SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the
Securities Exchange Act of 1934.
(Amendment No. )
Filed by the Registrant [x]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[ ] Preliminary Proxy Statement
[ ] Confidential, for Use of the Commission Only (as permitted by Rule
14a-6(e)(2)
[x] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Section 240.14a-12
FIRST SOUTH BANCORP, INC
(Name of Registrant as Specified In Its Charter)
(Name of Person(s) Filing Proxy Statement if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[x] No Fee Required.
[ ] $125 per Exchange Act Rules 0-11(e)(1)(ii), 14a-6(i)(1) or Item 22(a)(2)
of Schedule 14A.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
1) Title of each class of securities to which transaction applies:
2) Aggregate number of securities to which transaction applies:
3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11:
4) Proposed maximum aggregate value of transaction:
5) Total fee paid
[ ] Fee paid previously with preliminary materials
[ ] Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number, or
the Form or Schedule and the date of its filing.
1) Amount Previously Paid:
2) Form, Schedule or Registration Statement No.:
3) Filing Party:
4) Date Filed:
<Page>
FIRST SOUTH BANCORP, INC.
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
TO OUR SHAREHOLDERS:
NOTICE IS HEREBY GIVEN THAT the Annual Meeting of the Shareholders of First
South Bancorp, Inc. will be held at First South Bank, Spartanburg Office, 1450
John B. White Sr. Blvd., Spartanburg, South Carolina, on Wednesday, May 15,
2002, at 4:00 p.m., for the following purposes:
(1) To elect Richard H. Brooks, Herman E. Ratchford, and David G. White to
serve as directors of the corporation for a three-year term; or until
their successors are duly elected and qualified.
(2) To ratify the selection of Cherry, Bekaert & Holland, LLP as the
Company's independent auditors; and
(3) To act upon other such matters as may properly come before the meeting
or any adjournment thereof.
Only shareholders of record at the close of business on April 15, 2002,
are entitled to notice of and to vote at the meeting. In order that the meeting
can be held, and a maximum number of shares can be voted, whether or not you
plan to be present at the meeting in person, please fill in, date, sign and
promptly return the enclosed form of proxy. The Company's Board of Directors
unanimously recommends a vote FOR approval of all of the proposals presented.
Returning the signed proxy will not prevent a record owner of shares from
voting in person at the meeting.
Included herewith is the Company's 2002 Proxy Statement. Also included is
the Company's 2001 Annual Report to Shareholders.
By Order of the Board of Directors
April 15, 2002 V. Lewis Shuler
Secretary
<Page>
FIRST SOUTH BANCORP, INC.
1450 John B. White Sr. Blvd.
Spartanburg, South Carolina 29306
(864) 595-0455
PROXY STATEMENT
This proxy statement is furnished in connection with the solicitation of
proxies by the Board of Directors of First South Bancorp, Inc. (the "Company")
for use at the Annual Meeting of Shareholders to be held at 4:00 p.m. on
Wednesday, May 15, 2002 in First South Bank's Spartanburg Office, 1450 John B.
White Sr. Blvd., Spartanburg, South Carolina. A Notice of Annual Meeting is
attached hereto, and a form of proxy is enclosed. This statement was first
mailed to shareholders on or about April 15, 2002, in connection with the
solicitation. The cost of this solicitation is being paid by the Company. The
only method of solicitation to be employed, other than use of the proxy
statement, is personal telephone contact by directors and regular employees of
the Company.
ANNUAL REPORT
The Annual Report to Shareholders covering the Company's fiscal year ended
December 31, 2001, including financial statements, is enclosed herewith. Such
Annual Report to Shareholders does not form any part of the material for the
solicitation of proxies.
REVOCATION OF PROXY
Any record shareholder who executes and delivers a proxy has the right to
revoke it at any time before it is voted. The proxy may be revoked by a record
shareholder by delivering to Barry L. Slider, President, First South Bancorp,
Inc., 1450 John B. White Sr. Blvd., Spartanburg, South Carolina 29306 or by
mailing to Mr. Slider at Post Office Box 1928, Spartanburg, South Carolina
29304, an instrument which by its terms revokes the proxy. The proxy may also be
revoked by a record shareholder by delivery to the Company of a duly executed
proxy bearing a later date. Written notice of revocation of a proxy or delivery
of a later dated proxy will be effective upon receipt thereof by the Company.
Attendance at the Annual Meeting will not in itself constitute revocation of a
proxy. However, any shareholder who desires to do so may attend the meeting and
vote in person in which case the proxy will not be used.
QUORUM AND VOTING
At the close of business on April 15, 2002, there were outstanding 920,780
shares of the Company's common stock (no par value). Each share outstanding will
be entitled to one vote upon each matter submitted at the meeting. Only
stockholders of record at the close of business on April 15, 2002 (the "Record
Date"), shall be entitled to notice of and to vote at the meeting.
A majority of the shares entitled to be voted at the annual meeting
constitutes a quorum. If a share is represented for any purpose at the annual
meeting by the presence of the registered owner or a person holding a valid
proxy for the registered owner, it is deemed to be present for purposes of
establishing a quorum. Therefore, valid proxies which are marked "Abstain" or
"Withhold" and shares that are not voted, including proxies submitted by brokers
that are the record owners of shares (so-called "broker non-votes"), will be
included in determining the number of votes present or represented at the annual
meeting. If a quorum is not present or represented at the meeting, the
shareholders entitled to vote, present in person or represented by proxy, have
the power to adjourn the meeting from time to time. If the meeting is to be
reconvened within thirty days, no notice of the reconvened meeting will be given
other than an announcement at the adjourned meeting. If the meeting is to be
adjourned for thirty days or more, notice of the reconvened meeting will be
given as provided in the Bylaws. At any reconvened meeting at which a quorum is
present or represented, any business may be transacted that might have been
transacted at the meeting as originally noticed.
If a quorum is present at the Annual Meeting, directors will be elected by
a plurality of the votes cast by shares present and entitled to vote at the
annual meeting. Cumulative voting is not permitted. Votes that are withheld or
that are not voted in the election of directors will have no effect on the
outcome of election of directors. If a quorum is present all other matters that
may be considered and acted upon at the Annual Meeting will be approved if the
number of shares of Common Stock voted in favor of the matter exceed the number
of shares of Common Stock voted against the matter.
<Page>
ACTIONS TO BE TAKEN BY THE PROXIES
The persons named as proxies were selected by the Board of Directors of
the Company. When the form of proxy enclosed is properly executed and returned,
the shares that it represents will be voted at the meeting. Each proxy, unless
the shareholder otherwise specifies therein, will be voted "FOR" the election of
the persons named in this Proxy Statement as the Board of Directors' nominees
for election to the Board of Directors, and for ratification of Cherry, Bekaert
& Holland, L.L.P., as independent auditors for the year ended December 31, 2002.
In each case where the shareholder has appropriately specified how the proxy is
to be voted, it will be voted in accordance with his specifications. As to any
other matter of business which may be brought before the Annual Meeting, a vote
may be cast pursuant to the accompanying proxy in accordance with the best
judgment of the persons voting the same, but the Board of Directors does not
know of any such other business.
SHAREHOLDER PROPOSALS
Any shareholder who wishes to submit proposals for the consideration of
the shareholders at the next Annual Meeting may do so by mailing them in writing
to Barry L. Slider, President, First South Bancorp, Inc., Post Office Box 1928,
Spartanburg, South Carolina 29304, or by delivering them in writing to Mr.
Slider at the Company's main office, 1450 John B. White Sr. Blvd., Spartanburg,
South Carolina 29306. Such written proposals must be received prior to December
15, 2002, for inclusion, if otherwise appropriate, in the Company's Proxy
Statement and form of Proxy relating to that meeting. With respect to any
shareholder proposal not received by the Company prior to March 1, 2003, proxies
solicited by management of the Company will be voted on the proposal in the
discretion of the designated proxy agents.
SECURITY OWNERSHIP OF CERTAIN
BENEFICIAL OWNERS AND MANAGEMENT
The number of shares owned and the percentage of outstanding common stock
such number represents at March 1, 2002, for all directors and executive
officers of the Company and for all persons who are currently beneficial owners
of 5% or more of the Company's common stock is set forth below.
<Table>
<Caption>
Name (and Address of 5% Owners) Number of Shares % of Outstanding
Beneficially Owned Common Stock
- ------------------------------------------- -------------------------------- -------------------------------
Richard H. Brooks 47,080 5.11
900 Sawpit Trace
Woodruff, SC
Harold E. Fleming, M.D. (1) 11,943 1.30
Joel C. Griffin 11,398 1.24
Roger A. F. Habisreutinger (2) 75,189 8.17
408 Main Street
Spartanburg, SC
Ashley F. Houser (7) 9,950 1.08
Herman E. Ratchford 89,547 9.73
3808 Edgewater Drive
Gastonia, NC
Chandrakant V. Shanbhag (3) 47,205 5.13
1614 Holly Berry Lane
Spartanburg, SC
V. Lewis Shuler (4) 16,806 1.83
Barry L. Slider (5) 41,032 4.46
David G. White (6) 26,064 2.83
------- -----
All directors and executive
officers as a group (10 persons) 376,214 40.86
- --------------------
</Table>
2
<Page>
(1) Includes 100 shares owned by a family member of Dr. Fleming as to which he
disclaims beneficial ownership.
(2) Includes 29,900 shares owned jointly with his wife; 6,000 shares owned by a
partnership in which he is a partner; 5,000 shares owned by his wife;
18,000 shares owned by three children and 3,600 owned by a trust as to
which Mr. Habisreutinger disclaims beneficial ownership.
(3) Includes 30,000 shares owned jointly with his wife and 200 shares owned by
minor children.
(4) Includes 1,000 shares owned jointly with a family member; and 10,806 shares
subject to presently exercisable options. (5) Includes 5,000 shares owned
jointly with his wife; 200 shares owned by minor children; 5,400 shares
owned by his wife as to which Mr. Slider disclaims beneficial ownership;
and 20,722 shares subject to presently exercisable options.
(6) Includes 500 shares owned by minor children and 600 shares owned by his
wife as to which Mr. White disclaims beneficial ownership.
(7) Includes 6,463 shares subject to presently exercisable options. Except as
otherwise indicated, to the knowledge of management, all shares are owned
directly with sole voting power.
ELECTION OF DIRECTORS
At the Annual Meeting, three directors are to be elected to hold office
for a term of three years, their term expiring at the 2005 Annual Meetings of
Shareholders, or until their successors are duly elected and qualified. The
Board has nominated Richard H. Brooks, Herman E. Ratchford, and David G. White
for election to such positions. Any other nominations must be made in writing
and given to the Secretary of the Company in accordance with the procedures set
forth below under "--Committees of the Board of Directors."
It is the intention of the persons named in the enclosed form of proxy
to vote for the election as directors of Messrs. Brooks, Ratchford, and White.
Unless a contrary specification is indicated, the enclosed form of proxy will be
voted FOR such nominees. In the event that any such nominee is not available by
reason of any unforeseen contingency, it is intended that the persons acting
under the proxy will vote for the election, in his stead, of such other person
as the Board of Directors of the Company may recommend. The Board of Directors
has no reason to believe that any of the nominees will be unable or unwilling to
serve if elected.
MANAGEMENT OF THE COMPANY
The table shows, as to each director, his name, age, positions held
with the Company and principal occupation for the past five years and the period
during which he has served as a director of the Company. Directors of the
Company serve until the annual meeting for the year indicated or until their
successors are elected and qualified. Each of the persons listed in the table is
a Board of Directors' nominee for election as a director of the Company.
3
<Page>
<Table>
<Caption>
NAME AGE PRINCIPAL OCCUPATION DIRECTOR SINCE*
- ---- --- -------------------- ---------------
Nominees for the Board of Directors whose terms of office will continue
until the Annual Meeting of Shareholders of the Company in 2005 are:
Richard H. Brooks 60 President, Dick Brooks, Inc. (Automobile sales) 1996
Herman E. Ratchford 69 Chairman and Chief Executive Officer, Triangle 1998
Real Estate of Gastonia (construction)
David G. White 46 Attorney 1996
<Caption>
Members for the Board of Directors whose terms of office will continue
until the Annual Meeting of Shareholders of the Company in 2004 are:
Harold E. Fleming 61 Physician, Cardio Medical Associates 1996
Joel C. Griffin 48 President, Griffin Gear, Inc. (specialized gear 1996
Manufacturing)
Barry L. Slider 49 President & Chief Executive Officer of the 1996
company and First South Bank (since 1996),
Senior Vice President, Branch Banking & Trust
Company, Spartanburg, S.C. (1985-1995)
<Caption>
Members for the Board of Directors whose term of office will continue
until the Annual Meeting of Shareholders of the Company in 2003 are:
Roger A. F. Habisreutinger 60 Chairman of the Board of the Company and First 1996
South Bank; President, Champion Investment Corp.
Chandrakant V. Shanbhag 52 Chief Executive Officer, D.C. Motors & Control, 1996
Inc.
Ashley F. Houser 47 Regional Executive - Columbia, First South Bank 1999
since 1999; Executive Vice President First
Gaston Bank, Gastonia, North Carolina,
1995-1999; Senior Vice President BB&T
1983-1995.
</Table>
- -------------------------
*Includes membership on the Board of Directors of First South Bank prior to
organization of the Company as a holding company for First South Bank in 1999.
Each person also currently serves as a director of First South Bank.
Neither the principal executive officers nor any director nominees are
related by blood, marriage or adoption in the degree of first cousin or closer.
4
<Page>
Executive Officers
Set forth below is information about the business background, age and
positions with the Company of each executive officer of the Company.
Barry L. Slider President and Chief Executive Officer
V. Lewis Shuler Executive Vice President and Chief Financial Officer
The age and business experience of Mr. Slider are set forth above under
"-Directors." Mr. Shuler (age 58) served as Senior Vice President/Treasurer of
First Community Bank from 1987 to 1996 prior to becoming Executive Vice
President and Chief Financial Officer of First South Bank and the Company in
1996.
Neither the principal executive officers nor any directors are related
by blood, marriage or adoption in the degree of first cousin or closer.
Meetings of the Board of Directors
During the last full fiscal year, ending December 31, 2001, the Board
of Directors of the Company met 12 times (includes meetings of First South Bank
Board of Directors). All directors met a minimum of 75% of the total number of
meetings of the Board of Directors and committees of which he was a member.
Committees of the Board of Directors
Nominating Committee. The Board of Directors acts as nominating committee, but
any shareholder of any outstanding class of capital stock of the Company
entitled to vote for the election of Directors may also present nominations for
directors. Nominations, other than those made by or on behalf of the existing
management of the Company, may be made only by a shareholder entitled to vote at
the meeting at which directors are to be elected and must be made in writing and
delivered or mailed to the Secretary of the Company, not less than 60 days prior
to any meeting of Shareholders called for the election of Directors.
Audit Committee. The Audit committee provides general oversight of financial
reporting and the adequacy of the internal controls of the Company. The Audit
Committee functions by meeting with the independent auditors and by contact with
members of management concerned with financial and control functions. The Audit
Committee is comprised of Messrs. Joel C. Griffin, Richard H. Brooks and Harold
E. Fleming. The Audit Committee met twice in 2001. Each member of the audit
committee is independent as defined in Rule 4200(a)(14) of the National
Association of Securities Dealers listing standards, as modified or
supplemented.
Compensation Committee. The Compensation Committee reviews the compensation
policies of the Company and recommends to the Board the compensation levels and
compensation programs for the executive officers of the Company. Members of the
Compensation Committee are Messrs. White (Chairman), Habisreutinger, Shanbhag,
and Ratchford. The Compensation Committee met once during 2001.
MANAGEMENT COMPENSATION
Executive Officer Compensation
The following table sets forth the remuneration paid during the years
ended December 31, 2001, 2000 and 1999 to the Chief Executive Officer and to
each other officer whose total salary and bonus compensation in 2001 exceeded
$100,000.
5
<Page>
SUMMARY COMPENSATION TABLE
<Table>
<Caption>
Number of
Securities
Annual Compensation(1) Underlying
---------------------- Options All Other
Name and Principal Position Year Salary Bonus Awarded Compensation(2)
- --------------------------- ---- ------ ----- ------- ---------------
Barry L. Slider 2001 $139,800 $39,044 3,000 $8,388
President and Chief 2000 133,200 30,456 3,165 8,835
Executive Officer 1999 126,900 20,916 2,687 7,433
V. Lewis Shuler 2001 101,400 19,786 1,600 6,084
Executive Vice President 2000 94,500 14,400 1,572 5,198
1999 91,332 11,058 1,271 4,101
Frederick D. Gibbs 2001 99,000 17,690 1,750 5,940
President, First South 2000 90,720 13,824 1,405 5,033
Financial Services 1999 86,400 10,024 1,220 5,104
Ashley F. Houser 2001 120,900 17,690 2,350 7,254
Regional President, Columbia 2000 116,750 0 2,315 3,510
1999 71,155 15,000 0
Brian R. Samson 2001 89,167 16,660 1,200 4,512
Regional Commercial Banking Mgr.
</Table>
- ---------------------
(1) Perquisites and personal benefits did not exceed the lesser of $50,000 or
10% of Mr. Slider's or Mr. Shuler's salary plus bonus payments.
(2) Includes contributions by the Company to the Bank's 401(k) Plan on behalf
of Mr. Slider in the amount of $8,388 in fiscal year 2001; contributions to
the 401(k) in the amount of $6,084 for the fiscal year 2001 on behalf of
Mr. Shuler; contributions to the 401(k) in the amount of $5,940 for the
fiscal year 2001 on behalf of Mr. Gibbs; contributions to the 401(k) in the
amount of $7,254 for the fiscal year 2001 on behalf of Mr. Houser; and
contributions to the 401(k) in the amount of $4,512 for the fiscal year
2001 on behalf of Mr. Samson.
RETIREMENT BENEFITS
The Company has entered into Salary Continuation Agreements with each
of Barry L. Slider, the Chief Executive Officer, and V. Lewis Shuler, the
Executive Vice President and Secretary. The agreements provide for payments of
benefits to each of Messrs. Slider and Shuler commencing at their retirements at
age 65 or earlier in the event of death or disability. The agreement with Mr.
Slider provides for payment of an annual benefit of $45,230 increased by 2% each
year between 1999 and Mr. Slider's retirement date. The benefit is payable in
monthly installments beginning in the month after Mr. Slider's retirement and
continuing for 215 additional months.
The agreement with Mr. Shuler provides for payment of an annual benefit
of $20,484 increased by 2% each year between 1999 and Mr. Shuler's retirement
date. The benefit is payable in monthly installments beginning in the month
after Mr. Shuler's retirement and continuing for 215 additional months.
In the event either employee's employment with the Company is
terminated prior to his retirement for any reason other than good cause, death
or disability, each agreement provides that a retirement benefit will be paid
beginning at normal retirement age based on the amount stated above increased by
2% per year for the actual years such employee worked after 1999.
In the event either employee's employment with the Company is
terminated prior to the employee's retirement age due to disability, the
employee will receive an annual benefit of between $1,118 and $64,600, in the
case of Mr. Slider or between $1,657 and $24,000, in the case of Mr. Shuler,
based on the length of the employee's service from 1999 to the date of
termination of employment. Disability benefits will be paid monthly for 216
months.
In the event that the employee dies while in the employ of the Company,
his agreement provides that the employee's beneficiary shall receive an amount
6
<Page>
between $11,030 and $637,097, in the case of Mr. Slider, and between $16,338 and
$236,697, in the case of Mr. Shuler.
These benefits were funded in 1999 through the purchase of universal
life insurance policies on the lives of Messrs. Slider and Shuler which are
reflected in the Company's balance sheet as other assets. Although the Company
plans to use these policies to fund its obligations under the agreements, its
obligations are independent of the policies.
STOCK OPTION PLAN
On April 17, 1996, the Board of Directors of First South Bank (the
"Bank") adopted the Stock Option Plan, which reserves 75,000 shares of Common
Stock for issuance pursuant to the exercise of options which may be granted
pursuant to the Stock Option Plan. The Stock Option Plan was approved by
shareholders of the Bank at the 1997 Annual Meeting of Shareholders. Options
under the Stock Option Plan may be either "incentive stock options" within the
meaning of the Internal Revenue Code, or nonqualified stock options and may be
granted to persons who are employees of the Bank or any subsidiary (including
officers and directors who are employees) at the time of grant or, in the case
of nonqualified options, to persons who are not employees, such as directors.
Incentive stock options must have an exercise price not less than the fair
market value of the Common Stock at the date of grant, as determined by a
committee of the Board of Directors consisting of at least three non-employee
directors (the "Committee"). Other options shall have the exercise price set by
the Committee. The Committee may set other terms for the exercise of the options
but may not grant more than $100,000 of incentive stock options (based on the
fair market value of the optioned shares on the date of the grant of the option)
which first become exercisable in any calendar year. Payment for optioned shares
may be in cash, Common Stock or a combination of the two. The Committee also
selects the employees to receive grants under the Stock Option Plan and
determines the number of shares covered by options granted under the Stock
Option Plan. No options may be exercised after ten years from the date of grant
and options may not be transferred except by will or the laws of descent and
distribution. Incentive stock options may be exercised only while the optionee
is an employee of the Bank, within three months after the date of termination of
employment, within twelve months of disability, or within two years of death.
The terms and conditions of other options relating to termination of employment,
death or disability will be determined by the Committee. The Stock Option Plan
will terminate on April 16, 2006, and no options will be granted thereunder
after that date. Neither the Bank nor the recipient of incentive stock options
will have federal income tax consequences from the issuance or exercise of the
options. Recipients of nonqualified options will recognize, as ordinary income,
the difference between the fair market value of the optioned shares on the date
of exercise and the exercise price for federal income tax purposes and the Bank
will be able to expense a like amount. Upon acquisition of the Bank by the
Company in 1999, the Stock Option Plan and the outstanding options became the
Plan and Options of the Company.
OPTION GRANTS IN LAST FISCAL YEAR
The following table presents information about options held by the
persons named in the Summary Compensation Table at December 31, 2001. No options
were exercised by Mr. Slider or Mr. Shuler during the year ended December 31,
2001.
7
<Page>
<Table>
<Caption>
Individual Grants
-----------------
Number of % of Total
Securities Options
Underlying Granted to Exercise
Options Employees Price Expiration
Name Granted(1) in 2000 (per share) Date
---- ---------- ------- ----------- ----
Barry L. Slider 3,000 3.17% $21.00 12/31/11
V. Lewis Shuler 1,600 1.69% $21.00 12/31/11
Frederick D. Gibbs 1,750 1.85% $21.00 12/31/11
Ashley F. Houser 2,350 2.49% $21.00 12/31/11
Brian R. 1,200 1.27% $21.00 12/31/11
Samson
</Table>
(1) Such options become exercisable in 20% increments on each of December 31,
2002, 2003, 2004, 2005 and 2006.
OPTION EXERCISES AND YEAR END OPTIONS OUTSTANDING AND VALUES
<Table>
<Caption>
Number of Securities Value of Unexercised
Underlying Unexercised In-the-Money
Shares Acquired Value Options 12/31/01 Options 12/31/01 (1)
Name on Exercise Realized Exercisable Unexercisable Exercisable Unexercisable
- ---- --------------- -------- ----------- ------------- ----------- -------------
Barry L. Slider 0 0 20,722 8,495 $254,847 156,146
V. Lewis Shuler 0 0 10,806 4,266 133,597 78,284
Frederick D. Gibbs 0 0 5,391 4,240 72,360 78,929
Ashley F. Houser 0 0 6,463 13,202 110,160 234,992
Brian R. Samson 0 0 1,283 5,335 21,988 96,204
</Table>
- ---------------
(1) Based on exercise prices ranging from $11.00 to $21.00 and assuming that
the fair market value of the Bank's common stock on December 31, 2001 was
$21.00 per share.
Compensation of Directors
Directors receive compensation of $400 for each monthly meeting of the
Board of Directors attended. In addition to each monthly meeting the Directors
received $150 for each committee meeting attended. Directors receive such
compensation in the form of common stock of the Company using the estimated fair
market value of the stock at the end of each calendar quarter. In 2001, the
directors received 2,445 shares of stock in lieu of cash director's fees.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Extensions of Credit. The Company, in the ordinary course of its
business, makes loans to and has other transactions with directors, officers,
principal shareholders, and their associates. Loans are made on substantially
the same terms, including rates and collateral, as those prevailing at the time
for comparable transactions with other persons and do not involve more than the
normal risk of collectibility or present other unfavorable features. The Company
expects to continue to enter into transactions in the ordinary course of
business on similar terms with directors, officers, principal stockholders, and
their associates. The aggregate dollar amount of such loans outstanding at
December 31, 2001 was $6,189,851. During 2001, $4,454,255 in new loans were made
and repayments totaled $3,516,88.
The Company has obtained legal services from the Law Office of David G.
White in the past and expects to do so in the future. David G. White is a
director of the Company.
8
<Page>
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
As required by Section 16(a) of the Securities Exchange Act of 1934,
the Company's directors, its executive officers and certain individuals are
required to report periodically their ownership of the Company's Common Stock
and any changes in ownership to the Securities and Exchange Commission. Based on
a review of Section 16(a) reports available to the Company, it appears that all
such reports for these persons were filed in a timely fashion during 2001, with
the exception of the following: the Company failed to timely file reports on
Form 4 relating to the grant of stock in lieu of directors' fees for each of
Messrs. Fleming, Griffin, Slider, Brooks, Ratchford, White, Habisreutinger,
Houser and Shanbhag.
RATIFICATION OF INDEPENDENT AUDITORS
The Board has selected Cherry, Bekaert & Holland, L.L.P., Certified
Public Accountants with offices in Spartanburg, South Carolina, to serve as the
Company's independent auditors for 2002. It is expected that representatives
from this firm will be present and available to answer appropriate questions at
the annual meeting, and will have the opportunity to make a statement if they
desire to do so.
The Board recommends that you vote FOR the ratification of the
selection of Cherry, Bekaert & Holland, L.L.P., as the Company's independent
auditors.
Audit Fees
During the year ended December 31, 2001, Cherry, Bekaert & Holland,
L.L.P. billed the Company an aggregate of $23,000.00 for professional services
rendered for the audit of the Company's annual financial statements for the year
ended December 31, 2001 and reviews of the financial statements included in the
Company's Forms 10-QSB for that year. The Company expects to pay an additional
$700 in fees for such services provided in 2001.
Financial Information Systems Design and Implementation Fees
During the year ended December 31, 2001, Cherry, Bekaert & Holland,
L.L.P., did not provide financial information systems design and implementation
services to the Company.
All Other Fees
During the year ended December 31, 2001, Cherry, Bekaert & Holland,
L.L.P. billed the Company an aggregate of $2,820.00 for the following
professional services provided during 2001: income tax consultation and
preparation. The Company estimates that Cherry, Bekaert & Holland, L.L.P. will
not bill an additional amount during 2002 for such services provided in 2001.
The Audit Committee considered whether the provision of these services was
compatible with maintaining Cherry, Bekaert & Holland's independence.
AUDIT COMMITTEE REPORT
The Audit Committee of the Board of Directors has reviewed and
discussed with management the Company's audited financial statements for the
year ended December 31, 2001. The Audit Committee has discussed with the
Company's independent auditors, Cherry, Bekaert, & Holland, L.L.P., the matters
required to be discussed by SAS 61, as modified or supplemented. The Audit
Committee has also received the written disclosures and the letter from Cherry,
Bekaert, & Holland, L.L.P., required by Independence Standards Board Standard
No. 1, as modified or supplemented, and has discussed with Cherry, Bekaert &
Holland, L.L.P., their independence. Based on the review and discussion referred
to above, the Audit Committee recommended to the Board of Directors that the
audited financial statements be included in the Company's Annual Report on Form
10-KSB for the year ended December 31, 2001.
Harold E. Fleming, Chairman Joel C. Griffin Richard H. Brooks
9
<Page>
OTHER MATTERS
The Board of Directors knows of no other business to be presented at
the meeting of stockholders. If matters other than those described herein should
properly come before the meeting, it is the intention of the persons named in
the enclosed form of proxy to vote at such meeting in accordance with their best
judgment on such matters. If a shareholder specifies a different choice on the
Proxy, his or her shares will be voted in accordance with the specifications so
made.
Unless contrary instructions are indicated on the Proxy, all shares of
stock represented by valid proxies received pursuant to this solicitation, and
not revoked before they are voted, will be voted FOR the election of any or all
of the nominees for directors named herein; FOR amendment of the Stock Option
Plan; and FOR ratification of Cherry, Bekaert & Holland, L.L.P., as independent
auditors.
AVAILABILITY OF ANNUAL REPORT ON FORM 10-KSB
Shareholders may obtain copies of the Company's annual report on Form
10-KSB required to be filed with the Securities and Exchange Commission for the
year ended December 31, 2001, free of charge by requesting such form in writing
from Barry L. Slider, President, First South Bank, Post Office Box 1928,
Spartanburg, South Carolina 29304.
10
<Page>
FIRST SOUTH BANK
AUDIT COMMITTEE CHARTER
I. PURPOSE
The primary function of the Audit Committee is to assist the Board of
Directors in fulfilling its oversight responsibilities by reviewing: the
financial reports and other financial information provided by the Corporation to
any governmental body or the public, the Corporation's systems of internal
controls regarding finance, accounting, legal compliance and ethics that
management and the Board have established; and the Corporation's auditing,
accounting, and financial reporting processes generally. The Audit Committee's
primary general purpose duties and responsibilities are to:
* Serve as an independent and objective party to monitor the
Corporation's financial reporting process and internal control
system.
* Review and appraise the audit efforts of the Corporation's
independent accountants and internal audit functions.
* Provide an open avenue of communication among the internal
auditors, the independent accountants, and the Board of
Directors.
The Audit Committee will primarily fulfill these duties and responsibilities by
carrying out the activities enumerated in Section IV of this Charter.
II. COMPOSITION
The Audit Committee shall be comprised of three or more directors as
determined by the Board, each of whom shall be independent directors and free
from any relationship that, in the opinion of the Board, would interfere with
the exercise of his independent judgment as a member of the Committee. All
members of the Committee shall have a working familiarity with basic finance and
accounting practices, and at least one member of the Committee shall have
accounting or related financial management experience.
The members of the Committee shall be elected by the Board for a membership term
to be determined by the Board. Unless a Chair is elected by the full Board, the
members of the Committee may designate a Chair by a majority vote of the full
Committee membership.
III. MEETINGS
The Committee shall meet at least twice annually, or more frequently as
circumstances dictate. The Committee should meet at least annually with the
independent accountants and be available on an "on-call" basis to meet with
internal audit representatives to discuss any matter which representatives of
either of these groups deems necessary.
IV. RESPONSIBILITIES AND DUTIES
The Audit Committee shall have the following specific powers and
duties:
1. Reviewing the performance of the independent accountants and making
recommendations to the Board of Directors regarding the appointment or
termination of the independent accountants;
11
<Page>
2. Reviewing and approving the independent accountant's annual
engagement letter and the internal auditor's annual audit plan;
3. Conferring with the independent accountants and the internal
auditors concerning the scope of their examinations of the records of
the Corporation and its subsidiaries, if applicable; directing the
special attention of the auditors to specific matters or areas deemed
by the Committee or the auditors to be of special significance; and
authorizing the auditors to perform such supplemental reviews or audits
as the Committee may deem desirable;
4. Reviewing with management the significant findings of both the
independent accountants and internal auditors relative to risks and
exposures;
5. Reviewing the Corporation's audited financial statements and the
independent accountant's opinion rendered with respect to such
financial statements, including the nature and extent of any
significant changes in accounting principles;
6. Reviewing the adequacy of the Corporation's system of internal
controls;
7. Providing an independent, direct communication between the Board of
Directors, internal auditors and independent accountants;
8. Reviewing the programs and policies of the Corporation designed to
ensure compliance with applicable laws and regulations, and monitoring
the results of these compliance efforts;
9. Reporting through the committee chairman to the Board of Directors
matters addressed in the meetings of the Audit Committee;
10. Maintaining minutes or other records of meetings and activities of
the Audit Committee;
11. Considering such other matters in relation to the financial affairs
of the Corporation and its accounts, and in relation to the internal
and external audit of the Corporation as the Audit Committee may, at
its discretion, determine to be advisable.
12
<Page>
PROXY
FIRST SOUTH BANCORP, INC.
PROXY SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
FOR ANNUAL MEETING OF SHAREHOLDERS - WEDNESDAY, MAY 15, 2002
Barry L. Slider or V. Lewis Shuler, or either of them, with full power
of substitution, are hereby appointed as agent(s) of the undersigned to vote as
proxies for the undersigned at the Annual Meeting of Shareholders to be held on
May 15, 2002, and at any adjournment thereof, as follows:
1. ELECTION OF FOR all nominees listed WITHHOLD AUTHORITY
DIRECTORS TO below (except any I have to vote for all
HOLD OFFICE written below) [ ] nominees listed
FOR THE TERM below [ ]
SHOWN.
Three-Year Term: Richard H. Brooks, Herman E. Ratchford, David G. White
- --------------------------------------------------------------------------------
INSTRUCTIONS: TO WITHHOLD AUTHORITY TO VOTE FOR ANY INDIVIDUAL(S) WRITE THE
NOMINEE'S(S') NAME(S) ON THE LINE BELOW.
2. To ratify the selection of Cherry, Bekaert & Holland, LLP as the
Company's independent auditors.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
3. And, in the discretion of said agents, upon such other business as may
properly come before the meeting, and matters incidental to the conduct
of the meeting. (Management at present knows of no other business to be
brought before the meeting.)
THE PROXIES WILL BE VOTED AS INSTRUCTED. IF NO CHOICE IS INDICATED WITH RESPECT
TO A MATTER WHERE A CHOICE IS PROVIDED, THIS PROXY WILL BE VOTED "FOR" SUCH
MATTER.
Please sign exactly as name appears on this form. When signing as attorney,
executor, administrator, trustee, or guardian, please give full title. If more
than one trustee, all should sign. All joint owners must sign.
Dated: , 2002 ---------------------------------------
-------------
---------------------------------------
13