SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(a) OF THE
SECURITIES EXCHANGE ACT OF 1934 (Amendment No. )
|X| Filed by the Registrant
|_| Filed by a Party other than the Registrant
Check the appropriate box:
|_| Preliminary Proxy Statement |_| Confidential, For Use of the
Commission Only (as permitted by
|X| Definitive Proxy Statement Rule 14a-6(e)(2))
|_| Definitive Additional Materials
|_| Soliciting Material Pursuant to Rule 14a-11(c) or Rule 14a-12
FLAG Financial Corporation
(Name of Registrant as Specified in Its Charter)
(Name of Person(s) Filing Proxy Statement, if Other Than the Registrant)
Payment of Filing Fee (Check the appropriate box):
|X| No fee required.
|_| Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
(1) Title of each class of securities to which transaction
applies:__________________
(2) Aggregate number of securities to which transaction
applies:_________________
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which
the filing fee is calculated and state how it was determined):
(4) Proposed maximum aggregate value of transaction: _____________________
(5) Total fee paid: _______________
|_| Fee paid previously with preliminary materials.
|_| Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was
paid previously. Identify the previous filing by registration statement
number, or the form or schedule and the date of its filing.
(1) Amount previously paid: ____________________
(2) Form, Schedule or Registration Statement no.: __________________
(3) Filing Party: ____________________________________________
(4) Date Filed: ________________________________
<PAGE>
FLAG FINANCIAL CORPORATION
NOTICE OF
1998 ANNUAL MEETING
AND
PROXY STATEMENT
<PAGE>
[FLAG FINANCIAL CORPORATION LETTERHEAD]
April 10, 1998
Dear Shareholder:
You are cordially invited to attend the 1998 Annual Meeting of Shareholders
of FLAG Financial Corporation to be held at the Company's headquarters, located
at 101 North Greenwood Street, LaGrange, Georgia, on Wednesday, May 13, 1998 at
2:00 p.m., local time.
The attached Notice of Annual Meeting and Proxy Statement describe the
formal business to be transacted at the Annual Meeting. During the meeting, we
also will report on the operations of the Company and First Federal Savings Bank
of LaGrange, a wholly-owned subsidiary of the Company during the past year, and
the directors and officers of the Company and the Bank will be present to
respond to appropriate questions from shareholders.
I hope that you will be able to attend the Annual Meeting. If you plan to
attend, please mark the appropriate box at the bottom of your proxy card so that
we can make proper arrangements for the anticipated number of guests. Whether or
not you plan to attend the Annual Meeting, please sign, date and promptly return
your proxy card in the enclosed envelope at your earliest convenience. This will
assure that your shares will be represented and voted at the Annual Meeting even
if you are unable to attend.
Sincerely,
/s/ John S. Holle
John S. Holle
Chairman of the Board
<PAGE>
FLAG FINANCIAL CORPORATION
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD MAY 13, 1998
NOTICE HEREBY IS GIVEN that the 1998 Annual Meeting of Shareholders of FLAG
Financial Corporation (the "Company") will be held at the Company's
headquarters, located at 101 North Greenwood Street, LaGrange, Georgia, on
Wednesday, May 13, 1998 at 2:00 p.m., local time, for the purposes of:
(1) Electing three directors of the Company;
(2) Amending the Company's 1994 Employees Stock Incentive Plan, as
described in Proposal 2.
(3) Ratifying the appointment of Porter Keadle Moore,LLP as independent
accountants of the Company for the fiscal year ending December 31,
1998; and
(4) Transacting such other business as properly may come before
the Annual Meeting or any adjournments thereof.
Information relating to matters (1) through (3) above is set forth in the
attached Proxy Statement. Shareholders of record at the close of business on
April 3, 1998 will be entitled to receive notice of and to vote at the Annual
Meeting and any adjournments thereof.
By Order of the Board of Directors.
/s/ Patti S. Davis
Patti S. Davis
Secretary
LaGrange, Georgia
April 10, 1998
PLEASE READ THE ATTACHED PROXY STATEMENT AND THEN PROMPTLY COMPLETE, EXECUTE AND
RETURN THE ENCLOSED PROXY CARD IN THE ACCOMPANYING POSTAGE-PAID ENVELOPE. YOU
CAN SPARE YOUR COMPANY THE EXPENSE OF FURTHER PROXY SOLICITATION BY RETURNING
YOUR PROXY CARD PROMPTLY. IF YOU ATTEND THE ANNUAL MEETING, YOU MAY REVOKE THE
PROXY AND VOTE IN PERSON IF YOU SO DESIRE.
<PAGE>
FLAG FINANCIAL CORPORATION
_________
PROXY STATEMENT
FOR ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD MAY 13, 1998
______________
This Proxy Statement is furnished to the shareholders of FLAG Financial
Corporation (the "Company") in connection with the solicitation of proxies by
the Board of Directors of the Company for use at the 1998 Annual Meeting of
Shareholders of the Company and at any adjournments or postponements thereof
(the "Annual Meeting"). The Annual Meeting will be held on Wednesday, May 13,
1998 at 2:00 p.m. local time at the Company's headquarters, located at 101 North
Greenwood Street, LaGrange, Georgia
The approximate date on which this Proxy Statement and the accompanying
proxy card are first being sent or given to shareholders is April 10, 1998.
VOTING
General
The securities that can be voted at the Annual Meeting consist of common
stock of the Company, $1.00 par value per share ("Common Stock"), with each
share entitling its owner to one vote on each matter submitted to the
shareholders. The record date for determining the holders of Common Stock who
are entitled to notice of and to vote at the Annual Meeting is April 3, 1998
(the "Record Date"). On the Record Date, 3,049,274 shares of Common Stock were
outstanding and eligible to be voted at the Annual Meeting.
Quorum and Vote Required
The presence, in person or by proxy, of a majority of the outstanding
shares of Common Stock is necessary to constitute a quorum at the Annual
Meeting. In counting the votes to determine whether a quorum exists at the
Annual Meeting, the proposal receiving the greatest number of all votes cast
"for" or "against," as well as any abstentions (including instructions to
withhold authority to vote) will be used.
In accordance with Georgia law (under which the Company is organized) and
the Company's Bylaws, the vote required to elect directors (Proposal 1) is a
plurality of the votes cast by the holders of shares entitled to vote, provided
a quorum is present. As a result, abstentions and "broker non-votes" will have
no effect. The proposal to amend the Company's 1994 Employees Stock Incentive
Plan (Proposal 2) and the proposal to ratify the Board of Directors' appointment
of independent accountants for the Company (Proposal 3), will be approved if the
votes cast favoring each proposal exceed the votes cast opposing such proposal,
provided a quorum is present. As a result, abstentions and "broker non-votes"
will have no effect.
Proxies
The accompanying proxy card is for use at the Annual Meeting if a
shareholder is unable to attend in person or is able to attend but does not wish
to vote in person. Shareholders should specify their choices with regard to the
three proposals on the accompanying proxy card. All properly executed and dated
proxy cards delivered by shareholders to the Company in time to be voted at the
Annual Meeting and not revoked will be voted at the Annual Meeting in accordance
with the instructions given. If no specific instructions are given, the shares
represented by a signed and dated proxy card will be voted "FOR" the election of
the three director nominees named in Proposal 1, "FOR" the amendment to the
Company's 1994 Employee Stock Incentive Plan as described in Proposal 2 and
"FOR" the ratification of the Board's selection of independent accountants as
described in Proposal 3. If any other matters properly come before the Annual
Meeting, the persons named as proxies will vote upon such matters according to
their judgment. The Board of Directors is not aware of any other business to be
presented to a vote of the shareholders at the Annual Meeting.
<PAGE>
The giving of a proxy does not affect the right to vote in person should
the shareholder attend the Annual Meeting. Any shareholder who has given a proxy
has the power to revoke it at any time before it is voted by giving written
notice of revocation to Patti S. Davis, the Secretary of the Company, at 101
North Greenwood Street, LaGrange, Georgia 30240; by executing and delivering to
Ms. Davis a proxy card bearing a later date; or by voting in person at the
Annual Meeting.
In addition to soliciting proxies directly, the Company has requested
brokerage firms, nominees, custodians and fiduciaries to forward proxy materials
to the beneficial owners of shares held of record by them. The Company also may
solicit proxies through its directors, officers and employees in person and by
telephone and facsimile, without payment of additional compensation to such
persons. All expenses incurred in connection with the solicitation of proxies
will be borne by the Company.
Stock Ownership
As of December 31, 1997, the 15 directors and executive officers of the
Company beneficially owned 286,304 shares, equal to 14.06%, of the Common Stock
of the Company. See Note (1) on page 6 for the definition of "beneficial
ownership." For information regarding the beneficial ownership of the Company's
Common Stock as of December 31, 1997 by each of the Company's directors and
director nominees and certain executive officers, see "Proposal 1 - Election of
Directors - Information Regarding Nominees and Continuing Directors."
PROPOSAL 1 - ELECTION OF DIRECTORS
Nominees
The Bylaws of the Company provide that the Board of Directors of the
Company shall consist of 12 members who shall be divided into three classes as
nearly equal in number as possible. The directors in each class are elected by
the shareholders for a term of three years or until their successors are elected
and qualified. The term of office of one of the classes of directors expires
each year at the Annual Meeting of Shareholders, and a new class of either three
or four directors is elected by the shareholders each year at that time.
At the Annual Meeting, the terms of Dr. A. Glenn Bailey, Kelly R. Linch,
and J. Daniel Speight, Jr. will expire, and the Board of Directors has nominated
each of these three individuals to stand for re-election as directors at the
Annual Meeting. If elected by the shareholders, each of the nominees will serve
a three-year term which will expire at the 2001 Annual Meeting of Shareholders.
If any of the nominees should be unavailable to serve for any reason (which is
not anticipated), the Board of Directors may designate a substitute nominee or
nominees (in which case the persons named as proxies on the enclosed proxy card
will vote the shares represented by all valid proxy cards for the election of
such substitute nominee or nominees), allow the vacancy or vacancies to remain
open until a suitable candidate or candidates are located, or by resolution
provide for a lesser number of directors.
2
<PAGE>
The Board of Directors unanimously recommends that shareholders vote "FOR"
the proposal to re-elect Dr. A. Glenn Bailey, Kelly R. Linch, and J. Daniel
Speight, Jr. as directors of the Company for a three-year term expiring at the
2001 Annual Meeting of Shareholders or until their successors have been duly
elected and qualified.
Information Regarding Nominees and Continuing Directors
The following table sets forth certain information regarding the three
nominees for director, as well as the seven incumbent directors whose terms as
directors will continue following the Annual Meeting. Except as otherwise
indicated, each of the named persons has been engaged in his present principal
occupation for more than five years. Stock ownership information is as of
December 31, 1997.
PERSONS NOMINATED FOR ELECTION TO SERVE AS DIRECTORS
UNTIL THE 2001 ANNUAL MEETING OF SHAREHOLDERS
<TABLE>
<CAPTION>
Shares of Company
Stock Beneficially
Owned (Percent
Name Business Information of Class)(1)(2)
<S> <C> <C>
Dr. A. Glenn Bailey Dr. Bailey is a physician and surgeon in LaGrange and is 54,890
a director, and from 1980 to 1989 was President, of (2.69%)
Clark-Holder Clinic, a LaGrange medical clinic. He has
been a director of First Federal Savings Bank of
LaGrange, a wholly-owned subsidiary of the Company (the
"Bank"), since 1982 and a director of the Company since
1994. Dr. Bailey is 63.
Kelly R. Linch Mr. Linch is owner of Linch's, Inc., a retail appliance 33,290
and electronics store in LaGrange. He has been a (1.63%)
director of the Bank since 1986 and a director of the
Company since 1994. Mr. Linch also is a director of Key
Distributors of Georgia, Inc. Mr. Linch is 55.
J. Daniel Speight, Jr.(3) Mr. Speight served as Chief Executive Officer and as a 0(4)
director of Middle Georgia Bankshares, Inc. ("Middle (*)
Georgia") from 1989 to March 31, 1998, and has been
President, Chief Executive Officer, and a director of
Citizens Bank since 1984. Mr. Speight is currently the
President, Chief Executive Officer, and a director of the
Company. Mr. Speight is 41.
</TABLE>
3
<PAGE>
<TABLE>
DIRECTORS TO SERVE UNTIL THE 2000 ANNUAL MEETING
OF SHAREHOLDERS
<CAPTION>
Shares of Company
Stock Beneficially
Owned (Percent
Name Business Information of Class)(1)(2)
<S> <C> <C>
H. Speer Burdette, III Mr. Burdette is an owner, director and Vice 9,307
President/Treasurer of J.K. Boatwright & Co., P.C., an (*)
accounting firm located in LaGrange. He has been a
director of the Bank since 1993 and a director of the
Company since 1994. Mr. Burdette is 45.
John S. Holle Mr. Holle has served as Chairman of the Board, President, 32,913
Chief Executive Officer and a director of the Company (1.61%)
since 1993, and he has been President, Chief Executive
Officer and a director of the Bank since 1985 and
Chairman of the Board of the Bank since 1990. Mr. Holle
previously served in various other executive positions
with the Bank after joining the Bank in 1972. Mr. Holle
also has been Chairman of the Board and President of the
Bank's wholly-owned subsidiary, Piedmont Mortgage
Service, Inc., since 1986. Mr. Holle is 47.
John W. Stewart, Jr. Mr. Stewart is an owner, Chairman of the Board and 13,014
President of Stewart Wholesale Hardware Company, a (*)
wholesale grocery and hardware business in LaGrange. He
has been a director of the Bank since 1982 and a director
of the Company since 1994. Mr. Stewart is 63.
Robert W. Walters Mr. Walters retired in March 1996 as owner and director 86,581
of The Mill Store, Inc., a retail and contract floor (4.24%)
covering business in LaGrange. He has been a director of
the Bank since 1982 and a director of the Company since
1994. Mr. Walters is 65.
</TABLE>
4
<PAGE>
<TABLE>
DIRECTORS TO SERVE UNTIL THE 1999 ANNUAL MEETING
OF SHAREHOLDERS
<CAPTION>
Shares of Company
Stock Beneficially
Owned (Percent
Name Business Information of Class)(1)(2)
<S> <C> <C>
Patti S. Davis(3) Ms. Davis served as Executive Vice President and Chief 0(5)
Financial Officer of Middle Georgia from 1994 to March (*)
31, 1998. Ms. Davis has been Senior Vice President and
Chief Financial Officer of Citizens Bank since 1990. Ms.
Davis currently serves as Senior Vice President and
Secretary of the Company. Ms. Davis is 41.
Fred A. Durand, III Mr. Durand is President, Chief Executive Officer and a 11,900
director of Durand-Wayland, Inc., a manufacturer of (*)
produce sorting and spray equipment. He has been a
director of the Bank since 1990 and director of the
Company since 1994. Mr. Durand is 56.
James W. Johnson Mr. Johnson is owner and President of McCranie Motor and 0(6)
Tractor Company, Inc., a retail seller of tractors and (*)
implement equipment. He is the former Chairman of the
Board of Middle Georgia and currently serves as director
of Taylor Regional Hospital in Hawkinsville, Georgia, and
Rock Tenn Corporation. Mr. Johnson is 56.
</TABLE>
5
<PAGE>
<TABLE>
NAMED EXECUTIVE OFFICERS WHO ARE NOT ALSO
NOMINEES OR DIRECTORS
<CAPTION>
Shares of Company
Stock Beneficially
Owned (Percent
Name Business Information of Class)(1)(2)
<S> <C> <C>
Ellison C. Rudd Mr. Rudd has served as Chief Financial Officer and 22,839
Treasurer of the Company since 1994. In addition, Mr. (1.12%)
Rudd served as Executive Vice President of the Company
from 1994 until March 31, 1998, when he became Senior
Vice President of the Company. Mr. Rudd has also been
Executive Vice President of the Bank since 1993 and Chief
Financial Officer and Treasurer of the Bank since 1989,
when he joined the Bank as a Vice President. Mr. Rudd is
53.
All directors and 286,304
executive officers as a (14.06%)
group (15 persons)
</TABLE>
________________
(*) Less than one percent.
(1) Beneficial ownership includes shares of Common Stock as to which a
person possesses sole or shared voting and/or investment power and shares
which may be acquired within 60 days after December 31, 1997 upon the
exercise of outstanding stock options. Shares which may be acquired upon
the exercise of stock options are deemed to be outstanding for the purpose
of computing the percentage of Common Stock owned by a particular
individual but are not deemed to be outstanding for the purpose of
computing the percentage ownership of any other person. To the Company's
knowledge, the named persons have sole voting and investment power with
regard to the shares shown as owned by them except as otherwise referenced
in Note (2) below.
(2) The shares shown include, with regard to Dr. Bailey, 23,370 shares
owned by his wife, 1,400 shares owned by a privately held family
corporation and 5,750 shares which he may acquire upon the exercise of
stock options; with regard to Mr. Burdette, 5,750 shares which he may
acquire upon the exercise of stock options; with regard to Mr. Durand, 110
shares owned by his wife, 290 shares owned by his son and 5,750 shares
which he may acquire upon the exercise of stock options; with regard to Mr.
Holle, 17,947 shares held for his account under the Bank's Profit Sharing
Thrift Plan and 5,000 shares which he may acquire upon the exercise of
stock options; with regard to Mr. Linch, 5,750 shares which he may acquire
upon the exercise of stock options; and with regard to Mr. Rudd, 9,253
shares held for his account under the Bank's Profit Sharing Thrift Plan and
3,750 shares which he may acquire upon the exercise of stock options; with
regard to Mr. Smith, 750 shares owned jointly with his wife and 5,750
shares which he may acquire upon the exercise of stock options; with regard
to Mr. Stewart, 10 shares held as custodian for his minor grandson and
5,750 shares which he may acquire upon the exercise of stock options; with
regard to Dr. Teaver, 5,750 shares which he may acquire upon the exercise
of stock options; with regard to Mr. Walters, 27,800 shares owned jointly
with his wife, 28,000 shares owned by his wife, 281 shares held by Mr.
Walters as custodian for his minor grandson and 5,750 shares which he may
acquire upon the exercise of stock options.
(3) J. Daniel Speight, Jr. and Patti S. Davis are first cousins.
6
<PAGE>
(4) Upon consummation of the merger of Middle Georgia with and into the
Company (the "Middle Georgia Merger") on March 31, 1998, Mr. Speight
beneficially owned 565,062 shares of Company Common Stock, including 4,914
shares in a self-directed IRA, and 560,148 shares held by certain
shareholders of the Company, all of whom are members of the Speight family
(the "Speight Family"), who have executed a Shareholder Agreement dated
December 23, 1992 (the "Shareholder Agreement"), which provides that all
shares subject to the terms and conditions of the Shareholder Agreement are
to be voted by the Voting Committee as set forth in the Shareholder
Agreement (the "Speight Family Voting Committee"). The shares subject to
the Shareholder Agreement include 100,800 shares in the name of Mr.
Speight, 1,118 shares in the name of Mr. Speight as custodian for J. Daniel
Speight, III, 315 shares in the name of Mr. Speight as custodian for
Alexander W. Speight, 1,575 shares in the name of Mr. Speight as Trustee
for Patricia Ruth Davis and 23,278 shares in the name of Sp8Co, Inc. Mr.
Speight disclaims beneficial ownership as to 459,348 shares under the
Shareholder Agreement. The members of the Speight Family Voting Committee
also hold 8,347 shares that are not subject to the Shareholder Agreement.
(5) Upon consummation of the Middle Georgia Merger on March 31, 1998, Ms.
Davis beneficially owned 562,857 shares of Company Common Stock, including
2,709 shares in a self-directed IRA and 560,148 shares held by the Speight
Family under the Shareholder Agreement. The shares subject to the
Shareholder Agreement include 72,686 shares held in Ms. Davis' name and
5,244 shares held in the name of Speight Futures, Inc. Ms. Davis disclaims
beneficial ownership as to 487,462 shares under the Shareholder Agreement.
(6) Upon consummation of the Middle Georgia Merger on March 31, 1998, Mr.
Johnson beneficially owned 96,736 shares of Company Common Stock, including
38,918 shares held in Mr. Johnson's name, 1,811 shares held in the name of
Catherine Johnson, as to which Mr. Johnson disclaims beneficial ownership,
and 56,007 shares held in the name of McCranie Companies Profit Sharing
Plan.
Pursuant to the Agreement and Plan of Merger, dated February 12, 1998, by
and between the Company and Three Rivers Bancshares, Inc. ("Three Rivers"), the
Company has agreed, upon consummation of the merger of Three Rivers with and
into the Company (the "Three Rivers Merger"), to appoint J. Preston Martin, to
the Board of the Company. Mr. Martin has served as the President of Three Rivers
since 1986 and has served as the President of Bank of Milan, Three Rivers'
wholly-owned banking subsidiary, since 1997. Mr. Martin also owns 50% of Wheeler
County Finance, a small loan company located in Alamo, Georgia. Upon
consummation of the Three Rivers Merger, which is expected to close in the
second quarter of 1998, it is expected that Mr. Martin would beneficially own
approximately 206,400 shares of Company Common Stock. Mr. Martin is 44.
Meetings and Committees of the Board of Directors
The Board of Directors of the Company conducts its business through
meetings of the full Board and through joint committees of the Boards of
Directors of the Company and the Bank, including an Audit Committee, an Employee
Benefits and Compensation Committee, and an Executive Committee. During 1997,
the Board of Directors held 15 meetings, the Audit Committee held 4 meetings,
the Employee Benefits and Compensation Committee held 4 meetings, and the
Executive Committee held 12 meetings. Each director attended at least 75% of all
meetings of the full Board of Directors and of each committee of the Board of
which he or she is a member.
The Audit Committee is responsible for reviewing with the Company's
independent accountants their audit plan, the scope and results of their audit
engagement and the accompanying management letter, if any; reviewing the scope
and results of the Company's internal auditing procedures; consulting with the
independent accountants and management with regard to the Company's accounting
methods and the adequacy of the Company's internal accounting controls;
approving professional services provided by the independent accountants;
reviewing the independence of the independent accountants; and reviewing the
range of the independent accountants' audit and non-audit fees. The Audit
Committee is composed of H. Speer Burdette, III, Fred A. Durand, III, and Kelly
R. Linch.
7
<PAGE>
The Employee Benefits and Compensation Committee is responsible for setting
the compensation and benefits of the executive officers and other employees of
the Company and the Bank. The Employee Benefits and Compensation Committee is
composed of Dr. A. Glenn Bailey, Fred A. Durand, III, and Kelly R. Linch.
The Executive Committee is authorized, within certain limitations, to
exercise all of the authority of the Board of Directors during the interval
between Board meetings. Among other functions, the Executive Committee reviews,
on a monthly basis, the reports on the loans made and on savings activities
during the preceding month. The Executive Committee also reviews and ratifies
any investments made by the Company. The Executive Committee consists of Dr. A.
Glenn Bailey, John S. Holle, John W. Stewart, Jr. and Robert W. Walters.
The Board of Directors as a whole functions as a nominating committee to
select management's nominees for election as directors of the Company. The Board
of Directors will consider nominees recommended by shareholders if submitted to
the Company in accordance with the procedures set forth in Section 2.14 of the
Bylaws of the Company. See "Shareholders' Proposals for 1999 Annual Meeting"
below.
Director Compensation
Directors who are not employees of the Company or the Bank receive a fee of
$500 per Board meeting if in attendance. Members of the Executive Committee who
are not employees also receive a fee of $200 per committee meeting if in
attendance, and members of other Board committees who are not employees receive
a fee of $100 per committee meeting if in attendance. Additionally, a Loan
Committee meeting is held weekly among loan origination personnel, with one
director in attendance at each such meeting. Directors who are not employees
receive a fee of $50 per Loan Committee meeting which they attend. Each
non-employee director is permitted one paid absence from meetings of the full
Board and from meetings of each committee of which he is a member. Directors who
are employees of the Company or the Bank receive no directors' fees. The Company
paid a total of $85,250 in directors' fees in 1997.
Pursuant to the Company's 1994 Directors Stock Incentive Plan (the "DSIP")
the Company granted options in March 1994 for the purchase of 5,000 shares of
Common Stock to each of the eight directors who were not employees of the
Company or any of its subsidiaries on the date of grant. Similarly, the DSIP
provides that each person who thereafter becomes a director of the Company and
who is not an employee of the Company or any of its subsidiaries will be granted
an option for the purchase of 5,000 shares of Common Stock upon the commencement
of his or her service as a director. Additionally, the DSIP provides that as of
each March 1st, starting at March 1, 1995 and ending on March 1, 2004, the
non-employee directors as a group on each such date will be entitled to receive
options for the purchase of 6,000 shares of Common Stock which shall be divided
equally among them, but only if the Company's book value as of the December 31st
immediately preceding such March 1st equals or exceeds 106% of the Company's
book value as of the prior December 31st. In accordance with the DSIP, options
for the purchase of 750 shares were granted to each of the eight non-employee
directors as of March 1, 1998. Further, since a "change of control" of the
Company (as defined in the DSIP) occurred on March 31, 1998 upon the closing of
the Middle Georgia Merger, all of the options that remained under the DSIP at
that time (48,625 shares) were granted to and divided equally among all of the
non-employee directors as of the date immediately preceding the "change of
control." All options were granted at an exercise price equal to the fair market
value of a share of Common Stock on the date of grant, vested immediately upon
granting and expire ten years from the date of grant.
8
<PAGE>
Effective as of February 3, 1995, the Bank established an indexed
retirement plan (the "Retirement Plan") to provide retirement benefits to the
directors (as well as a similar plan for certain executive officers). The index
used by the Retirement Plan is the earnings on life insurance policies purchased
on the directors' lives. The Bank retains the tax-free build-up of cash
surrender value in the policies up to the after-tax opportunity costs for
premiums paid on the policies. Any remaining earnings from the policies are
accrued to deferred compensation liability accounts for the directors. The
earnings in a director's account are payable in ten annual installments
commencing 30 days following the director's retirement as a director. No amounts
had been accrued for the benefit of any director (or any executive officer) as
of December 31, 1997.
Additional Information
For additional information that should be considered with regard to the
election of directors, see "Executive Compensation" and "Section 16(a)
Beneficial Ownership Reporting" below.
EXECUTIVE COMPENSATION
Summary of Compensation
The following table summarizes by various categories, for the fiscal years
ended December 31, 1997, 1996, and 1995, the total compensation earned by each
of the Company's executive officers whose total salary and bonus for 1997
exceeded $100,000 (the "Named Executive Officers").
Summary Compensation Table
<TABLE>
<CAPTION>
Long-Term
Annual Compensation(1) Compensation
---------------------- ------------
Name and Securities Underlying All Other
Principal Position Year Salary($) Bonus($) Options(#of shares) Compensation($)(2)
- ------------------ ---- ------------------ ------------------- ------------------
<S> <C> <C> <C> <C> <C>
John S. Holle 1997 $144,200 $8,750 5,000 $16,348
Chairman of the Board, 1996 140,000 0 0 15,902
President, and 1995 128,500 38,550 0 16,334
Chief Executive Officer of
the Company and the Bank
Ellison C. Rudd 1997 $103,000 $6,250 3,750 $12,275
Executive Vice President,1996 100,000 0 0 13,911
Chief Financial Officer, 1995 87,500 21,875 0 11,692
and Treasurer of the
Company and the Bank
</TABLE>
___________________
(1) Excludes any perquisites and other personal benefits received, the
total value of which did not exceed 10% of Mr. Holle's and Mr. Rudd's total
annual salary and bonus, respectively. See also "Employment Agreements"
below.
(2) For 1997, 1996 and 1995, respectively, the amounts shown consist of the
aggregate contributions made by the Bank on behalf of Mr. Holle and Mr.
Rudd pursuant to the Bank's Profit Sharing Thrift Plan and the Bank's
Section 401(k) Plan ($13,734, $13,809 and $14,462 for Mr. Holle and
$11,389, $13,434 and $11,315 for Mr. Rudd) and insurance premiums paid by
the Bank in connection with term life insurance policies payable to the
estates of Mr. Holle and Mr. Rudd ($2,614, $2,093, and $1,872 for Mr. Holle
and $886, $477, and $377 for Mr. Rudd).
9
<PAGE>
Option Grants in Last Fiscal Year
The following table provides details regarding stock options granted to the
Named Executive Officers in 1997.
Individual Option Grants
Securities % of Total
Underlying Options Granted Exercise
Options to Employees in or Base
Name Granted(#)(1) Fiscal Year(%) Price($/Sh)(2) Expiration Date
---- ------------- -------------- -------------- ---------------
John S. Holle 5,000 18.69% $11.25 1/16/07
Ellison C. Rudd 3,750 14.02% $11.25 1/16/07
___________________
(1) All of the options were granted under the Company's 1994 Employee Stock
Incentive Plan (the "ESIP") and are currently exercisable.
(2) The exercise price may be paid by delivery of already-owned shares, and
tax withholding obligations related to exercise may be paid by offset of
the underlying shares, subject to certain conditions.
Aggregated Option Exercises in Last Fiscal Year
and Fiscal Year-End Option Values
The following table shows the number of shares underlying stock options
held by the Named Executive Officers as of December 31, 1997. Also reported are
the values for "in-the-money" options which represent the positive spread
between the exercise price of any such existing stock options and the year-end
price of the Company's Common Stock. No stock options were exercised by the
Named Executive Officers in 1997. Number of Securities
<TABLE>
<CAPTION>
Underlying Value of Unexercised
Shares Unexercised Options In-the-Money Options
Acquired on Value at Fiscal Year-End(#) at Fiscal Year-End($)
Name Exercise(#) Realized($) Exercisable Unexercisable Exercisable Unexercisable
---- ----------- ----------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
John S. Holle - - 5,000 - $51,250.00 -
Ellison C. Rudd - - 3,750 - $38,437.50 -
</TABLE>
10
<PAGE>
Employment Agreements
The Bank entered into employment agreements with John S. Holle, effective
as of January 1, 1993, and with Ellison C. Rudd, effective as of January 1, 1995
(the "Pre-Merger Employment Agreements"). Each of the Pre-Merger Employment
Agreements provided for an initial term of three years, which three-year term
was automatically extended each year for one additional year (subject to
approval thereof by the Board of Directors each year) until one party notified
the other to the contrary. The Pre-Merger Employment Agreements provided for an
annual salary which was reviewed at least annually by the Board of Directors of
the Bank and could have been increased at its discretion, and annual bonuses
which could have been granted at the discretion of the Board (but not to exceed
the employee's then-current annual salary) based on the operations of the Bank
during the prior fiscal year, the employee's contribution thereto and such other
factors as the Board of Directors in its discretion determined. Information
regarding the annual salary and bonus paid to Mr. Holle and Mr. Rudd for 1997
pursuant to the Pre-Merger Employment Agreements is set forth in the Summary
Compensation Table above. The Pre-Merger Employment Agreements provided that the
employee was to be entitled to the use of an automobile, reimbursement of club
fees and dues, and participation in all group employee benefit plans for which
executives of the Bank were or may have been eligible. Further, the Pre-Merger
Employment Agreements provided for the payment of full compensation to the
employee for up to 12 months in the event of his complete disability (as defined
in the Pre-Merger Employment Agreements) and disability payments thereafter in
accordance with the Bank's general disability policy.
The Pre-Merger Employment Agreements also provided that in the event
employment was terminated by the Bank for any reason other than "cause," except
after a "change of control" (as those terms were defined in the Pre-Merger
Employment Agreements), the employee would have been entitled to receive each
month through the remaining term of the Pre-Merger Employment Agreement the
monthly salary paid to him under the Pre-Merger Employment Agreement during the
immediately preceding year, as well as a severance payment, payable as soon as
practicable after the termination date, equal to the difference between three
times his average annual salary (based on the most recent five taxable years)
immediately prior to the termination date and the total amount that he was
entitled to receive under this provision for the remaining term of the
Pre-Merger Employment Agreements. A "change of control" was deemed to have
occurred if, at any time during the period of employment, more than 25% of the
outstanding Common Stock of the Company, or the equivalent in voting power of
any class or classes of outstanding securities of the Company ordinarily
entitled to vote in elections of directors, was acquired by any other
corporation or other person or group. In the event employment was terminated
after a change of control for any reason other than cause, or the employee's
present responsibilities, authority, capacity, circumstances, compensation or
benefits were changed without his written consent following a change of control,
the employee would have been entitled to receive, in lieu of his salary and any
bonus for the remaining employment term, a lump sum equal to (i) the present
value of the salary and bonus that he would have been entitled to receive for
the remaining employment term (but for the termination) plus (ii) the difference
between three times his average annual salary (based on the most recent five
taxable years) immediately prior to the event of termination and the amount of
salary and bonus that he would have been entitled to receive (but for the
termination) for the remaining employment term; but in no event would such lump
sum payment exceed the present value of three times his average compensation for
the preceding five years, less $1.00. Additionally, the employee and his
dependents would have continued for a period of three years to be covered under
all employee benefit plans of the Bank.
The Pre-Merger Employment Agreements were terminated by Messrs. Holle and
Rudd in March of 1998 in connection with the Middle Georgia Merger. At that
time, the Company entered into several new employment agreements with Patti S.
Davis, John S. Holle, Ellison C. Rudd, and J. Daniel Speight, Jr. (the
"Post-Merger Employment Agreements"). The Post-Merger Employment Agreements
contain terms that are similar to those of the Pre-Merger Employment Agreements.
11
<PAGE>
Pension Plan
The Bank maintains a non-contributory defined benefit pension plan (the
"Pension Plan") for the benefit of substantially all employees of the Bank. The
amounts of the Bank's contributions to the Pension Plan are determined on an
actuarial basis to provide benefits to each participant based on (i) his or her
highest average compensation earned during any consecutive five-calendar-year
period and (ii) his or her years of service to normal retirement date. The
following table sets forth the estimated annual pension benefits payable under
the Pension Plan to employees in the specified compensation and
period-of-service classifications, assuming (i) normal retirement at age 65 as
of January 1, 1997 and (ii) a benefit payment in the form of a life annuity.
Pension Plan Table
Average Annual Estimated Annual Retirement Benefits(1)
Compensation for Years of Service Indicated(2)
- ----------------- --------------------------------------------------------------
15 20 25 30 35
$ 125,000 $ 27,363 $ 36,484 $ 43,104 $ 49,725 $ 56,346
150,000 33,363 44,484 52,604 60,725 68,846
175,000+ 35,763 47,684 56,404 65,125 73,846
_________________
(1) The retirement benefits shown in the table are payable as a life
annuity with 60 months guaranteed. The current Pension Plan formula is 1%
of final five year average compensation for the first 20 years of credited
service, plus 0.6% of final five year average compensation for the next 15
years of credited service, plus 0.6% of final five year average
compensation in excess of Social Security Covered Compensation for the
first 35 years of credited service. For a person retiring at age 65 in
1997, Social Security Covered Compensation is equal to $29,304. The total
compensation covered by the Pension Plan at January 1, 1997, the most
recent valuation date, was $2,714,270, of which $181,042 was attributable
to Mr. Holle and $125,283 was attributable to Mr. Rudd. The amount of the
Bank's contributions to the Pension Plan for the accounts of Mr. Holle and
Mr. Rudd in 1997 was $11,314 and $3,255, respectively.
(2) As of January 1, 1997, Mr. Holle had 24.6 years of credited service,
and Mr. Rudd had 7.00 years of credited service.
Loans to Management
Directors, executive officers and principal shareholders of the Company and
the Bank and their associates have been customers of the Bank from time to time
in the ordinary course of business, and additional transactions may be expected
to take place in the future. In accordance with applicable federal laws and
regulations, all loans by the Bank to such persons are made on substantially the
same terms, including interest rates and collateral, as those prevailing at the
time for comparable transactions with other persons, do not involve more than
the normal risk of collectibility or embody other unfavorable features, and
comply with specified quantitative limits imposed by such federal laws and
regulations. At December 31, 1997, the aggregate amount of loans and extensions
of credit outstanding to such persons was approximately $1,547,000, which
represented 7.40% of the total equity capital of the Bank as of such date.
12
<PAGE>
None of the Bank's loans outstanding at any time during or subsequent to
1997 to directors, executive officers or principal shareholders of the Company
or the Bank or their associates is or has been on past due or non-accrual
status, has been restructured, or is considered by the Bank to be a problem
loan.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934, as amended, and
regulations of the Securities and Exchange Commission thereunder, require the
Company's directors and executive officers and any persons who beneficially own
more than 10% of the Company's Common Stock, as well as certain affiliates of
such persons, to file initial reports of their ownership of Common Stock and
subsequent reports of changes in such ownership with the Securities and Exchange
Commission and the National Association of Securities Dealers, Inc. Directors,
executive officers and persons beneficially owning more than 10% of such stock
are required by applicable regulations to furnish the Company with copies of all
Section 16(a) reports they filed. To the Company's knowledge, no person
beneficially owned more than 10% of the Company's Common Stock during 1997.
Based solely on its review of the copies of such reports received by it and
written representations that no other reports were required of those persons,
the Company believes that during 1997, all of its directors and executive
officers complied with applicable Section 16(a) filing requirements.
PROPOSAL 2
APPROVAL OF PROPOSED AMENDMENT TO THE
1994 EMPLOYEES STOCK INCENTIVE PLAN
The Board of Directors has adopted, subject to shareholder approval at the
Annual Meeting, an amendment to the FLAG Financial Corporation 1994 Employees
Stock Incentive Plan (the "ESIP"). If approved by the shareholders, the proposed
amendment to the ESIP will be effective as of March 30, 1998.
The ESIP is intended to further the growth and development of the Company
by allowing certain employees of the Company (or any parent or subsidiary
companies) to obtain a proprietary interest in the Company through the grant or
purchase of Company Stock. The Company believes that the ESIP aids in attracting
and retaining such individuals and in stimulating the efforts of such
individuals for the success of the Company.
The following is a summary of the ESIP and the proposed amendment thereto
to increase from 201,250 to 350,000 the number of shares of Company Common Stock
authorized to be issued upon exercise or grant of Stock Rights under the ESIP
and to provide that the maximum number of shares of Common Stock with respect to
one or more options that may be granted during any one calendar year under the
ESIP to any one participant is 100,000 shares. In 1997, the Board of Directors
also amended the ESIP to update it in accordance with recent changes to the
rules and regulations under Section 16(b) of the Securities Exchange Act of
1934, as amended (the "1934 Act"), and to make certain other changes, including,
without limitation, (i) to provide the Board the flexibility to permit the
transfer of options on a case-by-case basis, as described below, (ii) to permit
the grant of options that are not immediately vested upon grant, (iii) to
eliminate the requirement that the optionee sign an option agreement in every
case, and (iv) to eliminate the six-month holding period formerly required by
Rule 16b-3 under the 1934 Act. Such amendments did not require, and the Board
did not seek, shareholder approval.
13
<PAGE>
The following summary of the principal features and effects of the ESIP
does not purport to be complete and is subject to, and qualified in its entirety
by reference to, the text of the ESIP. A copy of the full text of the ESIP, as
proposed to be amended, will be furnished to any shareholder upon written
request made to the Secretary of the Company.
Types of Awards
Incentive stock options ("ISOs"), nonqualified stock options ("NQSOs"), and
restricted stock awards may be granted under the ESIP (collectively, "Stock
Rights").
Administration
The ESIP is administered by a committee consisting of two or more
individuals appointed by the Board of Directors of the Company from among its
members (the "ESIP Committee"). Each member of the ESIP Committee must be (i) an
"outside director" as that term is used in Section 162(m) of the Internal
Revenue Code of 1986, as amended (the "Code") and the regulations promulgated
thereunder, and (ii) a "non-employee director" within the meaning of Rule 16b-3
of the 1934 Act, or any successor provision. The Board from time to time may
remove members from, or add members to, the ESIP Committee, and vacancies will
be filled by the Board.
The ESIP Committee has authority (i) to determine the individuals to whom
Stock Rights will be granted from among those individuals who are eligible, as
well as the terms of Stock Rights and the number of shares of Common Stock in
connection with such Stock Rights, (ii) to determine whether an option will
constitute an ISO intended to qualify under Section 422 of the Code or an NQSO,
and (iii) to interpret the provisions of, and prescribe, amend and rescind any
rules and regulations relating to, the ESIP.
Eligibility and Grants of Stock Rights
Under the terms of the ESIP, all employees of the Company (and any parent
or subsidiary corporations), including such employees who are also members of
the Board (or of the board of directors of a parent or subsidiary corporation)
are eligible for consideration for the granting of Stock Rights by the ESIP
Committee. As of March 31, 1998 there were approximately 200 employees of the
Company and the Bank, all of whom are eligible to participate in the ESIP.
Shares Available
The maximum number of shares of Common Stock with respect to which Stock
Rights may be granted under the ESIP currently is 201,250. If the proposed
amendment is approved by the shareholders at the Annual Meeting, such number
will be increased to 350,000, and the maximum number of shares of Common Stock
with respect to one or more options that may be granted during any one calendar
year under the ESIP to any one participant will be 100,000 shares. If any Stock
Right terminates or is canceled for any reason without having been exercised or
vested in full, the shares of Common Stock not issued will then become available
for additional grants of Stock Rights under the ESIP.
14
<PAGE>
Terms of Options
Option Price. The purchase price of the Company Stock underlying each
option granted under the ESIP will be the fair market value of the Company Stock
on the date the option is granted, unless otherwise determined by the ESIP
Committee. However, the option price for ISOs may not be less than 100% (110%
for shares subject to an optionee who owns more than 10% of the total combined
voting power of all classes of stock of either the Company or any parent or
subsidiary corporation of the Company) of the fair market value of Company Stock
on the date the ISO is granted.
Vesting. Each agreement evidencing an option granted under the ESIP must
state the terms and conditions upon which the option will vest and become
exercisable, as determined by the ESIP Committee.
Term and Exercise of Options. Each option granted under the ESIP may be
exercised on such dates, during such periods and for such number of shares as
determined by the ESIP Committee and as specified in each option agreement. The
term of any option will be determined by the ESIP Committee, but the term may
not exceed 10 years from the date of grant (or 5 years in the case of ISOs
granted to optionees who own more than 10% of the total combined voting power of
all classes of stock of either the Company or any parent or subsidiary
corporation of the Company). No option may be granted under the ESIP after March
16, 2004, 10 years after the ESIP was originally adopted by the Board. An option
granted under the ESIP may be exercised for less than the full number of shares
of Company Stock subject to such option, provided that no option may be
exercised for less than (i) 100 shares or (ii) the total remaining shares
subject to the option, if less than 100 shares. Upon exercise of an option, an
option holder must pay for the Company Stock subject to the exercise. Payment
may be made in cash, in property, in Company Stock (including the retention by
the Company of optional shares of Company Stock with a fair market value equal
to the exercise price), by performance of services (if acceptable to the ESIP
Committee and allowed under applicable law), or by a combination of the
foregoing.
Transfers. No option granted under the ESIP is assignable or transferable
by the optionee except by will or the laws of descent and distribution;
provided, however, that the ESIP Committee may (but need not) permit other
transfers where the ESIP Committee concludes that such transferability (i) does
not result in accelerated taxation, (ii) does not cause any option intended to
be an ISO to fail to be described in Code Section 422(b), and (iii) is otherwise
appropriate and desirable, taking into account any state or federal tax or
securities laws applicable to transferable options. During the lifetime of an
optionee, the option shall be exercisable only by the optionee or such permitted
transferee (unless such person is incapacitated and unable to exercise options).
To the extent that an option has not been distributed to the person acquiring
the option after the death of the optionee by bequest or inheritance, the option
may be exercised by the executor or administrator of the optionee's estate.
15
<PAGE>
Termination of Employment. Vested ISOs must be exercised within the earlier
of: (i) three months after an employee optionee ceases to be in the employ of
the Company or any parent or subsidiary for any reason other than death or
disability; (ii) the expiration date of the option; (iii) immediately upon
termination of employment with the Company or a parent or subsidiary for cause;
(iv) one year after termination of employment with the Company or a parent or
subsidiary because of disability unless the optionee dies within this one year
period; or (v) one year after the death of an optionee who dies (a) while in the
employ of the Company or a parent or subsidiary, (b) within three months after
termination of employment with the Company or a parent or subsidiary, or (c)
within one year after employment with the Company or a parent or subsidiary
terminated due to disability. However, the ESIP Committee may provide different
exercise expiration periods with respect to NQSOs granted under the ESIP.
Terms of Restricted Stock
Vesting. Restricted stock granted under the ESIP shall be subject to such
restrictions as the ESIP Committee shall determine and shall be subject to
forfeiture by the recipient until the earlier of (i) the time such restrictions
lapse or are satisfied, or (ii) the time such shares are forfeited.
Transfers. The ESIP does not permit a recipient to sell, assign or
otherwise transfer restricted stock prior to the time all restrictions have
lapsed or are satisfied except in the event of death (if death does not result
in forfeiture of the restricted stock). See "Termination of Employment" below.
Termination of Employment. Generally, the termination of the recipient's
employment with the Company or any subsidiary for any reason (other than a
"change of control" of the Company or its affiliates, as defined in the ESIP)
will result in forfeiture of any restricted stock for which the restrictions
have not lapsed, although the ESIP Committee may provide otherwise.
Amendment and Termination
The Board may amend or terminate the ESIP at any time, provided that (i) no
amendment may be effected without the approval of the option holders or
restricted stock recipients if such amendment would affect in any way the rights
of such option holders or restricted stock recipients under the ESIP, and
(ii) no amendment may be effected without the approval of the shareholders of
the Company if (1) the amendment would cause the applicable portions of the ESIP
to fail to qualify as an "incentive stock option plan" pursuant to Section 422
of the Code, (2) the amendment would materially increase the benefits accruing
to participants under the ESIP, (3) the amendment would materially increase the
number of securities which may be issued under the ESIP, (4) the amendment would
materially modify the requirements as to eligibility for participation in the
ESIP, or (5) the amendment would modify the material terms of the ESIP within
the meaning of regulations under Section 162(m) of the Code.
The ESIP will terminate on the later of (i) the complete exercise or lapse
of the last outstanding Stock Right granted under the ESIP, or (ii) the last
date upon which options may be granted under the ESIP (March 16, 2004), subject
to its earlier termination by the Board at any time.
16
<PAGE>
Reload Options
All options granted under the ESIP shall be accompanied by a reload option.
A reload option is an option that is granted to an optionee who pays for
exercise of all or part of an option with shares of Company Stock and is for the
same number of shares as is exchanged in payment for the exercise of the option.
The reload option is granted as of the date of the payment made in shares of
Company Stock and is subject to all of the same terms and conditions as the
original option which was exercised, except that the exercise price for each
share of Company Stock subject to the reload option shall be the fair market
value of such a share on the date the reload option is granted and the term of
any reload option shall not extend beyond the original term of the option with
respect to which such reload option was granted. An optionee who pays for the
exercise of a reload option with shares of Company Stock is entitled to a
successive reload option. For purposes of granting reload options, the retention
of optioned shares by the Company shall be treated as a payment for exercise
with shares of Company Stock.
Adjustments
In the event of changes in the number of outstanding shares of Company
Stock by reason of stock dividends, splits or recapitalizations, an appropriate
and equitable and adjustment will be made by the ESIP Committee to the number
and kind of shares subject to Stock Rights, and to the number and kind of shares
remaining available for issuance pursuant to Stock Rights, granted under the
ESIP.
Additionally, in the event that the Company is involved in a reorganization
involving a merger, consolidation, transfer of Company Stock or transfer of the
assets of the Company, the ESIP Committee may, in its discretion, declare that
(i) outstanding options are nonforfeitable and exercisable; (ii) outstanding
options apply to the securities of the resulting corporation; and/or (iii)
outstanding options are nonforfeitable and are to be terminated after giving at
least 30 days' notice to the option holders. If the Company is dissolved, all of
the rights of all optionees will become immediately nonforfeitable and
exercisable through the date of dissolution.
Federal Income Tax Consequences
The Company intends that part of the ESIP qualify as an incentive stock
option plan and that any option granted in accordance with such portion of the
ESIP qualify as an ISO, all within the meaning of Section 422 of the Code. The
tax effects of any other stock option granted under the ESIP shall be determined
under Section 83 of the Code. The following is a brief description of the
consequences under the Code of the receipt or exercise of Stock Rights.
ISOs. An option holder has no tax consequences upon issuance or, generally,
upon exercise of an ISO. An option holder will recognize income when he or she
sells or exchanges the shares acquired upon exercise of an ISO. This income will
be taxed at the applicable capital gains rate if the sale or exchange occurs
after the expiration of the requisite holding periods. Generally, the requisite
holding periods expire two years after the date of grant of the ISO and one year
after the date of acquisition of the Company Stock pursuant to the exercise of
the ISO.
17
<PAGE>
If an option holder disposes of the Company Stock acquired pursuant to
exercise of an ISO before the expiration of the requisite holding periods, the
option holder will recognize compensation income in an amount equal to the
difference between the option price and the lesser of (i) the fair market value
of the shares on the date of exercise and (ii) the price at which the shares are
sold. This amount will be taxed at ordinary income rates. If the sale price of
the shares is greater than the fair market value on the date of exercise, the
difference will be recognized as gain by the option holder and taxed at the
applicable capital gains rate. If the sale price of the shares is less than the
option price, the option holder will recognize a capital loss equal to the
excess of the option price over the sale price.
For these purposes, the use of shares acquired upon exercise of an ISO to
pay the option price of another option (whether or not it is an ISO) will be
considered a disposition of the shares. If this disposition occurs before the
expiration of the requisite holding periods, the option holder will have the
same tax consequences as are described in the immediately preceding paragraph.
If the option holder transfers any such shares after holding them for the
requisite holding periods or transfers shares acquired pursuant to exercise of
an NQSO or on the open market, he or she generally will not recognize any income
upon the exercise. Whether or not the transferred shares were acquired pursuant
to an ISO and regardless of how long the option holder has held such shares, the
basis of the new shares received pursuant to the exercise will be computed in
two steps. In the first step, a number of new shares equal to the number of
older shares tendered (in payment of the option's exercise) is considered
exchanged under Section 1036 of the Code and the rulings thereunder; these new
shares receive the same holding period and the same basis that the option holder
had in the old tendered shares, if any, plus the amount included in income from
the deemed sale of the old shares and the amount of cash or other nonstock
consideration paid for the new shares, if any. In the second step, the number of
new shares received by the option holder in excess of the old tendered shares
receives a basis of zero, and the option holder's holding period with respect to
such shares commences upon exercise.
An option holder may have tax consequences upon exercise of an ISO if the
aggregate fair market value of shares of the Company Stock subject to ISOs which
first become exercisable by an option holder in any one calendar year exceeds
$100,000. If this occurs, the excess shares will be treated as though they are
subject to an NQSO instead of an ISO. Upon exercise of an option with respect to
these shares, the option holder will have the tax consequences described below
with respect to the exercise of NQSOs.
Finally, except to the extent that an option holder has recognized income
with respect to the exercise of an ISO (as described in the preceding
paragraphs), the amount by which the fair market value of a share of the Company
Stock at the time of exercise of the ISO exceeds the option price will be
included in determining an option holder's alternative minimum taxable income
and may cause the option holder to incur an alternative minimum tax liability in
the year of exercise.
There will be no tax consequences to the Company upon the issuance or,
generally, upon the exercise of an ISO. However, to the extent that an option
holder recognizes ordinary income upon exercise, as described above, the Company
will have a deduction in the same amount.
18
<PAGE>
NQSOs. Neither the Company nor the option holder has income tax
consequences from the issuance of NQSOs. Generally, in the tax year when an
option holder exercises NQSOs, the option holder recognizes ordinary income in
the amount by which the fair market value of the shares at the time of exercise
exceeds the option price for such shares. The Company will have a deduction in
the same amount as the ordinary income recognized by the option holder in the
Company's tax year in which or with which the option holder's tax year (of
exercise) ends.
If an option holder exercises an NQSO by paying the option price with
previously acquired Company stock, the option holder will recognize income
(relative to the new shares he is receiving) in two steps. In the first step, a
number of new shares equivalent to the number of older shares tendered (in
payment of the NQSO exercised) is considered to have been exchanged in
accordance with Section 1036 of the Code and the rulings thereunder, and no gain
or loss is recognized. In the second step, with respect to the number of new
shares acquired in excess of the number of old shares tendered, the option
holder will recognize income on those new shares equal to their fair market
value less any nonstock consideration tendered.
The new shares equal to the number of the older shares tendered will
receive the same basis the option holder had in the older shares, and the option
holder's holding period with respect to the tendered older shares will apply to
those new shares. The excess new shares received will have a basis equal to the
amount of income recognized by the option holder by exercise, increased by any
nonstock consideration tendered. Their holding period will commence upon the
exercise of the option.
Restricted Stock. A holder of restricted stock will recognize income upon
its receipt, but generally only to the extent that it is not subject to a
substantial risk of forfeiture. If the restricted stock is subject to
restrictions that lapse in increments over a period of time, so that the holder
becomes vested in a portion of the shares as the restrictions lapse, the holder
will recognize income in any tax year only with respect to the shares that
become nonforfeitable during that year. The income recognized will be equal to
the fair market value of those shares, determined as of the time that the
restrictions on those shares lapse. That income generally will be taxable at
ordinary income tax rates. The Company generally will be entitled to a deduction
in an amount equal to the amount of ordinary income recognized by the holder of
the restricted stock.
A holder of restricted stock may elect instead to recognize ordinary income
for the taxable year in which he receives an award of restricted stock in an
amount equal to the fair market value of all shares of restricted stock awarded
to him (even if the shares are subject to forfeiture). That income will be
taxable at ordinary income tax rates. At the time of disposition of the shares,
a holder who has made such an election will recognize gain in an amount equal to
the difference between the sales price and the fair market value of the shares
at the time of the award. Such gain will be taxable at the applicable capital
gains rate. Any such election must be made within 30 days after the transfer of
the restricted stock to the holder. The Company will be entitled to a deduction
in an amount equal to the amount of ordinary income recognized by the holder at
the time of his election.
Limitation on Company Deductions. No federal income tax deduction is
allowed for compensation paid to a "covered employee" in any taxable year of the
Company, to the extent that such compensation exceeds $1,000,000. For this
purpose, "covered employees" are generally the chief executive officer of the
Company and the four highest compensated officers of the Company whose annual
salary and bonus exceeds $100,000, and the term "compensation" generally
includes amounts includable in gross income as a result of the exercise of stock
options or stock appreciation rights, or the receipt of restricted stock. This
deduction limitation does not apply to certain compensation that is
performance-based.
19
<PAGE>
Generally, compensation attributable to a stock option or a stock
appreciation right will satisfy the limitation exception for performance-based
compensation if the grant or award is made by a "compensation committee" (a
committee composed of "outside" directors), the plan under which the option or
right is granted states the maximum number of shares with respect to which
options or rights may be granted during a specified period to any employee, and,
under the terms of the option or right, the amount of compensation the employee
could received is based solely on an increase in the value of the stock after
the date of the grant or award. Non-discounted stock options granted under the
ESIP are intended to satisfy these requirements for deductibility.
ERISA. The ESIP is not, and is not intended to be, an employee benefit plan
or qualified retirement plan. The ESIP is not, therefore, subject to the
Employee Retirement Income Security Act of 1974, as amended, or Section 401(a)
of the Code.
Benefits to Named Executive Officers and Others
As of December 31, 1997, stock options had been granted under the ESIP to
the persons and groups shown in the table below. No grants of restricted stock
are outstanding under the ESIP. The ESIP Committee has not yet made any
determination as to which eligible participants will be granted Stock Rights
under the ESIP in the future. Consequently, it is not presently possible to
determine, with respect to the persons and groups shown in the table below, the
benefits or amounts that will be received in the future by such persons or
groups pursuant to the ESIP.
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- --------------------------------------------------------------------------------
1994 Employees Stock Incentive Plan
- --------------------------------------------------------------------------------
Name and Position Dollar Value($) Number of Options
- ---------------------------------------------- --------------- -----------------
John S. Holle
Chairman, President and Chief Executive Officer $56,250 5,000
- ---------------------------------------------- --------------- -----------------
Ellison C. Rudd
Senior Vice President, Chief Financial Officer
and Treasurer $42,188 3,750
- ---------------------------------------------- --------------- -----------------
Each Other Person having 5% or more of the
Outstanding Options under the ESIP
Raymond C. Smith
Senior Vice President, Human Resources $28,125 2,500
Lee W. Washam
Senior Vice President $28,125 2,500
Mary E. Winks
Senior Vice President, Retail Banking
and Marketing $28,125 2,500
- ---------------------------------------------- --------------- -----------------
All Executive Officers as a Group $182,813 16,250
- ---------------------------------------------- --------------- -----------------
All Non-Executive Directors as a Group $0 0
- ---------------------------------------------- --------------- -----------------
All Non-Executive Officer Employees as a Group $121,500 10,500
- ---------------------------------------------- --------------- -----------------
THE BOARD OF DIRECTORS RECOMMENDS THAT SHAREHOLDERS VOTE "FOR" THE APPROVAL
OF THE PROPOSED AMENDMENT TO THE COMPANY'S 1994 EMPLOYEES STOCK INCENTIVE PLAN.
PROPOSAL 3 - RATIFICATION OF APPOINTMENT
OF INDEPENDENT ACCOUNTANTS
The Board of Directors has appointed the firm of Porter Keadle Moore, LLP
to serve as independent accountants of the Company for the fiscal year ending
December 31, 1998 and has directed that such appointment be submitted to the
shareholders for ratification at the Annual Meeting. Porter Keadle Moore, LLP is
being appointed as the Company's independent accountants for the second time and
is considered by management of the Company to be well qualified. If the
shareholders do not ratify the appointment of Porter Keadle Moore, LLP, the
Board of Directors will reconsider the appointment.
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The firm of Robinson, Grimes & Company, P.C. served as independent
accountants of the Company from 1968 until 1996. 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 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.
Representatives of Porter Keadle Moore, LLP will be present at the Annual
Meeting. They will have an opportunity to make a statement if they desire to do
so and will be available to respond to appropriate questions from shareholders.
The Board of Directors unanimously recommends that shareholders vote "FOR"
the proposal to ratify the appointment of Porter Keadle Moore, LLP as
independent accountants of the Company for the fiscal year ending December 31,
1998.
PRINCIPAL SHAREHOLDERS
There were no shareholders of record that directly or indirectly owned,
controlled, or held with power to vote 5% or more of the Company's Common Stock
as of December 31, 1997. The following lists each shareholder of record that
directly or indirectly owned, controlled, or held with power to vote 5% or more
of the 3,049,274 outstanding shares of the Company's Common Stock as of the
consummation of the Middle Georgia Merger on March 31, 1998.
- ------------------------------------- ---------------------- -------------------
Name and Address Number of Shares Percentage of Class
- ------------------------------------- ---------------------- -------------------
Wendell S. Dunaway 173,155(1) 5.68%
P.O. Box 647
Hawkinsville, GA 31035
- ------------------------------------- ---------------------- -------------------
Speight Family Voting Committee 560,148(2) 18.37%
(consisting of: J. Daniel Speight,Jr.,
Michael C. Speight, Ann S. Mixon,
Charles G. Speight, Jr., David Speight
and Patti S. Davis)
- ------------------------------------- ---------------------- -------------------
(1) Includes 172,557 shares in the name of Mr. Dunaway and 598 shares in
the name of Dunaway Brothers, Inc.
(2) The members of the Speight Family Voting Committee also hold 8,347
shares that are not subject to the Shareholder Agreement.
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SHAREHOLDERS' PROPOSALS FOR 1999 ANNUAL MEETING
Director nominations and other proposals of shareholders intended to be
presented at the 1999 Annual Meeting of Shareholders must be submitted to the
Company in accordance with the procedures set forth in Sections 2.14 and 1.1,
respectively, of the Bylaws of the Company and in accordance with applicable
rules of the Securities and Exchange Commission. The effect of these provisions
is that shareholders must submit such nominations and proposals, together with
certain related information specified in the above-referenced sections of the
Bylaws, in writing to the Company on or before December 12, 1998 in order for
such matters to be included in the Company's proxy materials for, and voted upon
at, the 1999 Annual Meeting. All such proposals, nominations and related
information should be submitted on or before such date by certified mail, return
receipt requested, to Patti S. Davis, Secretary of the Company, at 101 North
Greenwood Street, LaGrange, Georgia 30240. A copy of the above-referenced
sections of the Bylaws will be provided upon request in writing to the Secretary
of the Company at such address.
OTHER MATTERS THAT MAY COME BEFORE THE ANNUAL MEETING
The Board of Directors of the Company knows of no matters other than those
referred to in the accompanying Notice of Annual Meeting of Shareholders which
may properly come before the Annual Meeting. However, if any other matter should
be properly presented for consideration and voting at the Annual Meeting or any
adjournments thereof, it is the intention of the persons named as proxies on the
enclosed form of proxy card to vote the shares represented by all valid proxy
cards in accordance with their judgment of what is in the best interest of the
Company.
By Order of the Board of Directors.
/s/ Patti S. Davis
Patti S. Davis
Secretary
LaGrange, Georgia
April 10, 1998
___________
The Company's 1997 Annual Report, which includes audited financial
statements, has been mailed to shareholders of the Company with these proxy
materials. The Annual Report does not form any part of the material for the
solicitation of proxies
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