SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K/A
AMENDMENT NO. 1
|X| ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1997
|_| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ______ to ______
Commission File No. 0-24532
FLAG FINANCIAL CORPORATION
(Exact name of Registrant as specified in its charter)
Georgia 58-2094179
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
101 North Greenwood Street, LaGrange, Georgia 30240
(Address of principal executive offices)
(706) 845-5000
(Registrant's telephone number)
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act: Common Stock, $1.00
par value
---------------
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months and (2) has been subject to such filing requirements for
the past 90 days. Yes X No
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of the Registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. X
The aggregate market value of the Registrant's outstanding Common Stock held by
non-affiliates of the Registrant was approximately $64,397,580 based on the last
reported sale price by Nasdaq National Market on June 30, 1998. There were
5,174,807 shares of Common Stock outstanding as of June 30, 1998.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Registrant's 1997 Annual Report are incorporated by reference in
Part II hereof. Portions of the Registrant's Proxy Statement for the 1998 Annual
Meeting of Shareholders to be held on May 13, 1998, are incorporated by
reference in Part III hereof.
FLAG Financial Corporation (the "Company") is filing this amendment to its
annual report on Form 10-K for the year ended December 31, 1997 to reflect the
acquisitions by the Company of Middle Georgia Bankshares, Inc. ("Middle
Georgia") and Three Rivers Bancshares, Inc. ("Three Rivers"). The merger of
Middle Georgia with the Company became effective on March 31, 1998 and the
merger of Three Rivers with the Company became effective on May 12, 1998. The
financial data included in this Amendment have been restated to account for the
mergers with Middle Georgia and Three Rivers.
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FLAG FINANCIAL CORPORATION
Annual Report on Form 10-K/A
For the Fiscal Year Ended December 31, 1997
Table of Contents
Item Page
Number Number
PART I
1. Business.............................................................. 1
2. Properties............................................................ 13
3. Legal Proceedings..................................................... 14
4. Submission of Matters to a Vote of Security Holders................... 14
PART II
5. Market for Registrant's Common Stock and Related Shareholder Matters.. 15
6. Selected Financial Data............................................... 15
7. Management's Discussion and Analysis of Financial Condition and
Results of Operations................................................. 15
8. Financial Statements and Supplementary Data .......................... 15
9. Changes and Disagreements with Accountants on Accounting and Financial
Disclosure............................................................ 15
PART III
10. Directors and Executive Officers of the Registrant ................... 16
11. Executive Compensation................................................ 16
12. Security Ownership of Certain Beneficial Owners and Management........ 16
13. Certain Relationships and Related Transactions........................ 16
PART IV
14. Exhibits, Financial Statement Schedules and Reports on Form 8-K....... 17
Signatures................ 20
Index of Exhibits ............ 22
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PART I
ITEM 1. BUSINESS
SPECIAL CAUTIONARY NOTICE REGARDING FORWARD-LOOKING STATEMENTS
Certain of the matters discussed in this document and in documents
incorporated by reference herein, including matters discussed under the caption
"Management's Discussion and Analysis of Financial Condition and Results of
Operations," may constitute forward-looking statements for purposes of the
Securities Act of 1933, as amended, and the Securities Exchange Act of 1934, as
amended, and as such may involve known and unknown risks, uncertainties and
other factors which may cause the actual results, performance or achievements of
the Company to be materially different from future results, performance or
achievements expressed or implied by such forward-looking statements. The words
"expect," "anticipate," "intend," "plan," "believe," "seek," "estimate," and
similar expressions are intended to identify such forward-looking statements.
The Company's actual results may differ materially from the results anticipated
in these forward-looking statements due to a variety of factors, including,
without limitation: the effects of future economic conditions; governmental
monetary and fiscal policies, as well as legislative and regulatory changes; the
risks of changes in interest rates on the level and composition of deposits,
loan demand, and the values of loan collateral, securities and interest rate
protection agreements, as well as interest rate risks; the effects of
competition from other commercial banks, thrifts, mortgage banking firms,
consumer finance companies, credit unions, securities brokerage firms, insurance
companies, money market and other mutual funds and other financial institutions
operating in the Company's market area and elsewhere, including institutions
operating locally, regionally, nationally and internationally, together with
such competitors offering banking products and services by mail, telephone, and
computer and the Internet; and the failure of assumptions underlying the
establishment of reserves for possible loan losses and estimations of values of
collateral and various financial assets and liabilities. All written or oral
forward-looking statements attributable to the Company are expressly qualified
in their entirety by these cautionary statements.
The Company
FLAG Financial Corporation (the "Company") is a multi-bank holding
company headquartered in LaGrange, Georgia and is registered under the Bank
Holding Company Act of 1956, as amended (the "BHC Act"). The Company is the sole
shareholder of the following depository institutions: First Federal Savings Bank
of LaGrange ("First Federal"), Citizens Bank ("Citizens") and Bank of Milan
("Milan") (collectively, the "Banks"). The Company acquired Citizens through a
merger with Middle Georgia Bankshares, Inc. ("Middle Georgia'") and acquired
Milan through a merger with Three Rivers Bancshares, Inc. ("Three Rivers"),
which mergers were consummated in March 1998 and May 1998, respectively. The
Company also has a one-third ownership interest in ProImage, Inc., a Georgia
corporation that provides data processing and check imaging services for
community banks. The Company obtained its ownership interest in ProImage, Inc.
through its acquisition of Middle, Georgia.
The Company was incorporated under the laws of the State of Georgia on
February 9, 1993 at the direction of First Federal for the purpose of becoming
the holding company for First Federal (the "Reorganization"). On March 1, 1994,
FLAG Interim Corporation, a wholly-owned subsidiary of the Company organized for
the purpose of effecting the Reorganization, was merged with and into First
Federal, and the Company issued shares of its common stock to shareholders of
First Federal in exchange for all of the outstanding common stock of First
Federal. As a result, shareholders of First Federal became shareholders of the
Company, with the same proportional interests in the Company as they previously
held in First Federal (excluding the nominal effect on their ownership interest
of the exercise of dissenters' rights by certain shareholders of First Federal).
Following the Reorganization, First Federal continued its business operations as
a federally-chartered stock savings bank under the same name, charter and
bylaws.
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As a bank holding company, the Company facilitates the Banks' abilities
to serve their customers' requirements for financial services. The holding
company structure permits diversification by the Company into a broader range of
financial services and other business activities than currently are permitted to
the Banks under applicable law. The holding company structure also provides
greater financial and operating flexibility than is available to the Banks.
Additionally, the Articles of Incorporation and Bylaws of the Company contain
terms that provide a degree of anti-takeover protection to the Company that is
currently unavailable to the Banks and their shareholders under regulations of
the Federal Deposit Insurance Corporation (the "FDIC") and the Office of Thrift
Supervision (the "OTS"), but is permissible for the Company under Georgia law.
See "Supervision and Regulation" below.
A substantial portion of the Company's growth has been through
acquisitions of other financial institutions and the assets and deposits
thereof. As part of its ongoing strategic plan, the Company continually
evaluates business combination opportunities and frequently conducts due
diligence activities in connection with possible business combinations. As a
result, business combination discussions, and in some cases negotiations,
frequently take place, and future business combinations involving cash, debt or
equity securities can be expected. Any future business combination that the
Company might undertake may be material, in terms of assets acquired or
liabilities assumed, to the Company's financial condition. Recent business
combinations in the banking industry have typically involved the payment of a
premium over book and market values. This practice could result in dilution of
book value and net income per share for the acquirer. It is the Company's
practice to avoid possible dilution except where projections indicate a
relatively short payback period.
The Banks
First Federal Savings Bank of LaGrange. First Federal is a federally
chartered savings bank headquartered in LaGrange, Troup County, Georgia with
five offices in LaGrange, Georgia. First Federal was originally chartered by the
State of Georgia in January 1927 under the name "Home Building and Loan
Association." First Federal received its federal charter and changed its name to
First Federal Savings and Loan Association of LaGrange in 1955, and at that time
its deposits became insured by the Federal Savings and Loan Insurance
Corporation (the "FSLIC"). In December 1986, First Federal converted from a
federal mutual savings and loan association to a federal stock savings and loan
association by selling 805,000 shares of Common Stock to the public pursuant to
a plan of conversion approved by the members of the institution. In June 1989,
First Federal converted from a federal stock savings and loan association to a
federal stock savings bank and changed its name to "First Federal Savings Bank
of LaGrange." Based on total assets of approximately $248 million at December
31, 1997, First Federal is the 7th largest of 34 thrift institutions
headquartered in Georgia and the largest financial institution headquartered in
Troup County. First Federal's wholly owned service corporation subsidiary,
Piedmont Mortgage Service, Inc., operates a full-service appraisal office under
the name of Piedmont Appraisal Service and offers certain securities brokerage
services under the name of Piedmont Investment Service.
Citizens Bank. Citizens Bank is a state bank organized under the laws
of the State of Georgia with banking offices in the cities of Unadilla, Vienna,
Byromville, Montezuma, Cordele, Oglethorpe and Pinehurst, Georgia. Citizens Bank
was originally chartered in 1931 and became a wholly-owned subsidiary of Middle
Georgia in 1989. On March 31, 1998, Middle Georgia merged with and into the
Company and Citizens Bank became a wholly-owned subsidiary of the Company. At
December 31, 1997, Citizens Bank had total assets of approximately $128 million.
Citizens is the sole shareholder of CB Financial Group, Inc. ("CB Financial"), a
Georgia corporation, which provides pawn, title pawn and check cashing services.
CB Financial is currently winding up its business operations.
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Bank of Milan. Milan is a state bank organized under the laws of the
State of Georgia with banking offices in the cities of Milan and McRae, Georgia.
Milan was originally chartered in 1906 and became a wholly-owned subsidiary of
Three Rivers in 1987. On May 8, 1998, Three Rivers merged with and into the
Company and Milan became a wholly-owned subsidiary of the Company. At December
31, 1997, Milan had total assets of approximately $35 million.
The Banks' businesses consist primarily of attracting deposits from the
general public and, with these and other funds, making residential mortgage
loans, consumer loans, commercial loans, commercial real estate loans,
residential construction loans and securities investments. In addition to
deposits, sources of funds for the Banks' loans and other investments include
amortization and prepayment of loans, loan origination and commitment fees,
sales of loans or participations in loans, fees received for servicing loans
sold to others and advances from the Federal Home Loan Bank of Atlanta
("FHLBA"). The principal sources of income for the Banks are interest and fees
collected on loans, including fees received for originating and selling loans
and for servicing loans sold to others, and, to a lesser extent, interest and
dividends collected on other investments and service charges on deposit
accounts. The principal expenses of the Banks are interest paid on deposits,
interest paid on FHLBA advances, employee compensation, federal deposit
insurance premiums, office expenses and other overhead expenses.
While the Banks attempt to avoid concentrations of loans to a single
industry or based on a single type of collateral, the various types of loans the
Banks make have certain risks associated with them. Consumer and commercial
loans present risks which, among other things, include fraud, bankruptcy,
economic downturn, deteriorated or non-existing collateral, changes in interest
rates and customer financial problems. Real estate loans present risks related
to, among other things, whether the builder is able to sell the property,
whether the buyer is able to obtain permanent financing and the nature of
changing economic conditions.
The Company's financial performance has been determined primarily by
the results of operations of the Banks because the common stock of the Banks are
the Company's primary significant assets. For information regarding the
consolidated financial condition and results of operations of the Company, the
Banks and their subsidiaries, as of December 31, 1997 and 1996 and for the three
years in the period ended December 31, 1997, see "Management's Discussion and
Analysis of Financial Condition and Results of Operations," as restated, and the
Consolidated Financial Statements of the Company, as restated, and the related
notes thereto which are contained herein. All average balances presented in this
report were derived based on monthly averages.
Pending Acquisitions
Effective July 24, 1998, the Company and The Brown Bank ("Brown")
entered into an Agreement and Plan of Merger (the "Brown Agreement") pursuant to
which Brown will merge with and into the Company's wholly-owned bank subsidiary,
Citizens. The Brown Agreement provides that the Company will exchange 1.5 shares
of Company Common Stock for each share of Brown Common Stock outstanding, with
approximately 262,500 shares of Company Common Stock expected to be issued to
Brown shareholders. The parties expect the merger to be accounted for as a
pooling of interests and expect to consummate the transaction during the fourth
quarter of 1998, subject to approval of Brown shareholders in accordance with
applicable law, approval of various regulatory authorities and other customary
conditions of closing.
Brown is a federal savings bank located in Cobbtown, Georgia. Brown has
two bank offices located in Cobbtown and Metter, Georgia.
Effective July 30, 1998, the Company and Empire Bank Corp. ("Empire")
entered into an Agreement and Plan of Merger (the "Empire Agreement") pursuant
to which Empire will merge with and into the Company. The Empire Agreement
provides that the Company will exchange 42.5 shares of Company Common Stock for
each share of Empire Common Stock outstanding, with approximately 1,124,125
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shares of Company Common Stock expected to be issued to Empire shareholders. The
parties expect the merger to be accounted for as a pooling of interests and
expect to consummate the transaction during the third quarter of 1998, subject
to approval of Empire shareholders in accordance with applicable law, approval
of various regulatory authorities and other customary conditions of closing.
Empire is a bank holding company located in Homerville, Georgia and is the sole
shareholder of Empire Banking Company. Empire Banking Company has two offices
located in Homerville and Waycross, Georgia.
Additional information with respect to the Brown transaction and the
Empire transaction is set forth in FLAG's Current Reports on Form 8-K dated May
14, 1998, May 28, 1998 August 10, 1998 and August 12, 1998 (the "FLAG 8-Ks").
The FLAG 8-Ks include or incorporate by reference certain forward looking
statements, estimates, and projections concerning the transactions with Brown
and Empire which are subject to various uncertainties and risks. Estimates and
projections concerning the future financial performance of the Company following
the transactions with Brown and Empire are predicated on certain assumptions and
depend upon future events, the course of which cannot be ascertained with
certainty, and therefore such estimates and projections should be considered
only as estimates and understood to be uncertain and subject to risks of
inaccuracy. Future events may cause the Company's actual experience to differ
materially from such estimates and projections.
Employees
As of June 30, 1998, the Company (including the Banks) had 192
full-time and 29 part-time employees. The employees are not represented by any
collective bargaining unit, and the Company considers its relationship with its
employees to be good.
Competition
The banking business in Georgia is highly competitive. The Banks
compete not only with other banks and thrifts that are located in the same
counties as the Banks and in surrounding counties, but with other financial
service organizations including, credit unions, finance companies, and certain
governmental agencies. To the extent that the Banks must maintain non-interest
earning reserves against deposits, it may be at a competitive disadvantage when
compared with other financial service organizations that are not required to
maintain reserves against substantially equivalent sources of funds. Also, other
financial institutions with which the Banks compete may have substantially
greater resources and lending capabilities due to the size of the organization.
Supervision and Regulation
The following discussion sets forth the material elements of the
regulatory framework applicable to bank holding companies and their bank and
thrift subsidiaries and provides certain specific information related to the
Company.
General
In connection with its acquisition of Middle Georgia, the Company
became a bank holding company registered with the Board of Governors of the
Federal Reserve System (the "Federal Reserve") under BHC Act. As such, the
Company and its non-bank subsidiaries are subject to the supervision,
examination, and reporting requirements of the BHC Act and the regulations of
the Federal Reserve. In addition, as a savings and loan holding company, the
Company is also registered with the OTS and is subject to the regulation,
supervision, examination, and reporting requirements of the OTS.
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The BHC Act requires every bank holding company to obtain the prior
approval of the Federal Reserve before: (a) it may acquire direct or indirect
ownership or control of any voting shares of any bank if, after such
acquisition, the bank holding company will directly or indirectly own or control
more than 5% of the voting shares of the bank; (b) it or any of its
subsidiaries, other than a bank, may acquire all or substantially all of the
assets of any bank; or (c) it may merge or consolidate with any other bank
holding company.
The BHC Act further provides that the Federal Reserve may not approve
any transaction that would result in a monopoly or would be in furtherance of
any combination or conspiracy to monopolize or attempt to monopolize the
business of banking in any section of the United States, or the effect of which
may be substantially to lessen competition or to tend to create a monopoly in
any section of the country, or that in any other manner would be in restraint of
trade, unless the anticompetitive effects of the proposed transaction are
clearly outweighed by the public interest in meeting the convenience and needs
of the community to be served. The Federal Reserve is also required to consider
the financial and managerial resources and future prospects of the bank holding
companies and banks concerned and the convenience and needs of the community to
be served. Consideration of financial resources generally focuses on capital
adequacy and consideration of convenience and needs issues including the
parties' performance under the Community Reinvestment Act of 1977 (the "CRA"),
both of which are discussed below.
The BHC Act, as amended by the interstate banking provisions of the
Riegle-Neal Interstate Banking and Branching Efficiency Act of 1994 (the
"Interstate Banking Act"), which became effective on September 29, 1995,
repealed the prior statutory restrictions on interstate acquisitions of banks by
bank holding companies, such that the Company, and any other bank holding
company located in Georgia may now acquire a bank located in any other state,
and any bank holding company located outside Georgia may lawfully acquire any
Georgia-based bank, regardless of state law to the contrary, in either case
subject to certain deposit-percentage, aging requirements, and other
restrictions. The Interstate Banking Act also generally provides that, as of
June 1, 1997, national and state-chartered banks may branch interstate through
acquisitions of banks in other states. By adopting legislation prior to that
date, a state had the ability either to "opt in" and accelerate the date after
which interstate branching is permissible or "opt out" and prohibit interstate
branching altogether.
In response to the Interstate Banking Act, the Georgia General Assembly
adopted the Georgia Interstate Banking Act, which was effective on July 1, 1995.
The Georgia Interstate Banking Act provides that (a) interstate acquisitions by
institutions located in Georgia will be permitted in states that also allow
national interstate acquisitions and (b) interstate acquisitions of institutions
located in Georgia will be permitted by institutions in states that allow
national interstate acquisitions.
Additionally, on January 26, 1996, the Georgia General Assembly adopted
the Georgia Interstate Branching Act which permits Georgia-based banks and bank
holding companies owning or acquiring banks outside of Georgia and all
non-Georgia banks and bank holding companies owning or acquiring banks in
Georgia to merge any lawfully acquired bank into an interstate branch network.
The Georgia Interstate Branching Act also allows banks to establish de novo
branches on a limited basis as of July 1, 1996. As of July 1, 1998, the number
of de novo branches that may be established is no longer limited.
The BHC Act generally prohibits the Company from engaging in activities
other than banking or managing or controlling banks or other permissible
subsidiaries and from acquiring or retaining direct or indirect control of any
company engaged in any activities other than those activities determined by the
Federal Reserve to be so closely related to banking or managing or controlling
banks as to be a proper incident thereto. In determining whether a particular
activity is permissible, the Federal Reserve must consider whether the
performance of such an activity 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 undue concentration
of resources, decreased or unfair competition, conflicts of interest, or unsound
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banking practices. For example, factoring accounts receivable, acquiring or
servicing loans, leasing personal property, conducting discount securities
brokerage activities, performing certain data processing services, acting as
agent or broker in selling credit life insurance and certain other types of
insurance in connection with credit transactions, and performing certain
insurance underwriting activities all have been determined by the Federal
Reserve to be permissible activities of bank holding companies. The BHC Act does
not place territorial limitations on permissible non-banking activities of bank
holding companies. Despite prior approval, the Federal Reserve has the power to
order a holding company or its subsidiaries to terminate any activity or to
terminate its ownership or control of any subsidiary when it has reasonable
cause to believe that continuation of such activity or such ownership or control
constitutes a serious risk to the financial safety, soundness, or stability of
any bank subsidiary of that bank holding company.
The bank and thrift subsidiaries of the Company are members of the
FDIC, and as such, their deposits are insured by the FDIC to the maximum extent
provided by law. Such subsidiaries are also subject to numerous state and
federal statutes and regulations that affect their businesses, activities, and
operations, and they are supervised and examined by one or more state or federal
bank regulatory agencies.
All of the Company's depository institution subsidiaries that are
state-chartered banks and are not members of the Federal Reserve System are
subject to supervision and examination by the FDIC and the Georgia Department of
Banking and Finance. The Company's subsidiary that is a federal savings bank is
subject to regulation, supervision, and examination by the OTS and the FDIC. The
federal banking regulator for each of the Company's subsidiaries, as well as the
Georgia Department of Banking and Finance for each of the subsidiary banks that
is a state chartered bank, regularly examines the operations of the subsidiary
banks and is given authority to approve or disapprove mergers, consolidations,
the establishment of branches, and similar corporate actions. The federal and
state banking regulators also have the power to prevent the continuance or
development of unsafe or unsound banking practices or other violations of law.
Payment of Dividends
The Company is a legal entity separate and distinct from its
subsidiaries. The principal sources of cash flow of the Company, including cash
flow to pay dividends to its shareholders, are dividends by its bank and thrift
subsidiaries. There are statutory and regulatory limitations on the payment of
dividends by such subsidiaries to the Company as well as by the Company to its
shareholders.
As to the payment of dividends, all of the Company's depository
institution subsidiaries that are state nonmember banks are subject to the laws
and regulations of the state of Georgia and to the regulations of the FDIC. The
Company's depository institution subsidiary that is a federal savings bank is
subject to the OTS' capital distributions regulation.
If, in the opinion of the applicable federal banking regulator, a
depository institution under its jurisdiction is engaged in or is about to
engage in an unsafe or unsound practice (which, depending on the financial
condition of the depository institution, could include the payment of
dividends), such authority may require, after notice and hearing, that such
institution cease and desist from such practice. The federal banking agencies
have indicated that paying dividends that deplete a depository institution's
capital base to an inadequate level would be an unsafe and unsound banking
practice. Under the Federal Deposit Insurance Corporation Improvement Act of
1991 ("FDICIA"), a depository institution may not pay any dividend if payment
would cause it to become undercapitalized or if it already is undercapitalized.
See "-- Prompt Corrective Action." Moreover, the federal agencies have issued
policy statements that provide that bank holding companies and insured banks
should generally only pay dividends out of current operating earnings.
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At June 30, 1998, under dividend restrictions imposed under federal and
state laws, the bank and thrift subsidiaries of the Company, without obtaining
governmental approvals, could declare aggregate dividends to the Company of up
to approximately $4,100,000.
The payment of dividends by the Company and its subsidiaries may also
be affected or limited by other factors, such as the requirement to maintain
adequate capital above regulatory guidelines.
Capital Adequacy
The Company and its depository institution subsidiaries are required
to comply with the capital adequacy standards established by the Federal Reserve
and the appropriate federal banking regulator in the case of its depository
institution subsidiaries. There are two basic measures of capital adequacy for
bank holding companies that have been promulgated by the Federal Reserve: a
risk-based measure and a leverage measure. All applicable capital standards must
be satisfied for a bank holding company to be considered in compliance.
The risk-based capital standards are designed to make regulatory
capital requirements more sensitive to differences in risk profile among banks
and bank holding companies, to account for off-balance-sheet exposure, and to
minimize disincentives for holding liquid assets. Assets and off-balance-sheet
items are assigned to broad risk categories, each with appropriate weights. The
resulting capital ratios represent capital as a percentage of total
risk-weighted assets and off-balance-sheet items.
The minimum guideline for the ratio (the "Total Risk-Based Capital
Ratio") of total capital ("Total Capital") to risk-weighted assets (including
certain off-balance-sheet items, such as standby letters of credit) is 8%. At
least half of Total Capital must comprise common stock, minority interests in
the equity accounts of consolidated subsidiaries, noncumulative perpetual
preferred stock, and a limited amount of cumulative perpetual preferred stock,
less goodwill and certain other intangible assets ("Tier 1 Capital"). The
remainder may consist of subordinated debt, other preferred stock, and a limited
amount of loan loss reserves ("Tier 2 Capital"). At June 30, 1998, the Company's
consolidated Total Risk-Based Capital Ratio and its Tier 1 Risk-Based Capital
Ratio (i.e., the ratio of Tier 1 Capital to risk-weighted assets) were 12.72%
and 8.03%, respectively.
In addition, the Federal Reserve has established minimum leverage ratio
guidelines for bank holding companies. These guidelines provide for a minimum
ratio (the "Leverage Ratio") of Tier 1 Capital to average assets, less goodwill
and certain other intangible assets, of 3% for bank holding companies that meet
certain specified criteria, including having the highest regulatory rating. All
other bank holding companies generally are required to maintain a Leverage Ratio
of at least 3%, plus an additional cushion of 100 to 200 basis points. The
Company's Leverage Ratio at June 30, 1998 was 8.50%. The guidelines also provide
that bank holding companies experiencing internal growth or making acquisitions
will be expected to maintain strong capital positions substantially above the
minimum supervisory levels without significant reliance on intangible assets.
Furthermore, the Federal Reserve has indicated that it will consider a "tangible
Tier 1 Capital Leverage Ratio" (deducting all intangibles) and other indicia of
capital strength in evaluating proposals for expansion or new activities.
The Company's depository institution subsidiaries are subject to
risk-based and leverage capital requirements adopted by their applicable federal
regulators, which are substantially similar to those adopted by the Federal
Reserve for bank holding companies. Such subsidiaries were in compliance with
applicable minimum capital requirements as of June 30, 1998. The Company has not
been advised by any federal banking agency of any specific minimum capital ratio
requirement applicable to it or its subsidiary depository institutions.
Failure to meet capital guidelines could subject an institution to a
variety of enforcement remedies, including issuance of a capital directive, the
termination of deposit insurance by the FDIC, a prohibition on the taking of
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brokered deposits, and certain other restrictions on its business. As described
below, substantial additional restrictions can be imposed upon FDIC-insured
depository institutions that fail to meet applicable capital requirements.
See "-- Prompt Corrective Action."
Community Reinvestment
The Company's subsidiaries are subject to the provisions of the CRA.
Under the terms of the CRA, the subsidiaries have a continuing and affirmative
obligation consistent with their safe and sound operation to help meet the
credit needs of their entire communities, including low- and moderate-income
neighborhoods. The CRA does not establish specific lending requirements or
programs for financial institutions nor does it limit an institution's
discretion to develop the types of products and services that it believes are
best suited to its particular community, consistent with the CRA. The CRA
requires each appropriate federal bank regulatory agency, in connection with its
examination of a subsidiary depository institution, to assess such institution's
record in assessing and meeting the credit needs of the community served by that
institution, including low- and moderate-income neighborhoods. The regulatory
agency's assessment of the institution's record is made available to the public.
Further, such assessment is required of any institution which has applied to:
(a) charter a national bank; (b) obtain deposit insurance coverage for a newly
chartered institution; (c) establish a new branch office that will accept
deposits; (d) relocate an office; or (e) merge or consolidate with, or acquire
the assets or assume the liabilities of, a federally regulated financial
institution. In the case of a bank holding company applying for approval to
acquire a bank or other bank holding company, the Federal Reserve will assess
the records of each subsidiary depository institution of the applicant bank
holding company, and such records may be the basis for denying the application.
All of the Company's subsidiary depository institutions received at least a
"satisfactory" CRA rating in their most recent examinations.
In April 1995, the federal banking agencies adopted amendments
revising their CRA regulations, with a phase-in schedule applicable to various
provisions. Among other things, the amended CRA regulations, implemented on July
1, 1997, substitute for the prior process-based assessment factors a new
evaluation system that rates an institution based on its actual performance in
meeting community needs. In particular, the system focuses on three tests: (a) a
lending test, to evaluate the institution's record of making loans in its
service areas; (b) an investment test, to evaluate the institution's record of
investing in community development projects; and (c) a service test, to evaluate
the institution's delivery of services through its branches, ATM's and other
offices. The amended CRA regulations also clarify how an institution's CRA
performance will be considered in the application process.
Support of Subsidiary Institutions
Under Federal Reserve policy, the Company is expected to act as a
source of financial strength for, and to commit resources to support, each of
its banking subsidiaries. This support may be required at times when, absent
such Federal Reserve policy, the Company may not be inclined to provide it. In
addition, any capital loans by a bank holding company to any of its depository
institution subsidiaries are subordinate in right of payment to deposits and to
certain other indebtedness of such banks. In the event of a bank holding
company's bankruptcy, any commitment by the bank holding company to a federal
bank regulatory agency to maintain the capital of a depository institution
subsidiaries will be assumed by the bankruptcy trustee and entitled to a
priority of payment.
Under the Federal Deposit Insurance Act ("FDIA"), a depository
institution insured by the FDIC can be held liable for any loss incurred by, or
reasonably expected to be incurred by, the FDIC after August 9, 1989, in
connection with (a) the default of a commonly controlled FDIC-insured depository
institution or (b) any assistance provided by the FDIC to any commonly
controlled FDIC-insured depository institution "in danger of default." "Default"
is defined generally as the appointment of a conservator or receiver, and "in
danger of default" is defined generally as the existence of certain conditions
indicating that a default is likely to occur in the absence of regulatory
8
<PAGE>
assistance. The FDIC's claim for damages is superior to claims of shareholders
of the insured depository institution or its holding company, but is subordinate
to claims of depositors, secured creditors, and holders of subordinated debt
(other than affiliates) of the commonly controlled insured depository
institution. The subsidiary depository institutions of the Company are subject
to these cross-guarantee provisions. As a result, any loss suffered by the FDIC
in respect of these subsidiaries would likely result in assertion of the
cross-guarantee provisions, the assessment of such estimated losses against the
depository institution's banking affiliates, and a potential loss of the
Company's investment in such other subsidiary depository institutions.
Prompt Corrective Action
FDICIA establishes a system of prompt corrective action to resolve the
problems of undercapitalized institutions. Under this system, which became
effective in December 1992, the federal banking regulators are required to
establish five capital categories (well capitalized, adequately capitalized,
undercapitalized, significantly undercapitalized, and critically
undercapitalized) and to take certain mandatory supervisory actions, and are
authorized to take other discretionary actions, with respect to institutions in
the three undercapitalized categories, the severity of which will depend upon
the capital category in which the institution is placed. Generally, subject to a
narrow exception, FDICIA requires the 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.
9
<PAGE>
The capital levels established for each of the categories are as
follows:
<TABLE>
<CAPTION>
========================== ==================== ========================= ====================== ===================
Total Tier 1 Risk-
Capital Category Tier 1 Capital Risk-Based Capital Based Capital Other
========================== ==================== ========================= ====================== ===================
<S> <C> <C> <C>
Well Capitalized 5% or more 10% or more 6% or more Not subject to a
capital directive
========================== -------------------- ------------------------- ---------------------- ===================
Adequately Capitalized 4% or more 8% or more 4% or more --
========================== -------------------- ------------------------- ---------------------- ===================
Undercapitalized Less than 4% less than 8% less than 4% --
========================== -------------------- ------------------------- ---------------------- ===================
Significantly Less than 3% less than 6% less than 3% --
Undercapitalized
========================== ==================== ========================= ====================== ===================
Critically 2% or less -- -- --
Undercapitalized tangible equity
========================== ==================== ========================= ====================== ===================
</TABLE>
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 holding company under FDICIA to fund a capital
restoration plan is limited to the lesser of 5% of an undercapitalized
subsidiary's assets or the amount required to meet regulatory capital
requirements. An undercapitalized 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.
At June 30, 1998, the Company's depository institution subsidiaries had
the requisite capital levels to qualify as well capitalized.
FDIC Insurance Assessments
Pursuant to FDICIA, the FDIC adopted a risk-based assessment system for
insured depository institutions that takes into account the risks attributable
to different categories and concentrations of assets and liabilities. The system
assigns an institution to one of three capital categories: (a) well capitalized;
(b) adequately capitalized; and (c) undercapitalized. These three categories are
substantially similar to the prompt corrective action categories described
above, with the "undercapitalized" category including institutions that are
undercapitalized, significantly undercapitalized, and critically
undercapitalized for prompt corrective action purposes. An institution is also
assigned by the FDIC to one of three supervisory subgroups within each capital
10
<PAGE>
group. The supervisory subgroup to which an institution is assigned is based on
a supervisory evaluation provided to the FDIC by the institution's primary
federal regulator and information which the FDIC determines to be relevant to
the institution's financial condition and the risk posed to the deposit
insurance funds (which may include, if applicable, information provided by the
institution's state supervisor). An institution's insurance assessment rate is
then determined based on the capital category and supervisory category to which
it is assigned. Under the risk-based assessment system, there are nine
assessment risk classifications (i.e., combinations of capital groups and
supervisory subgroups) to which different assessment rates are applied.
Pursuant to the Deposit Insurance Funds Act of 1996, the FDIC
implemented a special one-time assessment of approximately 65.7 basis points
(0.657%) on a depository institution's SAIF-insured deposits held as of March
31, 1995 (or approximately 52.6 basis points on SAIF deposits acquired by banks
in certain qualifying transactions) and adopted revisions to the assessment rate
schedules that would generally eliminate the disparity between assessment rates
applicable to the deposits insured by the Bank Insurance Fund ("BIF") and the
SAIF. The revisions in the assessment rate schedules reduced assessment rates on
SAIF-insured deposits and would generally equalize BIF and SAIF assessment rates
by January, 2000. The Company anticipates that the net effect of the decrease in
the premium assessment rate on SAIF deposits will result in a reduction in its
total deposit insurance premium assessments through 1999 as compared to years
prior to 1997, assuming no further changes in announced premium assessment
rates. The Company recorded a charge against earnings for the special assessment
in the quarter ended September 30, 1996, in the pre-tax amount of approximately
$1,150,000.
Under the FDIA, insurance of deposits may be terminated by the FDIC
upon a finding that the institution has engaged in unsafe and unsound practices,
is in an unsafe or unsound condition to continue operations, or has violated any
applicable law, regulation, rule, order, or condition imposed by the FDIC.
Proposed Legislation and Regulatory Action
New statutes and regulations are regularly proposed that contain
wide-ranging proposals for altering the structures, regulations and competitive
relationships of the nation's financial institutions. It cannot be predicted
whether or what form any proposed statute or regulation will be adopted or the
extent to which the business of the Company may be affected by such statute or
regulation.
ITEM 2. PROPERTIES
The Company and First Federal operate from a main office which contains
approximately 28,400 square feet of usable office space and is located on
approximately two acres of land at 101 North Greenwood Street, LaGrange,
Georgia.
First Federal owns both the building and the land.
First Federal also operates three full-service branch offices and one
drive-through facility in LaGrange, Georgia. One of the full-service branches
contains approximately 360 square feet of office space in the Winn-Dixie
Marketplace grocery store at 908 Hogansville Road in LaGrange. This office is
leased by First Federal. A second full-service branch office is located at 1795
West Point Road at Lee's Crossing in LaGrange. This office contains
approximately 2,700 square feet of office space on one acre of land, and both
the land and the building are owned by First Federal. The third full-service
branch office is located at 1417 LaFayette Parkway in LaGrange. This office
contains approximately 2,300 square feet of office space on 1.2 acres of land,
and it has three drive through lanes. Both the building and the land are owned
by First Federal. The drive-through facility is located at 306 Vernon Street in
LaGrange. This facility contains approximately 1,800 square feet of space, and
both the building and the land are owned by First Federal.
First Federal leases approximately 2,760 square feet of office space at
5669 Whitesville Road, Suite A, Columbus, Georgia, where its loan production
office is located.
11
<PAGE>
First Federal leases approximately 600 square feet of office space at
200 Broad Street, Suite D, LaGrange, Georgia. This office space is where
Piedmont Mortgage Service, Inc., operating under the name "Piedmont Appraisal
Service," is located.
First Federal leases approximately 2,500 square feet of office space at
205 North Lewis Street, Suites 2 and 3, LaGrange, Georgia. This office space is
the location for First Federal's Deposit Operations and Leasing department.
Citizens operates three full-service offices in Vienna, Unadilla,
Montezuma, and Cordele. It also operates three limited-service offices in
Byromville, Oglethorpe, and Pinehurst, and it operates a consumer loan office in
Unadilla.
One of the full-service offices contains 10,500 square feet of office
space on .85 acres of land that is owned by Citizens and is located at 100 Union
Street, Vienna, Georgia. The second full-service office has 10,718 square feet
of office space and is located on 1.3 acres of land that is owned by Citizens
and is located at 102 West Railroad Street, Montezuma, Georgia. The third office
located at 602 East 16th Avenue, Suite G., Cordele, Georgia, with 2000 square
feet of office space and is leased by Citizens.
One of the limited-service offices has 1,750 square feet of office
space on .07 acres and is located on Main Street, Byromville, Georgia. The next
limited-service office has 2,500 square feet on .6 acres of land and is located
at 201 Macon Street, Oglethorpe, Georgia. The third limited-service office has
843 square feet of office space on .55 acres and is located on Fullington
Avenue, Pinehurst, Georgia. Citizens owns each of these properties.
Citizens leases 2000 square feet of office space for its consumer
loan office at 1180 Pine Street, Unadilla, Georgia.
Citizens owns three warehouse/meeting facilities located in Vienna,
Georgia at the following locations: (i) 2nd Street, Vienna, Georgia with 4,100
square feet of space on .10 acres of land, (ii) 3rd Street, Vienna, Georgia,
with 2,940 square feet of office space on .09 acres of land, and (iii) 3rd
Street, Vienna, Georgia, with 1,755 square feet of office space on .05 acres of
land.
Citizens also owns an office parking lot at the corner of Union Street
and 2nd Street, Vienna Georgia. The lot is on .42 acres of land. Another lot
owned by Citizens is located at Fullington Avenue and Highway 41, Pinehurst,
Georgia. Citizens also owns a lot located at the corner of Fullington Avenue and
Cyprus Avenue, Vienna, Georgia with 370 square feet of a vacant building on .23
acres of land.
Milan operates two full service offices in Milan and McRae, Georgia.
The office located at 1 Mt. Zion Street, Milan, Georgia has 5,124 square feet of
office space on .18 acres of land. Milan also leases a full service office with
1,360 square feet of office space located at 850 East Oak Street, McRae,
Georgia.
The net book value of the Company's investment in land, premises,
furniture, fixtures and equipment totaled approximately $12.5 million at June
30, 1998. See Note 4 of Notes to Consolidated Financial Statements contained
herein. Most of the Company's data processing equipment is held by the Company
under capitalized leases, and it uses an independent service bureau for most of
its data processing needs.
All of the Company's offices are in good condition and are adequate for
the Company's current and foreseeable needs.
The Company is unaware of any potential environmental liability that it
may incur in connection with any properties or other assets owned by it.
12
<PAGE>
ITEM 3. LEGAL PROCEEDINGS
Flag and the Banks are periodically involved as plaintiff or defendant
in various legal actions in the ordinary course of its business. During August
1992 through October 1995, First Federal entered into a series of leases and
secured loans with Bennett Funding Group, Inc. and certain of its affiliates
("Bennett Funding"). Bennett Funding allegedly operated in a fraudulent manner
and are now the subject of bankruptcy proceedings, In re Bennett Funding Group,
Inc., et al, Case No. 96-61376 et seq., which are pending in the United States
Bankruptcy Court for the Northern District of New York. These leases and loans
have an aggregate principal balance of $2.05 million.
After a series of negotiations, the Bank settled its disputes with the
bankruptcy trustee under the terms of a Settlement Agreement. The Settlement
Agreement has been approved by the Bankruptcy Court and executed by the Bank and
the trustee. The settlement provides for a "split" between the Bank and the
trustee on all cash collections on leases which collateralize the loans at
issue.
First Federal is named as the defendant in a suit filed on June 29,
1998 in the Circuit Court of Elmore County, Alabama. The plaintiffs contend that
a loan officer of First Federal told them that their construction and permanent
loans in the amount of $95,000 had been approved and that the approval was not
subject to any conditions. First Federal later declined the permanent loan based
on that fact that the plaintiff did not meet certain conditions. The plaintiffs
obtained a loan from another source but at an interest rate that was 2.25%
higher than the First Federal rate. First Federal believes it has a meritorious
defense to the claim.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matter was submitted by the Company to a vote of its shareholders
during the fourth quarter of 1997.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON STOCK AND RELATED SHAREHOLDER
MATTERS
Information relating to the market for, holders of and dividends paid
on the Company's Common Stock is set forth under the caption "Corporate
Information-Stock Prices and Dividends" on page 40 of the Company's 1997 Annual
Report. Such information is incorporated herein by reference. The 1997 Annual
Report is filed as Exhibit 13 to this report.
ITEM 6. SELECTED FINANCIAL DATA
Selected consolidated financial data for the Company and its subsidiaries
for each year of the five-year period ended December 31, 1997 is set forth under
the caption "Financial Highlights" on page 4 of the 1997 Annual Report. Such
financial data is incorporated herein by reference.
13
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
GENERAL
FLAG Financial Corporation ("FLAG") is a multi-bank holding company
that owns 100 percent of the common stock of First Federal Savings Bank of
LaGrange ("FFSB"), Citizens Bank ("Citizens"), and Bank of Milan ("Milan"),
(collectively, the "Banks"). FFSB is a federally chartered stock savings bank
doing business in West Central Georgia. Citizens is a commercial bank that
serves Dooly, Macon, Crisp and surrounding counties in Middle Georgia. Citizens
also owns 100% of CB Financial Group, Inc. a pawn shop and check cashing
operation located in Unadilla, Georgia. Milan is a commercial bank that serves
Dodge, Telfair and surrounding counties in Middle Georgia. The Banks are
full-service, retail oriented community banks primarily engaged in retail
banking, small business, residential and commercial real estate lending, and
mortgage banking.
The following discussion focuses on significant changes in the
financial condition and results of operations of FLAG and the Banks during the
three years ended December 31, 1997. This discussion and the financial
information contained herein are presented to assist the reader in understanding
and evaluating the financial condition, results of operations, and future
prospects of FLAG and should be read as a supplement to and in conjunction with
the Consolidated Financial Statements and Related Notes.
CAPITAL ISSUES
Effective June 3, 1998, FLAG declared a 3-for-2 stock split. All per
share amounts and prices have been restated to reflect this stock split as if it
had occurred at the beginning of the earliest period presented.
In October 1995, FLAG purchased and retired 192,150 shares of its
common stock in the open market for $8.50 per share. During 1996 and 1995, FLAG
issued 8,375 and 7,211 shares, respectively, of its common stock. FLAG received
$44,269 and $59,486 in 1996 and 1995, respectively, in connection with these
issuances. During 1997, FLAG did not purchase or issue any shares of its common
stock.
RESTATEMENT OF FINANCIAL STATEMENTS AND MANAGEMENT'S DISCUSSION AND ANALYSIS
Effective March 30, 1998, FLAG completed the acquisition of Middle
Georgia Bankshares, Inc., the parent company of the $129 million Citizens Bank
in Vienna, Georgia. FLAG issued approximately 1.5 million shares of its common
stock in connection with this acquisition.
Effective May 8, 1998, FLAG completed the acquisition of Three Rivers
Bancshares, Inc., the parent company of the $35 million Bank of Milan in Milan,
Georgia. FLAG issued approximately 597,000 shares of its common stock in
connection with this acquisition.
These acquisitions were accounted for as poolings of interests and,
accordingly, the consolidated financial statements and management's discussion
and analysis for all periods have been restated to include the financial
position and results of operations as if the combination had occurred at the
beginning of the earliest period presented.
PENDING ACQUISITIONS
On May 14, 1998, FLAG announced the signing of an agreement to merge
with The Brown Bank ("Brown"), a $28 million asset savings bank based in Metter,
Gergia. The merger agreement provides, among other things, for the merger of
14
<PAGE>
Brown with and into FLAG and the exchange of each share of Brown common stock
for 1.5 shares of FLAG common stock. Total outstanding shares of FLAG will
increase by approximately 263,000 additional shares at closing.
On May 28, 1998, FLAG announced the signing of an agreement to merge
with Heart of Georgia Bancshares, Inc. ("HGB"), a $33 million asset bank holding
company based in Mt. Vernon, Georgia. The merger agreement provides, among other
things, for the merger of HGB with and into FLAG and the exchange of each share
of HGB common stock for 2.025 shares of FLAG common stock. Total outstanding
shares of FLAG will increase by approximately 446,000 additional shares at
closing.
On June 1, 1998, FLAG announced the signing of an agreement to merge
with Empire Bank Corp. ("Empire"), a $70 million asset bank holding company
based in Homerville, Georgia. The merger agreement provides, among other things,
for the merger of Empire with and into FLAG and the exchange of each share of
Empire common stock for 42.5 shares of FLAG common stock. Total outstanding
shares of FLAG will increase by approximately 1,145,000 additional shares at
closing.
15
<PAGE>
YEAR 2000 ISSUES
FLAG is aware of the issues relating to its computer systems as the
Year 2000 approaches. The Year 2000 issue is pervasive and complex as virtually
every computer operation will be affected in some way by the rollover of the
two-digit value to 00. The issue is whether computer systems will properly
recognize date-sensitive information when the year changes to 2000. Systems that
do not properly recognize such information could generate erroneous data or
cause a system to fail.
FLAG has appointed a Year 2000 committee comprised of three outside
directors and several key senior executives. The committee meets on a monthly
basis to provide direction and monitor the progress being made relating to
FLAG's Year 2000 efforts.
FLAG managers and supervisors have identified hardware and software
used in their area of responsibility impacted by the Year 2000 issue and have
identified vendors whom FLAG relies upon to provide financial information or
services which may be impacted by the Year 2000 issue. FLAG has conducted a risk
assessment for each product, and has categorized the risks associated with each
product as "catastrophic," "serious," or "minimal." FLAG's overall risk is
considered to be serious to minimal. A separate plan and action date has been
established for hardware/software that are considered critical to the FLAG's
on-going operations. The next steps in the process will be to develop a test for
the hardware/software, to test the hardware/software as it becomes Year 2000
compliant, and to document those tests accordingly.
FLAG plans to convert from its current NCR Starcom software system to
an application system provided by Phoenix International Ltd., Inc. ("Phoenix")
in August 1998. Phoenix has represented in their contract with FLAG that the
Phoenix application system is Year 2000 compliant. FLAG will test the system for
Year 2000 Compliance prior to conversion. The Phoenix application system will
include many critical applications, including the general ledger, loan
application system, deposit application system, and accounts receivable and
payable. The third party application system used to process FLAG's payroll has
already been certified as Year 2000 Compliant.
FLAG is in the initial stages of determining the impact of the Year
2000 on its larger loan customers. For those loan customers with a significant
risk to their on-going operations arising from possible Year 2000 issues, FLAG
will monitor and document their Year 2000 compliance efforts. FLAG is in the
process of developing a questionnaire for its lending officers to use in
assessing the Year 2000 risk for larger loan customers. FLAG plans to conduct
Year 2000 seminars for its commercial customers. FLAG also intends to add a
provision to its standard loan agreement relating to the borrower's Year 2000
compliance.
NET INTEREST INCOME
Net interest income (the difference between the interest earned on
assets and the interest paid on deposits and other interest-bearing liabilities)
is the single largest component of FLAG's operating income. The management of
net interest income is of most importance in the banking industry. FLAG manages
this income source while it controls credit, liquidity, and interest rate risks.
Net interest income increased 8.4% in 1997, from $14.8 million in 1996 to
$16.0 million in 1997. Net interest income increased 5.9% in 1996 compared to
1995.
Total interest income increased 9.6% in 1997 and 2.4% in 1996. Interest
expense decreased approximately 1.4% in 1996 compared to 1995, but increased
approximately 11.0% in 1997 compared to 1996. The interest expense variances
from year to year have been primarily influenced by the average balances of
interest bearing liabilities (see Tables 1 & 2).
16
<PAGE>
<TABLE>
<CAPTION>
Table 1 - Consolidated Average Balances, Interest, and Rates - Taxable Equivalent Basis
(dollars in thousands)
Years Ended December 31,
1997 1996 1995
- ------------------------------------------------------------------------------------------------------------------------------
Interest Weighted Interest Weighted Interest Weighted
Average Income/ Average Average Income/ Average Average Income/ Average
Balance Expense Rate Balance Expense Rate Balance Expense Rate
ASSETS
Interest-earning assets:
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Loans.................. $253,809 $25,850 10.18% $225,774 $23,240 10.29% $215,208 $21,768 10.11%
Taxable investment
securities............ 64,800 4,081 6.30 65,261 4,042 6.19 77,077 4,889 6.34
Tax-free investment
securities............ 5,144 398 7.74 4,467 390 8.73 3,519 335 9.52
Interest-bearing deposits
in other banks....... 2,515 158 6.28 1,692 90 5.32 2,959 138 4.66
Federal funds sold..... 5,237 290 5.54 5,840 321 5.50 4,920 295 6.00
----------------------- ----------------------- ---- --------- ---------- ----
Total interest-
earning assets...... $331,505 $30,777 9.28% $303,034 $28,083 9.27% $303,683 $27,425 9.03%
Other assets............. 38,377 30,450 25,547
Total assets......... $369,882 $333,484 $329,230
======== ======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Interest-bearing liabilities:
Interest-bearing demand
deposits............ $ 64,062 $1,679 2.62% $52,674 $1,461 2.77% $ 47,222 $1,466 3.10%
Savings deposits ...... 20,888 521 2.49 20,982 518 2.47 20,420 517 2.53
Other time deposits.... 190,706 10,977 5.76 174,726 10,014 5.73 166,637 9,521 5.71
Federal funds purchased 1,002 68 6.79 207 12 5.80 - - -
FHLB advances and
other borrowings.... 24,825 1,403 5.65 21,985 1,190 5.41 32,126 1,874 5.83
-------- ----- ---- ------ ----- ---- ------ ----- ----
Total interest-
bearing liabilities $301,483 $14,648 4.86% $270,574 $13,195 4.88% $266,405 $13,378 5.02%
Noninterest bearing
demand deposits..... 27,177 27,219 26,196
Other liabilities........ 6,129 3,278 5,269
Stockholders' equity..... 35,093 32,413 31,360
Total liabilities and
stockholders' equity $369,882 $333,484 $329,230
======== ======== ========
Tax-equivalent adjustment 133 132 114
Net interest income...... $15,996 $14,756 $13,933
======= ======= =======
Interest rate spread..... 4.43% 4.39% 4.01%
Net interest margin...... 4.83% 4.87% 4.59%
Interest-earning assets/
interest-bearing liabilities 110% 112% 114%
</TABLE>
CONSOLIDATED AVERAGE BALANCES, INTEREST, AND RATES
Net interest income is determined by the amount of interest-earning
assets compared to interest-bearing liabilities and their related yields and
costs. The difference between the weighted average interest rates earned on
interest-earning assets (i.e., loans and investment securities) and the weighted
average interest rates paid on interest-bearing liabilities (i.e., deposits and
borrowings) is called the net interest spread. Another measure of the difference
in interest income earned versus interest expense paid is net interest margin.
Net interest margin is calculated by dividing net interest income by average
earning assets.
Table 1 presents for the three years ended December 31, 1997, average
balances of interest-earning assets and interest-bearing liabilities and the
weighted average interest rates earned and paid on those balances. In addition,
interest rate spreads, net interest margins and the ratio of interest-earning
assets versus interest-bearing liabilities for those years are presented.
Average interest-earning assets were $331.5 million in 1997, versus $303.0
million in 1996 and $303.7 million in 1995. Average interest-bearing liabilities
17
<PAGE>
were $301.5 million in 1997, versus $270.6 million in 1996 and $266.4 million in
1995. The interest rate spread was 4.43% in 1997, versus 4.39% in 1996 and 4.01%
in 1995, while the net interest margin was 4.83% in 1997, 4.87% in 1996 and
4.59% in 1995.
Table 2 shows the change in net interest income from 1996 to 1997 and from
1995 to 1996 due to changes in volumes and rates.
Table 2 - Rate/Volume Variance Analysis - Taxable Equivalent Basis
(dollars in thousands)
Years Ended December 31,
1997 Compared to 1996 1996 Compared to 1995
----------------------- -----------------------
Rate/ Net Rate/ Net
Volume Yield Change Volume Yield Change
Interest income:
Loans 2,855 (245) 2,610 1,088 384 1,472
Taxable investment securities (29) 68 39 (732) (115) (847)
Tax-free investment securities 52 (44) 8 83 (28) 55
Interest-bearing deposits in
other banks 52 16 68 (67) 19 (48)
Federal funds sold (33) 2 (31) 51 (25) 26
---------------------------------------------
Total interest income 2,897 (203) 2,694 423 235 658
-----------------------------------------------
Interest expense:
Interest bearing demand deposits 298 (80) 218 151 (156) (5)
Savings deposits (2) 5 3 14 (13) 1
Other time deposits 920 43 963 464 29 493
Federal funds purchased 54 2 56 12 - 12
FHLB advances an other borrowings 161 52 213 (549) (135) (684)
---------------------------------------------
Total interest expense 1,431 22 1,453 92 (275) (183)
--------------------------------------------------
Net interest income 1,467 (226) 1,241 331 510 841
===== ===== ===== === === ===
NONINTEREST INCOME
Other income increased to $5.3 million in 1997 from $4.6 million in
1996 and $3.7 million in 1995. The increases in other income in 1997 and 1996
resulted from increased gains on the sale of loans and increased fee income
related to transaction deposit accounts.
Gain on sales of loans increased to $821,000 in 1997 versus $596,000 in
1996 and $56,000 in 1995. The increase in gain on sales of loans in 1997
primarily resulted from gains on the sale of SBA loans. The increase in gains on
sale of loans in 1996 resulted from increased mortgage banking activity in 1996
compared to 1995.
Fees and service charges on deposits increased to $3.6 million in 1997 from
$3.3 million in 1996 and $3.0 million in 1995.
NONINTEREST EXPENSES
Other expenses were $15.0 million in 1997, versus $14.0 million in 1996
and $11.7 million in 1995. The increase in other operating expenses from 1995 to
1996 and the decrease in those expenses from 1996 to 1997 was largely
attributable to the one-time SAIF assessment of $1,150,000 which occurred in
1996.
Salary and employee benefits increased to $7.3 million in 1997 from
$6.2 million in 1996 and $5.7 million in 1995. This increase in 1997 was
primarily due to normal increases in compensation levels as well as to the
hiring of several key individuals in mid- and late-1996 and in 1997.
Occupancy expenses increased to $2.8 million in 1997 from $2.2 million
in 1996 and $1.8 million in 1995, while other operating expenses were $5.0
million in 1997, versus $5.6 million in 1996 and $4.1 million in 1995. The
increase in 1997 occupancy expense was the result of a combination in higher
depreciation expenses and an increase in maintenance contract expenses, both of
which related to an increase in fixed assets and the relocation of the leasing
and the deposit operations center to off-premise leased office space. In
addition to the SAIF special assessment, 1996 operating expenses were higher
18
<PAGE>
than 1995 because of expenses related to the start-up of a new leasing operation
and research and attorney fees related to the Bennett Funding Group, Inc.
("Bennett Funding") bankruptcy.
INVESTMENT SECURITIES
The composition of the investment securities portfolio reflects
management's strategy of maintaining an appropriate level of liquidity while
providing a relatively stable source of income. The portfolio also provides a
balance to interest rate risk and credit risk in other categories of FLAG's
balance sheet while providing a vehicle for the investment of available funds,
furnishing liquidity, and providing securities to pledge as required collateral
for certain deposits.
Investment securities increased $7.4 million to $74.6 million at
December 31, 1997 from $67.2 million at December 31, 1996. At December 31, 1997,
$71.7 million, approximately 96% of investment securities outstanding, was
classified as available-for-sale, while the remainder was classified as
held-to-maturity. The overall increase in the amount of investments was due to
the fact that new funds invested exceeded calls, sales, normal paydowns and
prepayments of securities. At December 31, 1997, gross unrealized gains in the
total portfolio amounted to $591,000 and gross unrealized losses amounted to
$642,000.
Table 3 reflects the carrying amount of the investment securities
portfolio for the past three years.
Table 3 - Carrying Value of Investments
(dollars in thousands)
December 31,
1997 1996 1995
- ---------------------------------------------------------------------
Securities held-to-maturity:
State, county and municipal $ 350 $ 515 $ 731
Mortgage-backed securities 103 118 131
Collateralized mortgage
obligations 2,505 3,092 3,766
----------------------------------------
2,958 3,725 4,628
----------------------------------------
Securities Available-for-sale:
U.S. Treasuries and agencies 16,825 15,874 14,766
Corporate debt securities. 1,000 990 -
State, county and municipal 6,405 4,147 3,735
Mortgage-backed securities 29,821 23,493 23,886
Collateralized mortgage
obligations 15,854 16,705 22,343
Equity securities.............. 1,761 2,253 5,311
----------------------------------------
71,666 63,462 70,041
----------------------------------------
Total........... $74,624 $67,187 $74,669
========================================
CARRYING VALUE OF INVESTMENTS
The December 31, 1997 market value of securities held to maturity, as a
percentage of amortized cost, was 99%, up from 98% at December 31, 1996. The
market value of the securities held-to-maturity will change as interest rates
change and such unrealized gains and losses will not flow through the earnings
statement unless the related securities become permanently impaired or they are
called at prices which differ from the carrying value at the time of the call.
19
<PAGE>
LOANS
Gross loans receivable increased by approximately $37.1 million in 1997
to $282.9 million from $245.8 million at December 31, 1996. This increase was
the result of growth in commercial, financial and agricultural loans, real
estate mortgages and lease financings. As shown in Table 4, commercial,
financial and agricultural loans increased approximately $12.4 million, real
estate mortgages increased approximately $28.0 million and lease financings
increased by approximately $1.7 million. The decrease in installment loans to
individuals primarily resulted from the normal paydown and prepayment of these
loans.
<TABLE>
Table 4 - Loan Portfolio
(dollars in thousands)
<CAPTION>
December 31,
1997 1996 1995 1994 1993
------------------------------------------------------------------------------------------
Percent Percent Percent Percent Percent
Amount of Total Amount of Total Amount Of Total Amount of Total Amount of Total
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Commercial/financial/agricultural $47,373 16.7% $34,983 14.2% $31,409 14.3% $24,398 11.6% $18,863 9.8%
Real estate construction....... 11,768 4.2 10,539 4.3 4,891 2.2 6,849 3.3 4,772 2.5
Real estate mortgage........... 198,566 70.2 170,615 69.4 150,146 68.5 152,419 72.4 145,931 75.5
Installment loans to individuals 15,855 5.6 22,088 9.0 26,018 11.9 18,470 8.8 17,295
8.9
Lease financings............... 9,304 3.3 7,572 3.1 6,654 3.0 8,354 4.0 6,553 3.4
------------------------------------------------------------------------------------------
Total loans............... 282,866 100.0% 245,795 100.0% 219,118 100.0% 210,490 100.0% 193,414 100.0%
Less:
Deferred loan fees and discounts 236 (375) (322) (363) (383)
Allowance for loan losses...... (3,816) (5,767) (2,592) (2,412) (2,002)
------- ------- ------- ------- -------
Total net loans........... $279,286 $239,653 $216,204 $207,715 $191,029
======== ======== ======== ======== ========
</TABLE>
Table 5 represents the expected maturities for commercial, financial, and
agricultural loans and real estate construction loans at December 31, 1997. The
table also presents the rate structure for these loans that mature after one
year.
<TABLE>
Table 5 - Loan Portfolio Maturity
(dollars in thousands)
<CAPTION>
Rate Structure for Loans
Maturity Maturity Over One Year
- --------------------------------------------------------------------------------------------------------
Over One Year Floating
One Year Through Over Five or Adjustable Predetermined
or Less Five Years Years Total Interest Rate Rate
Commercial, financial, and
<S> <C> <C> <C> <C> <C> <C>
agricultural............... $26,561 $12,020 $8,792 $47,373 $12,631 $8,181
Real estate - construction.... 10,815 946 7 11,768 37 916
---------------------------------------------------------------------
$37,376 $12,966 $8,799 $59,141 $12,668 $9,097
====================================================================
</TABLE>
PROVISION AND ALLOWANCE FOR LOAN LOSSES
Table 6 presents an analysis of activities in the allowance for loan
losses for the past five years. An allowance for possible losses is provided
through charges to FLAG's earnings in the form of a provision for loan losses.
The provision for loan losses was $765,000 in 1997, $3,744,000 in 1996, and
$775,000 in 1995. The large increase in the provision for loan losses from 1995
to 1996 is directly attributable to Bennett Funding. Excluding the provision
associated with Bennett Funding, the 1996 provision for loan losses would have
been $766,000. Management determines the level of the provision for loan losses
based on outstanding loan balances, the levels of nonperforming assets, and
reviews of assets classified as substandard, doubtful, or loss and larger
credits, together with an analysis of historical loss experience, and current
economic conditions. The responsible loan officers conduct these reviews, as
well as the loan review department.
Historically, the loan portfolio has consisted primarily of loans
secured by one-to-four family residential properties, and actual losses have not
been significant. The Banks also provide other services and loan products to
meet the growing financial needs of FLAG's communities, including consumer
loans, commercial loans, and commercial real estate loans. Because these loans
present a somewhat higher credit risk than loans secured by residential
properties, management has significantly increased the allowance for loan losses
compared to historic levels to reflect the increased potential for future
losses.
As shown in Table 6, the year-end allowance for loan losses decreased
to $3.8 million at December 31, 1997, from $5.8 million at December 31, 1996.
The allowance for loan losses was $2.6 million at December 31, 1995. The decline
in the allowance for losses in 1997 was primarily due to a $2,465,000 charge-off
associated with the Bennett Funding assets. Total charge-offs in 1997, including
those related to Bennett Funding, were $2,917,000, up from $628,000 in 1996, and
$647,000 in 1995. If Bennett Funding assets had not been charged-off to their
net realizable value, 1997 charge-offs would have been approximately $452,000.
The allowance for loan losses was 1.50% of net outstanding loans at December 31,
1997, versus 2.55% of net outstanding loans at December 31, 1996, and 1.20% of
net outstanding loans at December 31, 1995.
Management believes that the allowance for loan losses was both
adequate and appropriate. However, the future level of the allowance for loan
losses is highly dependent upon loan growth, loan loss experience, and other
factors, which cannot be anticipated with a high degree of certainty.
20
<PAGE>
<TABLE>
Table 6 - Analysis of the Allowance for Loan Losses
(dollars in thousands)
Years Ended December 31,
--------------------------------------------------
1997 1996 1995 1994 1993
--------------------------------------------------
<S> <C> <C> <C> <C> <C>
Average net loans....................... $253,611 $225,774 $215,208 $204,200 $197,250
Allowance for loan losses, beginning
of the period......................... 5,768 2,592 2,412 2,002 1,545
Charge-offs for the period:
Commercial/financial/agricultural..... 167 8 6 88 59
Real estate construction loans ....... - 22 23 2 -
Real estate mortgage loans............ 126 432 432 36 284
Installment loans to individuals...... 159 166 186 102 241
Lease financings...................... 2,465 - - - -
-------------------------------------------------
Total charge-offs....................... $ 2,917 $ 628 $ 647 $ 228 $ 584
-------------------------------------------------
Recoveries for the period:
Commercial/financial/agricultural..... $ 2 $ - $ 4 $ 50 $ 11
Real estate construction loans........ - - - 10 -
Real estate mortgage loans............ 104 - - 5 13
Installment loans to individuals...... 94 61 48 83 62
Lease financings...................... - - - - -
-------------------------------------------------
Total recoveries................... $ 200 $ 61 $ 52 $ 148 $ 86
-------------------------------------------------
Net charge-offs for the period... 2,719 567 595 80 498
Provision for loan losses............... 765 3,743 775 490 955
--------------------------------------------------
Allowance for loan losses, end of period $ 3,816 $ 5,768 $ 2,592 $2,412 $ 2,002
=================================================
Ratio of allowance for loan losses to
total net loans outstanding ........... 1.50% 2.55% 1.20% 1.18% 1.01%
Ratio of net charge-offs during the
period to average net loans outstanding
during the period ..................... 1.07% 0.25% 0.28% 0.04% 0.25%
</TABLE>
ASSET QUALITY
At December 31, 1997, non-performing assets (non-accrual loans
and other real estate owned) totaled $5.5 million compared to $8.6 million at
year-end 1996. The decrease in 1997 is primarily due to the write-off of the
amount determined to be uncollectible from Bennett Funding. As was discussed in
last year's annual report, Bennett Funding was an equipment leasing and finance
company based in Syracuse, New York. For several years, FFSB, along with many
other financial institutions and individuals throughout the United States,
invested in office equipment leases sold through Bennett Funding. During 1996,
Bennett Funding filed for Chapter 11 bankruptcy protection, and certain officers
of Bennett Funding were investigated for possible wrongdoing, including but not
limited to criminal securities fraud. As a result of the Chapter 11 bankruptcy
filing, the collection of cash flows and the values associated with these leases
became less certain, and to reflect this possible loss in value, FLAG
established a specific reserve for possible Bennett Funding losses of
approximately $3.0 million. In addition, it was also determined that the $4.5
million in equipment leases should be classified as "Doubtful," a classification
which generally requires reserves equal to 50% of the carrying value of the
asset. In 1997, management agreed to a settlement with the Trustee of Bennett
Funding. In general, the agreement provides for a sharing of the cashflows
generated by the leases. Subsequent to year-end 1997, FLAG received
approximately $2.0 million from the Trustee. According to the settlement, FLAG
will be receiving monthly remittances of cash collected by the Trustee until the
agreement is satisfied. Management believes that all of the remaining unreserved
balance of these leases will be recovered.
In 1997, the Bennett Funding receivables were charged-off by approximately
$2.5 million against the 1996 established reserve.
21
<PAGE>
There were no commitments to lend additional funds on nonaccrual loans at
December 31, 1997. Table 7 summarizes the non-performing assets for each of the
last five years.
Table 7 - Risk Elements
(dollars in thousands)
December 31,
--------------------------------------
1997 1996 1995 1994 1993
- --------------------------------------------------------------------------------
Loans on nonaccrual...................... $4,669 $7,716 $2,296 $2,838 $3,976
Loans past due 90 days and still accruing 87 980 22 - 36
Other real estate owned.................. 817 862 892 364 504
Total non-performing assets.............. $5,573 $9,558 $3,210 $3,202 $4,516
======================================
Total non-performing loans as a
percentage of net loans............. 1.70% 3.63% 1.07% 1.37% 2.10%
RISK ELEMENTS
.........There may be additional loans within FLAG's loan portfolio that may
become classified as conditions may dictate; however, management was not aware
of any such loans that are material in amount at December 31, 1997. At December
31, 1997, management was unaware of any known trends, events, or uncertainties
that will have, or that are reasonably likely to have a material effect on the
Banks' or FLAG's liquidity, capital resources, or operations.
DEPOSITS
Total deposits increased approximately $30.5 million during 1997, totaling
$324.9 million at December 31, 1997, versus $294.4 million at December 31, 1996.
The maturities of time deposits of $100,000 or more issued by the Banks at
December 31, 1997, are summarized in Table 8.
Table 8 - Maturities of Time Deposits Over $100,000
(dollars in thousands)
Three months or less.................. $22,989
Over three months through six months.. 10,933
Over six months through twelve months. 17,885
Over twelve months.................... 5,864
--------
$57,671
At December 31, 1997, the Banks were shareholders in the Federal Home Loan
Bank of Atlanta ("FHLBA"). Through this affiliation, advances totaling $43.6
million were outstanding at rates competitive with time deposits of like
maturities. Management anticipates continued utilization of this short- and
long-term source of funds to minimize interest rate risk and to fund competitive
fixed rate loans to customers.
ASSET-LIABILITY MANAGEMENT
A primary objective of FLAG's asset and liability management program is
to control exposure to interest rate risk (the exposure to changes in net
interest income due to changes in market interest rates) so as to enhance its
earnings and protect its net worth against potential loss resulting from
interest rate fluctuations.
Historically, the average term to maturity or repricing (rate changes)
of assets (primarily loans and investment securities) has exceeded the average
repricing period of liabilities (primarily deposits and borrowings). Table 9
provides information about the amounts of interest-earning assets and
interest-bearing liabilities outstanding as of December 31, 1997, that are
expected to mature, prepay, or reprice in each of the future time periods shown
22
<PAGE>
(i.e., the interest rate sensitivity). As presented in this table, at December
31, 1997, the liabilities subject to rate changes within one year exceeded its
assets subject to rate changes within one year. This mismatched condition
subjects FLAG to interest rate risk within the one year period because the
assets, due to their generally shorter term to maturity or repricing, are more
sensitive to short-term interest rate changes than the liabilities. It is
management's belief that the result of this position would be a decrease in net
interest income if market interest rates rise and an increase in net interest
income if market interest rates decline.
Management carefully measures and monitors interest rate sensitivity
and believes that its operating strategies offer protection against interest
rate risk. As required by various regulatory authorities, FLAG's Board of
Directors has established an interest rate risk policy, which sets specific
limits on interest rate risk exposure. Adherence to this policy is reviewed
quarterly by the Board of Directors' Asset Liability Committee.
Management has maintained positive ratios of average interest-earning
assets to average interest-bearing liabilities. As represented in Table 1 this
ratio, based on average balances for the respective years, was 110% in 1997,
112% in 1996, and 114% in 1995.
<TABLE>
Table 9 - Interest Rate Sensitivity Analysis
(dollars in thousands)
<CAPTION>
December 31, 1997
----------------------------------------------------------
Maturing or Repricing in
Over 1 Year Over 3 Years
One Year Through Through Over
or Less 3 Years 5 Years 5 Years Total
--------- -------- -------- ------- -----
Interest-earning assets:
<S> <C> <C> <C> <C> <C>
Adjustable rate mortgages........... $ 82,892 $ - $ - $ - $ 82,892
Fixed rate mortgages................ 59,786 23,444 19,283 25,636 128,149
Other loans......................... 45,896 10,657 12,143 3,128 71,824
Investment securities............... 37,055 4,741 8,120 25,207 75,123
Federal Home Loan Bank stock........ 2,782 - - - 2,782
Interest-bearing deposits
in other banks.................... 9,068 - - - 9,068
----------------------------------------------------------
Total interest-earning assets..... $237,479 $38,842 $39,546 $53,971 $369,838
--------------------------------------------------------
Interest-bearing liabilities:
Fixed maturity deposits............. $ 150,434 $35,660 $ 8,638 $ 5,802 $200,534
NOW and money market demand
accounts......................... 47,558 6,576 4,424 9,074 67,632
Passbook accounts................... 16,614 648 592 5,331 23,185
Federal funds purchased............. 170 - - - 170
FHLB advances....................... 40,783 2,167 167 521 43,638
Other borrowed funds................. 708 - - - 708
----------------------------------------------------------
Total interest-bearing liabilities $256,267 $45,051 $13,821 $20,728 $335,867
----------------------------------------------------------
Interest rate sensitivity gap........ $(18,788) $(6,209) $25,725 $33,243 $ 33,971
Cumulative interest rate
sensitivity gap .................. $(18,788) $(24,997) $728 $33,971 -
Cumulative interest rate sensitivity
gap to total assets............... -4.57% -6.08% -.18% 8.26% -
</TABLE>
Table 10 represents the expected maturity of the total investment securities by
maturity date and average yields based on amortized cost at December 31, 1997.
It should be noted that the composition and maturity/repricing distribution of
the investment portfolio is subject to change depending on rate sensitivity,
capital needs, and liquidity needs.
23
<PAGE>
<TABLE>
Table 10 - Expected Maturity of Investment Securities
(dollars in thousands)
<CAPTION>
After One But After Five But
Within One Year Within Five Years Within Ten Years After Ten Years Totals
--------------------------------------------------------------------------------
Amount Yield Amount Yield Amount Yield Amount Yield
Securities held-to-maturity:
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
State, county and municipals $ 51 11.10% 224 9.00% 52 8.00% 24 8.60% 351
Mortgage-backed securities.. 103 6.98% - - - - - - 103
Collateralized mortgage
obligations .............. - - 77 8.85% - - 2,428 7.22% 2,505
---------------------------------------------------------------------------
$ 154 8.34% 301 8.96% 52 8.00% 2,452 7.23% 2,959
---------------------------------------------------------------------------
Securities available-for-sale:
U.S. Treasury and agencies.. $ 3,131 5.43% 4,689 6.41% 8,542 6.76% 462 6.50% 16,824
State, county and municipals 319 7.10% 2,585 6.50% 1,500 8.90% 2,001 9.00% 6,405
Corporate debt securities... - - 1,000 6.86% - - - - 1,000
Equity securities........... 1,761 4.53% - - - - - - 1,761
Mortgage-backed securities.. 1,264 5.37% 2,972 6.55% 4,171 6.98% 21,414 6.69% 29,821
Collateralized mortgage
obligations - - 1,272 5.98% 3,858 5.53% 10,724 6.18% 15,854
----------------------------------------------------------------------------
6,475 5.25% 12,518 6.45% 18,071 6.73% 34,601 6.66% 71,665
---------------------------------------------------------------------------
Total $ 6,629 5.33% 12,819 6.51% 18,123 6.73% 37,053 6.70% 74,624
===== ===== ====== ===== ====== ===== ====== ===== ======
</TABLE>
LIQUIDITY
The Banks are required under federal regulations to maintain in cash
and eligible short-term investment securities a monthly average of 5.0% of net
withdrawable deposits and borrowings payable in one year or less. The Banks'
average liquidity in December 1997 was 11.68% of the aggregate of the prior
month's daily average deposits and short-term borrowings. The Banks' liquidity
was 13.03% at December 31, 1997, and 11.14% at December 31, 1996.
The Banks' primary sources of liquidity (funds) are deposit inflows,
loan repayments, proceeds from sales of loans and securities, advances from the
FHLBA, and earnings from investments. Short-term deposits, particularly
noninterest-bearing checking accounts, are becoming a more significant source of
liquidity than they have been historically to the Banks. Advances from the FHLBA
were $43,637,000 and $17,371,000, respectively, at December 31, 1997 and 1996.
Subject to certain limitations, the Banks may borrow funds from the
FHLBA in the form of advances. Credit availability from the FHLBA to the Banks
are based on the Banks' financial and operating condition. Credit availability
from the FHLBA to the Bank was approximately $68.0 million at December 31, 1997.
In addition to creditworthiness, the Bank must own a minimum amount of FHLBA
capital stock. This minimum is 5.0% of outstanding FHLBA advances. Unused
borrowing capacity at December 31, 1997, was $24.0 million. The Banks use FHLBA
advances for both long-term and short-term liquidity needs. Other than normal
banking operations, the Banks have no long-term liquidity needs. The Banks have
never been involved with highly leveraged transactions that may cause unusual
potential long-term liquidity needs.
The Consolidated Statements of Cash Flows for the three years ended
December 31, 1997 detail FLAG's sources and uses of funds for those periods.
CAPITAL RESOURCES AND DIVIDENDS
Stockholders' equity at December 31, 1997, increased 10.0% from
December 31, 1996. All of this growth resulted from 1997 earnings. Dividends of
$756,519 or $0.15 per share were declared and paid in 1997, compared to $0.14
per share in 1996.
Average stockholders' equity as a percent of total average assets is
one measure used to determine capital strength. The ratio of average
stockholders' equity to average total assets was 9.49% for 1997 and 9.72% for
1996. Table 11 summarizes these and other key ratios for FLAG for each of the
last three years.
The Federal Deposit Insurance Corporation Improvement Act ("FDICIA")
required federal banking agencies to take "prompt corrective action" with regard
to institutions that do not meet minimum capital requirements. As a result of
FDICIA, the federal banking agencies introduced an additional capital measure
called the "Tier 1 risk-based capital ratio." The Tier 1 ratio is the ratio of
core capital to risk adjusted total assets. Note 10 to the Consolidated
Financial Statements presents a summary of FDICIA's capital tiers compared to
FLAG's and the Banks' actual capital levels. The Banks exceeded all requirements
of a "well-capitalized" institution at December 31, 1997. The pending merger
(see "Pending Acquisitions") will not significantly reduce FLAG's capital ratios
and management will continue leveraging capital to increase return on
stockholders' equity.
24
<PAGE>
Table 11 - Equity Ratios
Years Ended December 31,
1997 1996 1995
- -------------------------------------------------------------------
Return on average assets........... 1.01% .39% 1.05%
Return on average equity........... 10.68% 3.97% 11.07%
Dividend payout ratio.............. 20.18% 57.06% 19.09%
Average equity to average assets... 9.49% 9.72% 9.53%
PROVISION FOR INCOME TAXES.
The provision for income taxes was $1,795,000 in 1997, versus $347,000
in 1996, and $1,707,000 in 1995. The effective actual tax rates for 1997, 1996,
and 1995 (tax provision as a percentage of income before taxes) were 32.4%,
21.2%, and 33.0%, respectively. These tax rates are lower than the statutory
Federal tax rate of 34% primarily due to interest income on tax exempt
securities. See FLAG's consolidated financial statements for an analysis of
income taxes.
IMPACT OF INFLATION AND CHANGING PRICES
The consolidated financial statements and related financial data
presented herein have been prepared in accordance with generally accepted
accounting principles which require the measurement of financial position and
operating results in terms of historical dollars without considering changes in
relative purchasing power over time due to inflation.
Unlike most industrial companies, virtually all of the assets and
liabilities of a financial institution are monetary in nature. As a result,
interest rates generally have a more significant impact on a financial
institution's performance than does the effect of inflation. The liquidity and
maturity structures of FLAG's assets and liabilities are critical to the
maintenance of acceptable performance levels.
RECENT ACCOUNTING PRONOUNCEMENTS
In June 1997, the Financial Accounting Standards Board ("FASB") issued
SFAS No. 130, "Reporting Comprehensive Income." SFAS No. 130 establishes
standards for reporting and display of comprehensive income and its components
(revenues, expenses, gains, and losses) in a full set of general-purpose
financial statements. SFAS No. 130 requires that all items that are required to
be recognized under accounting standards as components of comprehensive income
be reported in a financial statement that is displayed with the same prominence
as other financial statements. SFAS No. 130 requires that companies (i) classify
items of other comprehensive income by their nature in a financial statement and
(ii) display the accumulated balance of other comprehensive income separately
from retained earnings and additional paid-in capital in the equity section of
the statement of financial condition. SFAS No. 130 is effective for fiscal years
beginning after December 15, 1997. Reclassification of financial statements for
earlier periods provided for comprehensive purposes is required.
Also, in June 1997, the FASB issued SFAS No. 131, "Disclosures about
Segments of an Enterprise and Related Information." SFAS No. 131 specifies the
presentation and disclosure of operating segment information reported in the
annual report and interim reports issued to stockholders. SFAS No. 131 is
effective for fiscal years beginning after December 15, 1997. Management
believes that the adoption of these statements will have no material impact on
FLAG's financial position, results of operation, or liquidity.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
FLAG FINANCIAL CORPORATION
Consolidated Financial Statements
December 31, 1997, 1996 and 1995
(with Independent Accountants' Report thereon)
25
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
The Board of Directors
FLAG Financial Corporation
LaGrange, Georgia
We have audited the accompanying consolidated balance sheets of FLAG Financial
Corporation and subsidiaries as of December 31, 1997 and 1996, and the related
statements of earnings, changes in stockholders' equity and cash flows for each
of the three years in the period ended December 31, 1997. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits. We did not audit the 1996 and 1995 consolidated financial statements
of FLAG Financial Corporation and subsidiary and the 1997, 1996, and 1995
consolidated financial statements of Three Rivers Bancshares, Inc. and
subsidiary, all of which were pooled with Middle Georgia Bankshares, Inc. and
subsidiary in 1998 as explained in Note 2 to the accompanying consolidated
financial statements. Those statements are included in the accompanying
consolidated financial statements and reflect total assets of $34,548,811 and
$250,746,998 as of December 31, 1997 and 1996, respectively, and net earnings of
$662,466, $221,184, and $2,357,247 for each of the three years in the period
ended December 31, 1997. Those statements were audited by other auditors whose
reports have been furnished to us and our opinion, insofar as it relates to
these amounts, is based solely on the reports of the other auditors.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, based on our audits and the reports of other auditors, the
consolidated financial statements referred to above present fairly, in all
material respects, the financial position of FLAG Financial Corporation and
subsidiaries as of December 31, 1997 and 1996, and the results of their
operations and their cash flows for each of the three years in the period ended
December 31, 1997, in conformity with generally accepted accounting principles.
/s/ Porter Keadle Moore, LLP
Atlanta, Georgia
January 22, 1998, except for Note 2 as to which the date is May 8, 1998 and Note
10 as to which the date is June 3, 1998
26
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
The Board of Directors
FLAG Financial Corporation
LaGrange, Georgia
We have audited the accompanying consolidated balance sheet of FLAG Financial
Corporation and subsidiary as of December 31, 1996, and the related statements
of operations, changes in stockholders' equity and cash flows for the years
ended December 31, 1996 and 1995. These financial statements are the
responsibility of FLAG's management. Our responsibility is to express an opinion
on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of FLAG Financial
Corporation and subsidiary as of December 31, 1996, and the results of their
operations and their cash flows for the years ended December 31, 1996 and 1995,
in conformity with generally accepted accounting principles.
/s/ Robinson, Grimes & Company, P.C.
Columbus, Georgia
January 31, 1997
27
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
The Board of Directors
Middle Georgia Bankshares, Inc.
Vienna, Georgia
We have audited the accompanying consolidated balance sheets of Middle
Georgia Bankshares, Inc. and subsidiary as of December 31, 1997 and 1996 and the
related statements of earnings, changes in stockholders' equity and cash flows
for each of the three years in the period ended December 31, 1997. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Middle
Georgia Bankshares, Inc. and subsidiary as of December 31, 1997 and 1996 and the
results of their operations and their cash flows for each of the three years in
the period ended December 31, 1997, in conformity with generally accepted
accounting principles.
/S/ Porter Keadle Moore, LLP
Atlanta, Georgia
January 23, 1998
28
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
The Board of Directors
Three Rivers Bancshares, Inc.
Milan, Georgia
We have audited the accompanying consolidated balance sheets of Three
Rivers Bancshares, Inc. and subsidiary as of December 31, 1997 and 1996 and the
related statements of earnings, changes in stockholders' equity and cash flows
for each of the three years ended December 31, 1997. These financial statements
are the responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are fee 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 Three Rivers
Bancshares, Inc. and subsidiary as of December 31, 1997 and 1996 and the results
of their operations and their cash flows for each of the three years ended
December 31, 1997, in conformity with generally accepted accounting principles.
/S/ Thigpen, Jones, Seaton & Co., P.C.
Dublin, Georgia
January 28, 1998
29
<PAGE>
FLAG FINANCIAL CORPORATION
Consolidated Balance Sheets
December 31, 1997 and 1996
Assets
1997 1996
---- ----
Cash and due from banks, including reserve
requirements of $1,664,000 and $1,435,000..........$ 13,350,755 10,447,593
Federal funds sold................................... 5,900,000 3,660,000
----------- -----------
Cash and cash equivalents.................... 19,250,755 14,107,593
-----------------------
Interest-bearing deposits in other banks............. 3,168,353 1,327,108
Investment securities available-for-sale............. 71,665,213 63,461,953
Investment securities held-to-maturity
(fair value of $2,929,229 in 1997
and $3,636,680 in 1996) ......................... 2,957,971 3,724,440
Other investments ................................... 4,756,655 4,018,460
Mortgage loans held for sale ........................ 3,481,678 1,505,798
Loans, net .......................................... 279,285,679 239,653,367
Premises and equipment, net ......................... 11,348,843 9,527,561
Mortgage servicing rights ........................... 1,174,292 1,703,710
Accrued interest receivable ......................... 4,713,021 3,809,317
Cash surrender value of life insurance .............. 3,864,612 3,544,386
Other assets ........................................ 5,618,002 4,134,862
------------ ------------
$411,285,074 350,518,555
Liabilities and Stockholders' Equity
Deposits:
Demand ............................................ $32,245,871 32,401,509
Interest-bearing demand ............................. 70,503,608 61,395,808
Savings.............................................. 20,315,119 20,472,906
Time ................................................ 144,116,285 130,174,492
Time, over $100,000 ................................. 57,671,160 49,975,738
----------- ------------
Total deposits.............................. 324,852,043 294,420,453
----------- -----------
Federal funds purchased............................... 170,000 2,210,000
Advances from Federal Home Loan Bank ................. 43,637,494 17,370,833
Accrued interest payable ............................ 1,312,319 940,139
Other liabilities..................................... 4,542,833 2,163,012
----------- ------------
Total liabilities ......................... 374,514,689 317,104,437
----------- -----------
Stockholders' equity:
Preferred stock (10,000,000 shares
authorized; none issued and outstanding) ....... - -
Common stock ($1 par value, 30,000,000 shares
authorized, 5,171,474 and 5,163,678 shares
issued and outstanding) ........................ 5,171,474 5,163,678
Additional paid-in capital ....................... 8,793,976 8,747,322
Retained earnings ................................ 22,813,421 19,821,242
Unrealized loss on investment securities
available-for-sale, net of tax ................ (8,486) (318,124)
----------- ------------
Total stockholders' equity .............. 36,770,385 33,414,118
----------- ------------
$411,285,074 350,518,555
=========== ===========
See accompanying notes to consolidated financial statements.
30
<PAGE>
FLAG FINANCIAL CORPORATION
Consolidated Statements of Earnings
For the Years Ended December 31, 1997, 1996 and 1995
1997 1996 1995
---- ---- ----
Interest income:
Interest and fees on loans ......... $ 25,848,943 23,239,894 21,768,020
Interest on investment securities .. 4,345,060 4,298,842 5,101,783
Interest-bearing deposits........... 190,476 167,587 156,610
Interest on federal funds sold ..... 258,301 244,829 281,323
------- ------- -------
Total interest income ....... 30,642,780 27,951,152 27,310,880
---------- ---------- ----------
Interest expense:
Deposits ........................... 13,175,309 11,992,860 11,504,740
Borrowings ......................... 1,470,797 1,201,626 1,872,996
--------- --------- ---------
Total interest expense ....... 14,646,106 13,194,486 13,377,736
---------- ---------- ----------
Net interest income before
provision for loan losses .... 15,996,674 14,756,666 13,933,144
Provision for loan losses ............ 765,000 3,743,529 774,500
------- --------- -------
Net interest income after
provision for loan losses .... 15,231,674 11,013,137 13,158,644
---------- ---------- ----------
Other income:
Fees and service charges ........... 3,567,828 3,301,176 2,971,322
Gain on sales of investment
securities ....................... 171,119 232,097 261,659
Gain on sales of loans ............. 821,175 595,535 55,881
Gain (loss) on other
real estate, net ................. (82,719) (79,643) 32,764
Other .............................. 854,493 588,273 384,596
------- ------- -------
Total other income ............. 5,331,896 4,637,438 3,706,222
--------- --------- ---------
Other expenses:
Salaries and employee benefits ..... 7,256,333 6,171,879 5,749,479
Occupancy .......................... 2,778,741 2,227,851 1,824,663
Other operating .................... 4,985,253 5,618,052 4,112,422
--------- --------- ---------
Total other expenses ........... 15,020,327 14,017,782 11,686,564
---------- ---------- ----------
Earnings before provision for
income taxes ................. 5,543,243 1,632,793 5,178,302
Provision for income taxes ........... 1,794,545 346,545 1,706,668
--------- ------- ---------
Net earnings ................... $ 3,748,698 1,286,248 3,471,634
========= ========= =========
Basic earnings per share $ .73 .25 .68
========= ========== =========
Diluted earnings per share $ .72 .25 .67
========== ========== =========
See accompanying notes to consolidated financial statements.
31
<PAGE>
FLAG FINANCIAL CORPORATION
Consolidated Statements of Changes in Stockholders' Equity
For the Years Ended December 31, 1997, 1996 and 1995
<TABLE>
<CAPTION>
Net Unrealized
Loss on
Securities
Additional Available-for
Common Paid-In Retained Sale,
Stock Capital Earnings Net of Tax Total
Balance, December 31, 1994,
<S> <C> <C> <C> <C> <C>
as previously stated, ....... $ 3,018,750 6,861,250 11,157,835 (2,026,409) 19,011,426
Adjustments to reflect
pooling of interests ........ 2,100,991 1,700,988 6,306,633 (379,922) 9,728,690
----------- ----------- ----------- ----------- -----------
Balance, December 31, 1994
as restated ............... 5,119,741 8,562,238 17,464,468 (2,406,331) 28,740,116
Exercise of stock options ...... 40,190 84,208 -- -- 124,398
Issuance of common stock ....... 7,211 52,275 -- -- 59,486
Repurchase of common stock ..... (192,150) (436,733) (1,004,389) -- (1,633,272)
Change in unrealized
loss on securities
available-for-sale ........... -- -- -- 2,133,702 2,133,702
Sale of treasury stock
by pooled entity .............. 3,473 16,582 -- -- 20,055
Net earnings ................... -- -- 3,471,634 -- 3,471,634
Dividends declared ............. -- -- (662,816) -- (662,816)
----------- ----------- ----------- ----------- -----------
Balance, December 31, 1995 ...... 4,978,465 8,278,570 19,268,897 (272,629) 32,253,303
Exercise of stock options ...... 180,311 450,318 -- -- 630,629
Issuance of common stock ....... 8,375 35,894 -- -- 44,269
Change in unrealized
loss on securities
available-for-sale ........... -- -- -- (45,495) (45,495)
Purchase of treasury
stock by pooled entity ..... (3,473) (17,460) -- -- (20,933)
Net earnings .................. -- -- 1,286,248 -- 1,286,248
Dividends declared .......... -- -- (733,903) -- (733,903)
----------- ----------- ----------- ----------- -----------
Balance, December 31, 1996 ...... 5,163,678 8,747,322 19,821,242 (318,124) 33,414,118
Change in unrealized
loss on securities
available-for-sale ........... -- -- -- 309,638 309,638
Sale of treasury
stock by pooled entity ........ 7,796 46,654 -- -- 54,450
Net earnings .................... -- -- 3,748,698 -- 3,748,698
Dividends declared ............. -- -- (756,519) -- (756,519)
----------- ----------- ----------- ----------- -----------
Balance, December 31, 1997 ...... $ 5,171,474 8,793,976 22,813,421 (8,486) 36,770,385
=========== =========== =========== =========== ===========
</TABLE>
See accompanying notes to consolidated financial statements
32
<PAGE>
FLAG FINANCIAL CORPORATION
Consolidated Statements of Cash Flows
For the Years Ended December 31, 1997, 1996 and 1995
<TABLE>
<CAPTION>
1997 1996 1995
---- ---- ----
Cash flows from operating activities:
<S> <C> <C> <C>
Net earnings .............................................. $ 3,748,698 1,286,248 3,471,634
Adjustments to reconcile net earnings to net cash
provided by operating activities
(net of effect of branch acquisition):
Depreciation, amortization and accretion ............... 1,481,999 1,286,440 1,117,375
Provision for loan losses .............................. 765,000 3,743,529 774,500
Provision for deferred taxes ........................... 993,957 (1,037,538) (115,896)
Gains on sales of securities available-for-sale ........ (171,119) (232,097) (261,659)
Gain on sales of loans ................................. (821,175) (595,535) (55,881)
(Gain) loss on other real estate ....................... 82,719 79,643 (32,764)
Change in:
Mortgage loans held for sale ......................... (1,317,157) (887,549) (1,281,363)
Other ................................................ 1,460,150 2,076,657 (553,563)
---------- ---------- ----------
Net cash provided by operating activities ........... 6,223,072 5,719,798 3,062,383
---------- ---------- ----------
Cash flows from investing activities (net of effect of branch
acquisition):
Net change in interest-bearing deposits .................. (1,841,245) 311,725 (100,554)
Proceeds from sales and maturities
of securities available-for-sale ........................ 50,693,161 32,263,333 33,853,994
Proceeds from maturities of
securities held-to-maturity ............................. 766,861 1,137,484 2,804,939
Proceeds from sale of other investments .................. 225,400 -- 318,500
Purchases of other investments ........................... (963,595) (517,810) (342,450)
Purchases of securities available for sale ............... (58,301,833) (25,763,577) (25,846,485)
Net change in loans ...................................... (39,239,491) (27,531,311) (9,230,803)
Proceeds from sales of other real estate ................. 22,590 599,937 1,003,688
Purchases of premises and equipment ...................... (2,554,591) (1,082,945) (3,440,321)
Proceeds from sale of premises and equipment ............. 67,023 75,930 19,977
Purchase of cash surrender value life insurance .......... (243,652) (72,962) (2,892,307)
Cash acquired in branch acquisition, net of premium paid . 25,416,547 -- --
---------- ---------- ----------
Net cash used in investing activities ................ (25,952,825) (20,580,196) (3,851,822)
---------- ---------- ----------
Cash flows from financing activities (net of effect of branch
acquisition):
Net change in deposits .................................... 1,348,323 21,111,643 22,558,324
Change in federal funds purchased ......................... (2,040,000) 2,210,000 --
Proceeds from FHLB advances ............................... 42,300,000 16,000,000 67,800,000
Payments of FHLB advances ................................. (16,033,339) (28,213,334) (82,056,389)
Repurchase of common stock ................................ -- -- (1,633,272)
Proceeds from exercise of stock options ................... -- 630,629 124,398
Proceeds from issuance of common stock .................... -- 44,269 59,486
Proceeds from sale of treasury stock of pooled entity ..... 54,450 -- 20,005
Purchase of treasury stock of pooled entity ............... -- (20,933) --
Cash dividends paid ....................................... (756,519) (704,362) (669,903)
---------- ---------- ----------
Net cash provided by financing activities .......... 24,872,915 11,057,912 6,202,699
---------- ---------- ----------
Net change in cash and cash equivalents .......... 5,143,162 (3,802,486) 5,413,260
Cash and cash equivalents at beginning of year .............. 14,107,593 17,910,079 12,496,819
---------- ---------- -----------
Cash and cash equivalents at end of year .................... $19,250,755 14,107,593 17,910,079
========== ========== ==========
</TABLE>
33
<PAGE>
FLAG FINANCIAL CORPORATION
Consolidated Statements of Cash Flows, continued
For the Years Ended December 31, 1997, 1996 and 1995
1997 1996 1995
----- ------ ----
Supplemental disclosures of cash flow
information:
Cash paid during the year for:
Interest $14,311,123 13,208,236 13,100,360
========== ========== ==========
Income taxes $ 1,494,210 1,541,745 1,915,325
========= ========= =========
Supplemental schedule of noncash
investing and financing activities:
Real estate acquired
through foreclosure 607,898 1,228,775 1,807,018
======= ========= =========
Change in unrealized loss on
securities available-for-sale,
net of tax $ 309,638 (45,495) 2,133,702
======= ======== =========
Increase (decrease) in
dividends payable -- 29,541 (7,335)
======= ====== ========
Deposit liabilities assumed in branch
acquisition $29,083,191 -- --
========== ====== ========
Assets acquired in branch acquisition,
other than cash and cash equivalents $ 1,660,756 -- --
========= ======= ========
See accompanying notes to consolidated financial statements.
34
<PAGE>
FLAG FINANCIAL CORPORATION
Notes to Consolidated Financial Statements
1. Summary of Significant Accounting Policies
Basis of Presentation
- --------------------------------------------------------------------------------
The consolidated financial statements include the accounts of FLAG Financial
Corporation ("FLAG"), its wholly-owned subsidiaries First Federal Savings Bank
of LaGrange ("FFSB"), FFSB's wholly-owned subsidiary Piedmont Mortgage Service,
Inc. ("Piedmont"), Citizen's Bank ("Citizens"), Citizens' wholly owned
subsidiary CB Financial Group, Inc. ("CB Financial"), and Bank of Milan
("Milan") (FFSB, Citizens and Milan "the Banks", collectively). All significant
intercompany accounts and transactions have been eliminated in consolidation.
FLAG is a multi-bank holding company whose business is conducted by its
wholly-owned subsidiaries. FLAG is subject to regulation under the Bank Holding
Company Act of 1956. FFSB is a federal savings bank and is primarily regulated
by the Office of Thrift Supervision ("OTS") and the Federal Deposit Insurance
Corporation ("FDIC"). Citizens and Milan are commercial banks and are primarily
regulated by the Georgia Department of Banking and Finance ("DBF") and the FDIC.
The Banks provide a full range of commercial, mortgage and consumer banking
services in West-Central and Middle Georgia. Piedmont is an appraisal service
company working principally for FFSB and as a brokerage service to individuals.
CB Financial is a pawn shop and check cashing operation.
The accounting principles followed by FLAG and its subsidiaries, and the methods
of applying these principles, conform with generally accepted accounting
principles ("GAAP") and with general practices within the banking industry. In
preparing financial statements in conformity with GAAP, management is required
to make estimates and assumptions that affect the reported amounts in the
financial statements. Actual results could differ significantly from those
estimates. Material estimates common to the banking industry that are
particularly susceptible to significant change in the near term include, but are
not limited to, the determination of the allowance for loan losses, the
valuation of real estate acquired in connection with or in lieu of foreclosure
on loans, the valuation allowance for mortgage servicing rights and valuation
allowances associated with the realization of deferred tax assets which are
based on future taxable income.
Cash and Cash Equivalents
- --------------------------------------------------------------------------------
Cash equivalents include amounts due from banks and federal funds sold.
Generally, federal funds are sold for one-day periods.
Investment Securities
FLAG classifies its securities in one of three categories: trading,
available-for-sale, or held-to-maturity. There were no trading securities at
December 31, 1997 and 1996. Securities held-to-maturity are those securities for
which FLAG has the ability and intent to hold to maturity. All other securities
are classified as available-for-sale.
Available-for-sale securities are recorded at fair value. Held-to-maturity
securities are recorded at cost, adjusted for the amortization or accretion of
premiums or discounts. Unrealized holding gains and losses, net of the related
tax effect, on securities available-for-sale are excluded from earnings and are
reported as a separate component of stockholders' equity until realized.
Transfers of securities between categories are recorded at fair value at the
date of transfer.
A decline in the market value of any available for sale or held to maturity
investment below cost that is deemed other than temporary is charged to earnings
and establishes a new cost basis for the security.
Premiums and discounts are amortized or accreted over the life of the related
security as an adjustment to the yield. Realized gains and losses are included
in earnings and the cost of securities sold are derived using the specific
identification method.
35
<PAGE>
FLAG FINANCIAL CORPORATION
Notes to Consolidated Financial Statements, continued
- --------------------------------------------------------------------------------
Summary of Significant Accounting Policies, continued
Other Investments
- --------------------------------------------------------------------------------
Other investments include Federal Home Loan Bank ("FHLB") stock, other equity
securities with no readily determinable fair value and an investment in a
limited partnership. An investment in FHLB stock is required by law for a
federally insured savings bank. FFSB owns a 39.6% interest in a limited
partnership, which invests in multi-family real estate and passes low income
housing credits to the investors. FLAG recognizes these tax credits in the year
received. These investments are carried at cost, which approximates fair value.
Mortgage Loans Held for Sale
- --------------------------------------------------------------------------------
Mortgage loans originated and intended for sale in the secondary market are
carried at the lower of aggregate cost or market value. The amount by which cost
exceeds market value is accounted for as a valuation allowance. Changes, if any,
in the valuation allowance are included in the determination of net earnings in
the period in which the change occurs. Gains and losses from the sale of loans
are determined using the specific identification method.
Loans, Loan Fees and Interest Income
- --------------------------------------------------------------------------------
Loans that management has the intent and ability to hold for the foreseeable
future or until maturity are reported at their outstanding unpaid principal
balances, net of the allowance for loan losses, deferred fees or costs on
originated loans and unamortized premiums or discounts on purchased loans.
Loan fees and certain direct loan origination costs are deferred, and the net
fee or cost is recognized in interest income using the level-yield method over
the contractual lives of the loans, adjusted for estimated prepayments based on
the Banks' historical prepayment experience. Commitment fees and costs relating
to commitments whose likelihood of exercise is remote are recognized over the
commitment period on a straight-line basis. If the commitment is subsequently
exercised during the commitment period, the remaining unamortized commitment fee
at the time of exercise is recognized over the life of the loan as an adjustment
to the yield. Premiums and discounts on purchased loans are amortized over the
remaining lives of the loans using the level-yield method. Fees arising from
servicing loans for others are recognized as earned.
FLAG considers a loan impaired when, based on current information and events, it
is probable that all amounts due according to the contractual terms of the loan
agreement will not be collected. Impaired loans are measured based on the
present value of expected future cash flows, discounted at the loan's effective
interest rate or at the loan's observable market price, or the fair value of the
collateral of the loan if the loan is collateral dependent. Interest income from
impaired loans is recognized using a cash basis method of accounting during the
time within that period in which the loans were impaired.
Leasing
- --------------------------------------------------------------------------------
FFSB originates commercial and consumer leases through its leasing division.
Interest income on leases is recorded on the accrual basis and a provision for
possible losses on leases is recorded as a charge to earnings.
Allowance for Loan Losses
- --------------------------------------------------------------------------------
The allowance for loan losses is established through provisions for loan losses
charged to expense. Loans are charged against the allowance for loan losses when
management believes that the collection of the principal is unlikely. The
allowance is an amount which, in management's judgment, will be adequate to
absorb losses on existing loans that may become uncollectible. The allowance is
established through consideration of such factors as changes in the nature and
volume of the portfolio, adequacy of collateral, delinquency trends, loan
concentrations, specific problem loans, and economic conditions that may affect
the borrower's ability to pay.
Management believes that the allowance for loan losses is adequate. While
management uses available information to recognize losses on loans, future
additions to the allowance may be necessary based on changes in economic
conditions. In addition, various regulatory agencies, as an integral part of
their examination process, periodically review FLAG's allowance for loan losses.
Such agencies may require FLAG to recognize additions to the allowance based on
their judgments about information available to them at the time of their
examination.
36
<PAGE>
FLAG FINANCIAL CORPORATION
Notes to Consolidated Financial Statements, continued
Summary of Significant Accounting Policies, continued
Other Real Estate Owned
- --------------------------------------------------------------------------------
Real estate acquired through foreclosure is carried at the lower of cost
(defined as fair value at foreclosure) or fair value less estimated costs to
dispose. Fair value is defined as the amount that is expected to be received in
a current sale between a willing buyer and seller other than in a forced or
liquidation sale. Fair values at foreclosure are based on appraisals. Losses
arising from the acquisition of foreclosed properties are charged against the
allowance for loan losses. Subsequent writedowns are provided by a charge to
operations through the allowance for losses on other real estate in the period
in which the need arises.
Premises and Equipment
- --------------------------------------------------------------------------------
Premises and equipment are stated at cost less accumulated depreciation. Major
additions and improvements are charged to the asset accounts while maintenance
and repairs that do not improve or extend the useful lives of the assets are
expensed currently. When assets are retired or otherwise disposed of, the cost
and related accumulated depreciation are removed from the accounts, and any gain
or loss is reflected in earnings for the period.
Depreciation expense is computed using the straight-line method over the
following estimated useful lives:
Buildings and improvements ............................. 15-40 years
Furniture and equipment ................................ 3-10 years
Mortgage Servicing Rights
- --------------------------------------------------------------------------------
FLAG's mortgage banking division accounts for mortgage servicing rights as a
separate asset regardless of whether the servicing rights are acquired through
purchase or origination. FLAG's mortgage servicing rights represent the
unamortized cost of purchased and originated contractual rights to service
mortgages for others in exchange for a servicing fee and ancillary loan
administration income. Mortgage servicing rights are amortized over the period
of estimated net servicing income and are periodically adjusted for actual and
anticipated prepayments of the underlying mortgage loans. Impairment analysis is
performed quarterly after stratifying the rights by interest rate. Impairment,
defined as the excess of the asset's carrying value over its current fair value,
is recognized through a valuation allowance. At December 31, 1997 and 1996, no
valuation allowances were required for FLAG's mortgage servicing rights.
FLAG recognized approximately $418,000 and $451,000 in servicing assets during
1997 and 1996, respectively, and recognized amortization expense relating to
servicing assets of approximately $149,000 and $204,000 during 1997 and 1996,
respectively. The risk characteristics that FLAG uses to stratify recognized
servicing assets for purposes of measuring impairment include the interest rate
and term of the underlying loans serviced.
Core Deposit Intangible
- --------------------------------------------------------------------------------
During 1997, Citizens entered into a Purchase and Assumption agreement with
Wachovia Bank of Georgia, N.A. to acquire certain loans, deposits and other
liabilities of a branch in Montezuma, Georgia and a former branch in Oglethorpe,
Georgia ("branch acquisition") for a net purchase price approximating
$1,956,000. The purchased core deposit intangible and the associated expenses
have been capitalized and are being amortized using the straight-line method
over the 15 year estimated average life of the deposit base acquired and is
included as a component of other assets. Amortization expense approximated
$58,000 for the year ended December 31, 1997.
Income Taxes
- --------------------------------------------------------------------------------
Deferred tax assets and liabilities are recorded for the future tax consequences
attributable to differences between the financial statement carrying amounts of
existing assets and liabilities and their respective tax bases. Future tax
benefits, such as net operating loss carryforwards, are recognized to the extent
that realization of such benefits is more likely than not. Deferred tax assets
and liabilities are measured using enacted tax rates expected to apply to
taxable income in the years in which the assets and liabilities are expected to
be recovered or settled. The effect on deferred tax assets and liabilities of a
change in tax rates is recognized in income tax expense in the period that
includes the enactment date.
37
<PAGE>
FLAG FINANCIAL CORPORATION
Notes to Consolidated Financial Statements, continued
Summary of Significant Accounting Policies, continued
Income Taxes, continued
In the event the future tax consequences of differences between the financial
reporting bases and the tax bases of FLAG's assets and liabilities results in
deferred tax assets, an evaluation of the probability of being able to realize
the future benefits indicated by such assets is required. A valuation allowance
is provided when it is more likely than not that some portion or all of the
deferred tax asset will not be realized. In assessing the realizability of the
deferred tax assets, management considers the scheduled reversals of deferred
tax liabilities, projected future taxable income, and tax planning strategies.
A deferred tax liability is not recognized for portions of the allowance for
loan losses for income tax purposes in excess of the financial statement
balance, as described in Note 7. Such a deferred tax liability will only be
recognized when it becomes apparent that those temporary differences will
reverse in the foreseeable future.
Net Earnings Per Common Share
- --------------------------------------------------------------------------------
SFAS No. 128 "Earnings Per Share" became effective for FLAG for the year ended
December 31, 1997. This new standard specifies the computation, presentation and
disclosure requirements for earnings per share and is designed to simplify
previous earnings per share standards and to make domestic and international
practices more compatible. Basic earnings per common share are based on the
weighted average number of common shares outstanding during the period while the
effects of potential common shares outstanding during the period are included in
diluted earnings per share. All earnings per common share amounts have been
restated to conform to the provisions of SFAS No. 128.
SFAS No. 128 requires the presentation of earnings per common share on the face
of the statement of operations with and without the dilutive effects of
potential common stock issuances from instruments such as options, convertible
securities, and warrants. Additionally, the new statement requires the
reconciliation of the amounts used in the computation of both "basic earnings
per share" and "diluted earnings per share" for the years ended December 31,
1997, 1996, and 1995 as follows:
For the Year EndedDecember 31, 1997 Net Earnings Common Share Per Share
(Numerator) (Denominator) Amount
Basic earnings per share .................... 3,748,698 5,166,857 .73
Effect of dilutive securities - stock options - 29,364 (.01)
--------------------------------
Diluted earnings per share .................. $3,748,698 5,196,221 .72
========= ========= ===
For the Year EndedDecember 31, 1996 Net Earnings Common Share Per Share
(Numerator) (Denominator) Amount
Basic earnings per share .................... 1,286,248 5,124,474 .25
Effect of dilutive securities - stock options - 12,149 -
--------------------------------
Diluted earnings per share .................. 1,286,248 5,136,623 .25
========= ========= ===
For the Year Ended December 31, 1995 Net Earnings Common Share Per Share
(Numerator) (Denominator) Amount
Basic earnings per share .................... $3,471,634 5,095,568 .68
Effect of dilutive securities - stock options - 107,660 (.01)
---------------------------------
Diluted earnings per share .................. $3,471,634 5,203,227 .67
========= ========= ===
38
<PAGE>
FLAG FINANCIAL CORPORATION
Notes to Consolidated Financial Statements, continued
Summary of Significant Accounting Policies, continued
Recent Accounting PronouncementsIn June 1997, the Financial Accounting Standards
Board issued SFAS No. 130, "Reporting Comprehensive Income" and SFAS No. 131,
"Disclosures about Segments of an Enterprise and Related Information". SFAS No.
130 establishes standards for the reporting and display of comprehensive income
and its components in a full set of general-purpose financial statements. SFAS
No. 131 specifies the presentation and disclosure of operating segment
information reported in the annual report and interim reports issued to
stockholders. The provisions of both statements are effective for fiscal years
beginning after December 15, 1997. FLAG believes that the adoption of these
statements will not have a material impact on FLAG's financial position, results
of operations, or liquidity.
2. Business Combinations
Effective March 30, 1998, FLAG acquired, for approximately 1.5 million shares of
its common stock, all of the outstanding stock of Middle Georgia Bankshares,
Inc., the holding company of the $129 million Citizens Bank, located in Vienna,
Georgia. Effective May 8, 1998, FLAG acquired, for approximately 597,000 shares
of its common stock all of the outstanding stock of Three Rivers Bancshares,
Inc., the holding company of the $35 million Bank of Milan, located in Milan,
Georgia. These acquisitions were accounted for as poolings of interests and
accordingly, the consolidated financial statements for all periods presented
have been restated to include the financial position and results of operations
as if the combination had occurred on January 1, 1995.
The following is a reconciliation of the amounts of net interest income and net
earnings previously reported with the restated amounts:
1997 1996 1995
-------------------------------------
Net interest income:
FLAG, as previously reported .. $ 8,542,364 8,721,592 8,241,116
Citizens ...................... 5,623,192 4,667,851 4,529,064
Milan ......................... 1,831,118 1,367,223 1,162,964
----------------------------------
As restated ................... $ 15,996,674 14,756,666 13,933,144
========== ========== ==========
Net earnings (loss):
FLAG, as previously reported .. $ 2,033,114 (177,626) 2,026,007
Citizens ...................... 1,053,118 1,065,064 1,114,387
Milan ......................... 662,446 398,810 331,240
----------------------------------
As restated ................... $ 3,748,698 1,286,248 3,471,634
========= ========= =========
39
<PAGE>
FLAG FINANCIAL CORPORATION
Notes to Consolidated Financial Statements, continued
3. Investment Securities
Investment securities at December 31, 1997 and 1996 are summarized as follows:
December 31, 1997
- --------------------------------------------------------------------------------
Gross Gross Estimated
Amortized Unrealized Unrealized Fair
Securities Available-for-Sale Cost Gains Losses Value
U.S. Treasuries and
agencies ............... $16,732,501 94,820 2,532 16,824,789
State, county and municipals 6,318,621 121,973 35,859 6,404,735
Corporate debt securities .. 989,300 10,700 -- 1,000,000
Equity securities .......... 1,637,584 125,370 1,817 1,761,137
Mortgage-backed securities . 29,782,954 214,379 176,613 29,820,720
Collateralized mortgage
obligations ............ 16,226,434 11,031 383,633 15,853,832
---------- ------ ------- ----------
$71,687,394 578,273 600,454 71,665,213
=========== ======= ======= ==========
December 31, 1997
- --------------------------------------------------------------------------------
Gross Gross Estimated
Amortized Unrealized Unrealized Fair
Securities Held-to-Maturity Cost Gains Losses Value
State, county and municipals $ 350,136 9,950 -- 360,086
Mortgage-backed securities . 103,140 1,160 -- 104,300
Collateralized mortgage
obligations ............ 2,504,695 2,037 41,889 2,464,843
--------- ----- ------ ---------
$2,957,971 13,147 41,889 2,929,229
========== ====== ====== =========
December 31, 1996
- --------------------------------------------------------------------------------
Gross Gross Estimated
Amortized Unrealized Unrealized Fair
Securities Available-for-Sale Cost Gains Losses Value
U.S. Treasuries and
agencies ................ $15,930,393 20,885 76,881 15,874,397
State, county and municipals 4,085,310 75,208 13,631 4,146,887
Corporate debt securities .. 980,790 9,100 -- 989,890
Equity securities .......... 2,254,878 5,891 7,583 2,253,186
Mortgage-backed securities . 23,591,986 139,129 238,150 23,492,965
Collateralized mortgage
obligations ............. 17,132,514 17,921 445,807 16,704,628
----------- --------- ---------- -----------
$63,975,871 268,134 782,052 63,461,953
=========== ========= ========== ===========
40
<PAGE>
FLAG FINANCIAL CORPORATION
Notes to Consolidated Financial Statements, continued
3. Investment Securities, continued
December 31, 1996
- --------------------------------------------------------------------------------
Gross Gross Estimated
Amortized Unrealized Unrealized Fair
Securities Held-to-Maturity Cost Gains Losses Value
State, county and municipals ..... $ 514,744 13,214 - 527,958
Mortgage-backed securities ....... 117,547 1,396 - 118,943
Collaterlized mortgage
obligations ................... 3,092,149 4,099 106,469 2,989,779
-------------------------------------------
$ 3,724,440 18,709 106,469 3,636,680
========= ====== ======= =========
The amortized cost and estimated fair value of securities available for sale and
securities held to maturity at December 31, 1997, by contractual maturity, are
shown below. Expected maturities may differ from contractual maturities because
borrowers may have the right to call or prepay obligations with or without call
or prepayment penalties.
Securities Securities
Available-for-Sale Held-to-Maturity
Amortized Estimated Amortized Estimated
Cost Fair Value Cost Fair Value
U.S. Treasuries and agencies and
State, county and municipals:
Within 1 year .................$ 3,445,247 3,449,288 49,708 51,154
1 to 5 years .................. 6,914,084 6,962,123 224,944 230,403
5 to 10 years ................. 10,302,166 10,355,504 50,575 52,403
After 10 years ................ 2,389,625 2,462,609 24,909 26,126
--------- --------- ------ ------
23,051,122 23,229,524 350,136 360,086
Equity securities ................ 1,637,584 1,761,137 - -
Corporate debt securities ........ 989,300 1,000,000 - -
Mortgage-backed securities ....... 29,782,954 29,820,720 103,140 104,300
Collateralized mortgage
obligations .................. 16,226,434 15,853,832 2,504,695 2,464,843
---------- ---------- ---------- ---------
$71,687,394 71,665,213 2,957,971 2,929,229
========== ========== ========= =========
There were no sales of securities held-to-maturity during 1997, 1996, and 1995.
Proceeds from sales of securities available-for-sale during 1997, 1996, and 1995
totaled approximately $50,693,000, $32,263,000, and $33,854,000, respectively.
Gross gains of approximately $185,000, $263,000, and $308,000 and gross losses
of approximately $14,000, $31,000, and $46,000 were realized on those sales for
the years ended December 31, 1997, 1996, and 1995, respectively.
Securities and interest-bearing deposits with a carrying value of approximately
$43,578,000 and $45,988,000 at December 31, 1997 and 1996, respectively, were
pledged to secure advances from FHLB, U.S. Government deposits, and other public
deposits.
41
<PAGE>
FLAG FINANCIAL CORPORATION
Notes to Consolidated Financial Statements, continued
4. Loans
Major classifications of loans at December 31, 1997 and 1996 are summarized as
follows:
1997 1996
---- ----
Commercial, financial and agricultural ......... $ 47,373,360 34,983,271
Real estate - construction ...................... 11,767,846 10,538,752
Real estate - mortgage .......................... 198,565,814 170,614,612
Installment loans to individuals ................ 15,854,704 22,087,539
Lease financings ................................ 9,303,764 7,571,427
--------- ---------
Gross loans ................................ 282,865,488 245,795,601
Less:
Deferred loan costs (fees) - net .............. 236,092 (374,198)
Allowance for loan losses ..................... (3,815,901) (5,768,036)
---------- ----------
$ 279,285,679 239,653,367
============= ===========
The Banks concentrate their lending activities in the origination of permanent
residential mortgage loans, commercial mortgage loans, agricultural loans,
commercial business loans, and consumer installment loans. The majority of the
Banks' real estate loans are secured by real property located in Troup, Dooly,
Macon, Dodge, Telfair and surrounding counties in Georgia.
FLAG has recognized impaired loans of approximately $10,579,000 and $15,495,000
at December 31, 1997 and 1996, respectively, with a total allowance for loan
losses related to these loans of $1,358,000 and $4,159,000, respectively.
Interest income on impaired loans of approximately $117,000 and $148,000 was
recognized for cash payments received in 1997 and 1996, respectively.
Activity in the allowance for loan losses is summarized as follows for the years
ended December 31, 1997, 1996, and 1995:
1997 1996 1995
---- ---- ----
Balance at beginning of year ...... $ 5,768,036 2,592,080 2,411,662
Provisions charged to operations .. 765,000 3,743,529 774,500
Loans charged-off ................. (2,916,157) (628,456) (646,749)
Recoveries on loans previously
charged-off .................. 199,022 60,883 52,667
----------- ----------- -----------
Balance at end of year ............ $ 3,815,901 5,768,036 2,592,080
=========== =========== ===========
Mortgage loans serviced for others are not included in the accompanying
consolidated financial statements. Unpaid principal balances of these loans at
December 31, 1997 and 1996 approximate $166,823,000 and $247,963,000,
respectively. Custodial escrow balances maintained in connection with loan
servicing, and included in demand deposits, were approximately $618,000 and
$710,000 at December 31, 1997 and 1996, respectively.
Mortgage loans secured by 1-4 family residences totalling approximately
$71,523,000 were pledged as collateral for outstanding FHLB advances as of
December 31, 1997.
42
<PAGE>
FLAG FINANCIAL CORPORATION
Notes to Consolidated Financial Statements, continued
5. Premises and Equipment
Premises and equipment at December 31, 1997 and 1996 are summarized as follows:
1997 1996
----------------------------
Land and land improvements ................. $ 1,498,806 1,379,570
Buildings and improvements ................. 7,904,767 7,324,271
Furniture and equipment .................... 9,906,584 7,674,472
-----------
19,310,157 16,378,313
Less accumulated depreciation .............. 7,961,314 6,850,752
-----------
$11,348,843 9,527,561
=========== ===========
Depreciation expense approximated $1,320,000, $1,139,000, and $891,000 at
December 31, 1997, 1996, and 1995, respectively
6. Time Deposits
At December 31, 1997, contractual maturities of time deposits are summarized as
follows:
Year ending December 31,
- --------------------------------------------------------------------------------
1998 $ 160,906,809
1999 19,126,468
2000 9,462,305
2001 5,089,325
2002 and thereafter 7,202,538
---- ---------
$ 201,787,445
=================
7. FHLB Advances
FHLB advances are collateralized by FHLB stock, certain investment securities,
and first mortgage loans. Advances from the FHLB outstanding at December 31,
1997, mature and bear fixed and variable interest rates as follows:
Year Amount Interest Rate
---------- ----------- -------------
1998 $25,700,000 5.74% - 5.87%
2000 5,000,000 5.59%
2002 7,000,000 5.53%
Thereafter 5,937,494 5.23% - 6.75%
-------------
$43,637,494 5.23% - 6.75%
=========== =============
43
<PAGE>
FLAG FINANCIAL CORPORATION
Notes to Consolidated Financial Statements, continued
8. Income Taxes
The following is an analysis of the components of income tax expense (benefit)
for the years ended December 31, 1997, 1996, and 1995:
1997 1996 1995
----------------------------------------
Current ............ $ 800,588 1,384,083 1,822,564
Deferred ........... 993,957 (1,037,538) (115,896)
----------
Total provision $1,794,545 346,545 1,706,668
========== ========== ==========
The differences between income tax expense (benefit) and the amount computed by
applying the statutory federal income tax rate to earnings before taxes for the
years ended December 31, 1997, 1996, and 1995 are as follows:
1997 1996 1995
--------------------------------------------
Pretax income at statutory rate ... $ 1,884,701 555,150 1,760,623
Add (deduct):
Tax-exempt interest income ..... (116,667) (104,743) (105,598)
State income taxes, net of
federal effect ............... 164,353 (34,123) 129,403
Increase in cash surrender value
of life insurance ............ (76,432) (16,304) (17,000)
Other .......................... (61,410) (53,435) (60,760)
------- ------- -------
$ 1,794,545 346,545 1,706,668
=========== =========== ===========
The following summarizes the net deferred tax asset. The deferred tax asset is
included as a component of other assets at December 31, 1997 and 1996.
1997 1996
----------------------
Deferred tax assets:
Allowance for loan losses ......... $ 939,085 2,047,499
Allowance for other
real estate owned ............... 21,208 41,818
Net deferred loan fees ............ -- 82,959
Net operating loss carryforwards
and credits ..................... 397,021 --
Unrealized loss on securities
available-for-sale .............. 13,694 195,796
Other .......................... 30,657 32,357
----------
Total gross deferred tax assets 1,401,665 2,400,429
----------
Deferred tax liabilities:
Premises and equipment ............ 361,564 341,109
Net deferred loan fees ............ 151,375 --
Other ............................. 189,250 183,885
----------
Total gross deferred tax
liabilities ................. 702,189 524,994
---------- ----------
Net deferred tax asset ........ $ 699,476 1,875,435
========== ==========
44
<PAGE>
FLAG FINANCIAL CORPORATION
Notes to Consolidated Financial Statements, continued
8. Income Taxes, continued
The Internal Revenue Code ("IRC") was amended during 1996 and the IRC section
593 reserve method for loan losses for thrift institutions was repealed.
Effective January 1, 1996, FFSB now computes its tax bad debt reserve under the
rules of IRC section 585, which applies to commercial banks. In years prior to
1996, FFSB obtained tax bad debt deductions approximating $2 million in excess
of its financial statement allowance for loan losses for which no provision for
federal income tax was made. These amounts were then subject to federal income
tax in future years pursuant to the prior IRC section 593 provisions if used for
purposes other than to absorb bad debt losses. Effective January 1, 1996,
approximately $2 million of the excess reserve is subject to recapture only if
FFSB ceases to qualify as a bank pursuant to the provisions of IRC section 585.
9. Employee and Director Benefit Plans
Defined Contribution Plans
- --------------------------------------------------------------------------------
FLAG has an established retirement plan qualified pursuant to Internal Revenue
Code section 401(k). The plan allows eligible employees to defer a portion of
their income by making contributions into the plan on a pretax basis. The plan
provides a matching contribution based on a percentage of the amount contributed
by the employee. During the years ended 1997, 1996, and 1995, the Company
contributed approximately $59,000, $49,000, and $48,000, respectively, to this
plan. Citizens also sponsors a 401(k) plan with similar terms. Citizens
contributed approximately $24,000, $19,000 and $21,000 in 1997, 1996 and 1995,
respectively, to the plan.
FLAG has established a profit-sharing plan for which substantially all employees
are eligible. The Board of Directors makes discretionary contributions up to 15%
of eligible compensation. The plan allows participants to direct up to 75% of
their account balance and/or contributions to be invested in the common stock of
FLAG. The trustee of the plan is required to purchase the FLAG stock at market
value and may not acquire more than 25% of the issued and outstanding shares.
During the years ended December 31, 1997, 1996, and 1995, FLAG recognized
$196,000, $185,000, and $182,000, respectively, in expense related to its
obligations under the plan.
Directors' Retirement Plan
- --------------------------------------------------------------------------------
During 1995, FLAG initiated a defined contribution postretirement benefit plan
to provide retirement benefits to its Board of Directors and to provide death
benefits for their designated beneficiaries. Under this plan, FLAG purchased
split-dollar whole life insurance contracts on the lives of each Director. The
increase in cash surrender value of the contracts, less FFSB's cost of funds,
constitutes FLAG's contribution to the plan each year. In the event the
insurance contracts fail to produce positive returns, FLAG has no obligation to
contribute to the plan. At December 31, 1997 and 1996, the cash surrender value
of the insurance contracts was approximately $2,114,000 and $1,911,000. Expenses
incurred for benefits were approximately $4,000 and $43,000 during 1997 and
1996, respectively. Citizens sponsors a similar plan covering its Board of
Directors. At December 31, 1997 and 1996, the cash surrender value of Citizens'
insurance contracts was approximately $1,358,000 and $1,283,000, respectively,
and expenses incurred for benefits were approximately $13,000 and $11,000 during
1997 and 1996, respectively.
Defined Benefit Plan
- --------------------------------------------------------------------------------
FLAG has a trusteed defined benefit pension plan which covers substantially all
employees. The benefits are based on years of service and the employee's
compensation during the last five years of employment. FLAG's policy is to fund
pension cost as actuarially determined on an annual basis. The plan is subject
to the Employee Retirement Income Security Act of 1974 (ERISA). FLAG's 1997 and
1996 contribution exceeded the minimum funding requirements of ERISA.
Assets of the plan are invested primarily in a common trust fund.
45
<PAGE>
FLAG FINANCIAL CORPORATION
Notes to Consolidated Financial Statements, continued
9. Employee and Director Benefit Plans, continued
Defined Benefit Plan, continued
- --------------------------------------------------------------------------------
The following is a reconciliation of the funded status of the plan using the
latest actuarial information applicable for each plan year:
1997 1996
---- ------
Accumulated benefit obligation
including vested benefits
of $1,050,965 and $850,898 ................ $ 1,062,575 872,174
=========== =======
Projected benefit obligation for
services rendered to date ................. 1,635,798 1,342,926
Plan assets at fair value ................... 1,379,263 1,224,542
--------- ---------
Projected benefit obligation in
excess of plan assets ..................... (256,535) (118,384)
Unrecognized transition obligation .......... 15,755 17,888
Unrecognized prior service cost ............. 141,472 151,530
Unrecognized net loss ....................... (6,457) (139,286)
------ --------
Accrued pension liability ............... $ (105,765) (88,252)
=========== =======
Net pension expense is summarized as follows:
1997 1996 1995
--------- --------- ---------
Service cost - benefits earned ....... $ 93,676 71,238 84,835
Interest cost on projected
benefit obligation ................. 116,072 95,648 98,476
Actual return on plan assets ......... (99,024) (85,327) (68,476)
Net amortization ..................... 12,191 12,191 21,401
--------- --------- ---------
$ 122,915 93,750 136,236
========= ========= =========
The assumed rate of return on assets was 8% for 1997, 1996 and 1995, with an
assumed discount rate of 8% and an assumed rate of compensation increase of 4.5%
in 1997 and 5.5% in 1996 and 1995. Prior service costs are generally amortized
over a period of 17 years.
46
<PAGE>
FLAG FINANCIAL CORPORATION
Notes to Consolidated Financial Statements, continued
9. Employee and Director Benefit Plans, continued
Stock Option Plan
- --------------------------------------------------------------------------------
FLAG has an employee stock incentive plan and a director stock incentive plan.
The plans were adopted for the benefit of directors and key officers and
employees in order that they may purchase FLAG stock at a price equal to the
fair market value on the date of grant. A total of 301,875 shares were reserved
for possible issuance under the employee plan and 150,938 shares were reserved
under the director plan. The options generally vest over a four-year period and
expire after ten years.
SFAS No. 123, "Accounting for Stock-Based Compensation," became effective
January 1, 1996. This statement encourages, but does not require, entities to
compute the fair value of options at the date of grant and to recognize such
costs as compensation expense immediately if there is no vesting period or
ratably over the vesting period of the options. FLAG has chosen not to adopt the
cost recognition principles of this statement. No compensation expense has been
recognized in 1997, 1996, or 1995 related to the stock option plans. Had
compensation cost been determined based upon the fair value of the options at
the grant dates consistent with the method of the new statement, FLAG'S net
earnings and net earnings per share would have been reduced to the pro forma
amounts indicated below.
1997 1996
---- ----
Net earnings As reported ........ $ 3,748,698 1,286,248
Pro forma ...... $ 3,679,211 1,272,893
Basic earnings per share As reported ........ $ .73 .25
Pro forma ...... $ .71 .25
Diluted earnings per share As reported ........ $ .72 .25
Pro forma ...... $ .71 .25
The fair value of each option is estimated on the date of grant using the
Black-Scholes options-pricing model with the following weighted average
assumptions used for grants in 1997 and 1996, respectively: dividend yield of 2%
and 3%, respectively; volatility of .4269 and .2811, respectively; risk free
interest rate of 6% and an expected life of 5 years.
47
<PAGE>
FLAG FINANCIAL CORPORATION
Notes to Consolidated Financial Statements, continued
A summary of activity in these stock option plans is presented below:
1997 1996 1995
-------------------------------------------------------
Weighted Weighted Weighted
Average Average Average
Option Option Option
Price Price Price
Shares Per Share Shares Per Share Shares Per Share
Outstanding, beginning
of year .............. 69,000 $ 6.68 240,311 $4.27 286,126 $ 4.16
Granted during
the year ............. 42,000 7.58 9,000 9.00 -
Cancelled during
the year ............. (1,875) 7.50 - (5,625) 3.59
Exercised during
the year - (180,311 3.59 (40,190) 3.59
-------------------------------------------------------
Outstanding, end
of year 109,125 $ 7.01 69,000 $6.68 240,311 $ 4.27
======= ==== ====== ==== ======= ====
Number of shares
Exercisable 109,125 69,000 240,311
======= ====== =======
48
<PAGE>
FLAG FINANCIAL CORPORATION
Notes to Consolidated Financial Statements, continued
9. Employee and Director Benefit Plans, continued
The weighted average grant-date fair value of options granted in 1997 and 1996
was $1.10 and $1.15, respectively. For these employee and director stock
options, options outstanding at December 31, 1997 are exercisable at option
prices ranging from $6.33 to $9.00 as presented in the table above. Such options
have a weighted average remaining contractual life of approximately 7.5 years as
of December 31, 1997.
10. Stockholders' Equity
Shares of preferred stock may be issued from time to time in one or more series
as established by resolution of the Board of Directors of FLAG, up to a maximum
of 10,000,000 shares. Each resolution shall include the number of shares issued,
preferences, special rights, and limitations as determined by the Board.
On May 18, 1998, FLAG declared a three for two stock split, payable on June 3,
1998 to shareholders of record on May 22, 1998. All per share amounts have been
restated to reflect this stock split as if it had occurred on January 1, 1995.
11. Regulatory Matters
FLAG is 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 FLAG's
financial statements. Under capital adequacy guidelines and the regulatory
framework for prompt corrective action, FLAG and the Banks must meet specific
capital guidelines that involve quantitative measures of the assets,
liabilities, and certain off-balance sheet items as calculated under regulatory
accounting practices. The capital amounts and classification are also subject to
qualitative judgements by the regulators about components, risk weightings, and
other factors.
Quantitative measures established by regulation to ensure capital adequacy
require FLAG to maintain minimum amounts and ratios of total and Tier 1 capital
(as defined) to risk-weighted assets (as defined), and of Tier 1 capital (as
defined) to average assets (as defined). Management believes, as of December 31,
1997 and 1996, that FLAG meets all capital adequacy requirements to which it is
subject.
As of December 31, 1997 and 1996, the Banks were categorized as well capitalized
or adequately capitalized under the regulatory framework for prompt corrective
action. To be categorized as well capitalized, the Banks must maintain minimum
total risk-based, Tier 1 risk-based and Tier 1 leverage ratios as set forth in
the following table. There are no conditions or events since that notification
that management believes have changed the Banks' category.
49
<PAGE>
FLAG FINANCIAL CORPORATION
Notes to Consolidated Financial Statements, continued
11. Regulatory Matters, continued
The Banks' actual capital amounts and ratios as well as those of FLAG on a
consolidated basis are presented below.
<TABLE>
<CAPTION>
To Be Well
Capitalized Under
For Capital Prompt Corrective
Actual Adequacy Purposes
Amount Ratio Amount Ratio Amount Ratio
As of December 31, 1997:
Total Capital (to Risk Weighted Assets)
<S> <C> <C> <C> <C>
FLAG consolidated ... $ 37,546,000 13.2% 22,760,000 >/=8.0% N/A N/A
FFSB ................ $ 22,408,000 13.9% 12,871,000 >/=8.0% 16,089,000 >/=10.0%
Citizens ............ $ 9,326,000 9.4% 7,981,000 >/=8.0% 9,976,000 >/=10.0%
Milan ............... $ 3,077,000 13.8% 1,790,000 >/=8.0% 2,238,000 >/=10.0%
Tier 1 Capital (to Risk Weighted Assets)
FLAG consolidated ... $ 33,968,000 11.9% 11,380,000 >/=4.0% N/A N/A
FFSB ................ $ 20,382,000 12.7% 6,436,000 >/=4.0% 9,653,000 >/=6.0%
Citizens ............ $ 8,053,000 8.1% 3,990,000 >/=4.0% 5,986,000 >/=6.0%
Milan ............... $ 2,798,000 12.5% 895,000 >/=4.0% 1,343,000 >/=6.0%
Tier 1 Capital (to Average Assets)
FLAG consolidated ... $ 33,968,000 8.4% 16,091,000 >/=4.0% N/A N/A
FFSB ................ $ 20,382,000 8.3% 9,883,000 >/=4.0% 12,354,000 >/=5.0%
Citizens ............ $ 8,053,000 6.6% 4,881,000 >/=4.0% 6,101,000 >/=5.0%
Milan ............... $ 2,798,000 8.8% 1,270,000 >/=4.0% 1,587,000 >/=5.0%
As of December 31, 1996:
Total Capital (to Risk Weighted Assets)
FLAG consolidated .... $ 36,229,000 14.5% 19,981,000 >/=8.0% N/A N/A
FFSB ................. $ 21,568,000 14.4% 12,000,000 >/=8.0% 15,000,000 >/=10.0%
Citizens ............. $ 9,875,000 12.4% 6,379,000 >/=8.0% 7,934,000 >/=10.0%
Milan ................ $ 2,524,000 12.7% 1,587,000 >/=8.0% 1,983,000 >/=10.0%
Tier 1 Capital (to Risk Weighted Assets)
FLAG consolidated .... $ 33,115,000 13.3% 9,990,000 >/=4.0% N/A N/A
FFSB ................. $ 19,694,000 13.1% 6,000,000 >/=4.0% 9,000,000 >/=6.0%
Citizens ............. $ 8,876,000 11.1% 3,189,000 >/=4.0% 4,784,000 >/=6.0%
Milan ................ $ 2,283,000 11.5% 793,000 >/=4.0% 1,190,000 >/=6.0%
Tier 1 Capital (to Average Assets)
FLAG consolidated .... $ 33,115,000 9.4% 13,454,000 >/=4.0% N/A N/A
FFSB ................. $ 19,694,000 8.8% 8,907,000 >/=4.0% 11,134,000 >/=5.0%
Citizens ............. $ 8,876,000 10.3% 3,441,000 >/=4.0% 4,302,000 >/=5.0%
Milan ................ $ 2,283,000 8.5% 1,078,000 >/=4.0% 1,348,000 >/=5.0%
</TABLE>
Banking regulations limit the amount of dividends the Banks can pay to FLAG
without prior regulatory approval. These limitations are a function of excess
regulatory capital and net earnings in the year the dividend is declared. In
1998, FFSB can pay dividends totaling approximately $3,160,000 plus net earnings
during 1998, Citizens can pay dividends totaling approximately $607,000, and
Milan can pay dividends totaling approximately $333,000.
50
<PAGE>
FLAG FINANCIAL CORPORATION
Notes to Consolidated Financial Statements, continued
12. Commitments and Contingencies
- --------------------------------------------------------------------------------
The Banks lease certain banking facilities under operating lease arrangements
expiring through 2000. Approximate future minimum payments required for all
operating leases with remaining terms in excess of one year are presented below:
Year Ending December 31,
---------------------------------
1998 $ 77,000
1999 74,000
2000 65,000
---------------------------------
$ 216,000
=================================
Total rent expense was approximately $112,000, $71,000, and $66,000 for the
years ended December 31, 1997, 1996, and 1995, respectively.
FLAG has a partially self-insured health care plan for the benefit of eligible
employees and their eligible dependents, administered by a third party
administrator. Claims in excess of $15,000 per person annually, but less than
$1,000,000, are covered by an insurance policy with Guarantee Mutual Life
Company. FLAG is responsible for any claims less than $15,000 per person
annually.
FLAG 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 and to
manage its cost of funds. These financial instruments include commitments to
extend credit and standby letters of credit. These instruments involve, to
varying degrees, elements of credit risk in excess of the amounts recognized in
the consolidated statements of financial condition. The contract amounts of
these instruments reflect the extent of involvement the Banks have in particular
classes of financial instruments.
Commitments to originate first mortgage loans and 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 Banks evaluate each customer's creditworthiness on a
case-by-case basis. The amount of collateral obtained, if deemed necessary by
the Banks upon extension of credit, is based on management's credit evaluation
of the counterparty. The Banks' loans are primarily collateralized by
residential and other real properties, automobiles, savings deposits, accounts
receivable, inventory, and equipment located in West-Central and Middle Georgia.
Standby letters of credit are written conditional commitments issued by the
Banks to guarantee the performance of a customer to a third party. Those
guarantees are primarily issued to support public and private borrowing
arrangements. Most letters of credit extend for less than one year. The credit
risk involved in issuing letters of credit is essentially the same as that
involved in extending loan facilities to customers.
FLAG's exposure to credit loss in the event of nonperformance by the other party
to the financial instrument for commitments to extend credit and standby letters
of credit is represented by the contractual amount of those instruments. The
Banks use the same credit policies in making commitments and conditional
obligations as it does for on-balance sheet instruments. All standby letters of
credit are secured at December 31, 1997 and 1996.
1997 1996
---- ----
Financial instruments whose contract
amounts represent credit risk:
Commitments to originate first
mortgage loans $ 17,609,000 9,932,000
Commitments to extend credit $ 36,673,000 23,490,000
Standby letters of credit $ 1,237,000 1,205,000
51
<PAGE>
FLAG FINANCIAL CORPORATION
Notes to Consolidated Financial Statements, continued
13. Related Party Transactions
- --------------------------------------------------------------------------------
At December 31, 1997, deposits from directors, executive officers, and their
related interests aggregated approximately $206,000. These deposits were taken
in the normal course of business at market interest rates.
The Banks conduct transactions with directors and executive officers, including
companies in which they have beneficial interest, in the normal course of
business. It is the policy of the Banks that loan transactions with directors
and executive officers be made on substantially the same terms as those
prevailing at the time for comparable loans to other persons. The following is a
summary of activity for related party loans for 1997.
Balance at December 31, 1996 $ 3,321,000
New loans 3,835,000
Repayments (1,024,000)
-----------
Balance at December 31, 1997 $ 6,132,000
=========
14. Miscellaneous Operating Expenses
- --------------------------------------------------------------------------------
Components of other operating expenses in excess of 1% of interest and other
income for the years ended December 31, 1997, 1996, and 1995 are as follows:
1997 1996 1995
---- ---- ----
Advertising $ 371,000 285,000 249,000
Data processing expense $ 579,000 598,000 586,000
Federal deposit insurance premiums $ 199,000 1,670,000 552,000
52
<PAGE>
FLAG FINANCIAL CORPORATION
Notes to Consolidated Financial Statements, continued
15. FLAG Financial Corporation (Parent Company Only) Financial Information
Balance Sheets
December 31, 1997 and 1996
Assets
1997 1996
---- ----
Cash $ 919,188 1,374,516
Investment securities available-for-sale 1,042,883 458,885
Investment in subsidiaies 33,856,585 31,048,129
Equipment, net 536,282 -
Other assets 837,891 724,928
-------- -------
$ 37,192,829 33,606,458
========== ==========
Liabilities and Stockholders' Equity
Accounts payable and
accrued expenses 422,444 192,340
Stockholders' equity 36,770,385 33,414,118
---------- ----------
$ 37,192,829 33,606,458
========== ==========
53
<PAGE>
FLAG FINANCIAL CORPORATION
Notes to Consolidated Financial Statements, continued
Statements of Earnings
For the Years Ended December 31, 1997, 1996 and 1995
1997 1996 1995
---- ---- ----
Income:
Dividend income from Banks $ 1,455,000 1,282,484 2,992,949
Interest income 7,357 - 167
Other 147,890 136,757 119,937
--------- ------- -------
Total income 1,610,247 1,419,241 3,113,053
--------- --------- ---------
Operating expenses:
Interest expense 1,333 347 9,692
Other 594,294 428,892 411,133
------- ------- -------
Total operating expenses 595,627 429,239 420,825
------- ------- -------
Earnings before income tax benefit
and equity in undistributed
earnings of Banks 1,014,620 990,002 2,692,228
Income tax b 153,918 97,505 74,295
------- ------ ------
Earnings before equity in
undistributed earnings of Banks 1,168,538 1,087,507 2,766,523
Equity in undistributed earnings
of Banks 2,580,160 198,741 705,111
--------- ------- -------
Net earnings $ 3,748,698 1,286,248 3,471,634
========= ========= =========
54
<PAGE>
FLAG FINANCIAL CORPORATION
Notes to Consolidated Financial Statements, continued
(14) FLAG Financial Corporation (Parent Company Only) Financial Information,
continued
Statements of Cash Flows
For the Years Ended December 31, 1997, 1996 and 1995
1997 1996 1995
Cash flows from operating activities:
Net earnings $ 3,748,698 1,286,248 3,471,634
Adjustments to reconcile net
earnings to net cash
provided by operating activities:
Amortization 26,588 26,587 26,587
Equity in undistributed earnings
of Banks (2,580,160) (198,741) (705,111)
Change in other assets
and liabilities 90,562 (151,474) 73,833
------ ------- --------
Net cash provided by
operating activities 1,285,688 962,620 2,866,943
------------ ------- ---------
Cash flows from investing activities:
Purchase of securities
available-for-sale (502,665) (214,752) (75,750)
Proceeds from securities - 25,000 -
available for sale
Purchase of equipment (536,282) - -
--------- --------- ---------
Net cash used in investing activities
activities (1,038,947) (189,752) (75,750)
---------- --------- ---------
Cash flows from financing activities:
Repayment of long-term debt - (80,000) (480,000)
Repurchase of common stock - - (1,633,272)
Exercise of stock options - 630,629 124,398
Issuance of common stock - 44,269 59,486
Proceeds from sale of treasury
stock of pooled entity 54,450 - 20,055
Purchase of treasury stock
of pooled entity - (20,933) -
Dividends paid (756,519) (704,362) (669,903)
---------- -------- ---------
Net cash used in
financing activities (702,069) (130,397) (2,579,236)
--------- --------- -----------
Net change in cash (455,328) 642,471 211,957
Cash at beginning of year 1,374,516 732,045 520,088
----------- --------- --------
Cash at end of year $ 919,188 1,374,516 732,045
======= ========= =======
55
<PAGE>
FLAG FINANCIAL CORPORATION
Notes to Consolidated Financial Statements, continued
16. Fair Value of Financial Instruments
- --------------------------------------------------------------------------------
FLAG is required to disclose fair value information about financial instruments,
whether or not recognized on the face of the balance sheet, for which it is
practicable to estimate that value. The assumptions used in the estimation of
the fair value of FLAG's financial instruments are detailed below. Where quoted
prices are not available, fair values are based on estimates using discounted
cash flows and other valuation techniques. The use of discounted cash flows can
be significantly affected by the assumptions used, including the discount rate
and estimates of future cash flows. The following disclosures should not be
considered a surrogate of the liquidation value of FLAG or its Banks, but rather
a good-faith estimate of the increase or decrease in value of financial
instruments held by FLAG since purchase, origination, or issuance.
Cash and Cash Equivalents
- --------------------------------------------------------------------------------
For cash, due from banks, federal funds sold and interest-bearing deposits with
other banks the carrying amount is a reasonable estimate of fair value.
Securities Held-to-Maturity and Securities Available-for-Sale
- --------------------------------------------------------------------------------
Fair values for securities held-to-maturity and securities available-for-sale
are based on quoted market prices.
Other investments
- --------------------------------------------------------------------------------
The carrying value of other investments approximates fair value.
Loans and Mortgage Loans Held for Sale
- --------------------------------------------------------------------------------
The fair value of fixed rate loans is estimated by discounting the future cash
flows using the current rates at which similar loans would be made to borrowers
with similar credit ratings. For variable rate loans, the carrying amount is a
reasonable estimate of fair value.
Mortgage Servicing Rights
- --------------------------------------------------------------------------------
Fair value of mortgage servicing rights is determined by estimating the present
value of the future net servicing income, on a disaggregated basis, using
anticipated prepayment assumptions.
Cash Surrender Value of Life Insurance
- --------------------------------------------------------------------------------
The carrying value of cash surrender value of life insurance approximates fair
value.
Deposits
- --------------------------------------------------------------------------------
The fair value of demand deposits, savings accounts, NOW accounts and certain
money market deposits is the amount payable on demand at the reporting date. The
fair value of fixed maturity certificates of deposit is estimated by discounting
the future cash flows using the rates currently offered for deposits of similar
remaining maturities.
Federal Funds Purchased
- --------------------------------------------------------------------------------
For federal funds purchased, the carrying amount is a reasonable estimate of
fair value.
FHLB Advances
- --------------------------------------------------------------------------------
The fair value of the FHLB fixed rate borrowings are estimated using discounted
cash flows based on the current incremental borrowing rates for similar types of
borrowing arrangements.
Commitments to Originate First Mortgage Loans,
Commitments to Extend Credit, and Standby Letters of Credit
- --------------------------------------------------------------------------------
Because commitments to originate first mortgage loans, commitments to extend
credit and standby letters of credit are made using variable rates, the contract
value is a reasonable estimate of fair value.
56
<PAGE>
FLAG FINANCIAL CORPORATION
Notes to Consolidated Financial Statements, continued
Fair Value of Financial Instruments, continued
Limitations
- --------------------------------------------------------------------------------
Fair value estimates are made at a specific point in time, based on relevant
market information and information about the financial instrument. These
estimates do not reflect any premium or discount that could result from offering
for sale at one time FLAG's entire holdings of a particular financial
instrument. Because no market exists for a significant portion of FLAG's
financial instruments, fair value estimates are based on many judgments. These
estimates are subjective in nature and involve uncertainties and matters of
significant judgment and therefore cannot be determined with precision.Changes
in assumptions could significantly affect the estimates.
Fair value estimates are based on existing on and off-balance sheet financial
instruments without attempting to estimate the value of anticipated future
business and the value of assets and liabilities that are not considered
financial instruments. Significant assets and liabilities that are not
considered financial instruments include the mortgage banking operation,
deferred income taxes, and premises and equipment. In addition, the tax
ramifications related to the realization of the unrealized gains and losses can
have a significant effect on fair value estimates and have not been considered
in the estimates.
The carrying amount and estimated fair values of FLAG's financial instruments at
December 31, 1997 and 1996 are as follows:
<TABLE>
<CAPTION>
1997 1996
---- ----
Carrying Estimated Carrying Estimated
Amount Fair Value Amount Fair Value
------ ---------- ------ ----------
Assets:
<S> <C> <C> <C> <C>
Cash and cash equivalents ..... $ 19,250,755 19,250,755 14,107,593 14,107,593
Interest-bearing deposits in
other banks ................ 3,168,353 3,168,353 1,327,108 1,327,108
Investment securities ........ 74,623,184 74,594,442 67,186,393 67,098,633
Other investments ............ 4,756,655 4,756,655 4,018,460 4,018,460
Mortgage loans held for sale . 3,481,678 3,841,678 1,505,798 1,505,798
Loans, net ................... 279,285,679 280,794,907 239,653,367 242,002,221
Mortgage servicing rights .... 1,174,292 1,174,292 1,703,710 1,703,710
Cash surrender value of life
insurance .................. 3,864,612 3,864,612 3,544,386 3,544,386
Liabilities:
Deposits ..................... 324,852,043 326,263,733 294,420,453 295,412,619
Federal funds purchased ...... 170,000 170,000 2,210,000 2,210,000
FHLB advances ................ 43,637,494 42,927,033 17,370,833 17,370,833
Unrecognized financial
instruments:
Commitments to originate first
mortgage loans ............. 17,609,000 17,609,000 9,932,000 9,932,000
Commitments to extend credit . 36,673,000 36,673,000 23,490,000 23,490,000
Standby letters of credit .... 1,237,000 1,237,000 1,205,000 1,205,000
</TABLE>
57
<PAGE>
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE
------------------------
On February 20, 1997, the Company engaged Porter Keadle Moore, LLP as
independent accountants to audit the Company's financial statements for the
fiscal year ending December 31, 1997, and elected not to renew the engagement of
the Company's previous independent accountants, Robinson, Grimes & Company, P.C.
No adverse opinions or disclaimers of opinion were given by Robinson, Grimes &
Company, P.C. during the fiscal years ended December 31, 1995, and 1996, nor
were any of their opinions qualified as to uncertainty, audit scope, or
accounting principle, during the time Robinson, Grimes & Company was engaged.
There were no disagreements or "reportable events" of any nature between the
Company and Robinson, Grimes & Company, P.C during the fiscal years ended
December 31, 1995, 1996, and the subsequent interim period through February 20,
1997, as described in Items 304(a) (1) (iv) and (v) of Regulation S-K. The
decision was approved by the Company's Audit Committee and Board of Directors.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
- -------- --------------------------------------------------
Information relating to the directors of the Company is set forth under
the captions "Proposal 1 - Election of Directors-Nominees" and "Proposal 1 -
Election of Directors-Information Regarding Nominees and Continuing Directors"
in the Company's Proxy Statement for its 1998 Annual Meeting of Shareholders to
be held on May 13, 1998. Such information is incorporated herein by reference.
Pursuant to Instruction 3 to Item 401(b) of Regulation S-K and General
Instruction G(3) to Form 10-K, information relating to the executive officers of
the Company and the Bank is set forth in Item 4(A) of this report under the
caption "Executive Officers of the Registrant." Information regarding compliance
with Section 16(a) of the Securities Exchange Act of 1934, as amended, by
directors and executive officers of the Company and the Bank is set forth under
the caption "Compliance with Section 16(a) of the Securities Exchange Act of
1934" in the Proxy Statement referred to in Item 10 above. Such information is
incorporated herein by reference. To the Company's knowledge, no person was the
beneficial owner of more than 10% of the Company's common stock during 1997.
ITEM 11. EXECUTIVE COMPENSATION
----------------------
Information relating to executive compensation and the sale of stock to
certain directors is set forth under the captions "Proposal 1 - Election of
Directors - Director Compensation" and "Executive Compensation" in the Proxy
Statement referred to above. Such information is incorporated herein by
reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
--------------------------------------------------------------
Information regarding ownership of the Company's common stock as of
December 31, 1997, by certain persons is set forth under the captions "Voting -
Stock Ownership" and "Proposal 1 - Election of Directors - Information Regarding
Nominees and Continuing Directors" in the Proxy Statement referred to in Item 10
above. Such information is incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
----------------------------------------------
Information regarding certain transactions between the Bank and
affiliates of the Company and the Bank is set forth under the caption "Executive
Compensation - Loans to Management" in the Proxy Statement referred to in Item
10 above. Such information is incorporated herein by reference.
58
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENTS AND REPORTS ON FORM 8-K
------------------------------------------------------
(a)(1) and (2) The lists called for by this portion of Item 14 are submitted as
a separate part of this report.
(a)(3) Exhibit List
Exhibit No. Description
- ----------- -----------
2.1 Agreement and Plan of Merger, dated July 30, 1998, by and
between the Company and Empire Banking Corp. (incorporated by
reference herein from Exhibit 2.1 to the Company's Current
Report on Form 8-K dated August 10, 1998).
2.2 Agreement and Plan of Merger, dated July 24, 1998, by and
between the Company and The Brown Bank (incorporated by
reference herein from Exhibit 2.1 to the Company's Current
Report on Form 8-K dated August 12, 1998).
3.1 (i) Articles of Incorporation of the Company, as amended
through October 15, 1993 (Incorporated herein by reference
from Exhibit 3.1(i) to the Company's Annual Report on Form
10-K for the fiscal year ended December 31, 1993)
(ii)Bylaws of the Company, as amended through March 30, 1998
4.1 Instruments Defining the Rights of Security Holders (See
Articles of Incorporation at Exhibit 3.1 hereto and Bylaws
at Exhibit 3.2 hereto) 10.1
10.1 Employment Agreement between J. Daniel Speight, Jr. and the
Company dated as of April 1, 1998*
10.2 Employment Agreement between John S. Holle and the Company
dated as of April 1, 1998*
10.3 Employment Agreement between Ellison C. Rudd and the Company
dated as of April 1, 1998*
10.4 Employment Agreement between Patti S. Davis and the Company
dated as of April 1, 1998*
10.5 Separation Agreement between Charles D. Hinely and the Company
dated April 1, 1998*
10.6 Separation Agreement between J. Preston Martin and the Company
dated May 13, 1998*
10.7 Split Dollar Insurance Agreement between J. Daniel Speight,Jr.
and Citizens Bank dated November 2, 1992*
10.8 Director Indexed Retirement Program for Citizens Bank dated
January 13, 1995*
10.9 Form of Executive Agreement (pursuant to Director Indexed
Retirement Program for Citizens Bank) for individuals listed
on exhibit cover page*
10.10 Form of Flexible Premium Life Insurance Endorsement Method
Split Dollar Plan Agreement (pursuant to Director Indexed
Retirement Program for Citizens Bank) for individuals listed
on exhibit cover page*
59
<PAGE>
10.11 Tax Sharing Agreement dated March 1, 1994, among the Company,
the Bank and Piedmont Mortgage Service, Inc. (Incorporated
herein by reference from Exhibit 10.1 to the Company's Annual
Report on Form 10-K for the fiscal year ended December 31,
1993)
10.12 Director Indexed Fee Continuation Program for First Federal
Savings Bank of LaGrange effective February 3, 1995.
10.13 Form of Director Agreement (pursuant to Director Indexed Fee
Construction Program for First Federal Savings Bank of
LaGrange) for individuals listed on exhibit cover page*
10.14 Form of Flexible Premium Life Insurance Endorsement Method
Split Dollar Plan Agreement (pursuant to Director Indexed Fee
Continuation Program of First Federal Savings Bank of
LaGrange) for individuals listed on exhibit cover page*
10.15 Form of Indexed Executive Salary Continuation Plan Agreement
by and between First Federal Savings Bank of LaGrange and
individuals listed on exhibit cover page*
10.16 Form of Flexible Premium Life Insurance Endorsement Method
Split Dollar Plan Agreement (pursuant to Executive Salary
Continuation Plan for First Federal Savings Bank of LaGrange)
for individuals listed on exhibit cover page*
10.17 Indexed Executive Salary Continuation Plan Agreement by and
between First Federal Savings Bank of LaGrange and William F.
Holle, Jr. dated February 3, 1995*
10.18 FLAG Financial Corporation 1994 Employees Stock Incentive Plan
(Incorporated herein by reference from Exhibit 10.6 to the
Company's Annual Report on Form 10-K for the fiscal year ended
December 31, 1993)*
10.19 FLAG Financial Corporation 1994 Directors Stock Incentive Plan
(Incorporated herein by reference from Exhibit 10.7 to the
Company's Annual Report on Form 10-K for the fiscal year ended
December 31, 1993)*
11 Statement regarding computation of per share earnings
13 1997 Annual Report to Shareholders**+
21 Subsidiaries
27 Financial Data Schedule
* The indicated exhibit is a compensatory plan required to be
filed as an exhibit to this Form 10-K.
** Previously filed with the Company's Annual Report on Form 10-K
for the fiscal year ended December 31, 1997.
60
<PAGE>
(b) Reports on Form 8-K.
Reports on Form 8-K filed during fourth quarter of 1997
* Current Report on Form 8-K filed October 28, 1997 regarding the
execution of Agreement and Plan of Merger with Middle Georgia
Bankshares, Inc.
Reports on Form 8-K filed since Year End 1997
* Current Report on Form 8-K filed January 28, 1998 regarding
execution of Letter of Intent on January 21, 1998 to merge Three
Rivers Bancshares, Inc. with FLAG Financial Corporation
* Current Report on Form 8-K filed February 18, 1998 regarding
execution of Agreement and Plan of Merger with Three Rivers
Bancshares, Inc.
* Current Report on Form 8-K filed April 15, 1998 regarding
consummation of merger with Middle Georgia Bankshares, Inc. on
March 31, 1998.
* Current Report on Form 8-K filed May 22, 1998 regarding
declaration on May 18, 1998 of a 3-for-2 stock split payable
June 3, 1998
* Current Report on Form 8-K filed May 22, 1998 regarding execution
of Letter of Intent on May 14, 1998 to merge The Brown Bank with
FLAG Financial Corporation
* Current Report on Form 8-K filed May 22, 1998 regarding
consummation of merger with Three Rivers Bancshares, Inc. on May
8, 1998
* Current Report on Form 8-K filed June 4, 1998 regarding execution
of Letter of Intent on May 28, 1998 to merge Heart of Georgia
Bancshares, Inc. with FLAG Financial Corporation
* Current Report on Form 8-K filed June 4, 1998 regarding execution
of Letter of Intent on June 1, 1998 to merge Empire Bank Corp.
with FLAG Financial Corporation
* Current Report on Form 8-K filed August 10, 1998 regarding the
execution of Agreement and Plan of Merger with Empire Bank Corp.
* Current Report on Form 8-K filed August 12, 1998 regarding the
execution of Agreement and Plan of Merger with The Brown Bank
(c) The Exhibits not incorporated herein by reference are submitted as
a separate part of this report.
(d) Financial Statements Schedules: None
- ------------------
+ Portions of the Company's 1997 Annual Report, as indicated in this report, are
incorporated herein by reference. Other than as noted herein, the Company's 1997
Annual Report is furnished to the Securities and Exchange Commission solely for
its information and is not deemed to be "filed" with the Securities and Exchange
Commission or subject to the liabilities of Section 18 of the Securities
Exchange Act of 1934, as amended.
61
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this Amendment to Form 10-K
to be signed on its behalf by the undersigned, thereunto duly authorized.
FLAG FINANCIAL CORPORATION
(Registrant)
Date: August 12, 1998 By: /s/ J. Daniel Speight, Jr.
---------------------------
J. Daniel Speight, Jr.
President and Chief Executive Officer
<PAGE>
FLAG FINANCIAL CORPORATION
Index of Exhibits
The following exhibits are filed as part of or incorporated by reference in
this report. Where such filing is made by incorporation by reference to a
previously filed registration statement or report, such registration statement
or report is identified in parentheses.
Exhibit No. Description
----------- -----------
2.1 Agreement and Plan of Merger, dated July 30, 1998, by and
between the Company and Empire Banking Corp. (incorporated by
reference herein from Exhibit 2.1 to the Company's Current
Report on Form 8-K dated August 10, 1998.)
2.2 Agreement and Plan of Merger, dated July 24, 1998, by and
between the Company and The Brown Bank (incorporated by
reference herein from Exhibit 2.1 to the Company's Current
Report on Form 8-K dated August 12, 1998.)
3.1 (i) Articles of Incorporation of the Company, as amended
through October 15, 1993 (Incorporated herein by reference
from Exhibit 3.1(i) to the Company's Annual Report on Form
10-K for the fiscal year ended December 31, 1993)
(ii)Bylaws of the Company, as amended through March 30, 1998
4.1 Instruments Defining the Rights of Security Holders (See
Articles of Incorporation at Exhibit 3.1 hereto and Bylaws at
Exhibit 3.2 hereto)
10.1 Employment Agreement between J. Daniel Speight, Jr. and
the Company dated as of April 1, 1998*
10.2 Employment Agreement between John S. Holle and the Company
dated as of April 1, 1998*
10.3 Employment Agreement between Ellison C. Rudd and the Company
dated as of April 1, 1998*
10.4 Employment Agreement between Patti S. Davis and the Company
dated as of April 1, 1998*
10.5 Separation Agreement between Charles O. Hinely and the Company
dated April 1, 1998*
10.6 Separation Agreement between J. Preston Martin and the Company
dated May 13, 1998*
10.7 Split Dollar Insurance Agreement between J. Daniel Speight,Jr.
and Citizens Bank dated November 2, 1992*
10.8 Director Indexed Retirement Program for Citizens Bank dated
January 13, 1995*
62
<PAGE>
10.9 Form of Executive Agreement (pursuant to Director Indexed
Retirement Program for Citizens Bank) for individuals listed
on exhibit cover page*
10.10 Form of Flexible Premium Life Insurance Endorsement Method
Split Dollar Plan Agreement (pursuant to Director Indexed
Retirement Program for Citizens Bank) for individuals listed
on exhibit cover page*
10.11 Tax Sharing Agreement dated March 1, 1994, among the Company,
the Bank and Piedmont Mortgage Service, Inc. (Incorporated
herein by reference from Exhibit 10.1 to the Company's Annual
Report on Form 10-K for the fiscal year ended December 31,
1993)
10.12 Director Indexed Fee Continuation Program for First Federal
Savings Bank of LaGrange effective February 3, 1995
10.13 Form of Director Agreement (pursuant to Director Indexed Fee
Construction Program for First Federal Savings Bank of
LaGrange) for individuals listed on exhibit cover page*
10.14 Form of Flexible Premium Life Insurance Endorsement Method
Split Dollar Plan Agreement (pursuant to Director Indexed Fee
Continuation Program of First Federal Savings Bank of
LaGrange) for individuals listed on exhibit cover page*
10.15 Form of Indexed Executive Salary Continuation Plan Agreement
by and between First Federal Savings Bank of LaGrange and
individuals listed on exhibit cover page*
10.16 Form of Flexible Premium Life Insurance Endorsement Method
Split Dollar Plan Agreement (pursuant to Executive Salary
Continuation Plan for First Federal Savings Bank of LaGrange)
for individuals listed on exhibit cover page*
10.17 Indexed Executive Salary Continuation Plan Agreement by and
between First Federal Savings Bank of LaGrange and William F.
Holle, Jr. dated February 3, 1995*
10.18 FLAG Financial Corporation 1994 Employees Stock Incentive Plan
(Incorporated herein by reference from Exhibit 10.6 to the
Company's Annual Report on Form 10-K for the fiscal year ended
December 31, 1993)*
10.19 FLAG Financial Corporation 1994 Directors Stock Incentive Plan
(Incorporated herein by reference from Exhibit 10.7 to the
Company's Annual Report on Form 10-K for the fiscal year ended
December 31, 1993)*
11 Statement regarding computation of per share earnings
13 1997 Annual Report to Shareholders**
21 Subsidiaries
27 Financial Data Schedule
63
<PAGE>
* The indicated exhibit is a compensatory plan required to be
filed as an exhibit to this Form 10-K.
** Previously filed with the Company's Annual Report on Form 10-K
for fiscal year ended December 31, 1997.
64
<PAGE>
EXHIBIT 3.1(ii)
BYLAWS OF
FLAG FINANCIAL CORPORATION
(As Amended through March 30, 1998)
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As adopted February 11, 1993
and amended through March 30, 1998
BYLAWS
OF
FLAG FINANCIAL CORPORATION
ARTICLE I
STOCKHOLDERS
SECTION 1.1. Annual Meetings. The annual meeting of the stockholders of
the Corporation shall be held each year for the purposes of electing directors
and of transacting such other business as properly may be brought before the
meeting. To be properly brought before the meeting, business must be brought
before the meeting (i) by or at the direction of the Board of Directors or (ii)
by any stockholder of the Corporation who complies with the notice procedures
set forth in this Section 1.1; provided, in each case, that such business
propose to be conducted is, under the law, an appropriate subject for
stockholder action. For business to be properly brought before an annual meeting
by a stockholder, the stockholder must have given timely notice thereof in
writing to the Secretary of the Corporation. To be timely, a stockholder's
notice must be delivered to or mailed and received at the principal executive
offices of the Corporation, in accordance with Securities and Exchange
Commission Rule 14a-8(a)(3)(i), not less than 120 calendar days prior to the
date of the Corporation's proxy statement released to stockholders in connection
with the previous year's annual meeting of stockholders, except that if no
annual meeting of stockholders was held in the previous year or if the date of
the annual meeting of stockholders has been changed by more than 30 calendar
days from the date contemplated at the time of the previous year's proxy
statement, the notice shall be received at the principal executive offices of
the Corporation not less than 150 calendar days prior to the date of the annual
meeting. A stockholder's notice to the Secretary shall set forth as to each
matter such stockholder proposes to bring before the annual meeting (i) a brief
description of the business desired to be brought before the annual meeting and
the reasons for conducting such business at the annual meeting, (ii) the name
and address, as they appear on the Corporation's books, of the stockholder
proposing such business, (iii) the class and number of shares of the Corporation
which are beneficially owned by such stockholder, (iv) the dates upon which the
stockholder acquired such shares, (v) documentary support for any claim of
beneficial ownership, (vi) any material interest of such stockholder in such
business and (vii) a statement in support of the matter and any other
information required by said Rule 14a-8. The chairman of an annual meeting may,
if the facts warrant, determine and declare to the meeting that business was not
properly brought before the meeting in accordance with the provisions of this
Section 1.1, and, if he or she should so determine, he or she shall so declare
to the meeting and any such business so determined to be not properly brought
before the meeting shall not be transacted.
SECTION 1.2. Special Meetings. The Corporation shall hold a special
meeting of stockholders on call of a majority of the entire Board of Directors,
the Chairman of the Board, the President, or, upon delivery to the Corporation's
Secretary of a signed and dated written request setting out the purpose or
purposes for the meeting, on call of the holders of a majority of the votes
entitled to be cast on any issue proposed to be considered at the proposed
special meeting. Only business within the purpose or purposes described in the
notice of special meeting required by Section 1.4 below may be conducted at a
special meeting of the stockholders.
SECTION 1.3. Date, Time and Place of Meetings. All meetings of
stockholders shall be held on such date and at such time and place, within or
without the State of Georgia, as may be fixed from time to time by the Board of
Directors. The date, time and place of all meetings shall be stated in the
notice of the meeting or in a duly executed waiver of notice thereof. If no
designation is made, the place of the meeting shall be the principal business
office of the Corporation.
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SECTION 1.4. Notice of Meetings. The Secretary or an Assistant
Secretary shall deliver, either personally or by first-class mail, a written
notice of the place, day, and time of all meetings of the stockholders not less
than ten nor more than 60 days before the meeting date to each stockholder of
record entitled to vote at such meeting. Written notice is effective when
mailed, if mailed with first-class postage prepaid and correctly addressed to
the stockholder's address shown in the Corporation's current record of
stockholders. In the case of a special meeting, the purpose or purposes for
which the meeting is called shall be included in the notice of the special
meeting. If an annual or special stockholders' meeting is adjourned to a
different date, time, or place, notice of the new date, time, or place need not
be given if the new date, time, or place is announced at the meeting before
adjournment. However, if a new record date for the adjourned meeting is or must
be fixed under Section 1.5 herein, notice of the adjourned meeting must be given
to persons who are stockholders as of the new record date.
SECTION 1.5. Record Date. The Board of Directors, in order to determine
the stockholders entitled to notice of or to vote at any meeting of the
stockholders or any adjournment thereof, or to express consent to corporate
action in writing without a meeting, or to receive payment of any dividend or
other distribution or allotment of any rights, or to exercise any rights in
respect of any change, conversion or exchange of stock, or for the purpose of
any other lawful action, shall fix in advance a record date which shall not be
less than ten nor more than 70 days before the date of such meeting or action
requiring a determination of stockholders. Only such stockholders as shall be
stockholders of record on the date fixed shall be entitled to such notice of or
to vote at such meeting or any adjournment thereof, or to receive payment of any
such dividend or other distribution or allotment of any rights, or to exercise
any such rights in respect of stock, or to take any such other lawful action, as
the case may be, notwithstanding any transfer of any stock on the books of the
Corporation after any such record date fixed as aforesaid. The record date shall
apply to any adjournment of the meeting except that the Board of Directors shall
fix a new record date for the adjourned meeting if the meeting is adjourned to a
date more than 120 days after the date fixed for the original meeting.
SECTION 1.6. Stockholders' List for Meeting. After fixing a record date
for a meeting, the Corporation shall prepare an alphabetical list of the names
of all stockholders who are entitled to notice of the stockholders' meeting. The
list shall be arranged by voting group (and within each voting group by class or
series of shares) and show the address of and number of shares held by each
stockholder. The Corporation shall make the stockholders' list available for
inspection by any stockholder, his or her agent, or his or her attorney at the
time and place of the meeting.
SECTION 1.7. Quorum. Subject to any express provision of law or the
Articles of Incorporation, a majority of the votes entitled to be cast by all
shares voting together as a group shall constitute a quorum for the transaction
of business at all meetings of the stockholders. Whenever a class of shares or
series of shares is entitled to vote as a separate voting group on a matter, a
majority of the votes entitled to be cast by each voting group so entitled shall
constitute a quorum for purposes of action on any matter requiring such separate
voting. Once a share is represented, either in person or by proxy, for any
purpose at a meeting other than solely to object to holding a meeting or
transacting business at the meeting, it is deemed present for quorum purposes
for the remainder of the meeting and for any adjournment of that meeting unless
a new record date is set for the adjourned meeting.
SECTION 1.8. Adjournment of Meetings. The holders of a majority of the
voting shares represented at a meeting, or the Chairman of the Board or the
President, whether or not a quorum is present, shall have the power to adjourn
the meeting from time to time, without notice other than announcement at the
meeting. At such adjourned meeting at which a quorum shall be present or
represented, any business may be transacted which might have been transacted at
the meeting as originally notified. If after the adjournment a new record date
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is fixed for the adjourned meeting, a notice of the adjourned meeting shall be
given to each stockholder of record entitled to vote at the adjourned meeting.
SECTION 1.9. Vote Required. When a quorum exists, action on a matter
(other than the election of directors) by a voting group is approved if the
votes cast within the voting group favoring the action exceed the votes cast
opposing the action, unless the Articles of Incorporation, a bylaw authorized by
the Articles of Incorporation or an express provision of law requires a greater
number of affirmative votes. Unless otherwise provided in the Articles of
Incorporation, directors are 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. Stockholders do not have the right to cumulate their votes unless the
Articles of Incorporation so provide.
SECTION 1.10. Voting Entitlement of Shares. Unless otherwise provided
in the Articles of Incorporation, each stockholder, at every meeting of the
stockholders, shall be entitled to cast one vote, either in person or by written
proxy, for each share standing in his or her name on the books of the
Corporation as of the record date. A stockholder may vote his or her shares in
person or by proxy. An appointment of proxy is effective when received by the
Secretary of the Corporation or other officer or agent authorized to tabulate
votes and is valid for 11 months unless a longer period is expressly provided in
the appointment of proxy form. An appointment of proxy is revocable by the
stockholder unless the appointment form conspicuously states that it is
irrevocable and the appointment is coupled with an interest.
SECTION 1.11. Voting of Shares by Certain Holders. Shares of the
Corporation's voting stock standing in the name of another corporation may be
voted by the Chairman of the Board, the President, any Vice President, the
Secretary or the Treasurer of such corporation, unless evidence is presented
that such person does not have the authority to vote such shares or that such
authority is vested in another person.
Shares held by an administrator, executor, guardian or conservator may
be voted by him, either in person or by proxy, without a transfer of such shares
into his or her name. Shares standing in the name of a trustee may be voted by
him, either in person or by proxy, but no trustee shall be entitled to vote
shares held by him or her without a transfer of such shares into his or her name
or the name of his or her nominee. Shares standing in the name of a person as
life tenant may be voted by him, either in person or by proxy, unless the record
of stockholders shows that he or she is not entitled to vote such shares.
Shares standing in the name of a receiver may be voted by such
receiver, and shares held by or under the control of a receiver may be voted by
such receiver without the transfer thereof into his or her name if authority to
do so is contained in an appropriate order of the court by which such receiver
was appointed.
A stockholder whose shares are pledged shall be entitled to vote such
shares until the shares have been transferred into the name of the pledgee, or a
nominee of the pledgee, and thereafter the pledgee or his or her nominee shall
be entitled to vote the shares so transferred.
Shares of its own stock belonging to the Corporation or any subsidiary
shall not be voted, directly or indirectly, at any meeting and shall not be
counted in determining the total number of outstanding shares at any given time;
provided, however, that shares held in a fiduciary capacity by a subsidiary
company or other entity authorized under state or federal law to exercise trust
powers may be voted at any such meeting and counted in determining the number of
shares outstanding.
SECTION 1.12. Action by Stockholders Without a Meeting. Any action
required or permitted to be taken at a stockholders' meeting may be taken
without a meeting if the action is taken by all the stockholders entitled to
vote on the action, or, if so provided in the Articles of Incorporation, by
persons who would be entitled to vote at a meeting shares having voting power to
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cast not less than the minimum number (or numbers, in the case of voting by
groups) of votes that would be necessary to authorize or take the action at a
meeting at which all stockholders entitled to vote were present and voted. The
action must be evidenced by one or more written consents describing the action
taken, signed by stockholders entitled to take action without a meeting and
delivered to the Corporation for inclusion in the minutes or for filing with the
corporate records. No written consent shall be valid unless the consenting
stockholder has been furnished the same material that would have been required
to be sent to the stockholders in a notice of a meeting at which the proposed
action would have been submitted to the stockholders for action or the written
consent contains an express waiver of the right to receive the material
otherwise required to be furnished. Action with respect to any election of
directors as to which stockholders would be entitled to cumulative voting may be
taken without a meeting only by written consent of all the stockholders entitled
to vote on the action. Notice shall be given within ten (10) days of the taking
of the corporate action without a meeting by less than unanimous written consent
to those persons who are stockholders on the date the consent is first executed
and who have not consented in writing.
ARTICLE II
BOARD OF DIRECTORS
SECTION 2.1. General Powers. Subject to the Articles of Incorporation,
Bylaws approved by the stockholders and any lawful agreement between the
stockholders, all corporate powers shall be exercised by or under the authority
of, and the business and affairs of the Corporation managed under the direction
of, the Board of Directors.
SECTION 2.2. Number and Term. The Board of Directors shall consist of
twelve (12) members and shall be divided into three classes as nearly equal in
number as possible. The members of each class shall be elected for a term of
three years and until their successors are elected and qualified. One class
shall be elected by ballot annually. Any amendment of this Section 2.2 of the
Bylaws which has the effect of changing the minimum or maximum number of
directors as set forth herein shall require the affirmative vote of two-thirds
of all directors then in office or the affirmative vote of the holders of
two-thirds of the issued and outstanding shares of the Corporation entitled to
vote at any regular or special meeting of the stockholders called for that
purpose.
SECTION 2.3. Qualifications of Directors. Directors shall be natural
persons who have attained the age of 18 years but need not be residents of the
State of Georgia or stockholders of the Corporation.
SECTION 2.4. Vacancy on the Board. Unless the Articles of Incorporation
provide otherwise, if a vacancy occurs on the Board of Directors, including a
vacancy resulting from an increase in the number of directors, the vacancy may
be filled by the stockholders, Board of Directors, or, if the directors
remaining in office constitute fewer than a quorum of the Board, by the
affirmative vote of a majority of all directors remaining in office.
SECTION 2.5. Committees. The Board of Directors may, by resolution,
designate from among its members one or more committees, each committee to
consist of one or more directors, except that committees appointed to take
action with respect to indemnification of directors, directors' conflicting
interest transactions or derivative proceedings shall consist of two or more
directors qualified to serve pursuant to the Georgia Business Corporation Code.
Any such committee, to the extent specified by the Board of Directors, Articles
of Incorporation or Bylaws, shall have and may exercise all of the authority of
the Board of Directors in the management of the business affairs of the
Corporation, except that it may not (1) approve or propose to stockholders
action that the Georgia Business Corporation Code requires to be approved by
stockholders, (2) fill vacancies on the Board of Directors or any of its
committees, (3) amend the Articles of Incorporation, (4) adopt, amend, or repeal
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Bylaws or (5) approve a plan of merger not requiring stockholder approval. The
creation of, delegation of authority to, or action by a committee does not alone
constitute compliance by a director with the standards of conduct described in
Georgia Business Corporation Code Section 14-2-830.
SECTION 2.6. Meetings. The Board of Directors shall meet annually,
without notice, immediately following and at the same place as the annual
meeting of stockholders or at the next regularly scheduled meeting of directors
following the annual meeting of stockholders. Regular meetings of the Board of
Directors or any committee may be held between annual meetings without notice at
such time and at such place, within or without the State of Georgia, as from
time to time shall be determined by the Board or committee, as the case may be.
Any director may call a special meeting of the directors at any time by giving
each director two days notice. Such notice may be given orally or in writing. If
given in writing, it is effective when received or five days after its deposit
in the mail if mailed with first-class postage prepaid and correctly addressed.
Neither the business to be transacted at, nor the purpose of, any regular or
special meeting need be specified in the notice or any waiver of notice.
SECTION 2.7. Quorum and Voting. At all meetings of the Board of
Directors or any committee thereof, a majority of the number of directors
prescribed, or if no number is prescribed, the number in office immediately
before the meeting begins, shall constitute a quorum for the transaction of
business. The affirmative vote of a majority of the directors present at any
meeting at which there is a quorum at the time of such act shall be the act of
the Board or of the committee, except as might be otherwise specifically
provided by statute or by the Articles of Incorporation or Bylaws.
SECTION 2.8. Action Without Meeting. Unless the Articles of
Incorporation or Bylaws provide otherwise, any action required or permitted to
be taken at any meeting of the Board of Directors or any committee thereof may
be taken without a meeting if the action is taken by all members of the Board or
committee, as the case may be. The action must be evidenced by one or more
written consents describing the action taken, signed by each director, and filed
with the minutes of the proceedings of the Board or committee or filed with the
corporate records.
SECTION 2.9. Remote Participation in a Meeting. Unless otherwise
restricted by the Articles of Incorporation or the Bylaws, any meeting of the
Board of Directors may be conducted by the use of any means of communication by
which all directors participating may simultaneously hear each other during the
meeting. A director participating in a meeting by this means is deemed to be
present in person at the meeting.
SECTION 2.10. Honorary and Advisory Directors. The Board of Directors
may appoint any individual an Honorary Director, Director Emeritus or member of
any advisory board established by the Board of Directors. Any individual
appointed an Honorary Director, Director Emeritus or member of an advisory board
as provided by this Section 2.10 may be compensated as provided in Section 2.11,
but such individual may not vote at any meetings of the Board of Directors or be
counted in determining a quorum as provided in Section 2.7 and shall not have
any responsibility or be subject to any liability imposed upon a director, or
otherwise be deemed a director.
SECTION 2.11. Compensation of Directors. The Board of Directors may fix
the compensation of the directors for their services as directors, except that a
director who is an officer or employee of the Corporation shall receive no
compensation or fees for serving as a director. No provision of these Bylaws
shall be construed to preclude any director from serving the Corporation in any
other capacity and receiving compensation therefore.
SECTION 2.12. Removal of Directors by Stockholders. Subject to the
requirements of Section 14-2-808 of the Georgia Business Corporation Code for
the removal of directors elected by cumulative voting, by a voting group or for
staggered terms, and the Articles of Incorporation, any one or more directors
may be removed from office, but only for cause, at any meeting of stockholders
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with respect to which notice of such purpose has been given, by the affirmative
vote of the holder or holders of a majority of the outstanding shares of the
Corporation. For purposes of this section, "cause" shall mean final conviction
of a felony, request or demand for removal by any bank regulatory authority
having jurisdiction over the Corporation, or breach of fiduciary duty involving
personal profit. A removed director's successor may be elected at the same
meeting or time to serve the unexpired term. Unless two-thirds of the directors
then serving shall approve the proposed change, this Section 2.12 may only be
amended or rescinded by the affirmative vote of the holders of at least
two-thirds of the issued and outstanding shares of the Corporation entitled to
vote in an election of directors or at any regular or special meeting of the
stockholders. Notice of any proposed change must be contained in the notice of
the meeting sent to stockholders.
SECTION 2.13. Presumption of Assent. A director who is present at a
meeting of the Board of Directors or any committee thereof at which action on
any corporate matter is taken shall be presumed to have assented to the action
taken unless his or her dissent or abstention shall be entered into the minutes
of the meeting, or unless he or she shall file his or her written dissent or
abstention to such action with the person acting as the Secretary of the meeting
before the adjournment thereof, or shall forward such dissent or abstention by
registered mail to the Secretary of the Corporation within 24 hours after the
adjournment of the meeting.
SECTION 2.14. Nomination of Directors. Only persons who are nominated
in accordance with the following procedures shall be eligible for election as
directors. Nominations of persons for election to the Board of Directors of the
Corporation may be made (i) by the Board of Directors or at the direction of the
Board by any nominating committee or person appointed by the Board or (ii) by
any stockholder of the Corporation entitled to vote for the election of
directors at the meeting who complies with the notice procedures set forth in
this Section 2.14. Such nominations, other than those made by or at the
direction of the Board of Directors, shall be made pursuant to timely notice in
writing to the Secretary of the Corporation. To be timely, a stockholder's
notice shall be delivered to or mailed and received at the principal executive
offices of the Corporation, in accordance with Securities and Exchange
Commission Rule 14a-8(a)(3)(i), not less than 120 calendar days prior to the
date of the Corporation's proxy statement released to stockholders in connection
with the previous year's annual meeting of stockholders, except that if no
annual meeting of stockholders was held in the previous year or if the date of
the annual meeting of stockholders has been changed by more than 30 calendar
days from the date contemplated at the time of the previous year's proxy
statement, the notice shall be received at the principal executive offices of
the Corporation not less than 150 calendar days prior to the date of the annual
meeting. Such stockholders' notice shall set forth (i) as to each person whom
such stockholder proposes to nominate for election or re-election as a director,
all information relating to such person that is required to be disclosed in
solicitations of proxies for election of directors pursuant to Regulation 14A
under the Securities Exchange Act of 1934, as amended (including such person's
written consent to being named in the proxy statement as a nominee and to
serving as a director if elected); and (ii) as to the stockholder giving the
notice, (a) the name and address, as they appear on the Corporation's books, of
such stockholder, (b) the class and number of shares of the Corporation which
are beneficially owned by such stockholder, (c) the dates upon which the
stockholder acquired such shares, (d) documentary support for any claim of
beneficial ownership and (e) any relationship or affiliation of such stockholder
with such nominee. At the request of the Board of Directors, any person
nominated by the Board of Directors for election as a director shall furnish to
the Secretary of the Corporation that information which pertains to the nominee
which is required to be set forth in a stockholders' notice. No person shall be
eligible for election as a director of the Corporation unless nominated in
accordance with the procedures set forth in the Bylaws. The Chairman of the
meeting may, if the facts warrant, determine and declare to the meeting that a
nomination was not made in accordance with the procedures prescribed by the
Bylaws, and if he should so determine, he shall so declare to the meeting and
the defective nomination shall be disregarded.
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ARTICLE III
NOTICES
SECTION 3.1. Notice. Whenever, under the provisions of the Articles of
Incorporation or of these Bylaws or by law, notice is required to be given to
any director or stockholder, it shall not be construed to require personal
notice, but such notice may be given in writing, by mail, or by telegram, telex
or facsimile transmission and such notice shall be deemed to be effective when
received, or when delivered, properly addressed, to the addressee's last known
principal place of business or residence, or five days after the same shall be
deposited in the United States mail if mailed with first-class postage prepaid
and correctly addressed or on the date shown on the return receipt, if sent by
registered or certified mail, and the receipt is signed by or on behalf of the
addressee. Notice to any director or stockholder may also be oral if oral notice
is reasonable under the circumstances. If these forms of personal notice are
impractical, notice may be communicated by a newspaper of general circulation in
the area where published, or by radio, television, or other form of public
broadcast communication.
SECTION 3.2. Waiver of Notice. Whenever any notice is required to be
given under provisions of the Articles of Incorporation or of these Bylaws or by
law, a waiver thereof, signed by the person entitled to notice and delivered to
the Corporation for inclusion in the minutes or filing with the corporate
records, whether before or after the time stated therein, shall be deemed
equivalent to notice. Attendance of a person at a meeting shall constitute a
waiver of notice of such meeting and of all objections to the place or time of
the meeting or the manner in which it has been called or convened, except when
the person attends a meeting for the express purpose of stating, at the
beginning of the meeting, any such objection and, in the case of a director,
does not thereafter vote for or assent to action taken at the meeting. Neither
the business to be transacted at nor the purpose of any regular or special
meeting of the stockholders, directors or a committee of directors need be
specified in any written waiver of notice; provided, however, that any waiver of
notice of a meeting of stockholders required with respect to a plan of merger or
a plan of consolidation shall be effective only upon compliance with Section
14-2-706(c) of the Georgia Business Corporation Code or successor provisions.
ARTICLE IV
OFFICERS
SECTION 4.1. Appointment. The Board of Directors at each annual meeting
of directors shall elect a President and a Secretary. The Board of Directors
also may elect such additional officers as it shall deem necessary, including a
Chairman of the Board, a Treasurer, one or more Vice Presidents (one or more of
whom may be designated Executive Vice President, First Vice President or Senior
Vice President), Assistant Vice Presidents, Assistant Secretaries and Assistant
Treasurers, who shall exercise such powers and perform such duties as shall be
determined from time to time by the Board of Directors. Any number of offices
may be held by the same person unless the Articles of Incorporation or these
Bylaws otherwise provide. The appointment of an officer does not itself create
contract rights.
SECTION 4.2. Qualification. Officers shall be natural persons who have
attained the age of 18 years, but need not be residents of the State of Georgia
or stockholders of the Corporation.
SECTION 4.3. Compensation. The salaries of all officers of the
Corporation shall be fixed by the Board of Directors or a committee or officer
appointed by the Board. Salary payments made to an officer of the Corporation
that shall be disallowed in whole or in part as a deductible expense by the
Corporation for federal income tax purposes shall be reimbursed by such officer
to the Corporation to the full extent of the disallowance. It shall be the duty
of the Board of Directors to enforce payment of each such amount disallowed.
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SECTION 4.4. Term of Office. Unless otherwise provided by resolution of
the Board of Directors, the principal officers shall be chosen annually by the
Board at the first meeting of the Board following the annual meeting of
stockholders of the Corporation, or as soon thereafter as is conveniently
possible. Subordinate officers may be elected from time to time. Each officer
shall serve until the expiration of the term for which he or she was elected or
until his or her successor shall have been elected and qualified, or until his
or her death, resignation or removal.
SECTION 4.5. Resignation and Removal of Officers. An officer may resign
at any time by delivering notice to the Corporation, and such resignation is
effective when the notice is delivered unless the notice specifies a later
effective date. The Board of Directors may remove any officer at any time with
or without cause.
SECTION 4.6. Vacancies. Any vacancy in office resulting from any cause
may be filled by the Board of Directors.
SECTION 4.7. Powers and Duties. Each officer has the authority and
shall perform the duties set forth below or, to the extent consistent with these
Bylaws, the duties prescribed by the Board of Directors or by direction of an
officer authorized by the Board of Directors to prescribe the duties of other
officers.
(a) Chairman of the Board. A Chairman of the Board may be chosen from
among the directors. He or she shall be ex officio a member of all
standing committees, unless otherwise provided in the resolution
appointing the same. The Chairman of the Board shall call meetings of
the stockholders, the Board of Directors and any Executive Committee to
order and shall act as chairman of such meetings. He or she shall also
perform such other duties as may be assigned to him or her by the Board
of Directors.
(b) President. The President shall be the Chief Executive Officer of
the Corporation and shall be responsible for the administration of the
Corporation, including general supervision of the policies of the
Corporation and general and active management of the financial affairs
of the Corporation. He or she shall have the power to make and execute
contracts on behalf of the Corporation and to delegate such power to
others. He or she also shall have such powers and perform such duties
as are specifically imposed on him or her by law and as may be assigned
to him or her by the Board of Directors.
(c) Vice Presidents. The Vice Presidents, if any, shall perform such
duties as vice presidents customarily perform and shall perform such
other duties and shall exercise such other powers as the President or
the Board of Directors may from time to time designate. The Vice
President, in the absence or disability or at the direction of the
President, shall perform the duties and exercise the powers of the
President. If the Corporation has more than one Vice President, the one
designated by the Board of Directors shall act in lieu of the
President, or, in the absence of any such designation, then the Vice
President first elected shall act in lieu of the President.
(d) Secretary. The Secretary shall attend all meetings of the
stockholders and all meetings of the Board of Directors and shall
record all votes and minutes of all proceedings in books to be kept for
that purpose, and shall perform like duties for the standing committees
when required. He or she shall have custody of the corporate seal of
the Corporation, shall have the authority to affix the same to any
instrument the execution of which on behalf of the Corporation under
its seal is duly authorized and shall attest to the same by his or her
signature whenever required. The Board of Directors may give general
authority to any other officer to affix the seal of the Corporation and
to attest to the same by his or her signature. The Secretary shall
give, or cause to be given, any notice required to be given of any
meetings of the stockholders, the Board of Directors and of the
standing committees when required. The Secretary shall cause to be kept
such books and records as the Board of Directors, the Chairman of the
Board or the President may require and shall cause to be prepared,
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recorded, transferred, issued, sealed and canceled certificates of
stock as required by the transactions of the Corporation and its
stockholders. The Secretary shall attend to such correspondence and
shall perform such other duties as may be incident to the office of a
Secretary of a corporation or as may be assigned to him or her by the
Board of Directors, the Chairman of the Board or the President.
(e) Treasurer. The Treasurer shall be charged with the management of
financial affairs of the Corporation. He or she shall perform such
duties as treasurers usually perform and shall perform such other
duties and shall exercise such other powers as the Board of Directors,
the Chairman of the Board or the President may from time to time
designate and shall render to the Chairman of the Board, the President
and to the Board of Directors, whenever requested, an account of the
financial condition of the Corporation.
(f) Assistant Vice President, Assistant Secretary and Assistant
Treasurer. The Assistant Vice President, Assistant Secretary and
Assistant Treasurer, in the absence or disability of any Vice
President, the Secretary or the Treasurer, respectively, shall perform
the duties and exercise the powers of those offices, and, in general,
they shall perform such other duties as shall be assigned to them by
the Board of Directors or by the person appointing them. Specifically
the Assistant Secretary may affix the corporate seal to all necessary
documents and attest the signature of any officer of the Corporation.
SECTION 4.8. Delegation of Authority. In case of the absence of any
officer of the Corporation or for any other reason that the Board of Directors
may deem sufficient, the Board of Directors may delegate, for the time being,
any or all of the powers or duties of such officer to any other officer or to
any director.
ARTICLE V
CAPITAL STOCK
SECTION 5.1. Share Certificates. Unless the Articles of Incorporation
or these Bylaws provide otherwise, the Board of Directors may authorize the
issuance of some or all of the shares of any or all of its classes or series
with or without certificates. Unless the Georgia Business Corporation Code
provides otherwise, there shall be no differences in the rights and obligations
of stockholders based on whether or not their shares are represented by
certificates.
In the event that the Board of Directors authorizes shares with
certificates, each certificate representing shares of stock of the Corporation
shall be in such form as shall be approved by the Board of Directors and shall
set forth upon the face thereof the name of the Corporation and that it is
organized under the laws of the State of Georgia, the name of the person to whom
the certificate is issued, and the number and class of shares and the
designation of the series, if any, the certificate represents. The Board of
Directors may designate any one or more officers to sign each share certificate,
either manually or by facsimile. In the absence of such designation, each share
certificate must be signed by the President or a Vice President and the
Secretary or an Assistant Secretary. If the person who signed a share
certificate, either manually or in facsimile, no longer holds office when the
certificate is issued, the certificate is nevertheless valid.
SECTION 5.2. Record of Stockholders. The Corporation or an agent
designated by the Board of Directors shall maintain a record of the
Corporation's stockholders in a form that permits preparation of a list of names
and addresses of all stockholders, in alphabetical order by class or shares
showing the number and class of shares held by each stockholder.
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SECTION 5.3. Lost Certificates. In the event that a share certificate
is lost, stolen or destroyed, the Board of Directors may direct that a new
certificate be issued in place of such certificate. When authorizing the issue
of a new certificate, the Board of Directors may require such proof of loss as
it may deem appropriate as a condition precedent to the issuance thereof,
including a requirement that the owner of such lost, stolen or destroyed
certificate, or his or her legal representative, advertise the same in such
manner as the Board shall require and/or that he or she give the Corporation a
bond in such sum as the Board may direct as indemnity against any claim that may
be made against the Corporation with respect to the certificate alleged to have
been lost, stolen or destroyed.
SECTION 5.4. Transfers of Shares.
(a) Transfers of shares of the capital stock of the Corporation shall
be made only upon the books of the Corporation by the registered holder thereof,
or by his or her duly authorized attorney, or with a transfer clerk or transfer
agent appointed as provided in Section 5.5 hereof and, in the case of a share
represented by certificate, on surrender of the certificate or certificates for
such shares properly endorsed and the payment of all taxes thereon.
(b) The Corporation shall be entitled to recognize the exclusive right
of a person registered on its books as the owner of shares to receive dividends,
to vote as such owner, and for all other purposes, and shall not be bound to
recognize any equitable or other claim to or interest in such share or shares on
the part of any other person, whether or not it shall have express or other
notice thereof, except as otherwise provided by law.
SECTION 5.5. Transfer Agents and Registrars. The Board of Directors may
establish such other regulations as it deems appropriate governing the issue,
transfer, conversion and registration of stock certificates, including
appointment of transfer agents, clerks or registrars.
ARTICLE VI
INDEMNIFICATION OF DIRECTORS AND OFFICERS
SECTION 6.1. Indemnification of Directors. Subject to any provisions
contained in the Articles of Incorporation, the Corporation shall indemnify any
director made a party to a proceeding because he is or was a director or who,
while a director, is or was serving at the Corporation's request as a director,
officer, partner, trustee, employee, or agent of another foreign or domestic
corporation, partnership, joint venture, trust, employee benefit plan or other
enterprise, against reasonable expenses and liability, as defined in Section
14-2-850 of the Georgia Business Corporation Code, as it may from time to time
be amended, incurred by such director in any threatened, pending or completed
proceeding, whether civil, criminal, administrative or investigative, and
whether formal or informal, and shall advance expenses upon receipt from such
director of the written affirmation and repayment promise required by Section
14-2-856 of the Georgia Business Corporation Code or successor provisions;
provided, however, that the Corporation shall not indemnify any director for any
liability or expenses incurred by such director (i) for any appropriation, in
violation of his duties, of any business opportunity of the Corporation; (ii)
for any acts or omissions which involve intentional misconduct or a knowing
violation of law; (iii) for the types of liability set forth in Section 14-2-832
of the Georgia Business Corporation Code or successor provisions; or (iv) for
any transaction from which the director derives an improper personal benefit.
SECTION 6.2. Indemnification of Officers. The Corporation shall
indemnify any officer made a party to a proceeding because he is or was an
officer or who, while an officer, is or was serving at the Corporation's request
as a director, officer, partner, trustee, employee, or agent of another foreign
or domestic corporation, partnership, joint venture, trust, employee benefit
plan or other enterprise, against reasonable expenses and liability, as defined
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in Section 14-2-850 of the Georgia Business Corporation Code, as it may from
time to time be amended, incurred by such officer in any threatened, pending or
completed proceeding, whether civil, criminal, administrative or investigative,
and whether formal or informal, and shall advance expenses to the same extent,
and subject to the same conditions, as are provided in Section 6.1 of these
Bylaws with respect to directors.
SECTION 6.3. Determination of Director Eligibility. The indemnification
of directors under Section 6.1 of these Bylaws (unless ordered by a court) shall
be effective only when a determination of eligibility under said Section 6.1 is
made:
(a) By the Board of Directors by majority vote of a quorum
consisting of directors not at the time parties to the proceeding;
(b) If a quorum cannot be obtained under subparagraph (a) of
this Section 6.3, by majority vote of a committee duly designated by
the Board of Directors (in which designation directors who are parties
may participate), consisting solely of two or more directors not at the
time parties to the proceeding;
(c) By special legal counsel:
(i) Selected by the Board of Directors or its
committee in the manner prescribed in subparagraph (a) or (b)
of this Section 6.3; or
(ii) If a quorum of the Board of Directors cannot be
obtained under subparagraph (a) of this Section 6.3 and a
committee cannot be designated under subparagraph (b) of this
Section 6.3, selected by majority vote of the full Board of
Directors (in which selection directors who are parties may
participate); or
(d) By the stockholders, 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.
SECTION 6.4. Expenses. Expenses incurred in defending a civil or
criminal action, suit or proceeding may be paid by the Corporation in advance of
the final disposition of such action, suit or proceeding on receipt of a written
affirmation of the person seeking such advance of his good faith belief that he
has met the standard of conduct set forth in Section 14-2-856(b) of the Georgia
Business Corporation Code or successor provisions, and receipt of an undertaking
by or on behalf of such person to repay any advances if it is ultimately
determined that such person is not entitled to indemnification.
SECTION 6.5. Insurance. The Corporation and its officers shall have the
power to purchase and maintain insurance on behalf of an individual who is or
was a director, officer, employee, or agent of the Corporation or who, while a
director, officer, employee, or agent of the Corporation, is or was serving at
the request of the Corporation as a director, officer, partner, trustee,
employee, or agent of another foreign or domestic corporation, partnership,
joint venture, trust, employee benefit plan, or other enterprise against
liability asserted against or incurred by him in that capacity or arising from
his status as a director, officer, employee, or agent, whether or not the
Corporation would have the power to indemnify him against the same liability
under the provisions of this Article VI.
SECTION 6.6. Notice to Stockholders of Director Indemnification. If the
Corporation indemnifies or advances expenses to a director, otherwise than by
action by the stockholders or by an insurance carrier pursuant to insurance
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maintained by the Corporation, the Corporation shall report the indemnification
or advance in writing to the stockholders with or before the notice of the next
annual stockholders' meeting.
SECTION 6.7. Effect of Repeal of Indemnification Provisions Following
Action or Omission. The rights to indemnification provided by this Article VI
shall apply to all proceedings described in Sections 6.1 and 6.2 with respect to
actions or omissions of a director or officer that occur while this Article VI
is in effect, regardless of whether any provision of this Article VI has been
amended or repealed subsequent to such actions or omissions. All rights to
indemnification under this Article VI shall be deemed to be a contract between
the Corporation and each director and officer who serves or served in such
capacity and shall not be diminished by any written agreement providing any such
person with rights of indemnification, but shall be in addition to such rights.
SECTION 6.8. Merging and Consolidating Corporations. For purposes of
this Article VI, references to the "Corporation" shall include, in addition to
this Corporation, any merging or consolidating corporation (including any
merging or consolidating corporation of a merging or consolidating corporation)
absorbed in a merger or consolidation with this Corporation, so that any person
who is or was a director or officer of such merging or consolidating
corporation, or who is or was serving at the request of such merging or
consolidating corporation as a director or officer of another corporation,
partnership, joint venture, trust or other enterprise, shall stand in the same
position under this Article VI with respect to this Corporation as he would if
he had served this Corporation in the same capacity; provided, however, that no
indemnification under Sections 6.1 and 6.2 permitted by this Section 6.8 shall
be mandatory under this Section 6.8 or any Bylaw of this Corporation without the
approval of such indemnification by the Board of Directors or the stockholders
of this Corporation in the manner provided in paragraphs (a) and (d) of Section
6.3.
SECTION 6.9. Survival. The indemnification and advancement of expenses
provided by or granted pursuant to this Article VI shall continue as to a person
who has ceased to be a director or officer and shall inure to the benefit of the
heirs, executors and administrators of such a person.
SECTION 6.10. Scope of Article. The indemnification and advancement of
expenses provided by or granted pursuant to this Article VI is intended and
shall be interpreted to provide indemnification and advancement of expenses to
the full extent permitted by the Georgia Business Corporation Code but shall not
be deemed exclusive of any other rights, in respect of indemnification or
otherwise, to which any director or officer may be entitled under any Bylaw,
agreement, vote of stockholders or disinterested directors or otherwise, both as
to action in his official capacity and as to action in another capacity while
holding such office.
ARTICLE VII
GENERAL PROVISIONS
SECTION 7.1. Fair Price in Business Combinations. All of the
requirements of Sections 14-2-1110 to 14-2-1113, inclusive, of the Georgia
Business Corporation Code, as from time to time amended, shall be applicable to
the Corporation and to any business combination approved or recommended by the
Board of Directors hereafter.
SECTION 7.2. Seal. The Corporation may have a seal, which shall be in
such form as the Board of Directors may from time to time determine. In the
event that the use of the seal is at any time inconvenient, the signature of an
officer of the Corporation, followed by the word "Seal" enclosed in parenthesis,
shall be deemed the seal of the Corporation.
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SECTION 7.3. Dividends. Dividends upon the capital stock of the
Corporation, subject to any provisions of the Articles of Incorporation, may be
declared by the Board of Directors at any regular or special meeting pursuant to
the provisions of the Georgia Business Corporation Code and the applicable rules
and regulations of the appropriate regulatory authorities. Dividends may be paid
in cash, in property, or in shares of the Corporation's capital stock, subject
to the provisions of the Articles of Incorporation. Before payment of any
dividend, there may be set aside out of any funds of the corporation available
for dividends such sum or sums as the directors from time to time, in their
absolute discretion, determine to be proper as a reserve or reserves to meet
contingencies, or for equalizing dividends, or for repairing or maintaining any
property of the Corporation, or for such other purpose as the directors shall
deem to be conducive to the interest of the Corporation, and the directors may
modify or abolish any such reserve in the manner in which it was created.
SECTION 7.4. Legal Restrictions. All matters covered in these Bylaws
shall be subject to such restrictions as shall be imposed on the Corporation by
applicable state and federal laws, rules and regulations, including but not
limited to the Georgia Business Corporation Code, the Savings and Loan Holding
Company Act, the Georgia Bank Holding Company Act and the rules and regulations
of the Office of Thrift Supervision and the Georgia Department of Banking and
Finance promulgated thereunder.
SECTION 7.5. Voting Shares in Subsidiaries. In the absence of other
arrangements by the Board of Directors, shares of stock issued by another
corporation and owned or controlled by the Corporation, whether in a fiduciary
capacity or otherwise, may be voted by the President or any Vice President, in
the absence of action by the President, in the same order as they preside in the
absence of the President, or, in the absence of action by the President or any
Vice President, by any other officer of the Corporation, and such person may
execute the aforementioned powers by executing proxies and written waivers and
consents on behalf of the Corporation.
SECTION 7.6. Fiscal Year. The fiscal year of the Corporation shall
end on December 31 unless another date is fixed by resolution of the Board of
Directors.
SECTION 7.7. Amendment of Bylaws. These Bylaws may be amended or
repealed and new Bylaws may be adopted by the Board of Directors at any regular
or special meeting of the Board of Directors unless the Articles of
Incorporation or the Georgia Business Corporation Code reserve this power
exclusively to the stockholders in whole or in part or the stockholders, in
amending or repealing the particular bylaw, provide expressly that the Board of
Directors may not amend or repeal that bylaw.
SECTION 7.8. Inspection of Books. The Board of Directors shall have the
power to determine which accounts and books of the Corporation, if any, shall be
open to the inspection of stockholders, except such as may by law be
specifically open to inspection, and shall have power to fix reasonable rules
and regulations not in conflict with the applicable law for the inspection of
accounts and books which by law or by determination of the Board of Directors
shall be open to inspection, and the stockholders' rights in this respect are
and shall be restricted and limited accordingly.
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SECTION 7.9. Contracts. No contract or other transaction between the
Corporation and any other corporation shall be affected or invalidated by the
fact that a stockholder, director or officer of the Corporation is a
stockholder, director or officer of, or is interested in, such other
corporation, and no contract or other transaction between the Corporation and
any other person or firm shall be affected or invalidated by the fact that a
stockholder, director or officer of the Corporation is a party to, or interested
in, such contract or transaction; provided that, in each such case, the nature
and extent of the interest of such stockholder, director or officer in such
contract or other transaction or the fact that such stockholder, director or
officer is a stockholder, director or officer of such other corporation is known
to the Board of Directors or is disclosed at the meeting of the Board of
Directors at which such contract or other transaction is authorized.
ARTICLE VIII
EMERGENCY BYLAWS
SECTION 8.1. Emergency Bylaws. This Article shall be operative during
any emergency resulting from some catastrophic event that prevents a quorum of
the Board of Directors or any committee thereof from being readily assembled (an
"emergency"), notwithstanding any different or conflicting provisions set forth
elsewhere in these Bylaws or in the Articles of Incorporation. To the extent not
inconsistent with the provisions of this Article, the Bylaws set forth elsewhere
herein and the provisions of the Articles of Incorporation shall remain in
effect during such emergency, and upon termination of such emergency, the
provisions of this Article shall cease to be operative.
SECTION 8.2. Meetings. During any emergency, a meeting of the Board of
Directors or any committee thereof may be called by any director, or by the
President, any Vice President, the Secretary or the Treasurer (the "Designated
Officers") of the Corporation. Notice of the time and place of the meeting shall
be given by any available means of communication by the person calling the
meeting to such of the directors and/or designated officers as may be feasible
to reach. Such notice shall be given at such time in advance of the meeting as,
in the judgement of the person calling the meeting, circumstances permit.
SECTION 8.3. Quorum. At any meeting of the Board of Directors or any
committee thereof called in accordance with this Article, the presence or
participation of two directors, one director and a designated officer, or two
designated officers shall constitute a quorum for the transaction of business.
SECTION 8.4. Bylaws. At any meeting called in accordance with this
Article, the Board of Directors or committee thereof, as the case may be, may
modify, amend or add to the provisions of this Article so as to make any
provision that may be practical or necessary for the circumstance of the
emergency.
SECTION 8.5. Liability. Corporate action taken in good faith in
accordance with the emergency Bylaws may not be used to impose liability on a
director, officer, employee or agent of the corporation.
SECTION 8.6. Repeal or Change. The provisions of this Article shall be
subject to repeal or change by further action of the Board of Directors or by
action of stockholders, but no such repeal or change shall modify the provisions
of the immediately preceding Section of this Article with regard to action taken
prior to the time of such repeal or change.
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EXHIBIT 10.1
EMPLOYMENT AGREEMENT BETWEEN
J. DANIEL SPEIGHT, JR. AND FLAG FINANCIAL CORPORATION
<PAGE>
EMPLOYMENT AGREEMENT
THIS AGREEMENT is made as of the 1st day of April, 1998 (the "Effective
Date"), between FLAG Financial Corporation, a Georgia corporation (the
"Employer"), and J. DANIEL SPEIGHT, Jr., a resident of the State of Georgia (the
"Employee").
RECITALS:
The Employer desires to employ the Employee as the President and Chief
Executive Officer of the Employer and as President and Chief Executive Officer
of Citizens Bank and the Employee desires to accept such employment.
In consideration of the above premises and the mutual agreements
hereinafter set forth, the parties hereby agree as follows:
1. Definitions.
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Whenever used in this Agreement, the following terms and their variant
forms shall have the meaning set forth below:
1.1 "Agreement" shall mean this Agreement and any exhibits incorporated
herein together with any amendments hereto made in the manner described in this
Agreement.
1.2 "Affiliate" shall mean any business entity which controls the
Employer, is controlled by or is under common control with the Employer.
1.3 "Area" shall mean the geographic area within the boundaries of Crisp,
Troup, Dooly, Macon and Telfair Counties, Georgia. It is the express intent of
the parties that the Area as defined herein is the area where the Employee
performs or performed services on behalf of the Employer under this Agreement as
of, or within a reasonable time prior to, the termination of the Employee's
employment hereunder.
1.4 "Average Monthly Compensation" shall mean the quotient determined (a)
by dividing the sum of the Employee's then current Base Salary (as defined
below) and most recently paid Incentive Compensation (as defined below) (b) by
twelve.
1.5 "Bank" shall mean, collectively, First Federal Savings Bank of
LaGrange and Citizens Bank, or their successors.
1.6 "Business of the Employer" shall mean the business conducted by the
Employer, which is the business of banking, including the solicitation of time
and demand deposits and the making of residential, consumer, commercial and
corporate loans.
1.7. "Cause" shall mean:
1.7.1 With respect to termination by the Employer:
(a) A material breach of the terms of this Agreement by the
Employee, including, without limitation, failure by the Employee to
perform the Employees' duties and responsibilities in the manner and to
the extent required under this Agreement, which breach remains uncured
after the expiration of thirty (30) days following the delivery of
written notice of such breach to the Employee by the Employer;
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(b) Conduct by the Employee that (i) constitutes fraud,
dishonesty, gross malfeasance of duty or conduct grossly inappropriate
to the Employee's office and (ii) is demonstrably likely to lead to
material injury to the Employer or the Bank or resulted or was intended
to result in direct or indirect gain to or personal enrichment of the
Employee; provided, however, that such conduct shall not constitute
"Cause" unless there shall have been delivered to the Employee a
written notice setting forth with specificity the reasons that the
Employer believes the Employee's conduct meets the standard set forth
in this Section 1.7.1(b), the Employee shall have been provided with an
opportunity to be heard in person by the Board of Directors of the
Employer (with the assistance of counsel, if desired) and, in the event
of any such hearing, the decision of the Employer is evidenced by a
resolution adopted by two-thirds of the members of the Board of
Directors of the Employer after the hearing;
(c) Conduct resulting in the conviction of the Employee of a
felony; or
(d) Conduct by the Employee that results in the permanent
removal from the Employee's position as an officer or employee of the
Employer pursuant to a written order by any regulatory agency with
authority or jurisdiction over the Employer.
1.7.2 With respect to termination by the Employee:
(a) a material diminution in the powers, responsibilities,
duties or total compensation of the Employee hereunder by the Employer,
which condition remains uncured after the expiration of thirty (30)
days following the delivery of written notice of such condition to the
Employer by the Employee;
(b) the failure of the Board of Directors of the Employer to
elect Employee as President and Chief Executive Officer of the Employer
and of Citizens Bank, or the failure of the shareholders of the
Employer to elect both Patti S. Davis and Employee as directors of the
Employer;
(c) a material breach of the terms of this Agreement by the
Employer, which breach remains uncured after the expiration of thirty
(30) days following the delivery of written notice of such breach to
the Employer by the Employee; or
(d) a material diminution in the powers, responsibilities
or duties of the Executive Committee of the Board of Directors of the
Employer, which condition remains uncured after the expiration of
thirty (30) days following the delivery of written notice of such
condition to the Employer by the Employee.
1.8 "Employer Information" means Confidential Information and Trade
Secrets.
1.9 "Confidential Information" means data and information relating to the
Business of the Employer (which does not rise to the status of a Trade Secret)
which is or has been disclosed to the Employee or of which the Employee became
aware as a consequence of or through the Employee's relationship to the Employer
and which has value to the Employer and is not generally known to its
competitors. Without limiting the foregoing, Confidential Information shall
include:
(a) all items of information that could be classified as
a trade secret pursuant to law;
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(b) The names, addresses and banking requirements of the
customers of the Bank and the nature and amount of business done with
such customers;
(c) The names and addresses of employees and other business
contacts of Bank;
(d) The particular names, methods and procedures utilized
by the Employer and the Bank in the conduct and advertising of their
business;
(e) Application, operating system, communication and other
computer software and derivatives thereof, including, without
limitation, sources and object codes, flow charts, coding sheets,
routines, subrouting and related documentation and manuals of the
Employer and the Bank; and
(f) Marketing techniques, purchasing information, pricing
policies, loan policies, quoting procedures, financial information,
customer data and other materials or information relating to Bank's
manner of doing business.
Confidential Information shall not include any data or information that has been
voluntarily disclosed to the public by the Employer (except where such public
disclosure has been made by the Employee without authorization) or that has been
independently developed and disclosed by others, or that otherwise enters the
public domain through lawful means.
1.10 "Change in Control" means any one of the following events occurring
after the Effective Date:
(a) the acquisition by any person or persons acting
in concert of the then outstanding voting securities of the Employer,
if, after the transaction, the acquiring person (or persons) owns,
controls or holds with power to vote twenty-five percent (25%) or more
of any class of voting securities of the Employer or such other
transaction as may be described under 12 C.F.R. Section 225.41(b)(1) or
any successor thereto;
(b) within any twelve-month period (beginning on or
after the Effective Date) the persons who were directors of the
Employer immediately before the beginning of such twelve-month period
(the "Incumbent Directors") shall cease to constitute at least a
majority of such board of directors; provided that any director who was
not a director as of the Effective Date shall be deemed to be an
Incumbent Director if that director was elected to such board of
directors by, or on the recommendation of or with the approval of, at
least two-thirds of the directors who then qualified as Incumbent
Directors; and provided further that no director whose initial
assumption of office is in connection with an actual or threatened
election contest (as such terms are used in Rule 14a-11 of Regulation
14A promulgated under the Securities Exchange Act of 1934) relating to
the election of directors shall be deemed to be an Incumbent Director;
(c) the approval by the stockholders of the Employer
of a reorganization, merger or consolidation, with respect to which
persons who were the stockholders of the Employer immediately prior to
such reorganization, merger or consolidation do not, immediately
thereafter, own more than fifty percent (50%) of the combined voting
power entitled to vote in the election of directors of the reorganized,
merged or consolidated company's then outstanding voting securities; or
(d) the sale, transfer or assignment of all or
substantially all of the assets of the Employer and its subsidiaries to
any third party.
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1.11 "Initial Term" shall mean that period of time commencing on the
Effective Date and running until the day immediately preceding the third
anniversary of the Effective Date.
1.12 "Permanent Disability" shall mean a condition for which benefits
would be payable under any long-term disability coverage (without regard to the
application of any elimination period requirement) then provided to the Employee
by the Employer or, if no such coverage is then being provided, the inability of
the Employee to perform the material aspects of the Employee's duties under this
Agreement for a period of at least 180 consecutive days as certified by a
physician chosen by the Employee and reasonably acceptable to the Employer.
1.13. "Term" shall mean the term of this Agreement and shall consist of
the Initial Term; provided, however, that the Initial Term shall automatically
renew each day after the Effective Date so that the Term remains a three-year
term until either party provides written notice to the other of the intent that
the automatic renewals shall cease, in which case, the Term shall expire on the
third anniversary of the date of the written notice so provided.
1.14 "Trade Secrets" means information including, but not limited to,
technical or nontechnical data, formulas, patterns, compilations, programs,
devices, methods, techniques, drawings, processes, financial data, financial
plans, product plans or lists of actual or potential customers or suppliers
which (a) derives economic value, actual or potential, from not being generally
known to, and not being readily ascertainable by proper means by, other persons
who can obtain economic value from its disclosure or use; and (b) is the subject
of efforts that are reasonable under the circumstances to maintain its secrecy.
2. Duties.
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2.1 The Employee is employed initially as the President and Chief
Executive Officer of the Employer and, subject to the direction of the Board of
Directors of the Employer or its designee, consistent with this Agreement and
the designation of Employee as President and Chief Executive Officer, shall
perform and discharge well and faithfully the duties which may be assigned to
the Employee from time to time by the Employer in connection with the conduct of
its business. The duties and responsibilities of the Employee are set forth on
Exhibit A attached hereto.
2.2 In addition to the duties and responsibilities specifically assigned
to the Employee pursuant to Section 2.1 hereof, the Employee shall: (a) devote
substantially all of the Employee's time, energy and skill during regular
business hours to the performance of the duties of the Employee's employment
(reasonable vacations and reasonable absences due to illness excepted) and
faithfully and industriously perform such duties; (b) diligently follow and
implement all management policies and decisions communicated to the Employee by
the Board of Directors of the Employer which are consistent with this Agreement
and the designation of Employee as President and Chief Executive Officer; and
(c) timely prepare and forward to the Board of Directors of the Employer all
reports and accounting as may be requested of the Employee.
2.3 The Employee shall devote the Employee's entire business time,
attention and energies to the Business of the Employer and shall not during the
term of this Agreement be engaged (whether or not during normal business hours)
in any other business or professional activity, whether or not such activity is
pursued for gain, profit or other pecuniary advantage; but this shall not be
construed as preventing the Employee from (a) investing the Employee's personal
assets in businesses which (subject to clause (b) below) are not in competition
with the Business of the Employer and which will not require any services on the
part of the Employee in their operation or affairs and in which the Employee's
participation is solely that of an investor, (b) purchasing securities or other
4
<PAGE>
interests in any entity provided that such purchase shall not result in the
Employee's collectively owning beneficially at any time five percent (5%) or
more of the equity securities of any business in competition with the Business
of the Employer and (c) participating in civic and professional affairs and
organizations and conferences, preparing or publishing papers or books or
teaching so long as the Board approves of such activities prior to the
Employee's engaging in them. Notwithstanding anything to the contrary in the
preceding provisions of this Section 2.3, the Employee may continue to serve on
any board of directors that the Employee serves upon as of the Effective Date.
3. Term and Termination.
- -------------------------
3.1 Term.This Agreement shall remain in effect for the Term or until a
termination of this Agreement prior to the expiration of the Term in accordance
with the remaining provisions of this Section.
3.2 Termination. During the Term, the employment of the Employee under
this Agreement may be terminated only as follows:
3.2.1 By the Employer:
(a) For Cause, following approval of such action by
at least 75% of the membership of the Board of Directors of
the Employer and only after providing Employee with at least
thirty (30) days' written notice, in which event the Employer
shall have no further obligation to the Employee except for
the payment of any amounts payable as of the effective date of
termination; or
(b) Without Cause at any time, provided that the
Employer shall give the Employee sixty (60) days' prior
written notice of its intent to terminate, in which event the
Employer shall be required to meet its obligations to the
Employee under Section 3.3 below.
3.2.2 By the Employee:
(a) For Cause, with no prior notice except as
provided in Section 1.7.2, in which event the Employer shall
be required to meet its obligations to the Employee under
Section 3.3 below; or
(b) Without Cause, provided that the Employee shall
give the Employer sixty (60) days' prior written notice of the
Employee's intent to terminate, in which event the Employer
shall have no further obligation to the Employee except for
payment of any amounts payable as of the effective date of the
termination.
3.2.3 By the Employee within the period commencing three (3)
months prior to and ending twelve (12) months after a Change in Control
of the Employer (the "Election Period"), provided that the Employee
shall give thirty (30) days written notice prior to the end of the
Election Period to the Employer of the Employee's intention to
terminate this Agreement, in which event the Employer shall be required
to meet its obligations to the Employee under Section 3.3 below.
3.2.4 At any time upon mutual, written agreement of the
parties, in which event the Employer shall have no further obligation
to the Employee except for the payment of any amounts payable as of the
effective date of the termination.
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<PAGE>
3.2.5 Notwithstanding anything in this Agreement to the
contrary, the Term shall expire automatically upon the Employee's death
or Permanent Disability, in which event the Employer shall have no
further obligation to the Employee except for the payment of any
amounts payable as of the effective date of termination and, if the
reason for termination is the Employee's Permanent Disability, the
Employer shall pay to the Employee as liquidated damages an amount
equal to Average Monthly Compensation for each full month following
such termination until the earlier of the month prior to the month for
which the Employee's long-term disability benefits become payable or
six full months commencing with the month following the month in which
the date of termination occurs.
3.3 Termination Payments. In the event Employee's employment is terminated
under this Agreement prior to the expiration of the Term pursuant Section
3.2.1(b), Section 3.2.2(a) or Section 3.2.3, the Employer shall pay to the
Employee as severance pay and liquidated damages a lump sum amount equal to the
product of (a) Average Monthly Compensation multiplied by (b) the number of
months (including partial months) from the effective date of the termination
through the then unexpired portion of the Term or, if greater, twelve. In
addition, from the effective date of the termination through the then unexpired
portion of the Term (or, if greater, for a period of twelve months following the
effective date of the termination (the "Severance Period"), the Employer shall
continue to provide the Employee the benefits described in Section 4.6 and
Section 4.8 and shall pay an amount equal to what would be the Employee's cost
of COBRA health continuation coverage for the Employee and eligible dependents
for the greater of the Severance Period or the period during which the Employee
and those eligible dependents are entitled to COBRA health continuation coverage
from the Employer.
Notwithstanding any other provision of this Agreement to the contrary, if
the aggregate of the payments provided for in this Agreement and the other
payments and benefits which the Employee has the right to receive from the
Employer (the "Total Payments") would constitute a "parachute payment," as
defined in Section 280G(b)(2) of the Internal Revenue Code, as amended (the
"Code"), the Employee shall receive the Total Payments unless the (a) after-tax
amount that would be retained by the Employee (after taking into account all
federal, state and local income taxes payable by the Employee and the amount of
any excise taxes payable by the Employee under Section 4999 of the Code that
would be payable by the Employee (the "Excise Taxes")) if the Employee were to
receive the Total Payments has a lesser aggregate value than (b) the after-tax
amount that would be retained by the Employee (after taking into account all
federal, state and local income taxes payable by the Employee) if the Employee
were to receive the Total Payments reduced to the largest amount as would result
in no portion of the Total Payments being subject to Excise Taxes (the "Reduced
Payments"), in which case the Employee shall be entitled only to the Reduced
Payments. If the Employee is to receive the Reduced Payments, the Employee shall
be entitled to determine which of the Total Payments, and the relative portions
of each, are to be reduced.
4. Compensation.
- -----------------
The Employee shall receive the following salary and benefits during the
Term:
4.1 Base Salary. The Employee shall be compensated at a base rate of Two
Hundred Fifteen Thousand Dollars ($215,000) per year ("Base Salary"). The
Employee's salary shall be reviewed by the Board of Directors of the Employer
annually, and the Employee shall be entitled to receive annually an increase in
such amount, if any, as may be determined by the Board of Directors of the
Employer based upon the performance of the Bank and its compliance with
regulatory standards. Such salary shall be payable in accordance with the
Employer's normal payroll practices.
6
<PAGE>
4.2 Incentive Compensation. The Employee shall be entitled to participate
in such bonus, incentive and other executive compensation programs as are made
available to senior management of the Employer and Bank from time to time (the
"Incentive Compensation").
4.3 Stock Options. The Employer shall grant to the Employee stock options
commensurate with the Employee's position taking into account options held by
the Employee as of the Effective Date. Any such options shall be reflected by a
separate written award.
4.4 Benefits. The Employee shall be entitled to such benefits as may be
available from time to time for senior executives of the Employer and Bank
similarly situated to the Employee. All such benefits shall be awarded and
administered in accordance with the Employer's standard policies and practices.
Such benefits may include, by way of example only, profit sharing plans,
retirement or investment funds, dental, health and life insurance benefits and
such other benefits as the Employer deems appropriate.
4.5 Disability Insurance. The Employer shall provide the Employee with
amounts, as additional compensation, as and when necessary, to allow the
Employee to pay the premiums that become due under the personal disability
insurance policy currently owned by the Employee.
4.6 Automobile. The Employer shall provide the Employee with an automobile
comparable to the automobile provided to the Employee by Middle Georgia
Bankshares, Inc. immediately prior to the Effective Date, with such automobile
to be used by the Employee for business and personal purposes. The automobile
shall be replaced with a new, comparable automobile no less frequently than
every twenty-four (24) months. The Employer will pay expenses associated with
the operation and maintenance of the automobile, including taxes, insurance and
repairs.
4.7 Business Expenses. The Employer shall reimburse the Employee for
reasonable business (including travel) expenses incurred by the Employee in
performance of the Employee's duties hereunder; provided, however, that the
Employee shall, as a condition of reimbursement, submit verification of the
nature and amount of such expenses in accordance with reimbursement policies
from time to time adopted by the Employer and in sufficient detail to comply
with rules and regulations promulgated by the Internal Revenue Service.
4.8 Memberships. The Employer shall reimburse the Employee for the annual
dues associated with membership in two country or eating clubs selected by the
Employee; provided, however, that the aggregate annual dues for such memberships
shall not exceed five percent (5%) of the Employee's Base Salary then in effect,
and for memberships in such professional associations which are commensurate
with the Employee's position; provided, however, that the Employee shall, as a
condition of reimbursement, submit verification of the nature and amount of such
expenses in accordance with reimbursement policies from time to time adopted by
the Employer and in sufficient detail to comply with rules and regulations
promulgated by the Internal Revenue Service.
4.9 Vacation. On a non-cumulative basis the Employee shall be entitled to
a minimum of four (4) weeks of vacation annually, during which the Employee's
compensation shall be paid in full.
4.10 Withholding. The Employer may deduct from each payment of
compensation hereunder all amounts required to be deducted and withheld in
accordance with applicable federal and state income, FICA and other withholding
requirements.
7
<PAGE>
5. Employer Information.
- -------------------------
5.1 Ownership of Information. All Employer Information received or
developed by the Employee while employed by the Employer will remain the sole
and exclusive property of the Employer.
5.2 Obligations of the Employee. The Employee agrees (a) to hold Employer
Information in strictest confidence, and (b) not to use, duplicate, reproduce,
distribute, disclose or otherwise disseminate Employer Information or any
physical embodiments thereof and may in no event take any action causing or fail
to take any action necessary in order to prevent any Employer Information from
losing its character or ceasing to qualify as Confidential Information or a
Trade Secret. In the event that the Employee is required by law to disclose any
Employer Information, the Employee will not make such disclosure unless (and
then only to the extent that) the Employee has been advised by independent legal
counsel that such disclosure is required by law and then only after prior
written notice is given to the Employer when the Employee becomes aware that
such disclosure has been requested and is required by law. This Section 5 shall
survive for a period of twelve (12) months following termination of this
Agreement with respect to Confidential Information, and shall survive
termination of this Agreement for so long as is permitted by the then-current
Georgia Trade Secrets Act of 1990, O.C.G.A. ss.ss. 10-1-760-10-1-767, with
respect to Trade Secrets.
5.3 Delivery upon Request or Termination. Upon request by the Employer,
and in any event upon termination of the Employee's employment with the
Employer, the Employee will promptly deliver to the Employer all property
belonging to the Employer, including without limitation all Employer Information
then in the Employee's possession or control.
6. Non-Competition.
- --------------------
The Employee agrees that during his employment by the Employer hereunder
and, in the event of his termination other than by the Employer without Cause
pursuant to Section 3.2.1(b), by the Employee for Cause pursuant to Section
3.2.2(a), or by the Employee pursuant to Section 3.2.3, for a period of twelve
(12) months thereafter, the Employee will not (except on behalf of or with the
prior written consent of the Employer), within the Area, either directly or
indirectly, on his own behalf or in the service or on behalf of others, as a
principal, partner, officer, director, manager, supervisor, administrator,
consultant, executive employee or in any other capacity which involves duties
and responsibilities similar to those undertaken for the Employer, engage in any
business which is the same as or essentially the same as the Business of the
Employer.
7. Non-Solicitation of Customers.
- ---------------------------------
The Employee agrees that during the Employee's employment by the Employer
hereunder and, in the event of Employee's termination other than by the Employer
without Cause pursuant to Section 3.2.1(b), by the Employee for Cause pursuant
to Section 3.2.2(a), or by the Employee pursuant to Section 3.2.3, for a period
of twelve (12) months thereafter, the Employee will not (except on behalf of or
with the prior written consent of the Employer), within the Area, on the
Employee's own behalf or in the service or on behalf of others, solicit, divert
or appropriate or attempt to solicit, divert or appropriate, directly or by
assisting others, any business from any of the Employer's or the Bank's
customers, including actively sought prospective customers, with whom the
Employee has or had material contact during the last two (2) years of the
Employee's employment, for purposes of providing products or services that are
competitive with those provided by the Employer and the Bank.
8. Non-Solicitation of Employees.
- ---------------------------------
The Employee agrees that during the Employee's employment by the Employer
hereunder and, in the event of the Employee's termination other than by the
Employer without Cause pursuant to Section 3.2.1(b), by the Employee for Cause
pursuant to Section 3.2.3(a), or by the Employee pursuant to Section 3.2.3, for
a period of twelve (12) months thereafter, the Employee will not, within the
Area, on the Employee's own behalf or in the service or on behalf of others,
solicit, recruit or hire away or attempt to solicit, recruit or hire away,
directly or by assisting others, any employee of the Employer or its Affiliates,
8
<PAGE>
whether or not such employee is a full-time employee or a temporary employee of
the Employer or its Affiliates and whether or not such employment is pursuant to
written agreement and whether or not such employment is for a determined period
or is at will.
9. Remedies.
- -------------
The Employee agrees that the covenants contained in Sections 5 through 8
hereof are of the essence of this Agreement; that each of the covenants is
reasonable and necessary to protect the business, interests and properties of
the Employer; and that irreparable loss and damage will be suffered by the
Employer should he breach any of the covenants. Therefore, the Employee agrees
and consents that, in addition to all the remedies provided by law or in equity,
the Employer shall be entitled to a temporary restraining order and temporary
and permanent injunctions to prevent a breach or contemplated breach of any of
the covenants. The Employer and the Employee agree that all remedies available
to the Employer or the Employee, as applicable, shall be cumulative. In
addition, in the event the Employee fails to comply with any of the covenants
contained in Section 5 hereof and such failure shall not be cured to the
reasonable satisfaction of the Employer within thirty (30) days after receipt of
written notice thereof from the Employer, the Employer shall thereupon be
relieved of liability for all obligations then remaining under Section 3.3
hereof.
10. Severability.
- -----------------
The parties agree that each of the provisions included in this Agreement is
separate, distinct and severable from the other provisions of this Agreement and
that the invalidity or unenforceability of any Agreement provision shall not
affect the validity or enforceability of any other provision of this Agreement.
Further, if any provision of this Agreement is ruled invalid or unenforceable by
a court of competent jurisdiction because of a conflict between the provision
and any applicable law or public policy, the provision shall be redrawn to make
the provision consistent with and valid and enforceable under the law or public
policy.
11. No Set-Off by the Employee.
- -------------------------------
The existence of any claim, demand, action or cause of action by the
Employee against the Employer, or any Affiliate of the Employer, whether
predicated upon this Agreement or otherwise, shall not constitute a defense to
the enforcement by the Employer of any of its rights hereunder.
12. Notice.
- -----------
All notices and other communications required or permitted under this
Agreement shall be in writing and, if mailed by prepaid first-class mail or
certified mail, return receipt requested, shall be deemed to have been received
on the earlier of the date shown on the receipt or three (3) business days after
the postmarked date thereof. In addition, notices hereunder may be delivered by
hand, facsimile transmission or overnight courier, in which event the notice
shall be deemed effective when delivered or transmitted. All notices and other
communications under this Agreement shall be given to the parties hereto at the
following addresses:
(a) If to the Employer, to it at:
101 North Greenwood St.
PO Box 3007
LaGrange, GA 30240-2699
Attn: Chairman of the Board
Flag Financial Corporation
9
<PAGE>
(b) If to the Employee, to the Employee at:
1855 Liberty Church Road
Pinehurst, Georgia 31070
13. Assignment.
- ---------------
Neither party hereto may assign or delegate this Agreement or any of its
rights and obligations hereunder without the written consent of the other party
hereto; provided, however, that this Agreement shall be assumed by and shall be
binding upon any successor to the Employer.
14. Waiver.
- ------------
A waiver by the Employer of any breach of this Agreement by the Employee
shall not be effective unless in writing, and no waiver shall operate or be
construed as a waiver of the same or another breach on a subsequent occasion.
15. Arbitration.
- -----------------
Any controversy or claim arising out of or relating to this contract, or
the breach thereof, shall be settled by binding arbitration in accordance with
the Commercial Arbitration Rules of the American Arbitration Association. The
Employer and the Employee agree that they will seek to enforce any arbitration
award in the Superior Court of Troup County. The decision of the arbitration
panel shall be final and binding upon the parties and judgment upon the award
rendered by the arbitration panel may be entered by any court having
jurisdiction. The Employer and the Employee agree to share equally the fees and
expenses associated with the arbitration proceedings.
16. Attorneys' Fees.
- ----------------------
With respect to arbitration of disputes and if litigation ensues between
the parties concerning the enforcement of an arbitration award, each party shall
pay its own fees, costs and expenses; provided, however, the Employer shall
advance to the Employee reasonable fees, costs and expenses incurred by the
Employee in preparing for and in initiating or defending against any proceeding
or suit brought to enforce rights or obligations set forth in this Agreement.
Such advances shall be made within thirty (30) days after receiving copies of
invoices presented by the Employee for such fees, costs and expenses. The
Employee shall have the obligation to reimburse the Employer within sixty (60)
days following the final disposition of the matter (including appeals) to the
full extent of the aggregate advances unless the panel of arbitrators or court,
as the case may be, has ruled in favor of the Employee on the merits of the
substantive issues in dispute.
17. Applicable Law.
- --------------------
This Agreement shall be construed and enforced under and in accordance with
the laws of the State of Georgia. The parties agree that the Superior Court of
Troup County, Georgia, shall have jurisdiction of any case or controversy
arising under or in connection with this Agreement and shall be a proper forum
in which to adjudicate such case or controversy. The parties consent to the
jurisdiction of such courts.
18. Interpretation.
- --------------------
Words importing any gender includes all genders. Words importing the
singular form shall include the plural, and vice versa. The terms "herein,"
"hereunder," "hereby, "hereto, "hereof" and any similar terms refer to this
Agreement. Any captions, titles or headings preceding the text of any article,
section or subsection herein are solely for convenience of reference and shall
not constitute part of this Agreement or affect its meaning, construction or
effect.
19. Entire Agreement.
- ---------------------
This Agreement embodies the entire and final agreement of the parties on
the subject matter stated in the Agreement. No amendment or modification of this
Agreement shall be valid or binding upon the Employer or the Employee unless
made in writing and signed by both parties. All prior understandings and
agreements relating to the subject matter of this Agreement are hereby expressly
terminated; provided, however, that this Agreement shall not alter, limit or
otherwise impair the Employee's rights under the Citizens Bank Executive Indexed
Retirement Program, under that certain Insurance Agreement between the Employee
10
<PAGE>
and Citizens Bank, dated November 2, 1992 or under any tax-qualified retirement
plan in which the Employee is or may become a participant.
20. Rights of Third Parties.
- ----------------------------
Nothing herein expressed is intended to or shall be construed to confer
upon or give to any person, firm or other entity, other than the parties hereto
and their permitted assigns, any rights or remedies under or by reason of this
Agreement.
21. Survival.
- -------------
The obligations of the Employer pursuant to Sections 3.2.5 and 3.3 and the
obligations of the Employee pursuant to Sections 5, 6, 7, 8 and 9 shall survive
the termination of the employment of the Employee hereunder for the period
designated under each of those respective sections.
11
<PAGE>
IN WITNESS WHEREOF, the parties hereto have hereunto executed this
Agreement in accordance with the provisions hereof.
FLAG FINANCIAL CORPORATION
/s/Fred Durand III
------------------
Print Name: Fred Durand III
------------------
Date: 1 April 1998
------------------
ATTEST:
/s/---------------------------
Date: 4-1-98
/s/ J. Daniel Speight, Jr.
--------------------------
J. Daniel Speight, Jr.
12
<PAGE>
Exhibit A
Duties of the Employee
* Foster a corporate culture that promotes ethical practices, encourages
individual integrity, fulfills social responsibility, and is conducive to
attracting, retaining and motivating a diverse group of top-quality
employees at all levels.
* Work with the Board of Directors of the Employer to develop a long-term
strategy for the Employer that creates shareholder value.
* Develop and recommend to the Board of Directors of the Employer annual
business plans and budgets that support the Employer's long-term
strategy.
* Manage the day-to-day business affairs of the Employer appropriately.
* Use best efforts to achieve the Employer's financial and operating goals
and objectives.
* Improve the quality and value of the products and services provided by
each Employer.
* Ensure that the Employer maintains a satisfactory competitive position
within its industry.
* Develop an effective management team and an active plan for its
development and succession. Have responsibility for hiring, firing and
transferring members of Employer management team and other employees.
Have responsibility for making recommendations for the promotion and
compensation of members of Employer management team and other employees.
* Implement, administer, interpret, and ensure compliance with major
corporate policies adopted by the Board of Directors.
* Execute contracts on behalf of the Employer and delegate to other
employees the right to execute contracts on behalf of the Employer.
* Perform such duties as are required by laws and regulations.
* Report to the Executive Committee of Board of Directors.
* Ensure that the Employer achieves maximum profits while taking into
account the best interests of the Employer's customers, shareholders and
employees.
* Serve on all committees of the Board of Directors other than the Audit
Committee.
& Develop, supervise and administer the Employer's policy.
* Establish contact, coordinate and negotiate with the Employer's potential
acquisition targets.
* Ensure that all Banks uphold the Employer's image.
* Manage general and active financial affairs of the Employer.
EXHIBIT 10.2
EMPLOYMENT AGREEMENT BETWEEN
JOHN S. HOLLE AND FLAG FINANCIAL CORPORATION
<PAGE>
12
EMPLOYMENT AGREEMENT
THIS AGREEMENT is made as of the 1st day of April, 1998 (the "Effective
Date"), between FLAG Financial Corporation, a Georgia corporation (the
"Employer"), and JOHN S. HOLLE, a resident of the State of Georgia (the
"Employee").
RECITALS:
The Employer desires to employ the Employee as the Chairman of the
Board of Directors of the Employer and as Chairman, President and Chief
Executive Officer of First Federal Savings Bank of LaGrange and the Employee
desires to accept such employment.
In consideration of the above premises and the mutual agreements
hereinafter set forth, the parties hereby agree as follows:
1. Definitions.
- ---------------
Whenever used in this Agreement, the following terms and their variant
forms shall have the meaning set forth below:
1.1 "Agreement" shall mean this Agreement and any exhibits incorporated
herein together with any amendments hereto made in the manner described in this
Agreement.
1.2 "Affiliate" shall mean any business entity which controls the
Employer, is controlled by or is under common control with the Employer.
1.3 "Area" shall mean the geographic area within the boundaries of Crisp,
Troup, Dooly, Macon and Telfair Counties, Georgia. It is the express intent of
the parties that the Area as defined herein is the area where the Employee
performs or performed services on behalf of the Employer under this Agreement as
of, or within a reasonable time prior to, the termination of the Employee's
employment hereunder.
1.4 "Average Monthly Compensation" shall mean the quotient determined (a)
by dividing the sum of the Employee's then current Base Salary (as defined
below) and most recently paid Incentive Compensation (as defined below) (b) by
twelve.
1.5 "Bank" shall mean, collectively, First Federal Savings Bank of
LaGrange and Citizens Bank, or their successors.
1.6 "Business of the Employer" shall mean the business conducted by the
Employer, which is the business of banking, including the solicitation of time
and demand deposits and the making of residential, consumer, commercial and
corporate loans.
1.7. "Cause" shall mean:
1.7.1With respect to termination by the Employer:
(a) A material breach of the terms of this Agreement by the
Employee, including, without limitation, failure by the Employee to
perform the Employees' duties and responsibilities in the manner and to
the extent required under this Agreement, which breach remains uncured
after the expiration of thirty (30) days following the delivery of
written notice of such breach to the Employee by the Employer;
1
<PAGE>
(b) Conduct by the Employee that (i) constitutes fraud,
dishonesty, gross malfeasance of duty or conduct grossly inappropriate
to the Employee's office and (ii) is demonstrably likely to lead to
material injury to the Employer or the Bank or resulted or was intended
to result in direct or indirect gain to or personal enrichment of the
Employee; provided, however, that such conduct shall not constitute
"Cause" unless there shall have been delivered to the Employee a
written notice setting forth with specificity the reasons that the
Employer believes the Employee's conduct meets the standard set forth
in this Section 1.7.1(b), the Employee shall have been provided with an
opportunity to be heard in person by the Board of Directors of the
Employer (with the assistance of counsel, if desired) and, in the event
of any such hearing, the decision of the Employer is evidenced by a
resolution adopted by two-thirds of the members of the Board of
Directors of the Employer after the hearing;
(c) Conduct resulting in the conviction of the Employee of a
felony; or
(d) Conduct by the Employee that results in the permanent
removal from the Employee's position as an officer or employee of the
Employer pursuant to a written order by any regulatory agency with
authority or jurisdiction over the Employer.
1.7.2With respect to termination by the Employee:
(a) a material diminution in the powers, responsibilities,
duties or total compensation of the Employee hereunder by the Employer,
which condition remains uncured after the expiration of thirty (30)
days following the delivery of written notice of such condition to the
Employer by the Employee;
(b) the failure of the Board of Directors of the Employer to
elect Employee as Chairman of the Board of Directors of the Employer
and as President and Chief Executive Officer of First Federal Savings
Bank of LaGrange;
(c) a material breach of the terms of this Agreement by the
Employer, which breach remains uncured after the expiration of thirty
(30) days following the delivery of written notice of such breach to
the Employer by the Employee; or
(d) a material diminution in the powers, responsibilities or
duties of the Executive Committee of the Board of Directors of the
Employer, which condition remains uncured after the expiration of
thirty (30) days following the delivery of written notice of such
condition to the Employer by the Employee.
1.8 "Employer Information" means Confidential Information and Trade
Secrets.
1.9 "Confidential Information" means data and information relating to the
business of the Employer (which does not rise to the status of a Trade Secret)
which is or has been disclosed to the Employee or of which the Employee became
aware as a consequence of or through the Employee's relationship to the Employer
and which has value to the Employer and is not generally known to its
competitors. Without limiting the foregoing, Confidential Information shall
include:
(a) all items of information that could be classified as a
trade secret pursuant to law;
2
<PAGE>
(b) The names, addresses and banking requirements of the
customers of the Bank and the nature and amount of business done with
such customers;
(c) The names and addresses of employees and other business
contacts of Bank;
(d) The particular names, methods and procedures utilized
by the Employer and the Bank in the conduct and advertising of their
business;
(e) Application, operating system, communication and other
computer software and derivatives thereof, including, without
limitation, sources and object codes, flow charts, coding sheets,
routines, subrouting and related documentation and manuals of the
Employer and the Bank; and
(f) Marketing techniques, purchasing information, pricing
policies, loan policies, quoting procedures, financial information,
customer data and other materials or information relating to Bank's
manner of doing business.
Confidential Information shall not include any data or information that has been
voluntarily disclosed to the public by the Employer (except where such public
disclosure has been made by the Employee without authorization) or that has been
independently developed and disclosed by others, or that otherwise enters the
public domain through lawful means.
1.10 "Change in Control" means any one of the following events occurring
after the Effective Date:
(a) the acquisition by any person or persons acting in concert
of the then outstanding voting securities of the Employer, if, after
the transaction, the acquiring person (or persons) owns, controls or
holds with power to vote twenty-five percent (25%) or more of any class
of voting securities of the Employer or such other transaction as may
be described under 12 C.F.R. Section 225.41(b)(1) or any successor
thereto;
(b) within any twelve-month period (beginning on or after the
Effective Date) the persons who were directors of the Employer
immediately before the beginning of such twelve-month period (the
"Incumbent Directors") shall cease to constitute at least a majority of
such board of directors; provided that any director who was not a
director as of the Effective Date shall be deemed to be an Incumbent
Director if that director was elected to such board of directors by, or
on the recommendation of or with the approval of, at least two-thirds
of the directors who then qualified as Incumbent Directors; and
provided further that no director whose initial assumption of office is
in connection with an actual or threatened election contest (as such
terms are used in Rule 14a-11 of Regulation 14A promulgated under the
Securities Exchange Act of 1934) relating to the election of directors
shall be deemed to be an Incumbent Director;
(c) the approval by the stockholders of the Employer of a
reorganization, merger or consolidation, with respect to which persons
who were the stockholders of the Employer immediately prior to such
reorganization, merger or consolidation do not, immediately thereafter,
own more than fifty percent (50%) of the combined voting power entitled
to vote in the election of directors of the reorganized, merged or
consolidated company's then outstanding voting securities; or
(d) the sale, transfer or assignment of all or substantially
all of the assets of the Employer and its subsidiaries to any third
party.
3
<PAGE>
1.11 "Initial Term" shall mean that period of time commencing on the
Effective Date and running until the day immediately preceding the third
anniversary of the Effective Date.
1.12 "Permanent Disability" shall mean a condition for which benefits
would be payable under any long-term disability coverage (without regard to the
application of any elimination period requirement) then provided to the Employee
by the Employer or, if no such coverage is then being provided, the inability of
the Employee to perform the material aspects of the Employee's duties under this
Agreement for a period of at least 180 consecutive days as certified by a
physician chosen by the Employee and reasonably acceptable to the Employer.
1.13. "Term" shall mean the term of this Agreement and shall consist of
the Initial Term; provided, however, that the Initial Term shall automatically
renew each day after the Effective Date so that the Term remains a three-year
term until either party provides written notice to the other of the intent that
the automatic renewals shall cease, in which case, the Term shall expire on the
third anniversary of the date of the written notice so provided.
1.14 "Trade Secrets" means information including, but not limited to,
technical or nontechnical data, formulas, patterns, compilations, programs,
devices, methods, techniques, drawings, processes, financial data, financial
plans, product plans or lists of actual or potential customers or suppliers
which (a) derives economic value, actual or potential, from not being generally
known to, and not being readily ascertainable by proper means by, other persons
who can obtain economic value from its disclosure or use; and (b) is the subject
of efforts that are reasonable under the circumstances to maintain its secrecy.
2. Duties.
- -----------
2.1 The Employee is employed initially as the Chairman of the Board of
Directors of the Employer and, subject to the direction of the Board of
Directors of the Employer or its designee, consistent with this Agreement and
the designation of Employee as Chairman of the Board of Directors of the
Employer, shall perform and discharge well and faithfully the duties which may
be assigned to the Employee from time to time by the Employer in connection with
the conduct of its business. The duties and responsibilities of the Employee are
set forth on Exhibit A attached hereto.
2.2 In addition to the duties and responsibilities specifically assigned
to the Employee pursuant to Section 2.1 hereof, the Employee shall: (a) devote
substantially all of the Employee's time, energy and skill during regular
business hours to the performance of the duties of the Employee's employment
(reasonable vacations and reasonable absences due to illness excepted) and
faithfully and industriously perform such duties; (b) diligently follow and
implement all management policies and decisions communicated to the Employee by
the Board of Directors of the Employer which are consistent with this Agreement
and the designation of Employee as Chairman of the Board of Directors of the
Employer; and (c) timely prepare and forward to the Board of Directors of the
Employer all reports and accounting as may be requested of the Employee.
2.3 The Employee shall devote the Employee's entire business time,
attention and energies to the Business of the Employer and shall not during the
term of this Agreement be engaged (whether or not during normal business hours)
in any other business or professional activity, whether or not such activity is
pursued for gain, profit or other pecuniary advantage; but this shall not be
construed as preventing the Employee from (a) investing the Employee's personal
assets in businesses which (subject to clause (b) below) are not in competition
with the Business of the Employer and which will not require any services on the
part of the Employee in their operation or affairs and in which the Employee's
participation is solely that of an investor, (b) purchasing securities or other
4
<PAGE>
interests in any entity provided that such purchase shall not result in the
Employee's collectively owning beneficially at any time five percent (5%) or
more of the equity securities of any business in competition with the Business
of the Employer and (c) participating in civic and professional affairs and
organizations and conferences, preparing or publishing papers or books or
teaching so long as the Board approves of such activities prior to the
Employee's engaging in them. Notwithstanding anything to the contrary in the
preceding provisions of this Section 2.3, the Employee may continue to serve on
any board of directors that the Employee serves upon as of the Effective Date.
3. Term and Termination.
- -------------------------
3.1 Term.This Agreement shall remain in effect for the Term or until a
termination of this Agreement prior to the expiration of the Term in accordance
with the remaining provisions of this Section.
3.2 Termination. During the Term, the employment of the Employee under
this Agreement may be terminated only as follows:
3.2.1 By the Employer:
(a) For Cause, following approval of such action by
at least 75% of the membership of the Board of Directors of
the Employer and only after providing Employee with at least
thirty (30) days' written notice, in which event the Employer
shall have no further obligation to the Employee except for
the payment of any amounts payable as of the effective date of
termination; or
(b) Without Cause at any time, provided that the
Employer shall give the Employee sixty (60) days' prior
written notice of its intent to terminate, in which event the
Employer shall be required to meet its obligations to the
Employee under Section 3.3 below.
3.2.2 By the Employee:
(a) For Cause, with no prior notice except as
provided in Section 1.7.2, in which event the Employer shall
be required to meet its obligations to the Employee under
Section 3.3 below; or
(b) Without Cause, provided that the Employee shall
give the Employer sixty (60) days' prior written notice of the
Employee's intent to terminate, in which event the Employer
shall have no further obligation to the Employee except for
payment of any amounts payable as of the effective date of the
termination.
3.2.3 By the Employee within the period commencing three (3)
months prior to and ending twelve (12) months after a Change in Control
of the Employer (the "Election Period"), provided that the Employee
shall give thirty (30) days written notice prior to the end of the
Election Period to the Employer of the Employee's intention to
terminate this Agreement, in which event the Employer shall be required
to meet its obligations to the Employee under Section 3.3 below.
3.2.4 At any time upon mutual, written agreement of the
parties, in which event the Employer shall have no further obligation
to the Employee except for the payment of any amounts payable as of the
effective date of the termination.
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<PAGE>
3.2.5 Notwithstanding anything in this Agreement to the
contrary, the Term shall expire automatically upon the Employee's death
or Permanent Disability, in which event the Employer shall have no
further obligation to the Employee except for the payment of any
amounts payable as of the effective date of termination and, if the
reason for termination is the Employee's Permanent Disability, the
Employer shall pay to the Employee as liquidated damages an amount
equal to Average Monthly Compensation for each full month following
such termination until the earlier of the month prior to the month for
which the Employee's long-term disability benefits become payable or
six full months commencing with the month following the month in which
the date of termination occurs.
3.3 Termination Payments. In the event Employee's employment is terminated
under this Agreement prior to the expiration of the Term pursuant Section
3.2.1(b), Section 3.2.2(a) or Section 3.2.3, the Employer shall pay to the
Employee as severance pay and liquidated damages a lump sum amount equal to the
product of (a) Average Monthly Compensation multiplied by (b) the number of
months (including partial months) from the effective date of the termination
through the then unexpired portion of the Term or, if greater, twelve. In
addition, from the effective date of the termination through the then unexpired
portion of the Term (or, if greater, for a period of twelve months following the
effective date of the termination (the "Severance Period"), the Employer shall
continue to provide the Employee the benefits described in Section 4.6 and
Section 4.8 and shall pay an amount equal to what would be the Employee's cost
of COBRA health continuation coverage for the Employee and eligible dependents
for the greater of the Severance Period or the period during which the Employee
and those eligible dependents are entitled to COBRA health continuation coverage
from the Employer.
Notwithstanding any other provision of this Agreement to the contrary, if
the aggregate of the payments provided for in this Agreement and the other
payments and benefits which the Employee has the right to receive from the
Employer (the "Total Payments") would constitute a "parachute payment," as
defined in Section 280G(b)(2) of the Internal Revenue Code, as amended (the
"Code"), the Employee shall receive the Total Payments unless the (a) after-tax
amount that would be retained by the Employee (after taking into account all
federal, state and local income taxes payable by the Employee and the amount of
any excise taxes payable by the Employee under Section 4999 of the Code that
would be payable by the Employee (the "Excise Taxes")) if the Employee were to
receive the Total Payments has a lesser aggregate value than (b) the after-tax
amount that would be retained by the Employee (after taking into account all
federal, state and local income taxes payable by the Employee) if the Employee
were to receive the Total Payments reduced to the largest amount as would result
in no portion of the Total Payments being subject to Excise Taxes (the "Reduced
Payments"), in which case the Employee shall be entitled only to the Reduced
Payments. If the Employee is to receive the Reduced Payments, the Employee shall
be entitled to determine which of the Total Payments, and the relative portions
of each, are to be reduced.
4. Compensation.
- ----------------
The Employee shall receive the following salary and benefits during the
Term:
4.1 Base Salary. The Employee shall be compensated at a base rate of One
Hundred Seventy Five Thousand Dollars ($175,000) per year ("Base Salary"). The
Employee's salary shall be reviewed by the Board of Directors of the Employer
annually, and the Employee shall be entitled to receive annually an increase in
such amount, if any, as may be determined by the Board of Directors of the
Employer based upon the performance of the Bank and its compliance with
regulatory standards. Such salary shall be payable in accordance with the
Employer's normal payroll practices.
6
<PAGE>
4.2 Incentive Compensation. The Employee shall be entitled to participate
in such bonus, incentive and other executive compensation programs as are made
available to senior management of the Employer and Bank from time to time (the
"Incentive Compensation").
4.3 Stock Options. The Employer shall grant to the Employee stock options
commensurate with the Employee's position taking into account options held by
the Employee as of the Effective Date. Any such options shall be reflected by a
separate written award.
4.4 Benefits. The Employee shall be entitled to such benefits as may be
available from time to time for senior executives of the Employer and Bank
similarly situated to the Employee. All such benefits shall be awarded and
administered in accordance with the Employer's standard policies and practices.
Such benefits may include, by way of example only, profit sharing plans,
retirement or investment funds, dental, health and life insurance benefits and
such other benefits as the Employer deems appropriate.
4.5 Disability Insurance. The Employer shall provide the Employee with
amounts, as additional compensation, as and when necessary, to allow the
Employee to pay the premiums that become due under the personal disability
insurance policy currently owned by the Employee.
4.6 Automobile. The Employer shall provide the Employee with an automobile
comparable to the automobile provided to the Employee by FLAG Financial
Corporation immediately prior to the Effective Date, with such automobile to be
used by the Employee for business and personal purposes. The automobile shall be
replaced with a new, comparable automobile no less frequently than every
twenty-four (24) months. The Employer will pay expenses associated with the
operation and maintenance of the automobile, including taxes, insurance and
repairs.
4.7 Business Expenses. The Employer shall reimburse the Employee for
reasonable business (including travel) expenses incurred by the Employee in
performance of the Employee's duties hereunder; provided, however, that the
Employee shall, as a condition of reimbursement, submit verification of the
nature and amount of such expenses in accordance with reimbursement policies
from time to time adopted by the Employer and in sufficient detail to comply
with rules and regulations promulgated by the Internal Revenue Service.
4.8 Memberships. The Employer shall reimburse the Employee for the annual
dues associated with membership in two country or eating clubs selected by the
Employee; provided, however, that the aggregate annual dues for such memberships
shall not exceed five percent (5%) of the Employee's Base Salary then in effect,
and for memberships in such professional associations which are commensurate
with the Employee's position; provided, however, that the Employee shall, as a
condition of reimbursement, submit verification of the nature and amount of such
expenses in accordance with reimbursement policies from time to time adopted by
the Employer and in sufficient detail to comply with rules and regulations
promulgated by the Internal Revenue Service.
4.9 Vacation. On a non-cumulative basis the Employee shall be entitled to
a minimum of four (4) weeks of vacation annually, during which the Employee's
compensation shall be paid in full.
4.10 Withholding. The Employer may deduct from each payment of
compensation hereunder all amounts required to be deducted and withheld in
accordance with applicable federal and state income, FICA and other withholding
requirements.
5. Employer Information.
- -------------------------
7
<PAGE>
5.1 Ownership of Information. All Employer Information received or
developed by the Employee while employed by the Employer will remain the sole
and exclusive property of the Employer.
5.2 Obligations of the Employee. The Employee agrees (a) to hold Employer
Information in strictest confidence, and (b) not to use, duplicate, reproduce,
distribute, disclose or otherwise disseminate Employer Information or any
physical embodiments thereof and may in no event take any action causing or fail
to take any action necessary in order to prevent any Employer Information from
losing its character or ceasing to qualify as Confidential Information or a
Trade Secret. In the event that the Employee is required by law to disclose any
Employer Information, the Employee will not make such disclosure unless (and
then only to the extent that) the Employee has been advised by independent legal
counsel that such disclosure is required by law and then only after prior
written notice is given to the Employer when the Employee becomes aware that
such disclosure has been requested and is required by law. This Section 5 shall
survive for a period of twelve (12) months following termination of this
Agreement with respect to Confidential Information, and shall survive
termination of this Agreement for so long as is permitted by the then-current
Georgia Trade Secrets Act of 1990, O.C.G.A. ss.ss. 10-1-760-10-1-767, with
respect to Trade Secrets.
5.3 Delivery upon Request or Termination. Upon request by the Employer,
and in any event upon termination of the Employee's employment with the
Employer, the Employee will promptly deliver to the Employer all property
belonging to the Employer, including without limitation all Employer Information
then in the Employee's possession or control.
6. Non-Competition.
- --------------------
The Employee agrees that during his employment by the Employer hereunder
and, in the event of his termination other than by the Employer without Cause
pursuant to Section 3.2.1(b), by the Employee for Cause pursuant to Section
3.2.2(a), or by the Employee pursuant to Section 3.2.3, for a period of twelve
(12) months thereafter, the Employee will not (except on behalf of or with the
prior written consent of the Employer), within the Area, either directly or
indirectly, on his own behalf or in the service or on behalf of others, as a
principal, partner, officer, director, manager, supervisor, administrator,
consultant, executive employee or in any other capacity which involves duties
and responsibilities similar to those undertaken for the Employer, engage in any
business which is the same as or essentially the same as the Business of the
Employer.
7. Non-Solicitation of Customers.
- ---------------------------------
The Employee agrees that during the Employee's employment by the Employer
hereunder and, in the event of Employee's termination other than by the Employer
without Cause pursuant to Section 3.2.1(b), by the Employee for Cause pursuant
to Section 3.2.2(a), or by the Employee pursuant to Section 3.2.3, for a period
of twelve (12) months thereafter, the Employee will not (except on behalf of or
with the prior written consent of the Employer), within the Area, on the
Employee's own behalf or in the service or on behalf of others, solicit, divert
or appropriate or attempt to solicit, divert or appropriate, directly or by
assisting others, any business from any of the Employer's or the Bank's
customers, including actively sought prospective customers, with whom the
Employee has or had material contact during the last two (2) years of the
Employee's employment, for purposes of providing products or services that are
competitive with those provided by the Employer and the Bank.
8. Non-Solicitation of Employees.
- ---------------------------------
The Employee agrees that during the Employee's employment by the Employer
hereunder and, in the event of the Employee's termination other than by the
Employer without Cause pursuant to Section 3.2.1(b), by the Employee for Cause
pursuant to Section 3.2.3(a), or by the Employee pursuant to Section 3.2.3, for
a period of twelve (12) months thereafter, the Employee will not, within the
Area, on the Employee's own behalf or in the service or on behalf of others,
solicit, recruit or hire away or attempt to solicit, recruit or hire away,
directly or by assisting others, any employee of the Employer or its Affiliates,
whether or not such employee is a full-time employee or a temporary employee of
8
<PAGE>
the Employer or its Affiliates and whether or not such employment is pursuant to
written agreement and whether or not such employment is for a determined period
or is at will.
9. Remedies.
- -------------
The Employee agrees that the covenants contained in Sections 5 through 8
hereof are of the essence of this Agreement; that each of the covenants is
reasonable and necessary to protect the business, interests and properties of
the Employer; and that irreparable loss and damage will be suffered by the
Employer should he breach any of the covenants. Therefore, the Employee agrees
and consents that, in addition to all the remedies provided by law or in equity,
the Employer shall be entitled to a temporary restraining order and temporary
and permanent injunctions to prevent a breach or contemplated breach of any of
the covenants. The Employer and the Employee agree that all remedies available
to the Employer or the Employee, as applicable, shall be cumulative. In
addition, in the event the Employee fails to comply with any of the covenants
contained in Section 5 hereof and such failure shall not be cured to the
reasonable satisfaction of the Employer within thirty (30) days after receipt of
written notice thereof from the Employer, the Employer shall thereupon be
relieved of liability for all obligations then remaining under Section 3.3
hereof.
10. Severability.
- -----------------
The parties agree that each of the provisions included in this Agreement is
separate, distinct and severable from the other provisions of this Agreement and
that the invalidity or unenforceability of any Agreement provision shall not
affect the validity or enforceability of any other provision of this Agreement.
Further, if any provision of this Agreement is ruled invalid or unenforceable by
a court of competent jurisdiction because of a conflict between the provision
and any applicable law or public policy, the provision shall be redrawn to make
the provision consistent with and valid and enforceable under the law or public
policy.
11. No Set-Off by the Employee.
- -------------------------------
The existence of any claim, demand, action or cause of action by the
Employee against the Employer, or any Affiliate of the Employer, whether
predicated upon this Agreement or otherwise, shall not constitute a defense to
the enforcement by the Employer of any of its rights hereunder.
12. Notice.
- -----------
All notices and other communications required or permitted under this
Agreement shall be in writing and, if mailed by prepaid first-class mail or
certified mail, return receipt requested, shall be deemed to have been received
on the earlier of the date shown on the receipt or three (3) business days after
the postmarked date thereof. In addition, notices hereunder may be delivered by
hand, facsimile transmission or overnight courier, in which event the notice
shall be deemed effective when delivered or transmitted. All notices and other
communications under this Agreement shall be given to the parties hereto at the
following addresses:
(a) If to the Employer, to it at:
101 North Greenwood Street
PO Box 3007
LaGrange, GA 30240-2699
Attn: President
FLAG Financial Corporation
(b) If to the Employee, to the Employee at:
881 Piney Woods Drive
LaGrange, GA 30240
9
<PAGE>
13. Assignment.
- ----------------
Neither party hereto may assign or delegate this Agreement or any of its
rights and obligations hereunder without the written consent of the other party
hereto; provided, however, that this Agreement shall be assumed by and shall be
binding upon any successor to the Employer.
14. Waiver.
- ------------
A waiver by the Employer of any breach of this Agreement by the Employee
shall not be effective unless in writing, and no waiver shall operate or be
construed as a waiver of the same or another breach on a subsequent occasion. a
15. Arbitration.
- -----------------
Any controversy or claim arising out of or relating to this contract, or
the breach thereof, shall be settled by binding arbitration in accordance with
the Commercial Arbitration Rules of the American Arbitration Association. The
Employer and the Employee agree that they will seek to enforce any arbitration
award in the Superior Court of Troup County. The decision of the arbitration
panel shall be final and binding upon the parties and judgment upon the award
rendered by the arbitration panel may be entered by any court having
jurisdiction. The Employer and the Employee agree to share equally the fees and
expenses associated with the arbitration proceedings.
16. Attorneys' Fees.
- ----------------------
With respect to arbitration of disputes and if litigation ensues between
the parties concerning the enforcement of an arbitration award, each party shall
pay its own fees, costs and expenses; provided, however, the Employer shall
advance to the Employee reasonable fees, costs and expenses incurred by the
Employee in preparing for and in initiating or defending against any proceeding
or suit brought to enforce rights or obligations set forth in this Agreement.
Such advances shall be made within thirty (30) days after receiving copies of
invoices presented by the Employee for such fees, costs and expenses. The
Employee shall have the obligation to reimburse the Employer within sixty (60)
days following the final disposition of the matter (including appeals) to the
full extent of the aggregate advances unless the panel of arbitrators or court,
as the case may be, has ruled in favor of the Employee on the merits of the
substantive issues in dispute.
17. Applicable Law.
- --------------------
This Agreement shall be construed and enforced under and in accordance with
the laws of the State of Georgia. The parties agree that the Superior Court of
Troup County, Georgia, shall have jurisdiction of any case or controversy
arising under or in connection with this Agreement and shall be a proper forum
in which to adjudicate such case or controversy. The parties consent to the
jurisdiction of such courts.
18. Interpretation.
- --------------------
Words importing any gender includes all genders. Words importing the
singular form shall include the plural, and vice versa. The terms "herein,"
"hereunder," "hereby, "hereto, "hereof" and any similar terms refer to this
Agreement. Any captions, titles or headings preceding the text of any article,
se or subsection herein are solely for convenience of reference and shall not
constitute part of this Agreement or affect its meaning, construction or effect.
19. Entire Agreement.
- ---------------------
This Agreement embodies the entire and final agreement of the parties on
the subject matter stated in the Agreement. No amendment or modification of this
Agreement shall be valid or binding upon the Employer or the Employee unless
made in writing and signed by both parties. All prior understandings and
agreements relating to the subject matter of this Agreement are hereby expressly
terminated; provided, however, that this Agreement shall not alter, limit or
otherwise impair the Employee's rights [identify any applicable agreement and]
under any tax-qualified retirement plan in which the Employee is or may become a
participant.
20. Rights of Third Parties.
- ----------------------------
Nothing herein expressed is intended to or shall be construed to confer
upon or give to any person, firm or other entity, other than the parties hereto
and their permitted assigns, any rights or remedies under or by reason of this
Agreement.
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<PAGE>
21. Survival.
- -------------
The obligations of the Employer pursuant to Sections 3.2.5 and 3.3 and the
obligations of the Employee pursuant to Sections 5, 6, 7, 8 and 9 shall survive
the termination of the employment of the Employee hereunder for the period
designated under each of those respective sections.
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<PAGE>
IN WITNESS WHEREOF, the parties hereto have hereunto executed this
Agreement in accordance with the provisions hereof.
FLAG FINANCIAL CORPORATION
/s/ Fred Durand III
-------------------
Print Name: Fred Durand III
---------------------------
Date: 1 April 1998
ATTEST:
/s/___________________________
Date: April 1, 1998
/s/ John S. Holle
-----------------
John S. Holle
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<PAGE>
Exhibit A
Duties of the Employee
* Serve as ex-officio member of all Committees of the Board of Directors of
the Employer.
* Call and serve as chairman of meetings of the Employer's shareholders,
Board of Directors and Executive Committee.
* Establish contact, coordinate and negotiate with the Employer's potential
acquisition targets.
<PAGE>
EXHIBIT 10.3
EMPLOYMENT AGREEMENT BETWEEN
ELLISON C. RUDD AND FLAG FINANCIAL CORPORATION
<PAGE>
EMPLOYMENT AGREEMENT
THIS AGREEMENT is made as of the 1st day of April, 1998 (the "Effective
Date"), between FLAG Financial Corporation, a Georgia corporation (the
"Employer"), and Ellison Rudd, a resident of the State of Georgia (the
"Employee").
RECITALS:
The Employer desires to employ the Employee as the Senior Vice President
and Chief Financial Officer of the Employer and as Executive Vice President and
Chief Financial Officer of First Federal Savings Bank of LaGrange and the
Employee desires to accept such employment.
In consideration of the above premises and the mutual agreements
hereinafter set forth, the parties hereby agree as follows:
1. Definitions.
- ---------------
Whenever used in this Agreement, the following terms and their variant
forms shall have the meaning set forth below:
1.1 "Agreement" shall mean this Agreement and any exhibits incorporated
herein together with any amendments hereto made in the manner described in this
Agreement.
1.2 "Affiliate" shall mean any business entity which controls the
Employer, is controlled by or is under common control with the Employer.
1.3 "Area" shall mean the geographic area within the boundaries of Crisp,
Troup, Dooly, Macon and Telfair Counties, Georgia. It is the express intent of
the parties that the Area as defined herein is the area where the Employee
performs or performed services on behalf of the Employer under this Agreement as
of, or within a reasonable time prior to, the termination of the Employee's
employment hereunder.
1.4 "Average Monthly Compensation" shall mean the quotient determined (a)
by dividing the sum of the Employee's then current Base Salary (as defined
below) and most recently paid Incentive Compensation (as defined below) (b) by
twelve.
1.5 "Bank" shall mean, collectively, First Federal Savings Bank of
LaGrange and Citizens Bank, or their successors.
1.6 "Business of the Employer" shall mean the business conducted by the
Employer, which is the business of banking, including the solicitation of time
and demand deposits and the making of residential, consumer, commercial and
corporate loans.
1.7. "Cause" shall mean:
1.7.1 With respect to termination by the Employer:
(a) A material breach of the terms of this Agreement by the
Employee, including, without limitation, failure by the Employee to
perform the Employees' duties and responsibilities in the manner and to
the extent required under this Agreement, which breach remains uncured
after the expiration of thirty (30) days following the delivery of
written notice of such breach to the Employee by the Employer;
<PAGE>
(b) Conduct by the Employee that (i) constitutes fraud,
dishonesty, gross malfeasance of duty or conduct grossly inappropriate
to the Employee's office and (ii) is demonstrably likely to lead to
material injury to the Employer or the Bank or resulted or was intended
to result in direct or indirect gain to or personal enrichment of the
Employee; provided, however, that such conduct shall not constitute
"Cause" unless there shall have been delivered to the Employee a
written notice setting forth with specificity the reasons that the
Employer believes the Employee's conduct meets the standard set forth
in this Section 1.7.1(b), the Employee shall have been provided with an
opportunity to be heard in person by the Board of Directors of the
Employer (with the assistance of counsel, if desired) and, in the event
of any such hearing, the decision of the Employer is evidenced by a
resolution adopted by two-thirds of the members of the Board of
Directors of the Employer after the hearing;
(c) Conduct resulting in the conviction of the Employee of a
felony; or
(d) Conduct by the Employee that results in the permanent
removal from the Employee's position as an officer or employee of the
Employer pursuant to a written order by any regulatory agency with
authority or jurisdiction over the Employer.
1.7.2 With respect to termination by the Employee:
(a) a material diminution in the powers, responsibilities,
duties or total compensation of the Employee hereunder by the Employer,
which condition remains uncured after the expiration of thirty (30)
days following the delivery of written notice of such condition to the
Employer by the Employee;
(b) the failure of the Board of Directors of the Employer to
elect Employee as Senior Vice President and Chief Financial Officer of
the Employer;
(c) a material breach of the terms of this Agreement by the
Employer, which breach remains uncured after the expiration of thirty
(30) days following the delivery of written notice of such breach to
the Employer by the Employee; or
(d) a material diminution in the powers, responsibilities or
duties of the Executive Committee of the Board of Directors of the
Employer, which condition remains uncured after the expiration of
thirty (30) days following the delivery of written notice of such
condition to the Employer by the Employee.
1.8 "Employer Information" means Confidential Information and Trade
Secrets.
1.9 "Confidential Information" means data and information relating to the
business of the Employer (which does not rise to the status of a Trade Secret)
which is or has been disclosed to the Employee or of which the Employee became
aware as a consequence of or through the Employee's relationship to the Employer
and which has value to the Employer and is not generally known to its
competitors. Without limiting the foregoing, Confidential Information shall
include:
(a) all items of information that could be classified as a
trade secret pursuant to law;
2
<PAGE>
(b) The names, addresses and banking requirements of the
customers of the Bank and the nature and amount of business done with
such customers;
(c) The names and addresses of employees and other business
contacts of Bank;
(d) The particular names, methods and procedures utilized by
the Employer and the Bank in the conduct and advertising of their
business;
(e) Application, operating system, communication and other
computer software and derivatives thereof, including, without
limitation, sources and object codes, flow charts, coding sheets,
routines, subrouting and related documentation and manuals of the
Employer and the Bank; and
(f) Marketing techniques, purchasing information, pricing
policies, loan policies, quoting procedures, financial information,
customer data and other materials or information relating to Bank's
manner of doing business.
Confidential Information shall not include any data or information that has been
voluntarily disclosed to the public by the Employer (except where such public
disclosure has been made by the Employee without authorization) or that has been
independently developed and disclosed by others, or that otherwise enters the
public domain through lawful means.
1.10 "Change in Control" means any one of the following events occurring
after the Effective Date:
(a) the acquisition by any person or persons acting in concert
of the then outstanding voting securities of the Employer, if, after
the transaction, the acquiring person (or persons) owns, controls or
holds with power to vote twenty-five percent (25%) or more of any class
of voting securities of the Employer or such other transaction as may
be described under 12 C.F.R. Section 225.41(b)(1) or any successor
thereto;
(b) within any twelve-month period (beginning on or after the
Effective Date) the persons who were directors of the Employer
immediately before the beginning of such twelve-month period (the
"Incumbent Directors") shall cease to constitute at least a majority of
such board of directors; provided that any director who was not a
director as of the Effective Date shall be deemed to be an Incumbent
Director if that director was elected to such board of directors by, or
on the recommendation of or with the approval of, at least two-thirds
of the directors who then qualified as Incumbent Directors; and
provided further that no director whose initial assumption of office is
in connection with an actual or threatened election contest (as such
terms are used in Rule 14a-11 of Regulation 14A promulgated under the
Securities Exchange Act of 1934) relating to the election of directors
shall be deemed to be an Incumbent Director;
(c) the approval by the stockholders of the Employer of a
reorganization, merger or consolidation, with respect to which persons
who were the stockholders of the Employer immediately prior to such
reorganization, merger or consolidation do not, immediately thereafter,
own more than fifty percent (50%) of the combined voting power entitled
to vote in the election of directors of the reorganized, merged or
consolidated company's then outstanding voting securities; or
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<PAGE>
(d) the sale, transfer or assignment of all or substantially
all of the assets of the Employer and its subsidiaries to any third
party.
1.11 "Initial Term" shall mean that period of time commencing on the
Effective Date and running until the day immediately preceding the third
anniversary of the Effective Date.
1.12 "Permanent Disability" shall mean a condition for which benefits
would be payable under any long-term disability coverage (without regard to the
application of any elimination period requirement) then provided to the Employee
by the Employer or, if no such coverage is then being provided, the inability of
the Employee to perform the material aspects of the Employee's duties under this
Agreement for a period of at least 180 consecutive days as certified by a
physician chosen by the Employee and reasonably acceptable to the Employer.
1.13. "Term" shall mean the term of this Agreement and shall consist of
the Initial Term; provided, however, that the Initial Term shall automatically
renew each day after the Effective Date so that the Term remains a three-year
term until either party provides written notice to the other of the intent that
the automatic renewals shall cease, in which case, the Term shall expire on the
third anniversary of the date of the written notice so provided.
1.14 "Trade Secrets" means information including, but not limited to,
technical or nontechnical data, formulas, patterns, compilations, programs,
devices, methods, techniques, drawings, processes, financial data, financial
plans, product plans or lists of actual or potential customers or suppliers
which (a) derives economic value, actual or potential, from not being generally
known to, and not being readily ascertainable by proper means by, other persons
who can obtain economic value from its disclosure or use; and (b) is the subject
of efforts that are reasonable under the circumstances to maintain its secrecy.
2. Duties.
- -----------
2.1 The Employee is employed initially as the Senior Vice President and
Chief Financial Officer of the Employer and, subject to the direction of the
Board of Directors of the Employer or its designee, consistent with this
Agreement and the designation of Employee as Senior Vice President and Chief
Financial Officer, shall perform and discharge well and faithfully the duties
which may be assigned to the Employee from time to time by the Employer in
connection with the conduct of its business. The duties and responsibilities of
the Employee are set forth on Exhibit A attached hereto.
2.2 In addition to the duties and responsibilities specifically assigned
to the Employee pursuant to Section 2.1 hereof, the Employee shall: (a) devote
substantially all of the Employee's time, energy and skill during regular
business hours to the performance of the duties of the Employee's employment
(reasonable vacations and reasonable absences due to illness excepted) and
faithfully and industriously perform such duties; (b) diligently follow and
implement all management policies and decisions communicated to the Employee by
the Board of Directors of the Employer which are consistent with this Agreement
and the designation of Employee as Senior Vice President and Chief Financial
Officer; and (c) timely prepare and forward to the Board of Directors of the
Employer all reports and accounting as may be requested of the Employee.
2.3 The Employee shall devote the Employee's entire business time,
attention and energies to the Business of the Employer and shall not during the
term of this Agreement be engaged (whether or not during normal business hours)
in any other business or professional activity, whether or not such activity is
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<PAGE>
pursued for gain, profit or other pecuniary advantage; but this shall not be
construed as preventing the Employee from (a) investing the Employee's personal
assets in businesses which (subject to clause (b) below) are not in competition
with the Business of the Employer and which will not require any services on the
part of the Employee in their operation or affairs and in which the Employee's
participation is solely that of an investor, (b) purchasing securities or other
interests in any entity provided that such purchase shall not result in the
Employee's collectively owning beneficially at any time five percent (5%) or
more of the equity securities of any business in competition with the Business
of the Employer and (c) participating in civic and professional affairs and
organizations and conferences, preparing or publishing papers or books or
teaching so long as the Board approves of such activities prior to the
Employee's engaging in them. Notwithstanding anything to the contrary in the
preceding provisions of this Section 2.3, the Employee may continue to serve on
any board of directors that the Employee serves upon as of the Effective Date.
3. Term and Termination.
- -------------------------
3.1 Term.This Agreement shall remain in effect for the Term or until a
termination of this Agreement prior to the expiration of the Term in accordance
with the remaining provisions of this Section.
3.2 Termination. During the Term, the employment of the Employee under
this Agreement may be terminated only as follows:
3.2.1 By the Employer:
(a) For Cause, following approval of such action by
at least 75% of the membership of the Board of Directors of
the Employer and only after providing Employee with at least
thirty (30) days' written notice, in which event the Employer
shall have no further obligation to the Employee except for
the payment of any amounts payable as of the effective date of
termination; or
(b) Without Cause at any time, provided that the
Employer shall give the Employee sixty (60) days' prior
written notice of its intent to terminate, in which event the
Employer shall be required to meet its obligations to the
Employee under Section 3.3 below.
3.2.2 By the Employee:
(a) For Cause, with no prior notice except as
provided in Section 1.7.2, in which event the Employer shall
be required to meet its obligations to the Employee under
Section 3.3 below; or
(b) Without Cause, provided that the Employee shall
give the Employer sixty (60) days' prior written notice of the
Employee's intent to terminate, in which event the Employer
shall have no further obligation to the Employee except for
payment of any amounts payable as of the effective date of the
termination.
3.2.3 By the Employee within the period commencing three (3)
months prior to and ending twelve (12) months after a Change in Control
of the Employer (the "Election Period"), provided that the Employee
shall give thirty (30) days written notice prior to the end of the
Election Period to the Employer of the Employee's intention to
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<PAGE>
terminate this Agreement, in which event the Employer shall be required
to meet its obligations to the Employee under Section 3.3 below.
3.2.4 At any time upon mutual, written agreement of the
parties, in which event the Employer shall have no further obligation
to the Employee except for the payment of any amounts payable as of the
effective date of the termination.
3.2.5 Notwithstanding anything in this Agreement to the
contrary, the Term shall expire automatically upon the Employee's death
or Permanent Disability, in which event the Employer shall have no
further obligation to the Employee except for the payment of any
amounts payable as of the effective date of termination and, if the
reason for termination is the Employee's Permanent Disability, the
Employer shall pay to the Employee as liquidated damages an amount
equal to Average Monthly Compensation for each full month following
such termination until the earlier of the month prior to the month for
which the Employee's long-term disability benefits become payable or
six full months commencing with the month following the month in which
the date of termination occurs.
3.3 Termination Payments. In the event Employee's employment is terminated
under this Agreement prior to the expiration of the Term pursuant Section
3.2.1(b), Section 3.2.2(a) or Section 3.2.3, the Employer shall pay to the
Employee as severance pay and liquidated damages a lump sum amount equal to the
product of (a) Average Monthly Compensation multiplied by (b) the number of
months (including partial months) from the effective date of the termination
through the then unexpired portion of the Term or, if greater, twelve. In
addition, from the effective date of the termination through the then unexpired
portion of the Term (or, if greater, for a period of twelve months following the
effective date of the termination (the "Severance Period"), the Employer shall
continue to provide the Employee the benefits described in Section 4.6 and
Section 4.8 and shall pay an amount equal to what would be the Employee's cost
of COBRA health continuation coverage for the Employee and eligible dependents
for the greater of the Severance Period or the period during which the Employee
and those eligible dependents are entitled to COBRA health continuation coverage
from the Employer.
Notwithstanding any other provision of this Agreement to the contrary, if
the aggregate of the payments provided for in this Agreement and the other
payments and benefits which the Employee has the right to receive from the
Employer (the "Total Payments") would constitute a "parachute payment," as
defined in Section 280G(b)(2) of the Internal Revenue Code, as amended (the
"Code"), the Employee shall receive the Total Payments unless the (a) after-tax
amount that would be retained by the Employee (after taking into account all
federal, state and local income taxes payable by the Employee and the amount of
any excise taxes payable by the Employee under Section 4999 of the Code that
would be payable by the Employee (the "Excise Taxes")) if the Employee were to
receive the Total Payments has a lesser aggregate value than (b) the after-tax
amount that would be retained by the Employee (after taking into account all
federal, state and local income taxes payable by the Employee) if the Employee
were to receive the Total Payments reduced to the largest amount as would result
in no portion of the Total Payments being subject to Excise Taxes (the "Reduced
Payments"), in which case the Employee shall be entitled only to the Reduced
Payments. If the Employee is to receive the Reduced Payments, the Employee shall
be entitled to determine which of the Total Payments, and the relative portions
of each, are to be reduced.
4. Compensation.
- -----------------
The Employee shall receive the following salary and benefits during the
Term:
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4.1 Base Salary. The Employee shall be compensated at a base rate of One
Hundred Twenty Five Thousand Dollars ($125,000) per year ("Base Salary"). The
Employee's salary shall be reviewed by the Board of Directors of the Employer
annually, and the Employee shall be entitled to receive annually an increase in
such amount, if any, as may be determined by the Board of Directors of the
Employer based upon the performance of the Bank and its compliance with
regulatory standards. Such salary shall be payable in accordance with the
Employer's normal payroll practices.
4.2 Incentive Compensation. The Employee shall be entitled to participate
in such bonus, incentive and other executive compensation programs as are made
available to senior management of the Employer and Bank from time to time (the
"Incentive Compensation").
4.3 Stock Options. The Employer may grant to the Employee stock options
commensurate with the Employee's position taking into account options held by
the Employee as of the Effective Date. Any such options shall be reflected by a
separate written award.
4.4 Benefits. The Employee shall be entitled to such benefits as may be
available from time to time for senior executives of the Employer and Bank
similarly situated to the Employee. All such benefits shall be awarded and
administered in accordance with the Employer's standard policies and practices.
Such benefits may include, by way of example only, profit sharing plans,
retirement or investment funds, dental, health and life insurance benefits and
such other benefits as the Employer deems appropriate.
4.5 Disability Insurance. The Employer shall provide the Employee with
amounts, as additional compensation, as and when necessary, to allow the
Employee to pay the premiums that become due under the personal disability
insurance policy currently owned by the Employee.
4.6 Automobile. The Employer shall provide the Employee with an automobile
comparable to the automobile provided to the Employee by FLAG Financial
Corporation immediately prior to the Effective Date, with such automobile to be
used by the Employee for business and personal purposes. The automobile shall be
replaced with a new, comparable automobile no less frequently than every
twenty-four (24) months. The Employer will pay expenses associated with the
operation and maintenance of the automobile, including taxes, insurance and
repairs.
4.7 Business Expenses. The Employer shall reimburse the Employee for
reasonable business (including travel) expenses incurred by the Employee in
performance of the Employee's duties hereunder; provided, however, that the
Employee shall, as a condition of reimbursement, submit verification of the
nature and amount of such expenses in accordance with reimbursement policies
from time to time adopted by the Employer and in sufficient detail to comply
with rules and regulations promulgated by the Internal Revenue Service.
4.8 Memberships. The Employer shall reimburse the Employee for the annual
dues associated with membership in two country or eating clubs selected by the
Employee; provided, however, that the aggregate annual dues for such memberships
shall not exceed five percent (5%) of the Employee's Base Salary then in effect,
and for memberships in such professional associations which are commensurate
with the Employee's position; provided, however, that the Employee shall, as a
condition of reimbursement, submit verification of the nature and amount of such
expenses in accordance with reimbursement policies from time to time adopted by
the Employer and in sufficient detail to comply with rules and regulations
promulgated by the Internal Revenue Service.
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4.9 Vacation. On a non-cumulative basis the Employee shall be entitled to
a minimum of four (4) weeks of vacation annually, during which the Employee's
compensation shall be paid in full.
4.10 Withholding. The Employer may deduct from each payment of
compensation hereunder all amounts required to be deducted and withheld in
accordance with applicable federal and state income, FICA and other withholding
requirements.
5. Employer Information.
- -------------------------
5.1 Ownership of Information. All Employer Information received or
developed by the Employee while employed by the Employer will remain the sole
and exclusive property of the Employer.
5.2 Obligations of the Employee. The Employee agrees (a) to hold Employer
Information in strictest confidence, and (b) not to use, duplicate, reproduce,
distribute, disclose or otherwise disseminate Employer Information or any
physical embodiments thereof and may in no event take any action causing or fail
to take any action necessary in order to prevent any Employer Information from
losing its character or ceasing to qualify as Confidential Information or a
Trade Secret. In the event that the Employee is required by law to disclose any
Employer Information, the Employee will not make such disclosure unless (and
then only to the extent that) the Employee has been advised by independent legal
counsel that such disclosure is required by law and then only after prior
written notice is given to the Employer when the Employee becomes aware that
such disclosure has been requested and is required by law. This Section 5 shall
survive for a period of twelve (12) months following termination of this
Agreement with respect to Confidential Information, and shall survive
termination of this Agreement for so long as is permitted by the then-current
Georgia Trade Secrets Act of 1990, O.C.G.A. ss.ss. 10-1-760-10-1-767, with
respect to Trade Secrets.
5.3 Delivery upon Request or Termination. Upon request by the Employer,
and in any event upon termination of the Employee's employment with the
Employer, the Employee will promptly deliver to the Employer all property
belonging to the Employer, including without limitation all Employer Information
then in the Employee's possession or control.
6. Non-Competition.
- --------------------
The Employee agrees that during his employment by the Employer hereunder
and, in the event of his termination other than by the Employer without Cause
pursuant to Section 3.2.1(b), by the Employee for Cause pursuant to Section
3.2.2(a), or by the Employee pursuant to Section 3.2.3, for a period of twelve
(12) months thereafter, the Employee will not (except on behalf of or with the
prior written consent of the Employer), within the Area, either directly or
indirectly, on his own behalf or in the service or on behalf of others, as a
principal, partner, officer, director, manager, supervisor, administrator,
consultant, executive employee or in any other capacity which involves duties
and responsibilities similar to those undertaken for the Employer, engage in any
business which is the same as or essentially the same as the Business of the
Employer.
7. Non-Solicitation of Customers.
- ---------------------------------
The Employee agrees that during the Employee's employment by the Employer
hereunder and, in the event of Employee's termination other than by the Employer
without Cause pursuant to Section 3.2.1(b), by the Employee for Cause pursuant
to Section 3.2.2(a), or by the Employee pursuant to Section 3.2.3, for a period
of twelve (12) months thereafter, the Employee will not (except on behalf of or
with the prior written consent of the Employer), within the Area, on the
Employee's own behalf or in the service or on behalf of others, solicit, divert
or appropriate or attempt to solicit, divert or appropriate, directly or by
assisting others, any business from any of the Employer's or the Bank's
customers, including actively sought prospective customers, with whom the
Employee has or had material contact during the last two (2) years of the
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Employee's employment, for purposes of providing products or services that are
competitive with those provided by the Employer and the Bank.
8. Non-Solicitation of Employees.
- ---------------------------------
The Employee agrees that during the Employee's employment by the Employer
hereunder and, in the event of the Employee's termination other than by the
Employer without Cause pursuant to Section 3.2.1(b), by the Employee for Cause
pursuant to Section 3.2.3(a), or by the Employee pursuant to Section 3.2.3, for
a period of twelve (12) months thereafter, the Employee will not, within the
Area, on the Employee's own behalf or in the service or on behalf of others,
solicit, recruit or hire away or attempt to solicit, recruit or hire away,
directly or by assisting others, any employee of the Employer or its Affiliates,
whether or not such employee is a full-time employee or a temporary employee of
the Employer or its Affiliates and whether or not such employment is pursuant to
written agreement and whether or not such employment is for a determined period
or is at will.
9. Remedies.
- -------------
The Employee agrees that the covenants contained in Sections 5 through 8
hereof are of the essence of this Agreement; that each of the covenants is
reasonable and necessary to protect the business, interests and properties of
the Employer; and that irreparable loss and damage will be suffered by the
Employer should he breach any of the covenants. Therefore, the Employee agrees
and consents that, in addition to all the remedies provided by law or in equity,
the Employer shall be entitled to a temporary restraining order and temporary
and permanent injunctions to prevent a breach or contemplated breach of any of
the covenants. The Employer and the Employee agree that all remedies available
to the Employer or the Employee, as applicable, shall be cumulative. In
addition, in the event the Employee fails to comply with any of the covenants
contained in Section 5 hereof and such failure shall not be cured to the
reasonable satisfaction of the Employer within thirty (30) days after receipt of
written notice thereof from the Employer, the Employer shall thereupon be
relieved of liability for all obligations then remaining under Section 3.3
hereof.
10. Severability.
- -----------------
The parties agree that each of the provisions included in this Agreement is
separate, distinct and severable from the other provisions of this Agreement and
that the invalidity or unenforceability of any Agreement provision shall not
affect the validity or enforceability of any other provision of this Agreement.
Further, if any provision of this Agreement is ruled invalid or unenforceable by
a court of competent jurisdiction because of a conflict between the provision
and any applicable law or public policy, the provision shall be redrawn to make
the provision consistent with and valid and enforceable under the law or public
policy.
11. No Set-Off by the Employee.
- -------------------------------
The existence of any claim, demand, action or cause of action by the
Employee against the Employer, or any Affiliate of the Employer, whether
predicated upon this Agreement or otherwise, shall not constitute a defense to
the enforcement by the Employer of any of its rights hereunder.
12. Notice.
- -----------
All notices and other communications required or permitted under this
Agreement shall be in writing and, if mailed by prepaid first-class mail or
certified mail, return receipt requested, shall be deemed to have been received
on the earlier of the date shown on the receipt or three (3) business days after
the postmarked date thereof. In addition, notices hereunder may be delivered by
hand, facsimile transmission or overnight courier, in which event the notice
shall be deemed effective when delivered or transmitted. All notices and other
communications under this Agreement shall be given to the parties hereto at the
following addresses:
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(a) If to the Employer, to it at:
101 North Greenwood Street
PO Box 3007
LaGrange, GA 30240-2699
Attn: Chairman of the Board
FLAG Financial Corporation
(b) If to the Employee, to the Employee at:
130 Ashling Drive
LaGrange, GA 30240
13. Assignment.
- ----------------
Neither party hereto may assign or delegate this Agreement or any of its
rights and obligations hereunder without the written consent of the other party
hereto; provided, however, that this Agreement shall be assumed by and shall be
binding upon any successor to the Employer.
14. Waiver.
- ------------
A waiver by the Employer of any breach of this Agreement by the Employee
shall not be effective unless in writing, and no waiver shall operate or be
construed as a waiver of the same or another breach on a subsequent occasion.
15. Arbitration.
- -----------------
Any controversy or claim arising out of or relating to this contract, or
the breach thereof, shall be settled by binding arbitration in accordance with
the Commercial Arbitration Rules of the American Arbitration Association. The
Employer and the Employee agree that they will seek to enforce any arbitration
award in the Superior Court of Troup County. The decision of the arbitration
panel shall be final and binding upon the parties and judgment upon the award
rendered by the arbitration panel may be entered by any court having
jurisdiction. The Employer and the Employee agree to share equally the fees and
expenses associated with the arbitration proceedings.
16. Attorneys' Fees.
- ----------------------
With respect to arbitration of disputes and if litigation ensues between
the parties concerning the enforcement of an arbitration award, each party shall
pay its own fees, costs and expenses; provided, however, the Employer shall
advance to the Employee reasonable fees, costs and expenses incurred by the
Employee in preparing for and in initiating or defending against any proceeding
or suit brought to enforce rights or obligations set forth in this Agreement.
Such advances shall be made within thirty (30) days after receiving copies of
invoices presented by the Employee for such fees, costs and expenses. The
Employee shall have the obligation to reimburse the Employer within sixty (60)
days following the final disposition of the matter (including appeals) to the
full extent of the aggregate advances unless the panel of arbitrators or court,
as the case may be, has ruled in favor of the Employee on the merits of the
substantive issues in dispute.
17. Applicable Law.
- --------------------
This Agreement shall be construed and enforced under and in accordance with
the laws of the State of Georgia. The parties agree that the Superior Court of
Troup County, Georgia, shall have jurisdiction of any case or controversy
arising under or in connection with this Agreement and shall be a proper forum
in which to adjudicate such case or controversy. The parties consent to the
jurisdiction of such courts.
18. Interpretation.
- --------------------
Words importing any gender includes all genders. Words importing the
singular form shall include the plural, and vice versa. The terms "herein,"
"hereunder," "hereby, "hereto, "hereof" and any similar terms refer to this
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Agreement. Any captions, titles or headings preceding the text of any article,
se or subsection herein are solely for convenience of reference and shall not
constitute part of this Agreement or affect its meaning, construction or effect.
19. Entire Agreement.
- ---------------------
This Agreement embodies the entire and final agreement of the parties on
the subject matter stated in the Agreement. No amendment or modification of this
Agreement shall be valid or binding upon the Employer or the Employee unless
made in writing and signed by both parties. All prior understandings and
agreements relating to the subject matter of this Agreement are hereby expressly
terminated; provided, however, that this Agreement shall not alter, limit or
otherwise impair the Employee's rights [identify any applicable agreement and]
under any tax-qualified retirement plan in which the Employee is or may become a
participant.
20. Rights of Third Parties.
- ----------------------------
Nothing herein expressed is intended to or shall be construed to confer
upon or give to any person, firm or other entity, other than the parties hereto
and their permitted assigns, any rights or remedies under or by reason of this
Agreement.
21. Survival.
- -------------
The obligations of the Employer pursuant to Sections 3.2.5 and 3.3 and the
obligations of the Employee pursuant to Sections 5, 6, 7, 8 and 9 shall survive
the termination of the employment of the Employee hereunder for the period
designated under each of those respective sections.
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IN WITNESS WHEREOF, the parties hereto have hereunto executed this
Agreement in accordance with the provisions hereof.
FLAG FINANCIAL CORPORATION
/s/ Fred Durand III
-------------------
Print Name:Fred Durand III
------------------------------
Date: 1 April 1998
ATTEST:
/s/_____________________________
Date: April 1, 1998
/s/ Ellison C. Rudd
-------------------
Ellison Rudd
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EXHIBIT 10.4
EMPLOYMENT AGREEMENT BETWEEN
PATTI S. DAVIS AND FLAG FINANCIAL CORPORATION
<PAGE>
EMPLOYMENT AGREEMENT
THIS AGREEMENT is made as of the 1st day of April, 1998 (the "Effective
Date"), between FLAG Financial Corporation, a Georgia corporation (the
"Employer"), and PATTI S. DAVIS, a resident of the State of Georgia (the
"Employee").
RECITALS:
The Employer desires to employ the Employee as the Senior Vice
President and Secretary of the Employer and as Senior Vice President, Chief
Financial Officer and Secretary of Citizens Bank and the Employee desires to
accept such employment.
In consideration of the above premises and the mutual agreements
hereinafter set forth, the parties hereby agree as follows:
1. Definitions.
- ---------------
Whenever used in this Agreement, the following terms and their variant
forms shall have the meaning set forth below:
1.1 "Agreement" shall mean this Agreement and any exhibits incorporated
herein together with any amendments hereto made in the manner described in this
Agreement.
1.2 "Affiliate" shall mean any business entity which controls the
Employer, is controlled by or is under common control with the Employer.
1.3 "Area" shall mean the geographic area within the boundaries of Crisp,
Troup, Dooly, Macon and Telfair Counties, Georgia. It is the express intent of
the parties that the Area as defined herein is the area where the Employee
performs or performed services on behalf of the Employer under this Agreement as
of, or within a reasonable time prior to, the termination of the Employee's
employment hereunder.
1.4 "Average Monthly Compensation" shall mean the quotient determined (a)
by dividing the sum of the Employee's then current Base Salary (as defined
below) and most recently paid Incentive Compensation (as defined below) (b) by
twelve.
1.5 "Bank" shall mean, collectively, First Federal Savings Bank of
LaGrange and Citizens Bank, or their successors.
1.6 "Business of the Employer" shall mean the business conducted by the
Employer, which is the business of banking, including the solicitation of time
and demand deposits and the making of residential, consumer, commercial and
corporate loans.
1.7. "Cause" shall mean:
1.7.1 With respect to termination by the Employer:
(a) A material breach of the terms of this Agreement by the
Employee, including, without limitation, failure by the Employee to
perform the Employees' duties and responsibilities in the manner and to
the extent required under this Agreement, which breach remains uncured
after the expiration of thirty (30) days following the delivery of
written notice of such breach to the Employee by the Employer;
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(b) Conduct by the Employee that (i) constitutes fraud,
dishonesty, gross malfeasance of duty or conduct grossly inappropriate
to the Employee's office and (ii) is demonstrably likely to lead to
material injury to the Employer or the Bank or resulted or was intended
to result in direct or indirect gain to or personal enrichment of the
Employee; provided, however, that such conduct shall not constitute
"Cause" unless there shall have been delivered to the Employee a
written notice setting forth with specificity the reasons that the
Employer believes the Employee's conduct meets the standard set forth
in this Section 1.7.1(b), the Employee shall have been provided with an
opportunity to be heard in person by the Board of Directors of the
Employer (with the assistance of counsel, if desired) and, in the event
of any such hearing, the decision of the Employer is evidenced by a
resolution adopted by two-thirds of the members of the Board of
Directors of the Employer after the hearing;
(c) Conduct resulting in the conviction of the Employee of a
felony; or
(d) Conduct by the Employee that results in the permanent
removal from the Employee's position as an officer or employee of the
Employer pursuant to a written order by any regulatory agency with
authority or jurisdiction over the Employer.
1.7.2 With respect to termination by the Employee:
(a) a material diminution in the powers, responsibilities,
duties or total compensation of the Employee hereunder by the Employer,
which condition remains uncured after the expiration of thirty (30)
days following the delivery of written notice of such condition to the
Employer by the Employee;
(b) the failure of the Board of Directors of the Employer to
elect Employee as Senior Vice President of the Employer, or the failure
of the shareholders of the Employer to elect both J. Daniel Speight,Jr.
and Employee as directors of the Employer;
(c) a material breach of the terms of this Agreement by the
Employer, which breach remains uncured after the expiration of thirty
(30) days following the delivery of written notice of such breach to
the Employer by the Employee; or
(d) a material diminution in the powers, responsibilities or
duties of the Executive Committee of the Board of Directors of the
Employer, which condition remains uncured after the expiration of
thirty (30) days following the delivery of written notice of such
condition to the Employer by the Employee.
1.8 "Employer Information" means Confidential Information and Trade
Secrets.
1.9 "Confidential Information" means data and information relating to the
business of the Employer (which does not rise to the status of a Trade Secret)
which is or has been disclosed to the Employee or of which the Employee became
aware as a consequence of or through the Employee's relationship to the Employer
and which has value to the Employer and is not generally known to its
competitors. Without limiting the foregoing, Confidential Information shall
include:
(a) all items of information that could be classified as a
trade secret pursuant to law;
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<PAGE>
(b) The names, addresses and banking requirements of the
customers of the Bank and the nature and amount of business done with
such customers;
(c) The names and addresses of employees and other business
contacts of Bank;
(d) The particular names, methods and procedures utilized
by the Employer and the Bank in the conduct and advertising of their
business;
(e) Application, operating system, communication and other
computer software and derivatives thereof, including, without
limitation, sources and object codes, flow charts, coding sheets,
routines, subrouting and related documentation and manuals of the
Employer and the Bank; and
(f) Marketing techniques, purchasing information, pricing
policies, loan policies, quoting procedures, financial information,
customer data and other materials or information relating to Bank's
manner of doing business.
Confidential Information shall not include any data or information that has been
voluntarily disclosed to the public by the Employer (except where such public
disclosure has been made by the Employee without authorization) or that has been
independently developed and disclosed by others, or that otherwise enters the
public domain through lawful means.
1.10 "Change in Control" means any one of the following events occurring
after the Effective Date:
(a) the acquisition by any person or persons acting in concert
of the then outstanding voting securities of the Employer, if, after
the transaction, the acquiring person (or persons) owns, controls or
holds with power to vote twenty-five percent (25%) or more of any class
of voting securities of the Employer or such other transaction as may
be described under 12 C.F.R. Section 225.41(b)(1) or any successor
thereto;
(b) within any twelve-month period (beginning on or after the
Effective Date) the persons who were directors of the Employer
immediately before the beginning of such twelve-month period (the
"Incumbent Directors") shall cease to constitute at least a majority of
such board of directors; provided that any director who was not a
director as of the Effective Date shall be deemed to be an Incumbent
Director if that director was elected to such board of directors by, or
on the recommendation of or with the approval of, at least two-thirds
of the directors who then qualified as Incumbent Directors; and
provided further that no director whose initial assumption of office is
in connection with an actual or threatened election contest (as such
terms are used in Rule 14a-11 of Regulation 14A promulgated under the
Securities Exchange Act of 1934) relating to the election of directors
shall be deemed to be an Incumbent Director;
(c) the approval by the stockholders of the Employer of a
reorganization, merger or consolidation, with respect to which persons
who were the stockholders of the Employer immediately prior to such
reorganization, merger or consolidation do not, immediately thereafter,
own more than fifty percent (50%) of the combined voting power entitled
to vote in the election of directors of the reorganized, merged or
consolidated company's then outstanding voting securities; or
(d) the sale, transfer or assignment of all or substantially
all of the assets of the Employer and its subsidiaries to any third
party.
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<PAGE>
1.11 "Initial Term" shall mean that period of time commencing on the
Effective Date and running until the day immediately preceding the third
anniversary of the Effective Date.
1.12 "Permanent Disability" shall mean a condition for which benefits
would be payable under any long-term disability coverage (without regard to the
application of any elimination period requirement) then provided to the Employee
by the Employer or, if no such coverage is then being provided, the inability of
the Employee to perform the material aspects of the Employee's duties under this
Agreement for a period of at least 180 consecutive days as certified by a
physician chosen by the Employee and reasonably acceptable to the Employer.
1.13. "Term" shall mean the term of this Agreement and shall consist of
the Initial Term; provided, however, that the Initial Term shall automatically
renew each day after the Effective Date so that the Term remains a three-year
term until either party provides written notice to the other of the intent that
the automatic renewals shall cease, in which case, the Term shall expire on the
third anniversary of the date of the written notice so provided.
1.14 "Trade Secrets" means information including, but not limited to,
technical or nontechnical data, formulas, patterns, compilations, programs,
devices, methods, techniques, drawings, processes, financial data, financial
plans, product plans or lists of actual or potential customers or suppliers
which (a) derives economic value, actual or potential, from not being generally
known to, and not being readily ascertainable by proper means by, other persons
who can obtain economic value from its disclosure or use; and (b) is the subject
of efforts that are reasonable under the circumstances to maintain its secrecy.
2. Duties.
- -----------
2.1 The Employee is employed initially as the Senior Vice President of the
Employer and, subject to the direction of the Board of Directors of the Employer
or its designee, consistent with this Agreement and the designation of Employee
as Senior Vice President, shall perform and discharge well and faithfully the
duties which may be assigned to the Employee from time to time by the Employer
in connection with the conduct of its business. The duties and responsibilities
of the Employee are set forth on Exhibit A attached hereto.
2.2 In addition to the duties and responsibilities specifically assigned
to the Employee pursuant to Section 2.1 hereof, the Employee shall: (a) devote
substantially all of the Employee's time, energy and skill during regular
business hours to the performance of the duties of the Employee's employment
(reasonable vacations and reasonable absences due to illness excepted) and
faithfully and industriously perform such duties; (b) diligently follow and
implement all management policies and decisions communicated to the Employee by
the Board of Directors of the Employer which are consistent with this Agreement
and the designation of Employee as Senior Vice President; and (c) timely prepare
and forward to the Board of Directors of the Employer all reports and accounting
as may be requested of the Employee.
2.3 The Employee shall devote the Employee's entire business time,
attention and energies to the Business of the Employer and shall not during the
term of this Agreement be engaged (whether or not during normal business hours)
in any other business or professional activity, whether or not such activity is
pursued for gain, profit or other pecuniary advantage; but this shall not be
construed as preventing the Employee from (a) investing the Employee's personal
assets in businesses which (subject to clause (b) below) are not in competition
with the Business of the Employer and which will not require any services on the
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<PAGE>
part of the Employee in their operation or affairs and in which the Employee's
participation is solely that of an investor, (b) purchasing securities or other
interests in any entity provided that such purchase shall not result in the
Employee's collectively owning beneficially at any time five percent (5%) or
more of the equity securities of any business in competition with the Business
of the Employer and (c) participating in civic and professional affairs and
organizations and conferences, preparing or publishing papers or books or
teaching so long as the Board approves of such activities prior to the
Employee's engaging in them. Notwithstanding anything to the contrary in the
preceding provisions of this Section 2.3, the Employee may continue to serve on
any board of directors that the Employee serves upon as of the Effective Date.
3. Term and Termination.
- -------------------------
3.1 Term.This Agreement shall remain in effect for the Term or until a
termination of this Agreement prior to the expiration of the Term in accordance
with the remaining provisions of this Section.
3.2 Termination. During the Term, the employment of the Employee under
this Agreement may be terminated only as follows:
3.2.1 By the Employer:
(a) For Cause, following approval of such action by
at least 75% of the membership of the Board of Directors of
the Employer and only after providing Employee with at least
thirty (30) days' written notice, in which event the Employer
shall have no further obligation to the Employee except for
the payment of any amounts payable as of the effective date of
termination; or
(b) Without Cause at any time, provided that the
Employer shall give the Employee sixty (60) days' prior
written notice of its intent to terminate, in which event the
Employer shall be required to meet its obligations to the
Employee under Section 3.3 below.
3.2.2 By the Employee:
(a) For Cause, with no prior notice except as
provided in Section 1.7.2, in which event the Employer shall
be required to meet its obligations to the Employee under
Section 3.3 below; or
(b) Without Cause, provided that the Employee shall
give the Employer sixty (60) days' prior written notice of the
Employee's intent to terminate, in which event the Employer
shall have no further obligation to the Employee except for
payment of any amounts payable as of the effective date of the
termination.
3.2.3 By the Employee within the period commencing three (3)
months prior to and ending twelve (12) months after a Change in
Control of the Employer (the "Election Period"), provided that the
Employee shall give thirty (30) days written notice prior to the
end of the Election Period to the Employer of the Employee's
intention to terminate this Agreement, in which event the Employer
shall be required to meet its obligations to the Employee under
Section 3.3 below.
3.2.4 At any time upon mutual, written agreement of the parties,
in which event the Employer shall have no further obligation to
the Employee except for the payment of any amounts payable as of
the effective date of the termination.
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<PAGE>
3.2.5 Notwithstanding anything in this Agreement to the contrary,
the Term shall expire automatically upon the Employee's death or
Permanent Disability, in which event the Employer shall have no
further obligation to the Employee except for the payment of any
amounts payable as of the effective date of termination and, if
the reason for termination is the Employee's Permanent Disability,
the Employer shall pay to the Employee as liquidated damages an
amount equal to Average Monthly Compensation for each full month
following such termination until the earlier of the month prior to
the month for which the Employee's long-term disability benefits
become payable or six full months commencing with the month
following the month in which the date of termination occurs.
3.3 Termination Payments. In the event Employee's employment is terminated
under this Agreement prior to the expiration of the Term pursuant Section
3.2.1(b), Section 3.2.2(a) or Section 3.2.3, the Employer shall pay to the
Employee as severance pay and liquidated damages a lump sum amount equal to the
product of (a) Average Monthly Compensation multiplied by (b) the number of
months (including partial months) from the effective date of the termination
through the then unexpired portion of the Term or, if greater, twelve. In
addition, from the effective date of the termination through the then unexpired
portion of the Term (or, if greater, for a period of twelve months following the
effective date of the termination (the "Severance Period"), the Employer shall
continue to provide the Employee the benefits described in Section 4.6 and
Section 4.8 and shall pay an amount equal to what would be the Employee's cost
of COBRA health continuation coverage for the Employee and eligible dependents
for the greater of the Severance Period or the period during which the Employee
and those eligible dependents are entitled to COBRA health continuation coverage
from the Employer.
Notwithstanding any other provision of this Agreement to the contrary, if
the aggregate of the payments provided for in this Agreement and the other
payments and benefits which the Employee has the right to receive from the
Employer (the "Total Payments") would constitute a "parachute payment," as
defined in Section 280G(b)(2) of the Internal Revenue Code, as amended (the
"Code"), the Employee shall receive the Total Payments unless the (a) after-tax
amount that would be retained by the Employee (after taking into account all
federal, state and local income taxes payable by the Employee and the amount of
any excise taxes payable by the Employee under Section 4999 of the Code that
would be payable by the Employee (the "Excise Taxes")) if the Employee were to
receive the Total Payments has a lesser aggregate value than (b) the after-tax
amount that would be retained by the Employee (after taking into account all
federal, state and local income taxes payable by the Employee) if the Employee
were to receive the Total Payments reduced to the largest amount as would result
in no portion of the Total Payments being subject to Excise Taxes (the "Reduced
Payments"), in which case the Employee shall be entitled only to the Reduced
Payments. If the Employee is to receive the Reduced Payments, the Employee shall
be entitled to determine which of the Total Payments, and the relative portions
of each, are to be reduced.
4. Compensation.
- -----------------
The Employee shall receive the following salary and benefits during the
Term:
4.1 Base Salary. The Employee shall be compensated at a base rate of One
Hundred Twenty Five Thousand Dollars ($125,000) per year ("Base Salary"). The
Employee's salary shall be reviewed by the Board of Directors of the Employer
annually, and the Employee shall be entitled to receive annually an increase in
such amount, if any, as may be determined by the Board of Directors of the
Employer based upon the performance of the Bank and its compliance with
regulatory standards. Such salary shall be payable in accordance with the
Employer's normal payroll practices.
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<PAGE>
4.2 Incentive Compensation. The Employee shall be entitled to participate
in such bonus, incentive and other executive compensation programs as are made
available to senior management of the Employer and Bank from time to time (the
"Incentive Compensation").
4.3 Stock Options. The Employer will grant to the Employee stock options
commensurate with the Employee's position taking into account options held by
the Employee as of the Effective Date. Any such options shall be reflected by a
separate written award.
4.4 Benefits. The Employee shall be entitled to such benefits as may be
available from time to time for senior executives of the Employer and Bank
similarly situated to the Employee. All such benefits shall be awarded and
administered in accordance with the Employer's standard policies and practices.
Such benefits may include, by way of example only, profit sharing plans,
retirement or investment funds, dental, health and life insurance benefits and
such other benefits as the Employer deems appropriate.
4.5 Disability Insurance. The Employer shall provide the Employee with
amounts, as additional compensation, as and when necessary, to allow the
Employee to pay the premiums that become due under the personal disability
insurance policy currently owned by the Employee.
4.6 Automobile. The Employer shall provide the Employee with an automobile
comparable to the automobile provided to the Employee by Middle Georgia
Bankshares, Inc. immediately prior to the Effective Date, with such automobile
to be used by the Employee for business and personal purposes. The automobile
shall be replaced with a new, comparable automobile no less frequently than
every twenty-four (24) months. The Employer will pay expenses associated with
the operation and maintenance of the automobile, including taxes, insurance and
repairs.
4.7 Business Expenses. The Employer shall reimburse the Employee for
reasonable business (including travel) expenses incurred by the Employee in
performance of the Employee's duties hereunder; provided, however, that the
Employee shall, as a condition of reimbursement, submit verification of the
nature and amount of such expenses in accordance with reimbursement policies
from time to time adopted by the Employer and in sufficient detail to comply
with rules and regulations promulgated by the Internal Revenue Service.
4.8 Memberships. The Employer shall reimburse the Employee for the annual
dues associated with membership in two country or eating clubs selected by the
Employee; provided, however, that the aggregate annual dues for such memberships
shall not exceed five percent (5%) of the Employee's Base Salary then in effect,
and for memberships in such professional associations which are commensurate
with the Employee's position; provided, however, that the Employee shall, as a
condition of reimbursement, submit verification of the nature and amount of such
expenses in accordance with reimbursement policies from time to time adopted by
the Employer and in sufficient detail to comply with rules and regulations
promulgated by the Internal Revenue Service.
4.9 Vacation. On a non-cumulative basis the Employee shall be entitled to
a minimum of four (4) weeks of vacation annually, during which the Employee's
compensation shall be paid in full.
4.10 Withholding. The Employer may deduct from each payment of
compensation hereunder all amounts required to be deducted and withheld in
accordance with applicable federal and state income, FICA and other withholding
requirements.
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5. Employer Information.
- -------------------------
5.1 Ownership of Information. All Employer Information received or
developed by the Employee while employed by the Employer will remain the sole
and exclusive property of the Employer.
5.2 Obligations of the Employee. The Employee agrees (a) to hold Employer
Information in strictest confidence, and (b) not to use, duplicate, reproduce,
distribute, disclose or otherwise disseminate Employer Information or any
physical embodiments thereof and may in no event take any action causing or fail
to take any action necessary in order to prevent any Employer Information from
losing its character or ceasing to qualify as Confidential Information or a
Trade Secret. In the event that the Employee is required by law to disclose any
Employer Information, the Employee will not make such disclosure unless (and
then only to the extent that) the Employee has been advised by independent legal
counsel that such disclosure is required by law and then only after prior
written notice is given to the Employer when the Employee becomes aware that
such disclosure has been requested and is required by law. This Section 5 shall
survive for a period of twelve (12) months following termination of this
Agreement with respect to Confidential Information, and shall survive
termination of this Agreement for so long as is permitted by the then-current
Georgia Trade Secrets Act of 1990, O.C.G.A. ss.ss. 10-1-760-10-1-767, with
respect to Trade Secrets.
5.3 Delivery upon Request or Termination. Upon request by the Employer,
and in any event upon termination of the Employee's employment with the
Employer, the Employee will promptly deliver to the Employer all property
belonging to the Employer, including without limitation all Employer Information
then in the Employee's possession or control.
6. Non-Competition.
- --------------------
The Employee agrees that during his employment by the Employer hereunder
and, in the event of his termination other than by the Employer without Cause
pursuant to Section 3.2.1(b), by the Employee for Cause pursuant to Section
3.2.2(a), or by the Employee pursuant to Section 3.2.3, for a period of twelve
(12) months thereafter, the Employee will not (except on behalf of or with the
prior written consent of the Employer), within the Area, either directly or
indirectly, on his own behalf or in the service or on behalf of others, as a
principal, partner, officer, director, manager, supervisor, administrator,
consultant, executive employee or in any other capacity which involves duties
and responsibilities similar to those undertaken for the Employer, engage in any
business which is the same as or essentially the same as the Business of the
Employer.
7. Non-Solicitation of Customers.
- ---------------------------------
The Employee agrees that during the Employee's employment by the Employer
hereunder and, in the event of Employee's termination other than by the Employer
without Cause pursuant to Section 3.2.1(b), by the Employee for Cause pursuant
to Section 3.2.2(a), or by the Employee pursuant to Section 3.2.3, for a period
of twelve (12) months thereafter, the Employee will not (except on behalf of or
with the prior written consent of the Employer), within the Area, on the
Employee's own behalf or in the service or on behalf of others, solicit, divert
or appropriate or attempt to solicit, divert or appropriate, directly or by
assisting others, any business from any of the Employer's or the Bank's
customers, including actively sought prospective customers, with whom the
Employee has or had material contact during the last two (2) years of the
Employee's employment, for purposes of providing products or services that are
competitive with those provided by the Employer and the Bank.
8. Non-Solicitation of Employees.
- ---------------------------------
The Employee agrees that during the Employee's employment by the Employer
hereunder and, in the event of the Employee's termination other than by the
Employer without Cause pursuant to Section 3.2.1(b), by the Employee for Cause
pursuant to Section 3.2.3(a), or by the Employee pursuant to Section 3.2.3, for
a period of twelve (12) months thereafter, the Employee will not, within the
Area, on the Employee's own behalf or in the service or on behalf of others,
solicit, recruit or hire away or attempt to solicit, recruit or hire away,
directly or by assisting others, any employee of the Employer or its Affiliates,
8
<PAGE>
whether or not such employee is a full-time employee or a temporary employee of
the Employer or its Affiliates and whether or not such employment is pursuant to
written agreement and whether or not such employment is for a determined period
or is at will.
9. Remedies.
- -------------
The Employee agrees that the covenants contained in Sections 5 through 8
hereof are of the essence of this Agreement; that each of the covenants is
reasonable and necessary to protect the business, interests and properties of
the Employer; and that irreparable loss and damage will be suffered by the
Employer should he breach any of the covenants. Therefore, the Employee agrees
and consents that, in addition to all the remedies provided by law or in equity,
the Employer shall be entitled to a temporary restraining order and temporary
and permanent injunctions to prevent a breach or contemplated breach of any of
the covenants. The Employer and the Employee agree that all remedies available
to the Employer or the Employee, as applicable, shall be cumulative. In
addition, in the event the Employee fails to comply with any of the covenants
contained in Section 5 hereof and such failure shall not be cured to the
reasonable satisfaction of the Employer within thirty (30) days after receipt of
written notice thereof from the Employer, the Employer shall thereupon be
relieved of liability for all obligations then remaining under Section 3.3
hereof.
10. Severability.
- -----------------
The parties agree that each of the provisions included in this Agreement is
separate, distinct and severable from the other provisions of this Agreement and
that the invalidity or unenforceability of any Agreement provision shall not
affect the validity or enforceability of any other provision of this Agreement.
Further, if any provision of this Agreement is ruled invalid or unenforceable by
a court of competent jurisdiction because of a conflict between the provision
and any applicable law or public policy, the provision shall be redrawn to make
the provision consistent with and valid and enforceable under the law or public
policy.
11. No Set-Off by the Employee.
- -------------------------------
The existence of any claim, demand, action or cause of action by the
Employee against the Employer, or any Affiliate of the Employer, whether
predicated upon this Agreement or otherwise, shall not constitute a defense to
the enforcement by the Employer of any of its rights hereunder.
12. Notice.
- -----------
All notices and other communications required or permitted under this
Agreement shall be in writing and, if mailed by prepaid first-class mail or
certified mail, return receipt requested, shall be deemed to have been received
on the earlier of the date shown on the receipt or three (3) business days after
the postmarked date thereof. In addition, notices hereunder may be delivered by
hand, facsimile transmission or overnight courier, in which event the notice
shall be deemed effective when delivered or transmitted. All notices and other
communications under this Agreement shall be given to the parties hereto at the
following addresses:
(a) If to the Employer, to it at:
101 North Greenwood Street
PO Box 3007
LaGrange, GA 30240-2699
Attn: Chairman of the Board
FLAG Financial Corporation
(b) If to the Employee, to the Employee at:
PO Box 628
Unadilla, GA 30191
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<PAGE>
13. Assignment.
- ----------------
Neither party hereto may assign or delegate this Agreement or any of its
rights and obligations hereunder without the written consent of the other party
hereto; provided, however, that this Agreement shall be assumed by and shall be
binding upon any successor to the Employer.
14. Waiver.
- ------------
A waiver by the Employer of any breach of this Agreement by the Employee
shall not be effective unless in writing, and no waiver shall operate or be
construed as a waiver of the same or another breach on a subsequent occasion.
15. Arbitration.
- -----------------
Any controversy or claim arising out of or relating to this contract, or
the breach thereof, shall be settled by binding arbitration in accordance with
the Commercial Arbitration Rules of the American Arbitration Association. The
Employer and the Employee agree that they will seek to enforce any arbitration
award in the Superior Court of Troup County. The decision of the arbitration
panel shall be final and binding upon the parties and judgment upon the award
rendered by the arbitration panel may be entered by any court having
jurisdiction. The Employer and the Employee agree to share equally the fees and
expenses associated with the arbitration proceedings.
16. Attorneys' Fees.
- ----------------------
With respect to arbitration of disputes and if litigation ensues between
the parties concerning the enforcement of an arbitration award, each party shall
pay its own fees, costs and expenses; provided, however, the Employer shall
advance to the Employee reasonable fees, costs and expenses incurred by the
Employee in preparing for and in initiating or defending against any proceeding
or suit brought to enforce rights or obligations set forth in this Agreement.
Such advances shall be made within thirty (30) days after receiving copies of
invoices presented by the Employee for such fees, costs and expenses. The
Employee shall have the obligation to reimburse the Employer within sixty (60)
days following the final disposition of the matter (including appeals) to the
full extent of the aggregate advances unless the panel of arbitrators or court,
as the case may be, has ruled in favor of the Employee on the merits of the
substantive issues in dispute.
17. Applicable Law.
- --------------------
This Agreement shall be construed and enforced under and in accordance with
the laws of the State of Georgia. The parties agree that the Superior Court of
Troup County, Georgia, shall have jurisdiction of any case or controversy
arising under or in connection with this Agreement and shall be a proper forum
in which to adjudicate such case or controversy. The parties consent to the
jurisdiction of such courts.
18. Interpretation.
- --------------------
Words importing any gender includes all genders. Words importing the
singular form shall include the plural, and vice versa. The terms "herein,"
"hereunder," "hereby, "hereto, "hereof" and any similar terms refer to this
Agreement. Any captions, titles or headings preceding the text of any article,
se or subsection herein are solely for convenience of reference and shall not
constitute part of this Agreement or affect its meaning, construction or effect.
19. Entire Agreement.
- ---------------------
This Agreement embodies the entire and final agreement of the parties on
the subject matter stated in the Agreement. No amendment or modification of this
Agreement shall be valid or binding upon the Employer or the Employee unless
made in writing and signed by both parties. All prior understandings and
agreements relating to the subject matter of this Agreement are hereby expressly
terminated; provided, however, that this Agreement shall not alter, limit or
otherwise impair the Employee's rights under the Citizens Bank Executive Indexed
Retirement Program, under that certain Insurance Agreement between the Employee
and Citizens Bank, dated January 13, 1995 or under any tax-qualified retirement
plan in which the Employee is or may become a participant.
10
<PAGE>
20. Rights of Third Parties.
- ----------------------------
Nothing herein expressed is intended to or shall be construed to confer
upon or give to any person, firm or other entity, other than the parties hereto
and their permitted assigns, any rights or remedies under or by reason of this
Agreement.
21. Survival.
- -------------
The obligations of the Employer pursuant to Sections 3.2.5 and 3.3 and the
obligations of the Employee pursuant to Sections 5, 6, 7, 8 and 9 shall survive
the termination of the employment of the Employee hereunder for the period
designated under each of those respective sections.
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<PAGE>
IN WITNESS WHEREOF, the parties hereto have hereunto executed this
Agreement in accordance with the provisions hereof.
FLAG FINANCIAL CORPORATION
/s/ Fred Durand III
-------------------
Print Name: Fred Durand III
---------------------------
Date: 1 April 1998
ATTEST:
/s/_______________________________
Date: 4-1-98
/s/ Patti S. Davis
------------------
Patti S. Davis
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<PAGE>
Exhibit A
Duties of the Employee
For the Employer:
* Responsible for Employer's appraisal accounting and federal reserve
reporting.
* Prepare consolidated financial statements.
* Serve on ALCO Committee.
* Serve on 401(k) Administrative Committee and coordinate proper
administration of 401(k) Plan made available to Bank employees.
* Assist in preparation of Employer's annual report and reports to the Board
of Directors.
* Assist with public company reporting obligations.
* Assist in holding the Employer's annual shareholders' meeting.
* Assist in assessment and maintenance of Employer's product profitability.
* Assist in implementation of Employer's budget.
For Citizens Bank:
* Review and present to the Board of Directors reports concerning financial
statements and budgets.
* Assist with budgeting.
* Responsible for administration of Directors deferred compensation plan
and bonus programs for employees.
* Prepare financial statements for Citizens Bank Financial.
* Serve upon Board of Directors of ProImage, Inc..
* Responsible for developing long-term strategies for TSI, Inc.
EXHIBIT 10.5
SEPARATION AGREEMENT BETWEEN
CHARLES O. HINELY AND FLAG FINANCIAL CORPORATION
<PAGE>
SEPARATION AGREEMENT
THIS SEPARATION AGREEMENT is made and effective this 1st day of April, 1998
(the "Effective Date") by and between FLAG FINANCIAL CORPORATION ("FLAG"), a
Georgia corporation (the "Employer"), and Charles O. Hinely, an employee of the
Employer (the "Executive").
STATEMENT OF BACKGROUND INFORMATION
A. The Executive currently serves as an officer of the Employer or of
one of its wholly owned subsidiaries.
B. The Employer and the Executive desire to enter into this agreement
to document certain terms and conditions of the Executive's employment
relationship with the Employer.
STATEMENT OF AGREEMENT
NOW, THEREFORE, in consideration of the foregoing, the mutual covenants
and promises herein contained, and other good and valuable consideration, the
sufficiency and receipt of which are hereby acknowledged, the parties agree as
follows:
ARTICLE I. TERM OF AGREEMENT
This Agreement shall remain in effect for an initial term of twelve
(12) months; provided that, at the end of the initial twelve-month period, and
at the end of each twelve-month period thereafter during which this Agreement is
in effect, this Agreement shall automatically be extended for an additional
twelve-month period commencing at the end of the initial twelve- month period or
any subsequent extension thereof, unless either party gives written notice to
the other of its intent not to extend this Agreement. Such written notice shall
be given not less than ninety (90) days prior to the end of the initial
twelve-month period or any subsequent twelve-month period to which this
Agreement has been extended. In the event that notice of non-extension is
properly given, this Agreement shall terminate at the end of the remaining term
then in effect.
ARTICLE II. SEVERANCE BENEFIT
In the event of the Executive's Involuntary Termination of employment
with the Employer during the term of this Agreement for the reasons specified in
Article III below, the Employer shall pay to the Executive an amount equal to
the Executive's average annual base salary and bonus paid over the last three
full fiscal years (or the average compensation paid to the Executive for such
shorter period as Executive has been employed) of the Employer or its subsidiary
bank immediately preceding such involuntary termination (the "Severance
Benefit"). The Severance Benefit shall be paid in cash in a lump sum within
thirty (30) days following the Involuntary Termination.
The Employer shall be entitled to withhold appropriate employment and
income taxes, if required by applicable law, should the Severance Benefit become
payable.
<PAGE>
ARTICLE III. PAYMENT EVENTS
The Severance Benefit described in Article II above shall become
payable if (a) the Executive's employment is Involuntarily Terminated and either
(i) such Involuntary Termination occurred within six (6) months prior to one (1)
year following a Change in Control as defined in Section 5.1(2) below, or (ii)
such Involuntary Termination occurred within one (1) year following the date of
this Agreement.
ARTICLE IV. PROTECTIVE COVENANTS
4.1 Confidential Information. As a senior management employee of the
Employer, the Executive has access to Confidential Information (as defined
herein). The Executive agrees to maintain the confidentiality of all
Confidential Information throughout the Term and for a period of one (1) year
after the termination of this Agreement. For purposes of this Section, the term
"Confidential Information" means data and information relating to the business
of the Employer which is or has been disclosed to the Executive or of which the
Executive has become aware as a consequence of or through his employment
relationship with the Employer and which has value to the Executive and is not
generally known to its competitors. Confidential Information shall not include
any data or information that has been voluntarily disclosed to the public by the
Employer (except where such public disclosure was effected by the Executive
without authorization) or that has been independently developed and disclosed by
others or that otherwise enters the public domain through law means.
4.2 Covenant Not to Compete. The Executive agrees, acknowledges and
understands that the nature, kind and character of the business conducted by the
Employer is highly competitive. Incident to the Executive engagement hereunder
and for the considerations contained herein, the Executive agrees that:
(1) during the term of this Agreement and for a period of
twelve (12) months following the later of the
termination of this Agreement or the resignation or
Involuntary Termination of Executive, the Executive
will not, in the Georgia counties of Dooly, Crisp,
Macon or Troup:
(a) enter into any employment relationship with
any bank, thrift institution, other entity
providing financial services or an affiliate
of any of the foregoing in a capacity
identical with or substantially similar to
the capacity in which he was employed by the
Employer at the time of his termination of
employment;
(b) directly or indirectly, on his own behalf or
in the service or on behalf of others,
solicit, divert, appropriate or attempt to
solicit, divert or appropriate, any business
from any of the Employer's customers with
whom the Executive has had material contact
during the past two (2) years of the
Executive's employment, for purposes of
providing products or services that are
competitive with those provided by the
Employer; or
(c) on his own behalf or in the service or on
behalf of others, solicit, recruit or hire
away, or attempt to solicit, recruit or hire
away, directly or by assisting others, any
employee of the Employer, whether or not
such employee is a full-time employee,
part-time or temporary employee of the
Employer, and whether or not such employment
is pursuant to a written agreement or is for
a determined period or at will.
2
<PAGE>
The Executive acknowledges that the foregoing covenants are reasonable
and necessary to protect the interests of the Employer.
(2) by virtue of the duties and special knowledge of the
affairs and operations of the Employer that the
Executive has and will obtain as a result of his
employment relationship with the Employer, a breach
or threatened breach by him of the provisions of this
covenant not to compete shall cause irreparable
injury to the Employer and shall entitle the
Employer, in addition to any other remedy, to
injunctive relief against such breach or threatened
breach.
ARTICLE V. MISCELLANEOUS
5.1 Definitions. For purposes of this Agreement the terms set forth
below shall have the following meanings ascribed to them:
(1) "Cause" means conduct (a) constituting fraud or
dishonesty resulting in financial harm to the
Employer or any of its affiliates; (b) constituting a
gross dereliction of the Executive's duties in the
capacity in which he is employed by the Employer; or
(c) which results in the successful criminal
prosecution by federal, state or local authorities
for anything other than a misdemeanor relating to
public safety laws.
(2) "Change in Control" means any one of the following
events which occurs during the term of this Agreement
or any extension:
(a) the acquisition by any person or persons
acting in concert of theoutstanding voting
shares of FLAG Financial Corporation, after
the transaction, the acquiring person or
persons own, control or hold with power to
vote twenty-five percent (25%) or more of
any class of voting securities of FLAG
Financial Corporation or such other
transactions as may be described under 12
C.F.R. ss. 225.41(b)(1) or any successor
thereto; or,
(b) the approval by the stockholders of FLAG
Financial Corporation of a reorganization,
merger, share exchange or consolidation,with
respect to which persons who were the share-
holders of FLAG Financial Corporation
immediately prior to such reorganization,
merger, share exchange or consolidation, do
not, immediately thereafter, own more than
fifty percent (50%) of the combined voting
power entitled to vote at the election of
directors of the reorganized, merged,
exchanged or consolidated company's
then outstanding voting securities; or
(c) the sale, transfer or assignment of all or
substantially all of the assets of FLAG
Financial Corporation to any third party.
3
<PAGE>
(3) "Involuntary Termination" means termination of
Executive by the Employer for any reason other than
for Cause, and shall include for purposes of this
Agreement a material diminution in the compensation,
duties and responsibilities of Executive or a
transfer of the Executive to another location more
than thirty (30) miles from the location of the
office where Executive employed at the time of the
Change in Control.
5.2 Amendment. This Agreement may not be amended (in whole or in part)
orally or by course of performance, but only by a written instrument signed by
both parties.
5.3 Notice. Except as otherwise required under this Agreement, any
notice required or permitted to be given pursuant to this Agreement shall be
sufficiently given:
(1) to the Executive if in writing and personally
delivered, or mailed (and if mailed shall be deemed
given three (3) business days after mailing)
registered or certified mail addressed to the
Executive at the Executive's residence as shown in
the records of the Employer or at such address as the
Executive shall designate in a written notice to the
Employer; and
(2) to the Employer if in writing and personally
delivered to the Chairman or President and CEO of the
Employer or mailed (and if mailed, shall be deemed
given three (3) business days after mailing)
registered or certified mail addressed to FLAG
Financial Corp., P.O. Box 3007, LaGrange, Georgia,
30241, Attn: Chairman or President.
5.4 Binding Effect. This Agreement shall inure to the benefit of and be
binding upon the Executive and upon the Employer and its successors and assigns.
The Executive may not assign his rights and obligations hereunder without the
written consent of the Employer.
5.5 Applicable Law. This Agreement shall be governed by and interpreted
in accordance with the laws of the State of Georgia.
5.6 No Defense. The existence of any claim or cause of action of the
Executive against the Employer, whether predicated on this Agreement or
otherwise, shall not constitute a defense to the enforcement by the Employer of
any covenant contained in this Agreement.
5.7 Survival. The provisions of Article IV shall survive any
termination of this Agreement.
4
<PAGE>
IN WITNESS WHEREOF, the Employer has executed and delivered by its duly
authorized officer, and the Executive has signed, this Agreement all as of the
day and year first above written.
FLAG FINANCIAL CORPORATION
By: /s/ Lee Washam
------------------
Title: Assistant Secretary
EXECUTIVE:
/s/ J. Preston Martin (SEAL)
------------------------------
Print Name: J. Preston Martin
5
<PAGE>
EXHIBIT 10.6
SEPARATION AGREEMENT BETWEEN
J. PRESTON MARTIN AND FLAG FINANCIAL CORPORATION
<PAGE>
SEPARATION AGREEMENT
THIS SEPARATION AGREEMENT is made and effective this 13th day of May,
1998 (the "Effective Date") by and between FLAG FINANCIAL CORPORATION ("FLAG"),
a Georgia corporation (the "Employer"), and J. Preston Martin, an employee of
the Employer (the "Executive").
STATEMENT OF BACKGROUND INFORMATION
A. The Executive currently serves as an officer of the Employer or of
one of its wholly owned subsidiaries.
B. The Employer and the Executive desire to enter into this agreement
to document certain terms and conditions of the Executive's employment
relationship with the Employer.
STATEMENT OF AGREEMENT
NOW, THEREFORE, in consideration of the foregoing, the mutual covenants
and promises herein contained, and other good and valuable consideration, the
sufficiency and receipt of which are hereby acknowledged, the parties agree as
follows:
ARTICLE I. TERM OF AGREEMENT
This Agreement shall remain in effect for an initial term of twelve
(12) months; provided that, at the end of the initial twelve-month period, and
at the end of each twelve-month period thereafter during which this Agreement is
in effect, this Agreement shall automatically be extended for an additional
twelve-month period commencing at the end of the initial twelve-month period or
any subsequent extension thereof, unless either party gives written notice to
the other of its intent not to extend this Agreement. Such written notice shall
be given not less than ninety (90) days prior to the end of the initial
twelve-month period or any subsequent twelve-month period to which this
Agreement has been extended. In the event that notice of non-extension is
properly given, this Agreement shall terminate at the end of the remaining term
then in effect.
ARTICLE II. SEVERANCE BENEFIT
In the event of the Executive's Involuntary Termination of employment
with the Employer during the term of this Agreement for the reasons specified in
Article III below, the Employer shall pay to the Executive an amount equal to
the Executive's base salary and bonus paid over the last three full fiscal years
(or the compensation paid to the Executive for such shorter period as Executive
has been employed) of the Employer or its subsidiary bank immediately preceding
such involuntary termination (the "Severance Benefit"). The Severance Benefit
shall be paid in cash in a lump sum within thirty (30) days following the
Involuntary Termination.
The Employer shall be entitled to withhold appropriate employment and
income taxes, if required by applicable law, should the Severance Benefit become
payable.
<PAGE>
In addition, the insurance policy on The Executive being transferred to
FLAG Financial Corporation will be maintained by the Bank and will totally vest
to The Executive following seven (7) years from the date of this Agreement;
however, provided that in the event of the Executive's Involuntary Termination
of employment with the Employer during the term of this Agreement for the
reasons specified in Article III below, the policy will become fully vested to
the Executive.
ARTICLE III. PAYMENT EVENTS
The Severance Benefit described in Article II above shall become
payable if (a) the Executive's employment is Involuntarily Terminated and either
(i) such Involuntary Termination occurred within six (6) months prior to one (1)
year following a Change in Control as defined in Section 5.1(2) below, or (ii)
such Involuntary Termination occurred within one (1) year following the date of
this Agreement.
ARTICLE IV. PROTECTIVE COVENANTS
4.1 Confidential Information. As a senior management employee of the
Employer, the Executive has access to Confidential Information (as defined
herein). The Executive agrees to maintain the confidentiality of all
Confidential Information throughout the Term and for a period of one (1) year
after the termination of this Agreement. For purposes of this Section, the term
"Confidential Information" means data and information relating to the business
of the Employer which is or has been disclosed to the Executive or of which the
Executive has become aware as a consequence of or through his employment
relationship with the Employer and which has value to the Executive and is not
generally known to its competitors. Confidential Information shall not include
any data or information that has been voluntarily disclosed to the public by the
Employer (except where such public disclosure was effected by the Executive
without authorization) or that has been independently developed and disclosed by
others or that otherwise enters the public domain through law means.
4.2 Covenant Not to Compete. The Executive agrees, acknowledges and
understands that the nature, kind and character of the business conducted by the
Employer is highly competitive. Incident to the Executive engagement hereunder
and for the considerations contained herein, the Executive agrees that:
(1) during the term of this Agreement and for a period of
twelve (12) months following the later of the
termination of this Agreement or the resignation or
Involuntary Termination of Executive, the Executive
will not, in the Georgia counties of Telfair, Dooly,
Crisp, Macon, Troup or Dodge:
(a) enter into any employment relationship with
any bank, thrift institution, other entity
providing financial services or an affiliate
of any of the foregoing in a capacity
identical with or substantially similar to
the capacity in which he was employed by the
Employer at the time of his termination of
employment;
(b) directly or indirectly, on his own behalf or
in the service or on behalf of others,
solicit, divert, appropriate or attempt to
solicit, divert or appropriate, any business
from any of the Employer's customers with
whom the Executive has had material contact
during the past two (2) years of the
2
<PAGE>
Executive's employment, for purposes of
providing products or services that are
competitive with those provided by the
Employer; or
(c) on his own behalf or in the service or on
behalf of others, solicit, recruit or hire
away, or attempt to solicit, recruit or hire
away, directly or by assisting others, any
employee of the Employer, whether or not
such employee is a full-time employee,
part-time or temporary employee of the
Employer, and whether or not such employment
is pursuant to a written agreement or is for
a determined period or at will.
The Executive acknowledges that the foregoing covenants are reasonable
and necessary to protect the interests of the Employer.
(2) by virtue of the duties and special knowledge of the
affairs and operations of the Employer that the
Executive has and will obtain as a result of his
employment relationship with the Employer, a breach
or threatened breach by him of the provisions of this
covenant not to compete shall cause irreparable
injury to the Employer and shall entitle the
Employer, in addition to any other remedy, to
injunctive relief against such breach or threatened
breach.
ARTICLE V. MISCELLANEOUS
5.1 Definitions. For purposes of this Agreement the terms set forth
below shall have the following meanings ascribed to them:
(1) "Cause" means conduct (a) constituting fraud or
dishonesty resulting in financial harm to the
Employer or any of its affiliates; (b) constituting a
gross dereliction of the Executive's duties in the
capacity in which he is employed by the Employer; or
(c) which results in the successful criminal
prosecution by federal, state or local authorities
for anything other than a misdemeanor relating to
public safety laws.
(2) "Change in Control" means any one of the following
events which occurs during the term of this Agreement
or any extension:
(a) the acquisition by any person or persons
acting in concert of the then-outstanding
voting shares of FLAG Financial Corporation,
after the transaction, the acquiring person
or persons own, control or hold with power
to vote twenty-five percent (25%) or more of
any class of voting securities of FLAG
Financial Corporation or such other
transactions as may be described under 12
C.F.R. ss. 225.41(b)(1) or any successor
thereto; or,
(b) the approval by the stockholders of FLAG
Financial Corporation of a reorganization,
merger, share exchange or consolidation,with
respect to which persons who were the share-
holders of FLAG Financial Corporation
immediately prior to such reorganization,
merger, share exchange or consolidation, do
not, immediately thereafter, own more than
fifty percent (50%) of the combined voting
power entitled to vote at the election of
3
<PAGE>
directors of the reorganized, merged,
exchanged or consolidated company's then
outstanding voting securities; or
(c) the sale, transfer or assignment of all or
substantially all of the assets of FLAG
Financial Corporation to any third party.
(3) "Involuntary Termination" means termination of
Executive by the Employer for any reason other than
for Cause, and shall include for purposes of this
Agreement a material diminution in the compensation,
duties and responsibilities of Executive or a
transfer of the Executive to another location more
than thirty (30) miles from the location of the
office where Executive employed at the time of the
Change in Control.
5.2 Amendment. This Agreement may not be amended (in whole or in part)
orally or by course of performance, but only by a written instrument signed by
both parties.
5.3 Notice. Except as otherwise required under this Agreement, any
notice required or permitted to be given pursuant to this Agreement shall be
sufficiently given:
(1) to the Executive if in writing and personally
delivered, or mailed (and if mailed shall be deemed
given three (3) business days after mailing)
registered or certified mail addressed to the
Executive at the Executive's residence as shown in
the records of the Employer or at such address as the
Executive shall designate in a written notice to the
Employer; and
(2) to the Employer if in writing and personally
delivered to the Chairman or President and CEO of the
Employer or mailed (and if mailed, shall be deemed
given three (3) business days after mailing)
registered or certified mail addressed to FLAG
Financial Corp., P.O. Box 3007, LaGrange, Georgia,
30241, Attn: Chairman or President.
5.4 Binding Effect. This Agreement shall inure to the benefit of and be
binding upon the Executive and upon the Employer and its successors and assigns.
The Executive may not assign his rights and obligations hereunder without the
written consent of the Employer.
5.5 Applicable Law. This Agreement shall be governed by and interpreted
in accordance with the laws of the State of Georgia.
5.6 No Defense. The existence of any claim or cause of action of the
Executive against the Employer, whether predicated on this Agreement or
otherwise, shall not constitute a defense to the enforcement by the Employer of
any covenant contained in this Agreement.
5.7 Survival. The provisions of Article IV shall survive any
termination of this Agreement.
4
<PAGE>
IN WITNESS WHEREOF, the Employer has executed and delivered by its duly
authorized officer, and the Executive has signed, this Agreement all as of the
day and year first above written.
FLAG FINANCIAL CORPORATION
By: /s/ John S. Holle
---------------------
Title: President, Chairman of the Board
EXECUTIVE:
/s/ Charles O. Hinely (SEAL)
--------------------------------
Print Name: Charles O. Hinely
Senior Vice President and C.O.O.
5
<PAGE>
EXHIBIT 10.7
SPLIT DOLLAR INSURANCE AGREEMENT BETWEEN
J. DANIEL SPEIGHT, JR. AND CITIZENS BANK
<PAGE>
INSURANCE AGREEMENT
This agreement made this 2nd day of November , 1992 by and between J.
Daniel Speight, Jr. (hereinafter referred to as "Speight") and Citizens Bank, a
banking corporation located in Vienna, Georgia (hereinafter referred to as "the
Bank").
WHEREAS, Speight is the chief executive officer of the Bank and contributed
substantially to the overall success of the Bank by his leadership and
expertise, and,
WHEREAS, Currently, Speight and the Bank are partners to a "Split Dollar
Agreement," dated November 17, 1988, that the parties wish to cancel and,
WHEREAS, as a part of its efforts to retain, reward and motivate Speight,
the Bank wishes to assist him in establishing an adequate life insurance
program.
NOW, THEREFORE, Speight and the Bank and each of them, hereby agree:
1. That certain Split Dollar Agreement between Speight and the Bank and
dated November 17, 1988, is hereby canceled. The insurance contract (Fidelity
and Guaranty Life Insurance Company policy number U776951) having been exchanged
for Southland Life Insurance Company policy number 1943173 (hereinafter referred
to as "the policy") pursuant to Section 1035 of the Internal Revenue Code. The
policy is an Option A with an initial face amount of $1,500,000 in Southland's
Value 100 policy form.
2. The Bank shall pay the premiums due on the policy which are:
Year 1: $46,900 (Paid by 1035 Exchange)
Year 2: $46,900
Year 3: $46,900
Year 4: $46,900
Year 5: $14,126
3. Subject to paragraph five (5.) hereinafter, the Bank shall have an
ownership interest in the policy and its cash values and death
benefit in an amount equal to the aggregate total premiums it has
paid. In addition, should Speight die prior to his retirement, and at
the time of his death the Bank has an ownership interest in the
policy, the Bank shall receive an additional $500,000 of the death
benefit of the policy as key executive life insurance.
4. Subject to the Bank's ownership interest in the policy described in
paragraph 3 herein above, Speight shall have all incidents of
ownership in the policy including the right to surrender or cancel
the policy and the right to borrow or withdraw against the policy.
5. Speight shall have the right to purchase the Bank's interest in the
policy at any time by paying to the Bank the following amounts of
money at the appropriate times:
(a) While employed by the Bank prior to Speight having attained
age 55, subject to subparagraph (b) below, by paying the Bank
an amount of money equal to the premium it has paid, or
(b) Should Speight's employment by the Bank be terminated for any
reason, either by the Bank or by Speight prior to his age 55,
Speight shall have the option to do the following
<PAGE>
(i.) Within one year of the date hereof, withdrawing the sum
of $9,380 from the policy and transferring the policy
to the Bank or purchase the Bank's ownership rights by
paying to the bank an amount of money equal to the
premiums it has paid, less $9,380.
(ii.) Within the second year following the date hereof,
withdrawing the sum of $18,760 from the policy and
transferring the policy to the Bank or purchase the
Bank's ownership rights by paying to the bank an amount
of money equal to the premiums it has paid, less
$18,760.
(iii.) Within the third year following the date hereof,
withdrawing the sum of $28,140 from the policy and
transferring the policy to the Bank or purchase the
Bank's ownership rights by paying to the bank an amount
of money equal to the premiums it has paid, less
$28,140.
(iv.) Within the fourth year following the date hereof,
withdrawing the sum of $37,520 from the policy and
transferring it to the Bank or purchase the Bank's
ownership rights by paying to the bank an amount of
money equal to the premiums it has paid, less $37,520.
(v.) From the beginning of the fifth year following the date
hereof until the date of Speight's fifty-fifth (55)
birthday, withdrawing the sum of $46,900 from the
policy and transferring the policy to the Bank or
purchase the Bank's ownership rights by paying to the
bank an amount of money equal to the premiums it has
paid, less $46,900.
(c) After Speight has attained the age of 55 years and before his age
65 while employed by the Bank, Speight may purchase the Bank's
ownership interest by paying to the Bank an amount of money equal
to 50% of the premiums it has paid, less $46,900, or
(d) After Speight has reached age 65 while employed by the Bank,
the Bank shall have no further ownership interest in the
policy and shall not be entitled to any part of the policy's
cash values or death benefit.
Following Speight's purchase of the Bank's ownership interest,
the Bank shall have no further interest in either the policies
cash values or death benefit.
6. SPEIGHT'S ASSIGNMENT RIGHTS.
Speight may, at any time, assign to any individual, trust or
other organization all right, title and interest in the
subject policy and all rights, options privileges and duties
created under this agreement
7. NAMED FIDUCIARY AND PLAN ADMINISTRATOR.
Ms. Patti Taylor is hereby designated the "named fiduciary"
until resignation or removal by the Board of Directors.
2
<PAGE>
8. FUNDING.
The funding policy for the Split Dollar arrangement shall be
to maintain the subject policy in force by paying, when due,
all premiums required.
9. AMENDMENT.
The Split Dollar plan may be amended at any time and from time
to time, by a written instrument executed by the Bank and
Speight, their successors and assigns.
10. BASIS OF PREMIUM PAYMENTS AND BENEFITS.
Payments to and from the Split Dollar Plan adopted herein
shall be in accordance with the provisions of Paragraphs 3
through 8, inclusive.
11. CLAIMS PROCEDURE FOR LIFE INSURANCE AND SPLIT DOLLAR PLAN.
(a) Claim forms or claim information as to the subject
policy can be obtained by contacting The Benefit
Marketing Group, Inc.
When the named fiduciary has a claim which may be
covered under the insurance policy provisions, he or
she should contact the office or the person named
above, who will either complete a claim form and
forward it to an authorized representative of the
Insurer or advise the named fiduciary what further
requirements are necessary. The Insurer will evaluate
the claim and make a decision as to payment within 90
days of the date the claim is received by the
Insurer. If the claim is payable, a benefit check
will be issued to the named fiduciary and forwarded
through the office or person named above. In the
event that a claim is not eligible under the policy,
the Insurer will notify the named fiduciary of the
denial. Such notification will be made in writing
within 90 days of the date the claim is received, and
will be transmitted through the office or person
named above. The notification will include the
specific reasons for the denial, as well as specific
reference to the policy provisions upon which the
denial is based.
The named fiduciary will also be informed as to the
steps which may be taken to have the claim denial
reviewed.
A decision as to the validity of a claim will
ordinarily be made within 10 working days of the date
the claim is received by the Insurer. Occasionally,
however, certain questions may prevent the Insurer
from rendering a decision on the validity of the
claim within the specific 90-day period. If this
occurs, the named fiduciary will be notified of the
reasons for the delay, as well as the anticipated
length of the delay, in writing and through the
office or person named above. If future information
or other material is required, the named fiduciary
will be so informed.
If the named fiduciary is dissatisfied with the
denial of the claim, or the amount paid, he or she
has 60 days from the date he or she receives notice
of a claim denial or receipt of the amount paid to
file his or her objections to the action taken by the
Insurer. If the named fiduciary wishes to contest a
claim denial, he or she should notify the person or
3
<PAGE>
office named above, who will assist in making inquiry
to the Insurer. All objections to the insurer's
actions should be in writing and submitted to the
person or office named above for transmittal to the
Insurer.
The Insurer will review the claim denial or amount
paid and render a decision on such objections. The
named fiduciary will be informed in writing of the
decision of the Insurer within 60 days of the date
the claim review request is received by the Insurer.
This decision will be final.
(b) Once a decision has been rendered as to the
distribution of proceeds under the claim procedure
described above as to the policy, claims for any
benefits due under the Plan or the surrender of the
policy may be made in writing by Speight or the
Speight's designated beneficiary and Insured (or
his/her assignee) or their designated beneficiary as
the case may be, to the named fiduciary.
In the event a claim for benefits is wholly or partly
denied or disputed, the named fiduciary shall within
a reasonable period of time, after receipt of the
claim, notify Speight or Speight's designated
beneficiary and Insured (or his/her assignee) or
their designated beneficiary as the case may be of
such total or partial denial or dispute listing:
(1) The specific reason or reasons for the denial
or dispute;
(2) Specific reference to pertinent plan
provisions upon which the denial or dispute
is based;
(3) A description of any additional information
necessary for the claimant to perfect the
claim and an explanation of why such
material or information is necessary; and
(4) An explanation of the plan's review
procedure.
Within 60 days of denial or notice of claim under the
plan, a claimant may request that the claim be
reviewed by the named fiduciary in a full and fair
hearing. A final decision shall be rendered by the
named fiduciary within 60 days after receipt of
request for review.
12. AGREEMENT BINDING UPON PARTIES.
This agreement shall bind Bank and Speight, their heirs,
successors, personal representatives and assigns.
13. INSURANCE COMPANY NOT A PARTY TO AGREEMENT.
The Insurer provides this Split Dollar Agreement solely for
the convenience of its policyholders and their counsel, and is
not responsible for its legal or tax validity or effect.
Further, the Insurer shall not be deemed a party to this
agreement, but will respect the rights of the parties as
hereindeveloped, upon receiving an executed copy of this
agreement.
4
<PAGE>
Insurer shall not be responsible to account for the actual
premium contributions of the parties hereunder, but shall rely
solely upon the written declarations of the parties in any
distributions or settlement of the policy's lifetime or death
values. Payment or other performance of its contractual
obligations in accordance with the policy provisions shall
fully discharge the Insurer from any and all liability.
Executed at Unadilla, GA this 2nd day of November, 1992.
---------------------- ---- ---------------
/s/ Ginger Woodward /s/ J. Daniel Speight
-------------------- ----------------------
Witness J. Daniel Speight
/s/ Brenda B. Smith /s/
--------------------- -----------------------
Witness Citizen Bank
5
<PAGE>
DESIGNATION OF BENEFICIARY
Pursuant to the terms of the attached Insurance Agreement, dated the 2nd day of
November , 1992, I hereby designate the following beneficiary(ies) to receive
any payments which may be due under that Agreement after my death:
Primary Beneficiary Robby W. Speight
-----------------
Secondary Beneficiary(ies) Estate of J. Daniel Speight, Jr.
--------------------------------
This designation hereby revokes any prior designation which may have been in
effect.
Dated this 2nd day of November, 1992.
--- ---------------
/s/ Beverly Peavy /s/ Joseph Daniel Speight, Jr.
- -------------------- ------------------------------
Witness Joseph Daniel Speight, Jr.
6
<PAGE>
EXHIBIT 10.8
DIRECTOR INDEXED RETIREMENT PROGRAM
for
CITIZENS BANK
<PAGE>
DIRECTOR'S INDEXED RETIREMENT PROGRAM
I. DEFINITIONS
A. Effective Date:
The effective date of the Citizens Bank Director's Indexed Fee
Continuation Program (the Plan) shall be January 13, 1995.
B. Plan Year:
Any reference to "the Plan Year" shall mean a calendar year
from January 1 to December 31. In the year of implementation,
the term "the year" shall mean the period from the effective
date to December 31 of the year of the effective date.
C. Normal Retirement Date:
The Normal Retirement Date shall mean retirement from service
on the Board of Directors of the Bank (the Board) which
becomes effective on the first day of the calendar month
following the month in which the Director reaches age
sixty-five (65).
D. Early Retirement Date:
Early Retirement Date shall mean a retirement from service or
failure of re-election to the Board which is effective prior
to the Normal Retirement Date stated above.
E. Termination of Service:
Termination of Service shall mean voluntary resignation by the
Director from service on the Board or failure of re-election
to the Board, prior to the Normal Retirement Date.
F. Pre-Retirement Account:
A Pre-Retirement Account shall be established as a liability
reserve account on the books of the bank for the benefit of
each director in the Plan. Prior to the earlier of a
director's termination of service or a director's retirement
(early or normal), such liability reserve account shall be
increased or decreased each year by an amount equal to the
annual earnings or loss for that year determined by the Index
(described in subparagraph I (H) hereinafter), less the Cost
of Funds Expense for that year (described in subparagraph I
(I) hereinafter), divided by the number of participants in the
Plan (as defined in subparagraph I (J) hereinafter) during
that Plan Year. If a Director continues to serve on the board
after normal retirement date, such Director's liability
reserve account shall not be increased pursuant to this
paragraph. In addition, such Director shall not be deemed to
be a Participating Director under subparagraph (J).
<PAGE>
G. Index Retirement Benefit:
The Index Retirement Benefit for each director in the Plan
shall be equal to the annual earnings or loss determined by
the Index [subparagraph I (H)] less the Cost of Funds Expense
[subparagraph I (I)], divided by the number of directors in
the Plan [subparagraph I (J)], for each Plan Year in which the
Index Retirement Benefit is due.
H. Index:
The Index for any Plan Year shall be the aggregate annual
after-tax income from the life insurance contracts described
in the attached Exhibit "A" on the lives of the participating
directors [described in subparagraph I (J)], as defined by
FASB Technical Bulletin 85-4. This Index shall be applied as
if such insurance contracts were purchased on the effective
date of the Plan.
If such contracts of life insurance are actually purchased by
the Bank then the actual policies as of the dates they were
actually purchased shall be used in calculations under this
Agreement. If such contracts of life insurance are not
purchased or are subsequently surrendered or lapsed, then the
Bank shall receive annual policy illustrations from the above
named insurance company(ies) on the increase in value from
such policy(ies) as if they had actually been in force which
will be used to calculate the amount of the Index.
In either case, references to the life insurance contract are
merely for purposes of calculating a benefit. The Bank has no
obligation to purchase such life insurance and, if purchased,
the Director and his beneficiaries shall have no ownership
interest in such policy and shall always have no greater
interest in the benefits under this Agreement than that of an
unsecured creditor of Bank.
I. Cost of Funds Expense:
The Cost of Funds Expense for the year shall be calculated by
taking the sum of the amount of premiums set forth in the
Indexed policies described above (Exhibit "A") plus the amount
of any benefits paid to any director pursuant to the Plan
(Paragraph II hereinafter) plus the amount of all previous
years after-tax Costs of Funds Expense, and multiplying that
sum by the yield on a Treasury instrument maturing two years
from July 1 (or the closest business day) of the Plan Year.
J. Number of Participating Directors:
The number of participating directors for any Plan Year shall
be the number of directors participating in the Plan as of
December 31 of the previous year. Participating directors are
those directors listed on the attached Exhibit B excluding any
of those directors whose service on the Board has terminated
pursuant to subparagraph II (D) hereinafter or who have died.
The policy of a director who is no longer a participating
director because of death or termination of service pursuant
to subparagraph II (D) shall not be considered when computing
the Index [subparagraph (H)] in any Plan Year.
2
<PAGE>
II. INDEX BENEFITS
A. Retirement Benefits:
Those directors who remain on the Board of the Bank until the
"Normal Retirement Date" defined in subparagraph I (C), shall
be entitled to receive the balance in their Pre-Retirement
Account in ten (10) equal annual installments commencing
thirty days following the Director's retirement. In addition
to these payments, the Index Retirement Benefit (as defined in
subparagraph I (G) above) for each Plan Year shall be paid to
the Director until his death, commencing thirty (30) days
following the Director's retirement.
B. Early Retirement or Termination of Service:
Should the Director elect Early Retirement or otherwise
terminate service pursuant to paragraphs I, D or E, the
Director shall be entitled to receive 100%, times the balance
in the Pre-Retirement Account paid over ten (10) years in
equal installments commencing thirty (30) days following the
Director's severance from the Board. In addition to these
payments, one hundred percent (100%) of the Index Retirement
Benefit shall be paid to the Director each year until his
death.
C. Death:
Should the Director die prior to having received that portion
of the Pre-Retirement Account he was entitled to pursuant to
paragraph A or B herein above, as the case may be, the unpaid
balance of the Pre-Retirement Account shall be paid to the
beneficiary selected by the Director and filed with the Bank.
In the absence of or a failure to designate a beneficiary, the
unpaid balance shall be paid in a lump sum to the personal
representative of the Director's estate.
D. Termination of Service for Cause:
Should a director be discharged for cause, all benefits under
this Agreement shall be forfeited. The term "for cause" shall
mean gross negligence or gross neglect or the commission of a
felony or gross misdemeanor involving moral turpitude, fraud,
dishonesty or willful violation of any law that results in any
adverse effect on the Bank. If a dispute arises as to
discharge "for cause", such dispute shall be resolved by
arbitration as set forth in the Director's Agreement.
E. Death Benefit:
Except as set forth above, there is no death benefit provided
under this Agreement.
III. RESTRICTIONS UPON FUNDING
The Bank shall have no obligation to set aside, earmark or entrust any
fund or money with which to pay its obligations under this Agreement.
The directors, their beneficiaries or any successor in interest shall
3
<PAGE>
be and remain simply a general creditor of the Bank in the same manner
as any other creditor having a general claim for matured and unpaid
compensation.
The Bank reserves the absolute right at its sole discretion to either
fund the obligations undertaken by this Agreement or to refrain from
funding the same and to determine the extent, nature and method of such
funding. Should the Bank elect to fund this Agreement, in whole or in
part, through the purchase of life insurance, mutual funds, disability
policies or annuities, the Bank reserves the absolute right, in its
sole discretion, to terminate such funding at any time, in whole or in
part. At no time shall any director be deemed to have any lien nor
right, title or interest in or to any specific funding investment or to
any assets of the Bank. If the Bank elects to invest in a life
insurance, disability or annuity policy upon the life of the Director,
then the Director shall assist the Bank by freely submitting to a
physical exam and supplying such additional information necessary to
obtain such insurance or annuities.
This Director's Indexed Retirement Program adopted this 13th day of January,
1995.
CITIZENS BANK
/s/ Patti S. Davis (/s/) Wendell S. Dunaway
- ----------------------- ------------------------
Witness Chairman of the Board
4
<PAGE>
EXHIBIT A
1. Assumed Insured: Clinton B. Brannen
Insurance Company: Alexander Hamilton Life Insurance Company
Policy Form: Universal Life
Policy Name: Executive Security Plan III
Insured's Age: 55
Riders: None
Ratings: None
Option: A
Face Amount: $158,000
Premiums Paid: $75,000
Number of Premium Payments: One
Assumed Purchase Date: 1/13/95
2. Assumed Insured: Wendell S. Dunaway
Insurance Company: Alexander Hamilton Life Insurance Company
Policy Form: Universal Life
Policy Name: Executive Security Plan III
Insured's Age: 64
Riders: None
Ratings: None
Option: A
Face Amount: $126,000
Premiums Paid: $75,000
Number of Premium Payments: One
Assumed Purchase Date: 1/13/95
3. Assumed Insured: James W. Johnson
Insurance Company: Alexander Hamilton Life Insurance Company
Policy Form: Universal Life
Policy Name: Executive Security Plan III
Insured's Age: 53
Riders: None
Ratings: None
Option: A
Face Amount: $167,000
Premiums Paid: $75,000
Number of Premium Payments: One
Assumed Purchase Date: 1/13/95
5
<PAGE>
4. Assumed Insured: Cecil A. McGraw
Insurance Company: Alexander Hamilton Life Insurance Company
Policy Form: Universal Life
Policy Name: Executive Security Plan III
Insured's Age: 56
Riders: None
Ratings: None
Option: A
Face Amount: $153,000
Premiums Paid: $75,000
Number of Premium Payments: One
Assumed Purchase Date: 1/13/95
5. Assumed Insured: Wayne P. Peavy
Insurance Company: Alexander Hamilton Life Insurance Company
Policy Form: Universal Life
Policy Name: Executive Security Plan III
Insured's Age: 55
Riders: None
Ratings: None
Option: A
Face Amount: $157,000
Premiums Paid: $75,000
Number of Premium Payments: One
Assumed Purchase Date: 1/13/95
6. Assumed Insured: Charles G. Speight, Sr.
Insurance Company: General American Life Insurance Company
Policy Form: Universal Life
Policy Name: Single Premium Universal Life
Insured's Age: 73
Riders: None
Ratings: Table D
Option: A
Face Amount: $105,918
Premiums Paid: $75,000
Number of Premium Payments: One
Assumed Purchase Date: 1/13/95
7. Assumed Insured: Carol D. Arflin
Insurance Company: Security Life of Denver Insurance Company
Policy Form: Whole Life
Policy Name: Corp 4
Insured's Age: 34
Riders: None
Ratings: None
Face Amount: $319,314
Premiums Paid: $75,000
Number of Premium Payments: One
Assumed Purchase Date: 1/13/95
6
<PAGE>
8. Assumed Insured: Larry W. Dunaway
Insurance Company: Security Life of Denver Insurance Company
Policy Form: Whole Life
Policy Name: Corp 4
Insured's Age: 43
Riders: None
Ratings: None
Face Amount: $202,862
Premiums Paid: $75,000
Number of Premium Payments: One
Assumed Purchase Date: 1/13/95
9. Assumed Insured: Ronney S. Ledford
Insurance Company: Security Life of Denver Insurance Company
Policy Form: Whole Life
Policy Name: Corp 4
Insured's Age: 56
Riders: None
Ratings: None
Face Amount: $137,199
Premiums Paid: $75,000
Number of Premium Payments: One
Assumed Purchase Date: 1/13/95
10. Assumed Insured: Michael C. Speight
Insurance Company: Security Life of Denver Insurance Company
Policy Form: Whole Life
Policy Name: Corp 4
Insured's Age: 36
Riders: None
Ratings: None
Face Amount: $254,572
Premiums Paid: $75,000
Number of Premium Payments: One
Assumed Purchase Date: 1/13/95
11. Assumed Insured: Patti S. Davis
Insurance Company: Security Life of Denver Insurance Company
Policy Form: Whole Life
Policy Name: Corp 4
Insured's Age: 38
Riders: None
Ratings: None
Face Amount: $279,535
Premiums Paid: $75,000
Number of Premium Payments: One
Assumed Purchase Date: 1/13/95
7
<PAGE>
12. Assumed Insured: Don G. Davis
Insurance Company: Transamerica Assurance Company
Policy Form: Universal Life
Policy Name: TAC-$aver 2000
Insured's Age: 46
Riders: None
Ratings: None
Option: A
Face Amount: $200,000
Premiums Paid: $75,000
Number of Premium Payments: One
Assumed Purchase Date: 1/13/95
13. Assumed Insured: Charles G. Speight, Jr.
Insurance Company: Transamerica Assurance Company
Policy Form: Universal Life
Policy Name: TAC-$aver 2000
Insured's Age: 49
Riders: None
Ratings: None
Option: A
Face Amount: $170,000
Premiums Paid: $75,000
Number of Premium Payments: One
Assumed Purchase Date: 1/13/95
14. Assumed Insured: J. Daniel Speight, Jr.
Insurance Company: Transamerica Assurance Company
Policy Form: Universal Life
Policy Name: TAC-$aver 2000
Insured's Age: 38
Riders: None
Ratings: None
Option: A
Face Amount: $275,000
Premiums Paid: $75,000
Number of Premium Payments: One
Assumed Purchase Date: 1/13/95
8
<PAGE>
<PAGE>
EXHIBIT B
Director Name: Clinton B. Brannen, Jr.
Address: Route 1, Box 201C
Unadilla, GA 31092
Date of Birth: 2/13/39
Social Security Number: ###-##-####
Director Name: Wendell S. Dunaway
Address: 300 Houston Street
Hawkinsville, GA 31036
Date of Birth: 2/5/30
Social Security Number: ###-##-####
Director Name: James W. Johnson
Address: P.O. Box 626
Hawkinsville, GA 31036
Date of Birth: 8/30/41
Social Security Number: ###-##-####
Director Name: Cecil A. McGraw
Address: 600 Deliesseline Drive
Vienna, GA 31092
Date of Birth: 9/17/38
Social Security Number: ###-##-####
Director Name: Wayne P. Peavy
Address: 625 Old Americus Road
Vienna, GA 31092
Date of Birth: 11/25/39
Social Security Number: ###-##-####
Director Name: Larry W. Dunaway
Address: 770 Thompson Drive
Hawkinsville, GA 31036
Date of Birth: 12/10/51
Social Security Number: ###-##-####
Director Name: Ronney S. Ledford
Address: Route 3
Vienna, GA 31092
Date of Birth: 11/2/38
Social Security Number: ###-##-####
Director Name: Michael C. Speight
Address: Azalea Drive
Unadilla, GA 31091
Date of Birth: 2/27/59
Social Security Number: ###-##-####
9
<PAGE>
Director Name: Don G. Davis
Address: P.O. Box 841
Unadilla, GA 31091
Date of Birth: 8/7/48
Social Security Number: ###-##-####
Director Name: Charles G. Speight, Jr.
Address: Azalea Drive
Unadilla, GA 31091
Date of Birth: 7/7/45
Social Security Number: ###-##-####
Director Name: J. Daniel Speight, Jr.
Address: P.O. Box 156
Vienna, GA 31092
Date of Birth: 1/9/57
Social Security Number: ###-##-####
Director Name: Charles G. Speight, Sr.
Address: P.O. Box 303, 1 Azalea Drive
Unadilla, GA 31091
Date of Birth: 4/2/22
Social Security Number: ###-##-####
Director Name: Patti S. Davis
Address: P.O. Box 628, Azalea Drive
Unadilla, GA 31091
Date of Birth: 12-12-56
Social Security Number: ###-##-####
Director Name: Carol D. Arflin
Address: P.O. Box 555
Unadilla, GA 31091
Date of Birth: 10/8/60
Social Security Number: ###-##-####
10
<PAGE>
EXHIBIT 10.9
FORM OF EXECUTIVE AGREEMENT
(Pursuant to Director Indexed Retirement Program
for Citizens Bank)
for the following individuals:
Carol D. Arflin
Clinton B. Brannen, Jr.
Don G. Davis
Patti S. Davis
Larry W. Dunaway
Wendell S. Dunaway
James W. Johnson
Lisa G. Lane
Ronney S. Ledford
Cecil A. McGraw
Wayne P. Peavy
Michael Phillips
Michael C. Speight
Charles G. Speight, Jr.
Charles G. Speight, Sr.
J. Daniel Speight, Jr.
Benjamin Tew
<PAGE>
FORM OF AGREEMENT
EXECUTIVE INDEXED RETIREMENT PROGRAM
EXECUTIVE AGREEMENT
This Agreement, made and entered into this _____ day of
_______________, by and between Citizens Bank, a Bank organized and existing
under the laws of the State of Georgia, hereinafter referred to as "the Bank,"
and ____________________ , a member of the Board of Directors of the Bank,
hereinafter referred to as "the Executive."
The Executive has been on the Board of the Bank for several years and
has now and for years past faithfully served the Bank. It is the consensus of
the Board of Directors that the Executive's services have been of exceptional
merit, in excess of the compensation paid and an invaluable contribution to the
profits and position of the Bank in its field of activity. The Board further
believes that the Executive's experience, knowledge of corporate affairs,
reputation and industry contacts are of such value and his continued services so
essential to the Bank's future growth and profits that it would suffer severe
financial loss should the Executive terminate his service on the Board.
Accordingly, the Board of the Bank has adopted the Citizens Bank
Executive Indexed Retirement Program (the Plan) and it is the desire of the Bank
and the Executive to enter into this Agreement under which the Bank will agree
to make certain payments to the Executive upon his retirement and to his
beneficiaries in the event of his death pursuant to the Plan.
It is the intent of the parties hereto that this Agreement be
considered an arrangement maintained primarily to provide supplemental
retirement benefits for the Executive, for purposes of the Employee Retirement
Security Act of 1974 (ERISA). The Executive is fully advised of the Bank's
financial status and has had substantial input in the design and operation of
this benefit plan.
Therefore, in consideration of services the Executive has performed in
the past and those to be performed in the future and based upon the mutual
promises and covenants herein contained, the Bank and the Executive agree as
follows:
I. INDEXED PLAN
The Executive is hereby subject to the terms and conditions of the Plan
adopted by the Board of Directors of the Bank to be effective on
January 13, 1995; a copy of the terms and conditions of the Plan being
attached hereto as Exhibit I and made a part hereof by reference.
II. MISCELLANEOUS
A. Alienability and Assignment Prohibition:
Neither the Executive, his widow nor any other beneficiary
under this Agreement shall have any power or right to
transfer, assign, anticipate, hypothecate, mortgage, commute,
modify or otherwise encumber in advance any of the benefits
payable hereunder nor shall any of said benefits be subject to
seizure for the payment of any debts, judgments, alimony or
1
<PAGE>
separate maintenance owed by the Executive or his beneficiary,
nor be transferable by operation of law in the event of
bankruptcy, insolvency or otherwise. In the event the
Executive or any beneficiary attempts assignment, commutation,
hypothecation, transfer or disposal of the benefits hereunder,
the Bank's liabilities shall forthwith cease and terminate.
B. Binding Obligation of the Bank and any Successor in Interest:
The Bank shall not merge or consolidate into or with another
bank or sell substantially all of its assets to another bank,
firm or person until such bank, firm or person expressly
agrees, in writing, to assume and discharge the duties and
obligations of the Bank under this Agreement. This Agreement
shall be binding upon the parties hereto, their successors,
beneficiaries, heirs and personal representatives.
C. Revocation:
It is agreed by and between the parties hereto that, during
the lifetime of the Executive, this Agreement may be amended
or revoked at any time or times, in whole or in part, by the
mutual written consent of the Executive and the Bank.
D. Gender:
Whenever in this Agreement words are used in the masculine or
neuter gender, they shall be read and construed as in the
masculine, feminine or neuter gender, whenever they should so
apply.
E. Effect on Other Bank Benefit Plans:
Nothing contained in this Agreement shall affect the right of
the Executive to participate in or be covered by any qualified
or non-qualified pension, profit-sharing, group, bonus or
other supplemental compensation or fringe benefit plan
constituting a part of the Bank's existing or future
compensation structure.
F. Headings:
Headings and subheadings in this Agreement are inserted for
reference and convenience only and shall not be deemed a part of
this Agreement.
G. Applicable Law:
The validity and interpretation of this Agreement shall be
governed by the laws of the State of Georgia.
III. ERISA PROVISION
A. Named Fiduciary and Plan Administrator:
The "Named Fiduciary and Plan Administrator" of this Plan
shall be the Bank. As Named Fiduciary and Plan Administrator,
the Bank shall be responsible for the management, control and
administration of the Executive's Indexed Retirement Plan as
2
<PAGE>
established herein. The Bank may delegate to others certain
aspects of the management and operation responsibilities of
the Plan including the employment of advisors and the
delegation of ministerial duties to qualified individuals.
B. Claims Procedure and Arbitration:
In the event a dispute arises over benefits under this
Agreement and benefits are not paid to the Executive (or to
his beneficiary in the case of the Executive's death) and such
claimants feel they are entitled to receive such benefits,
then a written claim must be made to the Named Fiduciary and
Plan Administrator named above within sixty (60) days from the
date payments are refused. The Plan Fiduciary and Plan
Administrator and the Bank shall review the written claim and
if the claim is denied, in whole or in part, they shall
provide in writing within sixty (60) days of receipt of such
claim their specific reasons for such denial, reference to the
provisions of this Agreement upon which the denial is based
and any additional material or information necessary to
perfect the claim. Such written notice shall further indicate
the additional steps to be taken by claimants if a further
review of the claim denial is desired. A claim shall be deemed
denied if the Plan Fiduciary and Plan Administrator fail to
take any action within the aforesaid sixty-day period.
If claimants desire a second review they shall notify the Plan
Fiduciary and Plan Administrator in writing within sixty (60)
days of the first claim denial. Claimants may review this
Agreement or any documents relating thereto and submit any
written issues and comments they may feel appropriate. In
their sole discretion, the Plan Fiduciary and Plan
Administrator shall then review the second claim and provide a
written decision within sixty (60) days of receipt of such
claim. This decision shall likewise state the specific reasons
for the decision and shall include reference to specific
provisions of the Plan Agreement upon which the decision is
based.
If claimants continue to dispute the benefit denial based upon
completed performance of this Agreement or the meaning and
effect of the terms and conditions thereof, then claimants may
submit the dispute to a Board of Arbitration for final
arbitration. Said Board shall consist of one member selected
by the claimant, one member selected by the Bank and the third
member selected by the first two members. The Board shall
operate under any generally recognized set of arbitration
rules. The parties hereto agree that they and their heirs,
personal representatives, successors and assigns shall be
bound by the decision of such Board with respect to any
controversy properly submitted to it for determination.
Where a dispute arises as to the Bank's discharge of the
Executive "for cause," such dispute shall likewise be
submitted to arbitration as above described and the parties
hereto agree to be bound by the decision thereunder.
3
<PAGE>
IN WITNESS WHEREOF, the parties hereto acknowledge that each has
carefully read this Agreement and executed the original thereof on the 13th day
of January, 1995, and that, upon execution, each has received a conforming copy.
CITIZENS BANK
- ------------------------------- ---------------------------------
Witness Title
- ------------------------------- ---------------------------------
Witness
4
<PAGE>
EXHIBIT 10.10
FORM OF FLEXIBLE PREMIUM LIFE INSURANCE
ENDORSEMENT METHOD SPLIT DOLLAR PLAN AGREEMENT
(Pursuant to Director Indexed Retirement Program
for Citizens Bank)
for the following individuals:
Carol D. Arflin
Clinton B. Brannen, Jr.
Don G. Davis
Patti S. Davis
Larry W. Dunaway
Wendell S. Dunaway
James W. Johnson
Lisa G. Lane
Ronney S. Ledford
Cecil A. McGraw
Wayne P. Peavy
Michael Phillips
Michael C. Speight
Charles G. Speight, Jr.
Charles G. Speight, Sr.
J. Daniel Speight, Jr.
Benjamin Tew
<PAGE>
1
FLEXIBLE PREMIUM LIFE INSURANCE
ENDORSEMENT METHOD SPLIT DOLLAR PLAN AGREEMENT
Insurer: Security Life of Denver Insurance Company
Policy Number: 1065845
Corporation: Citizens Bank
Insured:
Relationship of Corporation to Insured:Employer
The respective rights and duties of the Corporation and the Insured in
the subject policy shall be as defined in the following:
I. DEFINITIONS
Refer to the policy contract for the definition of all terms in this
Agreement.
II. POLICY TITLE AND OWNERSHIP
Title and ownership shall reside in the Corporation for its use and for
the use of the Insured all in accordance with this Agreement. The
Corporation alone may, to the extent of its interest, exercise the
right to borrow or withdraw on the policy cash values. Where the
Corporation and the Insured (or assignee, with the consent of the
Insured) mutually agree to exercise the right to increase the coverage
under the subject split dollar policy, then, in such event, the rights,
duties and benefits of the parties to such increased coverage shall
continue to be subject to the terms of this Agreement.
III. BENEFICIARY DESIGNATION RIGHTS
The Insured (or assignee) shall have the right and power to designate a
beneficiary or beneficiaries to receive his share of the proceeds
payable upon the death of the Insured and to elect and change a payment
option for such beneficiary, subject to any right or interest the
Corporation may have in such proceeds, as provided in this Agreement.
IV. PREMIUM PAYMENT METHOD
The Corporation shall pay an amount equal to the planned premiums and
any other premium payments that might become necessary to keep the
policy in force.
1
<PAGE>
V. TAXABLE BENEFIT
Annually the Insured will receive a taxable benefit equal to the assumed
cost of insurance as required by the Internal Revenue Service. The
Corporation (or its administrator) will report to the Employee the
amount of imputed income received each year on Form W-2 or its
equivalent.
VI. DIVISION OF DEATH PROCEEDS
Subject to paragraph VII herein, the division of the death proceeds of
the policy is as follows:
A. The Insured's beneficiary(ies), designated in accordance with
Paragraph III, shall be entitled to an amount equal to eighty
percent (80%) of the net at risk insurance portion of the
proceeds. The net at risk insurance portion is the total
proceeds less the cash value of the policy.
B. The Corporation shall be entitled to the remainder of such
proceeds.
C. The Corporation and the Insured (or assignees) shall share in
any interest due on the death proceeds on a pro rata basis as
the proceeds due each respectively bears to the total proceeds,
excluding any such interest.
VII. DIVISION OF THE CASH SURRENDER VALUE OF THE POLICY
The Corporation shall at all times be entitled to an amount equal to the
policy's cash value, as that term is defined in the policy contract,
less any policy loans and unpaid interest or cash withdrawals previously
incurred by the Corporation and any applicable surrender charges. Such
cash value shall be determined as of the date of surrender or death as
the case may be.
VIII. PREMIUM WAIVER
If the policy contains a premium waiver provision, such waived amounts
shall be considered for all purposes of this Agreement as having been
paid by the Corporation.
IX. RIGHTS OF PARTIES WHERE POLICY ENDOWMENT OR ANNUITY ELECTION EXISTS
In the event the policy involves an endowment or annuity element, the
Corporation's right and interest in any endowment proceeds or annuity
benefits, on expiration of the deferment period, shall be determined
under the provisions of this Agreement by regarding such endowment
proceeds or the commuted value of such annuity benefits as the policy's
cash value. Such endowment proceeds or annuity benefits shall be
considered to be like death proceeds for the purposes of division under
this Agreement.
2
<PAGE>
X. TERMINATION OF AGREEMENT
This agreement shall terminate at the option of the Corporation
following thirty (30) days written notice to the Insured upon Insured
being discharged from employment with the Corporation for cause. The
term "for cause" shall mean gross negligence or gross neglect or the
commission of a felony or gross-misdemeanor involving moral turpitude,
fraud, dishonesty or willful violation of any law that results in any
adverse effect on the bank.
Upon such termination, the Insured (or assignee) shall have a ninety
(90) day option to receive from the Corporation an absolute assignment
of the policy in consideration of a cash payment to the Corporation,
whereupon this Agreement shall terminate. Such cash payment shall be
the greater of:
1. The Corporation's share of the cash value of the policy on the
date of such assignment, as defined in this Agreement.
2. The amount of the premiums which have been paid by the
Corporation prior to the date of such assignment.
Should the Insured (or assignee) fail to exercise this option within
the prescribed ninety (90) day period, the Insured (or assignee) agrees
that all of his rights, interest and claims in the policy shall
terminate as of the date of the termination of this Agreement.
XI. INSURED'S OR ASSIGNEE'S ASSIGNMENT RIGHTS
The Insured may not, without the written consent of the Corporation,
assign to any individual, trust or other organization, any right, title
or interest in the subject policy nor any rights, options, privileges
or duties created under this Agreement.
XI. AGREEMENT BINDING UPON THE PARTIES
This Agreement shall bind the Insured and the Corporation, their heirs,
successors, personal representatives and assigns.
XIII. NAMED FIDUCIARY AND PLAN ADMINISTRATOR
Citizens Bank of Vienna, Georgia, is hereby designated the "Named
Fiduciary." As Named Fiduciary, Citizens Bank shall be responsible for
the management, control and administration of this Split Dollar Plan as
established herein. The Named Fiduciary may allocate to others certain
aspects of the management and operation responsibilities of the plan,
including the employment of advisors and the delegation of any
ministerial duties to qualified individuals.
XIV. FUNDING POLICY
The funding policy for this Split Dollar Plan shall be to maintain the
subject policy in force by paying, when due, all premiums required.
3
<PAGE>
XV. CLAIMS PROCEDURE FOR LIFE INSURANCE POLICY AND SPLIT DOLLAR PLAN
Claim forms or claim information as to the subject policy can be
obtained by contacting The Benefit Marketing Group, Inc.
(404-952-1529). When the Named Fiduciary has a claim which may be
covered under the provisions described in the insurance policy, he
should contact the office named above and they will either complete a
claim form and forward it to an authorized representative of the
Insurer or advise the named Fiduciary what further requirements are
necessary. The Insurer will evaluate and make a decision as to payment.
If the claim is payable, a benefit check will be issued to the Named
Fiduciary.
In the event that a claim is not eligible under the policy, the Insurer
will notify the Named Fiduciary of the denial pursuant to the
requirements under the terms of the policy. If the Named Fiduciary is
dissatisfied with the denial of the claim and wishes to contest such
claim denial, he should contact the office named above and they will
assist in making inquiry to the Insurer. All objections to the
Insurer's actions should be in writing and submitted to the office
named above for transmittal to the Insurer.
XVI. GENDER
Whenever in this agreement words are used in the masculine or neuter
gender, they shall be read and construed as in the masculine, feminine
or neuter gender, whenever they should so apply.
XVII. INSURANCE COMPANY NOT A PARTY TO THIS AGREEMENT
The Insurer shall not be deemed a party to this Agreement, but will
respect the rights of the parties as herein developed upon receiving an
executed copy of this Agreement. Payment or other performance in
accordance with the policy provisions shall fully discharge the Insurer
for any and all liability.
Executed at Vienna, Georgia, this 13th day of January, 1995.
CITIZENS BANK
By
- ---------------------------- --------------------------------
Witness Title
By:
- ---------------------------- --------------------------------
Witness
4
<PAGE>
EXHIBIT 10.12
DIRECTOR'S INDEXED FEE CONTINUATION PROGRAM
for
FIRST FEDERAL SAVINGS BANK OF LAGRANGE
<PAGE>
FIRST FEDERAL SAVINGS BANK OF LAGRANGE
DIRECTOR'S INDEXED FEE CONTINUATION PROGRAM
I. DEFINITIONS
A. Effective Date:
The Effective Date of the First Federal Savings Bank of
LaGrange Director's Indexed Fee Continuation Program (the
Plan) shall be February 3, 1995.
B. Plan Year:
Any reference to "the Plan Year" shall mean a calendar year
from January 1 to December 31. In the year of implementation,
the term "the Plan Year" shall mean the period from the
effective date to December 31 of the year of the Effective
Date.
C. Retirement Date:
Retirement Date shall mean retirement from service with the
Bank which becomes effective on the first day of the calendar
month following the month in which the Director reaches age
seventy (70) or such later date as the Director may actually
retire.
D. Termination of Service:
Termination of Service shall mean voluntary resignation by the
Director from service on the Board or failure of re-election
to the Board, prior to the Retirement Date.
E. Pre-Retirement Account:
A Pre-Retirement Account shall be established as a liability
reserve account on the books of the Bank for the benefit of
each director in the Plan. Prior to termination of service or
a director's retirement, such liability reserve account shall
be increased or decreased each Plan Year (including the Plan
Year in which the Director ceases to serve on the Board) by an
amount equal to the annual earnings or loss for that Plan Year
determined by the Index [described in subparagraph I (G)
hereinafter], less the Cost of Funds Expense for that Plan
Year [described in subparagraph I (H) hereinafter], divided by
the number of directors in the Plan [as defined in
subparagraph I (I) hereinafter] during that Plan Year.
F. Index Retirement Benefit:
The Index Retirement Benefit for each director in the Plan
shall be equal to the annual earnings or loss determined by
the Index [subparagraph I (G)] less the Cost of Funds Expense
[subparagraph I (H)], divided by the number of directors in
the Plan [subparagraph I (I)], for each Plan Year in which the
Index Retirement Benefit is due.
<PAGE>
G. Index:
The Index for any Plan Year shall be the aggregate annual
after-tax income from the fife insurance contracts described
in the attached Exhibit "A" on the lives of the participating
directors [described in subparagraph I (I)], as defined by
FASB Technical Bulletin 85-4. This Index shall be applied as
if such insurance contracts were purchased on the effective
date of the Plan.
If such contracts of life insurance are actually purchased by
the Bank then the actual policies as of the dates they were
actually purchased shall be used in calculations under this
Agreement. If such contracts of life insurance are not
purchased or are subsequently surrendered or lapsed, then the
Bank shall receive annual policy illustrations from the above
named insurance company(ies) on the increase in value from
such policy(ies) as if they had actually been in force which
will be used to calculate the amount of the Index.
In either case, references to the life insurance contract are
merely for purposes of calculating a benefit. The Bank has no
obligation to purchase such life insurance and, if purchased,
the Director and his beneficiaries shall have no ownership
interest in such policy and shall always have no greater
interest in the benefits under this Agreement than that of an
unsecured creditor of Bank.
H. Cost of Funds Expense:
The Cost of Funds Expense for any Plan Year shall be
calculated by taking the sum of the amount of premiums set
forth in the Indexed policies described above (Exhibit "A")
plus the amount of any benefits paid to any director pursuant
to the Plan (Paragraph II hereinafter) plus the amount of all
previous years after-tax Costs of Funds Expense, and
multiplying that sum by the average after-tax cost of funds of
the Bank's third quarter Call Report for the Plan Year as
filed with the Office of Thrift Supervision or other primary
Federal Regulator.
I. Number of Participating Directors:
The Number of Participating Directors for any Plan Year shall
be the number of directors (including those in retirement
status) participating in the Plan as of December 31 of the
previous year. Participating directors are those directors
listed on the attached Exhibit B less any of those directors
who have died. The policy of a director who is no longer a
participating director shall not be considered when computing
the Index [subparagraph (G)] in any Plan Year.
J. Change of Control:
Change of Control shall be deemed to be the cumulative
transfer of more than fifty percent (50%) of the voting stock
of the Bank holding company from the Effective Date of this
Agreement. For the purposes of this Agreement, transfers on
account of deaths or gifts, transfers between family members
or transfers to a qualified retirement plan maintained by the
Bank shall not be considered in determining whether there has
been a change in control.
2
<PAGE>
K. Normal Retirement Age:
Normal Retirement Age shall mean the date on which the
Director attains age seventy (65).
II. INDEX BENEFITS
A. Retirement Benefits:
Subject to subparagraph II (C) hereinafter, a director who
remains on the Board of the Bank until his Retirement Date
defined in subparagraph I (C), shall be entitled to receive the
balance in his Pre-Retirement Account in ten (10) equal annual
installments commencing thirty days following the Director's
Retirement Date. In addition to these payments, commencing with
the Plan Year in which the Director attains his Retirement Date,
the Index Retirement Benefit [as defined in subparagraph I (F)
above] for each Plan Year shall be paid to the Director until
his death.
B. Death:
Should the Director die prior to having received the
Pre-Retirement Account, the unpaid balance of the Pre-Retirement
Account shall be paid to the beneficiary selected by the
Director and filed with the Bank. In the absence of or a failure
to designate a beneficiary, the unpaid balance shall be paid in
a lump sum to the personal representative of the Director's
estate.
C. Termination of Service:
Should a Director suffer a Termination of Service [subparagraph
I (D)], he shall be entitled to receive twenty percent (20%),
times his full years of service on the board of the Bank (to a
maximum of 100%), times the balance in the Pre-Retirement
Account paid over ten (10) years in equal installments
commencing at the Director's Normal Retirement Age [subparagraph
I (K)]. In addition to these payments, commencing in the Plan
Year the Director reaches his Normal Retirement Age
[subparagraph I (K)], twenty percent (20%) times full years of
service with the Bank, times the Index Retirement Benefit for
each year shall be paid to the Director until his death.
D. Discharge for Cause:
Should the Director be discharged for cause at any time prior to
his Retirement Date, all Index Benefits under this Agreement
[subparagraphs III (A), (B) or (C)] shall be forfeited. The term
"for cause" shall mean gross negligence or gross neglect or the
commission of a felony or gross-misdemeanor involving moral
turpitude, fraud, dishonesty or willful violation of any law
that results in any adverse effect on the bank. If a dispute
arises as to discharge "for cause," such dispute shall be
resolved by arbitration as set forth in this Agreement.
E. Death Benefit:
Except as set forth above, there is no death benefit provided
under this Agreement.
3
<PAGE>
III. RESTRICTIONS UPON FUNDING
The Bank shall have no obligation to set aside, earmark or entrust any
fund or money with which to pay its obligations under this Agreement.
The directors, their beneficiaries or any successor in interest shall
be and remain simply a general creditor of the Bank in the same manner
as any other creditor having a general claim for matured and unpaid
compensation.
The Bank reserves the absolute right at its sole discretion to either
fund the obligations undertaken by this Agreement or to refrain from
funding the same and to determine the extent, nature and method of such
funding. Should the Bank elect to fund this Agreement, in whole or in
part, through the purchase of life insurance, mutual funds, disability
policies or annuities, the Bank reserves the absolute right, in its
sole discretion, to terminate such funding at any time, in whole or in
part. At no time shall any director be deemed to have any lien nor
right, title or interest in or to any specific funding investment or to
any assets of the Bank.
If the Bank elects to invest in a life insurance, disability or annuity
policy upon the life of the Director, then the Director shall assist
the Bank by freely submitting to a physical exam and supplying such
additional information necessary to obtain such insurance or annuities.
IV. CHANGE OF CONTROL
Upon a Change of Control [as defined in subparagraph I (J) herein], if
the Director is subsequently terminated then he shall receive the
benefits promised in this Agreement upon attaining Normal Retirement
Age, as if he had been continuously serving the Bank until that time.
The Director will also remain eligible for all promised death benefits
in this Agreement. In addition, no sale, merger or consolidation of the
Bank shall take place unless the new or surviving entity expressly
acknowledges the obligations under this Agreement and agrees to abide
by its terms.
This Director's Indexed Retirement Program adopted this 3rd day of
February, 1995.
FIRST FEDERAL SAVINGS BANK OF LAGRANGE
/s/ John S. Holle
--------------------------
Chairman of the Board
4
<PAGE>
EXHIBIT A
1. Assumed Insured: Albert G. Bailey
Insurance Company: Security Life of Denver Insurance Company
Policy Form: Whole Life
Policy Name: Corp 4
Insured's Age: 60
Riders: None
Ratings: None
Face Amount: $245,418
Premiums Paid: $150,000
Number of Premium Payments: One
Assumed Purchase Date: February 3, 1995
2. Assumed Insured: Gordon M. Smith, Sr.
Insurance Company: Security Life of Denver Insurance Company
Policy Form: Whole Life
Policy Name: Corp 4
Insured's Age: 60
Riders: None
Ratings: None
Face Amount: $245,418
Premiums Paid: $150,000
Number of Premium Payments: One
Assumed Purchase Date: February 3, 1995
3. Assumed Insured: John W. Stewart, Jr.
Insurance Company: Security Life of Denver Insurance Company
Policy Form: Whole Life
Policy Name: Corp 4
Insured's Age: 61
Riders: None
Ratings: None
Face Amount: $239,013
Premiums Paid: $150,000
Number of Premium Payments: One
Assumed Purchase Date: February 3, 1995
4. Assumed Insured: John W. Stewart, Jr. (for Kelly R. Linch)
Insurance Company: Security Life of Denver Insurance Company
Policy Form: Whole Life
Policy Name: Corp 4
Insured's Age: 61
Riders: None
Ratings: None
Face Amount: $239,013
Premiums Paid: $150,000
Number of Premium Payments: One
Assumed Purchase Date: February 3, 1995
5
<PAGE>
5. Assumed Insured: Robert W. Walters
Insurance Company: Security Life of Denver Insurance Company
Policy Form: Whole Life
Policy Name: Corp 4
Insured's Age: 62
Riders: None
Ratings: None
Face Amount: $232,705
Premiums Paid: $150,000
Number of Premium Payments: One
Assumed Purchase Date: February 3, 1995
6. Assumed Insured: Fred A. Durand, III
Insurance Company: Transamerica Assurance Company
Policy Form: Universal Life
Policy Name: TAC $AVER 2000
Insured's Age: 52
Riders: None
Ratings: None
Option: A
Face Amount: $300,000
Premiums Paid: $150,000
Number of Premium Payments: One
Assumed Purchase Date: February 3, 1995
7. Assumed Insured: Hiram S. Burdette, III
Insurance Company: Transamerica Assurance Company
Policy Form: Universal Life
Policy Name: TAC $AVER 2000
Insured's Age: 42
Riders: None
Ratings: None
Option: A
Face Amount: $450,000
Premiums Paid: $150,000
Number of Premium Payments: One
Assumed Purchase Date: February 3, 1995
8. Assumed Insured: Steven P. Teaver
Insurance Company: Transamerica Assurance Company
Policy Form: Universal Life
Policy Name: TAC $AVER 2000
Insured's Age: 43
Riders: None
Ratings: None
Option: A
Face Amount: $450,000
Premiums Paid: $150,000
Number of Premium Payments: One
Assumed Purchase Date: February 3, 1995
6
<PAGE>
9. Assumed Insured: Jacob B. Jarrell, II
Insurance Company: Alexander Hamilton Life Insurance Company
Policy Form: Universal Life
Policy Name: Executive Security Plan II
Insured's Age: 65
Riders: None
Ratings: None
Option: A
Face Amount: $209,000
Premiums Paid: $150,000
Number of Premium Payments: One
Assumed Purchase Date: February 3, 1995
7
<PAGE>
EXHIBIT B
1. Director Name: Albert G. Bailey
Address: 1016 Country Club Drive
LaGrange, GA 30240
Date of Birth: 03/06/35
Social Security Number: ###-##-####
2. Director Name: Hiram S. Burdette, III
Address: 128 Ashling Drive
LaGrange, GA 30240
Date of Birth: 09/17/52
Social Security Number: ###-##-####
3 Director Name: Fred A. Durand, III
Address: 721 Ridgecrest Road
LaGrange, GA 30240
Date of Birth: 02/22/42
Social Security Number: ###-##-####
4. Director Name: Jacob B. Jarrell, III
Address: 650 Azalea Drive
LaGrange, GA 30240
Date of Birth: 03/13/29
Social Security Number: ###-##-####
5. Director Name: Kelly R. Linch
Address: 725 Camellia Drive
LaGrange, GA 30240
Date of Birth: 10/16/42
Social Security Number: ###-##-####
6. Director Name: Gordon M. Smith, Sr.
Address: 748 Lakewood Drive
LaGrange, GA 30240
Date of Birth: 05/26/35
Social Security Number: ###-##-####
7. Director Name: John W. Stewart, Jr.
Address: 740 Camellia Drive
LaGrange, GA 30240
Date of Birth: 07/24/34
Social Security Number: ###-##-####
8
<PAGE>
8. Director Name: Steven P. Teaver
Address: 912 Country Club Road
LaGrange, GA 30240
Date of Birth: 06/04/51
Social Security Number: ###-##-####
9. Director Name: Robert W. Walters
Address: 200 Pine Tree Drive
LaGrange, GA 30240
Date of Birth: 01/15/33
Social Security Number: ###-##-####
9
<PAGE>
EXHIBIT 10.13
FORM OF DIRECTOR AGREEMENT
(Pursuant to Director Indexed Fee Continuation
Program for First Federal Savings Bank of
LaGrange) for the following individuals:
Albert G. Bailey
Hiram S. Burdette, III
Fred A. Durand, III
Jacob B. Jarrell, III
Kelly R. Linch
Gordon M. Smith, Sr.
John W. Stewart, Jr.
Steven P. Teaver
Robert W. Walters
<PAGE>
FORM OF
DIRECTOR INDEXED FEE CONTINUATION PROGRAM
DIRECTOR AGREEMENTS
This Agreement, made and entered into this 3rd day of February, 1995,
by and between First Federal Savings Bank of LaGrange, a Bank organized and
existing under the laws of the State of Georgia, hereinafter referred to as "the
Bank", and _____________________, a member of the Board of Directors of the
Bank, hereinafter referred to as "the Director".
The Director has been on the Board of the Bank for several years and
has now and for years past faithfully served the Bank. It is the consensus of
the Board of Directors that the Director's services have been of exceptional
merit, in excess of the compensation paid and an invaluable contribution to the
profits and position of the Bank in its field of activity. The Board further
believes that the Director's experience, knowledge of corporate affairs,
reputation and industry contacts are of such value and his continued services so
essential to the Bank's future growth and profits that it would suffer severe
financial loss should the Director terminate his service on the Board.
Accordingly, the Board of the Bank has adopted the First Federal
Savings Bank of LaGrange Director Indexed Fee Continuation Program (the Plan)
and it is the desire of the Bank and the Director to enter into this Agreement
under which the Bank will agree to make certain payments to the Director upon
his retirement and to his beneficiaries in the event of his death pursuant to
the Plan.
It is the intent of the parties hereto that this Agreement be
considered an arrangement maintained primarily to provide supplemental
retirement benefits for the Director, for purposes of the Employee Retirement
Security Act of 1974 (ERISA). The Director is fully advised of the Bank's
financial status and has had substantial input in the design and operation of
this benefit plan.
Therefore, in consideration of services the Director has performed in
the past and those to be performed in the future and based upon the mutual
promises and covenants herein contained, the Bank and the Director agree as
follows:
I. INDEXED PLAN
The Director is hereby subject to the terms and conditions of the Plan
adopted by the Board of Directors of the Bank to be effective on February 3,
1995; a copy of the terms and conditions of the Plan being attached hereto as
Exhibit I and made a part hereof by reference.
II. MISCELLANEOUS
A. Alienability and Assignment Prohibition:
Neither the Director, his widow nor any other beneficiary
under this Agreement shall have any power or right to
transfer, assign, anticipate, hypothecate, mortgage, commute,
modify or otherwise encumber in advance any of the benefits
payable hereunder nor shall any of said benefits be subject to
seizure for the payment of any debts, judgments, alimony or
separate maintenance owed by the Director or his beneficiary,
<PAGE>
nor be transferable by operation of law in the event of
bankruptcy, insolvency or otherwise. In the event the Director
or any beneficiary attempts assignment, commutation,
hypothecation, transfer or disposal of the benefits hereunder,
the Bank's liabilities shall forthwith cease and terminate.
B. Binding Obligation of the Bank and any Successor in Interest:
The Bank shall not merge or consolidate into or with another
bank or sell substantially all of its assets to another bank,
firm or person until such bank, firm or person expressly
agrees, in writing, to assume and discharge the duties and
obligations of the Bank under this Agreement. This Agreement
shall be binding upon the parties hereto, their successors,
beneficiaries, heirs and personal representatives.
C. Revocation:
It is agreed by and between the parties hereto that, during
the lifetime of the Director, this Agreement may be amended or
revoked at any time or times, in whole or in part, by the
mutual written consent of the Director and the Bank.
D. Gender:
Whenever in this Agreement words are used in the masculine or
neuter gender, they shall be read and construed as in the
masculine, feminine or neuter gender, whenever they should so
apply.
E. Effect on Other Bank Benefit Plans:
Nothing contained in this Agreement shall affect the right of
the Director to participate in or be covered by any qualified
or non-qualified pension, profit-sharing, group, bonus or
other supplemental compensation or fringe benefit plan
constituting a part of the Bank's existing or future
compensation structure.
F. Headings:
Headings and subheadings in this Agreement are inserted for
reference and convenience only and shall not be deemed a part
of this Agreement.
G. Applicable Law:
The validity and interpretation of this Agreement shall be
governed by the laws of the State of Georgia.
III. ERISA PROVISION
A. Named Fiduciary and Plan Administrator:
The "Named Fiduciary and Plan Administrator" of this Plan
shall be First Federal Savings Bank of LaGrange until his
resignation or removal by the Board of Directors. As Named
Fiduciary and Plan Administrator, First Federal Savings Bank
of LaGrange shall be responsible for the management, control
and administration of the Director's Indexed Fee Continuation
Plan as established herein. The Bank may delegate to others
certain aspects of the management and operation
responsibilities of the Plan including the employment of
advisors and the delegation of ministerial duties to qualified
individuals.
2
<PAGE>
B. Claims Procedure and Arbitration:
In the event a dispute arises over benefits under this
Agreement and benefits are not paid to the Director (or to his
beneficiary in the case of the Director's death) and such
claimants feel they are entitled to receive such benefits,
then a written claim must be made to the Named Fiduciary and
Plan Administrator named above within sixty (60) days from the
date payments are refused. The Plan Fiduciary and Plan
Administrator shall review the written claim and if the claim
is denied, in whole or in part, they shall provide in writing
within sixty (60) days of receipt of such claim their specific
reasons for such denial, reference to the provisions of this
Agreement upon which the denial is based and any additional
material or information necessary to perfect the claim. Such
written notice shall further indicate the additional steps to
be taken by claimants if a further review of the claim denial
is desired. A claim shall be deemed denied if the Plan
Fiduciary and Plan Administrator fail to take any action
within the aforesaid sixty-day period.
If claimants desire a second review they shall notify the Plan
Fiduciary and Plan Administrator in writing within sixty (60)
days of the first claim denial. Claimants may review this
Agreement or any documents relating thereto and submit any
written issues and comments they may feel appropriate. In
their sole discretion, the Plan Fiduciary and Plan
Administrator shall then review the second claim and provide a
written decision within sixty (60) days of receipt of such
claim. This decision shall likewise state the specific reasons
for the decision and shall include reference to specific
provisions of the Plan Agreement upon which the decision is
based.
If claimants continue to dispute the benefit denial based upon
completed performance of this Agreement or the meaning and
effect of the terms and conditions thereof, then claimants may
submit the dispute to a Board of Arbitration for final
arbitration. Said Board shall consist of one member selected
by the claimant, one member selected by the Bank and the third
member selected by the first two members. The Board shall
operate under any generally recognized set of arbitration
rules. The parties hereto agree that they and their heirs,
personal representatives, successors and assigns shall be
bound by the decision of such Board with respect to any
controversy properly submitted to it for determination.
Where a dispute arises as to the Bank's discharge of the
Director "for cause", such dispute shall likewise be submitted
to arbitration as above described and the parties hereto agree
to be bound by the decision thereunder.
IN WITNESS WHEREOF, the parties hereto acknowledge that each has
carefully read this Agreement and executed the original thereof on the 3rd day
of February, 1995, and that, upon execution, each has received a conforming
copy.
FIRST FEDERAL SAVINGS BANK OF LAGRANGE
By:
- ---------------------------- --------------------------------
Witness Title
By:
- ---------------------------- --------------------------------
Witness
3
<PAGE>
EXHIBIT 10.14
FORM OF FLEXIBLE PREMIUM LIFE INSURANCE
ENDORSEMENT METHOD SPLIT DOLLAR PLAN
AGREEMENT (pursuant to Director Indexed Fee
Continuation Program for First Federal Savings Bank of LaGrange)
for the following individuals:
Albert G. Bailey
. Hiram S. Burdette, III
Fred A. Durand, III
Jacob B. Jarrell, III
Kelly R. Linch
Gordon M. Smith, Sr.
. John W. Stewart, Jr.
Steven P. Teaver
Robert W. Walters
<PAGE>
FORM OF FLEXIBLE PREMIUM LIFE INSURANCE
ENDORSEMENT METHOD SPLIT DOLLAR PLAN
Insurer: Security Life of Denver Insurance Company
Policy Number: 001066671
Bank: First Federal Savings Bank of LaGrange
Insured:
Relationship of Bank to Insured: Employer
The respective rights and duties of the Bank and the Insured in the
subject policy shall be as defined in the following:
I. DEFINITIONS
Refer to the policy contract for the definition of all terms in this
Agreement.
II. POLICY TITLE AND OWNERSHIP
Title and ownership shall reside in the Bank for its use and for the
use of the Insured all in accordance with this Agreement. The Bank
alone may, to the extent of its interest, exercise the right to borrow
or withdraw on the policy cash values. Where the Bank and the Insured
(or assignee, with the consent of the Insured) mutually agree to
exercise the right to increase the coverage under the subject split
dollar policy, then, in such event, the rights, duties and benefits of
the parties to such increased coverage shall continue to be subject to
the terms of this Agreement.
III. BENEFICIARY DESIGNATION RIGHTS
The Insured (or assignee) shall have the right and power to designate a
beneficiary or beneficiaries to receive his share of the proceeds
payable upon the death of the Insured and to elect and change a payment
option for such beneficiary, subject to any right or interest the Bank
may have in such proceeds, as provided in this Agreement.
IV. PREMIUM PAYMENT METHOD
The Bank shall pay an amount equal to the planned premiums and any
other premium payments that might become necessary to keep the policy
in force.
<PAGE>
V. TAXABLE BENEFIT
Annually the Insured will receive a taxable benefit equal to the
assumed cost of insurance as required by the Internal Revenue Service.
The Bank (or its administrator) will report to the Employee the amount
of imputed income received each year on Form W-2 or its equivalent.
VI. DIVISION OF DEATH PROCEEDS
Subject to paragraph VII herein, the division of the death proceeds of
the policy is as follows:
A. The Insured's beneficiary(ies), designated in accordance with
Paragraph III, shall be entitled to an amount equal to eighty
percent (80%) of the net at risk insurance portion of the
proceeds. The net at risk insurance portion is the total
proceeds less the cash value of the policy.
B. The Bank shall be entitled to the remainder of such proceeds.
C. The Bank and the Insured (or assignees) shall share in any
interest due on the death proceeds on a pro rata basis as the
proceeds due each respectively bears to the total proceeds,
excluding any such interest.
VII. DIVISION OF THE CASH SURRENDER VALUE OF THE POLICY
The Bank shall at all times be entitled to an amount equal to the
policy's cash value, as that term is defined in the policy contract,
less any policy loans and unpaid interest or cash withdrawals
previously incurred by the Bank and any applicable surrender charges.
Such cash value shall be determined as of the date of surrender or
death as the case may be.
VIII. PREMIUM WAIVER
If the policy contains a premium waiver provision, such waived amounts
shall be considered for all purposes of this Agreement as having been
paid by the Bank.
IX. RIGHTS OF PARTIES WHERE POLICY ENDOWMENT OR ANNUITY ELECTION EXISTS
In the event the policy involves an endowment or annuity element, the
Bank's right and interest in any endowment proceeds or annuity
benefits, on expiration of the deferment period, shall be determined
under the provisions of this Agreement by regarding such endowment
proceeds or the commuted value of such annuity benefits as the policy's
cash value. Such endowment proceeds or annuity benefits shall be
considered to be like death proceeds for the purposes of division under
this Agreement.
X. TERMINATION OF AGREEMENT
This agreement shall terminate at the option of the Bank following
thirty (30) days written notice to the Insured upon the happening of
any one of the following:
2
<PAGE>
1. The Insured shall leave the employ of the Bank (voluntarily
or involuntarily) prior to five (5) years from the date of
employment, or
2. The Insured shall be discharged from employment with the Bank
for cause. The term "for cause" shall mean gross negligence or
gross neglect or the commission of a felony or
gross-misdemeanor involving moral turpitude, fraud, dishonesty
or willful violation of any law that results in any adverse
effect on the bank.
Upon such termination, the Insured (or assignee) shall have a ninety
(90) day option to receive from the Bank an absolute assignment of the
policy in consideration of a cash payment to the Bank, whereupon this
Agreement shall terminate. Such cash payment shall be the greater of:
1. The Bank's share of the cash value of the policy on the date
of such assignment, as defined in this Agreement.
2. The amount of the premiums which have been paid by the Bank
prior to the date of such assignment.
Should the Insured (or assignee) fail to exercise this option within
the prescribed ninety (90) day period, the Insured (or assignee) agrees
that all of his rights, interest and claims in the policy shall
terminate as of the date of the termination of this Agreement.
Except as provided above, this Agreement shall terminate upon
distribution of the death benefit proceeds in accordance with Paragraph
VI above.
XI. INSURED'S OR ASSIGNEE'S ASSIGNMENT RIGHTS
The Insured may not, without the written consent of the Bank, assign to
any individual, trust or other organization, any right, title or
interest in the subject policy nor any rights, options, privileges or
duties created under this Agreement.
XII. AGREEMENT BINDING UPON THE PARTIES
This Agreement shall bind the Insured and the Bank, their heirs,
successors, personal representatives and assigns.
XIII. NAMED FIDUCIARY AND PLAN ADMINISTRATOR
First Federal Savings Bank of LaGrange is hereby designated the "Named
Fiduciary" until resignation or removal by the board of directors. As
Named Fiduciary, First Federal Savings Bank of LaGrange shall be
responsible for the management, control, and administration of this
Split Dollar Plan as established herein. The Named Fiduciary may
allocate to others certain aspects of the management and operation
responsibilities of the plan, including the employment of advisors and
the delegation of any ministerial duties to qualified individuals.
3
<PAGE>
XIV. FUNDING POLICY
The funding policy for this Split Dollar Plan shall be to maintain the
subject policy in force by paying, when due, all premiums required.
XV. CLAIMS PROCEDURE FOR LIFE INSURANCE POLICY AND SPLIT DOLLAR PLAN
Claim forms or claim information as to the subject policy can be
obtained by contacting The Benefit Marketing Group, Inc.
(404-952-1529). When the Named Fiduciary has a claim which may be
covered under the provisions described in the insurance policy, he
should contact the office named above and they will either complete a
claim form and forward it to an authorized representative of the
Insurer or advise the named Fiduciary what further requirements are
necessary. The Insurer will evaluate and make a decision as to payment.
If the claim is payable, a benefit check will be issued to the Named
Fiduciary.
In the event that a claim is not eligible under the policy, the Insurer
will notify the Named Fiduciary of the denial pursuant to the
requirements under the terms of the policy. If the Named Fiduciary is
dissatisfied with the denial of the claim and wishes to contest such
claim denial, he should contact the office named above and they will
assist in making inquiry to the Insurer. All objections to the
Insurer's actions should be in writing and submitted to the office
named above for transmittal to the Insurer.
XVI. GENDER
Whenever in this agreement words are used in the masculine or neuter
gender, they shall be read and construed as in the masculine, feminine
or neuter gender, whenever they should so apply.
XVII. INSURANCE COMPANY NOT A PARTY TO THIS AGREEMENT
The Insurer shall not be deemed a party to this Agreement, but will
respect the rights of the parties as herein developed upon receiving an
executed copy of this Agreement. Payment or other performance in
accordance with the policy provisions shall fully discharge the Insurer
for any and all liability.
Executed at LaGrange, Georgia, this 3rd day of February, 1995.
FIRST FEDERAL SAVINGS BANK OF LAGRANGE
By:
- ----------------------------- --------------------------------
Witness
By:
- ----------------------------- --------------------------------
Witness
4
<PAGE>
BENEFICIARY DESIGNATION FORM
Primary Designation:
Name Relationship
---- ------------
- -------------------------------- ------------------------------
- -------------------------------- ------------------------------
- -------------------------------- ------------------------------
Contingent Designation:
-----------------------
- -------------------------------- -----------------------------
- -------------------------------- -----------------------------
- -------------------------------- -----------------------------
Date
<PAGE>
EXHIBIT 10.15
FORM OF EXECUTIVE SALARY CONTINUATION
PLAN AGREEMENT BY AND BETWEEN FIRST FEDERAL
SAVINGS BANK OF LAGRANGE and the following
individuals:
John S. Holle
Ellison C. Rudd
<PAGE>
FORM OF INDEXED EXECUTIVE SALARY
CONTINUATION PLAN AGREEMENT
This Agreement, made and entered into this 3rd day of February, 1995,
by and between First Federal Savings Bank of LaGrange, a Bank organized and
existing under the laws of the State of Georgia, hereinafter referred to as "the
Bank," and , a Key Employee and the Executive of the Bank, hereinafter referred
to as "the Executive."
The Executive has been in the employ of the Bank for several years and
has now and for years past faithfully served the Bank. It is the consensus of
the Board of Directors of the bank (the Board) that the Executive's services
have been of exceptional merit, in excess of the compensation paid and an
invaluable contribution to the profits and position of the Bank in its field of
activity. The Board further believes that the Executive's experience, knowledge
of corporate affairs, reputation and industry contacts are of such value and his
continued services are so essential to the Bank's future growth and profits that
it would suffer severe financial loss should the Executive terminate his
services.
Accordingly, it is the desire of the Bank and the Executive to enter
into this Agreement under which the Bank will agree to make certain payments to
the Executive upon his retirement and, alternatively, to his beneficiary(ies) in
the event of his premature death while employed by the Bank.
It is the intent of the parties hereto that this Agreement be
considered an arrangement maintained primarily to provide supplemental
retirement benefits for the Executive, as a member of a select group of
management or highly-compensated employees of the Bank for purposes of the
Employee Retirement Security Act of 1974 (ERISA). The Executive is fully advised
of the Bank's financial status and has had substantial input in the design and
operation of this benefit plan.
Therefore, in consideration of the Executive's services performed in
the past and those to be performed in the future and based upon the mutual
promises and covenants herein contained, the Bank and the Executive, agree as
follows:
I. DEFINITIONS
A. Effective Date:
The Effective Date of this Agreement shall be February 3,
1995.
B. Plan Year:
Any reference to "Plan Year" shall mean a calendar year from
January 1 to December 31. In the year of implementation, the
term "Plan Year" shall mean the period from the effective date
to December 31 of the year of the effective date.
<PAGE>
C. Retirement Date:
Retirement Date shall mean retirement from service with the
Bank which becomes effective on the first day of the calendar
month following the month in which the Executive reaches his
sixty-fifth (65th) birthday or such later date as the
Executive may actually retire.
D. Termination of Service:
Termination of Service shall mean voluntary resignation of
service by the Executive or the Bank's discharge of the
Executive without cause [as defined in subparagraph III (D)
hereinafter], prior to the Normal Retirement Age [described in
subparagraph I (J) hereinafter].
E. Pre-Retirement Account:
A Pre-Retirement Account shall be established as a liability
reserve account on the books of the Bank for the benefit of
the Executive. Prior to termination of service or the
Executive's retirement, such liability reserve account shall
be increased or decreased each Plan Year (including the Plan
Year in which the Executive ceases to serve on the Board) by
an amount equal to the annual earnings or loss for that Plan
Year determined by the Index [described in subparagraph I (G)
hereinafter], less the Cost of Funds Expense for that Plan
Year [described in subparagraph I (H) hereinafter].
F. Index Retirement Benefit:
The Index Retirement Benefit for the Executive for any year
shall be equal to the excess of the annual earnings (if any)
determined by the Index [subparagraph I (G)] for that Plan
Year over the Cost of Funds Expense [subparagraph I (H)] for
that Plan Year.
G. Index:
The Index for any Plan Year shall be the aggregate annual
after-tax income from the life insurance contracts described
hereinafter as defined by FASB Technical Bulletin 85-4. This
Index shall be applied as if such insurance contracts were
purchased on the effective date hereof.
Insurance Company: Guardian Life Insurance Company
of America
Policy Form: Whole Life
Policy Name: Life Paid Up At Age 96
Insured's Age and Sex: __________
Riders: None
Ratings: None
Face Amount: $310,026.00
Premiums Paid: $66,000.00
Number of Premium Payments: Six
Assumed Purchase Date: February 22, 1995
If such contracts of life insurance are actually purchased by
the Bank then the actual policies as of the dates they were
purchased shall be used in calculations under this Agreement.
If such contracts of life insurance are not purchased or are
subsequently surrendered or lapsed, then the Bank shall
receive annual policy illustrations that assume the above
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<PAGE>
described policies were purchased from the above named
insurance company(ies) on the Effective Date from which the
increase in policy value will be used to calculate the amount
of the Index.
In either case, references to the life insurance contract are
merely for purposes of calculating a benefit. The Bank has no
obligation to purchase such life insurance and, if purchased,
the Executive and his beneficiary(ies) shall have no ownership
interest in such policy and shall always have no greater
interest in the benefits under this Agreement than that of an
unsecured general creditor of the Bank.
H. Cost of Funds Expense:
The Cost of Funds Expense for any Plan Year shall be
calculated by taking the sum of the amount of premiums set
forth in the Indexed policies described above plus the amount
of any benefits paid to the Executive pursuant to this
Agreement (Paragraph III hereinafter) plus the amount of all
previous years after-tax Costs of Funds Expense, and
multiplying that sum by the average after-tax cost of funds of
the Bank's third quarter Call Report for the Plan Year as
filed with the Federal Reserve.
I. Change Of Control:
Change of control shall be deemed to be the cumulative
transfer of more than fifty percent (50%) of the voting stock
of the Bank holding company from the Effective Date of this
Agreement. For the purposes of this Agreement, transfers on
account of deaths or gifts, transfers between family members
or transfers to a qualified retirement plan maintained by the
Bank shall not be considered in determining whether there has
been a change in control.
J. Normal Retirement Age:
Normal Retirement Age shall mean the date on which the
Executive attains age sixty-five (65).
II. EMPLOYMENT
No provision of this Agreement shall be deemed to restrict or
limit any existing employment agreement by and between the
Bank and the Executive, nor shall any conditions herein create
specific employment rights to the Executive nor limit the
right of the Employer to discharge the Executive with or
without cause. In a similar fashion, no provision shall limit
the Executive's rights to voluntarily sever his employment at
any time.
III. INDEX BENEFITS
The following benefits provided by the Bank to the Executive
are in the nature of a fringe benefit and shall in no event be
construed to effect nor limit the Executive's current or
prospective salary increases, cash bonuses or profit-sharing
distributions or credits.
A. Retirement Benefits:
Should the Executive continue to be employed by the Bank until
his "Normal Retirement Age" defined in subparagraph I (J), he
shall be entitled to receive the balance in his Pre-Retirement
3
<PAGE>
Account [as defined in subparagraph I (E)] in ten (10) equal
annual installments commencing thirty (30) days following the
Executive's Retirement Date. In addition to these payments,
commencing with the Plan Year in which the Executive attains
his Retirement Date, the Index Retirement Benefit [as defined
in subparagraph I (F) above] for each year shall be paid to
the Executive until his death.
B. Termination of Service:
Subject to subparagraph III (D) hereinafter, should the
Executive suffer a termination of service [defined in
subparagraph I (D)], he shall be entitled to receive twenty
percent (20%), times the number of full years [to a maximum of
one hundred percent (100%)] the Executive has served from the
date of first employment prior to attaining Normal Retirement
Age with the Bank, times the balance in the Pre-Retirement
Account paid over ten (10) years in equal installments
commencing at the Retirement Date [subparagraph I (C)]. In
addition to these payments, twenty percent (20%) times full
years of service with the Bank, times the Index Retirement
Benefit for each year shall be paid to the Executive until his
death.
C. Death:
Should the Executive die prior to having received the full
balance of the Pre-Retirement Account, the unpaid balance of
the Pre-Retirement Account shall be paid in a lump sum to the
beneficiary selected by the Executive and filed with the Bank.
In the absence of or a failure to designate a beneficiary, the
unpaid balance shall be paid in a lump sum to the personal
representative of the Executive's estate.
D. Discharge for Cause:
Should the Executive be discharged for cause at any time prior
to his Retirement Date, all Index Benefits under this
Agreement [subparagraphs III (A), (B) or (C)] shall be
forfeited. The term "for cause" shall mean gross negligence or
gross neglect or the commission of a felony or gross
misdemeanor involving moral turpitude, fraud, dishonesty or
willful violation of any law that results in any adverse
effect on the bank. If a dispute arises as to discharge "for
cause", such dispute shall be resolved by arbitration as set
forth in this Agreement.
E. Death Benefit:
Except as set forth above, there is no death benefit provided
under this Agreement.
IV. RESTRICTIONS UPON FUNDING
The Bank shall have no obligation to set aside, earmark or entrust any
fund or money with which to pay its obligations under this Agreement.
The Executive, his beneficiary(ies) or any successor in interest to him
shall be and remain simply a general creditor of the Bank in the same
manner as any other creditor having a general claim for matured and
unpaid compensation.
The Bank reserves the absolute right at its sole discretion to either
fund the obligations undertaken by this Agreement or to refrain from
funding the same and to determine the exact nature and method of such
funding. Should the Bank elect to fund this Agreement, in whole or in
part, through the purchase of life insurance, mutual funds, disability
policies or annuities, the Bank reserves the absolute right, in its
sole discretion, to terminate such funding at any time, in whole or in
4
<PAGE>
part. At no time shall the Executive be deemed to have any lien or
right, title or interest in or to any specific funding investment or to
any assets of the Bank.
If the Bank elects to invest in a life insurance, disability or annuity
policy upon the life of the Executive, then the Executive shall assist
the Bank by freely submitting to a physical exam and supplying such
additional information necessary to obtain such insurance or annuities.
V. CHANGE OF CONTROL
Upon a Change of Control [as defined in subparagraph I (I) herein], if
the Executive's employment is subsequently terminated then he shall
receive the benefits promised in this Agreement upon attaining Normal
Retirement Age, as if he had been continuously employed by the Bank
until that time. The Executive will also remain eligible for all
promised death benefits in this Agreement. In addition, no sale, merger
or consolidation of the Bank shall take place unless the new or
surviving entity expressly acknowledges the obligations under this
Agreement and agrees to abide by its terms.
VI. MISCELLANEOUS
A. Alienability and Assignment Prohibition:
Neither the Executive, his widow nor any other beneficiary
under this Agreement shall have any power or right to
transfer, assign, anticipate, hypothecate, mortgage, commute,
modify or otherwise encumber in advance any of the benefits
payable hereunder nor shall any of said benefits be subject to
seizure for the payment of any debts, judgments, alimony or
separate maintenance owed by the Executive or his beneficiary,
nor be transferable by operation of law in the event of
bankruptcy, insolvency or otherwise. In the event the
Executive or any beneficiary attempts assignment, commutation,
hypothecation, transfer or disposal of the benefits hereunder,
the Bank's liabilities shall forthwith cease and terminate.
B. Binding Obligation of Bank and any Successor in Interest:
The Bank expressly agrees that it shall not merge or
consolidate into or with another bank or sell substantially
all of its assets to another bank, firm or person until such
bank, firm or person expressly agrees, in writing, to assume
and discharge the duties and obligations of the Bank under
this Agreement. This Agreement shall be binding upon the
parties hereto, their successors, beneficiary(ies), heirs and
personal representatives.
C. Revocation:
It is agreed by and between the parties hereto that, during
the lifetime of the Executive, this Agreement may be amended
or revoked at any time or times, in whole or in part, by the
mutual written assent of the Executive and the Bank.
D. Gender:
Whenever in this Agreement words are used in the masculine or
neuter gender, they shall be read and construed as in the
masculine, feminine or neuter gender, whenever they should so
apply.
5
<PAGE>
E. Effect on Other Bank Benefit Plans:
Nothing contained in this Agreement shall affect the right of
the Executive to participate in or be covered by any qualified
or non-qualified pension, profit-sharing, group, bonus or
other supplemental compensation or fringe benefit plan
constituting a part of the Bank's existing or future
compensation structure.
F. Headings:
Headings and subheadings in this Agreement are inserted for
reference and convenience only and shall not be deemed a part
of this Agreement.
G. Applicable Law:
The validity and interpretation of this Agreement shall be
governed by the laws of the State of Georgia.
VII. ERISA PROVISION
A. Named Fiduciary and Plan Administrator:
The "Named Fiduciary and Plan Administrator" of this plan
shall be The First Federal Savings Bank of LaGrange until its
removal by the Board. As Named Fiduciary and Administrator,
the Bank shall be responsible for the management, control and
administration of the Salary Continuation Agreement as
established herein. He may delegate to others certain aspects
of the management and operation responsibilities of the plan
including the employment of advisors and the delegation of
ministerial duties to qualified individuals.
B. Claims Procedure and Arbitration:
In the event a dispute arises over benefits under this
Agreement and benefits are not paid to the Executive (or to
his beneficiary in the case of the Executive's death) and such
claimants feel they are entitled to receive such benefits,
then a written claim must be made to the Plan Administrator
named above within ninety (90) days from the date payments are
refused. The Plan Administrator shall review the written claim
and if the claim is denied, in whole or in part, they shall
provide in writing within ninety (90) days of receipt of such
claim their specific reasons for such denial, reference to the
provisions of this Agreement upon which the denial is based
and any additional material or information necessary to
perfect the claim. Such written notice shall further indicate
the additional steps to be taken by claimants if a further
review of the claim denial is desired. A claim shall be deemed
denied if the Plan Administrator fails to take any action
within the aforesaid ninety-day period.
If claimants desire a second review they shall notify the Plan
Administrator in writing within ninety (90) days of the first
claim denial. Claimants may review this Agreement or any
documents relating thereto and submit any written issues and
comments they may feel appropriate. In its sole discretion,
the Plan Administrator shall then review the second claim and
provide a written decision within ninety (90) days of receipt
of such claim. This decision shall likewise state the specific
reasons for the decision and shall include reference to
specific provisions of this Agreement upon which the decision
is based.
6
<PAGE>
If claimants continue to dispute the benefit denial based upon
completed performance of this Agreement or the meaning and
effect of the terms and conditions thereof, then claimants may
submit the dispute to a Board of Arbitration for final
arbitration. Said Board shall consist of one member selected
by the claimant, one member selected by the Bank, and the
third member selected by the first two members. The Board
shall operate under any generally recognized set of
arbitration rules. The parties hereto agree that they and
their heirs, personal representatives, successors and assigns
shall be bound by the decision of such Board with respect to
any controversy properly submitted to it for determination.
Where a dispute arises as to the Bank's discharge of the
Executive "for cause", such dispute shall likewise be
submitted to arbitration as above described and the parties
hereto agree to be bound by the decision thereunder.
IN WITNESS WHEREOF, the parties hereto acknowledge that each has
carefully read this Agreement and executed the original thereof on the 3rd day
of February, 1995 and that, upon execution, each has received a conforming copy.
FIRST FEDERAL SAVINGS BANK OF LAGRANGE
By:
- ------------------------------- --------------------------------
Witness Title
By:
- ------------------------------- --------------------------------
Witness
7
<PAGE>
EXHIBIT 10.16
FORM OF FLEXIBLE PREMIUM LIFE INSURANCE
ENDORSEMENT METHOD SPLIT DOLLAR PLAN
AGREEMENT (Pursuant to Executive Salary
Continuation Plan for First Federal Savings Bank of
LaGrange) for the following individuals:
John S. Holle
Ellison C. Rudd
<PAGE>
FORM OF FLEXIBLE PREMIUM LIFE INSURANCE
ENDORSEMENT METHOD SPLIT DOLLAR PLAN AGREEMENT
Insurer: Guardian Life Insurance Company of
America
Policy Number: 3582095
Bank: First Federal Savings Bank of LaGrange
Insured:
Relationship of Bank to Insured: Employer
The respective rights and duties of the Bank and the Insured in the subject
policy shall be as defined in the following:
I. DEFINITIONS
Refer to the-policy contract for the definition of all terms in this
Agreement.
II. POLICY TITLE AND OWNERSHIP
Title and ownership shall reside in the Bank for its use and for the
use of the Insured all in accordance with this Agreement. The Bank
alone may, to the extent of its interest, exercise the right to borrow
or withdraw on the policy cash values. Where the Bank and the Insured
(or assignee, with the consent of the Insured) mutually agree to
exercise the right to increase the coverage under the subject split
dollar policy, then, in such event, the rights, duties and benefits of
the parties to such increased coverage shall continue to be subject to
the terms of this Agreement.
III. BENEFICIARY DESIGNATION RIGHTS
The Insured (or assignee) shall have the right and power to designate a
beneficiary or beneficiaries to receive his share of the proceeds
payable upon the death of the Insured and to elect and change a payment
option for such beneficiary, subject to any right or interest the Bank
may have in such proceeds, as provided in this Agreement.
IV. PREMIUM PAYMENT METHOD
The Bank shall pay an amount equal to the planned premiums and any
other premium payments that might become necessary to keep the policy
in force.
<PAGE>
V. TAXABLE BENEFIT
Annually the Insured will receive a taxable benefit equal to the
assumed cost of insurance as required by the Internal Revenue Service.
The Bank (or its administrator) will report to the Employee the amount
of imputed income received each year on Form W-2 or its equivalent.
VI. DIVISION OF DEATH PROCEEDS
Subject to paragraph VII herein, the division of the death proceeds of
the policy is as follows:
A. The Insured's beneficiary(ies), designated in accordance with
Paragraph III, shall be entitled to an amount equal to eighty
percent (80%) of the net at risk insurance portion of the
proceeds. The net at risk insurance portion is the total
proceeds less the cash value of the policy.
B. The Bank shall be entitled to the remainder of such proceeds.
C. The Bank and the Insured (or assignees) shall share in any
interest due on the death proceeds on a pro rata basis as the
proceeds due each respectively bears to the total proceeds,
excluding any such interest.
VII. DIVISION OF THE CASH SURRENDER VALUE OF THE POLICY
The Bank shall at all times be entitled to an amount equal to the
policy's cash value, as that term is defined in the policy contract,
less any policy loans and unpaid interest or cash withdrawals
previously incurred by the Bank and any applicable surrender charges.
Such cash value shall be determined as of the date of surrender or
death as the case may be.
VIII. PREMIUM WAIVER
If the policy contains a premium waiver provision, such waived amounts
shall be considered for all purposes of this Agreement as having been
paid by the Bank.
IX. RIGHTS OF PARTIES WHERE POLICY ENDOWMENT OR ANNUITY ELECTION EXISTS
In the event the policy involves an endowment or annuity element, the
Bank's right and interest in any endowment proceeds or annuity
benefits, on expiration of the deferment period, shall be determined
under the provisions of this Agreement by regarding such endowment
proceeds or the commuted value of such annuity benefits as the policy's
cash value. Such endowment proceeds or annuity benefits shall be
considered to be like death proceeds for the purposes of division under
this Agreement.
X. TERMINATION OF AGREEMENT
This agreement shall terminate at the option of the Bank following
thirty (30) days written notice to the Insured upon the happening of
any one of the following:
2
<PAGE>
1. The Insured shall leave the employ of the Bank (voluntarily or
involuntarily) prior to five (5) years from the date of
employment, or
2. The Insured shall be discharged from employment with the Bank
for cause. The term "for cause" shall mean gross negligence or
gross neglect or the commission of a felony or gross-misdemeanor
involving moral turpitude, fraud, dishonesty or willful
violation of any law that results in any adverse effect on the
bank.
Upon such termination, the Insured (or assignee) shall have a ninety
(90) day option to receive from the Bank an absolute assignment of the
policy in consideration of a cash payment to the Bank, whereupon this
Agreement shall terminate. Such cash payment shall be the greater of:
1. The Bank's share of the cash value of the policy on the date
of such assignment, as defined in this Agreement.
2. The amount of the premiums which have been paid by the Bank
prior to the date of such assignment.
Should the Insured (or assignee) fail to exercise this option within
the prescribed ninety (90) day period, the Insured (or assignee) agrees
that all of his rights, interest and claims in the policy shall
terminate as of the date of the termination of this Agreement.
Except as provided above, this Agreement shall terminate upon
distribution of the death benefit proceeds in accordance with paragraph
VI above.
XI. INSURED'S OR ASSIGNEE'S ASSIGNMENT RIGHTS
The Insured may not, without the written consent of the Bank, assign to
any individual, trust or other organization, any right, title or
interest in the subject policy nor any rights, options, privileges or
duties created under this Agreement.
XII. AGREEMENT BINDING UPON THE PARTIES
This Agreement shall bind the Insured and the Bank, their heirs,
successors, personal representatives and assigns.
XIII. NAMED FIDUCIARY AND PLAN ADMINISTRATOR
First Federal Savings Bank of LaGrange is hereby designated the "Named
Fiduciary" until resignation or removal by the board of directors. As
Named Fiduciary, First Federal Savings Bank of LaGrange shall be
responsible for the management, control, and administration of this
Split Dollar Plan as established herein. The Named Fiduciary may
allocate to others certain aspects of the management and operation
responsibilities of the plan, including the employment of advisors and
the delegation of any ministerial duties to qualified individuals.
3
<PAGE>
XIV. FUNDING POLICY
The funding policy for this Split Dollar Plan shall be to maintain the
subject policy in force by paying, when due, all premiums required.
XV. CLAIMS PROCEDURE FOR LIFE INSURANCE POLICY AND SPLIT DOLLAR PLAN
Claim forms or claim information as to the subject policy can be
obtained by contacting The Benefit Marketing Group, Inc.
(404-952-1529). When the Named Fiduciary has a claim which may be
covered under the provisions described in the insurance policy, he
should contact the office named above and they will either complete a
claim form and forward it to an authorized representative of the
Insurer or advise the named Fiduciary what further requirements are
necessary. The Insurer will evaluate and make a decision as to payment.
If the claim is payable, a benefit check will be issued to the Named
Fiduciary.
In the event that a claim is not eligible under the policy, the Insurer
will notify the Named Fiduciary of the denial pursuant to the
requirements under the terms of the policy. If the Named Fiduciary is
dissatisfied with the denial of the claim and wishes to contest such
claim denial, he should contact the office named above and they will
assist in making inquiry to the Insurer. All objections to the
Insurer's actions should be in writing and submitted to the office
named above for transmittal to the Insurer.
XVI. GENDER
Whenever in this agreement words are used in the masculine or neuter
gender, they shall be read and construed as in the masculine, feminine
or neuter gender, whenever they should so apply.
XVII. INSURANCE COMPANY NOT A PARTY TO THIS AGREEMENT
The Insurer shall not be deemed a party to this Agreement, but will
respect the rights of the parties as herein developed upon receiving an
executed copy of this Agreement. Payment or other performance in
accordance with the policy provisions shall fully discharge the Insurer
for any and all liability.
Executed at LaGrange, Georgia, this 3rd day of February, 1995.
FIRST FEDERAL SAVINGS BANK OF LAGRANGE
By:
- ------------------------------- ------------------------------
Witness Title
By:
- ------------------------------- ------------------------------
Witness
4
<PAGE>
BENEFICIARY DESIGNATION FORM
Primary Designation:
Name Relationship
---- ------------
- ---------------------------------- -------------------------------
- ---------------------------------- -------------------------------
- ---------------------------------- -------------------------------
Contingent Designation:
- ---------------------------------- -------------------------------
- ---------------------------------- -------------------------------
- ---------------------------------- -------------------------------
7/20/95
- ---------------------------------- -------------------------------
John S. Holle Date
<PAGE>
EXHIBIT 10.17
INDEXED EXECUTIVE SALARY CONTINUATION
PLAN AGREEMENT BY AND BETWEEN
FIRST FEDERAL BANK OF LAGRANGE
and
WILLIAM F. HOLLE, JR.
<PAGE>
INDEXED EXECUTIVE SALARY CONTINUATION PLAN AGREEMENT
This Agreement, made and entered into this 3rd day of February, 1995, by
and between First Federal Savings Bank of LaGrange, a Bank organized and
existing under the laws of the State of Georgia, hereinafter referred to as "the
Bank", and William F. Holle, Jr., hereinafter referred to as "Holle, Jr."
Holle, Jr. was in the employ of the Bank for several years during which
time he faithfully served the Bank. It is the consensus of the Board of
Directors of the Bank (the Board) that Holle, Jr.'s services have been of
exceptional merit, in excess of the compensation paid and an invaluable
contribution to the profits and position of the Bank. The Board further believes
that Holle Jr.'s experience, knowledge of corporate affairs, reputation and
industry contacts are of extreme value and his continued goodwill is also
essential to the Bank's future growth and profits.
Accordingly, it is the desire of the Bank and Holle, Jr. to enter into
this Agreement under which the Bank will agree to make certain payments to
Holle, Jr.
It is the intent of the parties hereto that this Agreement be considered
an arrangement maintained primarily to provide supplemental retirement benefits
for Holle, Jr., as a member of a select group of management or
highly-compensated employees of the Bank for purposes of the Employee Retirement
Security Act of 1974 (ERISA). Holle, Jr. is fully advised of the Bank's
financial status and has had substantial input in the design and operation of
this benefit plan.
Therefore, in consideration of Holle, Jr.'s services performed in the
past and his continued goodwill in the future and based upon the mutual promises
and covenants herein contained, the Bank and Holle, Jr., agree as follows:
I. DEFINITIONS
A. Effective Date:
The Effective Date of this Agreement shall be February 3,
995.
B. Plan Year:
Any reference to "Plan Year" shall mean a calendar year from
January 1 to December 31. In the year of implementation, the
term "Plan Year" shall mean the period from the effective date
to December 31 of the year of the effective date.
C. Index Retirement Benefit:
The Index Retirement Benefit for Holle, Jr. for any year
shall be equal to the annual earnings (if any) determined by
the Index [subparagraph I (D) for that Plan Year.
<PAGE>
D. Index:
The Index for any Plan Year shall be the aggregate annual
after-tax income from the life insurance contracts described
hereinafter as defined by FASB Technical Bulletin 85-4. This
Index shall be applied as if such insurance contracts were
purchased on the effective date hereof.
Insurance Company: Alexander Hamilton Life Insurance
Company
Policy Form: Universal Life
Policy Name: Executive Security Plan III
Insured's Age and Sex: 44, Male
Riders: None
Ratings: Table 2
Option: A
Face Amount: $379,000
Premiums Paid: $150,000
Number of Premium Payments: One
Assumed Purchase Date: February 3, 1995
Insurance Company: Alexander Hamilton Life Insurance
Company
Policy Form: Universal Life
Policy Name: Executive Security Plan III
Insured's Age and Sex: 50, Male
Riders: None
Ratings: None
Option: A
Face Amount: $364,000
Premiums Paid: $150,000
Number of Premium Payments: One
Assumed Purchase Date: February 3, 1995
If such contracts of life insurance are actually purchased by
the Bank then the actual policies as of the dates they were
purchased shall be used in calculations under this Agreement.
If such contracts of life insurance are not purchased or are
subsequently surrendered or lapsed, then the Bank shall
receive annual policy illustrations that assume the above
described policies were purchased from the above named
insurance company(ies) on the Effective Date from which the
increase in policy value will be used to calculate the amount
of the Index.
In either case, references to the life insurance contract are
merely for purposes of calculating a benefit. The Bank has no
obligation to purchase such life insurance and, if purchased,
Holle, Jr. and his beneficiary(ies) shall have no ownership
interest in such policy and shall always have no greater
interest in the benefits under this Agreement than that of an
unsecured general creditor of the Bank.
2
<PAGE>
II. INDEX BENEFITS
A. Retirement Benefits:
Commencing on the Effective Date hereof the Index Retirement
Benefit [as defined in subparagraph I (D) above] for each year
shall be paid to Holle, Jr. until his death.
B. Death Benefit:
There is no death benefit provided under this Agreement.
III. RESTRICTIONS UPON FUNDING
The Bank shall have no obligation to set aside, earmark or entrust any
fund or money with which to pay its obligations under this Agreement.
Holle, Jr., his beneficiary(ies) or any successor in interest to him
shall be and remain simply a general creditor of the Bank in the same
manner as any other creditor having a general claim for matured and
unpaid compensation.
The Bank reserves the absolute right at its sole discretion to either
fund the obligations undertaken by this Agreement or to refrain from
funding the same and to determine the exact nature and method of such
funding. Should the Bank elect to fund this Agreement, in whole or in
part, through the purchase of life insurance, mutual funds, disability
policies or annuities, the Bank reserves the absolute right, in its
sole discretion, to terminate such funding at any time, in whole or in
part. At no time shall Holle, Jr. be deemed to have any lien or right,
title or interest in or to any specific funding investment or to any
assets of the Bank.
If the Bank elects to invest in a life insurance, disability or annuity
policy upon the life of Holle, Jr., then Holle, Jr. shall assist the
Bank by freely submitting to a physical exam and supplying such
additional information necessary to obtain such insurance or annuities.
IV. MISCELLANEOUS
A. Alienability and Assignment Prohibition:
Neither Holle, Jr., his widow nor any other beneficiary under
this Agreement shall have any power or right to transfer,
assign, anticipate, hypothecate, mortgage, commute, modify or
otherwise encumber in advance any of the benefits payable
hereunder nor shall any of said benefits be subject to seizure
for the payment of any debts, judgments, alimony or separate
maintenance owed by Holle, Jr. or his beneficiary, nor be
transferable by operation of law in the event of bankruptcy,
insolvency or otherwise. In the event Holle, Jr. or any
beneficiary attempts assignment, commutation, hypothecation,
transfer or disposal of the benefits hereunder, the Bank's
liabilities shall forthwith cease and terminate.
B. Binding Obligation of Bank and Any Successor in Interest:
The Bank expressly agrees that it shall not merge or
consolidate into or with another bank or sell substantially
all of its assets to another bank, firm or person until such
bank, firm or person expressly agrees, in writing, to assume
and discharge the duties and obligations of the Bank under
3
<PAGE>
this Agreement. This Agreement shall be binding upon the
parties hereto, their successors, beneficiary(ies), heirs and
personal representatives.
C. Revocation:
It is agreed by and between the parties hereto that, during
the lifetime of Holle, Jr., this Agreement may be amended or
revoked at any time or times, in whole or in part, by the
mutual written assent of Holle, Jr. and the Bank.
D. Gender:
Whenever in this Agreement words are used in the masculine or
neuter gender, they shall be read and construed as in the
masculine, feminine or neuter gender, whenever they should so
apply.
E. Effect on Other Bank Benefit Plans:
Nothing contained in this Agreement shall affect the right of
Holle, Jr. to participate in or be covered by any qualified or
non-qualified pension, profit-sharing, group, bonus or other
supplemental compensation or fringe benefit plan constituting
a part of the Bank's existing or future compensation
structure.
F. Headings:
Headings and subheadings in this Agreement are inserted for
reference and convenience only and shall not be deemed a part
of this Agreement.
G. Applicable Law:
The validity and interpretation of this Agreement shall be
governed by the laws of the State of Georgia.
V. ERISA PROVISION
A. Named Fiduciary and Plan Administrator:
The "Named Fiduciary and Plan Administrator" of this plan
shall be First Federal Savings Bank of LaGrange until its
removal by the Board. As Named Fiduciary and Administrator,
the Bank shall be responsible for the management, control and
administration of the Salary Continuation Agreement as
established herein. He may delegate to others certain aspects
of the management and operation responsibilities of the plan
including the employment of advisors and the delegation of
ministerial duties to qualified individuals.
B. Claims Procedure and Arbitration:
In the event a dispute arises over benefits under this
Agreement and benefits are not paid to Holle, Jr. (or to his
beneficiary in the case of Holle, Jr.'s death) and such
claimants feel they are entitled to receive such benefits,
then a written claim must be made to the Plan Administrator
named above within ninety (90) days from the date payments are
refused. The Plan Administrator shall review the written claim
4
<PAGE>
and if the claim is denied, in whole or in part, they shall
provide in writing within ninety (90) days of receipt of such
claim their specific reasons for such denial, reference to the
provisions of this Agreement upon which the denial is based
and any additional material or information necessary to
perfect the claim. Such written notice shall further indicate
the additional steps to be taken by claimants if a further
review of the claim denial is desired. A claim shall be deemed
denied if the Plan Administrator fails to take any action
within the aforesaid ninety-day period.
If claimants desire a second review they shall notify the Plan
Administrator in writing within ninety (90) days of the first
claim denial. Claimants may review this Agreement or any
documents relating thereto and submit any written issues and
comments they may feel appropriate. In its sole discretion,
the Plan Administrator shall then review the second claim and
provide a written decision within ninety (90) days of receipt
of such claim. This decision shall likewise state the specific
reasons for the decision and shall include reference to
specific provisions of this Agreement upon which the decision
is based.
If claimants continue to dispute the benefit denial based upon
completed performance of this Agreement or the meaning and
effect of the term and conditions thereof, then claimants may
submit the dispute to a Board of Arbitration for final
arbitration. Said Board shall consist of one member selected
by the claimant, one member selected by the Bank, and the
third member selected by the first two members. The Board
shall operate under any generally recognized set of
arbitration rules. The parties hereto agree that they and
their heirs, personal representatives, successors and assigns
shall be bound by the decision of such Board with respect to
any controversy properly submitted to it for determination.
Where a dispute arises as to the Bank's discharge of Holle,
Jr. "for cause", such dispute shall likewise be submitted to
arbitration as above described and the parties hereto agree to
be bound by the decision thereunder.
IN WITNESS WHEREOF, the parties hereto acknowledge that each has
carefully read this Agreement and executed the original thereof on the 3rd day
of February, 1995 and that, upon execution, each has received a conforming copy.
First Federal Savings Bank of LaGrange
/s/ Tracie Alder By: /s/ Ellison C. Rudd
- ---------------- -------------------
Witness Title
/s/ Paula Brooks By: /s/ William F. Holle, Jr.
- ---------------- -------------------------
Witness William F. Holle, Jr.
5
<PAGE>
EXHIBIT 11
COMPUTATION OF PER SHARE EARNINGS
<PAGE>
COMPUTATION OF PER SHARE EARNINGS
1997 1996 1995
Basic earnings per share:
Net earnings......................... $3,748,698 $1,286,248 $3,471,634
Common shares........................ 5,166,857 5,124,474 5,095,568
Per share amount..................... .73 .25 .68
Diluted earnings per share:
Net earnings......................... $3,748,698 $1,286,248 $3,471,634
Effect of dilutive
securities - stock options...... 29,364 12,149 107,660
Diluted earnings per share........... .72 .25 .67
<PAGE>
EXHIBIT 21
SUBSIDIARIES
Subsidiaries of FLAG Financial Corporation
First Federal Savings Bank of LaGrange, a federal savings bank
organized under the laws of the United States
Citizens Bank, a state bank organized under the laws of the State of
Georgia
Bank of Milan, a state bank organized under the laws of the State of
Georgia
Subsidiary of First Federal Savings Bank of LaGrange
Piedmont Mortgage Services, Inc., a Georgia corporation
Subsidiary of Citizens Bank
CB Financial Group, Inc., a Georgia corporation
<TABLE> <S> <C>
<ARTICLE> 9
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> DEC-31-1997
<CASH> 13,350,755
<INT-BEARING-DEPOSITS> 3,168,353
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 71,665,213
<INVESTMENTS-CARRYING> 2,957,971
<INVESTMENTS-MARKET> 2,929,229
<LOANS> 279,285,679
<ALLOWANCE> 3,815,901
<TOTAL-ASSETS> 411,285,074
<DEPOSITS> 324,852,043
<SHORT-TERM> 43,807,494
<LIABILITIES-OTHER> 5,855,152
<LONG-TERM> 0
0
0
<COMMON> 5,171,474
<OTHER-SE> 31,598,911
<TOTAL-LIABILITIES-AND-EQUITY> 411,285,074
<INTEREST-LOAN> 25,848,943
<INTEREST-INVEST> 4,345,060
<INTEREST-OTHER> 448,777
<INTEREST-TOTAL> 30,642,780
<INTEREST-DEPOSIT> 13,175,309
<INTEREST-EXPENSE> 14,646,106
<INTEREST-INCOME-NET> 15,996,674
<LOAN-LOSSES> 765,000
<SECURITIES-GAINS> 171,119
<EXPENSE-OTHER> 15,020,327
<INCOME-PRETAX> 5,543,243
<INCOME-PRE-EXTRAORDINARY> 3,748,698
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3,748,698
<EPS-PRIMARY> 0.73
<EPS-DILUTED> 0.72
<YIELD-ACTUAL> 4.43
<LOANS-NON> 4,669,000
<LOANS-PAST> 0
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 10,579,000
<ALLOWANCE-OPEN> 5,763,000
<CHARGE-OFFS> 2,917,000
<RECOVERIES> 200,000
<ALLOWANCE-CLOSE> 3,816,000
<ALLOWANCE-DOMESTIC> 295,000
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 3,521,000
</TABLE>
