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EXHIBIT 20.1
[SouthFirst Bancshares, Inc. Letterhead]
December 17, 1997
To Our Stockholders:
On November 19, 1997, your Board of Directors declared a dividend
distribution of Common Stock Purchase Rights. This letter describes the Stock
Purchase Rights Plan and the Board's reasons for adopting it.
These Rights contain provisions to protect stockholders in the event of
an unsolicited attempt to acquire the Company, including a gradual accumulation
of shares in the open market, a partial or two-tier tender offer that does not
treat all stockholders equally, a squeeze-out merger and other abusive takeover
tactics which the Board believes are not in the best interests of stockholders.
These tactics unfairly pressure stockholders, squeeze them out of their
investment without giving them any real choice and deprive them of the full
value of their shares.
Over 1,700 companies, including approximately half of the Business Week
1000 companies and Fortune 500 companies and approximately two-thirds of the
Fortune 200 companies have issued rights to protect their stockholders against
these tactics. We consider the rights to be the best available means of
protecting both your right to retain your equity investment in SouthFirst
Bancshares, Inc. and the full value of that investment, while not foreclosing a
fair acquisition bid for the Company.
The Rights are not intended to prevent a takeover of the Company and
will not do so. However, they should deter any attempt to acquire the Company in
a manner or on terms not approved by the Board. The Rights approved today are
designed to deal with the very serious problem of another person or company
using abusive tactics to deprive SouthFirst Bancshares, Inc.'s Board and its
stockholders of any real opportunity to determine the destiny of the Company.
The Rights may be redeemed by the Board of Directors for one cent per
Right prior to the accumulation, through open-market purchases, a tender offer
or otherwise, of 15% or more of the Company's shares by a single acquiror or
group. Thus, the Rights should not interfere with any merger or business
combination approved by the Board of Directors prior to that time.
Issuance of the Rights does not in any way weaken the financial
strength of the Company or interfere with its business plans. The issuance of
the Rights has no dilutive effect, will not affect reported earnings per share,
is not taxable to the Company or to you, and will not change the way in which
you can presently trade the Company's shares. As explained in detail below, the
Rights will only be exercisable if and when the problem arises which they were
created to deal with. They
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will then operate to protect you against being deprived of your right to share
in the full measure of your Company's long-term potential.
Your Board was aware when it acted that some people have advanced
arguments that securities of the sort we are issuing deter legitimate
acquisition proposals. We carefully considered these views and concluded that
the arguments are speculative and do not justify leaving stockholders without
any protection against unfair treatment by an acquiror -- who, after all, is
seeking his own company's advantage, not yours. Your Board believes that these
Rights represent a sound and reasonable means of addressing the complex issues
of corporate policy created by the current takeover environment.
The Rights were issued as of December 8, 1997, to stockholders of
record on that date and will expire ten years from the date of adoption,
November 30, 2007. Initially, the Rights will not be exercisable, certificates
will not be sent to you, and the Rights will automatically trade with the common
shares. However, ten days after a person or group acquires 15% or more of the
Company's shares, or ten business days (or such later date as may be determined
by the Board prior to a person or group acquiring 15% or more of the Company's
shares) after a person or group announces an offer the consummation of which
would result in such person or group owning 15% or more of the shares (even if
no purchases actually occur), the Rights will become exercisable and separate
certificates representing the Rights will be distributed. We expect that the
Rights will begin to trade independently from the Company's shares at that time.
At no time will the Rights have any voting power.
When the Rights first become exercisable, unless a person or group has
acquired 50% or more of the Company's shares, a holder will be entitled to buy
from the Company one-hundredth (1/100th) of a share of common stock at a
purchase price of $60.00 per share. If the Company is involved in a merger or
other business combination at any time after a person or group has acquired 15%
or more of the Company's shares, the Rights will entitle a holder to buy a
number of shares of common stock of the acquiring company having a market value
of twice the exercise price of each Right. For example, if at the time of the
business combination the acquiring company's stock has a per share value of
$30.00, the holder of each Right would be entitled to receive 4 shares of the
acquiring company's common stock for $60.00, i.e., at a 50% discount.
If any person or group acquires 15% or more of the Company's
outstanding common stock, the "flip-in" provision of the Rights will be
triggered and the Rights will entitle a holder (other than such person or any
member of such group) to buy a number of additional shares of common stock of
the Company having a market value of twice the exercise price of each Right.
Thus, if at the time of the 15% acquisition the Company's stock were to have a
market value per share equal to $30.00, the holder of each Right (other than
such person or any member of such group) would be entitled to receive 4 shares
of the Company's common stock for $60.00.
Following the acquisition by any person or group of 15% or more of the
Company's common stock, but only prior to the acquisition by a person or group
of a 50% stake, the Board
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in whole or in part, for one share of common stock per Right. This provision
will have an economically dilutive effect on the acquiror, and provide a
corresponding benefit to the remaining Rights holders, that is comparable to the
flip-in without requiring Rights holders to go through the process and expense
of exercising their Rights.
While, as noted above, the distribution of the Rights will not be
taxable to you or the Company, stockholders may recognize taxable income upon
the occurrence of certain subsequent events.
In declaring the Rights dividend, we have expressed our confidence in
the future and our determination that you, our stockholders, be given every
opportunity to participate fully in that future. A more detailed summary of the
Shareholders Rights Plan accompanies this letter.
On behalf of the Board of Directors.
/s/ Donald C. Stroup
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Donald C. Stroup
President and Chief Executive Officer
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