UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
SCHEDULE 14A
Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934 (Amendment No. _____)
Filed by the Registrant |X|
Filed by a Party other than the Registrant |_|
Check the appropriate box:
|_| Preliminary Proxy Statement
|_| Confidential, for Use of the Commission Only (as permitted by Rule
14a-6(e)(2))
|X| Definitive Proxy Statement
|_| Definitive Additional Materials
|_| Soliciting Material Under Rule 14a-12
FLAG FINANCIAL CORPORATION
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(Name of Registrant as Specified in Its Charter)
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(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
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|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:
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(2) Aggregate number of securities to which transaction applies:
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(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):
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|_| Fee paid previously with preliminary materials.
|_| Check box if any part of the fee is offset as provided by Exchange Act
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paid previously. Identify the previous filing by registration statement
number, or the form or schedule and the date of its filing.
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[FLAG LOGO]
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD MAY 17, 2005
To the Shareholders of Flag Financial Corporation:
The 2005 Annual Meeting of Shareholders of Flag Financial Corporation (the
"Company") will be held at 3475 Piedmont Road, N.E.; Suite 550; Atlanta, Georgia
30305 on May 17, 2005 at 1:00 p.m., for the purposes of:
(1) Electing three directors to serve for the term indicated in the
accompanying Proxy Statement;
(2) Ratifying the appointment of Porter Keadle Moore, LLP as the
Company's independent accountants for fiscal 2005; and
(3) Transacting any other business as properly may come before the
Annual Meeting or any adjournments of the meeting.
The Board of Directors has set March 18, 2005, as the record date for the
determination of the shareholders entitled to notice of and to vote at the
meeting.
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 complete, date, sign and
return the enclosed proxy card as soon as possible. Returning your proxy will
help ensure the greatest number of shareholders is present either in person or
by proxy. If you attend the Annual Meeting and wish to vote your shares in
person, you may do so at any time before the vote takes place.
By Order of the Board of Directors,
Joseph W. Evans
Chairman of the Board, President and
Chief Executive Officer
Atlanta, Georgia
April 1, 2005
Please read the attached Proxy Statement and then promptly complete, date,
sign and return the enclosed proxy card in the postage-paid envelope. You can
spare your company the expense of further proxy solicitation by returning your
proxy card promptly.
FLAG FINANCIAL CORPORATION
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PROXY STATEMENT
FOR ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD MAY 17, 2005
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INTRODUCTION
Time and Place of the Meeting
The Company's Board of Directors is furnishing this Proxy Statement to
solicit proxies for use at the 2005 Annual Meeting of Shareholders of the
Company to be held on May 17, 2005 at 1:00 p.m. local time at 3475 Piedmont
Road, N.E.; Suite 550; Atlanta, Georgia 30305 and at any adjournment of the
meeting.
Record Date and Mailing Date
The close of business on March 18, 2005 is the record date for the
determination of shareholders entitled to notice of and to vote at the meeting.
We first mailed this Proxy Statement and accompanying proxy card to shareholders
on or about April 1, 2005.
Number of Shares Outstanding
As of the close of business on the Record Date, the Company had 20,000,000
shares of Common Stock, $1.00 par value, authorized, of which 8,522, 861 shares
were outstanding. Each outstanding share is entitled to one vote on all matters
to be presented at the meeting.
VOTING AT THE ANNUAL MEETING
Procedures for Voting by Proxy
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. You should specify your choices with regard to the proposals
on the proxy card. If you properly sign, return and do not revoke your proxy,
the persons named as proxies will vote your shares according to the instructions
you have specified on your proxy card.
If you sign and return your proxy card but do not specify how the persons
appointed as proxies are to vote your shares, the shares represented by your
signed and dated proxy card will be voted FOR the election of the stated
nominees to the board of directors. If any nominee for election to the board of
directors named in this Proxy Statement becomes unavailable for election for any
reason, the proxy will be voted for a substitute nominee selected by the
nominating committee of the board of directors. If any other matters properly
come before the Annual Meeting, the persons named as proxies will vote upon the
matters according to their judgment. The Board of Directors is not aware of any
other business to be presented for a vote of the shareholders at the Annual
Meeting.
Revoking Your Proxy
Returning your proxy does not affect your right to vote in person if you
attend the Annual Meeting. You can revoke your proxy at any time before it is
voted by delivering to J. Daniel Speight, Secretary of the Company, at 3475
Piedmont Road, N.E.; Suite 550; Atlanta, Georgia 30305, either a written
revocation of your proxy or a duly executed proxy bearing a later date or by
attending the meeting and voting in person.
Requirements for Shareholder Approval
A quorum will be present at the meeting if a majority of the outstanding
shares of common stock is represented in person or by valid proxy. We will count
abstentions and broker non-votes, which are described below, in determining
whether a quorum exists. Only those votes actually cast for the election of a
director, however, will be counted for purposes of determining whether a
particular director nominee receives sufficient votes to be elected. To be
elected, a director nominee must receive more votes than any other nominee for
the particular seat on the board of directors. As a result, if you withhold your
vote as to one or more nominees, it will have no effect on the outcome of the
election unless you cast that vote for a competing nominee. We do not know of
any competing nominees.
Abstentions. A shareholder who is present in person or by proxy at the
Annual Meeting and who abstains from voting on any or all proposals will be
included in the number of shareholders present at the Annual Meeting for the
purpose of determining the presence of a quorum. Abstentions do not count as
votes in favor of or against a given matter.
Broker Non-Votes. Brokers who hold shares for the accounts of their
clients may vote these shares either as directed by their clients or in their
own discretion if permitted by the exchange or other organization of which they
are members. Proxies that contain a broker vote on one or more proposals but no
vote on one or more other proposals are referred to as "broker non-votes" with
respect to the proposal(s) not voted upon. Broker non-votes are included in
determining the presence of a quorum. A broker non-vote, however, does not count
as a vote in favor of or against a particular proposal for which the broker has
no discretionary voting authority. Broker votes are permitted in connection with
uncontested elections of directors and proposals to ratify the appointment of
independent accountants, but are not permitted in connection with
non-discretionary matters such as the approval of executive compensation plans.
Because the only issue presented at the meeting will be the election of
directors, broker non-votes will not exist in connection with this meeting.
The ratification of our independent accountants and the approval of any
other matter that may properly come before the Annual Meeting generally requires
the affirmative vote of a majority of shares of common stock represented in
person or by valid proxy and entitled to vote on the matter. Abstentions and
broker non-votes will be counted in determining the minimum number of votes
required for approval and would, therefore, have the effect of negative votes.
Solicitation of Proxies
The Company will pay the cost of proxy solicitation. Our directors,
officers and employees may, without additional compensation, solicit proxies by
personal interview, telephone, fax, or otherwise. We will direct brokerage firms
or other custodians, nominees or fiduciaries to forward our proxy solicitation
material to the beneficial owners of common stock held of record by these
institutions and will reimburse them for the reasonable out-of-pocket expenses
they incur in connection with this process.
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PROPOSAL 1 - ELECTION OF DIRECTORS
Our Bylaws prescribe that our Board of Directors consist of six to 12
directors, with the specific number within that range to be set by the Board.
The Board has set the number of directors at nine, which includes the three
nominees and six remaining incumbents named in this Proxy Statement.
The Board of Directors includes a Chairman and three Vice Chairmen. The
Board has determined that the following current directors and director nominees
are independent pursuant to NASDAQ Stock Market listing standards: William H.
Anderson, II; H. Speer Burdette, III; John D. Houser; Quill O. Healey; and James
W. Johnson. The Board is divided into three classes, which are as nearly equal
in number as possible. Each class of directors serves staggered three-year
terms. As a result, the term of office of one of the classes of directors
expires each year at the Annual Meeting of Shareholders, and a new class is
elected by the shareholders each year at that time.
Nominees
At this Annual Meeting, the terms of the current Class II directors will
expire. The Nominating Committee of the Board of Directors, which consists of
independent, non-management directors, has nominated each of the directors
listed below to stand for election as directors at the Annual Meeting. If
elected by the shareholders, each of the nominees will serve a three-year term
that will expire at the 2008 Annual Meeting of Shareholders and upon the
election and qualification of their successors. The Class II Director nominees
are:
Stephen W. Doughty
John D. Houser
James W. Johnson
Proxies cannot be voted for a greater number of persons than the nominees
named. If any of the nominees should be unavailable to serve for any reason
(which we do not anticipate), the Nominating Committee of 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).
Alternatively, the Board may 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.
The Board of Directors unanimously recommends that shareholders vote FOR
the proposal to elect each of the director nominees described above.
Information Regarding Nominees and Continuing Directors
The following table shows information regarding the three nominees to
serve as directors, as well as the six incumbent directors whose terms as
directors will continue following the Annual Meeting. Messrs. Doughty, Evans,
Houser, Speight and Wiley will also serve as directors of Flag Bank, a wholly
owned subsidiary of the Company. Except as otherwise indicated, each of the
named persons has been engaged in his present principal occupation for more than
five years. The ages shown are as of December 31, 2004.
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Class II Director Nominees
For a Term Expiring in 2008
Name Age Business Information
Stephen W. Doughty 53 Mr. Doughty has served as the Company's Vice
Chairman and Chief Risk Management Officer
since November 2002 and as its Executive Vice
President and Chief Risk Management Officer
from February 2002 to November 2002. At the
Bank level, he serves as Vice Chairman and
Chief Risk Management Officer. He served as
Chief Financial Officer and Chief Risk
Management Officer of Century South Banks,
Inc. from 2000 to January 2002 and as its
Executive Vice President and Chief Credit
Officer from 1997 to January 2002. Mr.
Doughty served as Executive Vice President of
Bank Corporation of Georgia from 1989 until
its merger into Century South in 1997.
John D. Houser 56 Mr. Houser is a partner with Miller Ray
Houser & Stewart LLP, a certified public
accounting firm located in Atlanta, Georgia.
He has headed its business valuation and
litigation services team since 1992, with
prior service at the firm from 1981 to 1986.
From 1986 to 1992, he was involved in real
estate development, and from 1974 to 1981, he
was a tax manager with Arthur Andersen & Co.
He has served as a director of the Company
since 2004 and as a director of Flag Bank
since 2003.
James W. Johnson 63 Mr. Johnson is owner and President of
McCranie Motor and Tractor Company, Inc., a
retail seller of tractors and implement
equipment in Unadilla, Georgia. Mr. Johnson
has served as a director of the Company since
1998. He is the former Chairman of the Board
of Middle Georgia Bankshares, Inc. and served
as the Chairman of the Board of Citizens Bank
from 1999 until December 2000. He currently
serves as a trustee of Taylor Regional
Hospital in Hawkinsville, Georgia and Rock
Tenn Corporation in Norcross, Georgia.
Continuing Class III Directors
Term Expiring in 2006
Name Age Business Information
William H. Anderson, II 67 Mr. Anderson is Chairman and Chief Executive
Officer of Southern Trust Corporation and
various subsidiaries. He also served as
Chairman of Century South Banks, Inc. from
1997 to January 2002 and served as Chairman
of Bank Corporation of Georgia prior to its
1997 merger into Century South.
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Name Age Business Information
H. Speer Burdette, III 52 Since January 2003, Mr. Burdette has been
President and General Manager of Callaway
Foundation, Inc. and the Fuller E. Callaway
Foundation and President of Charitable
Services Company. He was previously an owner,
director, Vice President and Treasurer of
J.K. Boatwright & Co., P.C., an accounting
firm in LaGrange, Georgia. He has served as a
director of the Company since 1994.
J. Thomas Wiley, Jr. 52 Mr. Wiley has served as the Company's Vice
Chairman and Chief Banking Officer since
November 2002. He served as its Executive
Vice President and Chief Banking Officer from
February 2002 to November 2002 and has served
as President and Chief Executive Officer of
Flag Bank since February 2002. He also
currently serves as Vice Chairman of the
Bank. From 1999 to January 2002, he served as
Executive Vice President and Chief Banking
Officer of Century South Banks, Inc. He
served as President and Chief Executive
Officer of AmeriBank, N.A., a subsidiary of
Century South Banks, Inc., from 1990 to 1999.
Mr. Wiley served in various capacities with
Bank Corporation of Georgia from 1982 to 1990
and with C&S National Bank from 1975 to 1982.
Class I Director Nominees
Term Expires in 2007
Name Age Business Information
Joseph W. Evans 55 Mr. Evans has served as the Company's
Chairman and Chief Executive Officer since
February 2002 and was additionally appointed
as its President in November 2002. From 1997
to January 2000, he served as President,
Chief Operating Officer and Chief Financial
Officer of Century South Banks, Inc. and as
its President and Chief Executive Officer
from January of 2000 to January of 2002. He
was previously employed by Bank Corporation
of Georgia from 1980 to 1997, serving as
President and Chief Executive Officer from
1984 to 1997, at which time it merged with
Century South Banks, Inc.
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Quill O. Healey 65 Mr. Healey is Managing Director of Healey
Investments, L.P., an investment holding
company. He is a director of Assurance
America Corporation and of Southern Trust
Corporation in Atlanta, Georgia. Previously,
Mr. Healey served as Chairman of Marsh USA,
Inc. from 1998 until his retirement in
November of 2001.
J. Daniel Speight 48 Mr. Speight has served as the Company's Vice
Chairman since November 2002 and as its Chief
Financial Officer and Secretary since July
2002. From February 2002 to November 2002, he
also served as President of the Company. At
the Bank level, he served as Chairman from
February 2002 until April 2003.
Mr. Speight served as Chief Executive Officer
of the Company and President and Chief
Executive Officer of Flag Bank from 1998 to
February 2002. He also served as the
Company's President from 1998 to 2000.
Mr. Speight served as Chief Executive Officer
and as a director of Middle Georgia
Bankshares, Inc. from 1989 until 1998, when
Middle Georgia Bankshares, Inc. merged with
the Company. Mr. Speight has served as a
director of the Company since 1998 and as a
director of Flag Bank or a predecessor of
Flag Bank since 1984.
Mr. Speight also served in various executive
positions for Citizens Bank beginning in
1984, including President and Chief Executive
Officer, and served as the Chief Executive
Officer of First Flag Bank from 1999 until
December 2000, when First Flag Bank and
Citizens Bank merged. Mr. Speight is also a
director of Regan Holding Corp. in Petaluma,
California.
Executive Officers
Messrs. Evans, Speight, Doughty and Wiley are also executive officers of
the Company. Please see "Information Regarding Nominees and Continuing
Directors" above for information about their titles, background and experience.
Management Stock Ownership
The following table lists the number and percentage ownership of shares of
common stock beneficially owned as of March 1, 2005 by each director and
director nominee of the Company, each executive officer named in the Summary
Compensation Table, all current executive officers and directors as a group and
each person known to management to own over five percent of the Company's
outstanding common stock, based solely on reports on Schedule 13D or 13G filed
with the Securities and Exchange Commission. Information relating to beneficial
ownership of Company common stock is based upon "beneficial owner" concepts set
forth in rules under the Securities and Exchange Act of 1934, as amended. Under
these rules, a person is deemed to be a "beneficial owner" of a security if that
person has
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or shares "voting power" or "investment power" over the security. Voting power
includes the power to vote or to direct the voting of the security, and
investment power includes the power to dispose or to direct the disposition of
the security. Under the rules, more than one person may be deemed to be a
beneficial owner of the same securities.
Amount and
Nature of Beneficial Percent
Name Ownership of Total (%)
---- -------------------- ------------
(a) Directors, Director Nominees
and Named Executive Officers
William H. Anderson, II 473,425 (1) 5.5
H. Speer Burdette, III 37,500 (2) *
Stephen W. Doughty 316,664 (3) 3.7
Joseph W. Evans 368,150 (4) 4.2
Quill O. Healey 15,000 (5) *
John Houser 11,500 (6) *
James W. Johnson 171,825 (7) 2.0
J. Daniel Speight 431,949 (8) 5.0
J. Thomas Wiley, Jr. 310,680 (9) 3.6
(b) Other 5% Shareholders
Jeffrey L. Gendell 445,000 (10) 5.2
(c) Current Directors and Executive
Officers as a group
(9 persons) 2,136,693 (11) 22.8
----------
* Represents less than one percent.
(1) Consists of (a) 12,625 shares held by Mr. Anderson, (b) 276,000 shares
held by Southern Trust Insurance Company, a controlled business entity,
(c) 20,000 shares held by a trust, (d) 9,800 shares held by VHA Partners,
a controlled business entity, (e) 5,000 shares subject to options
exercisable within 60 days, and (f) 150,000 shares subject to exercisable
warrants.
(2) Consists of (a) 3,650 shares held by Mr. Burdette, (b) 6,626 shares held
in Individual Retirement Accounts for the benefit of Mr. Burdette, and (c)
27,224 shares subject to options exercisable within 60 days.
(3) Consists of (a) 156,250 shares held by Mr. Doughty, (b) 1,450 shares held
jointly with his spouse, as to which beneficial ownership is shared, (c)
7,454 shares held in his IRA, (d) 1,510 shares issued pursuant to the
Company's 401(k) Plan, and (e) 150,000 shares subject to exercisable
warrants.
(4) Consists of (a) 218,150 shares held by Mr. Evans and (b) 150,000 shares
subject to exercisable warrants.
(5) Consists of (a) 10,000 shares held by Healey Investments, L.L.P., a
controlled business entity, and (b) 5,000 shares subject to options
exercisable within 60 days.
(6) Consists of (a) 2,000 shares held by Mr. Houser, (b) 3,100 shares held in
an Individual Retirement Account for the benefit of Mr. Houser, (c) 1,400
shares held in a 401(k) plan, and (d) 5,000 shares subject to options
exercisable within 60 days.
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(7) Consists of (a) 64,377 shares held by Mr. Johnson, (b) 2,716 shares held
by Mr. Johnson's spouse, as to which beneficial ownership is shared, (c)
84,010 shares held by McCranie Companies, Inc. Profit Sharing Plan for the
benefit of Mr. Johnson, (d) 1,365 shares as custodian for grandchildren,
(e) 13,357 shares subject to options exercisable within 60 days, and (f)
6,000 shares subject to exercisable warrants.
(8) Consists of (a) 178,450 shares held by Mr. Speight, (b) 5,000 shares held
by Mr. Speight as trustee for Patricia Ruth Davis, (c) 3,500 shares held
by Mr. Speight as trustee for Anna Davis, (d) 1,677 shares held by Mr.
Speight as custodian for Alex Speight, (e) 1,677 shares held by Mr.
Speight as custodian for J. Daniel Speight, III, (f) 7,371 shares held in
an Individual Retirement Account for the benefit of Mr. Speight, (g)
39,917 shares held by Sp8Co., Inc. as to which beneficial ownership is
shared, (h) 21,775 shares issued pursuant to the Company's 401(k) Plan,
(i) 142,582 shares subject to options exercisable within 60 days, and (j)
30,000 shares subject to exercisable warrants.
(9) Consists of (a) 158,855 shares held by Mr. Wiley, (b) 300 shares held as
custodian for J. T. Wiley, III, (c) 300 shares held as custodian for James
Wiley, (d) 1,225 shares issued pursuant to the Company's 401(k) Plan, and
(e) 150,000 shares subject to exercisable warrants.
(10) Consists of shares owned of record by Tontine Financial Partners, L.P.
("TFP"), a Delaware limited partnership. Tontine Management, L.L.C.
("TM"), a Delaware limited liability company and the general partner of
TFP, and Jeffrey L. Gendell, the managing member of TM, share voting and
investment power with TFP with respect to the indicated shares. The
address of TRP, TM and Mr. Gendell is 237 Park Avenue, 9th Floor, New
York, New York 10017.
(11) Includes (a) 25,910 shares held in the Company's 401(k) Plan, (b) 198,163
shares subject to options exercisable within 60 days, and (c) 636,000
shares subject to exercisable warrants.
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 its subsidiary bank. The Company's committees
include an Audit and Exam Committee, a Benefits and Compensation Committee, an
Executive Management Committee and a Nominating Committee. During 2004, the
Board of Directors held 23 meetings, including 19 by unanimous written consent;
the Audit and Exam Committee held five meetings and the Benefits and
Compensation Committee held four meetings, including three by unanimous written
consent. The Executive Management Committee met on approximately a weekly basis.
The Nominating Committee met twice by unanimous written consent. During 2004,
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 is a member.
Audit and Exam Committee. The Audit and Exam Committee is responsible for
engaging, overseeing and compensating the Company's independent auditors,
pre-approving all allowable audit services, 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 and
approving related party transactions; 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; reviewing the
independence of the independent accountants; and reviewing the range of the
independent accountants' audit and non-audit fees. Audit and Exam Committee
members are William H. Anderson, II, H. Speer Burdette, III, Quill O. Healey,
John D. Houser and James W. Johnson.
The Board of Directors has determined that each Audit and Exam Committee
member is independent in accordance with the recently amended NASDAQ Stock
Market listing standards and applicable Securities and Exchange Commission
("SEC") regulations. None of the members of the Audit
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and Exam Committee has participated in the preparation of the financial
statements of the Company or any current subsidiary of the Company at any time
during the past three years. The Board has also determined that H. Speer
Burdette, III and John D. Houser meet the criteria specified under applicable
SEC regulations for an "audit committee financial expert" and that all of the
Committee members are financially sophisticated.
Benefits and Compensation Committee. The Benefits and Compensation
Committee of the Board of Directors of the Company establishes the general
compensation policies of the Company, establishes the compensation plans and
specific compensation levels for executive officers and awards stock-based
compensation to executive officers and employees of the Company. The committee
generally is responsible for the compensation and benefit plans for all
employees and is directly accountable for establishing compensation and benefit
plans, and payment and awards under those plans, for the Company's senior
executives. In carrying out these responsibilities, the committee reviews the
design of all compensation and benefit plans applicable to executive officers,
determines base salaries, reviews incentive plan performance measures,
establishes incentive targets, approves cash incentive awards based on
performance, grants stock options and other long-term incentives, and monitors
the administration of the various plans.
Benefits and Compensation Committee members are William H. Anderson, II,
H. Speer Burdette, III, Quill O. Healey, John D. Houser and James W. Johnson.
All of the committee members are independent directors in accordance with NASDAQ
Stock Market listing standards.
Executive Management Committee. The Executive Management Committee meets
approximately weekly and reviews the Company's financial reports and takes
actions as to matters arising between scheduled board meetings that are not
reserved for action by the full Board or a specific committee. Executive
Management Committee members are Stephen W. Doughty, Joseph W. Evans, J. Daniel
Speight and J. Thomas Wiley, Jr.
Nominating Committee. The Nominating Committee identifies individuals
qualified to become directors of the Company and selects or recommends to the
Board the director nominees for the next annual shareholders' meeting. The
Committee consists of William H. Anderson, II, H. Speer Burdette, III, Quill O.
Healey, John D. Houser and James W. Johnson. All of the committee members are
independent directors in accordance with NASDAQ Stock Market listing standards.
The Committee has a charter that is available for review on the Company's
website at www.flagbank.com.
Audit and Exam Committee Report
The Audit and Exam Committee reports as follows with respect to the audit
of the Company's 2004 audited consolidated financial statements.
o The Committee has reviewed and discussed the Company's 2004 audited
consolidated financial statements with the Company's management;
o The Committee has discussed with the independent auditors, Porter
Keadle Moore, LLP, the matters required to be discussed by SAS 61,
which include, among other items, matters related to the conduct of
the audit of the Company's consolidated financial statements;
o The Committee has received written disclosures and the letter from
the independent auditors required by ISB Standard No. 1, which
relates to the auditor's independence from the corporation and its
related entities, and has discussed with the auditors the auditors'
independence from the Company; and
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o Based on review and discussions of the Company's 2004 audited
consolidated financial statements with management and discussions
with the independent auditors, the Audit Committee recommended to
the Board of Directors that the Company's 2004 audited consolidated
financial statements be included in the Company's Annual Report on
Form 10-K.
March 14, 2005 H. Speer Burdette, III, Chairman
William H. Anderson, II
Quill O. Healey
John D. Houser
James W. Johnson
Audit and Exam Committee Charter
The Audit and Exam Committee has adopted a written charter and reviews and
approves any changes to the charter at least annually. No changes were made to
the Committee's current charter since its adoption in 2004.
Director Compensation
Non-employee members of the Board of Directors receive $5,000 per quarter,
which includes all board meetings and assigned committee meetings for the
Company's and Flag Bank's boards. The Company paid a total of $95,000 in
directors' fees in 2004. Directors who are employees of the Company or its
subsidiaries do not receive directors' fees.
The Company's 1994 Directors Stock Incentive Plan (the "Directors Stock
Plan"), provides that each person who 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 Directors Stock Plan
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 will be entitled to receive
options to purchase an aggregate of 6,000 shares of common stock if the
Company's book value as of the immediately preceding December 31st equals or
exceeds 106% of the Company's book value as of the prior December 31st. If the
options are granted, the 6,000 shares subject to the options are allocated
equally among the non-employee directors. The Directors Stock Plan terminated in
April 2004, and no directors other than Messrs. Healey and Houser received
options thereunder in 2004. Messrs. Healey and Houser each received options to
purchase 5,000 shares of common stock at an exercise price of $12.25 per share,
representing the fair market value of the stock on the date of grant, upon
election to the board on April 20, 2004. The options vested in full upon grant
and have a 10-year term.
Mr. Speight and Mr. Johnson participate in the Citizens Bank Director
Indexed Fee Continuation Program, and Mr. Burdette participates in the First
Federal Director Indexed Fee Continuation Program. Both of these programs are
now sponsored by Flag Bank and provide retirement benefits to the participants
and death benefits to their designated beneficiaries. Under these programs,
predecessors of Flag Bank purchased split-dollar whole life insurance contracts
on the lives of each of the participating directors. Flag 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. In the event the insurance contracts fail to produce positive returns,
Flag Bank has no obligation to contribute to the programs. As of December 31,
2004, the cash surrender value of the insurance contracts for all participants,
including directors of Flag Bank who are not directors of the Company, was
10
approximately $ 6.47 million, with an accrued liability of $786,000. Expense
incurred during 2004 as a reserve for the benefits was approximately $460,000.
Compensation Committee Interlocks and Insider Participation
The Benefits and Compensation Committee consists of Messrs. Anderson,
Burdette, Healey, Houser and Johnson.
On November 12, 2002, the Company acquired the assets of Bankers' Capital
Group, LLC ("BCG"), a specialized loan origination business based in Atlanta,
Georgia. Messrs. Evans, Wiley and Doughty are managers and members of BCG, and
Mr. Anderson is a member, but not a manager, of BCG. As such, they are entitled
to receive distributions from BCG in proportion to their respective membership
interests. The Company paid BCG an initial purchase price of $1,405,000 at
closing, with an additional $1,500,000 remaining payable on a contingent basis
under an earn-out provision. In 2004, the Company paid BCG $765,000 under this
provision.
Benefits and Compensation Committee Report
on Executive Compensation
This report is submitted by the members of the Benefits and Compensation
Committee regarding 2004 executive compensation.
Employment Agreements
Messrs. Speight, Doughty and Wiley are parties to employment agreements,
and Mr. Evans is a party to a Make-Whole Agreement, described in "Employment and
Change in Control Agreements." See that section of this proxy statement for the
terms of their agreements.
Base Salaries
The Committee establishes salaries for the Company's executive officers,
including the Chairman and Chief Executive Officer, based principally on a
subjective review of the executive's individual performance and degree of
experience. Salaries are also designed to be competitive with salaries paid to
executives in similar positions in financial institutions of comparable asset
size. Base salaries for 2004 and 2005 were based on these factors. Salaries for
2004 are shown in the Summary Compensation Table and salaries for 2005 remain
unchanged. See "Compensation of the Chief Executive Officer" for information
regarding his base salary arrangements.
Annual Incentives
One of the Committee's objectives in managing executive compensation is to
link directly a significant portion of executive pay to Company performance. The
Committee awarded a bonus representing the maximum bonus opportunity of 50% of
2004 base salary to each of the officers named in the Summary Compensation Table
based upon the Company's performance against budgeted 2004 net income and
deposit growth targets and compliance with operational, risk management and
regulatory compliance standards. It also awarded a one-time bonus of $47,813 to
each executive officer for efforts in connection with the Bank's sale of its
Thomaston, Georgia branch in 2004.
The Committee has also established the Company's 2005 bonus policy, which
reflects a proportionately higher emphasis on the Company's performance as a
component of total compensation, given that base salaries remain unchanged for
2005. If specified net income and deposit growth targets
11
are met and assuming continued satisfactory performance in the areas of
regulatory compliance, risk and operational management and pursuit of strategic
objectives, an initial bonus opportunity of 70% of base salary will be available
to the executive officers named in the Summary Compensation Table. If net income
and deposit growth for 2005 fall short of budget but are above a 90% "floor" for
payment, each of these executives will receive a portion of his initial bonus
opportunity that represents the percentage of the difference between the "floor"
and budget represented by the actual net income or deposit growth for the year.
For example, if actual net income represents 95% of budget, an executive would
be entitled to receive 50% of his initial 70% bonus opportunity.
An additional bonus pool was also authorized for these executives and two
others (subject to expansion to include other executives depending on their
respective segment's performance against budget). The additional bonus pool will
consist of 30% of the amount by which the Company's net income exceeds budget
and will be prorated among the participating executives based on their
respective initial bonus opportunities.
Long-term Incentives
Another major objective of the Committee in managing executive
compensation is to reward executives for increasing the value of the Company to
its shareholders. The Flag Financial Corporation 2004 Equity Incentive Plan (the
"Plan") accomplishes this objective by providing executives with opportunities
to earn and acquire a meaningful ownership interest in the Company. The
Committee (excluding employee members) is authorized to make awards of stock
options and other stock-based incentives and selects or ratifies the officers
and other key employees to whom awards may be made under the Plan.
Because the value of stock options and other stock awards is determined by
the price of the common stock, the Committee believes these awards benefit
stockholders by linking a potentially significant portion of executive pay to
the performance of the common stock. In addition, the Plan assists the Company
in attracting and retaining key employees and providing a competitive
compensation opportunity. Awards to executive officers under the Plan are
granted based on the Committee's subjective assessment of the executive's
contributions to the Company's performance and the degree to which compensation
in the form of a long-term incentive is likely to produce improved earnings,
return on equity and assets and other measures of Company performance. Based on
these factors, the Committee granted options to purchase 5,000 shares of common
stock to the executive officers named in the Summary Compensation Table on
February 4, 2004.
Other Benefits
Mr. Speight participates in the Citizens Bank Director Indexed Fee
Continuation Program described under "Director Compensation" and in a Salary
Continuation Plan described in "Employment and Change in Control Agreements." In
general, the other benefit plans provided to key employees, such health care,
life insurance, profit sharing and 401(k), are intended to provide an adequate
retirement income as well as financial protection against illness, disability or
death. Benefits offered to executive officers were substantially the same as
those provided to all employees.
Compensation of the Chief Executive Officer
In determining the compensation of the Chief Executive Officer, the
Committee is guided by the Company's compensation philosophy as described in
this report, the Company's financial and business performance and competitive
practices. Salaries, bonuses and long-term incentives are awarded based on the
same factors as are considered for the Company's other executive officers. For
2004, Mr. Evans' salary was set at $265,000 per year, with an opportunity for a
bonus of $132,500 (representing 50% of his
12
base salary) if the Bank exceeded its 2004 budgeted net income and deposit
growth. Because the Company met or exceeded these targets and complied with
operational, risk management and regulatory compliance standards, Mr. Evans
received the full amount of the bonus described above. He also received a
$47,813 bonus for his efforts in connection with the sale of the Bank's
Thomaston, Georgia branch in 2004 and options to purchase 5,000 shares of common
stock on February 4, 2004, which were granted for the reasons discussed under
"Long-Term Incentives" above. Mr. Evans' 2005 maximum compensation includes a
base salary of $265,000, which is the same as his 2004 base salary, and the same
bonus opportunity as is available to the other executive officers as described
in "--Annual Incentives" above.
Section 162(m) of the Internal Revenue Code
It is our responsibility to address any issues raised by Section 162(m) of
the Internal Revenue Code. Revisions to Section 162(m) make certain
non-performance-based compensation in excess of $1,000,000 to executives of
public companies non-deductible to such companies. Our 2004 Equity Incentive
Plan limits to 100,625 the number of stock options that may be awarded to any
individual in a single year under that plan. The Committee has not otherwise
established a specific policy regarding deductibility of executive compensation
under Section 162(m), but believes that the Company is not at risk of losing
deductions thereunder.
Summary
The Company's executive compensation program encourages executives to
manage the Company profitability and to increase the value of the business to
the shareholders. The emphasis on annual and long-term incentives is consistent
with the Committee's policy of linking pay to performance and increasing
shareholder value. The Committee believes this approach provides competitive
compensation and is in the best interest of the stockholders. The Committee will
continue to monitor the effectiveness of the executive compensation program and
will initiate changes as it deems appropriate.
Submitted by the members of the Benefits and Compensation Committee of the
Board of Directors of Flag Financial Corporation.
William H. Anderson, II
H. Speer Burdette, III
Quill O. Healey
John D. Houser
James W. Johnson
13
Performance Graph
The following Performance Graph compares the yearly percentage change in
the cumulative total shareholder return on the Company's common stock to the
cumulative total return on the NASDAQ Stock Market (U.S.) Index and the NASDAQ
Bank Stock Index for the past five years. The Performance Graph assumes
reinvestment of dividends, where applicable.
[RTCO TO INSERT GRAPH
(W/O HEADING) AND 5-YEAR
TABLE OF
RETURNS FROM CRSP
FILES]
14
EXECUTIVE COMPENSATION
Summary of Compensation
The following table shows information concerning annual and long term
compensation for services in all capacities to the Company and its subsidiaries
for the fiscal years indicated of our Chief Executive Officer during 2004, and
the other most highly compensated executive officers who served in such
capacities as of December 31, 2004 and who earned over $100,000 in salary and
bonus during 2004 (the "Named Executive Officers"). The information reported for
Messrs. Evans, Doughty and Wiley begins in 2002 because that was the year they
were first employed by the Company.
Summary Compensation Table
Long-Term
Compensation
Annual Compensation Awards
-------------------------------------------- ------
Securities
Underlying
Name and Other Annual Options All Other
Principal Position Year Salary Bonus Compensation(1) (# of shares) Compensation(2)
------------------ ---- ------ ----- --------------- ------------- ---------------
Joseph W. Evans 2004 $265,000 $180,313(3) -0- 5,000(4) $ 82,825(5)
---------------
Chairman, President and Chief 2003 $150,000 $ 42,188 -0- -0- $ 8,409
Executive Officer of the 2002 -0-(6) -0- -0- -0- -0-
Company
J. Daniel Speight 2004 $225,000 $160,313(3) -0- 5,000(4) $ 10,449
-----------------
Vice Chairman, Chief 2003 $225,000 $ 42,188 -0- -0- $ 12,207
Financial Officer and 2002 $250,000 $ 62,500 42,104(7) -0- $361,074
Secretary of the Company
Stephen W. Doughty 2004 $225,000 $160,313(3) -0- 5,000(4) $ 5,637
------------------
Vice Chairman and Chief Risk 2003 $225,000 $ 42,188 -0- -0- $ 11,764
Management Officer of the 2002 $129,167 $ 62,500 -0- -0- $ 6,665
Company
J. Thomas Wiley, Jr 2004 $225,000 $160,313(3) -0- 5,000(4) $ 5,637
-------------------
Vice Chairman and Chief 2003 $225,000 $ 42,188 -0- -0- $ 11,764
Banking Officer of the 2002 $129,167 $ 62,500 -0- -0- $ 6,665
Company
----------
(1) We have omitted information on "perks" and other personal benefits with an
aggregate value below the minimum amount required for disclosure under the
Securities and Exchange Commission regulations.
(2) Consists of matching contributions to the Company's Profit Sharing Plan
and 401(k) Plan and of insurance premiums for disability, term and other
life insurance in the following amounts:
Profit Sharing/401(k) Insurance
Name Year Matching Contributions Premiums
---- ---- ---------------------- --------
Mr. Evans 2004 $ 4,646 $1,074
2003 $ 7,188 $1,221
2002 $ -0- $ -0-
15
Profit Sharing/401(k) Insurance
Name Year Matching Contributions Premiums
---- ---- ---------------------- ---------
Mr. Speight 2004 $ 9,375 $1,074
2003 $10,000 $2,207
2002 $10,000 1,074
$
Mr. Doughty 2004 $ 4,563 $1,074
2003 $10,000 $1,764
2002 $ 6,458 207
$
Mr. Wiley 2004 $ 4,563 $1,074
2003 $10,000 $1,764
2002 $ 6,458 135
(3) Includes a one-time bonus in the amount of $47,813 on the 2004 sale of the
Bank's Thomaston, Georgia branch. See "Compensation Committee
Report--Annual Incentives" for additional information regarding the
determination of 2004 bonuses.
(4) See "Option Grants in Last Fiscal Year" below for information regarding
the terms of these options.
(5) Includes $77,105 paid pursuant to the Make-Whole Agreement described in
"--Employment and Change in Control Agreements."
(6) Mr. Evans volunteered to forego any salary, bonus or other compensation as
the Company's Chief Executive Officer during his first year of service in
such capacity.
(7) Includes $19,250 as the value of a company car transferred to Mr. Speight
and the value of personal use of the car during 2002. Also includes
$22,152 in rent paid by the Company on a condominium available for his use
in connection with travel on behalf of the Company.
Option Grants in Last Fiscal Year
The following table provides details regarding stock options granted to
the Named Executive Officers in 2004.
Potential Realizable
Value at Assumed
Annual Rate of Stock
Price Appreciation for
Individual Option Grants Option Term(1)
--------------------------------------- ----------------------
% of Total
Options
Securities Granted to Exercise
Underlying Employees or
Date of Options in Fiscal Base Price Expiration
Name Grant Granted (#) Year (%) ($/Sh)(2) Date 5% 10%
---- ----- ----------- -------- --------- ---- -- ---
Joseph W. Evans 2/4/04 5,000(3) 5.0 12.90 2/4/14 40,564 102,796
J. Daniel Speight 2/4/04 5,000(3) 5.0 12.90 2/4/14 40,564 102,796
Stephen W. Doughty 2/4/04 5,000(3) 5.0 12.90 2/4/14 40,564 102,796
J. Thomas Wiley, Jr. 2/4/04 5,000(3) 5.0 12.90 2/4/14 40,564 102,796
(1) The dollar amounts under these columns are the result of calculations at
the 5% and 10% rates set by the Securities and Exchange Commission and
therefore are not intended to forecast future possible appreciation, if
16
any, of the price of the Company's common stock.
(2) Option holders may pay the exercise price by delivery of already-owned
shares. Option holders can pay tax withholding obligations related to
exercise of the options by offset of the underlying shares, subject to
certain conditions.
(3) The options vest in full on the three-year anniversary of the date of
grant.
Aggregated Option Exercises in Last Fiscal Year and Fiscal Year-End Option
Values
The Named Executive Officers did not exercise any options in 2004. The
following table reports their respective option holdings and values at the end
of fiscal 2004.
Number of Securities
Underlying Unexercised Value of Unexercised
Options at Fiscal Year-End In-the-Money Options (1)
--------------------------------------------------------------------
Name Exercisable Unexercisable Exercisable Unexercisable
---- ----------- ------------- ----------- -------------
Joseph W. Evans 0 5,000 0 $ 8,400
J. Daniel Speight 135,922 24,578 $ 515,256 $ 152,480
Stephen W. Doughty 0 5,000 0 $ 8,400
J. Thomas Wiley, Jr. 0 5,000 0 $ 8,400
----------
(1) Reflects information relating only to options held by the Named Executive
Officers with exercise prices that were less than the market value of the
Company's common stock ($14.58 per share) at December 31, 2004.
Employment and Change in Control Agreements
Mr. Evans
On June 7, 2004, the Company entered into a Make-Whole Agreement with
Joseph W. Evans providing for the Company's payment to Mr. Evans of $660,927,
representing the aggregate amount remaining due under the non-competition
provisions of his employment agreement with the acquirer of his prior employer.
This amount is to be paid in monthly installments of $11,015 beginning in June
2004 and ending in May 2009. The Company entered into the make-whole agreement
in order to enable Mr. Evans to terminate his prior employment agreement and
thereby enhance the Company's ability to pursue acquisitions and otherwise
conduct its business in its market. In the event of a change of control of the
Company, the entire amount will be due and payable at a discount of 6%.
Mr. Speight
Employment Agreement. On February 21, 2002, the Company and Flag Bank
entered into an amended and restated employment agreement with J. Daniel
Speight. The Employment Agreement provides for a term of three years that
automatically renews each day after the effective date so that the term remains
a three-year term until any party notifies the others that the automatic
renewals should discontinue. The Employment Agreement provides for an annual
salary that is reviewed at least annually by the Board of the Company and Flag
Bank. Mr. Speight's current base salary as determined under the Employment
Agreement is $225,000. The Employment Agreement also provides for Mr. Speight to
participate in any bonus, stock option or other executive compensation programs
available to senior management of the Company. Mr. Speight received title to his
company car and is entitled to various
17
"perks" and to participate in all group employee benefit plans. Mr. Speight is
also entitled to participate in a deferred compensation program similar to the
split dollar insurance program provided by the Company during prior years. See
"Salary Continuation Agreement" below. In addition, the Employment Agreement
provides that if the Company reduces or eliminates dividends on its common stock
for any quarter during the term of the Employment Agreement, Mr. Speight will
receive an amount equal to $9,000 less the amount of any dividends he actually
receives during the quarter, with the payment to be reduced to reflect the
proportionate effect of any reduction in the number of shares of the Company's
common stock he owns during that quarter.
The Employment Agreement states that, in the event the Company or Flag
Bank terminates Mr. Speight's employment other than for "cause" (as defined in
the Employment Agreement) or Mr. Speight terminates his employment for "cause"
or due to a change in control, Mr. Speight is entitled to receive a severance
payment in a lump sum amount equal to his average monthly compensation
multiplied by the number of months remaining in the term of the Employment
Agreement. For purposes of this calculation, "average monthly compensation"
means: (i) the sum of (x) his then current annual base salary plus (y) his most
recent annual bonus or, if greater, his average bonus for the three prior years;
(ii) divided by 12. For example, if Mr. Speight's employment were to terminate
during 2005 as a result of a change in control, he would receive a cash payment
of $1,155,924, representing his $32,109 average monthly compensation for 2005
multiplied by the 36 months left in the term of his agreement. If there are less
than twelve months remaining in the term of the Employment Agreement, Mr.
Speight will be entitled to receive a lump sum payment equal to his average
monthly compensation multiplied by twelve. Mr. Speight will also be entitled to
receive an amount equal to the COBRA health continuation coverage costs for
himself and his dependents for the longer of (a) twelve months, (b) the
remaining term of the Employment Agreement or (c) the period during which Mr.
Speight and his dependents are eligible to continued COBRA coverage from the
Company.
Pursuant to the terms of the Employment Agreement, during the term of his
employment and for twelve months following his termination of employment, Mr.
Speight agrees not to compete with the Company or Flag Bank or solicit any of
their customers or employees. The agreement not to compete and not to solicit
customers or employees does not apply if (1) the Company or Flag Bank terminates
Mr. Speight without cause, (2) Mr. Speight terminates his employment in
connection with a change in control of the Company, or (3) Mr. Speight
terminates employment for cause.
Salary Continuation Agreement. On November 11, 2004, the Company and the
Bank entered into a Salary Continuation Agreement with J. Daniel Speight. The
agreement provides for a maximum annual cash payment of $136,000, payable in
monthly installments over 15 years, commencing upon Mr. Speight's retirement
from with the Bank. The benefit is currently 25% vested (which would result in a
$34,000 current annual benefit) and vests in additional 4% increments for each
year of employment with the Bank. If Mr. Speight's employment terminates
voluntarily prior to normal retirement age (65), then he will receive the vested
percentage of his retirement benefit. On the other hand, if: (i) his employment
is terminated in the event of a change of control of the Bank; (ii) his
employment is terminated without cause; or (iii) his duties are materially
diminished or he is not reelected as a director or appointed as Vice Chairman of
the Company, then he will receive his full retirement benefit without regard to
vesting. No benefits will be paid in the event of termination of employment for
cause.
Mr. Doughty and Mr. Wiley
On January 13, 2004, the Company entered into Change in Control Agreements
with Stephen W. Doughty and J. Thomas Wiley, Jr. Each Change in Control
Agreement provides for a term of three years that automatically renews each day
after the effective date so that the term remains a three-year term until either
party notifies the other that the automatic renewals should discontinue.
Irrespective
18
of the three-year term, the term of each Change in Control Agreement will expire
twelve months following a change in control.
Each Change in Control Agreement provides for payment of benefits in
different amounts depending upon whether the change in control is "satisfactory"
or "unsatisfactory." An "unsatisfactory" change in control is one in which the
employee is not offered a commensurate position with the surviving entity. A
"satisfactory" change in control is one in which the employee is offered a
commensurate position with the surviving entity.
In the event of an "unsatisfactory" change in control, if the employee is
terminated by the employer without "cause" (as defined in the Change in Control
Agreement) or terminates with "good reason" (as defined in the Change in Control
Agreement) within twelve months following the change in control, the employee is
entitled to receive a severance payment in a lump sum amount equal to three
times the sum of his annual base salary and largest annual bonus paid in the
three preceding years. For example, if the employee is terminated under these
circumstances during 2005, he will receive a cash payment of $1,155,939,
representing three times the sum of his current base salary ($225,000) and his
largest bonus in the last 3 years ($160,313). The employee will also be entitled
to a payment equal to the COBRA health continuation coverage costs for the
employee and his dependents during the period in which they are eligible to
continue COBRA coverage from the Company.
In the event of a "satisfactory" change in control, the employee will be
eligible to receive a success fee equal to one times his base salary and bonus
if the fair market value of the Company's stock increases by twenty-five percent
of its pre-change in control value. The success fee will be payable regardless
of whether or not the employee accepts the position with the surviving entity.
For example, in the event of a change of control of the Company during 2005 and
a resulting 25% increase in the Company's stock value, he will receive a success
fee of $385,313, representing his $225,000 base salary plus his largest bonus in
the last three years, $160,313.
In the event of a satisfactory change in control in which the employee
accepts the position with the surviving entity, the employee may terminate
employment for any reason within twelve months following the change in control
and will be entitled to receive a severance benefit in a lump sum amount equal
to two times his base salary and bonus. However, if the success fee described
above is payable to the employee, the employee's severance benefit payable upon
such a termination following a "satisfactory" change in control will only be
equal to one times his base salary and bonus. As a result, an executive who
terminates employment as a result of a 2005 change in control but is not
entitled to a success fee would receive a cash payment of $770,626, representing
two times his 2005 salary plus his highest bonus within the last three years,
while an executive who terminates employment but did receive a success fee would
receive a severance payment of $385,313 in addition to his $385,313 success fee,
representing a total payment of $770,626. In addition, the employee will also be
entitled to receive a payment equal to the COBRA health continuation coverage
costs for the employee and his dependents during the period in which they are
eligible to continue COBRA coverage from the Company.
Pursuant to the terms of each Change in Control Agreement, if the employee
receives payment of benefits upon a change in control, for twelve months
following the employee's termination of employment, the employee agrees not to
compete with the Company or solicit any of its customers and employees.
Each Change in Control Agreement provides that any payments made under the
agreement or otherwise paid in connection with a change in control are subject
to cutback in the event that the amount of those payments trigger the
application of the golden parachute rules under the Internal Revenue Code.
19
Section 16(a) Beneficial Ownership Reporting Compliance
Section 16(a) of the Securities Exchange Act of 1934 requires 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 various affiliates of
these persons, to file initial reports of ownership and reports of changes in
their ownership of the Company's common stock with the Securities and Exchange
Commission. Directors, executive officers and persons beneficially owning more
than 10% of the Company's common 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 2004. Based solely on its review of the copies of reports
received by it and written representations received by it that no other reports
were required, the Company believes that except for two late filings, each
covering one transaction, by each of Messrs. Burdette, Doughty, Evans, Healey
and Wiley, and one late filing covering one transaction by each of Messrs.
Houser and Speight, all of its directors and executive officers complied with
applicable Section 16(a) filing requirements for 2004.
RELATED PARTY TRANSACTIONS
Directors, executive officers, principal shareholders of the Company and
their affiliates have been customers of Flag Bank and predecessors 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 Flag Bank to these persons are made (1) on
substantially the same terms, including interest rates and collateral, as those
prevailing at the time for comparable transactions with other persons, (2) do
not involve more than the normal risk of collectibility or embody other
unfavorable features, and (3) comply with specified quantitative limits imposed
by federal laws and regulations. At December 31, 2004, the aggregate amount of
loans and extensions of credit outstanding to these persons was approximately
$5,007,000, which represented approximately 7.24% of the total equity capital of
the Company.
None of the loans outstanding at the Flag Bank or any predecessor of Flag
Bank to directors, executive officers or principal shareholders of the Company
at any time during or subsequent to 2004 was or has been on past due or
non-accrual status, has been restructured, or is considered by Flag Bank to be a
problem loan.
See "Proposal 1: Election of Directors - Compensation Committee Interlocks
and Insider Participation" for information regarding a transaction involving the
Company and certain of its executive officers and directors.
PROPOSAL 2: RATIFICATION OF
INDEPENDENT ACCOUNTANTS
The Audit and Exam Committee of 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, 2005, and the Board has directed
that the appointment be submitted to our shareholders for ratification at the
Annual Meeting. If the shareholders do not ratify the appointment of Porter
Keadle Moore, LLP, the appointment will be reconsidered.
During the fiscal years ended December 31, 2004 and 2003, Porter Keadle
Moore, LLP performed the following professional services:
20
Description 2004 2003
----------- ---- ----
-------------------------------------------------------------------
Audit Fees $ 217,073 $ 159,953
Audit-Related Fees $ 29,610 $ 14,100
Tax Fees $ 20,070 $ 25,250
All Other Fees $ 25,875 $ 32,250
Audit Fees. This category includes aggregate fees billed for professional
services rendered by Porter Keadle Moore, LLP for the audit of the Company's
annual consolidated financial statements for the years ended December 31, 2004
and 2003, including the audit of management's assessment of internal control
over financial reporting for the year ending December 31, 2004, review of the
annual report on Form 10-K and for the limited reviews of quarterly condensed
consolidated financial statements included in periodic reports filed with the
SEC during 2004 and 2003, including out of pocket expenses.
Audit-Related Fees. This category includes fees billed for professional
services rendered by Porter Keadle Moore, LLP associated with the audit of the
Company's profit sharing and 401(k) plan, Federal Home Loan Bank collateral
verification testing, testing of management's assertions regarding internal
controls in accordance with Federal Deposit Insurance Corporation Improvement
Act and various discussions regarding accounting issues related to mergers and
acquisitions during the fiscal years ended December 31, 2004 and 2003.
Tax Fees. This category includes the aggregate fees billed for tax
services rendered by Porter Keadle Moore, LLP during the fiscal years ended
December 31, 2004 and 2003. These services consisted primarily of tax compliance
and tax consultation services.
All Other Fees. This category includes the aggregate fees billed for all
other services, exclusive of the fees disclosed above, including Information
Technology General Controls Review and Network Vulnerability Assessment rendered
to the company by Porter Keadle Moore, LLP during the fiscal years ended
December 31, 2004 and 2003.
The services provided by the independent accountants were pre-approved by
the Audit and Exam Committee to the extent required under applicable law and in
accordance with the provisions of the Committee's charter. The Audit and Exam
Committee pre-approves all audit and non-audit services provided by the
Company's independent accountants and may not engage them to perform any
prohibited non-audit services. For 2004, 100% of the fees incurred were
pre-approved. The Audit Committee has determined that the rendering of non-audit
professional services, as identified above, is compatible with maintaining the
independence of the Company's auditors.
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
Proposal 2.
21
DIRECTOR NOMINATIONS AND SHAREHOLDER COMMUNICATIONS
General
The Nominating Committee has adopted a policy regarding shareholder
communications and director nominations. The Nominating Committee will consider
director candidates recommended by shareholders who appear to be qualified to
serve on the Company's Board of Directors and who are nominated in accordance
with procedures described below.
To submit a recommendation of a director candidate to the Nominating
Committee, a shareholder must submit the following information in writing,
addressed to the Nominating Committee, in care of the Corporate Secretary, at
the main office of the Company at 3475 Piedmont Road, N.E.; Suite 550; Atlanta,
Georgia 30305.
1. The name of the person recommended as a director candidate;
2. 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 appropriate biographical information.
3. The written consent of the person being recommended as a director
candidate to being named in the proxy statement as a nominee and to
serving as a director if elected;
4. As to the shareholder making the recommendation, his or her name,
address, number of shares of Company common stock beneficially
owned, the dates on which the shareholder acquired his or her
shares, documentary support for any claim of beneficial ownership
and his or her relationship or affiliation with the nominee; and
5. A statement as to the qualification of the nominee.
In order for a director candidate to be considered for nomination at the
Company's annual meeting of shareholders, the recommendation must be received by
the Committee at least 120 calendar days prior to the date the Company's proxy
statements was released to shareholders in connection with the previous year's
annual meeting, advanced by one year.
Director Qualifications
The Nominating Committee considers the following criteria in selecting
nominees: business experience; knowledge of the Company and the financial
services industry; experience in serving as director of the Company or of
another financial institution or public company generally; wisdom, integrity and
ability to make independent analytical inquiries; familiarity with and
participation in the communities served by the Company; commitment to and
availability for service as a director of the Company; and any other factors the
Nominating Committee deems relevant.
Other Shareholder Communications
Shareholders wishing to communicate with the Board of Directors or with a
particular director may do so in writing addressed to the Board, or to the
particular director, and delivering it to either the Corporate Secretary or the
Director of Investor Relations of the Company, in each case at the address of
the Company's principal office at 3475 Piedmont Road, N.E.; Suite 550; Atlanta,
Georgia 30305. The recipients will promptly forward such communications to the
applicable director or to the Chairman of the Board for consideration at the
next scheduled meeting.
22
Shareholder Proposals For 2005 Annual Meeting
Shareholder proposals submitted for consideration at the next Annual
Meeting of Shareholders must be received by the Company no later than November
10, 2005 to be included in the 2005 proxy materials. If the Company does not
receive such notice prior to that date, proxies solicited by the management of
the Company will confer discretionary authority upon the management of the
Company to vote upon any such matter.
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.
Atlanta, Georgia
April 1, 2005
-----------
The Company's 2004 Annual Report to Shareholders, which include audited
financial statements for the Company, has been mailed to shareholders of the
Company with these proxy materials. The Annual Report to Shareholders does not
form any part of the material for the solicitation of proxies.
23
[X] PLEASE MARK VOTES
AS IN THIS EXAMPLE
REVOCABLE PROXY
FLAG FINANCIAL CORPORATION
THIS PROXY IS SOLICITED BY THE BOARD OF DIRECTORS FOR THE 2005
ANNUAL MEETING OF SHAREHOLDERS
The undersigned hereby appoints Joseph W. Evans and J. Daniel Speight, and
each of them, proxies, with full power of substitution, to act for and in the
name of the undersigned to vote all shares of Common Stock of Flag Financial
Corporation (the "Company"), which the undersigned is entitled to vote at the
2005 Annual Meeting of Shareholders of the Company, to be held at 3475 Piedmont
Road, N.E., Suite 550, Atlanta, Georgia on May 17, 2005, at 1:00 p.m., local
time, and at any adjournments thereof, as indicated below.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" EACH OF THE LISTED PROPOSALS.
1. Election of Directors: Authority for the election of Stephen W. Doughty, John
Houser and James W. Johnson as Class II directors, each to serve until the 2008
Annual Meeting of Shareholders or until their successors are elected and
qualified.
|_| FOR ALL NOMINEES listed above |_| WITHHOLD AUTHORITY to vote for
(except as marked to the Nominees listed above.
contrary below).
INSTRUCTION: To withhold authority to vote for any individual nominee, mark
"FOR" above, and write the nominee's name in this space:
--------------------------------------------------------------------------------
2. Ratification of Appointment of Independent Accountants: Authority to ratify
the appointment of Porter Keadle Moore, LLP as independent accountants of the
Company for the fiscal year ending December 31, 2005.
|_| FOR |_| AGAINST |_| ABSTAIN
THIS PROXY CARD WILL BE VOTED AS DIRECTED. IF NO INSTRUCTIONS ARE
SPECIFIED, THIS PROXY CARD WILL BE VOTED "FOR" THE ELECTION OF THE NOMINEES IN
PROPOSAL 1 AND "FOR" PROPOSAL 2. If any other business is presented to a vote of
the shareholders at the Annual Meeting, the undersigned hereby grants the
proxies discretionary authority to vote this proxy in accordance with their best
judgment. At the present time, the Board of Directors knows of no other business
to be presented to a vote of the shareholders at the Annual Meeting.
If the undersigned elects to withdraw this proxy on or before the time of
the Annual Meeting or any adjournments of the Annual Meeting and notifies the
Secretary of the Company at or prior to the Annual Meeting of the decision of
the undersigned to withdraw this proxy, then the power of the proxies shall be
terminated and of no further force and effect. If the undersigned withdraws this
proxy in the manner described above and prior to the Annual Meeting does not
submit a duly executed and subsequently dated proxy card to the Company, the
undersigned may vote in person at the Annual Meeting all shares of Common Stock
of the Company owned by the undersigned as of the record date for the Annual
Meeting.
Please mark, date and sign exactly as your name appears on this proxy
card. When shares are held jointly, both holders must sign. When signing as an
attorney, executor, administrator, trustee or guardian, please give your full
title. If the holder is a corporation or a partnership, the full corporate or
partnership name should be signed by a duly authorized officer.
_________________________________________________, 2005
Date
_______________________________________________________
Signature
_______________________________________________________
Signature, if shares held jointly
Do you plan to attend the Annual Meeting? |_| YES |_| NO