1
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:
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[SOUTHFIRST LETTERHEAD]
March 5, 1998
Dear Stockholder:
You are cordially invited to attend the Annual Meeting of Stockholders
of SouthFirst Bancshares, Inc., which will be held on Wednesday, March 25, 1998,
at 10:00 a.m., at the Company'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/ Donald C. Stroup
Donald C. Stroup
President and Chief Executive Officer
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SOUTHFIRST BANCSHARES, INC.
126 NORTH NORTON AVENUE
SYLACAUGA, ALABAMA 35150
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD MARCH 25, 1998
To the Holders of Common Stock of SOUTHFIRST BANCSHARES, INC.:
Notice is hereby given that the Annual Meeting of Stockholders of
SouthFirst Bancshares, Inc. (the "Company") will be held on Wednesday, March 25,
1998, at 10:00 a.m., at the Company's principle executive offices, 126 North
Norton Avenue, Sylacauga, Alabama 35150, for the following purposes:
(1) Election of Directors:
(a) To elect one (1) director to hold office until the 2000 Annual
Meeting of Stockholders and until his successor is elected and
qualified;
(b) To elect three (3) directors to hold office until the 2001
Annual Meeting of Stockholders and until their successors are
elected and qualified;
(2) To approve and adopt the SouthFirst Bancshares, Inc. 1998 Stock
Option and Incentive Plan; and
(3) To transact such other business as may properly come before the
meeting or any adjournment thereof.
The Board of Directors has fixed February 24, 1998, as the record date
for the determination of stockholders entitled to vote at the Annual Meeting of
Stockholders. Only stockholders of record at the close of business on that date
will be entitled to notice of, and to vote at, the meeting or any adjournment
thereof.
A Proxy Statement and a proxy solicited by the Board of Directors,
together with a copy of the 1997 Annual Report to Stockholders are enclosed
herewith. Stockholders are cordially invited to attend the Annual Meeting.
Whether or not you expect to attend the 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 meeting, you may, if you wish,
withdraw your proxy and vote in person.
By Order of the Board of Directors
/s/ Joe K. McArthur
Joe K. McArthur
Secretary
Sylacauga, Alabama
March 5, 1998
YOUR VOTE IS IMPORTANT. WHETHER OR NOT YOU PLAN TO ATTEND THE 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 MEETING, YOU MAY
REVOKE THE PROXY AND VOTE YOUR SHARES IN PERSON.
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SOUTHFIRST BANCSHARES, INC.
126 NORTH NORTON AVENUE
SYLACAUGA, ALABAMA 35150
ANNUAL MEETING OF STOCKHOLDERS
MARCH 25, 1998
--------------------------
PROXY STATEMENT
--------------------------
This Proxy Statement is furnished in connection with the solicitation
of proxies by the Board of Directors of SouthFirst Bancshares, Inc. (the
"Company") for the Annual Meeting of Stockholders to be held on Wednesday, March
25, 1998, and any adjournment thereof, at the time and place and for the
purposes set forth in the accompanying notice of the meeting. The expense of
this solicitation, including the cost of preparing and mailing this Proxy
Statement, will be paid by the Company. In addition to solicitations by mail,
officers and regular employees of the Company, at no 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 5,
1998. The address of the principal executive offices of the Company is 126 North
Norton Avenue, Sylacauga, Alabama 35150, and the Company's telephone number is
(205) 245-4365. The Company is the parent of First Federal of the South (the
"Bank"), a wholly-owned subsidiary which is a federally chartered savings bank.
Any proxy given pursuant to this solicitation may be revoked by any
stockholder who attends the meeting and gives oral notice of his or her election
to vote in person, without compliance with any other formalities. In addition,
any proxy given pursuant to this solicitation may be revoked prior to the
meeting by delivering to the Secretary of the Company 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 and FOR the
approval and adoption of the SouthFirst Bancshares, Inc. 1998 Stock Option and
Incentive Plan. The items enumerated herein constitute the only business which
the Board of Directors intends to present or knows will be presented at the
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 meeting. 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.
The record of stockholders entitled to vote at the Annual Meeting was
taken on February 24, 1998. On that date, the Company had outstanding and
entitled to vote 983,545 shares of common stock, par value $.01 per share (the
"Common Stock"), with each share entitled to one vote. 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.
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SECURITY OWNERSHIP OF CERTAIN
BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information as of February 24,
1998 with respect to the beneficial ownership of the Company's Common Stock by
(i) each person known by the Company to own beneficially more than five percent
(5%) of the Company's Common Stock, (ii) each director of the Company, (iii)
each of the named executive officers and (iv) all directors and executive
officers of the Company as a group. Unless otherwise indicated, each of the
shareholders has sole voting and investment power with respect to the shares
beneficially owned.
Shares of
Common Stock Percent of
Beneficial Owner Beneficially Owned(1) Outstanding Shares
------------------------------- --------------------------- ---------------------
Paul A. Brown(2) 17,308 1.8%
H. David Foote, Jr.(3) 9,320 *
John T. Robbs(4) 18,320 1.9%
Jimmy C. Maples(5) 13,276 1.3%
Allen Gray McMillan, III(6) 13,320 1.4%
Charles R. Vawter, Jr.(7) 33,020 3.3%
Donald C. Stroup(8) 47,798 4.8%
Joe K. McArthur(9) 18,557 1.9%
J. Malcomb Massey(10) 19,440 2.0%
Bobby R. Cook(11) 13,856 1.4%
Jeffrey L. Gendell, et. al.(12) 83,700 8.5%
All directors and
executive officers
as a group (9 persons)(13) 204,215 19.8%
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* Represents 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.
The percentages are based upon 983,545 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 983,545 shares plus the number of
shares subject to presently exercisable options held by them, as
indicated in the following notes.
(2) Of the amount shown, 4,690 shares are owned jointly by Mr. Brown and
his wife, 3,000 shares are owned by his wife, 4,698 shares are held in
an Individual Retirement Account, 1,660 shares are subject to presently
exercisable options and 1,660 shares represent restricted stock granted
under the Company's Management Recognition Plan "A," 664 shares of
which are fully vested.
(3) 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, 1,660 shares are subject to presently
exercisable options and 1,660 shares represent restricted stock granted
under the Company's Management Recognition Plan "A," 664 shares of
which are fully vested.
(4) Of the amount shown, 2,293 shares are held jointly by Mr. Robbs and his
wife, 3,662 shares are held in an Individual Retirement Account for the
benefit of Mr. Robb's wife, 5,000 shares are held jointly with his
father, 664 shares are subject to presently exercisable options and
1,660 shares represent restricted stock granted under the Company's
Management Recognition Plan "A," 664 shares of which are fully vested.
(5) Of the amount shown, 900 shares are held in an Individual Retirement
Account, 6,668 shares are held in his account under the Company's
401(k) plan, 3384 shares are held in his account under the Bank's ESOP,
1,660 shares are subject to presently exercisable options and 1,660
shares represent restricted stock granted under the Company's
Management Recognition Plan "B," 664 shares of which are fully vested.
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(6) Of the amount shown, 10,000 shares are held jointly by Mr. McMillan and
his wife, 1,660 shares are subject to presently exercisable options and
1,660 shares represent restricted stock granted under the Company's
Management Recognition Plan "A," 664 shares of which are fully vested.
(7) Of the amount shown, 28,500 shares are held jointly by Mr. Vawter and
his wife, 900 shares are held by Mr. Vawter as custodian for his two
minor children, 1,660 shares are subject to presently exercisable
options and 1,660 shares represent restricted stock granted under the
Company's Management Recognition Plan "A," 664 shares of which are
fully vested.
(8) Of the amount shown, 14,100 shares are owned jointly by Mr. Stroup and
his wife, 3,000 shares are held jointly with Gwendolyn W. Abercrombie,
300 shares are held by one of Mr. Stroup's sons, 9,866 shares are held
in his account under the Company's 401(k) plan, 3,907 shares are held
in his account under the Bank's ESOP, 8,300 shares are subject to
presently exercisable options and 8,300 shares represent restricted
stock granted under the Company's Management Recognition Plans "A" and
"B," 3,320 shares of which are fully vested.
(9) Of the amount shown, 1,500 shares are owned jointly by Mr. McArthur and
his wife, 3,092 shares are held in his account under the Company's
401(k) plan, 3,341 shares are held in his account under the Bank's
ESOP, 5,312 shares are subject to presently exercisable options and
5,312 shares represent restricted stock granted under the Company's
Management Recognition Plans "A" and "B," 2,124 shares of which are
fully vested.
(10) Represents 15,512 shares of 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 and 1,933 shares held in a profit sharing account.
(11) Of the amount shown, 1,624 shares are held in an Individual Retirement
Account for the benefit of Mr. Cook's wife.
(12) Of the amount shown, Jeffrey L. Gendell has shared voting power with
respect to 83,700 shares, Tontine Management, L.L.C. ("TM") has shared
voting power with respect to 83,700 shares, Tontine Partners, L.P.
("TP") has shared voting power with respect to 10,500 shares and
Tontine Financial Partners, L.P. ("TFP") has shared voting power with
respect to 73,200 shares. TM, the general partner of TP and TFP, has
the power to direct the affairs of TP and TFP. Mr. Gendell is the
Managing Member of Tontine Management, L.L.C. and, in that capacity,
directs its operations. The business address of Mr. Gendell, TP and TFP
is 200 Park Avenue, Suite 3900, New York, New York 10166. The foregoing
information is based on a Schedule 13D/A, Amendment No. 2, dated
October 6, 1997 filed by Mr. Gendell, TP and TFP. The Company makes no
representation as to the accuracy or completeness of the information
reported.
(13) Donald C. Stroup, Joe K. McArthur, Jimmy C. Maples, Bobby R. Cook and
J. Malcomb Massey are the executive officers of the Company. Mr. Stroup
and Mr. McArthur are the only executive officers of, both, the Company
and the Bank. Mr. Maples is the First Vice President of the Bank. Mr.
Cook is the President of the Western Division of the Bank. Mr. Massey
is the President of Pension & Benefit Financial Services, Inc., a
wholly-owned subsidiary of the Company.
There are no arrangements known to the Company, the operation of which
may at a subsequent date, result in a change in control of the Company.
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AGENDA ITEM ONE
ELECTION OF DIRECTORS
The Company's Board of Directors presently consists of nine (9)
directors, elected to staggered three-year terms. The terms of Messrs. Massey,
Cook, Foote and Robbs will expire at the Annual Meeting of Stockholders. The
Board of Directors has nominated Messrs. Massey, Cook, Foote and Robbs for
re-election as directors of the Company. Unless otherwise directed, the proxies
will be voted at the meeting for the election of the nominees. In the event of
an unforeseen contingency and any nominee is unable or declines to serve as a
director at the time of the meeting, the persons named as proxies therein 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 meeting is
required for the election of the four nominees standing for election. THE BOARD
OF DIRECTORS RECOMMENDS THAT YOU VOTE "FOR" THE ELECTION OF THE NOMINEES.
The following person has been nominated by management for election to
the Company's Board of Directors for a term of two years and until his successor
is elected and qualified:
J. MALCOMB MASSEY, age 48, has served as a director of the Bank and the
Company since May, 1997. Mr. Massey is President and Chief Executive Officer of
the Company's wholly owned subsidiary, Pension & Benefit Financial Services,
Inc. ("Benefit Financial"), a position he has held since he joined Benefit
Financial in 1997 after Benefit Financial acquired substantially all of the
assets of Lambert, Massey, Roper & Taylor, Inc., an employee benefits consulting
firm based in Montgomery in which Mr. Massey served as President since 1980. Mr.
Massey is a Qualifying and Life Member of the Million Dollar Round Table with
over 25 years experience in the financial services industry and serves as the
insurance consultant to the Southern Community Bankers, an industry trade group
comprised of 20 savings institutions and community banks located in the
Southeastern United States.
The following persons have been nominated by management for election to
the Company's Board of Directors for a term of three years and until their
successors are elected and qualified:
BOBBY R. COOK, age 58, was named President of the Western Division of
the Bank on October 31, 1997 in connection with the purchase by the Company of
First Federal Savings and Loan Association of Chilton County ("Chilton County").
Prior to joining the Company and the Bank, Mr. Cook served as President and
Chief Executive Officer of Chilton County since 1973. Mr. Cook is past president
of the Clanton, Alabama Kiwanis Club, past treasurer of the Clanton, Alabama
Jaycees and serves as a Deacon of The First Baptist Church of Clanton, Alabama.
H. DAVID FOOTE, JR., age 48, has served as a director of the Bank since
1988 and of the Company since 1994. Mr. Foote has been President and owner of
Foote Bros. Furniture since 1973. Mr. Foote has been a member of the Board of
Directors 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.
JOHN T. ROBBS, age 43, has served as a director of the Bank since 1988
and of the Company since 1994. Mr. Robbs is President of Michael Supply Co.,
Inc., where he has been employed since 1980.
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Each of the following persons is a member of the Company's Board of
Directors who is not standing for election to the Board this year and whose term
will continue after the Annual Meeting of Stockholders:
PAUL A. BROWN, age 72, has served as a member of the Bank since 1972 and
of the Company since 1994. Mr. Brown has served as Chairman of the Bank Board
since 1987 and of the Company Board since 1994. Mr. Brown was owner of Brown
Auto Parts from 1977 to 1987 and is presently retired.
JOE K. MCARTHUR, age 46, has served as the Executive Vice President,
Chief Operating Officer and Chief Financial Officer of the Bank and the Company
since 1992 and 1994, respectively. Mr. McArthur has served as a director of the
Bank and the Company since February 1996. He is currently serving as Chairman of
the Bank's Internal Control Review Committee, Compliance Officer, and
Secretary/Treasurer. Mr. McArthur has 19 years of experience in the banking
industry and 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 the Bank, 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. Mr.
McArthur is a director of the Southern Community Bankers. He has also served as
a manager of various Little League and Babe Ruth Baseball teams. Mr. McArthur is
a member of First United Methodist Church of Sylacauga.
ALLEN GRAY MCMILLAN, III, age 41, has served as a director of the Bank
since 1993 and of the Company since 1994. Mr. McMillan is 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.
DONALD C. STROUP, age 48, has served as the President and Chief
Executive Officer of the Bank since 1988 and of the Company since 1994. Mr.
Stroup has also been a member of the Bank Board since 1988 and of the Company
Board since 1994. Mr. Stroup has 24 years of experience in the banking industry
and has a B.S. in Business Administration from Samford University and a
Certificate of Achievement and Diploma of Merit from the Institute of Financial
Education, Chicago, Illinois. He is the former Chairman, and currently a member,
of the Southern Community Bankers, a Director of the Boys Club and a member of
the Sylacauga School Board. Mr. Stroup is a current member and former President
of Sylacauga Rotary Club and a former Board member of the Sylacauga Chamber of
Commerce and Coosa Valley Country Club. Mr. Stroup is a member of the First
Baptist Church of Sylacauga. Mr. Stroup is also a former member of the Red
Cross, Sylacauga Industrial Development Board, Hospice Care, Talladega County
Economic Development Authority and Boy Scouts Advisory.
CHARLES R. VAWTER, JR., age 36, has served as a director of the Bank
since 1992 and of the Company since 1994. Mr. Vawter is Chief Financial Officer
of Automatic Gas and Appliance Co., Inc., where he has been employed since 1987.
Mr. Vawter is a member of the First Baptist Church. He is a member of the Board
of Directors of B.B. Comer Library Foundation and the Coosa Valley Country Club.
He is a past Board member of the Sylacauga Chamber of Commerce. He is currently
a member of the Planning Commission of the City of Sylacauga Chamber of Commerce
and has served on the Planning Committee of Alabama LP Gas Association.
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In addition to the executive officers and directors listed above, the
following person is an executive officer of the Bank:
JIMMY C. MAPLES, age 48, has served as First Vice President of the Bank
in charge of residential construction lending since March, 1994. Prior to
serving in this capacity with the Bank, Mr. Maples was Senior Vice President of
Lending at Pinnacle Bank (formerly known as First Federal of Alabama) in Jasper,
Alabama, where he was employed from January, 1984.
There are no family relationships between any director or executive
officer and any other director or executive officer of the Company.
COMMITTEES OF THE BOARD
The Company's Board of Directors has established the following standing
committees:
(A) The Audit Committee, currently comprised of Messrs. Brown, McMillan,
Foote, Vawter and Robbs. The Audit Committee, which held one meeting in fiscal
1997, is authorized to review and make recommendations to the Board of Directors
with respect to the Company's audit procedures and independent auditor's report
to management and to recommend to the Board of Directors the appointment of
independent auditors for the Company, to review with the independent auditors
the scope and results of audits, to monitor the Company's financial policies and
control procedures, to monitor the non-audit services provided by the Company's
auditors and to review all potential conflicts of interests.
(B) The Stock Option Committee, currently comprised of Messrs. Brown,
Foote, Robbs, McMillan and Vawter. The Stock Option Committee, which did not
hold any meetings in fiscal 1997, is responsible for administering the Company's
Stock Option and Incentive Plan. The entire Board of Directors of the Company
will administer the Company's 1998 Stock Option and Incentive Plan. (See "AGENDA
ITEM THREE PROPOSAL TO ADOPT 1998 STOCK OPTION AND INCENTIVE PLAN").
(C) The Management Recognition Plan Committee, currently comprised of
Messrs. Brown, Foote, Robbs, McMillan and Vawter. The Management Recognition
Plan Committee which did not hold any meetings in fiscal 1997, is responsible
for administering the Company's two Management Recognition Plans.
The Company does not have a Directors Nominating Committee, that
function being reserved to the entire Board of Directors.
In addition to the Company's committees, the Bank has established
various committees including the Executive Committee, the Wage and Compensation
Committee, the Loan Committee, the Asset/Liability Committee and the Audit
Committee. The Company presently does not have a compensation committee because
no officers of the Company receive any compensation for services to the Company.
All officers of the Company are compensated by the Company's wholly-owned
subsidiary, the Bank, solely for their services to the Bank. In addition,
directors are paid for attendance at Bank committee meetings, but employee
members of committees are not paid.
The Executive Committee of the Bank consists of Messrs. Stroup, Brown
(Chairman), Foote, Robbs, McArthur, McMillan and Vawter. The Committee meets
only as needed and is charged with the responsibility of overseeing the business
of the Bank. The Committee has the power to exercise most powers of the Board of
Directors in the intervals between meetings of the Board, and any activity is
reported to the Board monthly.
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The Bank's Loan Committee is comprised of Messrs. Robbs (Chairman), Brown and
Vawter. Mr. Stroup serves as an alternate. The 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 the Bank consists of Messrs. Brown (Chairman),
McMillan, Foote, Vawter and Robbs. 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. Stroup, McArthur, Foote and Vawter
(Chairman). This Committee meets quarterly to establish and monitor policies to
control interest rate sensitivity. The Bank's Wage and Compensation Committee
consists of Messrs. Stroup, McArthur, Brown (Chairman), Robbs and Vawter. This
Committee, which held one meeting in fiscal 1997, is responsible for reviewing
salaries and benefits of directors, officers, and employees.
MEETINGS OF THE BOARD OF DIRECTORS
The Board of Directors of the Company held twelve meetings during the
fiscal year ended September 30, 1997. During fiscal 1997, 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.
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934 requires the
Company's directors, certain officers and persons who own more than 10% of the
outstanding Common Stock of the Company to file with the Securities and Exchange
Commission reports of changes in ownership of the Common Stock of the Company
held by such persons. Officers, directors and greater than 10% stockholders are
also required to furnish the Company with copies of all forms they file under
this regulation. The Company first became subject to this regulation on February
13, 1995. To the Company's knowledge, based solely on a review of copies of such
reports, and any amendments thereto, furnished to the Company and
representations that no other reports were required, during the fiscal year
ended September 30, 1997, all Section 16(a) filing requirements applicable to
its officers, directors and 10% holders were satisfied.
Although it is not the Company's obligation to make filings pursuant to
Section 16 of the Securities and Exchange Act of 1934, the Company has adopted a
policy requiring all Section 16 reporting persons to report monthly to a
designated employee of the Company as to whether any transactions in the
Company's Common Stock occurred during the previous month.
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EXECUTIVE COMPENSATION
The following table provides certain summary information for fiscal
1997, 1996 and 1995 concerning compensation paid or accrued by the Company and
the Bank to or on behalf of the Company's Chief Executive Officer and the other
executive officers of the Company and the Bank whose total annual salary and
bonus exceeded $100,000 during such periods:
SUMMARY COMPENSATION TABLE
Annual Compensation(1)
----------------------
Long Term Compensation
----------------------
Name and Principal Restricted Securities
------------------ Fiscal Other Annual Stock Underlying All Other
Position Year Salary Bonus(2) Compensation(3) Award(s)$ Options/SARs(#) Compensation
--------- ---- ------ -------- --------------- ---------- --------------- ------------
Donald C. Stroup, 1997 $100,308 $ 27,093 (4) $12,000 -- 20,750(5) $2,515 (6)
President, Chief 1996 95,568 163,093 (7) 10,250 116,200(8) 20,750 2,255
Executive Officer and 1995 91,000 15,168 10,500 -- 2,258
Vice Chairman
Joe K. McArthur, 1997 $ 73,380 $ 18,870 (9) $12,000 $ -- 13,280(5) $1,458(10)
Executive Vice 1996 69,900 100,316(11) 9,750 74,368(12) 13,280 1,400
President, Chief 1995 66,564 11,094 6,000 -- -- 1,286
Operating Officer, Chief
Financial Officer and
director
- --------------------
(1) All compensation received by Mr. Stroup and Mr. McArthur was paid by the
Bank. No other officer of the Company received cash compensation in
excess of $100,000 during 1997.
(2) Except as otherwise provided in Notes (4), (7), (9) and (11) below, the
bonus amount includes a regular bonus, as well as compensation
recognized on dividends paid to Mr. Stroup and Mr. McArthur under the
Company's Dividend Incentive Plan.
(3) Fees received as member of the Boards of Directors of the Bank and the
Company.
(4) Includes a regular bonus of $16,718 as well as $10,375 of compensation
recognized on dividends paid under the Company's Dividend Incentive Plan
on unexercised stock options and on unvested shares of restricted stock
issued under the Company's Management Recognition Plans "A" and "B." See
"-- Management Recognition Plans."
(5) See chart entitled "Aggregated Option Exercises in Last Fiscal Year and
Fiscal Year End Option Values" under "-- Stock Option Plan" for the
dollar value of exercisable and unexercisable in-the-money option held
by Mr. Stroup and Mr. McArthur.
(6) Represents a $1,935 automobile allowance and income of $580 recognized
on employer provided group term life insurance in excess of $50,000. (7)
Includes a regular bonus of $15,928 as well as $147,165 of compensation
recognized on dividends paid under the Company's Dividend Incentive Plan
on unexercised stock options and on unvested shares of restricted stock
issued under the Company's Management Recognition Plans "A" and "B" and
a corresponding bonus paid to assist in payment of the applicable
federal income tax due in connection with the restricted stock issued
under such plans. See "-- Management Recognition Plans."
(8) Represents 8,300 shares which, as of September 30, 1997, were subject to
certain vesting requirements as more fully described in "-- Management
Recognition Plans." As of September 30, 1997, the aggregate market value
of the shares was $119,603.
(9) Includes a regular bonus of $12,230 as well as $6,640 of compensation
recognized on dividends paid under the Company's Dividend Incentive Plan
on unexercised stock options and on unvested shares of restricted stock
issued under the Company's Management Recognition Plans "A" and "B". See
"-- Management Recognition Plans."
-8-
12
(10) Represents an $878 automobile allowance and income of $580 recognized
on employer provided group term life insurance in excess of $50,000.
(11) Includes a regular bonus of $11,650 as well as $88,666 of compensation
recognized on dividends paid under the Company's Dividend Investment
Plan on unexercised stock options and on unvested shares of restricted
stock issued under the Company's Management Recognition Plans "A" and
"B" and a corresponding bonus paid to assist in payment of the
applicable federal income tax due in connection with the restricted
stock issued under such plans. See "-- Management Recognition Plans."
(12) Represents 5,312 shares which, as of September 30, 1997, were subject to
certain vesting requirements as more fully described in "-- Management
Recognition Plans." As of September 30, 1997, the aggregate market value
of the shares was $76,546.
EMPLOYMENT AGREEMENTS
The Company and the Bank have entered into employment agreements with
Donald C. Stroup, President and Chief Executive Officer of the Company and the
Bank and Joe K. McArthur, Executive Vice President, Chief Operating Officer and
Chief Financial Officer of the Company and the Bank. In addition, the Bank has
entered into an employment agreement with Bobby R. Cook, President of the Bank's
Western Division.
The employment agreement with Mr. Stroup was effective as of October 1,
1997 and provides for a term of three years. Pursuant to Mr. Stroup's employment
agreement, the Bank will pay Mr. Stroup an annual base salary of $140,000, for
which the Company is jointly and severally liable. On each anniversary date from
the expiration of the initial three year term of the employment agreement, the
term of Mr. Stroup's employment will be extended for an additional one-year
period beyond the then effective expiration date, upon a determination by the
Boards of Directors of the Company and the Bank that the performance of Mr.
Stroup has met the required performance standards and that such employment
agreement should be extended.
Mr. Stroup's employment agreement entitles him to participate with all
other senior management employees of the Company or the Bank in any
discretionary bonuses that the Company or the Bank Boards of Directors may
award. In addition, Mr. Stroup participates in standard retirement and medical
plans and is entitled to customary fringe benefits, vacation and sick leave. Mr.
Stroup'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. Stroup. If the
Company or the Bank terminates Mr. Stroup without cause, he will be entitled to
a continuation 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. Stroup may voluntarily terminate his employment agreement by
providing sixty days written notice to the Boards of Directors of the Company
and the Bank, in which case he is entitled to receive only his compensation,
vested rights and benefits up to the date of termination.
Mr. Stroup's employment agreement further provides that, in the event
of Mr. Stroup's involuntary termination in connection with, or within one year
after, any change in control of the Bank or the Company, other than for "cause,"
or death or disability, Mr. Stroup 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. Stroup receives on account of the change in control. Such payment
would be reduced to the extent it would cause the Bank to fail to meet any of
its regulatory capital requirements. Under Mr. Stroup's employment agreement, a
"change in control" generally refers to a change in ownership, holding or power
to vote more than 25% of the Company's or Bank's voting stock, a change in the
ownership or possession of the ability to control the election of a majority of
the Bank's or the Company's directors or the exercise of a controlling influence
over the management or policies of the Company or the Bank. In addition, under
Mr. Stroup's employment agreement, a change in control occurs when, during any
consecutive two-year period, directors
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of the Company or the Bank, at the beginning of such period, cease to constitute
two-thirds of the Boards of Directors of the Company or the Bank, unless the
election of replacement directors was approved by a two-thirds (66 2/3%) vote of
the initial directors then in office. Mr. Stroup's employment agreement also
provides for a similar lump sum payment to be made in the event of the Mr.
Stroup's voluntary termination of employment within one year following a change
in control of the Bank or the Company.
The employment agreement with Mr. McArthur was effective as of October
1, 1997 and provides for a term of three years. Pursuant to Mr. McArthur's
employment agreement, the Bank will pay Mr. McArthur an annual base salary of
$105,000 for which the Company will be jointly and severally liable. On each
anniversary date from the expiration of the initial three year term of the
employment agreement, the term of Mr. McArthur's employment will be extended for
an additional one-year period beyond the then effective expiration date, upon a
determination by the Boards of Directors of the Company and the Bank that the
performance of Mr. McArthur has met the required performance standards and that
such employment agreement should be extended.
Mr. McArthur's employment agreement entitles him to participate with
all other senior management employees of the Company or the Bank in any
discretionary bonuses that the Company or the Bank Boards of Directors may
award. In addition, Mr. McArthur participates 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
the Company or the Bank terminates Mr. McArthur without cause, he will be
entitled to a continuation 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. McArthur may voluntarily terminate his
employment agreement by providing sixty days written notice to the Boards of
Directors of the Company and the Bank, 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 one year
after, any change in control of the Bank or the Company, 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; 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. Such payment would be reduced to the extent it would cause the Bank
to fail to meet any of its regulatory capital requirements. 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 the Company's or the Bank's
voting stock, a change in the ownership or possession of the ability to control
the election of a majority of the Bank's or the Company's directors or the
exercise of a controlling influence over the management or policies of the
Company or the Bank. In addition, under Mr. McArthur's employment agreement, a
change in control occurs when, during any consecutive two-year period, directors
of the Company or the Bank, at the beginning of such period, cease to constitute
two-thirds of the Boards of Directors of the Company or the Bank, 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 the Mr.
McArthur's voluntary termination of employment within one year following a
change in control of the Bank or the Company.
The employment agreement with Mr. Cook was effective as of January 1,
1998 and provides for a term of three years. Pursuant to the employment
agreement, the Bank will pay Mr. Cook an annual base
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salary of $90,000. On each anniversary date from the expiration of the initial
three year term of the employment agreement, the term of Mr. Cook's employment
will be extended for an additional one-year period beyond the then effective
expiration date, upon a determination by the Board of Directors of the Bank that
the performance of Mr. Cook has met the required performance standards and that
such employment agreement should be extended.
Mr. Cook's employment agreement entitles him to participate with all
other senior management employees of the Bank in any discretionary bonuses that
the Board of Directors of the Bank may award. In addition, Mr. Cook participates
in standard retirement and medical plans, and is entitled to customary fringe
benefits, vacation and sick leave. Mr. Cook'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. Cook. If the Bank terminates Mr. Cook without cause,
he will be entitled to a continuation 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. Cook may voluntarily terminate his
employment agreement by providing sixty days written notice to the Board of
Directors of the Bank, in which case he is entitled to receive only his
compensation, vested rights and benefits up to the date of termination. In
addition, Mr. Cook's employment agreement contains a provision which permits him
to voluntarily terminate his employment with the Bank and receive a continuation
of his salary and benefits from the date of termination through the remaining
term of the employment agreement plus an additional twelve-month period in the
event a constructive discharge occurs. A constructive discharge will occur if
(i) Mr. Cook is required to move his personal residence or perform his principal
executive functions more than 35 miles from his primary office (Clanton,
Alabama), except for any trips to the principal executive offices of the Bank
(Sylacauga, Alabama) in connection with Mr. Cook's duties pursuant to his
employment agreement; (ii) there is a material reduction without reasonable
cause in Mr. Cook's base compensation, (iii) the Bank fails to continue to
provide Mr. Cook with compensation and benefits substantially similar to those
provided to him under any of the employee benefit plans in which Mr. Cook
currently or in the future becomes a participant; (iv) Mr. Cook is assigned
duties and responsibilities materially different from those normally associated
with his position as President of the Bank's Western Division; (v) there is a
material diminution or reduction in Mr. Cook's responsibilities or authority; or
(vi) there is a material diminution or reduction in the secretarial or
administrative support provided to Mr. Cook by the Bank.
Mr. Cook's employment agreement further provides that, in the event of
Mr. Cook's involuntary termination in connection with, or within one year after,
any change in control of the Bank or, the Company, other than for "cause," or
death or disability, Mr. Cook 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; and (ii) the sum of
any other parachute payments, as defined under Section 280G(b)(2) of the
Internal Revenue Code, that Mr. Cook receives on account of the change in
control. Such payment would be reduced to the extent it would cause the Bank to
fail to meet any of its regulatory capital requirements. Under Mr. Cook's
employment agreement, "change in control" generally refers to a change in
ownership, holding or power to vote more than 25% of the Company's or the Bank's
voting stock, a change in the ownership or possession of the ability to control
the election of a majority of the Bank's or the Company's directors or the
exercise of a controlling influence over the management or policies of the
Company or the Bank. In addition, under Mr. Cook's employment agreement, a
change in control occurs when, during any consecutive two-year period, directors
of the Company or the Bank, at the beginning of such period, cease to constitute
two-thirds of the Boards of Directors of the Company or the Bank, unless the
election of replacement directors was approved by a two-thirds (66 2/3%) vote of
the initial directors then in office. Mr. Cook's employment agreement also
provides for a similar lump sum payment to be made in the
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event of Mr. Cook's voluntary termination of employment within one year
following a change in control of the Bank or the Company.
DEFERRED COMPENSATION AGREEMENTS
The Bank has entered into deferred compensation agreements
(collectively, the "Deferred Compensation Agreements") with Mr. Stroup and Mr.
McArthur, pursuant to which each will receive certain retirement benefits at age
65. Under the Deferred Compensation Agreements, benefits are payable for 15
years. A portion of the retirement benefits accrue each year until age 65 or, if
sooner, until termination of employment. If Mr. Stroup remains in the employment
of the Bank until age 65, his annual benefit will be $65,000. If Mr. McArthur
remains in the employment of the Bank until age 65, his annual benefit will be
$45,000. If either of these officers die prior to age 65, while in the
employment of the Bank, the full retirement benefits available under the
deferred compensation agreements will accrue and will, thereupon, be payable to
their respective beneficiaries. The retirement benefits available under the
Deferred Compensation Agreements are unfunded. However, the Bank has purchased
life insurance policies on the lives of these officers that will be available to
the Company and the Bank to provide, both, for retirement benefits and for key
man insurance. The costs of these arrangements was $57,075 in each of 1997, 1996
and 1995.
MANAGEMENT RECOGNITION PLANS
The Board of Directors of the Company has adopted two management
recognition plans, 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 the Company and the Bank to reward and retain personnel
of experience and ability in key positions of responsibility by providing such
personnel with a proprietary interest in the Company and by recognizing their
past contributions to the Company and the Bank, and to act as an incentive to
make such contributions in the future.
Plan A and Plan B are identical except that Plan A provides for awards
to employees, as well as to non-employee directors, of the Company and the Bank,
while Plan B provides for awards only to employees. Non-employee directors are
entitled to participate in Plan A only, as described in the preceding sentence.
The Plans are administered by a committee (the "Committee") of the Company's
Board of Directors. Awards under the Plans are in the form of restricted stock
grants (the "MRPs"). Each MRP has reserved a total of 16,600 shares of 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 MRPs 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) 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 the Company and the Bank and any other
factors the Committee may deem relevant. As of September 30, 1996, a total of
33,200 shares had been awarded under the Plans and, as of that date, no further
shares were available for future issuance.
Once an award is made, a participant "earns" the shares under the award
(i.e., the shares vest) at the rate of 20% per year, commencing on the first
anniversary of the date of the award. The Committee may,
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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 the Company. If a participant terminates
employment for reasons other than death or disability, the participant forfeits
all rights to the allocated shares under restriction. If the participant's
termination is caused by death or disability, all restrictions expire and all
shares allocated become vested and consequently, unrestricted. Participants will
recognize compensation income when 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.
STOCK OPTION PLAN
On June 8, 1994, the Company's Board of Directors adopted a Stock
Option Plan denominated SouthFirst Bancshares, Inc. Stock Option and Incentive
Plan, which was approved by the shareholders of the Company on September 27,
1995 (the "1995 Stock Option and Incentive Plan"). The objective of the 1995
Stock Option and Incentive Plan is to attract, retain, and motivate the best
possible personnel for positions of substantial responsibility with the Company
and the Bank. The 1995 Stock Option and Incentive Plan provides select officers,
directors, and employees of the Bank and the Company with an opportunity to
participate in the ownership of the Company. The 1995 Stock Option and Incentive
Plan authorizes the grant of up to 83,000 shares of Common Stock to select
officers, directors, and employees in the form of (i) incentive and nonqualified
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 and Incentive Plan. The exercise
price for Options and SARs 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 the grant. The 1995 Stock Option and
Incentive Plan has a term of 10 years unless earlier terminated by the Company's
Board of Directors. The 1995 Stock Option and Incentive Plan is administered by
a committee of the directors of the Company (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 1995 Stock Option and Incentive Plan, and will determine 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 1995
Stock Option and Incentive Plan, the Option Plan Committee will consider the
position, duties, and responsibilities of the employees, the value of their
services to the Company and the Bank, and any other factor the Option Plan
Committee may deem relevant to achieving the stated purpose of the 1995 Stock
Option and Incentive Plan.
Options granted under the 1995 Stock Option and Incentive Plan are
exercisable on a cumulative basis in equal installments of 20% per year
commencing one year from the date of grant except that all options would be 100%
exercisable in the event the optionee terminates his employment due to death,
disability or retirement or in the event of a change in control of the Bank or
the Company.
In order to attract and retain members of the Board of Directors of the
Company who contribute to the Company's success, the 1995 Stock Option and
Incentive Plan further provides for the award of nonqualified stock options to
non-employee directors of the Company. All directors who were not employees of
the Company, as of November 15, 1995 (the date of the approval of the 1995 Stock
Option and Incentive Plan by the shareholders of the Company 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 the Company's
Common Stock on the date of grant.
As of September 30, 1996, a total of 83,000 shares had been issued
under the 1995 Stock Option and Incentive Plan and, as of that date, no further
shares were available for future issuance. Since September 30,
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17
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 grants became available for re-issuance under the 1995 Stock Option
and Incentive Plan. On January 28, 1998, the Board of Directors of the Bank
reissued the 4,150 shares available under the 1995 Stock Option and Incentive
Plan in conjunction with certain additional stock option grants made pursuant to
the SouthFirst Bancshares, Inc. 1998 Stock Option and Incentive Plan (the "1998
Stock Option and Incentive Plan"). For a description of the 1998 Stock Option
and Incentive Plan, see "AGENDA ITEM THREE - PROPOSAL TO ADOPT 1998 STOCK OPTION
AND INCENTIVE PLAN."
The following table provides certain information concerning each
exercise of stock options under the Company' 1995 Stock Option and Incentive
Plan during the fiscal year ended September 30, 1997 by the named executive
officers and the fiscal year end value of unexercised options held by such
person:
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR END OPTION VALUES
Number of Securities Value of Unexercised
Underlying In-the-Money
Unexercised Options Options at Fiscal
at Fiscal Year End Year End
Shares Acquired Value Exercisable/ Exercisable/
Name on Exercise Realized Unexercisable Unexercisable(1)
---- ------------- -------- ------------- ----------------
Donald C. Stroup 0 $0 4,150/16,600 $17,119/$68,475
Joe K. McArthur 0 $0 2,656/10,624 $10,956/$43,824
- --------------
(1) Represents the value of unexercised, in-the-money stock options on
September 30, 1997, using the $18.125 closing price of SouthFirst Common
Stock on that date.
EMPLOYEE RETIREMENT SAVINGS PLAN
The Bank 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 the Bank. Under the
401(k) Plan, eligible employees may contribute up to 10% of their gross salary
to the 401(k) Plan or $9,500, whichever is less. Each participating employee is
fully vested in contributions made by such employee. Prior to the Bank'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 Bank
contribution of $0.50 for each $1.00 of employee contribution and contributions
from 4% to 6% were 100% matched. During this period, contributions were 100%
vested following the completion of five years of service and were invested in
one or more investment accounts administered by an independent plan
administrator.
EMPLOYEE STOCK OWNERSHIP PLAN
The Bank has adopted an Employee Stock Ownership Plan (the "ESOP") for
the exclusive benefit of participating employees. All employees of the Bank who
have attained age 21 and who have completed a year of service with the Bank are
eligible to participate in the ESOP. The Company has loaned the ESOP $664,000,
the proceeds of which the ESOP used to purchase 66,400 shares of the Company's
Common Stock.
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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 the Bank on the last day of the
plan year and have earned 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 the Company's Common Stock are to be used to repay the ESOP loan; any
dividends paid on shares of the Company's Common Stock allocated to participant
accounts will be credited to said accounts.
A participant will become 20% vested in his benefits under the ESOP
once he or she has provided two years of service to the Bank. The participant
will earn an additional 20% for each additional year of service so that he or
she is fully vested once he or she has completed six years of service.
Participants also become fully vested upon death, disability, attainment of
normal retirement age, and 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 the Bank. 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 will
be eligible to begin receiving benefits once he or she has incurred his or her
fifth one year break in service. Distributions will generally be made in whole
shares of the Company's Common Stock, with the value of fractional shares being
paid in cash. Although accounts will generally be distributed in a lump sum,
accounts valued in excess of $500,000 may be distributed in installments over a
five-year period.
The Company is the plan administrator of the ESOP and Regions Bank,
Birmingham, Alabama serves as the trustee of the ESOP (the "ESOP Trustee"). A
participant may vote any shares of the Company's Common Stock that are allocated
to his or her account. Any unallocated shares of the Company's Common Stock and
allocated shares of the Company's Common Stock for which no timely direction is
received is voted by the ESOP Trustee in accordance with its fiduciary
obligations.
COMPENSATION OF DIRECTORS
Each member of the Bank Board of Directors (other than the Chairman)
receives a fee of $750 for each board meeting attended (with one excused
absence), and each non-employee director of the Bank, if a member of a
committee, receives $500 for each committee meeting attended. The Chairman of
the Bank Board of Directors receives a fee of $850 for each board meeting
attended. Each member of the Company Board of Directors receives a fee of $500
for each board meeting attended. Members of the Loan Committee are paid $600 per
month rather than receiving a fee for each committee meeting attended.
The Company has adopted, by resolution of the Board of Directors of the
Company, a dividend incentive plan pursuant to which holders of options to
purchase the Company's Common Stock are paid an amount equal to the number of
shares underlying stock options held by them, multiplied by the amount of
dividends per share paid by the Company to the holders of its Common Stock.
Accordingly, during fiscal 1997, each non-employee director was paid a total of
$2,075 with respect to the shares of Common Stock
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underlying options held by him. Further, each non-employee director was paid a
total of $830 with respect to the MRPs held by him as provided under the
applicable Management Recognition Plan.
CERTAIN TRANSACTIONS
No directors, executive officers, or immediate family members of such
individuals were engaged in transactions with the Company (other than loans)
involving more than $60,000 during the period from the year ended September 30,
1996 through February 24, 1998. The Bank, like many 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 the Bank's other
customers, and do not involve more than the normal risk of collectibility, nor
present other unfavorable features. All loans by the Bank to its officers and
executive officers are subject to OTS regulations restricting loans and other
transactions with affiliated persons of the Bank. In addition, all future credit
transactions with such directors, officers and related interests of the Company
and the Bank 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 the Company, including the majority
of the disinterested directors. At September 30, 1997, the aggregate of all
loans by the Bank to its officers, directors, and related interests was
$1,108,000.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The Company presently does not have a compensation committee because no
officers of the Company receive any compensation for services to the Company.
All officers of the Company are compensated by the Bank solely for their
services to the Bank. In addition, directors are paid for attendance at the Bank
committee meetings, but employee members of committees are not paid. Donald C.
Stroup, President and Chief Executive Officer of the Company and the Bank, and
Joe K. McArthur, Executive Vice President, Chief Operating Officer, and Chief
Financial Officer of the Bank, serve as members of the Wage and Compensation
Committee of the Bank. The Bank's Wage and Compensation Committee is responsible
for reviewing salaries and benefits of directors, officers, and employees of the
Bank. The Company had no "interlocking" relationships existing on or after the
year ended September 30, 1997 in which (i) any executive officer is a member of
the Board of Directors/Trustees of another entity, one of whose executive
officers is a member of the Bank Board, or where (ii) any executive officer is a
member of the compensation committee of another entity, one of whose executive
officers is a member of the Bank Board.
REPORT OF COMPENSATION COMMITTEE
ON EXECUTIVE COMPENSATION
In accordance with the proxy statement rules of the Securities and
Exchange Commission, the Wage and Compensation Committee of the Board of
Directors of the Bank (the "Compensation Committee") offers the following report
regarding compensation policies for executive officers and the Chief Executive
Officer of the Bank and information with respect to compensation paid to such
persons during the last fiscal year. The Company presently does not have a
compensation committee as no officers of the Company receive any compensation
for services to the Company. All executive officers are compensated by the
Company's wholly-owned subsidiary, the Bank, solely for their services to the
Bank.
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The Compensation Committee of the Board of Directors is comprised of
Messrs. Stroup, McArthur and three non-employee directors of the Bank. It is the
Committee's responsibility to establish the salaries, bonuses and other
compensation of the Chief Executive Officer and other executive officers of the
Bank.
The Compensation Committee utilizes the following guidelines for
compensation decisions:
- Provide a competitive compensation package that enables the Company
and the Bank to attract and retain key executives.
- Integrate compensation programs with the Company's and the Bank's
annual and long-term business strategies and objectives and focus
executive actions on the fulfillment of those objectives.
The Bank's executive compensation program generally consists of base
salary, bonuses and equity incentives in the form of stock options and
restricted stock awards. Base salaries and bonuses for executive officers are
reviewed and adjusted annually following a review of the Bank's performance
during the previous fiscal year, the individual's contribution to that
performance and the individual's level of responsibility. To align executive
officers' interests more closely with the interests of the stockholders of the
Company and the Bank, the Bank's compensation program emphasizes the grant of
stock options exercisable for shares of Common Stock and awards of restricted
stock under the Company's Management Recognition Plans. The amount of such
awards, if any, is determined from time to time by the Stock Option Committee
and the Management Recognition Plan Committee except that decisions respecting
the amount and recipients of stock option grants and SAR awards under the 1998
Stock Option and Incentive Plan, adopted by the Company's Board of Directors on
January 21, 1998 (see "AGENDA ITEM TWO, PROPOSAL TO ADOPT 1998 STOCK OPTION AND
INCENTIVE PLAN"), shall be made by the entire Board of Directors of the Company.
The Committees, and in the case of the 1998 Stock Option and Incentive Plan, the
Company's Board of Directors, may take into account various factors in
determining the size of stock option grants and other awards, including the need
to attract and retain individuals who will provide valuable service to the
Company and the Bank. In order that the Option Plan Committee and the Management
Recognition Plan Committee may remain disinterested in its administration of the
Company's 1995 Stock Option and Incentive Plan and the Company's Management
Recognition Plans, Messrs. Stroup and McArthur are not members of either the
Option Plan Committee or the Management Recognition Plan Committee.
The Chief Executive Officer's compensation, as well as that of the
Executive Vice President, Chief Operating Officer and Chief Financial Officer,
is comprised of a base salary which is directly related to the responsibilities
of the position and a bonus which is related to the Company's performance. The
Chief Executive Officer and the Executive Vice President work together as a
corporate team and, as such, bear the principal burden of corporate management
decisions -- the Chief Executive Officer, of course, bearing final
responsibility. Thus, these two officers participate more heavily in the
division of bonus awards. For fiscal 1997, these two officers received 20.8% of
total bonus awards.
The fiscal 1997 compensation of Donald C. Stroup, the President and
Chief Executive Officer of the Company and the Bank, and of Joe K. McArthur, the
Executive Vice President, Chief Operating Officer and Chief Financial Officer of
the Company and the Bank, was established by the terms of employment agreements
with the Company at $100,308 and $73,380, respectively, plus any discretionary
bonuses that the Board of Directors of the Company or the Bank may award. The
Board of Directors elected to grant a regular bonus of $16,718 to Mr. Stroup and
a regular bonus of $12,230 to Mr. McArthur in fiscal 1997. During Fiscal 1997,
the Company also paid an aggregate of $414,000 in dividends to its stockholders.
Accordingly,
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under the Management Recognition Plans and the Company's Dividend Incentive
Plan, which is designed to permit officers and directors of the Company and the
Bank to earn dividends on shares of Common Stock underlying unexercised stock
options, Messrs. Stroup and McArthur were paid dividends of $10,375 and $6,640,
respectively on shares of unvested Restricted Stock and shares subject to
unexercised options held by them. These dividends were treated as bonuses paid
by the Company to Messrs. Stroup and McArthur.
In approving the compensation paid to Mr. Stroup and Mr. McArthur in
fiscal 1997, the Compensation Committee considered the following factors:
(a) the reasonableness of Mr. Stroup's and Mr. McArthur's salary
in amount relative to the executive officers of similarly
placed banks;
(b) Mr. Stroup's and Mr. McArthur's performance in light of the
performance of the Company and the Bank and their prospects;
and
(c) the performance of the Company's Common Stock.
A significant portion of the compensation received by Messrs. Stroup
and McArthur was in the form of equity awards and dividends relating to such
equity awards. In light of the outstanding performance of the Company's Common
Stock and the amount of dividends paid to the stockholders of the Company in
fiscal 1997, the Compensation Committee considered such compensation of Messrs.
Stroup and McArthur to be reasonable. During fiscal 1997, the Company paid an
aggregate of $414,000 in dividends. It was determined that a majority of these
dividends paid in fiscal 1997, as well as since the Company's initial public
offering, will be treated, for income tax purposes, as a "return of capital," as
opposed to ordinary income. Accordingly, taking into account the dividends paid
to stockholders and their treatment for income tax purposes as a return of
capital, the value of the stockholders' Common Stock appreciated significantly.
Based on this analysis, the Compensation Committee determined that the
compensation paid to Messrs. Stroup and McArthur to be fair and reasonable.
With respect to the other executive officers of the Bank, the
Compensation Committee considered the compensation levels to be commensurate
with those of similarly positioned executives in similar banks.
Donald C. Stroup John T. Robbs
Joe K. McArthur Charles R. Vawter, Jr.
Paul A. Brown
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STOCKHOLDER RETURN PERFORMANCE GRAPH
Set forth below is a line graph comparing the percentage change in the
cumulative total stockholder return on the Company's Common Stock against the
cumulative total stockholder return on stocks included in the American Stock
Exchange, Inc. ("AMEX") Market Index, the AMEX Financial Sub Index ("AMEX Fin.
Sub Index") and the Dow Jones Industry Group SAL (Savings & Loan) Index during
the period commencing February 14, 1995 (the date the Company's Common Stock
commenced trading on the AMEX) and ending September 30, 1997. The graph assumes
that the value of the investment in the Company's Common Stock and each index
was $100 on February 14, 1995.
In 1997, the composition of the Amex Fin. Sub Index was changed by its
publisher and a newly developed index, bearing the same name, was published in
its place. Upon a review of the companies constituting the basis for the revised
Amex Fin. Sub Index, the Company has determined that the revised Amex Fin. Sub
Index no longer bears an appropriate relationship to the Company for purposes of
performance comparisons and performance evaluation. However, under the
Securities and Exchange Commission reporting regulations, the Company is
required to report its performance, as compared to the Amex Fin. Sub Index.
Accordingly, the Amex Fin. Sub Index, as plotted in the Performance Graph below,
is a composite of the former Amex Fin. Sub Index for 1995 and 1996 and the new
Amex Fin. Sub Index for 1997. The Company has selected the Dow Jones Industry
Group SAL (Savings & Loan) Index to replace the Amex Fin. Sub Index. Therefore,
the Company's performance as compared to the Dow Jones Industry Group SAL
(Savings & Loan) Index is also shown below.
[Performance Graph on Following Page]
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COMPARES CUMULATIVE TOTAL RETURN AMONG
SOUTHFIRST BANCSHARES, INC., AMEX MARKET INDEX,
AMEX FINANCIAL SUB INDEX AND DOW JONES INDUSTRY
GROUP SAL (SAVINGS & LOAN) INDEX
FISCAL YEAR ENDING
-----------------------------------
COMPANY 1995 1995 1996 1997
SouthFirst Bancshares, Inc. 100.00 128.27 132.51 199.11
Amex Market Index 100.00 124.29 129.36 157.31
Amex Financial Sub Index 100.00 117.22 135.81 29.17
Dow Jones Industry Group
SAL (Savings & Loan) Index 100.00 135.46 160.51 271.68
ASSUMES $100 INVESTED ON FEBRUARY 14,1995
ASSUMES DIVIDENDS REINVESTED
FISCAL YEAR ENDING SEPTEMBER 30, 1997
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AGENDA ITEM TWO
PROPOSAL TO ADOPT 1998 STOCK OPTION AND INCENTIVE PLAN
On January 28, 1998, the Board of Directors of the Company adopted the
SouthFirst Bancshares, Inc. 1998 Stock Option and Incentive Plan (the "1998
Stock Option and Incentive Plan") for eligible directors, officers and key
employees of the Company and its subsidiaries and affiliates. The Board of
Directors of the Company recommends that the Company's shareholders vote for
approval of the 1998 Stock Option and Incentive Plan, which provides for the
grant of incentive and nonqualified stock options (individually an "Option" and
collectively "Options") and stock appreciation rights ("SARs"). The purpose of
the 1998 Stock Option and Incentive Plan is to encourage and enable
participating directors, officers and key employees to remain in the employ of
and to give a greater effort on behalf of the Company and its subsidiaries and
affiliates. Approval of the 1998 Stock Option and Incentive Plan will require
the affirmative vote of a majority of the votes entitled to be cast at the
Annual Meeting of Shareholders.
The Company has granted Options pursuant to the 1998 Stock Option and
Incentive Plan as follows: (i) each named executive officer of the Company
(Donald C. Stroup: 10,030 shares; Joe K. McArthur: 7,428 shares; Bobby R. Cook:
4,726 shares; Jimmy C. Maples: 4,051 shares); (ii) all current executive
officers as a group: 26,235 shares; (iii) all current directors of the Company
and the Bank who are not executive officers, as a group: 22,626 shares; (iv)
each nominee for election as a director (Bobby R. Cook: 4,726 shares; J. Malcomb
Massey: 3,726 shares; H. David Foote, Jr.: 2,700 shares; John T. Robbs 2,700
shares); all employees, including all current officers who are not executive
officers, as a group: 18,226 shares.
The following discussion of the principal features and effects of the
1998 Stock Option and Incentive Plan is qualified in its entirety by reference
to the full text of the Plan, which is set forth in Exhibit A attached hereto
and incorporated herein by this reference.
EFFECTIVE DATE
The effective date of the Plan is January 28, 1998. The 1998 Stock
Option and Incentive Plan shall remain in effect until all shares subject to or
which may become subject to the Plan shall have been purchased pursuant to
Options or shall have been charged against the 1998 Stock Option and Incentive
Plan with respect to the grant of Options and SARs under circumstances in which
the charged shares shall not have become available for reissuance under the 1998
Stock Option and Incentive Plan, provided that Options and SARs under the 1998
Stock Option and Incentive Plan must be granted within ten (10) years from the
effective date.
SHARES SUBJECT TO THE 1998 STOCK OPTION AND INCENTIVE PLAN
The shares of the Company's Common Stock available for issuance under
the 1998 Stock Option and Incentive Plan may, at the election of the Board of
Directors, be either treasury shares or shares originally issued for such
purpose. The maximum number of shares which shall be reserved and made available
for sale under the 1998 Stock Option and Incentive Plan shall be 63,361. Any
shares subject to an Option or an SAR which for any reason expires or is
terminated prior to its exercise, except for shares relating to an Option
granted in conjunction with an SAR the exercise of which terminates the Option,
may again be subject to an Option or SAR under the 1998 Stock Option and
Incentive Plan.
PERSONS ELIGIBLE TO PARTICIPATE IN THE 1998 STOCK OPTION AND INCENTIVE PLAN
Under the 1998 Stock Option and Incentive Plan, Options and SARs may be
granted only to directors, officers, key employees and consultants or advisors
of the Company who are in a position to contribute significantly to the
effective management and operation of the Company. Only officers and employees
of the Company, however, are eligible to receive incentive stock options and
SARs under the 1998 Stock Option and Incentive Plan.
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ADMINISTRATION OF THE 1998 STOCK OPTION AND INCENTIVE PLAN
The 1998 Stock Option and Incentive Plan will be administered by the
Board of Directors of the Company or by a committee comprised of no fewer than
three (3) members appointed by the Board of Directors of the Company from among
its members (the "Committee"). Members of the Committee must be "Disinterested
Persons" as such term is defined under Rule 16b-3 under the 1934 Act, as
amended. Subject to the provisions of the 1998 Stock Option and Incentive Plan,
and with the exception of certain nonqualified options granted to non-employee
directors, the Board of Directors or the Committee has the authority to
determine the individuals to whom Options and SARs shall be granted and to
determine exercise prices, vesting requirements, the term of and the number of
shares covered by each Option and SAR.
AWARDS AVAILABLE UNDER THE 1998 STOCK OPTION AND INCENTIVE PLAN
The 1998 Stock Option and Incentive Plan provides for the award of
incentive stock options to employees of the Company and its subsidiaries and
affiliates and for the award of non-qualified stock options to non-employee
directors of the Company and the Bank. In addition, SARs may be granted under
the Plan to employees of the Company and its subsidiaries and affiliates. SARs
may be granted in conjunction with or independently of any Options granted under
the 1998 Stock Option and Incentive Plan. SARs granted independently of any
Option are subject to the terms and conditions of the Award Agreement, as such
terms and conditions are determined by the Board of Directors of the Company or
the Committee, except that the period of exercisability shall be the same as
that set forth for Options granted under the 1998 Stock Option and Incentive
Plan. See "Exercise of Options and SARs" and "Termination of Employment." SARs
granted in tandem with an incentive stock option ("Tandem Incentive SARs") are
subject to the same requirements as the incentive stock option with respect to
its expiration, period of exercisability, exercise price and transferability. In
addition, the Tandem Incentive SAR may only be exercised when the market value
of the shares of Common Stock subject to the incentive stock option to which it
relates exceeds the exercise price of the incentive stock option. Any election
to exercise a SAR must be made during the period beginning on the 3rd business
day following the release for publication of quarterly or annual financial
information about the Company and ending on the 12th business day following such
date. Upon the exercise of an SAR, a participant shall be entitled to receive an
amount in cash or shares of the Company's Common Stock equal in value to the
excess of the fair market value of one share of Common Stock over the exercise
price per share specified in the related Option or SAR, multiplied by the number
of shares in respect of which the SAR is exercised, with the Board or the
Committee having the right to determine the form of payment.
EXERCISE PRICE, TERMS OF EXERCISE AND PAYMENT FOR SHARES
Each Option and SAR granted under the 1998 Stock Option and Incentive
Plan will be represented by an award agreement (the "Award Agreement") which
shall set forth the terms particular to that Option or SAR, including the number
of shares covered by the Option or SAR, the exercise price, the term of the
Option or SAR and any vesting requirements.
The exercise price of Options and Tandem Incentive SARs granted under
the 1998 Stock Option and Incentive Plan will be determined by the Board of
Directors or the Committee, but in no event shall be less than 100% of the
market price of the Company's Common Stock on the date of the grant of the
Option or the Tandem Incentive SAR. The exercise price for Options and Tandem
Incentive SARs granted under the 1998 Stock Option and Incentive Plan is
determined as follows: (i) if the Company's Common Stock is listed on a national
securities exchange on the date in question, then the exercise price shall be
not less than the average of the highest and lowest selling price on such
exchange on such date, or if there were no sales on such date, then the exercise
price shall be not less than the mean between the bid and asked price on such
date; or (ii) if the Company's Common Stock is traded otherwise than on a
national securities exchange on the date in question, then the exercise price
shall be not less than the mean between the bid and asked price on such date,
or, if there is no bid and asked price on such date, then on the next prior
business day on which there was a
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bid and asked price. If no such bid and asked price is available, then the
exercise price shall be its fair market value as determined by the Committee, in
its sole and absolute discretion.
Options may be purchased in whole or in part by the option holder, but
in no event later than ten (10) years from the date of the grant. Any incentive
stock option or Tandem Incentive SAR granted under the 1998 Stock Option and
Incentive Plan to an individual who owns directly or indirectly (under
applicable ownership attribution rules) more than 10% of the total combined
voting power of all classes of stock of the Company may not be purchased at a
price less than 110% of the market price on the day the Option or Tandem
Incentive SAR is granted, and no such Option or Tandem Incentive SAR may be
exercised more than five (5) years from the date of grant. The purchase price
for the shares purchased pursuant to an Option shall be paid in cash, in Common
Stock of the Company or in a combination of cash and Common Stock. Upon payment,
the Company will deliver stock certificates for such shares to the Option
holder.
EXERCISE OF OPTIONS AND SARS
Options and SARs granted under the 1998 Stock Option and Incentive Plan
become exercisable at such times and under such conditions as are permissible
under the terms of the 1998 Stock Option and Incentive Plan and of the
individual Award Agreement entered into with each award holder, subject to the
limitation that the exercise of any Option or Tandem Incentive SARs granted
under the 1998 Stock Option and Incentive Plan is subject to, and may not
exceed, vesting at a rate of 20% a year, from the date of the Award; provided,
however, that each award holder will become 100% vested upon death, permanent
and total disability, retirement, or upon the occurrence of a change in control
event. Neither an Option nor a SAR may be exercised for a fractional share.
TERMINATION OF EMPLOYMENT
Generally, an Option or a SAR may be exercised by an award holder only
while he is an employee of the Company or its subsidiaries or affiliates and
only if he has maintained continuous service with the Company or its
subsidiaries or affiliates from the date of the grant of the Option or SAR. In
the event that an award holder ceases to be employed by the Company or its
subsidiaries or affiliates, or, in the case of a non-employee director, ceases
to be a director of the Company or the Bank, for reasons other than for "Cause,"
as such term is defined in the 1998 Stock Option and Incentive Plan, the Options
or SARs granted to such award holder are exercisable for a period of three
months after termination of his continuous service with the Company or its
subsidiaries or affiliates; provided, that an award holder will have a longer
period within which to exercise his Options or SARs if his continuous service
with the Company or its subsidiaries or affiliates terminates by reason of (i)
death, in which case the Option or SAR may be exercised by the award holder's
estate or by the person to whom his rights under such Option or SAR have passed,
within a period of two years following the date of termination by reason of the
award holder's death, though in no event after the date upon which the Option or
SAR would otherwise expire, (ii) permanent and total disability, in which case
the Option or SAR may be exercised by the award holder within a period of one
year following the date of termination by reason of the award holder's total and
permanent disability, though in no event after the date upon which the Option or
SAR would otherwise expire, (iii) retirement, in which case the Option or SAR
may be exercised by the award holder within a period of six months following the
date of termination by reason of the award holder's retirement, though in no
event after the date upon which the Option or SAR would otherwise expire, and
(iv) change in control of the Company or the Bank, in which case the Option or
SAR may be exercised by the award holder with a period of sixty days beginning
on the date of such change in control, after which time the Option or SAR, if
not exercised, will expire.
Options and SARs granted under the 1998 Stock Option and Incentive Plan
are exercisable during the lifetime of the award holder only by the award
holder. All Options and SARs granted under the 1998 Stock Option and Incentive
Plan are non-transferable except by will or under the laws of descent and
distribution.
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REORGANIZATION AND RECAPITALIZATION
In case the Company is merged or consolidated with another corporation
and the Company is not the survivor, or in case the Company is acquired by
another corporation, or in case of a sale or disposition of all or substantially
all of the Company's assets, all outstanding awards under the 1998 Stock Option
and Incentive Plan must be surrendered by the award holder. With respect to each
surrendered award, the Board of Directors, in its sole discretion, may replace
the shares subject to each surrendered award with shares changed or exchanged
for the Company's Common Stock, together with an appropriate adjustment to the
exercise price of such award, or make a cash payment to the award holder in an
amount equal to the market value of the shares subject to the award on the date
of the reorganization transaction, less the exercise price of the award.
The number and kind of shares reserved for issuance under the 1998
Stock Option and Incentive Plan, and the number and kind of shares subject to
outstanding awards (and the exercise price thereof), will be proportionately
adjusted for any increase, decrease, change or exchange of shares of the
Company's Common Stock for a different number or kind of shares or other
securities of the Company which results from a merger, consolidation,
recapitalization, reorganization, reclassification, stock dividend, split-up,
combination of shares, or similar event in which the number or kind of shares is
changed without the receipt or payment of consideration by the Company.
LIMITATION ON NUMBER OF SHARES THAT MAY BE PURCHASED
For incentive stock options and Tandem Incentive SARs granted under the
1998 Stock Option and Incentive Plan, the aggregate fair market value
(determined at the time the option was granted) of the shares with respect to
which incentive stock options and Tandem Incentive SARs are exercisable for the
first time by an award holder during any calendar year shall not exceed
$100,000. Any excess over such amount shall be deemed to be related to and part
of a nonqualified stock option.
AMENDMENT AND TERMINATION OF THE PLAN
With respect to any shares of Common Stock at the time not subject to
Options, the Board of Directors may at any time and from time to time,
terminate, modify or amend the 1998 Stock Option and Incentive Plan in any
respect, except that no such modification or amendment shall be made absent the
approval of the shareholders of the Company to: (i) increase the number of
shares for which Options or SARs may be granted under the 1998 Stock Option and
Incentive Plan; (ii) extend the period during which Options or SARs may be
granted or exercised; (iii) change the class of persons eligible for awards of
Options or SARs; or (iv) otherwise materially modify the requirements as to
eligibility for participation in the 1998 Stock Option and Incentive Plan. The
Company's Board of Directors may also suspend the granting of Options and SARs
pursuant to the 1998 Stock Option and Incentive Plan at any time and may
terminate the 1998 Stock Option and Incentive Plan at any time; provided,
however, no such suspension or termination shall modify or amend any Option or
SAR granted before such suspension or termination unless the affected
participant consents in writing, to such modification or amendment or there is a
dissolution or liquidation of the Company.
FEDERAL INCOME TAX CONSEQUENCES
Incentive Stock Options. All stock options granted or to be granted
under the 1998 Stock Option and Incentive Plan which are designated as incentive
stock options are intended to be incentive stock options as defined in Section
422 of the Code.
Under the provisions of Section 422 of the Code, neither the holder of
an incentive stock option nor the Company will recognize income, gain, deduction
or loss upon the grant or exercise of an incentive stock option. An option
holder will be taxed only when the stock acquired upon exercise of his or her
incentive stock option is sold or otherwise disposed of in a taxable
transaction. If at the time of such sale or disposition
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the option holder has held the shares for the required holding period (two years
from the date the option was granted and one year from the date of the transfer
of the shares to the option holder), the option holder will recognize long-term
capital gain or loss, as the case may be, based upon the difference between his
exercise price and the net proceeds of the sale. However, if the option holder
disposes of the shares before the end of such holding period, the option holder
will recognize ordinary income on such disposition in an amount equal to the
lesser of:
(a) the gain on the sale or other disposition; or
(b) the amount by which the fair market value of the shares on the date
of exercise exceeded the option exercise price, with any excess gain being
capital gain, long-term or short-term, depending on the holding period of the
shares on the date of sale or other taxable disposition.
The foregoing discussion and the reference to capital gain or loss
treatment therein assumes that the option shares are a capital asset in the
hands of the option holder. A sale or other disposition which results in the
recognition of ordinary income to the option holder will also result in a
corresponding income tax deduction for the Company.
Incentive stock options offer two principal tax benefits: (1) the
possibility of recognizing a long-term capital gain rather than ordinary income
to the extent of the excess of fair market value of the stock over the option
price at the time of exercise, and (2) the deferral of recognition of gain until
disposition of the stock acquired upon the exercise of the option.
The Taxpayer Relief Act of 1997 (the "1997 Tax Act") made significant
changes to individual capital gains tax rates. The 1997 Tax Act generally
reduces the maximum tax rate for gains realized by individual taxpayers from the
sale of capital assets held for more than eighteen months from 28% to 20% (18%
if the property has been held for more than five years and is acquired and sold
after the year 2000). For capital assets held for more than one year but not
more than eighteen months, the maximum tax rate remains at 28%, as it was under
prior law. In addition, taxpayers otherwise subject to the 15% rate bracket will
be entitled to a 10% maximum tax rate on long-term capital gains (8% if the
property has been held for more than five years and is sold after the year
2000). The new maximum tax rates for long-term capital gains will apply for
purposes of both the regular income tax and the alternative minimum tax.
However, the excess of the fair market value of shares acquired through the
exercise of an incentive stock option over the exercise price is taken into
account in computing an individual taxpayer's alternative minimum taxable
income. Thus, the exercise of an incentive stock option could result in the
imposition of an alternative minimum tax liability.
In general, an Option granted under the 1998 Stock Option and Incentive
Plan which is designated as an incentive stock option will be taxed as described
above. However, in some circumstances an Option which is designated as an
incentive stock option will be treated as a nonqualified stock option and the
holder taxed accordingly. For example, a change in the terms of an Option which
gives the employee additional benefits may be treated as the grant of a new
Option. Unless all the criteria for treatment as an incentive stock option are
met on the date the "new Option" is considered granted (such as the requirement
that the exercise price of the option be not less than the fair market value of
the stock as of the date of the grant), the Option will be treated and taxed as
a nonqualified stock option.
Nonqualified Stock Options. All Options granted or to be granted under
the 1998 Stock Option and Incentive Plan which do not qualify as incentive stock
options are nonqualified options not entitled to special tax treatment under
Section 422 of the Code.
A participant in the 1998 Stock Option and Incentive Plan will
recognize taxable income upon the grant of a nonqualified stock Option only if
such Option has a readily ascertainable fair market value as of the date of the
grant. In such a case, the Option holder will recognize taxable ordinary income
in
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an amount equal to the excess of the fair market value of the Option as of such
date over the price, if any, paid for such Option. No income would then be
recognized on the exercise of the Option, and when the shares obtained through
the exercise of the Option are disposed of in a taxable transaction, the
resulting gain or loss would be capital gain or loss (assuming the shares are a
capital asset in the hands of the Optionee). However, under the applicable
Treasury Regulations, the nonqualified stock Options issued under the 1998 Stock
Option and Incentive Plan will not have a readily ascertainable fair market
value unless at the time such Options are granted similar Options of the Company
are actively traded on an established market. The Company presently has no such
actively traded Options.
Upon the exercise of a nonqualified option not having a readily
ascertainable fair market value, the option holder recognizes ordinary income in
an amount equal to the excess of the fair market value of the shares on the date
of exercise over the exercise price for those shares. The Company is not
entitled to an income tax deduction with respect to the grant of a nonqualified
stock option or the sale of stock acquired pursuant thereto. The Company
generally is permitted a deduction equal to the amount of ordinary income the
option holder is required to recognize as a result of the exercise of a
nonqualified stock option.
Stock Appreciation Rights. On the exercise of a SAR granted under the
Plan, the participant generally will recognize taxable ordinary income in an
amount equal to the sum of the cash and the fair market value of the Common
Stock (determined as of the date of exercise of the SAR), if any, received. A
Plan participant will not recognize a loss on the termination of an unexercised
SAR received under the Plan.
General. The 1998 Stock Option and Incentive Plan is not qualified
under Section 401(a) of the Code and is not subject to the provisions of the
Employee Retirement Income Security Act of 1974.
THE PRECEDING DISCUSSION IS BASED UPON FEDERAL TAX LAWS AND REGULATIONS
IN EFFECT ON THE DATE OF THIS PROSPECTUS, WHICH ARE SUBJECT TO CHANGE, AND UPON
AN INTERPRETATION OF THE STATUTORY PROVISIONS OF SECTION 422 OF THE CODE, ITS
LEGISLATIVE HISTORY AND RELATED INCOME TAX REGULATIONS. FURTHERMORE, THE
FOREGOING IS ONLY A GENERAL DISCUSSION OF THE FEDERAL INCOME TAX CONSEQUENCES OF
THE 1998 STOCK OPTION AND INCENTIVE PLAN AND DOES NOT PURPORT TO BE A COMPLETE
DESCRIPTION OF ALL FEDERAL INCOME TAX ASPECTS OF THE 1998 STOCK OPTION AND
INCENTIVE PLAN. PARTICIPANTS MAY ALSO BE SUBJECT TO STATE AND LOCAL TAXES IN
CONNECTION WITH THE GRANT OR EXERCISE OF OPTIONS GRANTED UNDER THE 1998 STOCK
OPTION AND INCENTIVE PLAN AND THE SALE OR OTHER DISPOSITION OF SHARES ACQUIRED
UPON EXERCISE OF THE OPTIONS. EACH EMPLOYEE RECEIVING A GRANT OF OPTIONS OR SARS
SHOULD CONSULT WITH HIS OR HER PERSONAL TAX ADVISOR REGARDING FEDERAL, STATE AND
LOCAL TAX CONSEQUENCES OF PARTICIPATING IN THE 1998 STOCK OPTION AND INCENTIVE
PLAN.
The Board of Directors recommends that the Company's shareholders
approve the 1998 Stock Option and Incentive Plan.
AUDITORS
The firm of KPMG Peat Marwick, LLP, independent certified public
accountants, audited the financial statements of the Company for the fiscal year
ended September 30, 1997. Representatives of KPMG Peat Marwick, LLP are expected
to be present at the Annual Meeting of Stockholders to respond to stockholders'
questions and will have an opportunity to make any statements they consider to
be appropriate. The Board of Directors of the Company has not yet selected an
independent accounting firm for the 1998 fiscal year and is currently
undertaking to make such selection, focusing on the available options, including
a cost analysis thereof.
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STOCKHOLDERS' PROPOSALS FOR 1999 ANNUAL MEETING
Stockholders may submit proposals appropriate for stockholder action at
the Company's 1999 Annual Meeting, consistent with the regulations of the
Securities and Exchange Commission. Proposals by stockholders intended to be
presented at the 1999 Annual Meeting must be received by the Company no later
than August 31, 1998, in order to be included in the Company's proxy materials
for that meeting. 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 the Company.
By Order of The Board of Directors
/s/ Joe K. McArthur
Joe K. McArthur
Secretary
Sylacauga, Alabama
March 5, 1998
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EXHIBIT A
SOUTHFIRST BANCSHARES, INC.
1998 STOCK OPTION AND INCENTIVE PLAN
32
SOUTHFIRST BANCSHARES, INC.
1998 STOCK OPTION AND INCENTIVE PLAN
1. PURPOSE OF THE PLAN
The purpose of this SouthFirst Bancshares, Inc. 1998 Stock Option and
Incentive Plan (the "Plan") is to advance the interests of SouthFirst
Bancshares, Inc. (the "Company"), through providing select key Employees and
Directors of the Association, the Company and their Affiliates with the
opportunity to acquire Shares and participate in the equity of the Company. By
encouraging such stock ownership, the Company seeks to attract, retain and
motivate the best available personnel for positions of substantial
responsibility and to provide additional incentive to Directors and key
Employees of the Company, the Association or any Affiliate to promote the
success of the business.
2. DEFINITIONS
As used herein, the following definitions shall apply.
(a) "Affiliate" shall mean any "parent corporation" or
"subsidiary corporation" of the Company or the Association, as such terms are
defined in Section 424(e) and (f), respectively, of the Code, and shall also
include, as the context requires, the Company and the Association.
(b) "Agreement" shall mean a written agreement entered into
in accordance with Paragraph 5(c).
(c) "Association" shall mean First Federal of the South, a
Federal Savings Association.
(d) "Awards" shall mean, collectively, Options and SARs,
unless the context clearly indicates a different meaning.
(e) "Board" shall mean the Board of Directors of the Company.
(f) "Change in Control" shall mean the occurrence of any one
of the following events: (1) a change in the ownership, holding or power to vote
more than 25% of the Association's or Company's voting stock, (2) a change in
the ownership or possession of the ability to control the election of a majority
of the Association's or Company's directors, (3) a change in the ownership or
possession of the ability to exercise a controlling influence over the
management or policies of the Association or the Company by any person or by
persons acting as a "group" (within the meaning of Section 13(d) of the
Securities Exchange Act of 1934) (except in the case of (1), (2) and (3) hereof,
ownership or control of the Association or its directors by the Company itself
shall not constitute a "Change in Control"), or (4) during any period of two (2)
consecutive years, individuals who at the beginning of such period constitute
the Board of Directors of the Company or the Association (the "Continuing
Directors") cease for any reason to constitute at least two-thirds of the
members of such Board of Directors, provided that any individual whose election
or nomination for election as a member of such Board was approved by a vote of
at least two-thirds of the Continuing Directors then in office shall be
considered a Continuing Director. For purposes of this subparagraph only, the
term "person" refers to an individual or a corporation, partnership, trust,
association, joint venture, pool, syndicate, sole proprietorship, unincorporated
organization or any other form of entity not specifically listed herein. The
decision of the Committee as to whether a Change in Control has occurred shall
be conclusive and binding.
(g) "Code" shall mean the Internal Revenue Code of 1986, as
amended.
(h) "Committee" shall mean the Stock Option Committee
appointed by the Board in accordance with Paragraph 5(a) hereof.
33
(i) "Common Stock" shall mean the common stock, par value $.01
per share, of the Company.
(j) "Company" shall mean SouthFirst Bancshares, Inc.
(k) "Continuous Service" shall mean the absence of any
interruption or termination of service as an Employee or Director of the Company
or an Affiliate. Continuous Service shall not be considered interrupted in the
case of sick leave, military leave or any other leave or absence approved by the
Company or in the case of transfers between payroll locations of the Company or
between the Company, the Association or an Affiliate.
(l) "Director" shall mean any member of the Board or of the
Board of Directors of an Affiliate, including any member of the Board or Board
of Directors of an Affiliate who is serving as an Emeritus Director.
(m) "Disinterested Person" shall mean any member of the Board
who, at the time discretion under the Plan is exercised, is a "disinterested
person" within the meaning of Rule 16b-3.
(n) "Effective Date" shall mean the date specified in
Paragraph 15 hereof.
(o) "Emeritus Director" means any Director of the Company
appointed by the Board who is 72 years of age or older.
(p) "Employee" shall mean any person employed by the Company
or an Affiliate.
(q) "Exercise Price" shall mean the price per Optioned Share
at which an Option or SAR may be exercised.
(r) "ISO" means an option to purchase Common Stock which meets
the requirements set forth in the Plan, and which is intended to be and is
identified as an "incentive stock option" within the meaning of Section 422 of
the Code.
(s) "Market Value" shall mean the fair market value of the
Common Stock, as determined under Paragraph 7(b) hereof.
(t) "Non-ISO" means an option to purchase Common Stock which
meets the requirements set forth in the Plan, but which is not intended to be,
and is not identified as, an ISO.
(u) "Officer" means any officer of the Company or an
Affiliate.
(v) "Option" means an ISO and/or a Non-ISO.
(w) "Optioned Shares" shall mean Shares subject to an option
granted pursuant to this Plan.
(x) "Participant" shall mean any person who receives an Award
pursuant to the Plan.
(y) "Plan" shall mean the SouthFirst Bancshares, Inc. Stock
Option and Incentive Plan.
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(z) "Retirement" means termination of employment with the
Company, other than upon death, Total and Permanent Disability, or for Cause (as
defined in Section 8(c)), on or after the date of the 65th birthday of the
retiring person, in the case of an Employee, or on or after the date of the 72nd
birthday of the retiring person, in the case of a Director; provided that
Retirement for any Emeritus Director means termination of his or her
directorship, other than for Cause (as defined in Section 8(c)), on or after the
date of the 75th birthday of such Emeritus Director.
(aa) "Rule 16b-3" shall mean Rule 16b-3 of the General Rules
and Regulations under the Securities Exchange Act of 1934, as amended. "Share"
shall mean one share of Common Stock.
(bb) "Rule 16b-3" shall mean Rule 16b-3 of the General Rules
and Regulations under the Securities Exchange Act of 1934, as amended.
.
(cc) "SAR" (or "Stock Appreciation Right") means a right to
receive the appreciation in value, or a portion of the appreciation in value,
from the date of grant, of a specified number of shares of Common Stock.
(dd) "Shares" means Common Stock reserved for issuance under
the Plan.
3. TERM OF THE PLAN AND AWARDS
(a) Term of the Plan. The Plan shall continue in effect for a
term of ten (10) years from the Effective Date, unless sooner terminated
pursuant to Paragraph 19 hereof. No Award shall be granted under the Plan after
ten (10) years from the Effective Date.
(b) Term of Awards. The term of each Award granted under the
Plan shall be established by the Committee, but shall not exceed ten (10) years
from the date of grant; provided, however, that in the case of the grant of an
ISO to an Employee who owns shares representing more than 10% of the outstanding
Common Stock of the Company at the time the ISO is granted, the term of such ISO
shall not exceed five (5) years.
4. SHARES SUBJECT TO THE PLAN
(a) General Rule. Except as otherwise required by the
provisions of Paragraph 12 hereof, the aggregate number of Shares issuable
pursuant to Awards shall be 63,361 Shares. Such Shares may either be
authorized-but-unissued shares of Common Stock or shares of Common Stock held in
treasury. If Awards shall expire, become unexercisable or be forfeited for any
reason without having been exercised or become vested in full, the Optioned
Shares shall, unless the Plan shall have been terminated, be available for the
grant of additional Awards under the Plan.
(b) Special Rule for SARs. The number of Shares with respect
to which an SAR is granted, but not the number of Shares which the Company
delivers or could deliver to an Employee or individual upon exercise of an SAR,
shall be charged against the aggregate number of Shares remaining available
under the Plan; provided, however, that in the case of an SAR granted in
conjunction with an Option, under circumstances in which the exercise of the SAR
results in termination of the Option and vice versa, only the number of Shares
subject to the Option shall be charged against the aggregate number of Shares
remaining available under the Plan. The Shares relating to an Option as to which
option rights have terminated by reason of the exercise of a related SAR, as
provided in Paragraph 10 hereof, shall not be available for the grant of further
Options under the Plan.
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5. ADMINISTRATION OF THE PLAN
(a) Composition of the Committee. The Plan shall be
administered by the Committee, which shall consist of not less than three (3)
members of the Board who are Disinterested Persons. Members of the Committee
shall serve at the pleasure of the Board. In the absence at any time of a duly
appointed Committee, the Plan shall be administered by those members of the
Board who are Disinterested Persons.
(b) Powers of the Committee. Except as limited by the express
provisions of the Plan or by resolutions adopted by the Board, the Committee
shall have the sole and complete authority and discretion (i) to select
Participants and grant Awards, (ii) to determine the form and content of Awards
to be issued and the form of Agreements under the Plan, (iii) to interpret the
Plan, (iv) to prescribe, amend and rescind rules and regulations relating to the
Plan, and (v) to make other determinations necessary or advisable for the
administration of the Plan. The Committee shall have and may exercise such other
power and authority as may be delegated to it by the Board from time to time. A
majority of the entire Committee shall constitute a quorum and the action of a
majority of the members present at any meeting at which a quorum is present, or
acts approved in writing by a majority of the Committee without a meeting, shall
be deemed the action of the Committee.
(c) Agreement. Each Award shall be evidenced by a written
agreement containing such provisions as may be approved by the Committee. Each
such Agreement shall constitute a binding contract between the Company and the
Participant, and every Participant, upon acceptance of such Agreement, shall be
bound by the terms and restrictions of the Plan and of such Agreement. The terms
of each such Agreement shall be in accordance with the Plan, but each Agreement
may include such additional provisions and restrictions determined by the
Committee, in its discretion, provided that such additional provisions and
restrictions are not inconsistent with the terms of the Plan. In particular, the
Committee shall set forth in each Agreement (i) the Exercise Price of an Option
or SAR, (ii) the number of Shares subject to, and the expiration date of, the
Award, (iii) the manner, time and rate (cumulative or otherwise) of exercise or
vesting of such Award, and (iv) the restrictions, if any, to be placed upon such
Award, or upon Shares which may be issued upon exercise of such Award.
The Chairman of the Committee and such other officers as shall
be designated by the Committee are hereby authorized to execute Agreements on
behalf of the Company and to cause them to be delivered to the recipients of
Awards.
(d) Effect of the Committee's Decisions. All decisions,
determinations and interpretations of the Committee shall be final and
conclusive on all persons affected thereby.
(e) Indemnification. In addition to such other rights of
indemnification as they may have, the members of the Committee shall be
indemnified by the Company in connection with any claim, action, suit or
proceeding relating to any action taken or failure to act under or in connection
with the Plan or any Award, granted hereunder to the full extent provided for
under the Company's Charter or By-Laws with respect to the indemnification of
Directors.
6. GRANT OF OPTIONS
(a) General Rule. In its sole discretion, the Committee may
grant Options to Employees of the Company or its Affiliates. Non-Employee
Directors may be granted Options only in accordance with
Paragraph 9 hereof.
(b) Special Rules for ISOs. The aggregate Market Value, as of
the date the Option is granted, of the Shares with respect to which ISOs are
exercisable for the first time by an Employee during
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any calendar year (under all incentive 1995 Stock Option and Incentive Plans, as
defined in Section 422 of the Code, of the Company or any present or future
Parent or Subsidiary of the Company) shall not exceed $100,000. Notwithstanding
the prior provisions of this paragraph, the Committee may grant Options in
excess of the foregoing limitation, in which case such Options granted in excess
of which limitation shall be Options which are Non-ISOs.
7. EXERCISE PRICE FOR OPTIONS
(a) Limits on Committee Discretion. The Exercise Price as to
any particular Option granted under the Plan shall be determined by the
Committee but shall not be less than the Market Value of the Optioned Shares on
the date of grant. In the case of an Employee who owns shares of Common Stock
representing more than 10% of the Company's outstanding shares of Common Stock
at the time an ISO is granted, the Exercise Price of such ISO shall not be less
than 110% of the Market Value of the Optioned Shares at the time the ISO is
granted.
(b) Standards for Determining Exercise Price. If the Common
Stock is listed on a national securities exchange (including the NASDAQ National
Market System) on the date in question, then the Market Value per Share shall be
not less than the average of the highest and lowest selling price on such
exchange on such date, or if there were no sales on such date, then the Exercise
Price shall be not less than the mean between the bid and asked price on such
date. If the Common Stock is traded otherwise than on a national securities
exchange on the date in question, then the Market Value per Share shall be not
less than the mean between the bid and asked price on such date, or, if there is
no bid and asked price on such date, then on the next prior business day on
which there was a bid and asked price. If no such bid and asked price is
available, then the Market Value per Share shall be its fair market value as
determined by the Committee, in its sole and absolute discretion.
8. EXERCISE OF OPTIONS
(a) Generally. Any Option granted hereunder shall be
exercisable at such times and under such conditions as shall be permissible
under the terms of the Plan and of the Agreement granted to a Participant.
However, the exercise of any Option granted hereunder shall be subject to, and
shall not exceed, vesting at a rate of 20% a year, from the date of the Award,
provided that (i) each Participant shall be 100% vested upon death or upon
Permanent and Total Disability (as defined in Section 8 (c) below), (ii) each
Participant shall be 100% vested upon Retirement, and (iii) each Participant
shall be 100% vested upon the occurrence of a Change in Control event in
accordance with Section 11, below. An Option may not be exercised for a
fractional Share.
(b) Procedure for Exercise. A Participant may exercise
Options, subject to provisions relative to its termination and limitations on
its exercise, only by (1) written notice to the Company of intent to exercise
the Option with respect to a specified number of Shares, and (2) payment to the
Company (contemporaneously with delivery of such notice) in cash, in Common
Stock, or a combination of cash and Common Stock, of the amount of the Exercise
Price for the number of Shares with respect to which the Option is then being
exercised. Each such notice (and payment where required) shall be delivered, or
mailed by prepaid registered or certified mail, addressed to the Treasurer of
the Company at the Company's executive offices. Common Stock utilized in full or
partial payment of the Exercise Price for Options shall be valued at its Market
Value at the date of exercise.
(c) Period of Exercisability. Except to the extent otherwise
provided by the Committee in the terms of an Agreement, an Option may be
exercised by an Employee only while he is an Employee and has maintained
Continuous Service from the date of the grant of the Option, or within three (3)
months after
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termination of such Continuous Service (but not later than the date on which the
Option would otherwise expire), except if the Participant's Continuous Service
terminates by reason of --
(1) "Cause" which for purposes hereof shall have the meaning
set forth in any unexpired employment or severance agreement
between the Participant and the Association and/or the Company
(and, in the absence of any such agreement, shall mean
termination because of the Participant's personal dishonesty,
incompetence, willful misconduct, breach of fiduciary duty
involving personal profit, intentional failure to perform
stated duties, willful violation of any law, rule or
regulation (other than traffic violations or similar offenses)
or final cease-and- desist order), in which case the
Participant's rights to exercise such Option shall expire on
the date of such termination;
(2) Death, in which case, 100% of the outstanding Options of
the deceased Participant such Options having vested in their
entirety as a consequence of the death of the Participant, as
provided in Section 8(a), may be exercised within two (2)
years from the date of his death (but not later than the date
on which the Option would otherwise expire) by the personal
representative of his estate or person or persons to whom his
rights under such Option shall have passed by will or by laws
of descent and distribution;
(3) Permanent and Total Disability (as such term is defined in
Section 22(e)(3) of the Code), in which case, 100% of the
outstanding Options of the Permanently and Totally disabled
Participant, such Options having vested in their entirety as a
consequence of the Permanent and Total Disability of the
Participant, as provided in Section 8(a), may be exercised
within one (1) year from the date of such permanent and total
disability, but not later than the date on which the Option
would otherwise expire.
(4) Retirement, in which case 100% of the outstanding Options
of the retiring Participant, such Options having vested in
their entirety as a consequence of the Retirement of the
Participant, as provided in Section 8(a), may be exercised
within six (6) months from the date of the Participant's
retirement, but not later than the date on which the Option
would otherwise expire.
(5) Change in Control, in which case 100% of the outstanding
Options of each Participant in the Plan shall become
immediately exercisable in accordance with Section 11 of the
Plan.
Notwithstanding the provisions of any Option which provides for its exercise in
installments as designated by the Committee, such Option shall become
immediately exercisable upon the vesting of such Option upon the occurrence of a
vesting event set forth in Section 8(a).
(d) Effect of the Committee's Decisions. The Committee's
determination whether a Participant's Continuous Service has ceased, and the
effective date thereof shall be final and conclusive on all persons affected
thereby.
9. GRANTS OF OPTIONS TO NON-EMPLOYEE DIRECTORS
(a) Automatic Grants. Notwithstanding any other provisions of
this Plan, each Director who is not an Employee but is a Director, other than an
Emeritus Directors, on the Effective Date shall receive, on said date, Non-ISOs
to purchase 2,700 Shares, at an Exercise Price per Share equal to the Market
Value of the Common Stock on the date of grant.
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(b) Terms of Exercise. Options received under the provisions
of this Paragraph 9 may be exercised from time to time by (a) written notice to
the Company of intent to exercise the Option with respect to all or a specified
number of the Optioned Shares, and (b) payment to the Company (contemporaneously
with the delivery of such notice), in cash, in Common Stock, or a combination of
cash and Common Stock, of the amount of the Exercise Price for the number of
Optioned Shares with respect to which the Option is then being exercised. Each
such notice and payment shall be delivered, or mailed by prepaid registered or
certified mail, addressed to the Treasurer of the Company at the Company's
executive offices. A Director who exercises Options pursuant to this Paragraph
may satisfy all applicable federal, state and local income and employment tax
withholding obligations, in whole or in part, by irrevocably electing to have
the Company withhold shares of Common Stock, or to deliver to the Company shares
of Common Stock that he already owns, having a value equal to the amount
required to be withheld; provided that to the extent not inconsistent herewith,
such election otherwise complies with those requirements of Paragraphs 8 and 21
hereof.
Options granted under this Paragraph shall have a term of ten (10)
years, and may be exercised at any time and from time to time prior to their
expiration only while the Participant is a Director of the Company, or within
three (3) months after termination of the Participant's Continuous Service as a
Director for reasons other than "Cause," death, "Permanent and Total Disability"
or "Retirement" of the Director, or a "Change in Control" of the Company. In the
event of such Director's death during the term of his directorship, Options
granted under this Paragraph may be exercised within one (1) year from the date
of his death by the personal representatives of his estate or person or persons
to whom his rights under such Options shall have passed by will or by laws of
descent and distribution, but in no event later than the date on which such
Options would otherwise expire. Unless otherwise inapplicable or inconsistent
with the provisions of this Paragraph, the Options to be granted to Directors
hereunder shall be subject to all other provisions of this Plan, including the
provisions of Section 8(c) relating to the period of exercisability if a
Director's Continuous Service terminates for "Cause," "Permanent and Total
Disability" or "Retirement" and the provisions of Section 11 relating to the
vesting and exercise of Options upon a "Change in Control" of the Company.
10. SARS (STOCK APPRECIATION RIGHTS)
(a) Granting of SARs. In its sole discretion, the Committee
may from time to time grant SARs to Employees either in conjunction with, or
independently of, any Options granted under the Plan. An SAR granted in
conjunction with an Option may be an alternative right wherein the exercise of
the Option terminates the SAR to the extent of the number of shares purchased
upon exercise of the Option and, correspondingly, the exercise of the SAR
terminates the Option to the extent of the number of Shares with respect to
which the SAR is exercised. Alternatively, an SAR granted in conjunction with an
Option may be an additional right wherein both the SAR and the Option may be
exercised. An SAR may not be granted in conjunction with an ISO under
circumstances in which the exercise of the SAR affects the right to exercise the
ISO or vice versa, unless the SAR, by its term, meets all of the following
requirements:
(1) The SAR will expire no later than the ISO;
(2) The SAR may be for no more than the difference between the
Exercise Price of the ISO and the Market Value of the Shares
subject to the ISO at the time the SAR is exercised;
(3) The SAR is transferable only when the ISO is
transferable, and under the same conditions;
(4) The SAR may be exercised only when the ISO may be
exercised; and
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(5) The SAR may be exercised only when the Market Value of the
Shares subject to the ISO exceed the Exercise Price of the
ISO.
(b) Exercise Price. The Exercise Price as to any particular
SAR shall not be less than the Market Value of the Optioned Shares on the date
of grant.
(c) Timing of Exercise. Any election by a Participant to
exercise SARs shall be made during the period beginning on the 3rd business day
following the release for publication of quarterly or annual financial
information and ending on the 12th business day following such date. This
condition shall be deemed to be satisfied when the specified financial data is
first made publicly available. In no event, however, may an SAR be exercised
within the six-month period following the date of its grant.
The provisions of Paragraph 8(c) regarding the period of
exercisability of Options is incorporated by reference herein, and shall
determine the period of exercisability of SARs.
(d) Exercise of SARs. An SAR granted hereunder shall be
exercisable at such times and under such conditions as shall be permissible
under the term of the Plan and of the Agreement granted to a Participant,
provided that an SAR may not be exercised for a fractional Share. Upon exercise
of an SAR, the Participant shall be entitled to receive, without payment to the
Company except for applicable withholding taxes, an amount equal to the excess
of (or, in the discretion of the Committee if provided in the Agreement, a
portion of the excess of) the then aggregate Market Value of the number of
Optioned Shares with respect to which the Participant exercises the SAR, over
the aggregate Exercise Price of such number of Optioned Shares. This amount
shall be payable by the Company, in the discretion of the Committee, in cash or
in Shares valued at the then Market Value thereof, or any combination thereof.
(e) Procedure for Exercising SARs. To the extent not
inconsistent herewith, the provisions of Paragraph 8(b) as to the procedure for
exercising Options are incorporated by reference, and shall determine the
procedure for exercising SARs.
11. CHANGE IN CONTROL
(a) General Rule. Notwithstanding the provisions of any Award
which provides for the exercise or vesting in installments, and for a period of
sixty (60) days beginning on the date of such Change in Control, all Options and
SARs shall be immediately exercisable and fully vested. With respect to Options,
at the time of a Change in Control, the Participant shall, at the discretion of
the Committee, be entitled to receive cash in an amount equal to the excess of
the Market Value of the Common Stock subject to such Option over the Exercise
Price of such Shares, in exchange for the cancellation of such Options by the
Participant.
(b) Exception to General Rule. Notwithstanding subparagraph
(a) of this Paragraph, in no event may an SAR be exercised, or an Option be
canceled in exchange for cash, within the six-month period following the date of
its grant.
12. EFFECT OF CHANGES IN COMMON STOCK SUBJECT TO THE PLAN
(a) Recapitalizations; Stock Splits, Etc. The number and kind
of Shares reserved for issuance under the Plan, and the number and kind of
Shares subject to outstanding Awards (and the Exercise Price thereof in the case
of Options and SARs), shall be proportionately adjusted for any increase,
decrease, change or exchange of Shares for a different number or kind of Shares
or other securities of the Company which results from a merger, consolidation,
recapitalization, reorganization, reclassification, stock dividend,
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split-up, combination of Shares, or similar event in which the number or kind of
Shares is changed without the receipt or payment of consideration by the
Company.
(b) Transactions in which the Company is Not the Surviving
Entity. In the event of (i) the liquidation or dissolution of the Company, (ii)
a merger or consolidation in which the Company is not the surviving entity, or
(iii) the sale or disposition of all or substantially all of the Company's
assets (any of the foregoing to be referred to herein as a "Transaction"), all
outstanding Awards shall be surrendered. With respect to each Award so
surrendered, the Committee shall in its sole and absolute discretion, but
subject to the vesting requirements of Section 8(a), determine whether the
holder of the surrendered Award shall receive --
(1) for each Share then subject to an outstanding Award the
number and kind of Shares into which each outstanding Share
(other than Shares held by dissenting stockholders) is changed
or exchanged, together with an appropriate adjustment to the
Exercise Price in the case of Options and SARs; or
(2) a cash payment (from the Company or the successor
corporation), in an amount equal to the Market Value of the
Shares subject to the Award on the date of the Transaction,
less the Exercise Price of the Award in the case of Options
and SARs.
(c) Special Rule for ISOs. Any adjustment made pursuant to
subparagraphs (a) or (b)(1) hereof shall be made in such a manner as not to
constitute a modification, within the meaning of Section 424(h) of the Code, of
outstanding ISOs.
(d) Conditions and Restrictions on New, Additional, or
Different Shares or Securities. If, by reason of any adjustment made pursuant to
this Paragraph, a Participant becomes entitled to new, additional, or different
Shares of stock or securities, such new, additional, or different Shares of
stock or securities shall thereupon be subject to all of the conditions and
restrictions which were applicable to the Shares pursuant to the Award before
the adjustment was made.
(e) Other Issuances. Except as expressly provided in this
Paragraph, the issuance by the Company or an Affiliate of Shares of stock of any
class, or of securities convertible into Shares or stock of another class, for
cash or property or for labor or services either upon direct sale or upon the
exercise of rights or warrants to subscribe therefor, shall not affect, and no
adjustment shall be made with respect to, the number, class, or Exercise Price
of Shares then subject to Awards or reserved for issuance under the Plan.
13. NON-TRANSFERABILITY OF AWARDS
Awards may not be sold, pledged, assigned, hypothecated, transferred or
disposed of in any manner other than by will or by the laws of descent and
distribution, or pursuant to the terms of a "qualified domestic relations order"
(within the meaning of Section 414(p) of the Code and the regulations and
rulings thereunder).
14. TIME OF GRANTING AWARDS
The date of grant of an Award shall, for all purposes, be the date on
which the Committee makes the determination for granting such Award. Notice of
the determination shall be given to each Participant to whom an Award is so
granted within a reasonable time after the date of such grant.
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15. EFFECTIVE DATE
The effective date of the Plan (the "Effective Date") shall be the date
the Plan is adopted by the Board or the date the Plan is approved by the
shareholders of the Company, whichever is earlier. The Plan must be approved by
the affirmative vote, cast either in person or by proxy, of not less than a
majority of the Shares entitled to vote at a meeting at which a quorum is
present, which shareholder vote must be taken within twelve (12) months after
the date the Plan is adopted by the Board of Directors. Such shareholder vote
shall not alter the Effective Date of the Plan. In the event shareholder
approval of the adoption of the Plan is not obtained within the aforesaid twelve
(12) month period, then any Options granted in the intervening period shall be
void.
16. MODIFICATION OF AWARDS
At any time, and from time to time, the Board may authorize the
Committee to direct execution of an instrument providing for the modification of
any outstanding Award, provided no such modification shall confer on the holder
of such Award any right or benefit which could not be conferred on him by the
grant of a new Award at such time, or impair the Award without the consent of
the holder of the Award, or revise the terms of the Award, including the
exercise price at which the Award was granted.
17. AMENDMENT AND TERMINATION OF THE PLAN
With respect to any shares of stock at the time not subject to an award
of Options or SARs under the Plan, the Board may at any time and from time to
time, terminate, modify or amend the Plan in any respect, except that no such
modification or amendment shall be made absent the approval of the shareholders
of the Company to: (i) increase the number of shares for which Options or SARs
may be granted under the Plan; (ii) extend the period during which Options or
SARs may be granted or exercised; (iii) change the class of persons eligible for
awards of Options or SARs; or (iv) otherwise materially modify the requirements
as to eligibility for participation in the Plan. The Company's Board of
Directors may also suspend the granting of Options or SARs pursuant to the Plan
at any time and may terminate the Plan at any time; provided, however, no such
suspension or termination shall modify or amend any Option or SAR granted before
such suspension or termination unless the affected participant consents in
writing, to such modification or amendment or there is a dissolution or
liquidation of the Company.
18. CONDITIONS UPON ISSUANCE OF SHARES
(a) Compliance with Securities Laws. Shares of Common Stock
shall not be issued with respect to any Award unless the issuance and delivery
of such Shares shall comply with all relevant provisions of law, including,
without limitation, the Securities Act of 1933, as amended, the rules and
regulations promulgated thereunder, any applicable state securities law, and the
requirements of any stock exchange upon which the Shares may then be listed. The
Plan is intended to comply with Rule 16b-3, and any provision of the Plan which
the Committee determines in its sole and absolute discretion to be inconsistent
with said Rule shall, to the extent of such inconsistency, be inoperative and
null and void, and shall not affect the validity of the remaining provisions of
the Plan.
(b) Special Circumstances. The inability of the Company to
obtain approval from any regulatory body or authority deemed by the Company's
counsel to be necessary to the lawful issuance and sale of any Shares hereunder
shall relieve the Company of any liability in respect of the non-issuance or
sale of such Shares. As a condition to the exercise of an option or SAR, the
Company may require the person exercising the Option or SAR to make such
representations and warranties as may be necessary to assure the availability of
an exemption from the registration requirements of federal or state securities
law.
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(c) Committee Discretion. The Committee shall have the
discretionary authority to impose in Agreements such restrictions on Shares as
it may deem appropriate or desirable, including, but not limited to, the
authority to impose a right of first refusal or to establish repurchase rights
or both of these restrictions.
19. RESERVATION OF SHARES
The Company, during the term of the Plan, will reserve and keep
available a number of Shares sufficient to satisfy the requirements of the Plan.
20. WITHHOLDING TAX
The Company's obligation to deliver Shares upon exercise of Options
and/or SARs (or such earlier time that the Participant makes an election under
Section 83(b) of the Code) shall be subject to the Participant's satisfaction of
all applicable federal, state and local income and employment tax withholding
obligations. The Committee, in its discretion, may permit the Participant to
satisfy the obligation, in whole or in part, by irrevocably electing to have the
Company withhold the Shares, or to deliver to the Company the Shares that he
already owns, having a value equal to the amount required to be withheld. The
value of Shares to be withheld, or delivered to the Company, shall be based on
the Market Value of the Shares on the date the amount of tax to be withheld is
to be determined. As an alternative, the Company may retain, or sell without
notice, a number of such Shares sufficient to cover the amount required to be
withheld.
21. NO EMPLOYMENT OR OTHER RIGHTS
In no event shall an Employee's or Director's eligibility to
participate or participation in the Plan create or be deemed to create any legal
or equitable right of the Employee, Director, or any other party to continue
service with the Company, the Association, or any Affiliate of such
corporations. No Employee or Director shall have a right to be granted an Award
or, having received an Award, the right to again be granted an Award, except to
the extent provided in Paragraph 9(a). However, an Employee or Director who has
been granted an Award may, if otherwise eligible, be granted an additional Award
or Awards.
22. GOVERNING LAW
The Plan shall be governed by and construed in accordance with the laws
of the State of Delaware, except to the extent that federal law shall be deemed
to apply.
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APPENDIX A
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|X|PLEASE MARK VOTES REVOCABLE PROXY
AS IN THIS EXAMPLE SOUTHFIRST BANCSHARES, INC.
THIS PROXY IS SOLICITED ON BEHALF 1. To elect J. MALCOMB For Withhold
OF THE BOARD OF DIRECTORS FOR MASSEY as a director for [ ] [ ]
THE 1998 ANNUAL MEETING OF a term of two years and until
STOCKHOLDERS. his successor is elected and
has qualified.
With- For All
2. To elect three (3) directors for a For hold Except
The undersigned hereby appoints Donald C. term of three years and until [ ] [ ] [ ]
Stroup and Joe K. McArthur, or either of them, their successors are elected
with power of substitution to each, the proxies of and have qualified.
the undersigned to vote the Common Stock of the
undersigned at the Annual Meeting of Stockholders BOBBY R. COOK, H. DAVID FOOTE, JR. AND
of SOUTHFIRST BANCSHARES, INC., to be held JOHN T. ROBBS
on Wednesday, March 25, 1998, at 10:00 a.m., at
the main office of SouthFirst Bancshares, Inc., INSTRUCTION: TO WITHHOLD AUTHORITY TO VOTE FOR ANY
located at 126 North Norton Avenue, Sylacauga, INDIVIDUAL NOMINEE, MARK "FOR ALL EXCEPT" AND WRITE THAT
Alabama 35150, and at any adjournments or NOMINEE'S NAME IN THE SPACE PROVIDED BELOW.
postponements thereof, as indicated on this
revocable proxy: ---------------------------------------------------------------
3. To approve and adopt the SouthFirst Bancshares, Inc.
1998 Stock Option and Incentive Plan.
For Against Withhold
[ ] [ ] [ ]
4. 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 be sure to sign and date Date Please date and sign exactly as your name(s)
this Proxy in the box below. 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 by authorizing
officer. In the case of joint tenants, each joint owner must
sign.
Stockholder sign above -- Co-holder (if any) sign above
DETACH ABOVE CARD, SIGN, DATE AND MAIL IN POSTAGE PAID ENVELOPE PROVIDED.
SOUTHFIRST BANCSHARES, INC.
126 NORTH NORTON AVENUE
SYLACAUGA, ALABAMA 35150
PLEASE ACT PROMPTLY
SIGN, DATE & MAIL YOUR PROXY CARD TODAY
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