FIRST RELIANCE BANCSHARES, INC.
February 24, 2009
TABLE OF CONTENTS
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 unless the matter being voted upon requires the affirmative vote of at least a specific percentage of the shares outstanding and entitled to vote. In such a case, broker non-votes will count as votes against the proposal.
Proposal One, relating to the amendment to First Reliance’s Articles of Incorporation (the “Amendment Proposal”), requires approval by two-thirds (66.7%)
Approval Requirements. To be elected or ratified as a director, a director nominee must receive a plurality of the shares outstandingvotes for his or her election as of the Record Date and entitleda director. As a result, if you withhold your vote as to be voted at the Special Meeting. Accordingly, abstentions and broker non-votes will have the effect of a vote against this proposal.Proposal Two, relating to the authority of First Reliance to adjourn the Special Meeting (the “Adjournment Proposal”), requires that the number of shares voted in favor of the proposal exceed the number of shares voted against the proposal. Accordingly, abstentions and broker non-votesone or more nominees, it will have no effect on the outcome of voting on this proposal.
Approvalthe election of anythe director for which you withheld your vote, unless you cast that vote for a competing nominee, if any.
Any other matter that may properly presentedcome before the annual meeting, requires more votes for shareholder approval will require that the number of shares voted in favor of the proposal exceed the number of shares votedthan against the proposal provided a quorum is present.being voted upon. Abstentions and broker non-votes will not be counted as votes against any proposal and therefore will have no effect on the outcome of the proposal.
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 knowwill direct brokerage firms or other custodians, nominees or fiduciaries to forward our proxy solicitation material to the beneficial owners of no other matterscommon 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.
PROPOSAL NO. 1: ELECTION OF DIRECTORS
Director Nominees
The Company’s Articles of Incorporation provide that maythe Board of Directors of the Company will be brought before the Special Meeting. If, however, any matter (other than the two proposals or a matter incident thereto)divided into three (3) classes – Class A, Class B and Class C – each of which we dois as nearly equal in number as possible. The directors in each class serve for staggered terms of three years each.
On February 18, 2010, the Board of Directors was informed that Director A. Joe Willis intended to retire from service to the Company’s Board at the completion of his current term, which concludes at the 2010 Annual Meeting. The Board of Directors thanked Dr. Willis for his dedicated service to the Company, and elected to not have reasonable prior notice properly comes before the Specialnominate Dr. Willis for another term. At its May 2010 Board Meeting, the Company’s Board of Directors, pursuant to the Company’s bylaws, will consider a resolution to reduce the size of the Board of Directors to nine (9) directors effective as of June 17, 2010.
The Board of Directors recommends that the shareholders elect the persons appointedidentified below as proxies will votenominees to the Board of Directors. The following table shows for each nominee: (a) his name; (b) his age at December 31, 2009; (c) how long he has been a director of the Company; (d) his position(s) with the Company; (e) his principal occupation and business experience for the past five years; and (f) a brief discussion of the specific experience, qualifications, attributes or skills that the Board believes qualifies each director for service on First Reliance’s Board. Except as otherwise indicated, each director has been engaged in his or her present principal occupation for more than five years. Each of the director nominees listed below is also a director of First Reliance Bank. The nominating committee believes that each of the director nominees and continuing directors possess the “soft skills” appropriate for service on the matterBoard of Directors of First Reliance, including proper temperament, collegiality, good judgment, leadership and integrity, and, on the basis of the qualifications and experience listed below, that all of the director nominees and continuing directors are well qualified to serve on our Board.
CLASS C — DIRECTOR NOMINEES
(Nominated for a Three –Year Term Expiring 2013)
| · | A. Dale Porter, age 59, has been (i) VP & Senior Loan Administrator since December 1, 2007; (ii) a director of the Bank since August 16, 1999; and (iii) a director of the Company since April 12, 2001. From June 30, 2005 to December 1, 2007 Mr. Porter served as the Senior Branch Administrator, from April 1, 2004 to June 30, 2005, Mr. Mr. Porter served as the Senior Deposit Operations Manager for the Bank; from September 2002 to April 1, 2004, Mr. Porter served as Controller for the Bank; and from August 16, 1999 to September, 2002, Mr. Porter served as Executive Vice President, Chief Financial Officer and Secretary of the Bank. Prior to joining the Company and the Bank, Mr. Porter was Regional Support Specialist-Operational of the region of Centura Bank in South Carolina from the time Centura Bank acquired Pee Dee State Bank by merger in March 1998 until October 1998, when he resigned to organize the Bank. Mr. Porter was Cashier and a director of Pee Dee State Bank from January 1978 until March 1998 and was manager of data processing from February 1972 until January 1978. |
| · | John M. Jebaily, age 58, has been a director of the Bank since August 16, 1999 and a director of the Company since April 12, 2001. Mr. Jebaily has been self-employed as a real estate agent in Florence since 1977. |
| · | C. Dale Lusk, MD, age 51, has been a director of the Bank since August 16, 1999 and a director of the Company since April 12, 2001. Dr. Lusk has been in the private practice of OB/GYN since 1993. He is currently a partner/owner in Advance Women’s Care, a local OB/GYN practice. |
Continuing Directors
The following two tables set forth, for each remaining director of the Company whose term has not yet expired, the following: (a) his name; (b) his age at December 31, 2009; (c) how long he has been a director of the Company; (d) his position(s) with the Company; and (e) his principal occupation and business experience for the past five years. Except as otherwise indicated, each director has been engaged in accordance with their best judgment.
Record Date, Solicitation,his present principal occupation for more than five years.
CLASS A — CONTINUING DIRECTORS
(Term Expiring 2011)
| · | J. Munford Scott, Jr., age 64, has been a director of the Company and the Bank since January 18, 2007. Mr. Scott serves as special counsel for the law firm Turner Padget Graham & Laney, PA., a position he has held since December 1, 2006. Prior to that date, he was the senior attorney and owner of Scott & Associates P.C. Attorneys at Law for over twenty years. |
| · | F.R. Saunders, Jr., age 49, has been (i) President, Chief Executive Officer and a director of the Bank since August 16, 1999; (ii) a director of the Company since April 12, 2001; and (iii) President and Chief Executive Officer of the Company since April 18, 2001. Mr. Saunders was Senior Market Manager of the branch of Centura Bank in Florence, South Carolina from the time Centura Bank acquired Pee Dee State Bank by merger in March 1998 until November 1998, when he resigned to organize the Bank. Mr. Saunders was a Vice President and a director of Pee Dee State Bank from January 1990 until March 1998. Mr. Saunders is the brother of Paul C. Saunders, a director and Senior Vice President of the Company. |
| · | Leonard A. Hoogenboom, age 66, has been (i) Chairman of the Board and a director of the Bank since August 16, 1999 and (ii) Chairman of the Board and a director of the Company since April 12, 2001. Mr. Hoogenboom has been the owner and Chief Executive Officer of L. Hoogenboom CPA, a local CPA firm, since 1984. Mr. Hoogenboom has extensive local contacts and a wide variety of business experiences and community involvement. |
CLASS B — CONTINUING DIRECTORS
(Term Expiring 2012)
| · | Paul C. Saunders, age 48, has been (i) Senior Vice President and a director of the Bank since August 16, 1999; (ii) Senior Vice President and Assistant Secretary of the Company since April 18, 2001; and (iii) a director of the Company since April 12, 2001. Mr. Saunders was Financial Sales Officer of the branch of Centura Bank in Florence, South Carolina from the time Centura Bank acquired Pee Dee State Bank by merger in March 1998 until November 1998, when he resigned to organize the Bank. Mr. Saunders was a Vice President of Pee Dee State Bank from October 1987 until March 1998. Mr. Sanders is the brother of F.R. Saunders, Jr., a director and the President and Chief Executive Officer of the Company. |
| · | Andrew G. Kampiziones, age 78, has been a director of the Bank since August 16, 1999 and a director of the Company since April 12, 2001. Mr. Kampiziones has been the sole owner and President and Treasurer of Fairfax Development Corporation, a real estate development corporation, since December 1991. Mr. Kampiziones has also been a part-time professor at Francis Marion University since 1991 and a full-time teacher at Florence/Darlington Technical College since 1992. |
| · | Jeffrey A. Paolucci, age 40, has been (i) a director of the Company and the Bank since May 1, 2003 and (ii) Senior Vice President and Chief Financial Officer of the Company and the Bank since September 30, 2002. Prior to joining the Company and the Bank, Mr. Paolucci had been a bank examiner in the Columbia, South Carolina field office of the FDIC since 1993. |
Director Independence
The Board of Directors has determined that the following directors are independent pursuant to the independence standards of the Nasdaq Stock Market:
| · | Leonard A. Hoogenboom | | · | C. Dale Lusk, MD |
| · | John M. Jebaily | | · | J. Munford Scott, Jr. |
| · | Andrew G. Kampiziones | | | |
In determining that each director could exercise independent judgment in carrying out his or her responsibilities, the Board of Directors considered any transactions, relationships and Revocability of Proxiesarrangements between the Company or the Bank and the director and his family.
Board Leadership Structure and Role in Risk Oversight
Our Board of Directors has fixedis led by a Chairman selected by the closeBoard from time to time. Presently, Mr. Hoogenboom, an independent director, is Chairman of business on January 13, 2009the Board. Mr. F.R. Saunders, Jr. currently serves as a director and as the record date (“Record Date”)Company’s President and Chief Executive Officer. The foregoing structure is not mandated by any provision of law, but the Board of Directors believes this structure provides for determiningan appropriate balance of authority between management and the shareholders entitledBoard and provides an efficient decision making process with proper independent oversight. The Board of Directors, however, reserves the right to noticeestablish a different structure in the future.
The Board of Directors oversees and monitors First Reliance’s risk management processes. The Board outlines our risk principles and management framework and it sets high level strategy and risk tolerances, including the creations of internal controls and safeguards relating to voteinterest rate risk, loan concentrations, loans to one borrower and customer security. The Audit Committee is primarily responsible for overseeing the risk management function of the Company on behalf of the Board. In carrying out its responsibilities, the Audit Committee works closely with senior risk officers as well as the Board’s Corporate Governance and Nominating Committee and meets regularly to review management’s assessment of risk exposure and the process in place to monitor and control such exposure. Additionally, the Audit Committee meets no less than quarterly to review quarterly reports on Form 10-Q, internal audits and loan reviews, and meets in executive session with internal auditors, the Company’s principal accountants, the Chief Financial Officer and the Controller, among others, to assess risk that may affect the entire Company.
Board Meetings and Committees
In 2009, the Boards of Directors of the Company and the Bank held 14 joint meetings. During 2009, all incumbent directors attended at least 75% of the aggregate of the total number of meetings of the Board of Directors and the total number of meetings held by all committees of the board on which the director served.
The Company does not have a formal policy regarding board member attendance at the Special Meeting. Accordingly, only holdersannual meeting of recordshareholders; however, board members are encouraged to attend any and all shareholder meetings of sharesthe Company. Last year 8 of commonour 10 directors attended our annual meeting of shareholders.
Corporate Governance and Nominating Committee. The Company’s Corporate Governance and Nominating Committee consists of Leonard A. Hoogenboom, F.R. Saunders, Jr., J. Munford Scott, Jr., and C. Dale Lusk. The committee met one time during 2009. The Corporate Governance and Nominating Committee has been formed by the Board of Directors to consider shareholders’ nominations of individuals to serve as directors of the Company in accordance with the Company’s Bylaws and the committee’s charter. As part of its responsibilities, the committee makes a recommendation regarding any suggested nominee to the entire Board of Directors for final determination and consideration. The Company’s and the Bank’s Board of Directors has adopted a written charter for the Corporate Governance and Nominating Committee, which is available on our website, www.firstreliance.com.
The Corporate Governance and Nominating Committee has adopted a formal process for identifying or evaluating nominees; as part of this process, it informally solicits and considers recommendations from a variety of sources, including other directors, members of the community, customers of the Bank and shareholders of the Company, and professionals in the financial services and other industries. Similarly, the committee does prescribe specific qualifications or skills that a nominee must possess, including the potential nominee’s business experience; knowledge of the Company and the financial services industry; experience in serving as a director of the Company or another financial institution or public company generally; wisdom, integrity and analytical ability; familiarity with and participation in the communities served by the Company; commitment to and availability for service as a director; and any other factors the committee deems relevant.
The Corporate Governance and Nominating Committee’s policy with regard to the consideration of diversity in identifying director nominees considers all aspects of diversity in identifying well-qualified director nominees. In particular, the Corporate Governance and Nominating Committee attempts to identify well-qualified directors who are representative of First Reliance’s market area and customers.
The Corporate Governance and Nominating Committee will consider shareholder nominations for directors that are made in writing and delivered to the Company in accordance with the Company’s Bylaws. Generally, the Company’s Bylaws require that such notice be given at least 120 days before the one-year anniversary of the mailing date for the prior year’s proxy statement, which in our case would require that nominations be submitted prior to December 30, 2010 for next year’s annual meeting.
Additionally, the nomination must state, to the extent known to the nominating shareholder, the following information:
| · | with respect to the nominee, all information regarding the nominee required to be disclosed in a solicitation of proxies for election of directors pursuant to Regulation 14A under the Securities and Exchange Act of 1934 (including the nominee’s written consent to be named in a proxy statement as a nominee and to serve as a director if elected); |
| · | any agreement or relationship between the nominee and the Company, its directors, officers, employees and independent auditors, as well as the nominating shareholder; and |
| · | the nominating shareholder’s name, address and number of shares owned. |
Shareholder nominations not made in accordance with the Company’s nominating procedures may be disregarded by the chair of the meeting at which the election is to be held.
Audit Committee. The Company’s Audit Committee consists of Leonard A. Hoogenboom, Andrew G. Kampiziones, J. Munford Scott, Jr., and C. Dale Lusk. The committee met four times in 2009. The Audit Committee recommends to the Bank’s and the Company’s Board of Directors the independent public accountants to be selected to audit the Bank’s and the Company’s annual financial statements and determines that all audits and exams required by law are performed fully, properly and in a timely fashion. The Audit Committee also evaluates internal accounting controls, reviews the adequacy of the internal audit budget, personnel and audit plan. The Board has determined that Mr. Hoogenboom is an “audit committee financial expert” as that term is defined in SEC regulations. The Company’s and the Bank’s Board of Directors has adopted a written charter for the Audit Committee, which is available on our website, www.firstreliance.com. The Audit Committee Report is found in the “Audit Committee Matters” section of this Proxy Statement.
Compensation Committee. The Company’s Compensation Committee consists of Andrew G. Kampiziones, Leonard A. Hoogenboom, John M. Jebaily and J. Munford Scott, Jr. The committee met six times in 2009. The primary purpose of the Compensation Committee is to aid the Board of Directors in discharging its responsibilities relating to the compensation of the Company’s executive officers, including the Chief Executive Officer. The committee has overall responsibility for evaluating and approving the Company’s compensation plans, policies and programs. The committee (i) reviews and determines the annual compensation, including salary, bonus, incentive and other compensation of the Chief Executive Officer; (ii) approves corporate goals and objectives relevant to compensation of the Chief Executive Officer; (iii) evaluates performance in light of these goals and objectives, approves compensation in accordance therewith and provides a report thereon to the Board; (iv) reviews and makes recommendations to the Board with respect to incentive based compensation plans and equity based plans; (v) establishes criteria for the terms of awards granted to participants under such plans; (vi) recommends to the Board the compensation for directors (including retainer, committee and committee chair fees, stock options and other similar items, as appropriate); (vii) establishes and approves policies on employment agreements, severance arrangements and change in control agreements and provisions, as well as any special supplemental benefits; and (viii) retains outside counsel and other advisors as the Record Datecommittee may deem appropriate in its sole discretion. The committee has the sole authority to approve related fees and retention terms. Although the Compensation Committee did consult with legal counsel during 2009 regarding its compensation plans, it did not utilize the services of dedicated compensation consultant in 2009.
Pursuant to First Reliance’s participation in the United States Department of the Treasury’s (“Treasury”) Troubled Asset Relief Program (“TARP”), Capital Purchase Program (“CPP”), the Compensation Committee must be comprised entirely of independent directors and is required to perform, at least every six months, a review of our incentive compensation programs with senior risk officers to (i) ensure that the programs do not encourage Senior Executive Officers (as defined in the CPP) to take unnecessary and excessive risks that threaten the value of the Company and (ii) identify and implement means of limiting such risks. The Compensation Committee is also required to discuss, evaluate and review, at least every six months, employee compensation plans to ensure that such plans do not encourage the manipulation of First Reliance’s reported earnings. Finally, the Compensation Committee is required to submit to Treasury and our primary federal regulator a narrative description of how such compensation plans do not encourage, among other items, behavior focused on short-term results rather than long-term value creation.
The Company’s and the Bank’s Board of Directors has adopted a written charter for the Compensation Committee. A copy of the Compensation Committee charter is available on our website, www.firstreliance.com.
Director Compensation
2009 Director Compensation Table
The following table shows the total fees paid to each of our directors for their service for 2009:
Name(1) | | Fees earned or paid in cash ($) | | Stock Awards ($) | | Option Awards ($) | | Non-Equity Incentive Plan Compensation ($) | | Non-Qualified Deferred Comp Earnings ($) | | All Other Compensation(2) ($) | | Total ($) | |
| Mr. Hoogenboom | | | 24,450 | | | — | | | — | | | — | | | — | | | 23,906 | | | 48,356 | |
| Mr. Jebaily | | | 12,550 | | | — | | | — | | | — | | | — | | | 8,771 | | | 21,321 | |
| Mr. Kampiziones | | | 11,500 | | | — | | | — | | | — | | | — | | | 8,771 | | | 20,271 | |
| Dr. Lusk | | | 12,850 | | | — | | | — | | | — | | | — | | | 8,771 | | | 21,621 | |
Mr. Porter (3) | | | 13,750 | | | — | | | — | | | — | | | — | | | 8,771 | | | 22,521 | |
Mr. Paul Saunders (4) | | | 13,750 | | | — | | | — | | | — | | | — | | | | | | 13,750 | |
| Mr. Scott | | | 17,350 | | | — | | | — | | | — | | | — | | | | | | 17,350 | |
Dr. Willis(5) | | | 7,000 | | | — | | | — | | | — | | | — | | | 8,771 | | | 15,771 | |
| (1) | Messrs. Paolucci and F.R. Saunders, Jr. are also Named Executive Officers of the Company and their compensation as directors is reported in the Summary Compensation table below. |
| (2) | Includes accruals in 2009 related to Director Retirement Agreements and the 2009 expense related to the company vehicle for Mr. Hoogenboom. |
| (3) | Mr. Porter also receives compensation for services provided as an employee (non-executive officer) of the Company. The table reports only the additional compensation that Mr. Porter receives for services provided as a director. |
| (4) | Mr. Paul Saunders also receives compensation for services provided as an executive officer of the Company. The table reports only the additional compensation that Mr. Saunders receives for services provided as a director. |
| (5) | Dr. Willis has announced his retirement from the Board of Directors effective June 17, 2010. |
Director Fees. In 2009, the Company paid its directors an annual retainer fee of $3,500 ($8,500 for the Chairman of the Board) and an annual board member fee of $2,750. Audit and Loan Committee members were paid $3,000 each for the year, with the respective Chairmen receiving an additional $3,000 as retainer. Finance, Compensation, and Budget and Planning Committee members were paid $1,500 each for the year, with the respective Chairmen receiving an additional $1,500 as retainer. Members of other committees were paid $300 per meeting attended. Director fees are paid to both management and non-management directors. A total of $138,750 was paid in director fees during 2009
Director Retirement Agreements. On December 19, 2006, the Bank entered into director retirement agreements with Messrs. Hoogenboom, Jebaily, Kampiziones, Lusk, Porter and Willis. Pursuant to the terms of the director retirement agreements, each director will be entitled to noticereceive an annual benefit of and$12,000 ($18,000 for Mr. Hoogenboom) if the director remains in active service to vote at, the Special Meeting. AtBank for seven years from the close of business on the Record Date, there were 3,525,004 shares of common stock issued and outstanding, which were held by 1,323 holders of record.Each copy of this Proxy Statement mailed to shareholders is accompanied by a Proxy Card with instructions for voting by mail, by telephone or through the internet. Please complete and return the Proxy Card accompanying this Proxy Statement or vote by telephone or through the internet to ensure that your vote is counted at the Special Meeting, or at any adjournment or postponementeffective date of the Special Meeting, regardless of whether you planagreements. If a director terminates service to attend the Special Meeting.
The presence of a shareholder at the Special Meeting will not automatically revoke that shareholder’s proxy. However, a shareholder may revoke a proxy at any time prior to its exercise by doing any of the following:
submitting a written revocationBank prior to the Special Meetingvesting of his benefit under the director retirement agreements, the director is entitled to First Reliance Bancshares, Inc., Inc., 2170 W. Palmetto Street Florence, South Carolina 29501, Attention: F.R. Saunders, Jr., President and Chief Executive Officer;
submitting another duly executed proxy by mail that is dated later thana lump sum cash payment equal to the original proxy; or
attending the Special Meeting and voting in person.
If your shares are held by a broker or bank, you must follow the instructionsaccrued liability balance on the form you receive from your broker or bank with respectBank’s books. Pursuant to changing or revoking your proxy.
The shares represented by any Proxy Card that is properly executed and receivedan amendment to the Director Retirement Agreement, adopted by First Reliance in timeBank and Messrs. Hoogenboom, Jebaily, Kampiziones, Lusk, Porter and Willis, respectively, on April 15, 2010, each of the parties agreed that as of October 1, 2009, the Bank would have no further obligation to be voted ataccrue for benefits payable to the Special MeetingDirector. As a result of this amendment, the benefits payable to the Director pursuant to the retirement agreements are fixed as of September 30, 2009; pursuant to the amendment, Messrs. Jebaily, Kampiziones, Lusk, and Porter will be votedentitled to receive an annual benefit of $3,320 ($4,980 for Mr. Hoogenboom).
The Bank also entered into endorsement split dollar agreements with Messrs. Hoogenboom, Jebaily, Kampiziones, Lusk and Porter, in accordanceconnection with bank-owned life insurance, whereby each director may name a beneficiary who will be entitled to receive the lesser of (i) $50,000 or (ii) the total death proceeds of the insurance policy less its cash surrender value.
Company Vehicle. In January 2006, the Company agreed to provide the Chairman of the Board with the instructions that are marked on the Proxy Card.If you execute your proxy but do not provide First Reliance with any voting instructions, then your shares will be voted “FOR” the Amendment Proposal, “FOR” the Adjournment Proposal, and in accordance with the best judgmentuse of the persons appointed as proxies as to all other matters properly brought before the Special Meeting. No proxy that is marked specifically AGAINST the Amendment Proposal will be voted in favor of the Adjournment Proposal unless the proxy is marked specifically FOR the Adjournment Proposal.a company vehicle.
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TABLE OF CONTENTS
First Reliance will pay the expenses of soliciting proxies for this Special Meeting. First Reliance has retained InvestorCom to assist in the solicitation of proxies for a fee of approximately $6,500. In addition, certain directors, officers, and employees of First Reliance may personally, or by telephone or other electronic means, solicit proxies for the Special Meeting from shareholders without additional remuneration for soliciting such proxies. We also will provide persons, firms, banks, and corporations holding shares in their names or in the names of nominees, which in either case are beneficially owned by others, proxy materials for transmittal to such beneficial owners and will reimburse such record owners for their expense in taking such actions.
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SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth information regarding the beneficial ownership of First Reliance’sour common stock as of January 13, 2009March 31, 2010 by (1) each of our current directors and director nominees; (2) each executive officer named in the Summary Compensation Table included in the proxy statement forof our last annual meeting (“named executive officers”);officers; (3) all of our present executive officers and directors as a group; and (4) each person or entity known to us to be the beneficial owner of more than 5%five percent of our outstanding common stock, based on the most recent Schedules 13G and 13D filedfilings with the U.S. Securities and Exchange Commission (the “SEC”)SEC and the information contained in those filings. Unless otherwise indicated, the address for each person included in the table is c/o First Reliance Bancshares, Inc., Inc., 2170 W. Palmetto Street, Florence, South Carolina 29501.Information relating to beneficial ownership of our common stock is based upon “beneficial ownership” concepts described in the rules issued under the Securities Exchange Act of 1934, as amended (the “Exchange Act”). Under these rules a person is deemed to be a “beneficial owner” of a security if that person has or shares “voting power,” which includes the power to vote or to direct the voting of the security, or “investment power,” which 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. A person is also deemed to be a beneficial owner of any security as to which that person has the right to acquire beneficial ownership within sixty (60) days from January 13, 2009.
 | | | | |
| Name of Beneficial Owner | | Amount and
Nature of
Beneficial
Ownership(1) | | Percent of
Shares
Beneficially
Owned(2) |
Directors & Named Executive Officers
| | | | | | | | |
| Leonard A. Hoogenboom | | | 21,545 (3) | | | | * | |
| John M. Jebaily | | | 15,480 | | | | * | |
| Andrew G. Kampiziones | | | 16,850 | | | | * | |
| C. Dale Lusk, M.D. | | | 27,500 | | | | * | |
| Jeffrey A. Paolucci | | | 44,426 (4) | | | | 1.25 % | |
| A. Dale Porter | | | 124,019 (5) | | | | 3.52 % | |
| F.R. Saunders, Jr. | | | 238,426 (6) | | | | 6.56 % | |
| Paul C. Saunders | | | 195,764 (7) | | | | 5.37 % | |
| J. Munford Scott, Jr. | | | 6,437 (8) | | | | * | |
| A. Joe Willis | | | 49,500 (9) | | | | 1.40 % | |
Non-Director Named Executive Officer
| | | | | | | | |
| Thomas C. Ewart, Sr. | | | 17,991 (10) | | | | * | |
| Directors and Executive Officers, as a Group (13 persons) | | | 765,943 (11) | | | | 20.26 % | |
Other 5% Shareholders:
| | | | | | | | |
| Service Capital Partners, LP, Service Capital Advisors, LLC, and Doris Wiley(13) | | | 348,203 | | | | 9.88 % | |
| | Number of Shares Beneficially Owned (1) | | | | | Manner in which Shares are Beneficially Owned(2) |
| Directors: | | | | | | | |
| Leonard A. Hoogenboom | | | 23,271 | | | | * | | Includes 2,440 shares held by his spouse and 680 shares held as custodian for two grandchildren. |
| John M. Jebaily | | | 15,480 | | | | * | | |
| Andrew G. Kampiziones | | | 18,850 | | | | * | | |
| C. Dale Lusk, MD | | | 27,500 | | | | * | | |
| Jeffrey A. Paolucci | | | 44,730 | | | | 1.21 | % | Includes 18,965 shares of unvested restricted stock, 512 shares held by his spouse and 20,000 shares underlying vested options held by Mr. Paolucci. |
| A. Dale Porter | | | 121,755 | | | | 3.29 | % | Includes 5,808 shares of unvested restricted, and 245 shares held by his spouse. |
| F.R. Saunders, Jr. | | | 218,970 | | | | 5.91 | % | Includes 52,630 shares of unvested restricted stock, 850 shares held by Mr. Saunders’ children, 10,442 held by his spouse, and 85,371 shares underlying vested options held by Mr. Saunders. |
| Paul C. Saunders | | | 165,758 | | | | 4.48 | % | Includes 5,248 shares of unvested restricted stock, and 85,371 shares underlying vested options held by Mr. Saunders. |
| J. Munford Scott, Jr. | | | 1,437 | | | | * | | Includes 437 shares held by his spouse |
| A. Joe Willis** | | | 49,500 | | | | 1.34 | % | Includes 49,300 shares held by his spouse. |
| | | | | | | |
| Non-Director Named Executive Officers: | | | | | | |
| Thomas C. Ewart, Sr. | | | 12,823 | | | | * | | Includes 8,040 shares of unvested restricted stock and 5,205 shares underlying vested options held by Mr. Ewart |
| Craig S. Evans | | | 22,398 | | | | * | | Includes 22,397 shares of unvested restricted stock |
| Jess A. Nance | | | 10,490 | | | | * | | Includes 8,411 shares of unvested restricted stock |
| | | | | | | | | | |
| All Current Directors and Executive Officers, as a Group (13 persons): | | | 765,943 | | | | | | Includes 256,047 underlying vested options held by reporting persons. |
| Other 5% Shareholders: | | | | | | | | | |
Service Capital Partners, LP, Service Capital Advisors, LLC, and Dory Wiley(3) | | | 348,203 | | | | 9.40 | % | |
| * | LessRepresents less than 1%. |
| ** | Dr. Willis will retire from the Company’s Board of outstanding shares.Directors effective June 17, 2010. |
| (1) | Information relating to beneficial ownership of the First Relianceour common stock is based upon “beneficial ownership” concepts set forthdescribed in the rules promulgatedissued under the Securities Exchange Act. Act of 1934, as amended. Under these rules a person is deemed to be a “beneficial owner” of a security if that person has or shares “voting power,” which includes the power to vote or to direct the voting of the security, or “investment power,” which 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. A person is also deemed to be a beneficial owner of any security as to which that person has the right to acquire beneficial ownership within sixty (60) days from March 31, 2010. |
| (2) | Some or all of the shares may be subject to margin accounts. |
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| (2) | The percentage of our common stock beneficially owned was calculated based on 3,525,004 shares of common stock issued and outstanding as of January 13, 2009. The percentage assumes the exercise by the shareholder or group named in each row of all options for the purchase of our common stock held by such shareholder or group and exercisable within 60 days of January 13, 2009. |
| (3) | Includes 2,440 shares held by Mr. Hoogenboom’s spouse and 680 shares held as custodian for Mr. Hoogenboom’s two grandchildren. |
| (4) | Includes 2,342 sharesAddress of unvested restricted stock, 512 shares held by Mr. Paolucci’s spouse, and 20,000 shares underlying vested options held by Mr. Paolucci. |
| (5) | Includes 245 shares held by Mr. Porter’s spouse. |
| (6) | Includes 4,727 shares of unvested restricted stock, 850 shares held by Mr. Saunders’s children, 10,442 shares held by Mr. Saunders’s spouse, and 109,971 shares underlying vested options held by Mr. Saunders. |
| (7) | Includes 174 shares of unvested restricted stock and 120,871 shares underlying vested options held by Mr. Saunders. |
| (8) | Includes 437 shares held by Mr. Scott’s spouse. |
| (9) | Includes 49,300 shares held by Mr. Willis’s spouse. |
| (10) | Includes 1,140 shares of unvested restricted stock and 5,205 shares underlying vested options held by Mr. Ewart. |
| (11) | Includes 256,047 underlying vested options held by reporting persons. |
| (12) | The principal business office of Service Capital Partners, LP, Service Capital Advisors, LLC, and Doris Wiley is 1700 Pacific Avenue, Suite 2000, Dallas, Texas 75201. |
4
The following table shows for each executive officer of the Company: (a) his name; (b) his age at December 31, 2009; (c) how long he has been an officer of the Company; and (d) his positions with the Company and the Bank. Except as otherwise indicated, each executive officer has been engaged in his present principal occupation for more than five years.
| | | | Position(s) with the Company and the Bank |
| Craig S. Evans (47) | | 2008 | | Chief Operating Officer since June 2, 2008. Prior to joining the Company, Mr. Evans had been an executive with Bank of America since 2004, most recently serving as Community Market President, East Carolina. |
| | | | |
| Thomas C. Ewart, Sr. (60) | | 2003 | | Senior Vice President and Chief Banking Officer since January 1, 2006. Mr. Ewart served as the Bank’s Chief Credit Officer from April 28, 2003 until January 1, 2006. Prior to joining the Bank, Mr. Ewart had been an area executive with Carolina First Bank, formerly known as Anchor Bank, for approximately seven years. |
| | | | |
| Jess A. Nance (55) | | 2006 | | Senior Vice President and Chief Credit Officer since January 19, 2006; Senior Vice President, Credit Administration since November 2004. Prior to joining the Bank, Mr. Nance had been President and CEO of Florence National Bank since July 1998. |
| | | | |
| Jeffrey A. Paolucci (40) | | 2002 | | Director of the Company and the Bank since May 1, 2003, (ii) Senior Vice President and Chief Financial Officer of the Company and the Bank since September 30, 2002. Prior to joining the Company and the Bank, Mr. Paolucci had been a bank examiner in the Columbia, South Carolina field office of the FDIC since 1993. |
| | | | |
| F.R. Saunders, Jr. (49) | | 1999 | | President, Chief Executive Officer and a director of the Bank since August 16, 1999; a director of the Company since April 12, 2001; and President and Chief Executive Officer of the Company since April 18, 2001. |
| | | | |
| Paul C. Saunders (48) | | 1999 | | Senior Vice President and a director of the Bank since August 16, 1999; Senior Vice President and Assistant Secretary of the Company since April 18, 2001; and a director of the Company since April 12, 2001. |
EXECUTIVE COMPENSATION
Summary Compensation Table
The following table provides certain summary information concerning the annual and long-term compensation paid or accrued by the Company and its subsidiaries to or on behalf of the Company’s Chief Executive Officer and the two other most highly compensated executive officers of the Company who earned over $100,000 in total compensation for 2009.
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PROPOSAL 1: AMENDMENT TO THE ARTICLES OF INCORPORATIONName and Principal Position | | Year | | Salary ($) | | | Bonus ($) | | | Stock Awards ($) (1) | | | Option Awards ($) (1) | | | All Other Compensation ($) | | | Total ($) | |
| F.R. Saunders, Jr. | | 2009 | | | 284,699 | | | | — | | | | 69,374 | | | | 21,366 | | | | 122,548 | (2) | | | 497,957 | |
| President and Chief | | 2008 | | | 282,608 | | | | — | | | | 20,039 | | | | 21,372 | | | | 115,374 | (3) | | | 439,393 | |
| Executive Officer | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Jeffrey A. Paolucci | | 2009 | | | 183,700 | | | | — | | | | 15,385 | | | | 11,053 | | | | 53,401 | (4) | | | 263,539 | |
| Executive Vice | | 2008 | | | 181,261 | | | | — | | | | 10,167 | | | | 11,084 | | | | 52,290 | (5) | | | 254,802 | |
| President and | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Chief Financial | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Officer | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Craig S. Evans | | 2009 | | | 224,538 | | | | 13,461 | | | | 9,000 | | | | | | | | 26,187 | (6) | | | 272,687 | |
| Executive Vice | | 2008 | | | 107,692 | | | | — | | | | 50,000 | | | | | | | | 2,149 | | | | 159,481 | |
| President and | | | | | | | | | — | | | | | | | | | | | | | | | | | |
| Chief Operations | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Officer | | | | | | | | | | | | | | | | | | | | | | | | | | |
| (1) | The assumptions made in the valuation of stock awards and option awards can be found in Notes 17 and 18 to our financial statements. |
| (2) | For 2009, Mr. Saunders’s compensation included $75,031 for supplemental retirement benefits, $13,450 for board fees, $9,796 for disabilility insurance, $7,701 for 401(k) matching contributions, $5,004 for long-term care insurance, $4,541 for country club dues, $2,900 for a wellness benefit, a car allowance of $2,250, and $1,875 for life insurance. |
| (3) | For 2008, Mr. Saunders’s compensation included $67,071 for supplemental retirement benefits, $9,796 for disabilility insurance, $6,870 for 401(k) matching contributions, $4,740 for long-term care insurance, $5,801 for country club dues, $2,650 for a wellness benefit, a car allowance of $2,250, and $3,195 for life insurance. |
| (4) | For 2009, Mr. Paolucci’s compensation included $20,467 for supplemental retirement benefits, $12,100 for board fees, $3,015 for disabilility insurance, $5,517 for 401(k) matching contributions, $4,752 for long-term care insurance, $3,689 for country club dues, $2,900 for a wellness benefit, and $961 for life insurance. |
| (5) | For 2008, Mr. Paolucci’s compensation included $18,294 for supplemental retirement benefits, $3,015 for disabilility insurance, $5,274 for 401(k) matching contributions, $4,230 for long-term care insurance, $4,948 for country club dues, $2,900 for a wellness benefit, and $1,928 for life insurance. |
| (6) | For 2009, Mr. Evans’s compensation included $16,279 for supplemental retirement benefits, $5,719 for 401(k) matching contributions, $3,689 for country club dues, and $500 for a wellness benefit. |
TO AUTHORIZE PREFERRED STOCK
Description
Executive Agreements
F.R. Saunders, Jr. and Jeffrey A. Paolucci. On November 24, 2006, First Reliance Bancshares, Inc. and its wholly owned subsidiary, First Reliance Bank, entered into new employment agreements with F.R. Saunders, Jr., President and Chief Executive Officer of the Company and Reasonsthe Bank, and Jeffrey A. Paolucci, Senior Vice President and Chief Financial Officer of the Company and the Bank. The Bank also entered salary continuation agreements with Messrs. Saunders and Paolucci.
Each of the employment agreements provides for an initial three year term, which is automatically extended at the Proposalend of each month for one additional month unless the Bank’s board of directors determines that the term will not be extended. Once the Bank’s board determines that the term will not be extended, the term is fixed at three years with no additional renewals. The employment agreements provided for an initial base salary for Mr. Saunders of $275,000 and for Mr. Paolucci of $165,000. Each executive’s salary is to be reviewed annually by the Company’s Board of Directors has approved, subjector the Board’s Compensation Committee, and will be increased to receiving shareholder approval,reflect cost of living increases and may be increased otherwise. As of December 31, 2009, Mr. Saunders’ and Mr. Paolucci’s annual base salaries had been increased to $284,699 and $183,700, respectively.
The employment agreements provide that the Company will reimburse the executive for disability insurance that he maintains and will pay an amendmentadditional amount to First Reliance’s Articles of Incorporationthe executive to authorize a class of 10,000,000 shares of preferred stock, no par value. A copycover any state or federal income taxes associated with such reimbursement. The Company will also pay any initiation and membership assessments and dues in civic and social clubs of the amendmentexecutive’s choice, although the executive remains responsible for personal expenses for use of such clubs. The agreement with Mr. Saunders also provides that the Company will provide the use of an automobile for business and personal use. The agreements with the executives also provide that the Company will maintain a long-term care insurance policy for each executive that will be fully paid up by the time the executive turns age 65.
If an executive is set forth inAppendix A to this Proxy Statement. The Articles of Incorporation currently authorize only 20,000,000 shares of common stock, $0.01 par value. The amendment will vestterminated without Cause or the executive terminates employment for Good Reason (as both terms are defined in the Boardagreements), the authorityexecutive is entitled to determinecontinue to receive for the termsunexpired term of his agreement (a) his base salary in effect at employment termination and (b) an annual bonus equal to the bonus earned for the calendar year ended immediately before the year in which the employment termination occurs. Additionally, the Company will continue to provide the executive with medical benefits and continue to reimburse the executive for his disability insurance (including amounts to cover income taxes) until the earliest of (a) the executive becoming employed by the Company or another entity; (b) the executive turning 65; (c) the executive’s death; or (d) the remaining term of the agreement. The Company will also continue to pay the premiums on the long-term care insurance until the policy for the executive is fully paid up. At the Company’s option, it may pay a lump sum equal to the discounted cost of medical, disability, and long-term care (if applicable) coverage in lieu of continuing those benefits.
If an executive is terminated for Cause or the executive terminates employment other than for Good Reason, the executive is entitled to receive his base salary through the effective date of termination and any other benefits to which the executive may be entitled under the Company’s benefit plans and policies in effect on the date of termination.
If the executive’s employment is terminated because of disability, the executive is entitled to receive his base salary through the effective date of termination, any unpaid bonus or incentive compensation due to the executive for the preceding calendar year, any payments the executive is entitled to receive under the Company’s disability insurance program, and any other benefits to which the executive may be entitled under the Company’s benefit plans and policies in effect on the date of termination. Additionally, the Company will continue to provide the executive with medical benefits and continue to reimburse the executive for his disability insurance (including the additional amounts to cover income taxes) until the earliest of (a) the executive becoming employed by the Company or another entity; (b) the executive turning 65; (c) the executive’s death; or (d) the remaining term of the agreement. For F.R. Saunders, Jr. and Jeffery A. Paolucci, the Company will also continue to pay the premiums on the long-term care insurance until the policy for the executive is fully paid up. At the Company’s option, it may pay a lump sum equal to the discounted cost of medical, disability, and long-term care (if applicable) coverage in lieu of continuing those benefits.
Upon a Change in Control (as that term is defined in the agreement) of the Company, the Company will pay the executive a lump-sum payment in cash equal to three times the executive’s annual compensation, consisting of base salary as of the date of the Change in Control plus any bonus or incentive compensation earned in the prior calendar year. In addition, the executive will become fully vested in any non-qualified plan, program or arrangement in which the executive participates if the plan, program or arrangement does not address the effect of a change in control.
The Company will further be obligated to make a “gross-up” payment to cover any excise tax obligations under Section 280G of the Internal Revenue Code for excess parachute payments that arise as a result of the employment agreement and any other plan or agreement that applies to the executive. This gross-up payment includes an initial amount to cover the excise tax that will apply to the excess parachute payments, as well as the income and excise taxes that apply to the payment of the initial amount.
The employment agreements also provide, for a period of one or more seriesyear after termination of preferred stock, including the preferences, rights,employment, a covenant not to solicit employees and limitations of each series.Provisions innot to compete within a corporation’s articles of incorporation authorizing preferred stock in this manner are often referred to as “blank check” provisions because they give a board of directors the flexibility, at any time or from time to time, without further shareholder approval (except as may be required by applicable laws, regulatory authorities, or the rules15-mile radius of any stock exchange onoffice of the Company. These obligations survive any termination of the agreements, but are waived upon a Change in Control of the Company. The agreements provide for the reimbursement of legal fees, if any, paid by the executives for the enforcement of the employment agreements after a Change in Control. The employment agreements also allow the executive to select a law firm of his choice to represent him.
The salary continuation agreements provide that each executive will be entitled, upon reaching age 65, to an annual benefit for Mr. Saunders of $321,842 and for Mr. Paolucci of $225,308. If the executive is terminated for Cause, the executive will not be entitled to any benefit under the salary continuation agreement. In the event the executive’s employment is terminated (other than for Cause) prior to reaching age 65 (including by reason of disability), the executive is entitled to receive the amount that fully amortizes the accrued balance existing immediately before the month in which the corporation’s securities are then listed),separation of service occurs beginning at age 65 for 15 years. If the executive dies prior to create onepayment of all benefits, the executive’s beneficiary is entitled to a lump sum in cash equal to the accrued balance existing at the executive’s death.
In the event of a Change in Control of the Company prior to the executive reaching 65 or more seriesother separation of preferred stockservice, each executive is entitled to a lump sum payment equal to the expected accrual balance at age 65, not discounted to present value, of $3,144,289 for Mr. Saunders and $2,201,184 for Mr. Paolucci. If the Change in Control occurs during the payment of normal retirement age benefits, early termination benefits or a disability benefits, the executive is entitled to determinea lump-sum payment of any remaining salary continuation benefit.
The Company will further be obligated to make a “gross-up” payment to cover any excise tax obligations under Section 280G of the Internal Revenue Code for excess parachute payments that arise as a result of the salary continuation agreement and any other plan or agreement that applies to the executive. This gross-up payment includes an initial amount to cover the excise tax that will apply to the excess parachute payments, as well as the income and excise taxes that apply to the payment of the initial amount.
The salary continuation agreements provide for the reimbursement of legal fees, if any, paid by the executives for the enforcement of the salary continuation agreements after a Change in Control. The salary continuation agreements also allow the executive to select a law firm of his choice to represent him.
If the executive dies before separation of service, the executive is entitled to any benefits under the endorsement split dollar agreement with that executive. The endorsement split dollar agreement provides the executive with a benefit equal to the death benefit under the life insurance policy or policies maintained by the Company on the life of the executive, less the cash surrender value of the policy or policies.
Craig S. Evans. Mr. Evans has entered into an employment agreement and a salary continuation agreement with the Bank, both dated as of June 2, 2008, that provide for his employment by the Bank for a term of three years commencing on June 2, 2008. Under the terms of each such series. The authority of the boardagreements, his employment will be extended automatically for additional one-year periods unless a party gives the other party proper non-renewal notice. The employment agreement provides Mr. Evans with an initial annual salary of directors with respect to each series, without limitation, includes$225,000, reimbursement of certain membership dues and other reasonable expenses, and a determination$50,000 grant of restricted stock that vests in five years from the date of the following: (a)employment agreement. The salary continuation agreement vests after three years of service with the number of sharesCompany.
If the Company terminates Mr. Evans’s employment without Cause prior to constitute the series, (b) the liquidation rights, if any, (c) the dividend rights and rates, if any, (d) the rights and terms of redemption, (e) the voting rights, if any, which may be full, special, conditional, or limited, (f) whether the shares will be convertible or exchangeable into securitiesvesting of the company, and the rates thereof, if any, (g) any limitations onsalary continuation agreement (which is more fully described below), Mr. Evans is entitled to one year of his base salary, the payment of dividends onwhich would be terminated upon his beginning other employment. Upon a Change in Control or if Mr. Evans terminates employment for Good Reason (as both terms are defined in the common stock whileagreements), he would be entitled to a lump-sum payment in cash equal to three times the executive’s annual compensation, consisting of base salary as of the date of the Change in Control plus any series is outstanding, (h)bonus or incentive compensation earned in the prior calendar year. In addition, the executive will become fully vested in any other provisions that arenon-qualified plan, program or arrangement in which the executive participates if the plan, program or arrangement does not inconsistent withaddress the articleseffect of incorporation, and (i) any other preference, limitations, or rights that are permitted by law.The Board believes that the flexibility to issue preferred stock can enhance the Board’s arm’s-length bargaining capability on behalf of First Reliance’s shareholders in a takeover situation. However, under some circumstances, the ability to designate the rights of, and issue, preferred stock could be used by the Board to make a change in controlcontrol.
If Mr. Evans is terminated for Cause or if he terminates his employment other than for Good Reason, he is entitled to receive his base salary through the effective date of First Reliance more difficult. The Boardtermination and any other benefits to which he may be entitled under the Company’s benefit plans and policies in effect on the date of Directors has no present intention of issuing any preferred stock for any defensive or anti-takeover purpose, fortermination.
Should either party terminate the
purpose of implementing any shareholder rights plan, or with features specifically intended to make any attempted acquisition of First Reliance more difficult or costly. The Board of Directors could, inemployment agreement during the
exercise of its fiduciary duties, determine to issue preferred stock for such purposes in the future. The Board of Directors may also issue preferred stock for capital-raising activities or other corporate purposes that have the effect of making an acquisition of First Reliance materially more difficult or costly, as could be the case if the Board of Directors were to issue additional common stock for such purposes. At this time, the only issuance of preferred stock contemplated by the Board of Directors is the potential issuance of preferred stock in the TARP Capital Purchase Program described below, which is intended for capital raising purposes only. For additional information on anti-takeover provisions associated with our capital stock, see “Anti-Takeover Provisions of South Carolina Law and the Articles of Incorporation.”The rights of the holders of First Reliance’s common stockinitial three year term, Mr. Evans will be subject to various non-solicitation and maynon-compete provisions of his agreement for a period of two years thereafter.
The salary continuation agreement provides that each Mr. Evans will be adversely affected by,entitled, upon reaching age 65, to an annual benefit of $87,678. Following the rightsvesting of the holderssalary continuation agreement, if he is terminated for Cause, Mr. Evans will not be entitled to any benefit under the salary continuation agreement. In the event his employment is terminated (other than for Cause) prior to reaching age 65 (including by reason of any preferred stock that may be issued in the future. To the extent that dividends will be payable on any issued shares of preferred stock, the result would bedisability), Mr. Evans is entitled to reducereceive the amount otherwise availablethat fully amortizes the accrued balance existing immediately before the month in which the separation of service occurs beginning at age 65 for 15 years. If Mr. Evans dies prior to payment of dividends on outstanding shares of common stock and there might be restrictions placed on First Reliance’s abilityall benefits, his beneficiary is entitled to declare dividends ona lump sum in cash equal to the common stock or to repurchase shares of common stock. The issuance of preferred stock having voting rights would diluteaccrued balance existing at the voting power of the holders of common stock.To the extent that Preferred Stock is made convertible into shares of common stock, the effect, upon such conversion, would also be to dilute the voting power and ownership percentage of the holders of common stock. his death.
In addition, holders of preferred stock would normally receive superior rights in the event of any dissolution, liquidation, or winding-up of First Reliance, thereby diminishing the rightsa Change in Control of the holdersCompany prior to the executive reaching 65 or other separation of common stock to distribution of First Reliance’s assets. To the extent that preferred stockservice, Mr. Evans is granted preemptive rights, it would entitle the holderentitled to a preemptive rightlump sum payment equal to purchasethe expected accrual balance at age 65, not discounted to present value, of $856,585. If the Change in Control occurs during the payment of normal retirement age benefits, early termination benefits or subscribe for additional sharesa disability benefits, Mr. Evans is entitled to a lump-sum payment of First Reliance.
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any remaining salary continuation benefit.
The
Board does not have any plans callingsalary continuation agreement provides for the
issuancereimbursement of
preferred stock atlegal fees, if any, paid by Mr. Evans for the
present time, other than the sale of preferred stock to the U.S. Departmentenforcement of the
Treasury (the “Treasury”)salary continuation agreements after a Change in
connection withControl. The salary continuation agreements also allow the
capital purchase componentexecutive to select a law firm of
the Troubled Asset Relief Program (the “TARP Capital Purchase Program”) described below.As describedhis choice to represent him.
Participation in more detail below, First Reliance’s application to participate in the TARP Capital Purchase Program was approved by
On March 6, 2009, the Treasury on January 8, 2009. While the Treasury's approvalCompany issued 15,349 shares of our application does not obligate usSeries A Cumulative Perpetual Preferred Stock, and a warrant, which was immediately exercised for a nominal exercise price, to participate in the program, the Board of Directors anticipates that it will elect to do so. First Reliance cannot participate in the TARP Capital Purchase Program if the proposed amendment to the Articles of Incorporation is not approved. The Treasury’s requirements regarding the termspurchase up 767 shares of the preferred stock and warrants are largely non-negotiable. Accordingly, in orderCompany’s Series B Cumulative Perpetual Preferred Stock to participate inTreasury, as part of the CPP enacted as part of TARP, Capital Purchase Program, the Board of Directors must have the flexibility to issue preferred stock, which the proposed amendment to the Articles of Incorporation would provide. Moreover, the Board believes that the authorization to issue preferred stock would provide First Reliance with greater flexibility in meeting future capital requirementswas established by creating series of preferred stock customized to meet the needs of particular transactions and prevailing market conditions. Series of preferred stock would also be available for issuance from time to time for any other proper corporate purposes, including in connection with strategic alliances, joint ventures, or acquisitions. The Board of Directors remains committed to the long term enhancement of common shareholder value.The TARP Capital Purchase Program
On October 14, 2008, the Treasury announced the TARP Capital Purchase Program. This program was instituted by the Treasury pursuant to the Emergency Economic Stabilization Act of 2008 (“EESA”), which provides up to $700 billion. The Company issued the shares of Series A Preferred Stock and the warrant for an aggregate purchase price of $15,349,000 in cash.
Pursuant to the Treasury to, among other things, take equity ownership positions in financial institutions. The minimum investment amount is 1% of an institution’s risk-weighted assets. The maximum amount is the lesser of $25 billion or 3% of its risk-weighted assets. The TARP Capital Purchase Program is intended to encourage financial institutionsCompany’s participation in the United States to build capital and thereby increaseCPP, the flow of financing to businesses and consumers.Under the TARP Capital Purchase Program, the Treasury will purchase shares of senior preferred stock from banks, bank holding companies, and other financial institutions (“TARP Preferred Shares”). TARP Preferred Shares will qualify as Tier 1 capital for regulatory purposes and rank senior to a participating institution’s common stock. TARP Preferred Shares will pay a cumulative dividend of 5% per annum for the first five years they are outstanding and thereafter at a rate of 9% per annum. TARP Preferred Shares generally will be non-voting, but will have limited voting rights on matters that could adversely affect the shares. After three years, TARP Preferred Shares will be callable at 100% of the issue price plus any accrued and unpaid dividends. Prior to the end of three years, the TARP Preferred Shares may be redeemed with the proceeds from a qualifying equity offering of any Tier 1 perpetual preferred or common stock. The Treasury’s consent will beCompany is required for any increase in dividends on common stock or certain repurchases of common stock until the third anniversary of the date of the Treasury’s investment unless prior to such third anniversary either the TARP Preferred Shares are redeemed in whole or the Treasury has transferred all the TARP Preferred Shares to third parties.
SEC reporting companies whose common stock is not traded on a national securities exchange are deemed “non-public” for purposes of the TARP Capital Purchase Program. Non-public institutions that participate in the program must issue to the Treasury warrants to purchase additional shares of preferred stock with an aggregate market price equal to 5% of the TARP Preferred Shares purchased by the Treasury. The exercise price of the warrants will be $0.01 per share. The Treasury has indicated that it intends to exercise the warrants immediately following their issuance. The preferred shares issuable upon exercise of the warrants (the “TARP Warrant Shares”) will have the same rights, preferences, privileges, voting rights and other terms as TARP Preferred Shares except that (1) the TARP Warrant Shares will pay dividends at a rate of 9% per annum and (2) the TARP Warrant Shares may not be redeemed untill all of the TARP Preferred Shares have been redeemed.
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Institutions that participate in the TARP Capital Purchase Program and their senior executive officers must agree to comply with the standards for executive compensation and corporate governance set forth in Section 111 ofall EESA for the period duringprovisions, which the Treasury holds preferred stock or warrants issued under the program.
The description above of the TARP Preferred Shares and related elements of the TARP Capital Purchase Program is intended only to summarize the program. SeeAppendix B for the Summary of Preferred Terms and Summary of Warrant Terms as published by the Treasury for non-public qualifying financial institutions, excluding S corporations and mutual organizations.
First Reliance’s TARP Application
First Reliance filed an application on November 12, 2008 to participate in the TARP Capital Purchase Program, seeking a $14.9 million investment, the maximum permitted under the program. For First Reliance, the minimum amount of investment would be approximately $4.9 million. The application was approved by the Treasury on January 9, 2009. While the Treasury's approval of our application does not obligate First Reliance to participate in the program, the Board of Directors anticipates that it will elect to do so at the maximum investment amount. If First Reliance elects not to participate in the program, reduce the level of its participation, or the Treasury were to reduce the amount of capital available to First Reliance under the TARP Capital Purchase Program, management does not believe that First Reliance’s liquidity, capital resources, or results of operations would be materially affected.
Any TARP Preferred Shares issued by First Reliance will qualify as Tier 1 capital and will rank senior to our common stock, the only class of equity securities we currently have outstanding. The primary effect of a TARP Capital Purchase Program investment in First Reliance would be to materially increase our regulatory capital ratios. The following table presents our actual capital ratios as of September 30, 2008 and our capital ratios on a pro forma basis to illustrate the effects of issuing TARP Preferred Stock at the maximum and minimum program levels.
| | | | | | |
| Regulatory Capital Ratios | | September 30, 2008
Actual | | Pro Forma as of
September 30, 2008
Assuming Sale of
$4.9 Million of
Preferred Stock
Pursuant to
the Program | | Pro Forma as of
September 30, 2008
Assuming Sale of
$14.9 Million of
Preferred Stock
Pursuant to
the Program |
| Tier 1 Leverage Ratio | | | 8.63 % | | | | 9.40 % | | | | 10.91 % | |
| Tier 1 Risk Based Ratio | | | 10.09 % | | | | 11.07 % | | | | 13.01 % | |
| Total Risk Based Ratio | | | 11.34 % | | | | 12.31 % | | | | 14.25 % | |
If First Reliance participates in the TARP Capital Purchase Program, the preferred shares it would issue to the Treasury would pay a cumulative dividend rate of five percent (5%) per annum for the first five years and reset to a rate of nine percent (9%) per annum after year five. The TARP Preferred Shares would be non-voting, other than class voting rights on matters that could adversely affect the shares, and would be callable at 100% of the issue price after three years. Prior to the end of three years, the TARP Preferred Shares may be redeemed for 100% of their issue price, with the proceeds from a qualifying equity offering of any Tier 1 perpetual preferred or common stock, the aggregate gross proceeds of which exceed 25% of the issue price. First Reliance would be prohibited from paying or declaring dividends on any junior preferred shares, preferred shares with equal ranking, or common shares unless all accrued and unpaid dividends for all past dividend periods have been declared and paid in full. First Reliance would also be prohibited from repurchasing or redeeming any junior or pari passu preferred shares, or common shares during periods dividends on the TARP Preferred Shares are unpaid.
During the initial three-year term, First Reliance would have to obtain approval in advance from the Treasury to begin paying dividends on its common stock unless the Treasury has transferred to third parties all of the securities it acquired from the Company or the shares have been redeemed. Similarly, the Treasury’s consent would be required for the Company to increase dividends by more than 3% in the aggregate over the prior year’s dividends from after the third anniversary and prior to the tenth anniversary of the Treasury’s initial investment unless all of the shares have been transferred to third parties or redeemed. However, no
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increase in dividends on common shares may be made between year three and year ten as a result of any dividend paid in common shares, any stock split or similar transaction. From and after the tenth anniversary of the initial investment, the Company would be prohibited from paying any dividends on common shares until the securities acquired by the Treasury are redeemed or have been transferred to third parties.
For as long as the TARP Preferred Shares are outstanding, First Reliance would not be able to repurchase or redeem preferred shares ranking junior or pari passu with the TARP Preferred Shares or common shares unless all accrued and unpaid dividends for all past dividend periods have been declared and paid in full. Until the tenth anniversary of the date of the Treasury’s investment, the Treasury’s consent would be required for the Company to repurchase any of its outstanding equity securities or trust preferred securities, other than repurchases of the TARP Preferred Shares and repurchases of preferred stock ranking junior to the TARP Preferred Shares or common shares in connection with any benefit plan in the ordinary course of business consistent with past practice. The Treasury’s consent would not be required if the shares have been redeemed or transferred to third parties.
In addition to the TARP Preferred Shares that it must initially issue to the Treasury, if First Reliance participates in the program it would be required to issue the Treasury warrants to purchase additional shares of the Company’s preferred stock equal to 5% of the value of the TARP Preferred Shares. These shares are referred to herein as “TARP Warrant Shares” and would have the same rights and preferences as the TARP Preferred Shares except that the dividend rate for these shares would be 9%. The initial exercise price of these warrants would be $0.01 per share and may be exercised on a “net” basis, meaning that the Treasury would not be required to pay cash to exercise the warrants. Although the warrants will have a term of 10 years, the Treasury has indicated that it would immediately exercise them upon issuance.
The TARP Preferred Shares, warrants and TARP Warrant Shares, would be freely transferable and the Company would be required to file a registration statement with the SEC covering the securities if requested to do so by the Treasury.
If the Company fails to pay dividends on the TARP Preferred Shares for a total of six quarters, whether or not consecutive, the Company’s Board of Directors would automatically be increased by two members and the holders of the TARP Preferred Shares, voting together with any other holders of preferred shares ranking pari passu with the TARP Preferred Shares, would have the right to elect two directors to fill the vacancies on the Board of Directors created by the increase. These directors would serve on the Board of Directors until such time as the Company has paid in full all dividends not previously paid, at which time these directors’ terms of office would immediately terminate.
Management does not believe that acceptance of the TARP Capital Purchase Program investment would have any material impact on the operations of the Company. However, for as long as the Treasury owns any securities of the Company issued under the program, the Company will be required to takeinclude taking all necessary actionactions to ensure that its benefit plans with respect to its senior executive officersSenior Executive Officers comply in all respects with Section 111(b)111 of EESA. As of December 31, 2009, the Company’s Senior Executive Officers, which are defined by EESA to include the five most-highly compensated employees of the EESA,Company, are F.R. Saunders, Jr., President and Chief Executive Officer; Jeffrey A. Paolucci, Chief Financial Officer; Craig S. Evans, Chief Operating Officer; Thomas C. Ewart, Sr., Chief Banking Officer; and Ken Cox, Jr., Senior Vice President, Mortgage Banking.
The American Recovery and Reinvestment Act of 2009 (the “ARRA”) retroactively amended the regulations issued andexecutive compensation provisions applicable to participants in the CPP. The ARRA executive compensation standards remain in effect thereunder asduring the period in which any obligation, arising from financial assistance provided under the CPP remains outstanding, excluding any period during which the Treasury holds only the warrant to purchase common shares of the closing dateCompany (the “CPP Period”).
The executive compensation regulations, to which we are required to adhere as a result of our participation in the sale of the securitiesCPP, include, but are not limited to, the Treasury. This means that, among other things, while the Treasury owns equity securities issued by the Company in connection with the program, the Company must:ensure that the incentive compensation programs for its senior executive officers do not encourage unnecessary and excessive risks that threaten the value of the Company;following:
implement a required clawback of any bonus or incentive compensation paid to the Company’s senior executive officers based on statements of earnings, gains, or other criteria that are later proven to be materially inaccurate;
not make any “golden parachute payment” (as defined in the Internal Revenue Code) to any of the Company’s senior executive officers; | · | prohibitions on payment or accrual of bonuses, retention awards and other incentive compensation to the Company’s most highly-compensated employee, excluding grants of restricted stock that do not fully vest during the CPP Period and do not have a value which exceeds one-third of the individual’s total annual compensation; |
agree not to deduct for tax purposes executive compensation in excess of $500,000 in any one fiscal year for each of the Company’s senior executive officers.
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| · | prohibitions on payments to our Senior Executive Officers and the next five most highly compensated employees for a departure from the Company, except for payments for services performed or benefits accrued; |
| · | recovery (“clawback”) of bonuses, retention awards and incentive compensation if the payment was based on materially inaccurate statements of earnings, revenues, gains or other criteria; |
| · | prohibition on compensation plans that encourage manipulation of reported earnings; |
| · | implementation of a company-wide policy regarding “excessive or luxury expenditures”; |
| · | retroactive review of bonuses, retention awards and other compensation previously paid to Senior Executive Officers, if such compensation is found by Treasury to be inconsistent with the purposes of TARP or otherwise contrary to public interest; and |
| · | a requirement that CPP recipients include in their proxy statements for annual shareholder meetings a non-binding “Say on Pay” shareholder vote on the compensation of executives as disclosed in the proxy statement. |
The Company is currently reviewing its benefit plans and contracts to determine whether any amendments or modifications will be required to complyin compliance with the limits onall TARP executive compensation establishedstandards promulgated by Section 111 of the EESA. If First Reliance elects to participate in the program, it will enter into letter agreements with each of its senior executive officers. Under the letter agreements, each senior executive officer will agree, among other things, to be subjectTreasury. In addition, Messrs. Saunders and Paolucci must certify to the altered compensation, incentive and/or benefit terms required by Section 111 of the EESA notwithstanding the provisions of any otherwise applicable employment agreement or employee benefit plan of the Company.At September 30, 2008, First RelianceCompany’s compliance with such standards throughout 2009. The certification was delivered to Treasury and its bank subsidiary had capital ratios in excess of those required to be considered “well-capitalized” under banking regulations. Nevertheless, the Board believes it is prudent for First Reliance to apply for capital available under the TARP Capital Purchase Program because (i) it believes that the cost of capital under this program is significantly lower than the cost of capital otherwise available to First Reliance at this time, and (ii) despite being well-capitalized, additional capital under the program would provide First Reliance and its bank subsidiary additional flexibility to meet future capital needs that may arise. Specifically, if First Reliance receives the $14.9 million of capital that it applied for under the TARP Capital Purchase Program, then First Reliance plans to contribute $11.1 million to its bank subsidiary and to retain the remainder of the proceeds at the parent company level for general corporate purposes. If First Reliance receives the minimum $4.9 million available to it under the TARP Capital Purchase Program, it plans to contribute $3.7 million to its bank subsidiary and retain the remainder of the proceeds at the parent company level as described above. In either case, First Reliance’s bank subsidiary intends to use the additional capital to fund prudent loan growth in its markets and to further strengthen its capital position.
Pro Forma Financial Information
The following unaudited pro forma financial information of First Reliance as of and for the fiscal year ended December 31, 2007 and the nine months ended September 30, 2008 show the effects of a minimum of $4.9 million and a maximum of $14.9 million of TARP Preferred Shares issued to the Treasury pursuant to the program for non-public financial institutions. We have presented this financial information under two different scenarios:
The minimum investment, which assumes the issuance under the program of 4,900 shares of TARP Preferred Shares at $1,000 per share and the issuance of a warrant to purchase TARP Warrant Shares with an aggregate liquidation preference equal to 5% of the investment, or 245 additional shares at an exercise price of $0.01 per share, and
The maximum investment, which assumes the issuance under the program of 14,900 shares of TARP Preferred Shares at $1,000 per share and the issuance of a warrant to purchase TARP Warrant Shares with an aggregate liquidation preference equal to 5% of the investment, or 745 additional shares at an exercise price of $0.01 per share.
The TARP Preferred Shares will pay cumulative dividends at a rate of 5% per annum for the first five years and 9% per annum thereafter. The cash proceeds from the investment are reflected in the balance sheets as a reduction of borrowings and the associated reduction in the interest expense, net of tax, is included in the income statements. The effective dividend on TARP Preferred Shares in the following pro forma financial information includes amortization of the discount over a five-year period using the effective yield method and dividends on both the TARP Preferred Shares at 5% and on the TARP Warrant Shares at 9%.
There is the possibility that participation in the program will impact future net income available to our common shareholders due to future dividends and accretion charges related to the preferred stock issued to the Treasury. The pro forma financial data presented below may change materially under either the minimum investment or maximum investment scenario based on the actual proceeds received under the program, the timing and utilization of the proceeds, as well as certain other factors including the discount rate used to determine the fair value of the TARP Preferred Shares. Accordingly, we can provide no assurance that the minimum or maximum investment pro forma scenarios included in the consolidated financial data will ever be achieved. We have included the following unaudited pro forma consolidated financial data solely for the purpose of providing shareholders with information that may be useful for purposes of considering and evaluating the proposals to amend our Articles of Incorporation.
This financial data should be read in conjunction with our audited financial statements and the related noteswas filed as part ofan exhibit to our Annual Report on Form 10-K for the fiscal year ended December 31, 2007, and our unaudited consolidated financial statements and2009. Such certification is required annually during the related notes filed as partCPP Period no later than ninety days after the completion of our Quarterly Reportfiscal year. The Company intends to comply with all TARP executive compensation standards, and will work with its Senior Executive Officers to take such steps as it deems necessary to continue to comply with the standards and adopt policies and procedures consistent with the foregoing. In addition, a non-binding vote on Form 10-Q for the quarter ended September 30, 2008.
compensation provided to the Company’s executive officers is included as Proposal No. 2 of this Proxy Statement. 9
Outstanding Equity Awards at 2009 Fiscal Year End Table
The following table sets forth information at December 31, 2009, concerning outstanding awards previously granted to the Named Executive Officers.
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| | | Option Awards | | Stock Awards | |
Name | | Number of Securities Underlying Unexercised Options (#) Exercisable | | Number of Securities Underlying Unexercised Options (#) Unexercisable | | | Equity Incentive Plan Awards: Number of Securities Underlying Unexercised Unearned Options (#) | | Option Exercise Price ($) | | Option Expiration Date | | Number of Shares or Units of Stock That Have Not Vested (#) | | | Market Value of Shares or Units of Stock That Have Not Vested ($) | | Equity Incentive Plan Awards: Number of Unearned Shares, Units or Other Rights That Have Not Vested (#) | | Equity Incentive Plan Awards: Market or Payout Value of Unearned Shares, Units or Other Rights That Have Not Vested ($) | |
| F.R. Saunders, Jr. | | | 50,371 | | | — | | | | — | | | 8.00 | | 7/17/2013 | | | 1,146 | (4) | | | 4,126 | | | — | | | — | |
| | | | 35,000 | | | — | | | | — | | | 11.50 | | 5/10/2015 | | | 3,297 | (5) | | | 11,869 | | | — | | | — | |
| | | | — | | | 13,021 | (1) | | | — | | | 14.85 | | 1/19/2016 | | | 30,833 | (6) | | | 110,999 | | | — | | | — | |
| | | | — | | | 17,904 | (3) | | | — | | | 15.00 | | 1/19/2017 | | | — | | | | — | | | — | | | — | |
| Jeffrey A. Paolucci | | | 10,000 | | | — | | | | — | | | 8.32 | | 8/15/2013 | | | 550 | ) | | | 1,980 | | | — | | | — | |
| | | | 10,000 | | | — | | | | — | | | 11.50 | | 10/01/2014 | | | 1627 | (4) | | | 5,857 | | | — | | | — | |
| | | | — | | | 7,552 | (1) | | | — | | | 14.85 | | 1/19/2016 | | | 6,838 | (6) | | | 24,617 | | | — | | | — | |
| | | | — | | | 8,594 | (3) | | | — | | | 15.00 | | 1/19/2017 | | | — | | | | — | | | — | | | — | |
| Craig S. Evans | | | — | | | — | | | | — | | | — | | | | | 8,197 | (7) | | | 2,509 | | | — | | | — | |
| | | | — | | | — | | | | — | | | — | | | | | 4,000 | (6) | | | 14,400 | | | — | | | — | |
| | | | — | | | — | | | | — | | | — | | | | | | | | | — | | | | | | — | |
| | | | | | |
| | As of September 30, 2008 |
| | | Actual | | As Adjusted | | As Adjusted |
| | | (Unaudited) | | (Minimum)(2) | | (Maximum)(2) |
Balance Sheet data:
| | | | | | | | | | | | |
ASSETS
| | | | | | | | | | | | |
| Cash and due from banks(1) | | $ | 5,928,325 | | | $ | 5,928,325 | | | $ | 5,928,325 | |
| Securities and other interest earning assets | | | 60,905,131 | | | | 60,905,131 | | | | 60,905,131 | |
| Loans, net | | | 464,702,919 | | | | 464,702,919 | | | | 464,702,919 | |
| Other assets | | | 42,137,307 | | | | 42,137,307 | | | | 42,137,307 | |
| Total assets | | $ | 573,673,682 | | | $ | 573,673,682 | | | $ | 573,673,682 | |
LIABILITIES AND SHAREHOLDERS' EQUITY
| | | | | | | | | | | | |
| Deposits | | | 447,558,635 | | | | 447,558,635 | | | | 447,558,635 | |
| Borrowings | | | 75,865,414 | | | | 70,965,414 | | | | 60,965,414 | |
| Subordinated debentures | | | 10,310,000 | | | | 10,310,000 | | | | 10,310,000 | |
| Other liabilities | | | 1,984,590 | | | | 1,984,590 | | | | 1,984,590 | |
| Total liabilities | | | 535,718,639 | | | | 535,718,639 | | | | 535,718,639 | |
Shareholders' equity:
| | | | | | | | | | | | |
| Senior preferred stock(1) | | | — | | | | 4,900,000 | | | | 14,900,000 | |
| Warrant preferred stock(1) | | | — | | | | 245,000 | | | | 745,000 | |
| Discount on senior preferred stock(3) | | | — | | | | (278,000 | ) | | | (845,000 | ) |
| Premium on warrant preferred stock(3) | | | — | | | | 33,000 | | | | 100,000 | |
| Common stock | | | 35,239 | | | | 35,239 | | | | 35,239 | |
| Nonvested restricted stock | | | (247,637 | ) | | | (247,637 | ) | | | (247,637 | ) |
| Capital surplus | | | 26,114,785 | | | | 26,114,785 | | | | 26,114,785 | |
| Treasury stock | | | (155,259 | ) | | | (155,259 | ) | | | (155,259 | ) |
| Retained earnings | | | 13,488,095 | | | | 13,488,095 | | | | 13,488,095 | |
| Accumulated other comprehensive loss | | | (1,280,180 | ) | | | (1,280,180 | ) | | | (1,280,180 | ) |
| Total shareholders' equity | | | 37,955,043 | | | | 42,855,043 | | | | 52,855,043 | |
| Total liabilities and shareholders' equity | | $ | 573,673,682 | | | $ | 578,573,682 | | | $ | 588,573,682 | |
Capital Ratios:
| | | | | | | | | | | | |
| Tier 1 leverage ratio | | | 8.63 % | | | | 9.40 % | | | | 10.91 % | |
| Tier 1 risk-based capital ratio | | | 10.09 % | | | | 11.07 % | | | | 13.01 % | |
| Total risk-based capital ratio | | | 11.34 % | | | | 12.31 % | | | | 14.25 % | |
| (1) | The pro forma financial information reflectsStock Appreciation Rights vest in five equal annual installments beginning on January 19, 2012. |
| (2) | Restricted Stock Grants vest in three equal annual installments beginning on January 19, 2007; the issuance of a minimum of $4,900,000 and a maximum of $14,900,000 of TARP Preferred Shares, with the proceeds reducing borrowings. The pro forma balance of preferred stock also includes a minimum par value of $245,000 and a maximum of $745,000 of TARP Warrant Shares resulting from the exercise of warrants, yielding negligible cash proceeds. |
| (2) | The balance sheet data gives effect to the issuance of the TARP Preferred Shares as of the balance sheet date. |
| (3) | Under the Program for non-public financial institutions, we will be required to issue to Treasury a warrant to acquire additional preferred shares equal to 5% of the amount of TARP Preferred Shares purchased by the Treasury. The warrant is exercisable at $.01 per share, which would generate virtually no proceeds to First Reliance. The Program terms also provide that the warrant will be exercised immediately upon issuance of the TARP Preferred Shares and the Treasury has indicated its intent to exercise such warrants immediately following issuance. The TARP Warrant Shares carry a dividend rate of 9% from the date of issuance, which differs from the dividend on the TARP Preferred Shares of 5% for the first five years and then 9% thereafter. Using the assumption of the issuance of $14.9 million of TARP |
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| | Preferred Shares, a warrant for an additional $745,000 TARP Warrant Shares would be issued and exercised immediately, with essentially no additional proceeds to our company upon exercise. As a result, we would record total TARP Preferred Shares at their redemption value of $14.9 million, additional TARP Warrant Shares issuable upon exercise of a warrant of $745,000, a discount of $845,000 on the TARP Preferred Shares and a premium of $100,000 related to the TARP Warrant Shares. This issuance results in an initial net increase in equity of $14.9 million representing the cash proceeds from issuance of the TARP Preferred Shares. The accretion of the discount resulting from the issuance of the TARP Preferred Shares would extend over five years and be recorded as an increase in dividends and corresponding decrease in net income available to common shareholders. The amortization of the premium resulting from the issuance of the TARP Warrant Shares would extend over five years and be recorded as an decrease in dividends and corresponding increase in net income available to common shareholders. |
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| | | | | | |
| | As of December 31, 2007 |
| | | Actual(1) | | As Adjusted
| | As Adjusted
|
| | | | | (Minimum)(2) | | (Maximum)(2) |
Balance Sheet data:
| | | | | | | | | | | | |
ASSETS
| | | | | | | | | | | | |
| Cash and due from banks(2) | | $ | 7,164,650 | | | $ | 7,164,650 | | | $ | 7,164,650 | |
| Securities and other interest earning assets | | | 62,510,713 | | | | 62,510,713 | | | | 62,510,713 | |
| Loans, net | | | 482,467,933 | | | | 482,467,933 | | | | 482,467,933 | |
| Other assets | | | 39,560,916 | | | | 39,560,916 | | | | 39,560,916 | |
| Total assets | | $ | 591,704,212 | | | $ | 591,704,212 | | | $ | 591,704,212 | |
LIABILITIES AND SHAREHOLDERS' EQUITY
| | | | | | | | | | | | |
| Deposits | | | 449,497,715 | | | | 449,497,715 | | | | 449,497,715 | |
| Borrowings | | | 93,286,754 | | | | 88,386,754 | | | | 78,386,754 | |
| Subordinated debentures | | | 10,310,000 | | | | 10,310,000 | | | | 10,310,000 | |
| Other liabilities | | | 1,581,839 | | | | 1,581,839 | | | | 1,581,839 | |
| Total liabilities | | | 554,676,308 | | | | 549,776,308 | | | | 539,776,308 | |
Shareholders' equity:
| | | | | | | | | | | | |
| Senior preferred stock(2) | | | — | | | | 4,900,000 | | | | 14,900,000 | |
| Warrant preferred stock(2) | | | — | | | | 245,000 | | | | 745,000 | |
| Discount on senior preferred stock(4) | | | — | | | | (278,000 | ) | | | (845,000 | ) |
| Premium on warrant preferred stock(4) | | | — | | | | 33,000 | | | | 100,000 | |
| Common stock | | | 34,946 | | | | 34,946 | | | | 34,946 | |
| Nonvested restricted stock | | | (152,762 | ) | | | (152,762 | ) | | | (152,762 | ) |
| Capital surplus | | | 25,875,012 | | | | 25,875,012 | | | | 25,875,012 | |
| Treasury stock | | | (145,198 | ) | | | (145,198 | ) | | | (145,198 | ) |
| Retained earnings | | | 11,417,275 | | | | 11,417,275 | | | | 11,417,275 | |
| Accumulated other comprehensive loss | | | (1,369 | ) | | | (1,369 | ) | | | (1,369 | ) |
| Total shareholders' equity | | | 37,027,904 | | | | 41,927,904 | | | | 51,927,904 | |
| Total liabilities and shareholders' equity | | $ | 591,704,212 | | | $ | 591,704,212 | | | $ | 591,704,212 | |
| (1) | Derived from audited financial statements. |
| (2) | The pro forma financial information reflects the issuance of a minimum of $4,900,000 and a maximum of $14,900,000 of TARP Preferred Shares, with the proceeds reducing borrowings. The pro forma balance of preferredrestricted stock also includes a minimum par value of $245,000 and a maximum of $745,000 of TARP Warrant Shares resulting from the exercise of warrants, yielding negligible cash proceeds. |
| (3) | The balance sheet data gives effect to the issuance of the TARP Preferred Shares as of the balance sheet date. |
| (4) | Under the Program for non-public financial institutions, we will be required to issue to Treasury a warrant to acquire additional preferred shares equal to 5% of the amount of TARP Preferred Shares purchased by the Treasury. The warrant is exercisable at $.01 per share, which would generate virtually no proceeds to First Reliance. The Program terms also provide that the warrant will be exercised immediately upon issuance of the TARP Preferred Shares and the Treasury has indicated its intent to exercise such warrants immediately following issuance. The TARP Warrant Shares carry a dividend rate of 9% from the date of issuance, which differs from the dividend on the TARP Preferred Shares of 5% for the first five years and then 9% thereafter. Using the assumption of the issuance of $14.9 million of TARP Preferred Shares, a warrant for an additional $745,000 TARP Warrant Shares would be issued and exercised immediately, with essentially no additional proceeds to our company upon exercise. As a result, we would record total TARP Preferred Shares at their redemption value of $14.9 million, additional TARP Warrant Shares issuable upon exercise of a warrant of $745,000, a discount of $845,000 on the TARP Preferred Shares and a premium of $100,000 related to the TARP Warrant Shares. This issuance results in |
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| | an initial net increase in equity of $14.9 million representing the cash proceeds from issuance of the TARP Preferred Shares. The accretion of the discount resulting from the issuance of the TARP Preferred Shares would extend over five years and be recorded as an increase in dividends and corresponding decrease in net income available to common shareholders. The amortization of the premium resulting from the issuance of the TARP Warrant Shares would extend over five years and be recorded as an decrease in dividends and corresponding increase in net income available to common shareholders. |
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| | | | | | |
| | For the Nine Months Ended September 30, 2008 |
| | | Actual
| | As Adjusted
| | As Adjusted
|
| | | (Unaudited) | | (Minimum)(1) | | (Maximum)(1) |
Income Statement data:
| | | | | | | | | | | | |
| Total interest income(2) | | $ | 28,169,083 | | | $ | 28,169,083 | | | $ | 28,169,083 | |
| Total interest expense(1) | | | 13,469,729 | | | | 13,337,429 | | | | 13,067,429 | |
| Net interest income | | | 14,699,354 | | | | 14,831,654 | | | | 15,101,654 | |
| Provision for loan losses | | | 1,757,364 | | | | 1,757,364 | | | | 1,757,364 | |
| Net interest income after provision for loan losses | | | 12,941,990 | | | | 13,074,290 | | | | 13,344,290 | |
| Total non-interest income | | | 3,893,453 | | | | 3,893,453 | | | | 3,893,453 | |
| Total non-interest expenses | | | 13,941,367 | | | | 13,941,367 | | | | 13,941,367 | |
| Income before income taxes | | | 2,894,076 | | | | 3,026,376 | | | | 3,296,376 | |
| Provision for income taxes(1) | | | 619,354 | | | | 664,336 | | | | 756,136 | |
| Net income | | $ | 2,274,722 | | | $ | 2,362,040 | | | $ | 2,540,240 | |
| Dividend on preferred stock | | | | | | $ | (183,750 | ) | | $ | (558,750 | ) |
| Amortization of discount on preferred stock | | | | | | | (36,400 | ) | | | (111,005 | ) |
| Effective dividend on preferred stock(4) | | | | | | | (220,150 | ) | | | (669,755 | ) |
| Dividend on warrant preferred | | | | | | | (16,538 | ) | | | (50,288 | ) |
| Accrection of premium on warrant preferred | | | | | | | 4,200 | | | | 12,665 | |
| Effective dividend on warrant preferred(4) | | | | | | | (12,338 | ) | | | (37,623 | ) |
| Net income available to common shareholders | | | | | | $ | 2,129,552 | | | $ | 1,832,862 | |
| Basic net income per common share | | $ | 0.65 | | | $ | 0.61 | | | $ | 0.52 | |
| Diluted net income per common share | | $ | 0.64 | | | $ | 0.60 | | | $ | 0.52 | |
| Weighted average basic shares outstanding | | | 3,509,597 | | | | 3,509,597 | | | | 3,509,597 | |
| Weighted average diluted shares outstanding | | | 3,531,198 | | | | 3,531,198 | | | | 3,531,198 | |
| (1) | Income statement data gives effect to the equity proceeds at the beginning of the period, and assumes the cash proceeds were used to reduce borrowings at the beginning of the period. The reduction in interest expense on the assumed reductionaward is based on a 3.6% blended rate, reduced by income tax at 34%. The actual impact to net interest income will be different because we expect to utilize a portionthe market value of the proceeds to reduce debt and fund loan growth. It is also possible thatCompany’s common stock on the grant date, which was $14.85 per share as reported on the Over-the-Counter Bulletin Board. The awards are being expensed on a portionstraight line basis in accordance with FAS 123R. |
| (3) | Stock Appreciation Rights vest in five equal annual installments beginning on March 28, 2013. |
| (4) | Restricted Stock Grants cliff vest at the end of three years on January 19, 2010; the value of the proceeds could be used in acquisitions of other institutions. |
| (2) | The funds received from the preferredrestricted stock issue are assumed to reduce borrowed funds. Subsequent redeployment of the funds is anticipated, but the timing of such redeployment is uncertain. |
| (3) | The issuance costs expected to be incurred are immaterial; therefore, no effect was given in the pro forma. |
| (4) | The effective dividend on TARP Preferred Shares includes amortization of the discount, accreted over a five-year period using the effective yield method with an effective yield of approximately 6% and dividends on TARP Preferred Shares at 5%. The effective dividend on TARP Warrant Shares includes amortization of the premium, amortized over a five-year period using the effective yield method with an effective yield of approximately 6% and dividends on TARP Warrant Shares at 9%. |
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| | | | | | |
| | For the Year Ended December 31, 2007 |
| | | Actual(1) | | As Adjusted
| | As Adjusted
|
| | | | | (Minimum)(2) | | (Maximum)(2) |
| Total interest income(3) | | $ | 37,540,487 | | | $ | 37,540,487 | | | $ | 37,540,487 | |
| Total interest expense(2) | | | 18,433,209 | | | | 18,282,289 | | | | 17,974,289 | |
| Net interest income | | | 19,107,278 | | | | 19,528,198 | | | | 19,566,198 | |
| Provision for loan losses | | | 1,643,100 | | | | 1,643,100 | | | | 1,643,100 | |
| Net interest income after provision for loan losses | | | 17,464,178 | | | | 17,615,098 | | | | 17,923,098 | |
| Total non-interest income | | | 5,301,799 | | | | 5,301,799 | | | | 5,301,799 | |
| Total non-interest expenses | | | 18,961,275 | | | | 18,961,275 | | | | 18,961,275 | |
| Income before income taxes | | | 3,804,702 | | | | 3,955,622 | | | | 4,263,622 | |
| Provision for income taxes(2) | | | 1,245,182 | | | | 1,296,495 | | | | 1,401,215 | |
| Net income | | $ | 2,559,520 | | | $ | 2,659,127 | | | $ | 2,862,407 | |
| Dividend on preferred stock | | | | | | $ | (245,000 | ) | | $ | (745,000 | ) |
| Amortization of discount on preferred stock | | | | | | | (48,300 | ) | | | (147,510 | ) |
| Effective dividend on preferred stock(5) | | | | | | | (293,300 | ) | | | (892,510 | ) |
| Dividend on warrant preferred | | | | | | | (22,050 | ) | | | (67,050 | ) |
| Accrection of premium on warrant preferred | | | | | | | 5,600 | | | | 16,390 | |
| Effective dividend on warrant preferred(5) | | | | | | | (16,450 | ) | | | (50,660 | ) |
| Net income available to common shareholders | | | | | | $ | 2,349,377 | | | $ | 1,919,237 | |
| Basic net income per common share | | $ | 0.74 | | | $ | 0.68 | | | $ | 0.55 | |
| Diluted net income per common share | | $ | 0.72 | | | $ | 0.66 | | | $ | 0.54 | |
| Average basic shares outstanding | | | 3,466,008 | | | | 3,466,008 | | | | 3,466,008 | |
| Average diluted shares outstanding | | | 3,536,961 | | | | 3,536,961 | | | | 3,536,961 | |
| (1) | Derived from audited consolidated financial statements. |
| (2) | The income statement data gives effect to the equity proceeds at the beginning of the period, and assumes the cash proceeds were used to reduce borrowings at the beginning of the period. The reduction in interest expense on the assumed reductionaward is based on a 3.08% blended rate, reduced by income tax at 34%. The actual impact to net interest income will be different because we expect to utilize a portionthe market value of the proceeds to reduce debt and fund loan growth. It is also possible thatCompany’s common stock on the grant date, which was $15.00 per share as reported on the Over-the-Counter Bulletin Board. The awards are being expensed on a portionstraight line basis in accordance with FAS 123R. |
| (5) | Restricted Stock Grants cliff vest at the end of three years on February 21, 2011; the value of the proceeds could be used in acquisitions of other institutions. |
| (3) | The funds received fromrestricted stock award is based on the issuancemarket value of the TARP Preferred SharesCompany’s common stock on the grant date, which was $10.75 per share as reported on the Over-the-Counter Bulletin Board. The awards are assumed to reduce borrowed funds. Subsequent redeploymentbeing expensed on a straight line basis in accordance with FAS 123R. |
| (6) | Restricted Stock Grants cliff vest at the end of three years on March 5, 2012; the value of the fundsrestricted stock award is anticipated, but the timing of such redeployment is uncertain. |
| (4) | The issuance costs expected to be incurred are immaterial; therefore, no effect was given in the pro forma. |
| (5) | The effective dividendbased on the TARP Preferred Shares includes accretionmarket value of the discount over a five-year period using the effective yield method with an effective yield of approximately 7% and dividendsCompany’s common stock on the TARP Preferred Shares at 5%. The effective dividendgrant date, which was $2.25 per share as reported on the TARP Warrant Shares includes amortizationOver-the-Counter Bulletin Board. The awards are being expensed on a straight line basis in accordance with FAS 123R. |
| (7) | Restricted Stock Grants cliff vest at the end of five years on July 21, 2013; the value of the premium, amortized overrestricted stock award is based on the market value of the Company’s common stock on the grant date, which was $6.10 per share as reported on the Over-the-Counter Bulletin Board. The awards are being expensed on a five-year period using the effective yield methodstraight line basis in accordance with an effective yield of approximately 7% and dividends on TARP Warrant Shares at 9%.FAS 123R. |
We
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act requires the Company’s directors and officers and persons who own beneficially more than 10% of the Company’s outstanding common stock to file with the Securities and Exchange Commission initial reports of ownership and reports of changes in their ownership of the Company’s common stock. Directors, executive officers and greater than 10% shareholders are required to furnish the Company with copies of the forms they file. To our knowledge, based solely on a review of these reports and representations from our directors and officers, our directors and officers filed all reports required by Section 16(a).
RELATED PARTY TRANSACTIONS
The Company and the Bank have includedbanking and other business transactions in the unaudited pro forma consolidated financial data solelyordinary course of business with directors and officers of the Company and the Bank and their affiliates, including members of their families, corporations, partnerships or other organizations in which such directors and officers have a controlling interest. These transactions take place on substantially the same terms as those prevailing at the same time for comparable transactions with unrelated parties.
The Company recognizes that related party transactions can present potential or actual conflicts of interest and create the appearance that the Company’s decisions are based on considerations other than the Company’s and its shareholders’ best interests. Therefore, the Board of Directors has adopted the following practices and procedures with respect to related party transactions.
For the purpose of providingthe procedures, a “related party transaction” is a transaction in which the Company or the Bank participates and in which any related party has a direct or indirect material interest, other than transactions available to all employees or customers generally.
Under the Company’s procedures, any related party transaction must be reported to the Board of Directors and may be consummated or may continue only (i) if the Board of Directors approves or ratifies such transaction and if the transaction is on terms comparable to those that could be obtained in arms’-length dealings with an unrelated third party, (ii) if the transaction involves compensation that has been approved by Compensation Committee, or (iii) if the transaction has been approved by the disinterested members of the Board of Directors. The Board of Directors may approve or ratify the related party transaction only if the Board determines that, under all of the circumstances, the transaction is in the best interests of the Company.
On January 13, 2009, the Bank paid Director John M. Jebaily a commission of $73,500 for facilitating the sale of a bank-owned property located on Sam Rittenburg Boulevard in Charleston, South Carolina. Consideration received by the Bank upon sale of the property totaled $2,450,000.
The Bank has employed certain employees who are related to the Company’s Executive Officers and/or Directors. These individuals are compensated in accordance with the Bank’s policies that apply to all employees.
From time to time, the Bank will make loans to the directors and officers of the Company and the Bank and their affiliates. None of these loans are currently on nonaccrual, past due, restructured or potential problem loans. All such loans were: (i) made in the ordinary course of business; (ii) made on substantially the same terms, including interest rates and collateral, as those prevailing at the time for comparable loans with persons not related to the Bank; and (iii) did not involve more than the normal risk of collectibility or present other unfavorable features.
PROPOSAL NO. 2:
NON-BINDING RESOLUTION APPROVING COMPENSATION
OF THE COMPANY’S EXECUTIVE OFFICERS
General
On March 6, 2009, the Company completed a transaction with the United States Treasury under the Troubled Asset Relief Program Capital Purchase Program (“TARP CPP”). Under the TARP CPP, the Company sold 15,349 shares of its Series A Cumulative Perpetual Preferred Stock, which bears an initial dividend rate of 5% increasing to 9% after five years, to the Treasury. In addition, the Treasury received a warrant to purchase 767 shares of the Company’s Series B Cumulative Perpetual Preferred Stock, which bears a dividend rate of 9%, which was immediately exercised by the Treasury for a nominal exercise price. One of the conditions of the TARP CPP is that the Company comply with certain limits on its compensation of its executive officers.
The original limitations of the TARP CPP were amended by the enactment of the American Recovery and Reinvestment Act of 2009 (the “ARRA”) on February 17, 2009. ARRA requires the Company, for so long as any obligation arising from the Company’s participation in the TARP CPP remains outstanding, to submit to its shareholders a non-binding vote on the compensation of the Company’s senior executive officers, as disclosed in this Proxy Statement.
By the terms of ARRA, this vote by shareholders (i) is not binding on the Board of Directors of the Company, (ii) is not to be construed as overruling any decision by our Board of Directors; and (iii) does not create or imply any additional duties by our Board of Directors.
Executive Compensation
The Company believes that its compensation policies and procedures, which are reviewed and recommended by the Compensation Committee and approved by the Board of Directors, encourage a culture of pay for performance and are strongly aligned with the long- term interests of shareholders. Like most community banks, the recent and ongoing financial downturn had a significant negative impact on the Company’s 2008 results of operations and on the price of the Company’s common stock. Consistent with the objective of aligning the compensation of the Company’s executive officers with the annual and long-term performance of the Company and the interests of the Company’s shareholders, these factors were also reflected in the compensation of the Company’s senior executive officers for 2008.
The Board of Directors and management believe that the compensation paid to the senior executive officers as disclosed elsewhere in this proxy statement is reasonable and competitive. The Board uses various methods and analyses in setting the compensation for the senior executive officers, including but not limited to reliance on compensation surveys of peer financial institutions, review of publicly available information on the compensation practices of other institutions in our market, and reliance on compensation consultants for certain executive benefits.
The Board of Directors and the Compensation Committee currently are reviewing all compensatory arrangements to ensure they comply with the executive compensation limits applicable under the TARP CPP, as described above in “Executive Compensation – Participation in TARP Capital Purchase Program.” The Company is monitoring possible amendments to applicable executive compensation rules that may be usefuladopted from time to time by the Treasury and by Congress, and will implement the limits in conformance with published guidelines. Any required amendments to our compensation arrangements will be made in compliance with applicable deadlines. Finally, the Company is taking reasonable steps to operate such arrangements in compliance with the limits under the TARP CPP based on the statutory language contained in ARRA.
The Board of Directors strives to pay fair compensation to its senior executive officers, and all employees, and believes its compensation practices are reasonable.
As required by the ARRA and the guidance provided by the SEC, the Board of Directors has authorized a shareholder vote on the Company’s executive compensation plans, programs and arrangements as reflected in the disclosures regarding senior executive officer compensation provided in the various tables included elsewhere in this Proxy Statement, the accompanying narrative disclosures and the other compensation information provided in this Proxy Statement. This proposal, commonly known as a “say on pay” proposal, gives the Company’s shareholders the opportunity to endorse or not endorse the Company’s executive pay program and policies through the following resolution:
“Resolved, that the shareholders of the Company approve the overall executive compensation policies and procedures employed by the Company, as described in the Company’s Proxy Statement for purposesthe 2010 Annual Meeting of considering and evaluatingShareholders.”
Vote Required to Approve Proposal
The approval of the proposal to amend our Articlesnon-binding resolution approving the compensation of Incorporation. Our future results are subject to prevailing economic and industry specific conditions and financial, business and other known and unknown risks and uncertainties, certain of which are beyond our control. These factors include, without limitation, thosethe Company’s executive officers as described in this Proxy Statement requires approval by the affirmative vote of the holders of shares of common stock representing a majority of the votes cast at the meeting. Because this shareholder vote is advisory, it will not be binding upon the Board of Directors. However, the Compensation Committee may take into account the outcome of the vote when considering future executive compensation arrangements.
The Board of Directors Recommends a vote “for” the
approval of the non-binding resolution approving the compensation of the Company’s
executive officers as described in this Proxy Statement.
AUDIT COMMITTEE MATTERS
Audit Committee Report
The Audit Committee is responsible for providing independent, objective oversight of the Company’s accounting functions and those described under Item 1Ainternal controls. Management is responsible for the Company’s internal controls and financial reporting process. The independent accountants are responsible for performing an independent audit of our Annual Report on Form 10-Kthe Company’s consolidated financial statements in accordance with auditing standards generally accepted in the United States of America and to issue a report thereon. The Audit Committee’s responsibility is to monitor and oversee these processes.
The Audit Committee reports as follows with respect to the audit of the Company’s 2009 audited consolidated financial statements.
The Audit Committee has reviewed and discussed the Company’s 2009 audited consolidated financial statements with the Bank’s and the Company’s management;
| · | The Audit Committee has discussed with the independent auditors, Elliott Davis, LLC, 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; |
| · | The Audit Committee has received written disclosures and the letter from the independent auditors required by ISB Standard No. 1 (which relates to the auditors’ independence from the corporation and its related entities) and has discussed with the auditors the auditors’ independence from the Company and the Bank; and |
| · | Based on review and discussions of the Company’s 2009 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 2009 audited consolidated financial statements be included in the Company’s Annual Report on Form 10-K. |
| March 29, 2010 | Audit Committee: | C. Dale Lusk |
| | Andrew G. Kampiziones |
| | Leonard A. Hoogenboom |
| | J. Munford Scott, Jr. |
Independent Registered Public Accounting Firm
The independent registered accounting firm of Elliott Davis, LLC served as the independent auditors for the Company for the year ended December 31, 2007, in Item 1A2009, and have served as the Company’s independent auditors since January 2, 2003. A representative of our Quarterly Report on Form 10-QElliott Davis, LLC is expected to be present at the 2010 Annual Meeting of Shareholders and will be given the opportunity to make a statement if he or she desires to do so and will be available to respond to appropriate questions from shareholders.
Audit Fees
The following table shows the amounts paid by the Company to Elliott Davis, LLC for the quarter ended September 30, 2008 and in our other reports filed with the SEC.The Board recommends that shareholders vote FOR the Amendment Proposal.
last two fiscal years. 15
| | | 2008 | | | 2009 | |
Audit fees (1) | | $ | 69,000 | | | $ | 105,740 | |
Audit-related fees (2) | | | 4,185 | | | $ | 25,259 | |
Tax fees (3) | | | 9,525 | | | $ | 14,865 | |
All other fees (4) | | | 30,300 | | | | | |
| Total Fees | | $ | 113,010 | | | $ | 145,864 | |
| (1) | Audit fees consisted primarily of the audit of the Company’s annual consolidated financial statements, for reviews of the condensed consolidated financial statements included in the Company’s quarterly reports on Form 10-Q and for comfort letter procedures. These fees include amounts paid or expected to be paid for each respective year’s audit. |
| (2) | Audit-related fees consist primarily of limited consultations in assisting with the planning and documentation requirements for the Sarbanes-Oxley Act, for consultations regarding TARP Capital Purchase Program and for audit of the Company’s ESOP and Welfare Plans. |
| (3) | Tax fees represent the aggregate fees billed in each of the last two fiscal years for professional services rendered by Elliott Davis, LLC for preparation of federal and state income tax returns and assistance with tax estimates. |
| (4) | All other fees include preparation of Forms 5500. |
THE SPECIAL MEETING IF NECESSARYIf the number of shares of common stock present or represented at the Special Meeting and voting in favor of the Amendment Proposal is insufficient to approve the Amendment Proposal, then First Reliance’s management may move to adjourn the Special Meeting in order to enable the Board to continue to solicit additional proxies in favor of the Amendment Proposal. In that event, you will be asked only to vote upon the Adjournment Proposal but not the Amendment Proposal.
In this Adjournment Proposal, the Board is asking you to authorize the holder of any proxy solicited
The services provided by the Board to vote in favor of adjourning the Special Meeting and any later adjournment under the circumstances described above. If the shareholders approve this Adjournment Proposal, then management could adjourn the Special Meeting (and any adjourned section of the Special Meeting) to use the additional time to solicit additional proxies in favor of the Amendment Proposal, including the solicitation of proxies from shareholders that have previously voted against the Amendment Proposal. Among other things, approval of the Adjournment Proposal could mean that even if proxies representing a sufficient number of votes against the Amendment Proposal have been received, management could adjourn the Special Meeting without a vote on the Amendment Proposal and seek to convince the holders of those shares to change their votes to vote in favor of the Amendment Proposal.The Board believes that if the number of shares of common stock present or represented at the Special Meeting and voting in favor of the Amendment Proposal is insufficient to approve that proposal, it is in the best interests of First Reliance’s shareholders to enable the Board, for a limited period of time, to continue to seek to obtain a sufficient number of additional votes to approve the Amendment Proposal.
The Board recommends that shareholders vote FOR the Adjournment Proposal.
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ANTI-TAKEOVER PROVISIONS OF SOUTH CAROLINA LAW
AND THE ARTICLES OF INCORPORATION
The provisions of South Carolina law summarized in the following paragraphs may have anti-takeover effects and may delay, defer, or prevent a tender offer, takeover attempt, or merger that a shareholder might consider to be in the shareholder’s best interest.
Merger, Share Exchange, Sale of Assets
South Carolina law provides that, with respect to any plan of merger or share exchange, our Board of Directors must recommend and submit the plan to a vote of our shareholders. For First Reliance to adopt the plan, the plan of merger or share exchange must be approved by at least two-thirds of our outstanding common shares.
With respect to any sale of all, or substantially all, of First Reliance’s property or assets, other than in the normal course of business, our Board of Directors must recommend the sale, and submit the plan, to a vote of our shareholders. To be effective, the sale of property or assets must be approved by at least two-thirds of our outstanding common shares.
Business Combinations
South Carolina’s Business Combinations statute prohibits a 10% or greater shareholder of a resident domestic corporation from entering into a “business combination” (defined in the statute) with the corporation for a period of two years following the date on which the shareholder became a 10% or greater shareholder, unless prior to the shareholder becoming a 10% or greater shareholder, the business combination was approved by a majority of the disinterested members of the corporation’s board of directors. This statute also prohibits a 10% or greater shareholder of a resident domestic corporation from entering, at any time, into a business combination with the corporation, unless certain approvals of the board of directors or disinterested shareholders are obtained, or unless the consideration givenElliott Davis, LLC were pre-approved by the 10% or greater shareholder meets certain minimum-price standards that the statute sets forth.
This statute is designed to provide broad protection against unfriendly takeover attempts, but a South Carolina corporation may opt-out of the protection by including a provision to that effect in the corporation’s articles of incorporation. Our Articles of Incorporation do not contain an opt-out provision; therefore, the statute’s protections apply to us. The statute only applies to us for as long as we continue to have a class of voting shares registered under Section 12 of the Exchange Act.
Control Share Acquisitions
South Carolina’s Control Share Acquisitions statute precludes, under certain circumstances, a purchaser of shares of a South Carolina corporation from obtaining voting control of shares that exceed one of three voting thresholds (20%, 33 1/3%, or 50%), unless a majority of the disinterested shareholders entitled to vote accord voting power to the shares that exceed the threshold. A South Carolina corporation’s articles of incorporation or bylaws may permit the corporation to redeem the voting-control shares if the purchaser did not comply with certain statutory requirements or if the shareholders do not accord voting power to the voting-control shares. Neither our Articles of Incorporation nor our Bylaws permit us to redeem these voting-control shares. The statute only applies to us for as long as we continue to have a class of voting shares registered under Section 12 of the Exchange Act.
The provisions of South Carolina law described above,Audit Committee to the extent required under applicable willlaw. The Audit Committee pre-approves all audit and allowable non-audit services, but does not have a specific pre-approval policy. The Audit Committee has determined that the general effectrendering of discouraging or rendering more difficult unfriendly takeover or acquisition attempts. Consequently, such provisions would be beneficial to current management in an unfriendly takeover attempt but could have an adverse effect on shareholders who might wish to participate in such a transaction. However, First Reliance believes that such provisions are advantageous tonon-audit professional services, as identified above, is compatible with maintaining the shareholders in that these provisions will (1) permit management andindependence of the shareholders to carefully consider and understand a proposed acquisition, (2) lead to higher offering prices, and (3) require a higher level of shareholder participation in the decision.
Company’s auditors.17
SHAREHOLDER COMMUNICATIONS
Shareholder ProposalsProposals.
To be included in First Reliance’sthe Company’s annual proxy statement, shareholder proposals not relating to the election of directors must also be received by First Reliancethe Company at least 120 days before the one-year anniversary of the mailing date for the prior year’s proxy statement, which in our case requiredstatement. The Company’s Bylaws require that proposals be submitted no later than December 30, 2008 for the 2009 annual meeting. The persons named as proxies in First Reliance’s proxy statement for the meeting will, however, have discretionary authority to vote the proxies they have received as they see fit with respect to any proposals received less than 60 days prior to the meeting date. SEC shareholder’s proposal notice describe: | · | the proposal and the reason it is being brought before the meeting; |
| · | the shareholder’s name and address and the number of shares he or she beneficially owns; and |
| · | any material interest of the shareholder in the proposal. |
Rule 14a-8 promulgated by the U.S. Securities and Exchange Commission (the “SEC”) provides additional information regarding the content and procedure applicable to the submission of shareholder proposals.proposals to be included in the Company’s 2009 proxy statement. To the fullest extent permitted by applicable law, the Board of Directors have the discretion to determine whether a shareholder’s proposal is a proper business matter. Accordingly, the Board may, if warranted under the circumstances, deny the shareholder’s request upon written notice to the shareholder stating its reason for such denial.
In order for a shareholder proposal to be considered at the 2009 annual meeting, notice of the proposal was required to be delivered to the Secretary of the Company on or before December 31, 2008. The Company did not receive notice of any shareholder proposals to be presented at the 2009 meeting.
Shareholder CommunicationsCommunications.
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 sending it to the Secretary of the Company at the Company’s principal office at 2170 W. Palmetto Street, Florence, South Carolina 29501. The Secretary will promptly forward such communications to the applicable director or to the Chairman of the Board for consideration at the next scheduled meeting.INCORPORATION OF CERTAIN INFORMATION BY REFERENCE
We have elected to “incorporate
Householding. As permitted by reference” into this Proxy Statement certain information thatapplicable law we have filed with the SEC. This means that we disclose important information to shareholders by referring the shareholders to another document. The information incorporated by reference into this Proxy Statement is an important partmay deliver only one copy of this Proxy Statement and is considered to be partshareholders residing at the same address, unless the shareholders have notified us of this Proxy Statement from the date we file that information with the SEC. Any reports filed by us with the SEC after the date of this Proxy Statement will automatically update and, where applicable, supersede any information contained in this Proxy Statement or incorporated by reference into this Proxy Statement.The following items in documents filed by First Reliance with the SEC are incorporated by reference into this Proxy Statement andtheir desire to receive multiple copies of these documents are being delivered withthe proxy statement. This is known as “householding.” We do this Proxy Statement:
Items 7, 7A, 8,to reduce costs and 9preserve resources.
Upon oral or written request, we will promptly deliver a separate copy of the proxy statement to any Shareholder residing at an address to which only one copy was mailed. Requests for additional copies for the current year or future years should be directed to the Corporate Secretary. You may contact our Corporate Secretary by mail at First Reliance Bancshares, Inc.’s Annual Report on Form 10-K for the Year Ended December 31, 2007;, 2170 W. Palmetto Street, Florence, South Carolina 29501, Attention: Corporate Secretary.
If your shares are registered directly in your name with our transfer agent, Registrar and
Items 1, 2, and 3 Transfer you are considered a shareholder of First Reliance Bancshares Inc.’s Quarterly Report on Form 10-Q for the Quarter Ended September 30, 2008.
We expect representatives of Elliott Davis, LLC, our independent registered public accounting firm, to be present at the Special Meeting, have an opportunity to make a statement if they desire to do so, and respond to appropriate questions.
WHERE YOU CAN FIND MORE INFORMATION
First Reliance is subject to the information requirements of the Exchange Act, and in accordance therewith files reports, proxy statements, and other information with the SEC. Such reports, proxy statements, and other information can be inspected and copied at the public reference facilities of the SEC at 100 F Street, N.E., Washington, DC 20549. Copies of such materials can also be obtained at prescribed rates by writing to the Public Reference Section of the SEC at 100 F Street, N.E., Washington, DC 20549. In addition, such reports, proxy statements, and other information are available from the Edgar filings that can be obtained through the SEC’s Internet Website (http://www.sec.gov).
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FORWARD LOOKING STATEMENTS
Statements contained in this Proxy Statement that are not purely historical are forward-looking statements, including, but not limited to, statements regarding our expectations, hopes, beliefs, intentions, or strategies regarding the future. Actual results could differ materially from those projected in any forward-looking statements as a result of a number of factors, including those detailed in this proxy statement. The forward-looking statements are made as of the date of this proxy statement and we undertake no obligation to update or revise the forward-looking statements, or to update the reasons why actual results could differ materially from those projected in the forward-looking statements.
We caution you not to place undo reliance on any forward-looking statements made by, or on behalf of us in this proxy statement or in any of our filings with the SEC or otherwise. Additional informationrecord with respect to factorsthose shares. Shareholders of record residing at the same address and currently receiving multiple copies of the proxy statement may contact our registrar and transfer agent, DTC, to request that may causeonly a single copy of the results to differ materially fromproxy statement be mailed in the future. Contact DTC by phone at (888) 382-2721.
If your shares are held in a brokerage account or bank, you are considered the “beneficial owner” of those contemplated by forward-looking statements isshares. Beneficial owners should contact their broker or bank.
Submission Deadline for Next Year’s Annual Meeting. To be included in our currentthe Company’s 2011 proxy statement, shareholder nominations and subsequent filings withproposals submitted for consideration at the SEC.OTHER MATTERS
Management2011 annual meeting of First Reliance doesshareholders must be received by the Company no later than December 30, 2010. Generally, the proxyholder(s) disclosed in the Company’s proxy statement shall have the discretionary authority to vote upon any shareholder proposal not know of any matters to be brought beforeincluded in the Special Meeting other than those described above. If any other matters properly come before the Special Meeting, the persons designated as proxies will vote on such matters in accordance with their best judgment.
By Order of the Board of Directors,
![[GRAPHIC MISSING]](https://capedge.com/proxy/DEF 14A/0001144204-09-002815/sig_frsaunders.jpg)
F.R. Saunders, Jr.
President and Chief Executive Officer
January 21, 2009
19
Company’s proxy materials.
Florence, South Carolina
April 28, 2010
OF
FIRST RELIANCE BANCSHARES, INC.
Pursuant Section 33-10-106 of the 1976 South Carolina Code of Laws, as amended, the undersigned corporation adopts the following Articles of Amendment to its Articles of Incorporation:
| (1) | The name of the corporation is First Reliance Bancshares, Inc. (the “Corporation”). |
| (2) | The date of incorporation of the Corporation is April 12, 2001. |
| (3) | The registered agent’s name and address is |
F.R. Saunders, Jr.
2170 West Palmetto Street
Florence, South Carolina 29501.
| (4) | At a board meeting held on November 7, 2008, the Board of Directors of the Corporation duly adopted the amendment set forth in Article 5 of these Articles of Amendment. |
| (5) | Article Three of the Articles of Incorporation of the Corporation is hereby amended by deleting Article Three in its entirety and inserting in lieu thereof a new Article Three as follows: |
| (a) | The total number of shares of capital stock which the corporation is authorized to issue is Thirty Million (30,000,000) shares, divided into Twenty Million (20,000,000) shares of common stock, $0.01 par value, and Ten Million (10,000,000) shares of preferred stock, no par value (the “Preferred Stock”). The shares of common stock shall have unlimited voting rights and shall be entitled, subject to any preferences of any Preferred Stock then outstanding, to receive the net assets of the Corporation upon dissolution. |
| (b) | The Board of Directors of the corporation is authorized, subject to limitations prescribed by law and the provisions of this Article, to provide for the issuance of the shares of Preferred Stock in series, and to establish from time to time the number of shares to be included in each such series, and to fix the designation, powers, preferences, and relative rights of the shares of each such series and the qualifications, or restrictions thereof. The authority of the Board of Directors with respect to each series shall include, but not be limited to, determination of the following: |
| (i) | The number of shares constituting that series and the distinctive designation of that series; |
| (ii) | The dividend rate on the shares of that series, whether dividends shall be cumulative, and, if so, from which date or dates, and the relative rights of priority, if any, of payments of dividends on shares of that series; |
| (iii) | Whether that series shall have voting rights, in addition to the voting rights provided by law, and, if so, the terms of such voting rights; |
| (iv) | Whether that series shall have conversion privileges, and, if so, the terms and conditions of such conversion, including provisions for adjustment of the conversion rate in such events as the Board of Directors shall determine; |
| (v) | Whether or not the shares of that series shall be redeemable, and, if so, the terms and conditions of such redemption, including the date or dates upon or after which they shall be redeemable, and the amount per share payable in case of redemption, which amount may vary under different conditions and at different redemption rates; |
| (vi) | Whether that series shall have a sinking fund for the redemption or purchase of shares of that series, and, if so, the terms and amount of such sinking fund; |
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| (vii) | The rights of the shares of that series in the event of voluntary or involuntary liquidation, dissolution or winding-up of the corporation, and the relative rights of priority, if any, of payment of shares of that series; and |
| (viii) | Any other relative rights, preferences, and limitations of that series. |
| (6) | At a special meeting of shareholders on February 24, 2009, the shareholders of the Corporation duly adopted the amendment set forth in Article 5 of these Articles of Amendment in accordance with the provisions of Section 33-10-103 of the South Carolina Business Corporation Act of 1988. At the date of adoption of the Amendment, the number of outstanding shares of each voting group entitled to vote on the Amendment, and the vote of such shares was: |
| | | | | | | | |
Voting Group | | Number of
Outstanding
Shares | | Number of
Votes Entitled
to Be Cast | | Number of
Votes
Represented at
the Meeting | | Number of
Undisputed
Shares
for Amendment |
Common Stock | | | | | | | | | | | | | | | | |
| (7) | All other provisions of the Articles of Incorporation shall remain in full force and effect. |
| (8) | Unless a delayed date is specified, the effective date of these Articles of Amendment shall be the date of acceptance for filing by the Secretary of State of South Carolina (see Section 33-1-230(b) of 1976 South Carolina Code of Laws, as amended). |
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Appendix B
TARP Capital Purchase Program
(Non-Public QFIs, Excluding S Corps and Mutual Organizations)
Preferred Securities
Summary of Preferred Terms
| | Qualifying Financial Institution (“QFI”) means any (i) top-tier Bank Holding Company (“BHC”), or top-tier Savings and Loan Holding Company (“SLHC”) that engages solely or predominately in activities permissible for financial holding companies under relevant law, that in either case is not publicly traded, (ii) U.S. bank or U.S. savings association organized in a stock form that are neither publicly traded nor controlled by a BHC or SLHC, or (iii) U.S. bank or U.S. savings association that is not publicly traded and is controlled by a SLHC that is not publicly traded and does not engage solely or predominately in activities that are permitted for financial holding companies under relevant law, other than S Corporations and Mutual Depository Institutions. The term QFI shall not mean any institution that is controlled by a foreign bank or company. For purposes of this program, “U.S. bank”, “U.S. savings association”, “BHC” and “SLHC” means a bank, savings association, BHC or SLHC organized under the laws of the United States or any State of the United States, the District of Columbia, any territory or possession of the United States, Puerto Rico, Northern Mariana Islands, Guam, American Samoa, or the Virgin Islands.The United States Department of the Treasury will determine the eligibility and allocation for QFIs after consultation with the appropriate Federal banking agency. |
| | “S Corporation” means any U.S. bank, U.S. savings association, BHC or SLHC organized as a corporation that has made a valid election to be taxed under Subchapter S of the U.S. Internal Revenue Code. |
| | “Mutual Depository Institution” means any U.S. bank, U.S. savings association, BHC or SLHC organized in a mutual form. |
| | United States Department of the Treasury (the “UST”). |
| | QFIs may sell preferred to the UST subject to the limits and terms described below. |
| | Each QFI may issue an amount of Preferred equal to not less than 1% of its risk-weighted assets and not more than the lesser of (i) $25 billion and (ii) 3% of its risk-weighted assets. |
| | Preferred, liquidation preference $1,000 per share. (Depending upon the QFI’s available authorized preferred shares, the UST may agree to purchase Preferred with a higher liquidation preference per share, in which case the UST may require the QFI to appoint a depositary to hold the Preferred and issue depositary receipts.) |
| (1) | For the purposes of this term sheet “publicly traded” means a company (1) whose securities are traded on a national securities exchange and (2) required to file, under the federal securities laws, periodic reports such as the annual (Form 10-K) and quarterly (Form 10-Q) reports with either the Securities and Exchange Commission or its primary federal bank regulator. A company may be required to do so by virtue of having securities registered under Section 12 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), which applies to all companies that are traded on an exchange or that have $10 million in assets and 500 shareholders of record or Section 15(d) of the Exchange Act which requires companies that have filed a registration statement under the Securities Act of 1933, as amended, and have 300 or more securityholders of record of the registered class to file reports required under Section 13 of the Exchange Act, e.g., periodic reports. |
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| | Senior to common stock and pari passu with existing preferred shares other than preferred shares which by their terms rank junior to any existing preferred shares. |
Regulatory Capital Status: | | |
| | The Preferred will pay cumulative dividends at a rate of 5% per annum until the fifth anniversary of the date of this investment and thereafter at a rate of 9% per annum. For Preferred issued by banks which are not subsidiaries of holding companies, the Preferred will pay non-cumulative dividends at a rate of 5% per annum until the fifth anniversary of the date of this investment and thereafter at a rate of 9% per annum. Dividends will be payable quarterly in arrears on February 15, May 15, August 15 and November 15 of each year. |
| | Preferred may not be redeemed for a period of three years from the date of this investment, except with the proceeds from a Qualified Equity Offering (as defined below), which results in aggregate gross proceeds to the QFI of not less than 25% of the issue price of the Preferred. After the third anniversary of the date of this investment, the Preferred may be redeemed, in whole or in part, at any time and from time to time, at the option of the QFI. All redemptions of the Preferred shall be at 100% of its issue price, plus (i) in the case of cumulative Preferred, any accrued and unpaid dividends and (ii) in the case of non-cumulative Preferred, accrued and unpaid dividends for the then current dividend period (regardless of whether any dividends are actually declared for such dividend period). All redemptions shall be subject to the approval of the QFI’s primary federal bank regulator. |
| | “Qualified Equity Offering” shall mean the sale by the QFI after the date of this investment of Tier 1 qualifying perpetual preferred stock or common stock for cash (other than any sales made pursuant to agreements or arrangements entered into, or pursuant to financing plans which were publicly announced, on or prior to November 17, 2008). |
Restrictions on Dividends: | | |
| | Subject to certain exceptions, for as long as any Preferred is outstanding, no dividends may be declared or paid on junior preferred shares, preferred shares ranking pari passu with the Preferred, or common shares (other than in the case of pari passu preferred shares, dividends on a pro rata basis with the Preferred), nor may the QFI repurchase or redeem any junior preferred shares, preferred shares ranking pari passu with the Preferred or common shares, unless (i) in the case of cumulative Preferred all accrued and unpaid dividends for all past dividend periods on the Preferred are fully paid or (ii) in the case of non-cumulative Preferred the full dividend for the latest completed dividend period has been declared and paid in full. |
| | The UST’s consent shall be required for any increase in common dividends per share until the third anniversary of the date of this investment. After the third anniversary and prior to the tenth anniversary, the UST’s consent shall be required for any increase in aggregate common dividends per share greater than 3% per annum; provided that no increase in common dividends may be made as a result of any dividend paid in common shares, any stock split or similar transaction. The restrictions in this paragraph no longer apply if the Preferred and Warrant Preferred are redeemed in whole or the UST has transferred all of the Preferred and Warrant Preferred to third parties. |
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| | The UST’s consent shall be required for any repurchases of equity securities or trust preferred securities (other than (i) repurchases of the Preferred and (ii) repurchases of junior preferred shares or common shares in connection with any benefit plan in the ordinary course of business consistent with past practice) until the tenth anniversary of the date of this investment unless prior to such tenth anniversary the Preferred and the Warrant Preferred are redeemed in whole or the UST has transferred all of the Preferred and the Warrant Preferred to third parties. In addition, there shall be no share repurchases of junior preferred shares, preferred shares ranking pari passu with the Preferred, or common shares if prohibited as described above under “Restrictions on Dividends”. |
Other Dividend and Repurchase Restrictions: | | |
| | From and after the tenth anniversary of the date of this investment, the QFI shall be prohibited from paying common dividends or repurchasing any equity securities or trust preferred securities until all equity securities held by the UST are redeemed in whole or the UST has transferred all of such equity securities to third parties. |
| | The Preferred shall be non-voting, other than class voting rights on (i) any authorization or issuance of shares ranking senior to the Preferred, (ii) any amendment to the rights of Preferred, or (iii) any merger, exchange or similar transaction which would adversely affect the rights of the Preferred. |
| | If dividends on the Preferred are not paid in full for six dividend periods, whether or not consecutive, the Preferred will have the right to elect 2 directors. The right to elect directors will end when full dividends have been paid for (i) all prior dividend periods in the case of cumulative Preferred or (ii) four consecutive dividend periods in the case of noncumulative Preferred. |
| | The Preferred will not be subject to any contractual restrictions on transfer or the restrictions of any stockholders’ agreement or similar arrangement that may be in effect among the QFI and its stockholders at the time of the Preferred investment or thereafter; provided that the UST and its transferees shall not effect any transfer of the Preferred which would require the QFI to become subject to the periodic reporting requirements of Section 13 or 15(d) of the Exchange Act. If the QFI otherwise becomes subject to such reporting requirements, the QFI will file a shelf registration statement covering the Preferred as promptly as practicable and, if necessary, shall take all action required to cause such shelf registration statement to be declared effective as soon as possible. In addition, the UST and its transferees shall have piggyback registration rights for the Preferred. Subject to the above, the QFI shall take all steps as may be reasonably requested to facilitate the transfer of the Preferred. |
| | As a condition to the closing of this investment, the QFI and its senior executive officers covered by the EESA shall modify or terminate all benefit plans, arrangements and agreements (including golden parachute agreements) to the extent necessary to be in compliance with, and following the closing and for so long as UST holds any equity or debt securities of the QFI, the QFI shall agree to be bound by, the executive compensation and corporate governance requirements of Section 111 of the EESA and any guidance or regulations issued by the Secretary of the Treasury on or prior to the date of this investment to carry out the provisions of such subsection. As an additional condition to closing, the QFI and its senior executive officers covered by the EESA shall grant to the UST a waiver |
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| | releasing the UST from any claims that the QFI and such senior executive officers may otherwise have as a result of the issuance of any regulations which modify the terms of benefits plans, arrangements and agreements to eliminate any provisions that would not be in compliance with the executive compensation and corporate governance requirements of Section 111 of the EESA and any guidance or regulations issued by the Secretary of the Treasury on or prior to the date of this investment to carry out the provisions of such subsection. |
Related Party Transactions: | | |
| | For as long as the UST holds any equity securities of the QFI, the QFI and its subsidiaries will not enter into transactions with related persons (within the meaning of Item 404 under the SEC’s Regulation S-K) unless (i) such transactions are on terms no less favorable to the QFI and its subsidiaries than could be obtained from an unaffiliated third party, and (ii) have been approved by the audit committee or comparable body of independent directors of the QFI. |
Summary of Warrant Terms
| | The UST will receive warrants to purchase, upon net settlement, a number of net shares of preferred stock of the QFI (the “Warrant Preferred”) having an aggregate liquidation preference equal to 5% of the Preferred amount on the date of investment. The initial exercise price for the warrants shall be $0.01 per share or such greater amount as the charter may require as the par value per share of Warrant Preferred. The UST intends to immediately exercise the warrants. |
| | Immediately exercisable, in whole or in part. |
| | The Warrant Preferred shall have the same rights, preferences, privileges, voting rights and other terms as the Preferred, except that (1) the Warrant Preferred will pay dividends at a rate of 9% per annum and (2) the Warrant Preferred may not be redeemed until all the Preferred has been redeemed. |
| | The warrants will not be subject to any contractual restrictions on transfer or the restrictions of any stockholders’ agreement or similar arrangement that may be in effect among the QFI and its stockholders at the time of this investment or thereafter; provided that the UST shall not effect any transfer of the warrants or underlying Warrant Preferred which would require the QFI to become subject to the periodic reporting requirements of Section 13 or 15(d) of the Exchange Act. |
| | If the QFI otherwise becomes subject to the periodic reporting requirements of Section 13 or 15(d) of the Exchange Act, the QFI will file a shelf registration statement covering the warrants and the Warrant Preferred underlying the warrants as promptly as practicable and, if necessary, shall take all action required to cause such shelf registration statement to be declared effective as soon as possible. In addition, the UST and its transferees shall have piggyback registration rights for the warrants and the Warrant Preferred underlying the warrants. Subject to the above, the QFI shall take all steps as may be reasonably requested to facilitate the transfer of the warrants or the Warrant Preferred. |
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REVOCABLE PROXY
FIRST RELIANCE BANCSHARES, INC.
SPECIAL MEETING OF SHAREHOLDERS
FEBRUARY 24, 2009
THIS PROXY IS SOLICITED ON BEHALF OFBY THE BOARD OF DIRECTORS
FOR THE ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD ON THURSDAY, JUNE 17, 2010
The undersigned hereby appoints Leonard A. Hoogenboom or F. R.F.R. Saunders, Jr., as proxies, each with the power to appoint his substitute, and hereby authorizes them or either of them to represent and to vote, as designated below, all of the common stockCommon Stock of First Reliance Bancshares, Inc. (the “Company”), which the undersigned would be entitled to vote if personally present at the SpecialAnnual Meeting of Shareholders (the “Special“Annual Meeting”) to be held at 4:00 p.m. on February 24, 2009June 17, 2010 at the First Reliance Bank – Learning Center, 2148 West Palmetto Street in Florence, South Carolina, and at any adjournments thereof, upon the proposalsproposal described in the accompanying Notice of the SpecialAnnual Meeting and the Proxy Statement relating to the SpecialAnnual Meeting, receipt of which are hereby acknowledged.
The Proxies will
THE BOARD OF DIRECTORS RECOMMENDS THAT YOU VOTE FOR THE PROPOSAL.
| Proposal 1: | To elect the three (3) persons listed below to serve as Class C Directors of the Company for a three-year term until the 2013 Annual Meeting of Shareholders and until their successors have been elected and qualified: |
Class C Director Nominees:
• A. Dale Porter • John M. Jebaily • C. Dale Lusk
| ¨ | FOR all nominees listed above | | ¨ | WITHHOLD authority to vote |
| (except as indicated below) | | for all nominees listed above |
INSTRUCTION: To cast a vote
as directed on this proxy, onopposing the
proposals set forth in the noticeelection of at least one but less than all of the
special meetingnominees listed above, mark “FOR” above, and
proxy statement. The Proxies are authorized to vote at their discretion as to any other business which may come properly beforewrite the
special meeting. If a vote is not specified, the Proxies will vote for approvalname of the
proposals.nominee(s) for whom you are casting an opposing vote in this space: ___________________________________.
| Proposal 2: | To consider and vote upon a nonbinding proposal to approve the overall executive compensation policies and procedures employed by the Company. |
This proxy when properly executed will be voted asin the manner directed but ifby the undersigned shareholder. If no direction to the contrary is indicated, it will be voted FOR Proposals 1 and 2.for the above proposals. Discretionary authority is hereby conferred as to all other matters as to which management does not have reasonable notice prior to the meeting and that properlymay come before the meeting.PLEASE COMPLETE, DATE, SIGN, AND MAIL THIS PROXY CARD PROMPTLYAnnual Meeting.
IN THE ENCLOSED POSTAGE-PAID ENVELOPE OR PROVIDE YOUR INSTRUCTIONSTO VOTE VIA THE INTERNET OR BY TELEPHONE.(Continued, and to be marked, dated and signed, on the other side)
FOLD AND DETACH HERE
FIRST RELIANCE BANCSHARES, INC. — SPECIAL MEETING, FEBRUARY 24, 2009
YOUR VOTE IS IMPORTANT!
You can vote in one of three ways:
| 1. | Calltoll free 1-866-395-9263 on a Touch-Tone Phone. There is NO CHARGE to you for this call. |
or
| 2. | Via the Internet athttps://www.proxyvotenow.com/fsrl and follow the instructions. |
or
| 3. | Mark, sign and date your proxy card and return it promptly in the enclosed envelope. |
PLEASE SEE REVERSE SIDE FOR VOTING INSTRUCTIONS
| | | | |
x
PLEASE MARK VOTES
AS IN THIS EXAMPLE
| | REVOCABLE PROXY
FIRST RELIANCE BANCSHARES, INC. | | Special Meeting of Shareholders
FEBRUARY 24, 2009 |
| PROPOSAL 1: | To amend the Articles of Incorporation to approve a proposed amendment to First Reliance Bancshares’s Articles of Incorporation authorizing a class of ten million (10,000,000) shares of preferred stock, no par value, as set forth in Appendix A to the Proxy Statement. |
| PROPOSAL 2: | To authorize management of First Reliance Bancshares to adjourn the Special Meeting to another time and date if such action is necessary to solicit additional proxies or attendance at the Special Meeting. |
THE BOARD OF DIRECTORS RECOMMENDS A VOTEFOR PROPOSAL 1 ANDFOR PROPOSAL 2.
Mark here if you plan to attend the meeting o
Mark here for address change and note change o
Please mark, sign and date this Proxy, and return it in the enclosed pre-addressed envelope. No postage is necessary. If stock is held in the name of more than one person, all persons must sign. Signatures should correspond exactly with the name or names appearing on the stock certificate(s). When signing as attorney, executor, administrator, trustee or guardian, please give full title as such. If a corporation, please sign in full corporate name by president or other authorized officer. If a partnership, please sign in partnership name by authorized person.
| | | | | | | | |
| | | Please be sure to date and sign
this proxy card in the box below. | | | |
Date: | | | | | | | | | |
| | | Signature(s) of Shareholder(s) | |
| [INSERT LABEL INFORMATION HERE] | | | | | |
| | | | | | | | Name(s) of Shareholders(s) | |
| | | | Sign above |
| | Date:______________________________________, 2010 | |
IF YOU WISH TO PROVIDE YOUR INSTRUCTIONS TO VOTE BY TELEPHONE OR
INTERNET, PLEASE READ THE INSTRUCTIONS BELOW
FOLD AND DETACH HERE IF YOU ARE VOTING BY MAIL
PROXY VOTING INSTRUCTIONS
Shareholders of record have three ways to vote:
| 2. | By Telephone (using a Touch-Tone Phone); or |
A telephone or Internet vote authorizes the named proxies to vote your shares in the same manner as if you marked, signed, dated and returned this proxy. Please note telephone and Internet votes must be cast prior to 3 a.m., February 24, 2009. It is not necessary to return this proxy if you vote by telephone or Internet.
| | | |
| | |
| | VotePlease mark, sign and date this Proxy, and return it in the enclosed pre-addressed envelope. No postage is necessary. If stock is held in the name of more than one person, all must sign. Signatures should correspond exactly with the name or names appearing on the stock certificate(s). When signing as attorney, executor, administrator, trustee or guardian, please give full title as such. If a corporation, please sign in full corporate name by Telephone
Call Toll-Free onpresident or other authorized officer. If a Touch-Tone Phone
anytime prior to
3 a.m., February 24, 2009:
1-866-395-9263 | | Votepartnership, please sign in partnership name by Internet
anytime prior to
3 a.m., February 24, 2009 go to
https://www.proxyvotenow.com/fsrlauthorized person. |
(Please note thatcheck the last vote received, whether by telephone, internet or by mail, will be the vote counted.
Your vote is important!
applicable box)I WILL o WILL NOT o BE ATTENDING THE ANNUAL SHAREHOLDERS MEETING.
PLEASE RETURN PROXY AS SOON AS POSSIBLE