope
to Mr. Jimmy D. Veal, 200 Plantation Chase, St.
Simons Island, Georgia 31522, Secretary of the Company.
Under the bylaws of the Company, Proposals A(1), A(2) and
A(3) require that two-thirds of the outstanding shares of the
Company, 1,562,868 shares, vote in favor of the Proposal for it to
be adopted. Under the bylaws of the Company, Proposal B(5) only
requires a majority of those shares voting at a meeting with a
quorum present. A quorum is one-third of all of the shareholders.
Because only a majority of those present at the meeting is
required to adopt Proposal B(5), it is extremely important that
every shareholder vote either in person by attending the meeting
or by signing and returning a proxy. The proxy card will be voted
as directed; however, if no instructions are specified, a signed
proxy card appointing the proxies selected by management will be
voted at the discretion of the proxies AGAINST all proposals,
including Proposals A(1), A(2), A(3) and B(5) listed on the proxy
card.
SECURITY OWNERSHIP OF
CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth share ownership information
as of January 20, 1997, with respect to any person known to the
Company to be a beneficial owner of more than 5% of the Company's
Common Stock. The information as to beneficial ownership was
furnished to the Company by or on behalf of the persons named.
Unless otherwise indicated, each of the shareholders has sole
voting and investment power with respect to the shares of Common
Stock beneficially owned.
Security Ownership of Certain Beneficial Owners*
Name and Address Number of Percent of
of Beneficial Owner Shares Class
Leonard W. Golan(1) 200,102 8.3%
21st Floor
Three First National Plaza
Chicago, Illinois 60602
Gregory S. Junkin
Paul D. Lockyer,
Scott A. Junkin(2)
P.O. Box 30297
Sea Island, Georgia 31561 146,455 7.1%
* Information relating to beneficial ownership of Common Stock is
based upon beneficial ownership concepts set forth in rules of
the SEC under Section 13(d) of the Securities Exchange Act of
1934, as amended (the 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
direct the voting of such security, or investment power, which
includes the power to dispose of, 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 sixty (60) days. Under the
rules, more than one person may be deemed to be a beneficial
owner of the same securities, and a person may be deemed to be
a beneficial owner of securities as to which he has no
beneficial interest. For instance, beneficial ownership
includes spouses, minor children and other relatives residing
in the same household, and trusts, partnerships, corporations
or deferred compensation plans which are affiliated with the
principal.
(1) Mr. Golan's beneficial ownership of the shares of Common
Stock attributed to him stems from (i) his having voting and
investment power with respect to certain of those shares in
his capacity as Trustee of each of the Leonard W. Golan
Insurance Trust dated January 23, 1968, the Carol P. Golan
Insurance Trust dated November 7, 1977, and the Carol P.
Golan QTIP Trust dated April 18, 1995, and (ii) his claiming
beneficial ownership of certain shares registered in the name
of his son, John F. Golan. The number of shares beneficially
owned by Mr. Golan includes the right to acquire 64,642
shares pursuant to Class A Warrants owned by Mr. Golan.
(2) Includes shares held by these individuals as a group as such
term is used in Section 13(d)(3) of the Act and includes
rights of the members of the group to acquire 13,916 shares
pursuant to Class A Warrants and 2,958 shares pursuant to the
exercise of vested options.
The following table sets forth share ownership information as
of January 20, 1997, with respect to (i) each director and named
executive officer of the Company who beneficially owns Common
Stock of the Company, and (ii) all directors and named executive
officers of the Company as a group. The information as to
beneficial ownership was furnished to the Company by or on behalf
of the persons named. Unless otherwise indicated, each of the
shareholders has sole voting and investment power with respect to
the shares beneficially owned.
Security Ownership of Management*
Name and Address Number of
of Beneficial Owner Shares Percent of Class
L. McRee Harden(1) 19,385 0.8%
P.O. Box 2369
Darien, Georgia 31305
Michael D. Hodges(2) 38,764 1.6%
207 Dunbarton Drive
St. Simons Island, Georgia 31522
Russell C. Jacobs, Jr.(3) 16,763 0.7%
308 Oak Grove Island Drive
Brunswick, Georgia 31525
<PAGE>
Gregory S. Junkin(4) 105,653 4.5%
200 Plantation Chase
St. Simons Island, Georgia 31522
C. Kermit Keenum(5) 16,545 0.7%
100 Old Mountain Road
Powder Springs, Georgia 30073
Paul D. Lockyer(6) 21,058 0.9%
311 Dunbarton Drive
St. Simons Island, Georgia 31522
Jimmy D. Veal(7) 81,898 3.4%
711 Beachview Drive
Jekyll Island, Georgia 31527
J. Thomas Whelchel(8) 31,740 1.4%
5 Glynn Avenue
Brunswick, Georgia 31520
All directors and executive 331,806 13.6%
officers as a group
(8 persons)
* Information relating to beneficial ownership of Common Stock
is based upon beneficial ownership concepts set forth in
rules of the SEC under Section 13(d) of the 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 direct the voting of such
security, or investment power, which includes the power to
dispose of, 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 sixty (60) days. Under the
rules, more than one person may be deemed to be a beneficial
owner of the same securities, and a person may be deemed to
be a beneficial owner of securities as to which he has no
beneficial interest. For instance, beneficial ownership
includes spouses, minor children and other relatives
residing in the same household, and trusts, partnerships,
corporations or deferred compensation plans which are
affiliated with the principal.
(1) Includes 1,250 shares owned by his wife for which he
disclaims beneficial ownership. Also includes the right to
acquire 1,385 shares pursuant to vested options.
(2) Includes the right to acquire 30,124 shares pursuant to
vested options.
(3) Includes the right to acquire 1,263 shares pursuant to
vested options.
(4) Includes the right to acquire 4,044 shares pursuant to Class
A Warrants, and 1,500 shares pursuant to vested options.
(5) Includes the right to acquire 1,045 shares pursuant to
vested options.
(6) Includes the right to acquire 1,458 shares pursuant to
vested options.
(7) Includes 9,125 shares owned as custodian for his son, Daniel
D. Veal, 9,125 shares owned as custodian for his son,
Zachary T. Veal, both under the Uniform Gifts to Minors Act,
and 1,958 shares pursuant to vested options.
(8) Includes 25 shares owned by Mr Whelchel's daughter for which
he disclaims beneficial ownership, and 1,390 shares pursuant
to vested options.
None of the directors other than Mr. Junkin and Mr. Lockyer,
or any associate of any of the foregoing persons or any other
person who may be deemed a participant in this solicitation has
purchased or sold any Common Stock within the past two years,
borrowed any funds for the purpose of acquiring or holding any
Common Stock, or is or was within the past year a party to any
contract, arrangement or understanding with any person with
respect to any Common Stock. There have not been any transactions
outside the ordinary course of business since the beginning of the
Company's last fiscal year and there is not any currently proposed
transaction to which the Company or any of its subsidiaries was or
is to be a party, in which any of the directors other than Mr.
Junkin and Mr. Lockyer, or any associate or immediate family
member of any of the foregoing persons or any other person who may
be deemed a participant in this solicitation had or will have a
direct or indirect material interest. Other than the
directorships contemplated by the Proposals, none of the directors
other than Mr. Junkin and Mr. Lockyer, or any associate of any of
the foregoing persons or any other person who may be deemed a
participant in this solicitation has any arrangement or
understanding with any person with respect to any future
employment by the Company or its affiliates, or with respect to
any future transactions to which the Company or its affiliates
will or may be a party.
Following is information about each director, including
biographical data for at least the last five years.
L. McRee Harden (41). Mr. Harden has been a director of the
Company since July 1988, a director of the Bank since February
1990, and a director of First Credit Service Corporation since
July 1993. Mr. Harden is self employed with interests in six
convenience stores, a car wash and a package store.
Michael D. Hodges (43). Mr. Hodges has been a director of
the Company since 1991 and a director of the Bank since June 1990.
He also has been President and CEO of the Bank since October 1996.
Prior to that, he had been Senior Vice President of the Bank since
June 1990, with principal responsibilities for the Bank's loan
portfilio.
<PAGE>
Russell C. Jacobs, Jr. (61). Mr. Jacobs has been a director
of the Company since July 1988, a director of the Bank since
February 1990, and a director of First Bank Mortgage Corporation
since July 1993. He also has been a Vice Chairman of the Bank
since July 1995. Mr. Jacobs is self-employed as an agent for the
Equitable Financial Companies, and as a registered representative
with Equico Securities, Inc. Mr. Jacobs holds both the Chartered
Life Underwriter (CLU) and Chartered Financial Consultant (CHFC)
designations.
Gregory S. Junkin (55)*. Mr. Junkin has been a director of
the Company since March 1987. From March 1987 until October 17,
1996, Mr. Junkin was Chairman and Chief Executive Officer of the
Company. Mr. Junkin is now retired.
Claude Kermit Keenum (61). Mr. Keenum has been a director
of the Company since July 1988, a director of the Bank since
February 1990, and a director of First Credit Service Corporation
since July 1995. He was the superintendent of the Glynn County
School System from 1980 to 1989 and the superintendent of the Cobb
County School System in metropolitan Atlanta from 1989 to 1992.
Mr. Keenum is currently President of Southeastern Communication
Systems, Inc.
Paul D. Lockyer (45)*. Mr. Lockyer has been a director of
the Company since December 1987. From July 1995 to October 17,
1996, Mr. Lockyer was President and Chief Operating Officer of the
Company. From September 1988 through July 1995, he served as
Senior Vice President of the Company. Mr. Lockyer is now retired.
Jimmy D. Veal (48). Mr. Veal has been a Vice Chairman of
the Company since July 1995. He has been a director of the
Company since June 1987 and Secretary/Treasurer of the Company
since September 1992. He has been a Vice Chairman of the Bank
since July 1995, a director of the Bank since July 1990, and
Secretary/Treasurer and a director of both First Credit Service
Corporation and First Bank Mortgage Corporation since July 1993.
He is Secretary/Treasurer and a director of Motel Properties,
Inc., a corporation that owns and operates four motels in Glynn
County and two in Camden County.
J. Thomas Whelchel (62). Mr. Whelchel has been the Acting
Chairman and CEO of the Company since October 1996. Prior to
that, Mr. Whelchel was a Vice Chairman of the Company between July
1995 and October 1996. From July 1988 through July 1995, he
served as President of the Company. Mr. Whelchel has been a
director of the Company since July 1988, and Chairman and a
director of the Bank since February 1990. Mr. Whelchel has also
been a director of both First Credit Service Corporation and First
Bank Mortgage Corporation since July 1993. He is a senior partner
in the Brunswick law firm of Whelchel, Brown, Readdick and
Bumgartner.
<PAGE>
RELATED TRANSACTIONS
During 1996, the Bank loaned funds to certain of the
Company's executive officers and directors or to businesses in
which such persons had an interest. All such loans were: (a) in
the ordinary course of business, (b) on substantially the same
terms, including interest rates and collateral, as those
prevailing at the time for comparable transactions with other
persons, and (c) did not involve more than the normal risk of
collectibility or present other unfavorable features.
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Based solely on review of Forms 3 and 4 and amendments
thereto furnished to the Company during its the fiscal year and
Form 5 and amendments thereto furnished to the Company with
respect to the 1996 fiscal year, no person who, at any time during
the 1996 fiscal year was a director, officer or beneficial owner
of more than 10% of the Common Stock, failed to file on a timely
basis, as disclosed in such forms, reports required by Section
16(a) of the Act during the 1996 fiscal year.
THE BOARD OF DIRECTORS AND ITS COMMITTEES
The Company's Board of Directors have established an audit
committee (theAudit Committee) and a compensation committee
(Compensation Committee).
The current members of the Audit Committee are L. McRee
Harden, Russell C. Jacobs, Jr., and Jimmy D. Veal.* The Audit
Committee held 12 meetings during the 1996 fiscal year. The
mission of the Audit Committee is to prevent losses by the Company
from fraud, defalcation and/or operating deficiencies.
* From June 20, 1996 until he became acting CEO on October 17,
1996, J. Thomas Whelchel was also a member of the Audit Committee.
The Compensation Committee was created on January 16, 1997.
The members of the Compensation Committee are L. McRee Harden,
Claude Kermit Keenum and Jimmy D. Veal. The mission of the
Compensation Committee is to determine the compensation and
benefits of the Company's senior officers.
The Board of Directors of the Company met 16 times during
the 1996 fiscal year. Each of the directors attended more than
75% of the aggregate of (i) the total number of meetings of the
Board of Directors; and (ii) the total number of meetings held by
all committees of the Board of Directors on which he served,
during the period of the 1996 fiscal year that he served as a
director.
On the date of the Special Meeting, the Board of Directors
will consist of eight members. Under the Company's Bylaws,
shareholders or the Board of Directors have the authority to
change the size of the Board of Directors within a range of 3 to
25 members and to fill vacancies. Pursuant to this authority, at
the Special Meeting, shareholders will consider proposals to
reduce the size of the Board of Directors to 6 members, or, in the
alternative, to increase the size of the Board of Directors to 13
members.
EXECUTIVE COMPENSATION
A. Named Executive Officers.
The following table sets forth the compensation paid to the
named executive officers of the Company and its subsidiaries for
each of the Company's last three completed fiscal years.
SUMMARY COMPENSATION
TABLE
ANNUAL COMPENSATION
Name and Other
Principal Annual
Position Year Salary Bonus Compensation
(a) (b) (c) (d) (e)
J. Thomas Whelchel
Acting Chairman
and CEO of the
Company(2) 1996 $0 $0 $0
Michael D.
Hodges, President
and CEO of the Bank
subsidiary(2) 1996 $100,861 $0 $0
1995 $92,096 $6,000 $0
1994 $85,500 $15,000 $0
Gregory S. Junkin,
Former Chairman
and CEO of the
Company(2) 1996 $125,192 $0 $0
1995 $147,211 $0 $0
1994 $40,558 $0 $0
Paul D. Lockyer,
Former President,
COO and CFO of the
Company(2) 1996 $262,115(8) $0 $0
1995 $107,627 $12,785 $0
1994 $100,000 $32,000 $0
LONG TERM COMPENSATION
AWARDS PAYOUTS
Restricted Stock Securities Underlying LTIP All Other
Awards(1) Options/SARs Payouts Compensation
(f) (g) (h) (i)
J. Thomas Whelchel
$0 0 $0 $0
Michael D. Hodges
1996
$0 0 $0 $0
1995
$10,498(3) 6,921(4) $0 $0
1994
$4,650(3) 1,408(5) $0 $0
<PAGE>
Gregory S. Junkin
1996
$0 0 $0 $0
1995
$99,548(6) 1,500(7) $0 $0
1994
$42,000(6) 0 $0 $0
Paul D. Lockyer
1996
$0 0 $0 $0
1995
$71,500(9) 1,458(10) $0 $0
1994
$6,600(9) 0 $0 $0
- ------------
(2) Messrs. Whelchel and Hodges were elected to their respective
positions on October 17, 1996. Messrs. Junkin and Lockyer
were terminated from their respective positions on October
17, 1996.
(3) The aggregate number of shares of restricted stock held by
Michael D. Hodges as of January 20, 1997, is 2,390 shares
and the value of such shares is $12,548. All of the 775
shares of restricted stock awarded to Mr. Hodges in 1994
(1994 Restricted Stock) vests upon the earlier of (i) three
years from August 17, 1994, the date the shares were granted
to Mr. Hodges, or (ii) a change of control in the ownership
of the Company through the acquisition of more than 50% of
the Company's outstanding stock by a third party. Mr. Hodges
will forfeit the 1994 Restricted Stock if he is not employed
by either the Company or one of its subsidiaries on August
16, 1999, unless Mr. Hodges' employment is terminated because
of the sale of the Company or a subsidiary through which Mr.
Hodges is employed and Mr. Hodges is not offered other
employment within the Company or one of its subsidiaries.
Under the terms of the award of 1,615 shares of restricted
stock awarded to Mr. Hodges in 1995 (1995 Restricted Stock)
one-seventh of such shares (i.e., 230.71 shares) became
vested on July 25, 1996, and an additional one-seventh of
such shares will vest on July 25 of each year thereafter
until all such shares have vested. If at any time Mr. Hodges
becomes neither a director nor an executive officer of the
Company or any subsidiary of the Company, then he shall
forfeit any shares of 1995 Restricted Stock which have not
already vested at the time of the event which triggers the
forfeiture.
(4) These options are incentive stock options which have been
granted pursuant to that certain Golden Isles Financial
Holdings, Inc. 1995 Stock Option Plan adopted by the Company
on July 25, 1995 (the 1995 Plan). The 1995 Plan provides for
the granting of certain options that are intended to qualify
as incentive stock options within the meaning of Section
422(b) of the Internal Revenue Code, as well as certain
nonstatutory stock options that are not intended to qualify
as incentive stock options within the meaning of Section
422(b) of the Internal Revenue Code. These incentive stock
options were granted on July 25, 1995, and vested immediately
upon being granted. These options may be exercised at any
time before the earlier of (i) July 25, 2005; or (ii) the
date upon which the optionee ceases to be an employee of the
Company; provided, however, that if the optionee's employment
with the Company is terminated for any reason other than (a)
optionee's death or disability, (b) optionee's voluntary
termination of his employment without the Company's consent,
or (c) termination of optionee's employment by the Company
for cause, then, in such event, optionee may exercise these
incentive stock options for up to three months after
termination of his employment (but in no event later than
July 25, 2005).
(5) These options are nonstatutory stock options which have been
granted pursuant to that certain 1991 Incentive Stock Option
Plan and 1991 Nonstatutory Stock Option Plan adopted by the
Company on May 30, 1991 (the Plan). The Plan provides for
the granting of certain nonstatutory stock options that are
not intended to qualify as incentive stock options within the
meaning of Section 422(b) of the Internal Revenue Code.
These nonstatutory stock options shall be vested and may be
exercised by the individual to whom such options have been
granted during the period such individual serves as an
officer or any other key employee of the Company.
(6) The aggregate number of shares of restricted stock held by
Gregory S. Junkin as of January 20, 1997, is 22,315 shares
and the value of such shares is $117,154. All of the 7,000
shares of restricted stock awarded to Mr. Junkin in 1994
(1994 Restricted Stock) will vest upon the earlier of (i)
three years from August 17, 1994, the date the shares were
granted to Mr. Junkin, or (ii) a change of control in the
ownership of the Company through the acquisition of more than
50% of the Company's outstanding stock by a third party. Mr.
Junkin will forfeit the 1994 Restricted Stock if he is not in
the employment of either the Company or any of its
subsidiaries on August 16, 1997, unless Mr. Junkin's
employment is terminated because of the sale of the Company
or a subsidiary through which Mr. Junkin is employed and Mr.
Junkin is not offered other employment within the Company or
one of its subsidiaries. With respect to the shares of
restricted stock granted to Mr. Junkin in 1995 (15,315
shares), one-seventh of such shares (i.e., 2,187.86 shares
became vested on July 25, 1996, and an additional one-seventh
of such shares will vest on July 25 of each year thereafter
until all such shares have vested. If at any time Mr. Junkin
becomes neither a director of the Company nor an executive
officer of the Company or any subsidiary of the Company, then
he shall forfeit any of the restricted shares granted to him
in 1995 which have notalready vested at the time of the event
which triggers the forfeiture.
(7) These options are nonstatutory stock options which were
granted to Mr. Junkin pursuant to the Plan in his capacity as
a director of the Company.
(8) Mr. Lockyer's 1996 salary includes a severance payment of
$145,000, pursuant to the termination of his employment on
October 17, 1996.
(9) The aggregate number of shares of restricted stock held by
Paul D. Lockyer as of January 20, 1997, is 12,100 shares and
the value of such shares is $63,525. All of the 1,100 shares
of restricted stock awarded to Mr. Lockyer in 1994 (1994
Restricted Stock) vest upon the earlier of (i) three years
from August 17, 1994, the date the shares were granted to Mr.
Lockyer, or (ii) a change of control in the ownership of the
Company through the acquisition of more than 50% of the
Company's outstanding stock by a third party. Mr. Lockyer
will forfeit the 1994 Restricted Stock if he is not in the
employment of either the Company or any of its subsidiaries
on August 16, 1999, unless Mr. Lockyer's employment is
terminated because of the sale of the Company or a subsidiary
through which Mr. Lockyer is employed and Mr. Lockyer is not
offered other employment within the Company or one of its
subsidiaries. With respect to the share of restricted stock
granted to Mr. Lockyer in 1995 (11,000 shares), one-seventh
of such shares (i.e., 1,571.43 shares) became vested on July
25, 1996, and an additional one-seventh of such shares will
best on July 25 of each year thereafter until all such shares
have vested. If at any time Mr. Lockyer becomes neither a
director of the Company nor an executive officer of the
Company or any subsidiary of the Company, then he shall
forfeit any of the restricted shares granted to him in 1995
which have not already vested at the time of the event which
triggers the forfeiture.
(10 These options are nonstatutory stock options which were
granted to Mr. Lockyer pursuant to the Plan in his capacity
as a director of the Company. As a result of the termination
of his employment on October 17, 1996, on January 17, 1997,
45,523 incentive and nonstatutory stock options were
forfeited by Mr. Lockyer.
No options or freestanding SARs were granted to the named
executive officers of the Company during the fiscal year ended
December 30, 1996.
No stock options were exercised and there were no SARs
outstanding during fiscal year 1996. The following table presents
information regarding the value of unexercised options held at
January 20, 1997.
<PAGE>
AGGREGATED OPTION/SAR EXERCISES IN LAST
FISCAL YEAR AND FY-END OPTION/SAR VALUES
Shares Acquired
Name on Exercise Value Realized
(a) (b) (c)
J. Thomas Whelchel - - - -
Michael D. Hodges - - - -
Gregory S. Junkin - - - -
Paul D. Lockyer - - - -
Value of
Number of Securities Unexercised
Underlying Unexercised in-the-Money
Options/SARs at FY-End Options/SARs
Exercisable/ at FY-End
Unexercisable Exercisable/
Unexercisable
(d) (e)
J. Thomas Whelchel 1,390(2) $0/$0(1)
Michael D. Whelchel 28,082(3) $24,089/$0(1)
Gregory S. Junkin 1,500(2) $0/$0(1)
Paul D. Lockyer 1,458(2) $0/$0(1)
(1) Dollar values have been calculated by determining the
difference between the estimated fair market value of the
Company's Common Stock at December 31, 1996 ($5.25) and the
exercise prices of the options.
(2) On January 18, 1996, these options were awarded to Mr.
Whelchel, Mr. Junkin and Mr. Lockyer as compensation with
respect to their services as directors.
(3) Michael D. Hodges has the right to acquire 28,082 shares of
the Company's Common Stock pursuant to stock options issued
by the Company to Mr. Hodges. All of the 28,082 stock
options held by Mr. Hodges were exercisable as of January 20,
1996. Of the 28,082 stock options, 18,750 are exercisable at
the price of $4.00 per share, 1,003 are exercisable at the
price of $4.60 per share, 1,408 are exercisable at the price
of $6.25 per share, and 6,921 are exercisable at the price of
$6.50 per share.
The Company does not have any Long Term Incentive Plans in
effect.
EMPLOYMENT AGREEMENTS
On June 5, 1992, the Bank issued a letter to Paul D.
Lockyer (the Lockyer Letter) summarizing the terms of Mr.
Lockyer's employment with the Bank. Pursuant to the terms of the
Lockyer Letter, Mr. Lockyer was to serve as President and Chief
Executive Officer of the Bank and Senior Vice President and
Principal Financial Officer of the Company. Mr. Lockyer's base
salary was set at $80,500 per year, subject to possible annual
increases. The Lockyer Letter confirms that Mr. Lockyer is
entitled to certain stock options and that he is to be provided
with a company vehicle. Mr. Lockyer may terminate his employment
with the Bank upon 90 days advance notice. The Board of Directors
of the Bank may terminate Mr. Lockyer's employment with the Bank
with or without cause. However, if Mr. Lockyer is dismissed from
his employment for reasons other than fraud or dishonesty, he is
entitled to severance pay in an amount equal to six months of his
then current base salary. On July 2, 1996, the term of the
Lockyer Letter was extended to July 2, 1998. In addition, the
Lockyer Letter was modified to provide severance pay in an amount
equal to twelve months of his then current base salary if Mr.
Lockyer is dismissed for reasons other than fraud or dishonesty.
On October 17, 1996, the Board terminated Mr. Lockyer's
employment.
On June 5, 1992, the Bank issued a letter to Michael D.
Hodges (the Hodges Letter) summarizing the terms of Mr. Hodges'
employment with the Bank. Pursuant to the terms of the Hodges
Letter, Mr. Hodges is to serve as Senior Vice President of the
Bank. Mr. Hodges' base salary was set at $75,500 per year,
subject to possible annual increases. The Hodges Letter confirms
that Mr. Hodges is entitled to certain stock options and that he
is to receive a monthly automobile allowance of $300. Mr. Hodges
may terminate his employment with the Bank upon 90 days advance
notice. The Chief Executive Officer or the Board of Directors of
the Bank may terminate Mr. Hodges' employment with the Bank with
or without cause. However, if Mr. Hodges is dismissed from his
employment for reasons other than fraud or dishonesty, he is
entitled to severance pay in an amount equal to six months of his
then current base salary. The term of the Hodges Letter was
effective through July 2, 1996, when it was not extended. As of
January 20, 1997, Mr. Hodges has been informed that an employment
agreement will be entered into by the Bank with compensation
determined by the Compensation Committee.
INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
On December 8, 1996, the certifying accountant for the
Company, Francis & Company, of Marietta, Georgia, notified the
Company that it did not wish to be engaged as the Company's
certifying accountant for the year ended December 31, 1996. The
report of Francis & Company accompanying the Company's financial
statements as of and for the years ended December 31, 1995 and
December 31, 1994, did not contain an adverse opinion, or a
disclaimer of opinion, and was not modified with respect to any
uncertainty, audit scope or accounting principles.
On December 9, 1996, the Company engaged Mauldin & Jenkins
LLC of Albany, Georgia as its new certifying accountant. The
Company did not consult with Mauldin & Jenkins LLC regarding the
application of accounting principles to a specific completed or
contemplated transaction or the type of audit opinion that might
be rendered on the Company's financial statements.
The decision of the Company to engage new certifying
accountants was approved by its Board of Directors. There were,
during the two most recent fiscal years of the Company and for the
period of January 1, 1996 through the December 8, 1996, no
disagreements, whether resolved or unresolved, with Francis &
Company with regard to any matter of accounting principles or
practices, financial statement disclosure, or auditing scope or
procedure, which, if not resolved to its satisfaction would have
caused Francis & Company to make reference to the subject matter
of the disagreement(s) in connection with its report.
One or more representatives of Mauldin & Jenkins LLC will be
present at the Special Meeting, will have an opportunity to make a
statement if so desired, and will be available to respond to
appropriate questions.
VOTE REQUIRED
Approval of Proposal A(1) and A(2) submitted to the
shareholders requires the affirmative vote of 1,556,268 shares of
Common Stock; such amount being two-thirds of the shares entitled
to vote at an election of directors. For purposes of determining
whether the requisite affirmative votes have been obtained with
respect to Proposal A(1) and A(2), abstentions and broker non-votes will be
disregarded in the calculation.
Approval of Proposals A(3) and Proposal B(5) requires a
plurality of the shares of Common Stock present or represented and
entitled to vote at the Special Meeting. For purposes of
determining whether the requisite affirmative votes have been
obtained with respect to Proposal A(3) and Proposal B(5),
abstentions and broker non-votes will be disregarded in the
calculation.
OTHER MATTERS THAT MAY COME
BEFORE THE SPECIAL MEETING
The management of the Company knows of no matters other than
those above that are to be brought before the Special Meeting.
However, if any other matter should be properly presented for
consideration and voting at the Special Meeting or any adjournment
thereof, it is the intention of the persons named in the enclosed
form of proxy to vote the proxy in accordance with their judgment
of what is in the best interest of the Company.
BY ORDER OF THE BOARD OF DIRECTORS
/s/ Jimmy D. Veal
Jimmy D. Veal, Secretary
APPENDIX
REVOCABLE PROXY
GOLDEN ISLES FINANCIAL HOLDINGS, INC.
THIS PROXY IS SOLICITED BY THE BOARD OF DIRECTORS FOR THE SPECIAL MEETING
OF SHAREHOLDERS TO BE HELD ON MARCH 11, 1997
The undersigned hereby acknowledges receipt of the notice
of special meeting of shareholders of Golden Isles Financial
Holdings, Inc. (the Company) and proxy statement for the Special
Meeting of the shareholders of the Company to be held on March 11,
1997.
The undersigned hereby appoints J. Thomas Whelchel, Jimmy
D. Veal and Michael D. Hodges, and each of them, proxies with the
full power of substitution, to act for and in the name of the
undersigned to vote all the shares of common stock of the Company
which the undersigned is entitled to vote at the special meeting
to be held on Tuesday, March 11, 1997, at 10:00 a.m. local time,
at the Embassy Suites Hotel, 500 Mall Boulevard, Brunswick,
Georgia 31520, or at any adjournment or postponement thereof, as
indicated below.
AGAINST Proposal A and Proposal B in their entirety.
You may mark an X above to vote this proxy card AGAINST all
of the proposals listed in this Proxy Card. This is the position
of the majority of the members of the Board of Directors (L. McRee
Harden, Michael D. Hodges, Russell C. Jacobs, Jr., C. Kermit
Keenum, Jimmy D. Veal and J. Thomas Whelchel).
IF THE ABOVE BOX IS MARKED, YOU DO NOT NEED TO VOTE SEPARATELY
BELOW.
Proposal A
1. That the number of members constituting the full Board of
Directors be fixed at six (a decrease of two members).
Against For Abstain
2. That each of J. Thomas Whelchel, Michael D. Hodges, C.
Kermit Keenum and L. McRee Harden be removed as members of
the Board of Directors.
Against For Abstain
3. That Article 3, Section 3.6 of the bylaws of the Company be
amended to clarify that the shareholders of the Company
shall have the right to fill a vacancy on the Board of
Directors (created by the removal of a director) at a
special meeting or an annual meeting.
Against For Abstain
Proposal B
5. That the number of members constituting the full Board of
Directors be fixed at thirteen (an increase of five
members).
Against For Abstain
In their discretion, the proxy is authorized to vote upon
such other business as may properly become before the annual
meeting and at any adjournments thereo
This proxy will be voted as directed. If no instructions
are specified, this proxy card will be voted AGAINST the Proposals
listed in this proxy card in their entirety. If any other
business is presented at the Special Meeting, this proxy card will
be voted by the proxies in their best judgment. At the present
time, the Board of Directors knows of no other business to be
presented to a vote of the shareholders at the annual meeting.
If the undersigned is present and elects to withheld this
proxy card and vote in person at the Special Meeting or any
adjournment thereof, and notifies the Secretary of the Company at
the Special Meeting of the decision of the undersigned to withdraw
this proxy card, then the power of the proxies shall be deemed
terminated and of no further force and effect.
Please mark, date and sign exactly as your name appears on
this proxy card.
When shares are held jointly, both holders should sign.
When signing as attorney, executor, administrator, trustee or
guardian, please give your full title. If the holder is a
corporation, partnership or other entity, the full corporate,
partnership or entity name should be signed by the duly authorized
partner, officer, or other representative.
<PAGE>
SCHEDULE 1
DRAFT
ARTHUR
ANDERSEN
Arthur Andersen LLP
Suite 2500
133 Peachtree Street NE
Atlanta GA 30303-1846
404/658-1776
December 28, 1996
To the Board of Directors of
Golden Isles Financial Holdings, Inc.
St. Simons, Georgia
We have been engaged by the Board of Directors of Golden
Isles Financial Holdings, Inc. (The Company) to assist you in the
financial analysis and strategic planning of its business affairs.
Specifically, you have asked for our assistance in evaluating the
various immediate tactical and long-term strategic alternatives
with respect to First Bank Mortgage Corporation (FBMC), the
Company's wholly-owned mortgage subsidiary, as well as analyzing
certain expenses.
In connection with our procedures, a mortgage lending
industry consultant from Anderson Consulting presented to the
Board of Directors various strategic alternatives with respect
to FBMC. These alternatives included, among others, a strategy
to allow the Company to remain in the retail mortgage lending
market while substantially reducing both FBMC's risk profile and
overhead expenses. It is our understanding that the Board of
Directors has begun implementing this alternative.
Our procedures generally consisted of interviewing current
management and other employees and examining reports and other
financial documents generated by the Company. We were not
engaged to and did not perform an audit of the financial
statements in accordance with generally accepted auditing
standards or a review of the financial statements in accordance
with standards promulgated by the American Institute of
Certified Public Accountants. Accordingly, we do not express an
opinion or any other form of assurance on any financial
information of the Company or FBMC. Furthermore, we were not
engaged to and did not perform a comprehensive review of the
Company's internal accounting control systems.
In connection with our procedures, certain matters came to
our attention that may warrant further actions by the Company.
These matters are summarized on the following pages.
ARTHUR
ANDERSEN
To the Board of Directors of
Golden Isles Financial Holdings, Inc.
December 28, 1996
Page 2
Management Influence On The Internal Auditor
A company's internal controls are designed to provide
reasonable assurance regarding the reliability of financial
reporting and compliance with applicable laws, regulations and
company directives. During our procedures, we met with the
Company's internal auditor, Mr. James Shirley. Mr. Shirley
informed us that during the past year, the former Chairman and
Chief Executive Officer, Mr. Gregory Junkin, and the former
Chief Operating Officer and Chief Financial Officer, Mr. Paul
Lockyer, prevented Mr. Shirley from fulfilling his duties. We
were informed that the former CEO denied Mr. Shirley access to
records that would have enabled him to respond to the board of
directors' inquiries. Furthermore, we were informed that the
former CEO instructed Mr. Shirley not to perform certain audit
committee requested duties.
Internal auditors and audit committees play an important
role in evaluating the effectiveness of control systems and
provide an important oversight function due to management's
ability to override systems controls. Internal auditors are not
objective when placed in a position of subordinating their
judgment on audit matters to that of others. Accordingly,
generally, internal auditors report directly to the audit
committee of the board of directors. Top management - starting
with the CEO - plays a key role in determining the control
environment of a company. Any attempt by management to limit or
prescribe the internal auditor's functions as dictated by the
audit committee can serve to significantly undermine the control
process throughout the Company. This conclusion is supported by
the Internal Control-Integrated Framework, by the Committee of
Sponsoring Organizations of the Treadway Commission, which
states: In any organization, 'the buck stops' with the chief
executive. He or she has ultimate ownership responsibility for
the internal control system.
The Company should ensure that the CEO, and all other
present and future members of management, do not attempt to
subordinate the Company's internal auditor's judgment.
Furthermore, present and future management should not attempt to
influence or limit the internal auditor's responses in reporting
to the audit committee of the board of directors.
Inconsistent Employee Insurance Benefits
Based on our discussions with Company personnel, the
Company's policy is to pay 95% of the employee's and 50% of the
employee's family medical and life insurance premiums. From
discussions with the Company's insurance providers, we were
informed that the Company paid 100% of both the employee and
family medical and life insurance premiums of the former CEO.
These payments are inconsistent with Company policy. Based on
information supplied to us by the Company's insurance providers
and Company documents, these actions resulted in the Company
paying premiums of approximately $2,500 during the former CEO's
employment in excess of Company policie
ARTHUR
ANDERSEN
To the Board of Directors of
Golden Isles Financial Holdings, Inc.
December 28, 1996
Page 3
We were also informed that the Company paid 100% of the
insurance premiums of the former CEO prior to his being employed
by the Company. This resulted in an additional $4,500 of
Company funds expended for the benefit of the former CEO in
excess of Company policies.
Finally, we were informed that the Company paid 100% of the
insurance premiums of the personal secretary to the former CEO.
We have been informed that during the period these payments were
made by the Company, this individual was not an employee. Based
on our discussions with the Company's insurance providers, the
personal portion of these premiums paid by the Company amounted
to approximately $2,140. Again, these payments were in excess
of Company policy.
Based on the items identified above, insurance payments in
excess of Company policy and relating to the former CEO and his
personal secretary totaled approximately $9,140.
Authorization of Disbursements
Many companies utilize a policy of requiring two
authorization signatures on company checks exceeding specified
dollar amounts (e.g. $10,000). This policy serves to enhance
control of company funds. Generally, such a policy is enacted
by pre-printing on the face of all company checks Two signatures
required for all amounts in excess of $10,000. Based on our
observations, the Company presently has no such policy.
Disbursements may be authorized by any sole signatory. Based on
our examination of Company documents, substantially all
disbursements were authorized by Mr. Junkin and Mr. Lockyer.
The Company may wish to consider requiring a board member not involved
in the day-to-day operations of the Company to co-authorize certain
significant disbursements. By establishing a
policy of requiring an additional signature on significant
disbursements, such problems as discussed in the following point
may be reduced.
Payments to Concepts Designs, Inc.
During 1995 and 1996, the Company expended approximately
$846,000 for office furniture, fixtures and the like with one
vendor, Concepts Designs, Inc. The majority of these
disbursements were made during 1996. An analysis of these
expenditures by entity is provided as follows:
Golden Isles Financial Holdings, Inc. $174,535
First Bank Mortgagee 186,724
First Credit Corporation 56,824
First Bank of Brunswick-Brunswick 144,642
First Bank of Brunswick-St. Simons 283,666
Total $846,391
ARTHUR
ANDERSEN
To the Board of Directors of
Golden Isles Financial Holdings, Inc.
December 28, 1996
Page 4
In connection with our evaluation of these expenditures, we
were informed by the Company's internal auditor, Mr. Shirley,
that the audit committee had previously requested certain
information regarding payments to Concepts Designs, Inc. Mr.
Shirley informed us that the former CEO denied Mr. Shirley
access to certain information that would enable him to respond
to the audit committee's inquiries.
Based on our preliminary results regarding Company payments
to Concepts Designs, Inc., certain members of the board
expressed concern to us when informed of the magnitude of these
disbursements. Furthermore, various board members expressed
concern regarding the feasibility of these capital expenditures
given the Company's poor financial performance, capital
restrictions and liquidity position. Based on these comments
and Mr. Shirley's representations, it appears evident that
financial information was not being adequately communicated
between the Company and the board of directors. As previously
discussed, by requiring the additional authorization signature
of a board member for significant Company disbursements and
allowing the internal auditor access to information to fulfill
the audit committee's requests, the likelihood of the Company
embarking upon a capital expenditure purchasing program of this
magnitude without the board of director's consent or knowledge
would be diminished.
<PAGE>
In connection with these payments to Concept Designs, Inc.,
we were informed the Company's internal auditor, Mr. Shirley,
inquired of Mr. Lockyer if the Company asked for and obtained
competitive bids from other vendors. Mr. Shirley informed us
that Mr. Lockyer's response was that competitive bids were
unnecessary. In addition, board members informed us that,
despite the magnitude of these expenditures, the board was not
provided budgets highlighting the use of these funds.
Employee Reimbursements
In connection with our examination of Company
disbursements, we noted that during the twenty-two month period
ended October 1996, the Company had reimbursed the former CEO
approximately $30,000 in purported employee travel, means and
other related expenses. Both the Internal Revenue Service and
the Company have established substantiation requirements with
regard to documenting expenses of this nature. Based on our
analysis, we noted that in several circumstances, the former CEO
failed to comply with Company guidelines in connection with
documenting these expenses. We noted certain instances for
expenses that were unsupported. Nevertheless the former CEO's
expenses were approved by Mr. Lockyer and paid by the Company.
ARTHUR
ANDERSEN
To the Board of Directors of
Golden Isles Financial Holdings, Inc.
December 28, 1996
Page 5
The Company may wish to further investigate these matters.
Of particular interest, we noted the following:
1. Mr. Junkin sold his personal furniture to the Company. In
connection therewith, the Company paid Mr. Junkin
approximately $14,000.
2. The Company reimbursed Mr. Junkin $331 for a charge from
Charter Health Center. Due to the lack of documentation,
we are unable to determine the nature of this charge, but
we were informed that Charter Health Center is a
recreational health facility in St. Simons.
3. Certain expenses for which Mr. Junkin was reimbursed were
unexplained.
4. The Company reimbursed Mr. Junkin for a three year
membership to the Delta Crown Room.
5. During the twenty-two month period, Mr. Junkin made nine
trips to Phoenix, Arizona. These trips were generally
described as meetings with market makers.
While the matters addressed in this letter came to our
attention during the course of our work, had we performed
additional procedures or had we made a study and evaluation of
the internal control structure of the Company for the purpose of
expressing an opinion thereon, other matters might have come to
our attention that would have been reported to you.
This report is intended solely for the use of the Company
and is not to be used for any other purpose.
Very truly yours,
[DRAFT - not signed]
Arthur Andersen LLP
