SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(A) OF THE SECURITIES EXCHANGE ACT OF 1934
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 240.14a-11(c) or 240.14a-12
SOUTHFIRST BANCSHARES, INC.
Name of Registrant as Specified in Its Charter
N/A
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and
0-11.
(1) Title of each class of securities to which transaction
applies:
(2) Aggregate number of securities to which transaction applies:
(3) Per unit price or other underlying value of transaction
computed pursuant to Exchange Act Rule 0-11 (set forth the
amount on which the filing fee is calculated and state how it
was determined):
(4) Proposed maximum aggregate value of transaction:
(5) Total fee paid:
[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange
Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee was
paid previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
1. Amount Previously Paid:
2. Form, Schedule or Registration Statement No.:
3. Filing Party:
4. Date Filed:
SOUTHFIRST BANCSHARES, INC.
March 11, 2002
Dear Stockholder:
You are cordially invited to attend the Annual Meeting of Stockholders
of SouthFirst Bancshares, Inc. ("SouthFirst"), which will be held on Wednesday,
April 17, 2002, at 10:00 a.m., at SouthFirst's main office, 126 North Norton
Avenue, Sylacauga, Alabama 35150.
The formal notice of the meeting and the proxy statement appear on the
following pages and describe the matters to be acted upon. Time will be provided
during the meeting for discussion, and you will have an opportunity to ask about
your Company.
Whether or not you plan to attend the meeting in person, it is
important that your shares be represented and voted. After reading the enclosed
notice of the meeting and proxy statement, please complete, sign, date and
return the enclosed proxy at your earliest convenience. Returning the signed
proxy card will not prevent you from voting in person at the meeting, should you
later decide to do so.
Sincerely,
/s/ Joe K. McArthur
Joe K. McArthur
Chief Executive Officer
SOUTHFIRST BANCSHARES, INC.
126 NORTH NORTON AVENUE
SYLACAUGA, ALABAMA 35150
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD APRIL 17, 2002
To the Holders of Common Stock of SOUTHFIRST BANCSHARES, INC.:
Notice is hereby given that the Annual Meeting of Stockholders (the
"Annual Meeting") of SouthFirst Bancshares, Inc. ("SouthFirst") will be held on
Wednesday, April 17, 2002, at 10:00 a.m., at SouthFirst's principal executive
offices, 126 North Norton Avenue, Sylacauga, Alabama 35150, for the following
purposes:
(1) To elect three directors to hold office until the 2005 Annual
Meeting and until their successors are elected and qualified;
and
(2) To transact such other business as may properly come before
the Annual Meeting or any adjournment thereof.
The Board of Directors has fixed March 1, 2002, as the record date for
the determination of stockholders entitled to vote at the Annual Meeting. Only
stockholders of record at the close of business on that date will be entitled to
notice of, and to vote at, the Annual Meeting or any adjournment thereof.
A Proxy Statement and a proxy solicited by the Board of Directors,
together with a copy of the 2001 Annual Report to Stockholders are enclosed
herewith. Stockholders are cordially invited to attend the Annual Meeting.
Whether or not you expect to attend the Annual Meeting in person, you are
requested to complete, sign and date the enclosed proxy and return it as
promptly as possible in the accompanying envelope. If you attend the Annual
Meeting, you may, if you wish, withdraw your proxy and vote in person.
By Order of the Board of Directors
/s/ Sandra H. Stephens
Sandra H. Stephens
Secretary
Sylacauga, Alabama
March 11, 2002
YOUR VOTE IS IMPORTANT. WHETHER OR NOT YOU PLAN TO ATTEND THE ANNUAL MEETING IN
PERSON, YOU ARE URGED TO COMPLETE, SIGN, DATE AND PROMPTLY MAIL THE ENCLOSED
PROXY IN THE ACCOMPANYING POSTAGE PAID ENVELOPE. IF YOU ATTEND THE ANNUAL
MEETING, YOU MAY REVOKE THE PROXY AND VOTE YOUR SHARES IN PERSON.
SOUTHFIRST BANCSHARES, INC.
126 NORTH NORTON AVENUE
SYLACAUGA, ALABAMA 35150
ANNUAL MEETING OF STOCKHOLDERS
APRIL 17, 2002
--------------------------
PROXY STATEMENT
-------------------------
This Proxy Statement is furnished in connection with the solicitation
of proxies by the Board of Directors of SouthFirst Bancshares, Inc.
("SouthFirst") for the Annual Meeting of Stockholders (the "Annual Meeting") to
be held on Wednesday, April 17, 2002, and any adjournment thereof, at the time
and place and for the purposes set forth in the accompanying notice of the
Annual Meeting. The expense of this solicitation, including the cost of
preparing and mailing this Proxy Statement, will be paid by SouthFirst. In
addition to solicitations by mail, officers and other employees of SouthFirst,
without receiving any additional compensation, may assist in soliciting proxies
by telephone. This Proxy Statement and the accompanying proxy are first being
mailed to stockholders on or about March 11, 2002. The address of the principal
executive offices of SouthFirst is 126 North Norton Avenue, Sylacauga, Alabama
35150, and SouthFirst's telephone number is (256) 245-4365. SouthFirst is the
parent of First Federal of the South ("First Federal"), a wholly-owned
subsidiary which is a federally chartered savings association.
Any proxy given pursuant to this solicitation may be revoked by any
stockholder who attends the Annual Meeting and gives oral notice of his or her
decision to vote in person, without complying with any other formalities. In
addition, any proxy given pursuant to this solicitation may be revoked prior to
the Annual Meeting by delivering to SouthFirst's Secretary an instrument
revoking it or a duly executed proxy for the same shares bearing a later date.
Proxies which are returned properly executed and not revoked will be voted in
accordance with the stockholder's directions specified thereon. Where no
direction is specified, proxies will be voted FOR the election of the nominees
named herein. The items enumerated herein constitute the only business which the
Board of Directors intends to present or knows will be presented at the Annual
Meeting. However, the proxy confers discretionary authority upon the persons
named therein, or their substitutes, with respect to any other business which
may properly come before the Annual Meeting.
The record of stockholders entitled to vote at the Annual Meeting was
taken on March 1, 2002. On that date, SouthFirst had outstanding and entitled to
vote 815,794 shares of common stock, $.01 par value per share (the "Common
Stock"), with each share entitled to one vote. The holders of one-third (1/3) of
the outstanding shares of Common Stock entitled to vote must be present, in
person or by proxy, to constitute a quorum. Abstentions and broker non-votes are
counted as present for the purpose of determining the presence of a quorum for
the transaction of business.
The affirmative vote of a plurality of the votes present in person or
by proxy at the Annual Meeting is required for the election of a director.
Unless otherwise provided by SouthFirst's Certificate of Incorporation or Bylaws
or by statute, the affirmative vote of a majority of the votes present in person
or by proxy at the Annual Meeting is required to pass on any matters other than
the election of directors. Abstentions and broker non-votes will not be counted
as votes either in favor of or against the matter with respect to which the
abstention or broker non-vote relates. All votes will be tabulated by the
inspector of election appointed for the Annual Meeting, who will separately
tabulate affirmative and negative votes, abstentions and broker non-votes.
SECURITY OWNERSHIP OF CERTAIN
BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information as of February 26,
2002 with respect to the beneficial ownership of SouthFirst's Common Stock by
(i) each person known by SouthFirst to own beneficially more than five percent
(5%) of SouthFirst Common Stock, (ii) each director of SouthFirst, (iii) each
director nominee, (iv) each of the Named Executive Officers (as defined herein)
and (v) all directors and executive officers of SouthFirst as a group. Unless
otherwise indicated, (i) each of the beneficial owners has sole voting and
investment power with respect to the shares beneficially owned, and (ii) the
address for each of the beneficial owners is 126 North Norton Avenue, Sylacauga,
Alabama, 35150.
SHARES OF
COMMON STOCK PERCENTAGE OF
BENEFICIAL OWNER BENEFICIALLY OWNED(1) OUTSTANDING SHARES(2)
---------------- ------------------ ------------------
Joe K. McArthur(3) 36,734 4.4%
H. David Foote, Jr.(4) 12,386 1.5%
J. Malcomb Massey(5) 25,017 3.1%
Allen Gray McMillan, III(6) 17,886 2.2%
Kenneth E. Easterling(7) 23,606 2.9%
L. Neal Bice(8) 29,757 3.6%
Donald R. Hardy(9) 656 * %
Donald C. Stroup(10) 0 * %
Jeffrey L. Gendell, et. al. (11) 81,700 10.0%
Robert J. Salmon and
Mary Anne J. Salmon(12) 47,600 5.8%
Pension & Benefit
Trust Company (13) 66,400 8.1%
All directors and
executive officers
as a group (8 persons) 147,792(14) 17.3%
- --------------
* Indicates less than 1%.
(1) "Beneficial Ownership" includes shares for which an individual,
directly or indirectly, has or shares voting or investment power or
both and also includes options which are exercisable within sixty days
of the date hereof. Beneficial ownership as reported in the above table
has been determined in accordance with Rule 13d-3 of the Exchange Act.
(2) The percentages are based upon 815,794 shares outstanding, except for
certain parties who hold presently exercisable options to purchase
shares. The percentages for those parties holding presently exercisable
options are based upon the sum of 815,794 shares plus the number of
shares subject to presently exercisable options held by them, as
indicated in the following notes.
(3) Of the amount shown, 1,500 shares are owned jointly by Mr. McArthur and
his wife, 5,373 shares are held in his account under SouthFirst's
401(k) Plan, 5,154 shares are held in his account under First Federal's
ESOP, 19,395 shares are subject to presently exercisable options and
5,312 shares represent restricted stock granted under SouthFirst's
Management Recognition Plans "A" and "B," all of which are fully
vested.
(4) Of the amount shown, 3,000 shares are owned jointly by Mr. Foote and
his wife, 1,500 shares are held by Mr. Foote as custodian for each of
his two minor children, 6,226 shares are subject to presently
exercisable options and 1,660 shares represent restricted stock granted
under SouthFirst's Management Recognition Plan "A," all of which are
fully vested.
2
(5) Of the amount shown, 15,521 shares are restricted stock acquired
pursuant to that certain employment agreement between Mr. Massey and
Benefit Financial, vesting in equal increments over a period of 15
years beginning on April 11, 1997, 3,399 shares are held in a profit
sharing account, 2,234 shares are held in an Individual Retirement
Account, 1,058 shares are held in his account under First Federal's
ESOP, and 2,805 shares are subject to exercisable options.
(6) Of the amount shown, 10,000 shares are held jointly by Mr. McMillan and
his wife, 6,226 shares are subject to presently exercisable options and
1,660 shares represent restricted stock granted under SouthFirst's
Management Recognition Plan "A," all of which are fully vested.
(7) Of the amount shown, 20,529 shares are held jointly by Mr. Easterling
and his wife, 1,001 shares are held individually by Mr. Easterling and
2,076 shares are subject to exercisable options.
(8) Of the amount shown, 13,332 shares are held by Mr. Bice, as the
Executor of the Estate of H. D. Bice, his father, 14,349 are held
individually by Mr. Bice and 2,076 shares are subject to exercisable
options.
(9) Of the amount shown, 200 shares are held jointly by Mr. Hardy and his
wife a 456 shares are subject to exercisable options.
(10) On August 31, 2001, Donald C. Stroup, SouthFirst and First Federal
entered into a Severance, Release and Stock Redemption Agreement (the
"severance agreement") by which Mr. Stroup resigned all positions he
held as an employee and director of SouthFirst and First Federal. Under
the terms of the severance agreement, SouthFirst agreed to purchase
from Mr. Stroup, and Mr. Stroup agreed to sell, assign, transfer and
deliver to SouthFirst 44,942 shares of common stock of SouthFirst owned
by Mr. Stroup for an aggregate cash purchase price of $668,700.
(11) Of the amount shown, Jeffrey L. Gendell has shared voting power with
respect to 81,700 shares, Tontine Management, L.L.C. ("TM") has shared
voting power with respect to 81,700 shares, and Tontine Financial
Partners, L.P. ("TFP") has shared voting power with respect to 81,700
shares. TM, the general partner of TFP, has the power to direct the
affairs of TFP. Mr. Gendell is the Managing Member of TM and, in that
capacity, directs its operations. The business address of Mr. Gendell
and TFP is 237 Park Avenue, 9th Floor, New York, New York 10017. The
foregoing information is based on a Schedule 13G/A, dated February 6,
2002, filed by Mr. Gendell, TM, and TFP and a Schedule 13D dated
February 6, 2002 filed by Mr. Gendell, TM, and TFP. SouthFirst makes no
representation as to the accuracy or completeness of the information
reported.
(12) Robert J. Salmon and Mary Anne J. Salmon beneficially own and have
shared voting and dispositive power with respect to 47,600 shares. The
foregoing information is based on a Schedule 13G, dated October 8, 1998
received by SouthFirst from Mr. and Mrs. Salmon. Mr. and Mrs. Salmon's
address is 3623 Raymond Street, Chevy Chase, Maryland, 20815.
SouthFirst makes no representation as to the accuracy or completeness
of the information reported therein.
(13) These shares are held in trust by Pension & Benefit Financial Services,
Inc. as trustee of First Federal's ESOP. See "Employee Stock Ownership
Plan."
(14) Of the amount shown, 39,260 shares are subject to exercisable options.
There are no arrangements known to SouthFirst pursuant to which a
change in control of SouthFirst would result.
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3
AGENDA ITEM ONE
ELECTION OF DIRECTORS
SouthFirst's Board of Directors presently consists of seven (7)
directors, elected to staggered three-year terms. The terms of Messrs. Hardy,
McArthur, and McMillan will expire at this Annual Meeting of Stockholders. The
Board of Directors has nominated Messrs. Hardy, McArthur, and McMillan for
election as directors of SouthFirst. Unless otherwise directed, the proxies will
be voted at the Annual Meeting FOR the election of the nominees. In the event
that any of the three nominees is unable to serve or declines to serve as a
director at the time of the Annual Meeting, the persons named as proxies will
have discretionary authority to vote the proxies for the election of such person
or persons as may be nominated in substitution by the present Board of
Directors. Management knows of no current circumstances which would render any
nominee named herein unable to accept nomination or election. The affirmative
vote of a plurality of the votes present in person or by proxy at the Annual
Meeting is required for the election of the three nominees standing for
election. THE BOARD OF DIRECTORS RECOMMENDS THAT YOU VOTE "FOR" THE ELECTION OF
THE NOMINEES.
The following individuals have been nominated by management for
election to SouthFirst's Board of Directors for a term of three years and until
their successors are elected and qualified:
DONALD R. HARDY, age 51, has served as a director of First Federal and
SouthFirst since January, 2001. Mr. Hardy is the owner, President and CEO of H &
B Builders, Inc., located in Sylacauga, Alabama. He is a member of the Business
Council of Alabama, Sylacauga Chamber of Commerce and has served on the
Sylacauga Planning Commission since 1992. Mr. Hardy is an active member of the
First Baptist Church of Sylacauga.
JOE K. MCARTHUR, age 50, has served as a director of First Federal and
SouthFirst since February 1996. Effective September 1, 2001, Mr. McArthur was
elected President and Chief Executive Officer of SouthFirst and First Federal.
Thereafter, as part of the Company's restructuring efforts, Mr. McArthur
resigned as President of SouthFirst to allow J. Malcomb Massey to assume that
office, as of October 1, 2001. Prior to assuming his current positions, Mr.
McArthur served as the Executive Vice President, Chief Financial Officer and
Secretary of First Federal and SouthFirst since 1992 and 1994, respectively. Mr.
McArthur has over 25 years of experience in the banking industry and received a
B.S. in Accounting from the University of Alabama-Birmingham and a Masters of
Business Administration equivalent from the National School of Finance and
Management. He has also completed all courses with the Institute of Financial
Education. Prior to joining First Federal, Mr. McArthur was Assistant Executive
Director of Finance of Humana, a hospital, from 1990 to 1992, and Senior Vice
President of First Federal of Alabama from 1983 to 1990. He has also served as a
manager of various Little League and Babe Ruth Baseball teams, as well as Boys'
Club basketball teams. Mr. McArthur is a member of the First United Methodist
Church of Sylacauga.
ALLEN GRAY MCMILLAN, III, age 44, has served as a director of First
Federal since 1993 and of SouthFirst since 1994. On August 15, 2001, Mr.
McMillan was elected Chairman of SouthFirst and First Federal. Mr. McMillan is
also President of Brecon Knitting Mill, where he has been employed since 1979.
Mr. McMillan has been active in the Kiwanis Club, United Way, and Boy Scouts of
America. He is a member of the First United Methodist Church.
************
4
Each of the following individuals is a member of SouthFirst's Board of
Directors who is not standing for election to the Board of Directors this year
and whose term will continue after the Annual Meeting:
L. NEAL BICE, age 61, has served as a director of First Federal since
1997 and of SouthFirst since 2001. Mr. Bice previously served as a director of
First Federal Savings and Loan of Chilton County, from 1989 to 1997. Mr. Bice is
an owner and a director of Chilton County Feed and Seed Company, located in
Clanton, Alabama. Mr. Bice presently is a professor of economics and business at
the Clanton extension of the George C. Wallace State Community College. Mr. Bice
is a past professor of finance at Auburn University, a past professor of
economics, finance and banking at the University of Southwestern Louisiana, and
a past professor of finance at the University of Alabama. Mr. Bice is a member
of the Chilton County Board of Education, the Alabama Education Association, the
Southern School Board Association, Omicron Delta Epsilon Society in Economics,
the Chilton County High School Athletic Association, and the Chilton County
Cattlemen's Association. He is a past President of the Chilton County Board of
Education, and serves as director of the Chilton County Chamber of Commerce, the
President of the Chilton County University of Alabama Alumni Association, the
Zone Chairman of the Clanton Lion's Club, and the President of the War Eagle
Lion's Club, Auburn, Alabama. Mr. Bice is a member of the Concord Baptist
Church.
KENNETH E. EASTERLING, age 58, has served as a director of First
Federal since 1997 and of SouthFirst since 2001. Mr. Easterling previously
served as a member of the Board of Directors of First Federal Savings and Loan
of Chilton County from 1992 to 1997. Mr. Easterling is the owner of Home
Printing Company, located in Clanton, Alabama, which was established in 1969.
Mr. Easterling served in the Army National Guard from 1963 to 1969, is a Charter
member of the Exchange Club of Chilton County, is a member of the Board of
Directors of Chilton County Cattlemen's Association, is a member of the Board of
Directors of Alfa, and has served as a Deacon of the West End Baptist Church
from 1969 to the present.
H. DAVID FOOTE, JR., age 52, has served as a director of First Federal
since 1988 and of SouthFirst since 1994. Mr. Foote has been President and owner
of Foote Bros. Furniture since 1973. Mr. Foote has been a director of the
Sylacauga Chamber of Commerce, the Coosa Valley Country Club and Talladega
County E-911. He has served as President of Wesley Chapel Methodist Men's Club
and head of the Wesley Chapel Methodist Administrative Board.
J. MALCOMB MASSEY, age 52, has served as a director of First Federal
and SouthFirst since May, 1997. On September 26, 2001, Mr. Massey was elected
President of SouthFirst, to be effective October 1, 2001. In addition, Mr.
Massey is President and Chief Executive Officer of Pension & Benefit, First
Federal's wholly owned, operating subsidiary. This is a position he has held
since he joined Pension & Benefit in 1997, after it acquired substantially all
of the assets of Lambert, Massey, Roper & Taylor, Inc., an employee benefits
consulting firm, based in Montgomery, for which Mr. Massey had served as
President since 1980. Mr. Massey is a member of the American Society of Pension
Actuaries, the South Central Alabama Association of Insurance and Financial
Advisors, Life and Qualifying Member of Million Dollar Roundtable, Top of the
Table, Montgomery Lions Club and Young Meadows Presbyterian Church.
There are no family relationships between any director, executive
officer, or person nominated to become a director or executive officer and any
other director, executive officer, or person nominated to become a director or
executive officer of SouthFirst.
5
COMMITTEES OF THE BOARD
AUDIT COMMITTEE
The Audit Committee is currently comprised of Messrs. Bice, Easterling,
Foote, Hardy, and McMillan. The Board of Directors of SouthFirst has adopted a
written charter setting forth the composition, authority and responsibilities of
the Audit Committee. The independence of the Audit Committee members has been
established by, and pursuant to, the listing standards of the American Stock
Exchange, Section 121(A). Immediately following is the report of the Audit
Committee.
REPORT OF AUDIT COMMITTEE (1)
The following is the report of the Audit Committee with
respect to the audited financial statements of SouthFirst for the
fiscal year ended September 30, 2001.
With respect to fiscal year 2001, the Audit Committee has done
each of the following: (i) reviewed SouthFirst's audited financial
statements and discussed such financial statements with management,
(ii) discussed with Jones & Kirkpatrick, P.C., the independent auditors
for SouthFirst, the matters required to be discussed by the Statement
on Auditing Standards No. 61 (SAS 61, Communication with Audit
Committee), (iii) received the written disclosures and the letter from
Jones & Kirkpatrick, P.C., required by Independence Standards Board
Standard No. 1 (Independence Standards Board Standard No. 1,
Independence Discussions with Audit Committees), and (iv) discussed
with Jones & Kirkpatrick, P.C. their independence from SouthFirst.
Based on the aforementioned reviews and discussions, the Audit
Committee recommended to the Board of Directors that the audited
financial statements be included in SouthFirst's Annual Report on Form
10-KSB for the fiscal year ending September 30, 2001. Further, the
Audit Committee, based upon the aforementioned reviews and discussions,
hereby selects and appoints Jones & Kirkpatrick, P.C. as the
independent auditors to audit the accounts and records of SouthFirst
for the current fiscal year.
AUDIT COMMITTEE
L. Neal Bice
Kenneth E. Easterling
H. David Foote, Jr.
Donald R. Hardy
Allen Gray McMillan, III
- ---------------
(1) The material in this report is not "soliciting material," is not deemed
filed with the SEC and is not to be incorporated by reference in any
filing of the Company under the Securities Act of 1933, as amended, or
the Securities Exchange Act of 1934, as amended, whether made before or
after the date hereof and irrespective of any general incorporation
language in any such filing.
6
OTHER COMMITTEES
In addition to the Audit Committee, SouthFirst's Board of Directors has
established the Executive Committee, which consists of Messrs. McMillan
(Chairman), Foote, Hardy, Massey and McArthur. The Executive Committee, which
did not meet in fiscal year 2001, has the power to exercise most of the powers
of the Board of Directors, in the intervals between the meetings of the Board of
Directors. Any activity of the Executive Committee is reported to the Board of
Directors at the next meeting thereof.
SouthFirst presently does not have a compensation committee because no
officers of SouthFirst receive any compensation for services to SouthFirst. All
officers of SouthFirst are compensated by SouthFirst's wholly-owned subsidiary,
First Federal, solely for their services to First Federal. In addition,
non-employee directors are paid for attendance at First Federal committee
meetings, but employee members of committees are not paid.
In addition to SouthFirst's committees, First Federal has established
various committees including the Executive Committee, the Wage and Compensation
Committee, the Loan Committee, the Asset/Liability Committee, the Audit
Committee and the Strategic Planning Committee.
The Executive Committee of First Federal consists of Messrs. McMillan
(Chairman), Foote, Hardy, Massey and McArthur. The Committee, which did not meet
in fiscal year 2001, has the power to exercise most powers of the Board of
Directors in the intervals between meetings of the Board of Directors. Any
activity of the Executive Committee is reported to the Board of Directors of the
next meeting thereof. First Federal's Loan Committee is comprised of Messrs.
Bice, Easterling, Foote, Hardy, and McMillan and Ms. Anna Tyler. This committee
meets weekly to consider loan applications. Approval of a loan application
requires approval by at least two members (other than the person signing the
application) of the Loan Committee. The Audit Committee of First Federal
consists of Messrs. Easterling (Chairman), Bice, Foote, Hardy, and McMillan.
This committee meets at least annually and more frequently if necessary to
review the results of the audit program. Recommendations and observations are
reported to the Board of Directors. The Asset/Liability Committee consists of
Messrs. Hardy (Chairman), Foote, McArthur and McMillan. This committee meets
quarterly to establish and monitor policies to control interest rate
sensitivity. First Federal's Wage and Compensation Committee consists of Messrs.
Bice (Chairman), Easterling, Foote, Massey, McArthur, and McMillan. This
committee, which did not meet in fiscal year 2001, is responsible for reviewing
compensation matters, including salaries and benefits of directors, officers,
and employees. The Strategic Planning Committee consists of Messrs. Foote
(Chairman), Bice, Easterling, Massey, and McArthur. This committee meets
quarterly to review the progress of First Federal in meeting goals established
under its business plan and to consider possible revisions thereto, if deemed
necessary by the committee.
MEETINGS OF THE BOARD OF DIRECTORS
The Board of Directors of SouthFirst held nine meetings during the
fiscal year ended September 30, 2001. During the 2001 fiscal year, each director
attended at least 75% of the aggregate number of meetings held by the Board of
Directors and Committee(s) on which he served.
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7
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934 (the "Exchange
Act") requires SouthFirst's directors, certain officers and persons who own more
than 10% of the outstanding Common Stock of SouthFirst to file with the
Securities and Exchange Commission reports of changes in ownership of the Common
Stock of SouthFirst held by such persons. Officers, directors and greater than
10% stockholders are also required to furnish SouthFirst with copies of all
forms they file under this regulation. SouthFirst first became subject to this
regulation on February 13, 1995. With the exceptions of five late filings, those
being the Initial Statement of Beneficial Ownership of Securities (Form 3) for
L. Neal Bice, Kenneth E. Easterling, Donald R. Hardy and Sandra H. Stephens, and
a Statement of Changes In Beneficial Ownership of Securities ( Form 4) for L.
Neal Bice as beneficiary of the estate of H.D. Bice, to SouthFirst's knowledge,
based solely on a review of copies of such reports furnished to SouthFirst and
representations that no other reports were required, all Section 16(a) filing
requirements applicable to its officers, directors and 10% holders were complied
with during fiscal 2001. Although SouthFirst has no obligation to make filings
pursuant to Section 16 of the Exchange Act, SouthFirst has adopted a policy
requiring all Section 16 reporting persons to report monthly to a designated
employee of SouthFirst as to whether any transactions in SouthFirst's Common
Stock occurred during the previous month.
EXECUTIVE COMPENSATION
The following table provides certain summary information for fiscal
2001, 2000, and 1999 concerning compensation paid or accrued by SouthFirst and
First Federal to or on behalf of SouthFirst's Chief Executive Officer and the
other executive officers of SouthFirst whose total annual salary and bonus
exceeded $100,000 during fiscal 2001 (the "Named Executive Officers"):
SUMMARY COMPENSATION TABLE
ANNUAL COMPENSATION(1) LONG TERM COMPENSATION
----------------------------------------------------------- --------------------------
NUMBER OF
SECURITIES
NAME AND PRINCIPAL FISCAL OTHER ANNUAL UNDERLYING ALL OTHER
POSITION(2) YEAR SALARY BONUS COMPENSATION(3) OPTIONS COMPENSATION
-------- ---- -------- --------- --------------- ---------- ------------
JOE K. MCARTHUR,
Chief Executive Officer of 2001 $107,916 $22,314(4) $19,725 5,024(5) $1,414(6)
SouthFirst and First 2000 105,000 29,490(7) 13,155 0 1,624(8)
Federal, President of 1999 105,000 24,104(9) 12,250 7,428(10) 1,624(11)
First Federal
J. MALCOMB MASSEY,
President of SouthFirst, 2001 $130,000 $ 9,270(12) $16,725 3,131(13) $1,819(14)
President and Chief 2000 130,000 17,069(15) 13,155 0 1,873(16)
Executive Officer of 1999 130,000 2,236 13,250 3,726(17) 1,873(18)
Pension and Benefit
DONALD C. STROUP,(19)
Chairman, President, and 2001 $128,333 $25,565(20) $16,980 7,679(21) $2,526(22)
Chief Executive Officer of 2000 140,000 43,605(23) 13,155 0 2,901(24)
SouthFirst and First 1999 140,000 35,812(25) 12,250 14,180(26) 2,901(27)
Federal
8
- ---------------
(1) All compensation received by the Named Executive Officers was paid by
First Federal and Pension & Benefit.
(2) On August 31, 2001, Donald C. Stroup, the former Chairman, President
and Chief Executive Officer of SouthFirst and First Federal, resigned
from all positions that he previously held as an officer and director
of SouthFirst, First Federal, and their respective affiliates.
Following the resignation of Mr. Stroup, effective September 1, 2001,
Joe K. McArthur was elected President of First Federal and Chief
Executive Officer of both SouthFirst and First Federal. Prior to this,
Mr. McArthur served as the Executive Vice-President, and Chief
Financial Officer of both entities. Thereafter, effective October 1,
2001, J. Malcomb Massey, Chief Executive Officer and President of
Pension and Benefit Trust Company, a subsidiary of First Federal, was
elected as President of SouthFirst. Finally, effective November 1,
2001, Sandra H. Stephens, who had previously served as the Chief
Operating Officer and Chief Financial Officer of First Federal Bank,
Tuscaloosa, Alabama was elected as Executive Vice President and Chief
Operating Officer of SouthFirst and First Federal.
(3) Fees received as member of the Board of Directors of SouthFirst, First
Federal and/or Pension & Benefit.
(4) Consists of a regular bonus of $6,875 as well as $15,439 of
compensation consisting of dividends paid under SouthFirst's Dividend
Incentive Plan on unexercised stock options. See "-- Compensation of
Directors."
(5) On February 17, 2001, SouthFirst issued 5,024 options under the 1995
plan to Mr. McArthur at an exercise price of $9.75 per share. These
option's vest in equal annual increments commencing on November 4, 2001
through November 4, 2003.
(6) Represents a $964 automobile allowance and income of $450 recognized on
employer provided group term life insurance in excess of $50,000.
(7) Consists of a regular bonus of $17,065 as well as $12,425 of
compensation consisting of dividends paid under SouthFirst's Dividend
Incentive Plan on unexercised stock options. See "-- Compensation of
Directors."
(8) Represents a $964 automobile allowance and income of $660 recognized on
employer provided group term life insurance in excess of $50,000.
(9) Consisted of a regular bonus of $13,125 as well as $10,979 of
compensation consisting of dividends paid under SouthFirst's Dividend
Incentive Plan on unexercised stock options and a bonus paid to assist
in the payment of applicable federal taxes due in connection with such
dividend payments. See "--Compensation of Directors."
(10) On November 4, 1998, SouthFirst canceled all options granted to Mr.
McArthur in 1998, and issued these options to purchase the same number
of shares at a lower exercise price. These options vest in equal annual
increments commencing on 11/4/99. See "-- Repricing of Stock Options
under the Stock Option Plans."
(11) Represents a $964 automobile allowance and income of $660 recognized on
employer provided group term life insurance in excess of $50,000.
(12) Consists of a regular bonus of $6,000 as well as $3,270 of compensation
consisting of dividends paid under SouthFirst's Dividend Incentive Plan
on unexercised stock options. See "-- Compensation of Directors."
(13) On February 17,2001, SouthFirst issued 1,407 options under the 1995
plan and 317 options under the 1998 plan to Mr. Massey at an exercise
price of $9.75 per share. These options vest in equal annual increments
commencing on November 4, 2001 through November 4, 2003.
(14) Represents a $1,405 automobile allowance and income of $414 recognized
on employer provided group term life insurance in excess of $50,000.
(15) Consists of a regular bonus of $14,833 as well as $2,236 of
compensation consisting of dividends paid under SouthFirst's Dividend
Incentive Plan on unexercised stock options. See "-- Compensation of
Directors."
(16) Represents a $1,405 automobile allowance and income of $468 recognized
on employer provided group term life insurance in excess of $50,000.
9
(17) On November 4, 1998, SouthFirst canceled all options granted to Mr.
Massey in 1998, and issued options to purchase the same number of
shares at a lower exercise price. These options vest in equal annual
increments commencing on 11/4/99. See "-- Repricing of Stock Options
under the Stock Option Plans."
(18) Represents a $1,405 automobile allowance and income of $468 recognized
on employer provided group term life insurance in excess of $50,000.
(19) On August 31, 2001, Donald C. Stroup, SouthFirst and First Federal
entered into a Severance, Release and Stock Redemption Agreement (the
"severance agreement") by which Mr. Stroup resigned all positions he
held as an employee and director of SouthFirst and First Federal. Mr.
Stroup's employment agreements with SouthFirst and First Federal, both
dated October 1, 2000, consequently were terminated; however, the
Deferred Compensation Agreement entered into by and between Mr. Stroup
and First Federal, dated November 16, 1994, remains in effect. Under
the terms of the severance agreement, SouthFirst agreed to purchase
from Mr. Stroup, and Mr. Stroup agreed to sell, assign, transfer and
deliver to SouthFirst 44,942 shares of common stock of SouthFirst owned
by Mr. Stroup for an aggregate cash purchase price of $668,700.
SouthFirst also agreed to pay to Mr. Stroup's counsel $10,000 for legal
fees and expenses incurred by Mr. Stroup during the period from July
15, 2001 through August 31, 2001 in connection with his employment with
SouthFirst and First Federal. In addition, SouthFirst agreed to waive
any right to reimbursement from Mr. Stroup of any amounts paid to Mr.
Stroup pursuant to SouthFirst's Dividend Incentive Plan; provided,
however, that the maximum amount waived by SouthFirst would be $22,500.
Finally, SouthFirst transferred title to the automobile then provided
by SouthFirst for Mr. Stroup's use. These payments by SouthFirst to Mr.
Stroup were exclusive and in lieu of any other compensation, benefits,
severance pay or other remuneration or claims arising in connection
with Mr. Stroup's employment relationship with SouthFirst or First
Federal or the termination of either such relationship.
(20) Consists of dividends paid under SouthFirst's Dividend Incentive Plan
on unexercised stock options. See "--Compensation of Directors."
(21) On February 17, 2001, SouthFirst issued 7,679 options under the 1995
plan to Mr. Stroup at an exercise price of $9.75 per share. Due to Mr.
Stroup's resignation on August 31, 2001, these options expired on
November 29, 2001.
(22) Represents a $1,836 automobile allowance and income of $690 recognized
on employer provided group term life insurance in excess of $50,000.
(23) Consists of a regular bonus of $22,647 as well as $20,958 of
compensation consisting of dividends paid under SouthFirst's Dividend
Incentive Plan on unexercised stock options. See "-- Compensation of
Directors."
(24) Represents a $1,836 automobile allowance and income of $1,065
recognized on employer provided group term life insurance in excess of
$50,000.
(25) Consists of a regular bonus of $17,500 as well as $18,312 of
compensation consisting of dividends paid under SouthFirst's Dividend
Incentive Plan on unexercised stock options and a bonus paid to assist
in the payment of applicable federal taxes due in connection with such
dividend payments. See "--Compensation of Directors."
(26) On November 4, 1998, SouthFirst canceled all options granted to Mr.
Stroup in 1998, and issued these options to purchase the same number of
shares at a lower exercise price. These options vest in equal annual
increments commencing on 11/4/99. See "-- Repricing of Stock Options
under the Stock Option Plans."
(27) Represents a $1,836 automobile allowance and income of $1,065
recognized on employer provided group term life insurance in excess of
$50,000.
[remainder of page intentionally left blank]
10
EMPLOYMENT AGREEMENTS
SouthFirst and First Federal have entered into employment agreements
with each of the Named Executive Officers. The terms and conditions of these
employment contracts are described below.
Joe K. McArthur, Chief Executive Officer of SouthFirst and First Federal,
President of First Federal.
The employment agreement with Mr. McArthur was effective as of
September 1, 2001 and is for a term of two years. On each anniversary of the
effective date, Mr. McArthur's term of employment shall be extended for an
additional one-year period beyond the then effective expiration date, provided
the Board determines, in a duly adopted resolution, that the performance of Mr.
McArthur has met the Board's requirements and standards, and that such
employment agreement shall be extended.
Pursuant to Mr. McArthur's employment agreement, SouthFirst shall be
jointly and severally liable for the payment of all amounts due under a separate
employment agreement with First Federal, which is of even date with the
employment agreement with SouthFirst. Under the terms of the employment
agreement with First Federal, SouthFirst and First Federal agree to pay Mr.
McArthur a salary at the rate of $140,000 per annum, payable in cash not less
frequently than monthly. Beginning on the Effective Date, Mr. McArthur shall be
eligible to receive such performance bonuses as may be determined in the sole
discretion of the Board. In addition, Mr. McArthur shall participate in standard
retirement and medical plans, and is entitled to customary fringe benefits,
vacation and sick leave.
Mr. McArthur's employment agreement terminates upon his death or
disability, and is terminable for "cause" as defined in the employment
agreement. In the event of termination for cause, no severance benefits are
payable to Mr. McArthur. If SouthFirst or First Federal terminates Mr. McArthur
without cause, he will be entitled to a continuation of his salary from the date
of termination through the remaining term of the employment agreements plus an
additional twelve-month period, and he will be entitled to the cost of obtaining
benefits in which Mr. McArthur would have been eligible to participate through
the termination date. Mr. McArthur may voluntarily terminate his employment
agreement by providing sixty days written notice to the Boards of Directors of
SouthFirst and First Federal, in which case he is entitled to receive only his
compensation, vested rights and benefits up to the date of termination.
Mr. McArthur's employment agreement further provides that, in the event
of Mr. McArthur's involuntary termination in connection with, or within two
years after any change in control of First Federal or SouthFirst, other than for
"cause," or death or disability, Mr. McArthur will be paid, within 10 days of
such termination, an amount equal to the difference between (i) 2.99 times his
"base amount," as defined in Section 280G(b)(3) of the Internal Revenue Code of
1986, as amended (the "Internal Revenue Code"), and (ii) the sum of any other
"parachute payments," as defined under Section 280G(b)(2) of the Internal
Revenue Code, that Mr. McArthur receives on account of the change in control.
Under Mr. McArthur's employment agreement, a "change in control" generally
refers to a change in ownership, holding or power to vote more than 25% of
SouthFirst's or First Federal's voting stock, a change in the ownership or
possession of the ability to control the election of a majority of First
Federal's or SouthFirst's directors or the exercise of a controlling influence
over the management or policies of SouthFirst or First Federal. In addition,
under Mr. McArthur's employment agreement, a change in control occurs when,
during any consecutive two-year period, the directors of SouthFirst or First
Federal, at the beginning of such period, cease to constitute two-thirds of the
Boards of Directors of SouthFirst or First Federal, unless the election of
replacement directors was approved by a two-thirds (66 2/3%) vote of the initial
directors then in office. Mr. McArthur's employment agreement also provides for
a similar lump sum payment to be made in the event of his voluntary termination
of employment within one year following a change in control of First Federal or
SouthFirst.
11
J. Malcomb Massey, President and Chief Executive Officer of Pension & Benefit.
The employment agreement by and between Pension & Benefit and Mr.
Massey was effective as of October 1, 2001 and provides for a term of two years.
On each annual anniversary date from the effective date, Mr. Massey's term of
employment shall be extended for an additional one-year period beyond the then
effective expiration date, provided the Board determines in a duly adopted
resolution that the performance of Mr. Massey has met the Board's requirements
and standards, and that such employment agreement should be extended.
The employment agreement with Mr. Massey provides for an annual base
salary of $150,000, payable in cash not less frequently than monthly. In
addition, as a provision of a prior employment agreement, Mr. Massey received
15,512 shares of restricted SouthFirst Common Stock, one-fifteenth of which vest
on each of the first fifteen anniversaries of April 11, 1997. Should Mr.
Massey's employment be terminated due to death, disability or the termination of
his employment "without cause," as defined in the employment agreement, all
unvested shares shall be deemed earned and fully vested as of such date and
shall be distributed as soon as practicable thereafter. All unvested shares will
also vest upon a "change in control" of Pension & Benefit, First Federal or
SouthFirst. Under Mr. Massey's employment agreement, "change in control"
generally refers to a change in ownership, holding or power to vote more than
25% of Pension & Benefit's, First Federal's or SouthFirst's voting stock, a
change in the ownership or possession of the ability to control the election of
a majority of Pension & Benefit's, First Federal's or SouthFirst's directors, or
the exercise of a controlling influence over the management or policies of
Pension & Benefit, First Federal or SouthFirst. In addition, under Mr. Massey's
employment agreement, a change in control occurs when, during any consecutive
two-year period, directors of Pension & Benefit, First Federal or SouthFirst, at
the beginning of such period, cease to constitute two-thirds of the Boards of
Directors of Pension & Benefit, First Federal or SouthFirst, unless the election
of replacement directors was approved by a two-thirds (66 2/3%) vote of the
initial directors then in office.
Mr. Massey's employment agreement entitles him to participate in an
equitable manner with all other senior management employees of Pension & Benefit
in discretionary bonuses that the Board may award from time to time to senior
management employees. Mr. Massey may also participate in standard retirement and
medical plans, and is entitled to customary fringe benefits, vacation and sick
leave.
Mr. Massey's employment agreement terminates upon his death or
disability, and is terminable for "cause," as defined in the employment
agreement. In the event of termination for cause, no severance benefits are
payable to Mr. Massey. If Mr. Massey is terminated without cause, he will be
entitled to severance pay equal to the amount of his salary and benefits from
the date of termination through the remaining term of the employment agreement
plus an additional twelve-month period. Mr. Massey has the option to receive
this payment either (i) in periodic payments, as if the termination had not
occurred, or (ii) in one lump sum payment within ten days of the termination of
his employment. In either case, however, the severance pay shall not exceed two
(2) times Mr. Massey's "average annual compensation," which is the average total
annual compensation received by Mr. Massey under the employment agreement over
the five full fiscal years preceding the termination, or, if Mr. Massey has been
employed less than five full fiscal years, over each full fiscal year preceding
the termination. Mr. Massey may terminate voluntarily his employment agreement
by providing sixty days written notice to the Board, in which case he is
entitled to receive only his compensation, vested rights and benefits up to the
date of termination.
In addition to Mr. Massey's employment agreement, SouthFirst, First
Federal, Pension & Benefit and Mr. Massey have entered into a guaranty of
employment agreement pursuant to which SouthFirst and First Federal have
guaranteed the performance of Pension & Benefit under the terms of the
employment agreement by and between Pension & Benefit and Mr. Massey.
12
Donald C. Stroup - Severance Agreement
On August 31, 2001, Donald C. Stroup, SouthFirst and First Federal
entered into a Severance, Release and Stock Redemption Agreement (the "Severance
Agreement") by which Mr. Stroup resigned all positions he held as an employee
and director of SouthFirst and First Federal. Mr. Stroup's employment agreements
with SouthFirst and First Federal, both dated October 1, 2000, consequently were
terminated; however, the Deferred Compensation Agreement entered into by and
between Mr. Stroup and First Federal, dated November 16, 1994, remains in
effect.
Under the terms of the Severance Agreement, SouthFirst agreed to
purchase from Mr. Stroup, and Mr. Stroup agreed to sell, assign, transfer and
deliver to SouthFirst 44,942 shares of common stock of SouthFirst owned by Mr.
Stroup for an aggregate cash purchase price of $668,700. SouthFirst also agreed
to pay to Mr. Stroup's counsel $10,000 for legal fees and expenses incurred by
Mr. Stroup during the period from July 15, 2001 through August 31, 2001 in
connection with his employment with SouthFirst and First Federal. In addition,
SouthFirst agreed to waive any right to reimbursement from Mr. Stroup of any
amounts paid to Mr. Stroup pursuant to SouthFirst's Dividend Incentive Plan;
provided, however, that the maximum amount waived by SouthFirst would be
$22,500. Finally, SouthFirst transferred title to the automobile then provided
by SouthFirst for Mr. Stroup's use. These payments by SouthFirst to Mr. Stroup
were exclusive and in lieu of any other compensation, benefits, severance pay or
other remuneration or claims arising in connection with Mr. Stroup's employment
relationship with SouthFirst or First Federal or the termination of either such
relationship.
DEFERRED COMPENSATION AGREEMENTS
First Federal has previously entered into deferred compensation
agreements (collectively, the "Deferred Compensation Agreements") with Mr.
Stroup, Mr. McArthur, and Ms. Ruth M. Roper, Executive Vice President of Pension
& Benefit, pursuant to which each would receive certain retirement benefits at
age 65. Under the Deferred Compensation Agreements, benefits would be payable
for 15 years. A portion of the retirement benefits would accrue each year until
age 65 or, if sooner, until termination of employment. Had Mr. Stroup remained
in the employment of First Federal until age 65, his annual benefit would have
been $65,000. Mr. Stroup, however, resigned on August 31, 2001, and, pursuant to
such resignation, his accrual of annual benefits has ceased. Mr. Stroup's
current annual benefit, to be received at age 65, now is fixed at approximately
$25,000.
If Mr. McArthur remains in the employment of First Federal until age
65, his annual benefit will be $45,000. If Mr. McArthur dies prior to age 65,
while in the employment of First Federal, the full retirement benefits available
under the deferred compensation agreement will accrue and will, thereupon, be
payable to his beneficiaries. Similarly, if Ms. Roper remains in the employment
of First Federal until age 65, her annual benefit will be $30,000. If Ms. Roper
dies prior to age 65, while in the employment of First Federal, the full
retirement benefits available under the deferred compensation agreement will
accrue and will, thereupon, be payable to her beneficiaries.
The retirement benefits available under the Deferred Compensation
Agreements are unfunded. However, First Federal has purchased life insurance
policies on the lives of these officers that will be available to SouthFirst and
First Federal to provide for both retirement benefits and key man insurance. The
costs of these arrangements was $57,075 for each of 2001, 2000, and 1999.
13
MANAGEMENT RECOGNITION PLANS
The SouthFirst Board of Directors has adopted two management
recognition plans ("MRPs"), denominated SouthFirst Bancshares, Inc. Management
Recognition Plan "A" ("Plan A") and SouthFirst Bancshares, Inc. Management
Recognition Plan "B" ("Plan B") (collectively, the "Plans"). The objective of
the Plans is to enable SouthFirst and First Federal to reward and retain
personnel of experience and ability in key positions of responsibility by
providing such personnel with a proprietary interest in SouthFirst and by
recognizing their past contributions to SouthFirst and First Federal, and to act
as an incentive to make such contributions in the future.
Plan A and Plan B are identical except that while Plan B provides for
awards only to employees of SouthFirst and First Federal, Plan A provides for
awards to employees, as well as to non-employee directors. The Plans are
administered by a committee (the "Committee") of the SouthFirst Board of
Directors. Awards under the Plans are in the form of restricted stock grants
("MRP grants"). Each Plan has reserved a total of 16,600 shares of SouthFirst
Common Stock for issuance pursuant to awards made by the Committee. Such shares,
with respect to each Plan, are held in trust until awards are made by the
Committee, at which time the shares are distributed from the trust to the award
recipient. Such shares will bear restrictive legends until vested, as described
below. The Committee may make awards to eligible participants under the Plans in
its discretion, from time to time. Under Plan A, on November 15, 1995, each
non-employee director serving in such capacity on February 13, 1995 (the
effective date of the conversion of SouthFirst from a mutual to a stock form of
ownership) automatically received an award of 1,660 shares. In selecting the
employees to whom awards are granted under the Plans, the Committee considers
the position, duties and responsibilities of the employees, the value of their
services to SouthFirst and First Federal and any other factors the Committee may
deem relevant.
Awards under the Plans vest at the rate of 20% per year, commencing on
the first anniversary of the date of the award. The Committee may, however, from
time to time and in its sole discretion, accelerate the vesting with respect to
any participant, if the Committee determines that such acceleration is in the
best interest of SouthFirst. If a participant terminates employment for reasons
other than death or disability, the participant forfeits all rights to any
shares which have not vested, including the dividends received with respect to
such non-vested shares. If the participant's termination is caused by death or
disability, all shares become vested. Participants will recognize compensation
income on the date their interests vest, or at such earlier date pursuant to a
participant's election to accelerate recognition pursuant to Section 83(b) of
the Internal Revenue Code.
As of September 30, 1996, a total of 33,200 shares had been awarded
under the Plans. During the year ended September 30, 2001, SouthFirst
repurchased 11,525 shares of its common stock which shares subsequently were
designated MRP shares and are currently held in trust.
STOCK OPTION PLANS
The SouthFirst Board of Directors has adopted two Stock Option Plans.
The first was adopted November 15, 1995 and is denominated the SouthFirst
Bancshares, Inc. Stock Option and Incentive Plan (the "1995 Stock Option Plan"),
and the second was adopted on January 28, 1998 and is denominated the 1998 Stock
Option and Incentive Plan (the "1998 Stock Option Plan"). The objective of each
of the Stock Option Plans is to attract, retain, and motivate the best possible
personnel for positions of substantial responsibility with SouthFirst and First
Federal. In order to attract and retain members of the Board of Directors of
SouthFirst who contribute to SouthFirst's success, each of the Stock Option
Plans also provides for the award of non-qualified stock options to non-employee
directors of SouthFirst.
14
The 1995 Stock Option Plan authorizes the grant of up to 83,000 shares
of Common Stock to select officers and employees in the form of (i) incentive
and non-qualified stock options ("Options") or (ii) Stock Appreciation Rights
("SARs") (Options and SARs are referred to herein collectively as "Awards"), as
determined by the committee administering the 1995 Stock Option Plan. As of
September 30, 2001, options to purchase a total of 4,150 shares were available
for future issuance.
The 1998 Stock Option Plan authorizes the grant of up to 63,361 shares
of Common Stock to select officers and employees in the form of (i) incentive
and non-qualified stock options ("Options") or (ii) Stock Appreciation Rights
("SARs"). As of September 30, 2001, options to purchase a total of 63,361 shares
had been issued under the 1998 Stock Option Plan, and no shares were available
for future issuance.
The terms and conditions of the two Stock Option Plans are
substantially the same. The exercise price for Options and SARs granted under
the Stock Option Plans may not be less than the fair market value of the shares
on the day of the grant, and no Awards shall be exercisable after the expiration
of ten years from the date of this grant. Each Stock Option Plan has a term of
10 years unless earlier terminated by the SouthFirst Board of Directors. The
Stock Option Plans are administered by a committee of the directors of
SouthFirst (the "Option Plan Committee"). Except as discussed below with respect
to non-employee directors, the Option Plan Committee has complete discretion to
make Awards to persons eligible to participate in the Stock Option Plans, and
determines the number of shares to be subject to such Awards, and the terms and
conditions of such Awards. In selecting the persons to whom Awards are granted
under the Stock Option Plan, the Option Plan Committee considers the position,
duties, and responsibilities of the employees, the value of their services to
SouthFirst and First Federal, and any other factor the Option Plan Committee may
deem relevant to achieving the stated purpose of the Stock Option Plan.
Options granted under the Stock Option Plans become exercisable at
rates ranging from 20% to 33% per year commencing one year from the date of
grant, with the exception that all options will become immediately exercisable
in the event the optionee's employment is terminated due to the optionee's
death, disability or retirement, or in the event of a change in control of First
Federal or SouthFirst.
Under the 1995 Stock Option Plan, all directors who were not employees
of SouthFirst as of November 15, 1995 (the date of the approval of the Stock
Option Plan by the stockholders of SouthFirst and the OTS), received
non-qualified stock options for the purchase of 4,150 shares with an exercise
price equal to $14.00 per share, the fair market value of SouthFirst Common
Stock on the date of grant. Likewise, under the 1998 Stock Option Plan, all
directors who were not employees of SouthFirst as of January 28, 1998 (the date
of the approval of the Stock Option Plan by the Board of Directors of
SouthFirst) received non-qualified stock options for the purchase of 2,700
shares with an exercise price equal to $21.25 per share, the fair market value
of SouthFirst Common Stock on the date of grant.
REPRICING OF STOCK OPTIONS UNDER THE STOCK OPTION PLANS
On January 28, 1998, the Wage and Compensation Committee, acting on the
approval of the Board of Directors, granted incentive stock options to purchase
14,180; 7,428; and 3,726 options to Donald C. Stroup, Joe K. McArthur and J.
Malcomb Massey, respectively (i.e., the Named Executive Officers at that time).
Options to purchase an aggregate of 36,777 shares were concurrently granted to
approximately 19 non-executive employees of SouthFirst and/or First Federal and
two former executive officers. Such options were granted at an exercise price of
$21.25 per share, which was equal to the fair market value of SouthFirst's
Common Stock on the date of grant. During the ensuing nine and one half months,
the market price of SouthFirst's Common Stock declined significantly to a point
below which
15
such options no longer served the intended purpose for which they were issued.
In order to protect the intended value of the January 28 options, the Board of
Directors elected to reprice all of such options by the cancellation of such
options and the regrant of an equal number of new options at the then current
lower market price. Such replacement options were granted on November 4, 1998 at
an exercise price of $15.75 a share, which was equal to the fair market value of
SouthFirst's Common Stock on the date of grant. The following table provides,
with respect to the Named Executive Officers, the name of grantee, number of
securities underlying the options repriced, the original exercise price, the new
exercise price, and the length of original option term remaining after the
repricing, as of September 30, 2001:
TEN-YEAR OPTION / SAR REPRICINGS
NUMBER OF LENGTH OF
SECURITIES ORIGINAL OPTION
UNDERLYING ORIGINAL TERM REMAINING
OPTIONS(1) EXERCISE NEW EXERCISE AT DATE OF
NAME DATE REPRICED PRICE ($) PRICE ($) REPRICING
- ---- ---- ---------- --------- ------------ ----------------
JOE MCARTHUR November 4, 1998 7428 21.25 15.75 9.2 years
(1998 Plan)
MALCOMB MASSEY November 4, 1998 3726 21.25 15.75 9.2 years
(1998 Plan)
DONALD STROUP(2) November 4, 1998 10030 21.25 15.75 9.2 years
(1998 Plan)
DONALD STROUP(2) November 4, 1998 4150 21.25 15.75 9.2 years
(1995 Plan)
- --------------
(1) As of September 30, 1996, options to purchase a total of 83,000 shares
had been issued under the 1995 Stock Option Plan, and, as of that date,
no other shares were available for future issuance. Since September 30,
1996, grants to purchase 4,150 shares of Common Stock expired prior to
being exercised and, consequently, the 4,150 shares reserved to be
issued pursuant to such expired options became available for
re-issuance under the 1995 Stock Option Plan. On January 28, 1998, the
Board of Directors of the Bank granted to Donald C. Stroup options to
purchase 4,150 shares available under the 1995 Stock Option Plan in
conjunction with certain additional stock option grants made pursuant
to the 1998 Stock Option Plan. These options were issued pursuant to
the vesting schedule utilized for the 1998 Stock Option Plan.
Subsequently, as of September 30, 2001, 12,450 options have expired and
remain unissued under the 1995 Stock Option Plan and 0 options have
expired and remain unissued under the 1998 Stock Option Plan.
(2) Effective August 31, 2001, Donald C. Stroup resigned from all positions
previously held by him as an officer and director of SouthFirst
Bancshares, Inc. and its affiliates, including First Federal of the
South. Mr. Stroup's options expired on November 29, 2001, 90 days after
his resignation.
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16
The following table provides certain information concerning the
exercise of stock options under SouthFirst's Stock Option Plans during the
fiscal year ended September 30, 2001, by the Named Executive Officers and the
fiscal-year-end value of unexercised options held by those individuals:
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR END OPTION VALUES
NUMBER OF SECURITIES VALUE OF
UNDERLYING UNEXERCISED
UNEXERCISED OPTIONS IN-THE-MONEY
SHARES AT OPTIONS AT FISCAL
ACQUIRED FISCAL YEAR END YEAR END
ON VALUE EXERCISABLE/ EXERCISABLE/
NAME EXERCISE REALIZED UNEXERCISABLE UNEXERCISABLE(1)
---- -------- -------- -------------------- ----------------
Joe K. McArthur 0 $0 16,251/ 9,481 $0/$ 7,787
J. Malcomb Massey 0 $0 1,490/ 3,960 $0/$ 2,672
Donald C. Stroup(2) 0 $0 26,422/16,187 $0/$11,902
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(1) Represents the value of unexercised, in-the-money stock options on
September 30, 2001, using the $11.30 closing price of SouthFirst Common
Stock on that date.
(2) Effective August 31, 2001, Donald C. Stroup resigned from all positions
previously held by him as an officer and director of SouthFirst
Bancshares, Inc. and its affiliates, including First Federal of the
South. Mr. Stroup's options expired on November 29, 2001, 90 days after
his resignation.
EMPLOYEE RETIREMENT SAVINGS PLAN
First Federal has established a savings and profit-sharing Plan that
qualifies as a tax-deferred savings Plan under Section 401(k) of the Internal
Revenue Code (the "401(k) Plan") for its salaried employees who are at least 21
years old and who have completed one year of service with First Federal. Under
the 401(k) Plan, eligible employees may contribute up to 14% of their gross
salary to the 401(k) Plan or $10,500, whichever is less. Currently, all
contributions are fully vested under the 401(k) Plan at the time of the
contribution. Prior to First Federal's adoption of an Employee Stock Ownership
Plan (see "--Employee Stock Ownership Plan"), the first 1% to 3% of employee
compensation was matched by a First Federal contribution of $0.50 for each $1.00
of employee contribution and contributions from 4% to 6% were 100% matched.
Effective October 1, 2000, the first 1% to 3% of employee compensation was
matched by a First Federal contribution of $0.25 for each $1.00 of employee
contribution and contributions from 4% to 6% were matched by a contribution of
$0.50 for each $1.00 of employee contribution. During these periods,
contributions were 100% vested following the completion of five years of service
and were invested in one or more investment accounts administered by the Plan
administrator.
EMPLOYEE STOCK OWNERSHIP PLAN
First Federal has adopted an Employee Stock Ownership Plan (the "ESOP")
for the exclusive benefit of participating employees. All employees of First
Federal who are at least 21 years old and who have completed a year of service
with First Federal are eligible to participate in the ESOP. SouthFirst has
loaned the ESOP $664,000, which the ESOP used to purchase 66,400 shares of
SouthFirst Common
17
Stock. This loan is secured by the shares purchased with the proceeds of the
loan. Shares purchased with the loan proceeds are held in a suspense account for
allocation among participants as the loan is repaid.
Contributions to the ESOP are expected to be used to repay the ESOP
loan. Shares released from the suspense account as the ESOP loan is repaid, any
contributions to the ESOP that are not used to repay the ESOP loan, and
forfeitures will be allocated among participants on the basis of their relative
compensation. With the exception of terminations due to death, disability or
retirement, a participant must be employed by First Federal on the last day of
the Plan year and have completed 1,000 hours of service during the Plan year in
order to share in the allocation for the Plan year. Any dividends paid on
unallocated shares of SouthFirst Common Stock are to be used to repay the ESOP
loan; any dividends paid on shares of SouthFirst Common Stock allocated to
participant accounts will be credited to said accounts.
Benefits under the ESOP vest at a rate of 20% per year of service, with
the first 20% vesting after the Participant has served for two years.
Participant's benefits also become fully vested upon the Participant's death,
disability, attainment of normal retirement age, or the termination of the ESOP.
For vesting purposes, a year of service means any Plan year in which an employee
completes at least 1,000 hours of service with First Federal. An employee's
years of service prior to the ESOP's effective date will be considered for
purposes of determining vesting under the ESOP.
A participant who separates from service because of death, disability
or retirement will be entitled to receive an immediate distribution of his or
her benefits. A participant who separates from service for any other reason and
who is not re-employed by an employer will receive a lump sum distribution of
the vested portion of his account as soon as administratively feasible after his
date of termination, unless the participant elects a later distribution.
Distributions generally will be made in whole shares of SouthFirst Common Stock,
with the value of fractional shares being paid in cash. Although accounts
generally will be distributed in a lump sum, if the fair market value of a
participant's account is in excess of $500,000 as of the date distribution is
required to begin, distributions will be made in substantially equal annual
payments over a period not longer than five (5) years plus an additional one (1)
year (up to an additional five (5) years) for each $100,000 increment, or
fraction of such increment, by which the value of the participant's Account
exceeds $500,000.
Pension & Benefit serves as the plan administrator and trustee of the
ESOP (the "ESOP Trustee"). Participants may vote the shares of SouthFirst Common
Stock that are allocated to their account. Any unallocated shares of SouthFirst
Common Stock and allocated shares of SouthFirst Common Stock for which no timely
direction is received are voted by the ESOP Trustee in accordance with its
fiduciary obligations.
DIVIDEND INCENTIVE PLAN
SouthFirst, in November, 1995, adopted, by resolution of the Board of
Directors of SouthFirst, a dividend incentive plan (the "Dividend Incentive
Plan"), pursuant to which each director and/or employee in the SouthFirst
family, who holds options to purchase SouthFirst Common Stock under the Stock
Option Plans is paid an amount equal to the number of shares underlying the
stock options held by him or her, multiplied by the amount of dividends
SouthFirst pays to the holders of its Common Stock. If the service of an
employee or director is terminated prior to the full vesting of his or her stock
options, then the employee or director immediately forfeits, and must repay to
SouthFirst, all amounts received under the Dividend Incentive Plan with respect
to the non-vested options.
18
COMPENSATION OF DIRECTORS
Each member of the First Federal Board of Directors receives a fee of
$915 for each board meeting attended (with one excused absence), and each
non-employee director of First Federal, if a member of a committee, receives
$500 for each committee meeting attended. The members of the SouthFirst Board of
Directors do not receive a fee for board meeting attendance.
During fiscal 2001, each non-employee director was paid from $830 to
$4,940 under the Dividend Incentive Plan with respect to the shares of Common
Stock underlying the stock options held by him. Further, certain SouthFirst
directors, during fiscal 2001, received a cash dividend in the amount of $996
with respect to the restricted shares held by him, as granted under Management
Recognition Plans "A" and "B."
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
No directors, executive officers, or immediate family members of such
individuals were engaged in transactions, or proposed transactions, other than
loans, with SouthFirst or First Federal involving more than $60,000 during the
year ended September 30, 2001. First Federal, like many other financial
institutions, has followed a policy of granting various types of loans to
officers, directors and employees. The loans have been made in the ordinary
course of business and on substantially the same terms, including interest rates
and collateral, as those prevailing at the time for comparable transactions with
First Federal's other customers, and do not involve more than the normal risk of
collectibility, nor present other unfavorable features. All loans by First
Federal to its officers and executive officers are subject to OTS regulations
restricting loans and other transactions with affiliated persons of First
Federal. In addition, all future credit transactions with such directors,
officers and related interests of SouthFirst and First Federal will be on
substantially the same terms as, and following credit underwriting procedures
that are not less stringent than, those prevailing at the time for comparable
transactions with unaffiliated persons and must be approved by a majority of the
directors of SouthFirst, including a majority of the disinterested directors. At
March 1, 2002, the aggregate of all loans by First Federal to its officers,
directors, and related interests was $1,130,585.
INDEPENDENT PUBLIC ACCOUNTANTS
Jones & Kirkpatrick, P.C., audited the financial statements of
SouthFirst for the fiscal years ended September 30, 1999, 2000 and 2001. The
Audit Committee has selected this same firm to audit the accounts and records of
SouthFirst for the current fiscal year. Representatives of Jones & Kirkpatrick,
P.C., are expected to be present at the Annual Meeting to respond to
stockholders' questions and will have an opportunity to make any statements they
consider appropriate.
AUDIT FEES
The aggregate fees billed for professional services rendered by Jones &
Kirkpatrick, P.C. for the audit of SouthFirst's annual financial statements for
the fiscal year ending September 30, 2001 ($60,775), for assistance in
preparation of the Form 10-KSB for the fiscal year ending September 30, 2001
($15,000), and for the reviews of the financial statements included in
SouthFirst's Forms 10-QSB for that fiscal year ($14,200) were $89,975.
19
FINANCIAL INFORMATION SYSTEMS DESIGN AND IMPLEMENTATION FEES
No professional services were rendered by Jones & Kirkpatrick, P.C. for
the fiscal year ending September 30, 2001: (i) directly or indirectly operating,
or supervising the operation of, any information system or local area network of
SouthFirst or its affiliates, or (ii) designing or implementing any hardware or
software system that aggregates source date underlying the financial statements,
or that generates information that is significant to the financial statements,
of SouthFirst or its affiliates.
ALL OTHER FEES
Jones & Kirkpatrick, P.C., in addition to the services discussed above
under "Audit Fees," rendered services to SouthFirst with respect to the
preparation and filing of its required state and federal tax returns for the
fiscal year ending September 30, 2001. The amount of fees billed by Jones &
Kirkpatrick, P.C. for these tax-related services was $10,500. Jones &
Kirkpatrick, P.C. also rendered other services to SouthFirst, as requested by
the Special Committee of the Board of Directors of SouthFirst, which was
appointed by the Board to independently investigate facts and circumstances
surrounding a check kiting scheme and related regulatory violations of former
management officials and a former outside director of SouthFirst's Board of
Directors. The amount of fees billed by Jones & Kirkpatrick, P.C. for these
other services was $23,700.
The Audit Committee has considered the provision of the services
rendered to SouthFirst by Jones & Kirkpatrick, P.C., and has determined that
such services, and the provision thereof, are compatible with maintaining the
independence of Jones & Kirkpatrick, P.C.
STOCKHOLDERS' PROPOSALS FOR THE 2003 ANNUAL MEETING
Stockholders may submit proposals appropriate for stockholder action at
SouthFirst's 2003 Annual Meeting, consistent with the regulations of the
Securities and Exchange Commission. Proposals by stockholders intended to be
presented at the 2003 Annual Meeting must be received by SouthFirst no later
than November 11, 2002, in order to be included in SouthFirst's proxy materials
for that meeting. With respect to any such proposals received by SouthFirst
after January 25, 2003, the proposals will be considered untimely and the
persons named in the form of Proxy solicited by management will vote the Proxy
in accordance with their judgment of what is in the best interests of
SouthFirst. Such proposals should be directed to SouthFirst Bancshares, Inc.,
Attention: Corporate Secretary, 126 North Norton Avenue, Sylacauga, Alabama
35150.
OTHER MATTERS
The Board of Directors knows of no other matters to be brought before
the Annual Meeting. However, if other matters should come before the Annual
Meeting, it is the intention of the persons named in the enclosed form of proxy
to vote the proxy in accordance with their judgment of what is in the best
interest of SouthFirst.
By Order of The Board of Directors
/s/ Sandra H. Stephens
Sandra H. Stephens
Secretary
Sylacauga, Alabama
March 11, 2002
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REVOCABLE PROXY
SOUTHFIRST BANCSHARES, INC.
[X] PLEASE MARK VOTES AS IN THIS EXAMPLE
THIS PROXY IS SOLICITED
ON BEHALF OF
THE BOARD OF DIRECTORS
FOR THE
2002 ANNUAL MEETING
OF STOCKHOLDERS.
The undersigned hereby appoints Joe K. McArthur and Sandra H. Stephens, or
either of them, with power of substitution to each, the proxies of the
undersigned to vote the Common Stock of the undersigned at the Annual Meeting of
Stockholders of SOUTHFIRST BANCSHARES, INC. to be held on Wednesday, April 17,
2002, at 10:00 a.m., at the main office of SouthFirst Bancshares, Inc., located
at 126 North Norton Avenue, Sylacauga, Alabama 35150, and at any adjournments or
postponements thereof, as indicated on this revocable proxy:
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Please be sure to sign and date Date
this Proxy in the box below.
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Stockholder sign above-- Co-holder (if any) sign above
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1. To elect DONALD R. HARDY, JOE K. MCARTHUR, and ALLEN GRAY MCMILLAN, III for a
term of three years and until their successors are elected and have qualified.
For All
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For Withhold Except
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[ ] [ ] [ ]
INSTRUCTION: TO WITHHOLD AUTHORITY TO VOTE FOR ANY INDIVIDUAL NOMINEE, MARK "FOR
ALL EXCEPT" AND WRITE THAT NOMINEE'S OR THOSE NOMINEES' NAME(S) IN THE SPACE
PROVIDED BELOW.
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2. To vote in accordance with their best judgment with respect to any other
matters that may properly come before the meeting.
THE BOARD OF DIRECTORS FAVORS A VOTE "FOR" EACH OF THE PROPOSALS AND UNLESS
INSTRUCTIONS TO THE CONTRARY ARE INDICATED IN THE SPACE PROVIDED, THIS PROXY
WILL BE SO VOTED.
Please date and sign exactly as
your name(s) appear(s) on this card.
NOTE: When signing as an attorney, trustee, executor, administrator or guardian,
please give your title as such. If a corporation or partnership, give full name
of authorizing officer. In the case of joint tenants, each joint owner must
sign.
DETACH ABOVE CARD, SIGN, DATE AND MAIL IN POSTAGE PAID ENVELOPE PROVIDED TO:
SOUTHFIRST BANCSHARES, INC.
126 NORTH NORTON AVENUE
SYLACAUGA, ALABAMA 35150
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PLEASE ACT PROMPTLY
SIGN, DATE & MAIL YOUR PROXY CARD TODAY
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