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WASHINGTON, D.C. 20549
_________________
FORM 10
GENERAL FORM FOR REGISTRATION OF SECURITIES
PURSUANT TO SECTION 12(B) OR (G) OF THE SECURITIES
EXCHANGE ACT OF 1934
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CITIZENS HOLDING COMPANY
Mississippi 64-0666512
521 Main Street
Philadelphia, Mississippi 39350
Registrant's Telephone Number, including area code: (601) 656-4692
Securities to be registered pursuant to Section 12(b) of the Act:
Title of each class to be so registered Name of each exchange on which
each class is to be registered
None None
Securities to be registered pursuant to Section 12(g) of the Act:
COMMON STOCK, $.20 PAR VALUE PER SHARE
(Title of Class)
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ITEM 1. BUSINESS
GENERAL
Citizens Holding Company (the "Corporation") is a one-bank holding company
that holds 113,203 or 96.59% of the outstanding shares of The Citizens Bank of
Philadelphia, Mississippi (the "Bank"). The Corporation was incorporated under
Mississippi law on February 16, 1982, at the direction of the Board of Directors
of the Bank in order to facilitate the Bank's adoption of a one-bank holding
company structure. The Corporation offered one share of common stock and four
$5 debentures for each share of Bank stock. At this initial offering, 99,825
shares or 85.17% of the outstanding shares were exchanged for Corporation
shares. Subsequent to the initial offering, the Corporation has purchased
13,378 shares to increase the number of shares owned to the current level.
Prior to its acquisition of the Bank's stock, the Corporation conducted no
business or operations. The Corporation's principal office is located at 521
Main Street, Philadelphia, Mississippi 39350 and its telephone number is (601)
656-4692.
As a bank holding company, the Corporation engages in commercial banking
through its sole banking subsidiary and may engage in certain non-banking
activities closely related to banking and own certain other business
corporations that are not banks, subject to applicable laws and regulations.
All references hereinafter to the activities or operations of the Corporation
reflect the Corporation's acting or operating through the Bank.
The Bank was opened on February 8, 1908 as The First National Bank of
Philadelphia with $50,000 in capital and a $5,000 surplus. In 1917 the Bank
surrendered its national charter and obtained a state charter at which time the
name of the Bank was changed to The Citizens Bank of Philadelphia, Mississippi.
The Bank's principal executive offices are also located at 521 Main Street,
Philadelphia, Mississippi 39350, and its telephone number is (601) 656-4692.
At December 31, 1998, the Bank was the largest bank headquartered in Neshoba
County with total assets of $333,027,000 and total deposits of $282,520,000.
OPERATIONS
The Corporation, through the Bank, engages in a wide range of commercial
and personal banking activities, including accepting demand deposits (including
Now and Money Market Accounts), accepting savings and time deposit accounts,
making secured and unsecured loans to corporations, individuals and others,
issuing letters of credit, originating mortgage loans, and providing personal
and corporate trust services.
The Corporation's lending services include commercial, real estate,
installment (direct and indirect), and credit card loans. Revenues from the
Corporation's lending activities constitute the largest component of the
Corporation's operating revenues.
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The loan portfolio constituted 69.17% of the earning assets of the
Corporation at December 31, 1998 and has in the opinion of management
historically produced the highest interest rate spread above the cost of funds.
The Corporation's loan personnel have the authority to extend credit under
guidelines established and approved by the Board of Directors. Any aggregate
credit which exceeds the authority of the loan officer is forwarded to the loan
committee for approval. The loan committee is composed of various Bank
directors, including the Chairman. All aggregate credits that exceed the loan
committee's lending authority are presented to the full Board of Directors for
ultimate approval or denial. The loan committee not only acts as an approval
body to ensure consistent application of the Corporation's loan policy but also
provides valuable insight through communication and pooling of knowledge,
judgment and experience of its members.
The Corporation's primary lending area generally includes East Central
Mississippi, specifically Neshoba, Newton, Leake, Scott, Attala and Kemper
counties and contiguous counties. The Corporation extends out-of-area credit
only to borrowers who are considered to be low risk, and only on a very limited
basis.
This six county area is mainly rural with Philadelphia at 7,000 in
population being the largest city. Agriculture and some light industry are a
big part of the economy of this area. The largest employer in the Corporation's
service area is the Mississippi Band of Choctaw Indians with their schools,
manufacturing plants and their main source of income, The Silverstar Casino and
Resort (the "Casino"). The Casino, and its related services employs
approximately 2,500 people from the Corporation's service area. Understandably
unemployment in the six county area is consistently among the lowest in the
state.
The Corporation has in the past and intends to continue to make most types
of real estate loans including but not limited to single and multi-family
housing, farm loans, residential and commercial construction loans and loans for
commercial real estate. At the end of 1998 the Corporation had 28.73% of the
loan portfolio in single family and multifamily housing, 15.75% in non-farm,
non-residential loans, 13.21% in farm related real estate loans and 3.11% in
real estate construction loans.
The Corporation's loan portfolio includes commercial, industrial and
agricultural production loans totaling 15.34% of the portfolio at year-end 1998.
Consumer loans make up approximately 22.74% of the total loan portfolio.
Consumer loans include loans for household expenditures, car loans, credit card
loans, student loans and other loans to individuals. While this category has
experienced a greater percentage of charge-offs than the other classifications,
the Corporation is committed to continue to lend this type of loan to fill the
needs of the Corporation's customer base.
All loans in the Corporation's portfolio are subject to risk from the state
of the economy in the Corporation's area and also that of the nation. Since the
Corporation's local economy has been strong and unemployment is at historic
lows, general risk levels would also be considered
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to be low. The Corporation has used and continues to use conservative Loan-to-
Value ratios and thorough credit evaluation to lessen the risk on all types of
loans. The use of conservative appraisals has also reduced exposure on real
estate loans. Thorough credit checks and evaluation of past internal credit
history has helped to reduce the amount of risk related to consumer loans.
Government guarantees of loans are used when appropriate. Commercial loans are
evaluated by collateral value and ability to service debt. Businesses seeking
loans must have a good product line and sales, responsible management,
manageable debt load and a product that is not adversely affected by downturns
in the economy.
The Corporation provides a wide range of personal and corporate trusts and
trust-related services, including serving as executor of estates, as trustee
under testamentary and inter vivos trusts and various pension and other employee
benefit plans, as guardian of the estates of minors and incompetents, and as
escrow agent under various agreements.
The Corporation offers discount brokerage services through First Tennessee
Bank.
The Corporation is continually introducing new products and services as
permitted by the regulatory authorities and desired by the public. In late 1997,
the Corporation completed construction on a new branch building in Kosciusko,
Mississippi. This full service facility was opened in early 1998 and allows the
Corporation to compete with other banks in this area. In 1996 the Corporation
opened the new Westside building in Philadelphia, Mississippi. This building
replaced a smaller drive-up facility. The Corporation began a VISA Checkcard
program in early 1997 to provide its customers with access to their checking
account 24 hours a day from all locations that accept VISA cards. This, in
conjunction with the Corporation's 24 Hour Phone Teller, allows the
Corporation's customers to have easy and convenient access to their funds and
account balances 24 hours a day, 7 days a week. Customers may also access their
accounts via the Internet (http:\\www.thecitizensbankphila.com). This website
provides the Corporation's customers the ability to review their accounts in
detail, make transfers between their accounts, and pay bills from anywhere in
the world. The Bank also has three automated teller machines available to its
customers 24 hours a day, 7 days a week.
EMPLOYEES
The Corporation has no compensated employees. At December 31, 1998, the
Bank employed 131 full-time employees and 31 part-time employees. The Bank is
not a party to any collective bargaining agreements, and employee relations are
considered to be good.
SUPERVISION AND REGULATION
The Bank is chartered under the banking laws of the State of Mississippi
and is subject to the supervision of, and is regularly examined by, the
Department of Banking and Consumer Finance and the FDIC. The Corporation is a
registered bank holding company within the meaning of the Bank Holding Company
Act ("BHC Act"), and is subject to the supervision of the Federal
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Reserve Board ("FRB"). Certain legislation and regulations affecting the
businesses of the Corporation and the Bank are discussed below.
GENERAL. As a bank holding company, the Corporation is subject to the BHC
Act. The Corporation reports to, registers with, and is examined by the FRB.
The FRB also has the authority to examine the Corporation's subsidiaries which
includes the Bank.
The FRB requires the Corporation to maintain certain levels of capital. The
FRB also has the authority to take enforcement action against any bank holding
company that commits any unsafe or unsound practice, violates certain laws,
regulations, or conditions imposed in writing by the FRB.
Under the BHC Act, a company generally must obtain the prior approval of
the FRB before it exercises a controlling influence over, or acquires directly
or indirectly, more than 5% of the voting shares or substantially all of the
assets of any bank or bank holding company. The Corporation is generally
prohibited under the BHC Act from acquiring ownership or control of more than 5%
of the voting shares of any company that is not a bank or bank holding company
and from engaging directly or indirectly in activities other than banking,
managing banks, or providing services to affiliates of the holding company. A
bank holding company, with the approval of the FRB, may engage or acquire the
voting shares of companies engaged in activities that the FRB has determined to
be so closely related to banking or managing or controlling banks, as to be a
proper incident thereto. A bank holding company must demonstrate that the
benefits to the public of the proposed activity will outweigh possible adverse
effects associated with those activities.
Transactions between the Corporation, the Bank and any future subsidiaries
of the Corporation are subject to a number of other restrictions. FRB policies
forbid the payment by bank subsidiaries of management fees which are
unreasonable in amount or exceed the fair market value of the services rendered
(or, if no market exists, actual costs plus a reasonable profit). Additionally,
a bank holding company and its subsidiaries are prohibited from engaging in
certain tie-in arrangements in connection with the extension of credit, sale or
lease of property, or furnishing of services. Subject to certain limitations,
depository institution subsidiaries of bank holding companies may extend credit
to, invest in the securities of, purchase assets from, or issue a guarantee,
acceptance, or letter of credit on behalf of, an affiliate, provided that the
aggregate of such transactions with affiliates may not exceed 10% of the capital
stock and surplus of the institution, and the aggregate of such transactions
with all affiliates may not exceed 20% of the capital stock and surplus of such
institution. The Corporation may only borrow from depository institution
subsidiaries if the loan is secured by marketable obligations with a value of a
designated amount in excess of the loan. Further, the Corporation may not sell
a low-quality asset to a depository institution subsidiary.
CAPITAL STANDARDS. The FRB, FDIC and other federal banking agencies have
risk-based capital adequacy guidelines intended to provide a measure of capital
adequacy that reflects the
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degree of risk associated with a bank's operations. Under these guidelines,
nominal dollar amounts of assets and credit equivalent amounts of off-balance
sheet items are multiplied by one of several risk adjustment percentages, which
range from 0% for assets with low credit risk, such as certain U.S. government
securities, to 100% for assets with relatively higher credit risk, such as
business loans.
A banking organization's risk-based capital ratios are obtained by dividing
its qualifying capital by its total risk-adjusted assets and off-balance sheet
items. The regulators measure risk-adjusted assets and off-balance sheet items
against both total qualifying capital (the sum of Tier 1 capital and limited
amounts of Tier 2 capital) and Tier 1 capital. Tier 1 capital consists of
common stock, retained earnings, noncumulative perpetual preferred stock and
minority interests in certain subsidiaries, less most other intangible assets.
Tier 2 capital may consist of a limited amount of the allowance for loan losses
and other instruments with some characteristics of equity. The inclusion of
elements of Tier 2 capital are subject to other requirements and limitations of
the federal banking agencies. Since December 31, 1992, the federal banking
agencies have required a minimum ratio of qualifying total capital to risk-
adjusted assets and off-balance sheet items of 8%, and a minimum ratio of Tier 1
capital to risk-adjusted assets and off-balance sheet items of 4%.
In addition to the risk-based guidelines, federal banking regulators
require banking organizations to maintain a minimum amount of Tier 1 capital to
total assets, referred to as the leverage ratio. For a banking organization
rated in the highest of the five categories used by regulators to rate banking
organizations, the minimum leverage ratio of Tier 1 capital to total assets is
3%. It is improbable, however, that an institution with a 3% leverage ratio
would receive the highest rating by the regulators since a strong capital
position is a significant part of the regulators' rating. For all banking
organizations not rated in the highest category, the minimum leverage ratio is
at least 100 to 200 basis points above the 3% minimum. Thus, the effective
minimum leverage ratio, for all practical purposes, is at least 4% or 5%. In
addition to these uniform risk-based capital guidelines and leverage ratios that
apply across the industry, the regulators have the discretion to set individual
minimum capital requirements for specific institutions at rates significantly
above the minimum guidelines and ratios.
The following table represents the capital ratios for the Corporation and
the Bank as of December 31, 1998:
<TABLE>
<CAPTION>
The Corporation The Bank
Risk-based Capital Ratio: Ratio Ratio Requirement
------ ------ ------------
<S> <C> <C> <C>
Total Capital 18.13% 17.53% 8.00%
Tier 1 Capital 16.88% 16.28% 4.00%
Tier 1 Capital Leverage Ratio: 10.61% 10.20% 4.00%
</TABLE>
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As required by Federal Deposit Insurance Corporation Improvement Act of
1991 ("FDICIA"), the federal financial institution agencies solicited comments
in September, 1993 on a proposed rule and method of incorporating an interest
rate risk component into the current risk-based capital guidelines, with the
goal of ensuring that institutions with high levels of interest rate risk have
sufficient capital to cover their exposures. Interest rate risk is the risk
that changes in market interest rates might adversely affect a bank's financial
condition or future profitability. Under the proposal, interest rate risk
exposures would be quantified by weighting assets, liabilities and off-balance
sheet items by risk factors which approximate sensitivity to interest rate
fluctuations. As proposed, institutions identified as having an interest rate
risk exposure greater than a defined threshold would be required to allocate
additional capital to support this higher risk. Higher individual capital
allocations could be required by the bank regulators based upon supervisory
concerns. The agencies adopted a final rule effective September 1, 1995 which
is substantially similar to the proposed rule, except that the final rule does
not establish (1) a measurement framework for assessing the level of a bank's
interest rate exposure; or (2) a minimum level of exposure above which a bank
will be required to hold additional capital for interest rate risk if it has a
significant exposure or a weak interest rate risk management process. The
agencies also solicited comments on and are continuing their analysis of a
proposed policy statement which would establish a framework to measure and
monitor interest rate exposure.
PROMPT CORRECTIVE ACTION AND OTHER ENFORCEMENT MECHANISMS. FDICIA requires
each federal banking agency to take prompt corrective action to resolve the
problems of insured depository institutions, including but not limited to those
that fall below one or more of the prescribed minimum capital ratios. The law
requires each federal banking agency to promulgate regulations defining the
following five categories in which an insured depository institution will be
placed, based on the level of its capital ratios: well-capitalized, adequately
capitalized, undercapitalized, significantly undercapitalized, and critically
undercapitalized. The Corporation and Bank are classified as well-capitalized
under these guidelines.
In addition to measures taken under the prompt corrective action
provisions, commercial banking organizations may be subject to potential
enforcement actions by the federal regulators for unsafe or unsound practices in
conducting their businesses or for violations of any law, rule, regulation or
any condition imposed in writing by the agency or any written agreement with the
agency. Enforcement actions may include the imposition of a conservator or
receiver, the issuance of a cease-and-desist order that can be judicially
enforced, the termination of insurance of deposits (in the case of a depository
institution), the imposition of civil money penalties, the issuance of
directives to increase capital, the issuance of formal and informal agreements,
the issuance of removal and prohibition orders against institution-affiliated
parties and the enforcement of such actions through injunctions or restraining
orders based upon a prima facie showing by the agency that such relief is
appropriate. Additionally, a holding company's inability to serve as a source
of strength to its subsidiary banking organizations could serve as an additional
basis for a regulatory action against the holding company.
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SAFETY AND SOUNDNESS STANDARDS. FDICIA also implemented certain specific
restrictions on transactions and required the regulators to adopt overall safety
and soundness standards for depository institutions related to internal control,
loan underwriting and documentation, and asset growth. Among other things,
FDICIA limits the interest rates paid on deposits by undercapitalized
institutions, the use of brokered deposits and the aggregate extension of credit
by a depository institution to an executive officer, director, principal
shareholder or related interest, and reduces deposit insurance coverage for
deposits offered by undercapitalized institutions for deposits by certain
employee benefits accounts.
The federal financial institution agencies published a final rule effective
on August 9, 1995, implementing safety and soundness standards. FDICIA added a
new Section 39 to the Federal Deposit Insurance Act which required the agencies
to establish safety and soundness standards for insured financial institutions
covering (1) internal controls, information systems and internal audit systems;
(2) loan documentation; (3) credit underwriting; (4) interest rate exposure; (5)
asset growth; (6) compensation, fees and benefits; (7) asset quality, earnings
and stock valuation; and (8) excessive compensation for executive officers,
directors or principal shareholders which could lead to material financial loss.
If an agency determines that an institution fails to meet any standard
established by the guidelines, the agency may require the financial institution
to submit to the agency an acceptable plan to achieve compliance with the
standard. If the agency requires submission of a compliance plan and the
institution fails to timely submit an acceptable plan or to implement an
accepted plan, the agency must require the institution to correct the
deficiency. Under the final rule, an institution must file a compliance plan
within 30 days of a request to do so from the institution's primary federal
regulatory agency. The agency may elect to initiate enforcement action in
certain cases rather than rely on an existing plan, particularly where failure
to meet one or more of the standards could threaten the safe and sound operation
of the institution.
RESTRICTIONS ON DIVIDENDS AND OTHER DISTRIBUTIONS. The power of the board
of directors of an insured depository institution to declare a cash dividend or
other distribution with respect to capital is subject to statutory and
regulatory restrictions which limit the amount available for such distribution
depending upon the earnings, financial condition and cash needs of the
institution, as well as general business conditions. FDICIA prohibits insured
depository institutions from paying management fees to any controlling persons
or, with certain limited exceptions, making capital distributions, including
dividends, if, after such transaction, the institution would be
undercapitalized.
An FRB policy statement provides that a bank holding company should not
declare or pay a cash dividend to its shareholders if the dividend would place
undue pressure on the capital of its subsidiary banks or if the dividend could
be funded only through additional borrowings or other arrangements that might
adversely affect the financial position of the bank holding company.
Specifically, a bank holding company should not continue its existing rate of
cash dividends on its common stock unless its net income is sufficient to fully
fund each consistent with its capital
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needs, asset quality, and overall financial condition. Further, the Corporation
is expected to act as a source of financial strength for each of its subsidiary
banks and to commit resources to support its subsidiary bank in circumstances
when it might not do so absent such policy.
The Corporation's ability to pay dividends depends in large part on the
ability of the Bank to pay dividends to the Corporation. The payment of
dividends by a Mississippi state bank is restricted by additional provisions of
state law. As a general rule, the Bank may declare a dividend in an amount
deemed expedient by the Board of Directors of the Bank. Any such dividend,
however, may not (i) impair the capital stock of the Bank; (ii) be in an amount
greater than the remainder of undivided profits then on hand after deducting
losses, bad debts, depreciation, and all other expenses, or (iii) constitute a
withdrawal of any portion of the capital stock of the Bank. In addition, the
Bank must obtain the prior approval of the Mississippi Department of Banking and
Consumer Finance for the payment of any dividend. Additionally, under FDICIA,
the Bank may not make any capital distribution, including the payment of
dividends, if after making such distribution the Bank would be in any of the
"undercapitalized" categories under the FDIC's Prompt Corrective Action
regulations.
Finally, under the Financial Institution's Supervisory Act, the FDIC also
has the authority to prohibit the Bank from engaging in business practices which
the FDIC considers to be unsafe or unsound. It is possible, depending upon the
financial condition of the Bank and other factors, that the FDIC could assert
that the payment of dividends or other payments in some circumstances might be
such an unsafe or unsound practice and thereby prohibit such payment.
FDIC INSURANCE ASSESSMENTS. The FDIC has established several mechanisms to
increase funds to protect deposits insured by the Bank Insurance Fund ("BIF")
and the Savings Association Insurance Fund ("SAIF"), both of which are
administered by the FDIC. The Bank's deposits are insured through BIF except
for those deposits the Bank acquired from the Resolution Trust Corporation in
April, 1994. This acquisition consisted of one branch of the former Security
Federal Savings and Loan in Kosciusko, Mississippi, and these deposits remain
insured through SAIF.
As required by FDICIA, the FDIC has adopted a risk-based assessment system
for deposit insurance premiums. Under this system, depository institutions are
charged anywhere from zero to $.27 for every $100 in insured domestic deposits,
based on such institutions' capital levels and supervisory subgroup assignment.
The FDIC's rules set forth which supervisory subgroup assignments are made by
the FDIC, the assessment classification review procedure, provide for the
assignment of new institutions to the "well-capitalized" assessment group, set
forth when an institution is to make timely adjustments as appropriate, and set
forth the basis, and report data, on which capital group assignments are made
for insured branches of foreign banks, and expressly address the treatment of
certain lifeline accounts for which special assessment treatment is given.
The BIF reached its required 1.25 reserve ratio in 1995, and in response
the FDIC reduced deposit insurance assessment rates on BIF-insured deposits to
historic low levels. Legislation
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enacted in September, 1996 included provisions for the recapitalization of the
SAIF. The legislation imposed a one-time assessment in the amount of 65.7 basis
points on all SAIF-insured deposits held as of March 31, 1996. The Bank paid an
assessment in the amount of $28,640 on the small portion of its deposits that
are SAIF-insured. As a result of the payment of the special assessment and the
adoption of regulations implementing the legislation, rates for deposits insured
through SAIF have been brought into parity with BIF rates. The BIF and SAIF
deposit insurance assessment rates currently in effect range from zero to $.27
per $100 of insured deposits, with the healthiest financial institutions,
including the Bank, not being required to pay any deposit insurance premiums.
INTERSTATE BANKING AND BRANCHING. On September 29, 1994, the Riegle-Neal
Interstate Banking and Branching Efficiency Act of 1994 (the "Interstate Act")
was signed into law. The Interstate Act effectively permits nationwide banking.
As of September 30, 1995, the Interstate Act provides that adequately
capitalized and adequately managed bank holding companies may acquire banks in
any state, even in those jurisdictions that had previously barred acquisitions
by out-of-state institutions, subject to deposit concentration limits. The
deposit concentration limits provide that regulatory approval by the FRB may not
be granted for a proposed interstate acquisition if after the acquisition, the
acquiror on a consolidated basis would control more than 10% of the total
deposits nationwide or would control more than 30% of deposits in the state
where the acquiring institution is located. The deposit concentration state
limit does not apply for initial acquisitions in a state and, in every case, may
be waived by the state regulatory authority. Interstate acquisitions are
subject to compliance with the Community Reinvestment Act ("CRA"). States are
permitted to impose age requirements not to exceed five years on target banks
for interstate acquisitions.
Branching between states may be accomplished either by merging separate
banks located in different states into one legal entity, or by establishing de
novo branches in another state. Interstate branching by consolidation of banks
was permitted beginning June 1, 1997, except in states that have passed
legislation prior to that date "opting-out" of interstate branching. If a state
opted-out prior to June 1, 1997, then banks located in that state may not
participate in interstate branching. A state may opt in to interstate branching
by bank consolidation or by de novo branching by passing appropriate
legislation. The laws of the host state regarding community reinvestment, fair
lending, consumer protection (including usury limits) and establishment of
branches shall apply to the interstate branches.
De novo branching by an out-of-state bank is not permitted unless the host
state expressly permits de novo branching by banks from out-of-state. The
establishment of an initial de novo branch in a state is subject to the same
conditions as apply to initial acquisition of a bank in the host state other
than the deposit concentration limits.
Effective May 1, 1997, Mississippi "opted in" to the interstate branching
provision of the Interstate Act.
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The Interstate Act permits bank subsidiaries of a bank holding company to
act as agents for affiliated depository institutions in receiving deposits,
renewing time deposits, closing loans, servicing loans and receiving payments on
loans and other obligations. A bank acting as agent for an affiliate is not
considered a branch of the affiliate. Any agency relationship between
affiliates must be on terms that are consistent with safe and sound banking
practices. The authority for an agency relationship for receiving deposits
includes the taking of deposits for an existing account but is not meant to
include the opening or origination of new deposit accounts. Subject to certain
conditions, insured saving associations that were affiliated with banks as of
June 1, 1994 may act as agents for such banks. An affiliate bank or saving
association may not conduct any activity as an agent which such institution is
prohibited from conducting as principal.
To ensure that interstate branching does not result in taking deposits
without regard to a community's credit needs, the regulatory agencies are
directed to implement regulations prohibiting interstate branches from being
used as "deposit production offices." The regulations to implement this
provision were due by June 1, 1997. The regulations include a provision to the
effect that if loans made by an interstate branch are less than fifty percent of
the average of all depository institutions in the state, then the regulator must
review the loan portfolio of the branch. If the regulator determines that the
branch is not meeting the credit needs of the community, it has the authority to
close the branch and to prohibit the bank from opening new branches in the
state.
COMMUNITY REINVESTMENT ACT. In October, 1994, the federal financial
institution regulatory agencies proposed a comprehensive revision of their
regulations implementing the Community Reinvestment Act ("CRA"), enacted in 1977
to promote lending by financial institutions to individuals and businesses
located in low and moderate income areas. In May, 1995, the proposed CRA
regulations were published in final form effective as of July 1, 1995. The
revised regulations included transitional phase-in provisions which generally
required mandatory compliance not later than July 1, 1997, although earlier
voluntary compliance was permissible. Under the former CRA regulations,
compliance was evaluated by an assessment of the institution's methods for
determining, and efforts to meet, the credit needs of such borrowers. This
system was highly criticized by depository institutions and their trade groups
as subjective, inconsistent and burdensome, and by consumer representatives for
its alleged failure to aggressively penalize poor CRA performance by financial
institutions. The revised CRA regulations emphasize an assessment of actual
performance rather than of the procedures followed by a bank, to evaluate
compliance with the CRA. Overall CRA compliance continues to be rated across a
four-point scale from "outstanding" to "substantial noncompliance," and continue
to be a factor in review of applications to merger, establishment of new
branches or formation of bank holding companies. In addition, any bank rated in
"substantial noncompliance" with the revised CRA regulations may be subject to
enforcement proceedings. Different evaluation methods are used depending on the
asset size of the bank.
The "lending, investments and service test method" is applicable to all
banks with more than $250 million in assets which are not wholesale or limited
purpose banks and do not elect to be evaluated by the "strategic plan assessment
method" which is discussed below. Central to this
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method is the requirement that such banks collect and report to their primary
federal bank regulators detailed information regarding home mortgage, small
business and farm and community development loans which is then used to evaluate
CRA compliance. At the bank's option, data regarding consumer loans and any
other loan distribution it may choose to provide also may be collected and
reported.
Using such data, a bank will be evaluated regarding its (i) lending
performance according to the geographic distribution of its loans, the
characteristics of its borrowers, the number and complexity of its community
development loans, the innovativeness or flexibility of its lending practices to
meet low and moderate income credit needs and, at the bank's election, lending
by affiliates or through consortia or third parties in which the bank has an
investment interest; (ii) investment performance by measure of the bank's
"qualified investments," that is, the extent to which the bank's investments,
deposits, membership shares in a credit union, or grants primarily to benefit
low or moderate income individuals and small businesses and farms, address
affordable housing or other needs not met by the private market, or assist any
minority or women-owned depository institution by donating, selling on favorable
terms or providing on a rent-free basis any branch of the bank located in a
predominantly minority neighborhood; and (iii) service performance by evaluating
the demographic distribution of the bank's branches and ATMs, its record of
opening and closing them, the availability of alternative retail delivery
systems (such as telephone banking, banking by mail or at work, and mobile
facilities) in low and moderate income geographies and to low- and moderate-
income individuals, and (given the characteristics of the bank's service area(s)
and its capacity and constraints) the extent to which the bank provides
"community development services" (services which primarily benefit low and
moderate income individuals or small farms and businesses or address affordable
housing needs not met by the private market) and their innovativeness and
responsiveness.
Any bank may request to be evaluated by the "strategic plan assessment
method" by submitting a strategic plan for review and approval. Such a plan
must involve public participation in its preparation, and contain measurable
goals for meeting low and moderate income credit needs through lending,
investments and provision of services. Such plans generally will be evaluated
by measuring strategic plan goals against standards similar to those which will
be applied in evaluating a bank according to the "lending, investments and
service test method."
The federal financial institution regulatory agencies issued a final rule
effective as of January 1, 1996, to make certain technical corrections to the
revised CRA regulations. Among other matters, the rule clarifies the transition
from the former CRA regulations to the revised CRA regulations by confirming
that when an institution either voluntarily or mandatorily becomes subject to
the performance tests and standards of the revised regulations, the institution
must comply with all of the requirements of the revised regulations and is no
longer subject to the provisions of the former CRA regulations.
The FDIC examined the Bank on March 12, 1997 and again most recently on
June 1, 1999, for its performance under the CRA. The CRA requires that in
connection with its
11
<PAGE>
examination of a financial institution, each federal financial supervisory
agency shall (1) assess the institution's record of helping to meet the credit
needs of its entire community, including low-and moderate-income neighborhoods,
consistent with safe and sound operations of the institution, and (2) take that
record of performance into account when deciding whether to approve an
application of the institution for a deposit facility. The Bank was rated
Satisfactory during both of these examinations.
The Bank's Satisfactory rating is based on several criteria used by the
regulatory agency. Lending levels are acceptable and the distribution of credit
demonstrates the Bank's success at extending credit without neglecting low-or
moderate-income residents. Credit is extended to geographic areas of all income
groups. Additionally, the Bank has attempted to serve the small business and
small farm sectors of the economy. Ascertainment and marketing programs are
effective at soliciting the needs of the entire community and promoting the
Bank's products and services. No discriminatory practices or illegal
discouragement of applications were found. In management's opinion, the Bank
has invested in a sizeable amount of local community development issuances.
IMPACT OF MONETARY POLICIES
Banking is a business which depends on interest rate differentials. In
general, the difference between the interest paid by a bank on its deposits and
other borrowings, and the interest rate earned by banks on loans, securities and
other interest-earning assets comprises the major source of banks' earnings.
Thus, the earnings and growth of banks are subject to the influence of economic
conditions generally, both domestic and foreign, and also to the monetary and
fiscal policies of the United States and its agencies, particularly the FRB.
The FRB implements national monetary policy, such as seeking to curb inflation
and combat recession, by its open-market dealings in United States government
securities, by adjusting the required level of reserves for financial
institutions subject to reserve requirements and through adjustments to the
discount rate applicable to borrowings by banks which are members of the FRB.
The actions of the FRB in these areas influence the growth of bank loans,
investments and deposits and also affect interest rates. The nature and timing
of any future changes in such policies and their impact on the Corporation
cannot be predicted. In addition, adverse economic conditions could make a
higher provision for loan losses a prudent course and could cause higher loan
loss charge-offs, thus adversely affecting the Corporation's net earnings.
COMPETITION
The banking business is a highly competitive business. The Corporation's
market area consists principally of Neshoba, Newton, Leake, Scott, Attala and
Kemper Counties in Mississippi, although the Corporation also competes with
other financial institutions in those counties and in surrounding counties in
Mississippi in obtaining deposits and providing many types of financial
services. The Corporation competes with larger regional banks for the business
of companies located in the Corporation's market area. A healthy economy, such
as the Corporation's market area is experiencing, invites certain challenges,
especially that of competition.
12
<PAGE>
All financial institutions today are faced with the challenge of competing
for customers' deposits, and the Bank is no exception. The Bank competes with
savings and loan associations, credit unions, production credit associations and
federal land banks and with finance companies, personal loan companies, money
market funds and other non-depository financial intermediaries. Many of these
financial institutions have resources many times greater than those of the
Corporation. In addition, new financial intermediaries such as money-market
mutual funds and large retailers are not subject to the same regulations and
laws that govern the operation of traditional depository institutions.
Recent changes in federal and state law have resulted in and are expected
to continue to result in increased competition. The reductions in legal
barriers to the acquisition of banks by out-of-state bank holding companies
resulting from implementation of the Interstate Act and other recent and
proposed changes are expected to continue to further stimulate competition in
the markets in which the Corporation operates, although it is not possible to
predict the extent or timing of such increased competition.
Currently, there are approximately fourteen different financial
institutions in the Corporation's market area competing for the same customer
base. Despite these challenges, the Corporation has not only been able to
maintain its market share, but has actually increased its share in recent years.
FORWARD-LOOKING STATEMENTS
This Form 10 and future filings made by the Corporation with the Securities
and Exchange Commission, as well as other filings, reports and press releases
made or issued by the Corporation and the Bank, and oral statements made by
executive officers of the Corporation and Bank, may include forward-looking
statements relating to such matters as (a) assumptions concerning future
economic and business conditions and their effect on the economy in general and
on the markets in which the Corporation and the Bank do business, and (b)
expectations for increased revenues and earnings for the Corporation and Bank
through growth resulting from acquisitions, attraction of new deposit and loan
customers and the introduction of new products and services. Such forward-
looking statements are based on assumptions rather than historical or current
facts and, therefore, are inherently uncertain and subject to risk.
To comply with the terms of a "safe harbor" provided by the Private
Securities Litigation Reform Act of 1995 that protects the making of such
forward-looking statements from liability under certain circumstances, the
Corporation notes that a variety of factors could cause the actual results or
experience to differ materially from the anticipated results or other
expectations described or implied by such forward-looking statements. The risks
and uncertainties that may affect the operations, performance, development and
results of the Corporation's and Bank's
13
<PAGE>
business include the following: (a) the risk of adverse changes in business
conditions in the banking industry generally and in the specific markets in
which the Corporation operates; (b) changes in the legislative and regulatory
environment that negatively impact the Corporation and Bank through increased
operating expenses; (c) increased competition from other financial and non-
financial institutions; (d) the impact of technological advances; and (e) other
risks detailed from time to time in the Corporation's filings with the
Securities and Exchange Commission. The Corporation does not undertake any
obligation to update or revise any forward-looking statements subsequent to the
date on which they are made.
ITEM 2 FINANCIAL INFORMATION
The following discussion and analysis is presented to facilitate the
understanding of the Corporation's financial condition. This discussion and
analysis is broken down into two components. Financial information and results
of operations for each of the three years in the period ended December 31, 1996,
1997 and 1998 is found under 2A hereof. The information should be used in
conjunction with the accompanying consolidated financial statements and
footnotes contained elsewhere in this document. Additionally, unaudited interim
financials for the quarter ended March 31, 1999 have been included and are
discussed under 2B hereof. Dollar amounts in tables are presented in thousands.
2A. FINANCIAL INFORMATION - YEAR ENDED DECEMBER 31, 1998
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS AS OF DECEMBER 31, 1998, 1997 AND 1996
INTRODUCTION AND OVERVIEW
The Corporation, through the Bank as its sole subsidiary, conducts business
in thirteen commercial bank offices located in Neshoba, Newton, Leake, Scott,
Attala, and Kemper counties, Mississippi, and a loan production office located
in Lauderdale county, also in Mississippi. The Bank is engaged in a variety of
financial services, including accepting deposits, making commercial and consumer
loans, making mortgage loans, and providing personal trust services.
The Mississippi counties which the Corporation primarily serves have
benefitted from increasingly strong economies over the past few years. In July,
1995, the Mississippi Band of Choctaw Indians (the "Tribe") opened the
Silverstar Casino and Resort (the "Casino") on the Reservation in west Neshoba
County. This complex has grown in the past three years to include not only a
casino but a 512 room hotel, 2,500 seat convention center and 36 holes of
championship golf. Because the Casino is not regulated by the State of
Mississippi, exact figures are not released to the public about the amount of
play in the Casino, but industry analysts have estimated it to be equal to all
four of the casinos in Vicksburg, Mississippi. In addition to the Casino, the
Tribe has numerous industries and is the largest employer in Neshoba County.
14
<PAGE>
The region served by the Corporation is largely agricultural with a
moderate amount of light industrial plants. In the past several years, the
chicken industry has expanded greatly in the western part of the service area.
The Corporation has been involved in this growth through its lending to
individual farmers for construction of chicken houses and the related support
facilities. Timber is also an important part of the economy in this six county
area. In addition to the local land and timber owners, Philadelphia is home to
two moderate size lumber mills and numerous timber equipment dealers and is
within a short distance to several others.
Although the Corporation has made bank acquisitions in the last five years,
there are currently no pending bank mergers or bank acquisitions. However,
management does plan to aggressively pursue any such opportunities, either
branch locations or entire banks, as they may become available. Management
anticipates additional acquisitions or mergers with like-minded community banks
may occur in the future. The Statements in this paragraph relating to potential
mergers or acquisitions are forward-looking statements which may or may not be
accurate due to the impossibility of predicting future events.
Y2K AWARENESS AND PREPARATION
The Corporation has been diligent in preparing for the possible
consequences of the date change on January 1, 2000. The Board has reviewed
these anticipated consequences and assigned a Y2K Coordinator the task of
reviewing the Corporation's systems to make a determination of what adjustments
would be required. The Board approved a budget for the solutions of these
potential problems in the amount of $376,713. At the time of this application
$365,773 or 97.1% of this budget had been expended. Although some other benefits
were obtained from the upgrades to the computer system, the main force behind
the upgrade at this time was the need to address the Y2K issue.
Although the Corporation's computer hardware and software were certified
Y2K compliant by the respective vendors, the Corporation engaged the services of
an outside consultant to conduct an on-site test of the computer systems.
Testing of the system was accomplished by forward dating the system into the
year 2000 and running sample transactions on these dates. During this test, no
abnormalities in processing were discovered due to this date change. The
Corporation will continue to monitor shared application software reviews to keep
abreast of the software's compliance with the Y2K event.
The Corporation's personal computers are currently being evaluated and will
be replaced or updated as needed. All other date sensitive equipment is being
replaced or converted as required to maintain Y2K compliance. The Corporation
has set a goal to have identified and corrected all potential Y2K problems by
June 30, 1999.
The Corporation currently requires that Y2K readiness be considered in the
credit decision process on all new loan customers. Loan customers that have
potential exposure would pose a credit risk if they have not addressed the
possibility of business interruptions due to Y2K. The
15
<PAGE>
Corporation's loan personnel have taken steps to identify current loan customers
with potential Y2K exposure and have surveyed them to check on their progress in
resolving any problems. This process did not identify any problem areas that
might be of concern for the Corporation.
Regardless of the Corporation's diligence, several problems could arise as
a result of Y2K failures. Loss of electrical power, loss of communications and
panic among the general public would require special operating procedures. The
Corporation has formulated plans to continue business in the event that any of
these situations occur. Specifically, procedures are in place to handle
customer requests manually in case use of the computer is lost. Plans for
clearing checks and other cash items also have been made. Also, additional cash
will be added to the vault to handle the anticipated cash withdrawals in the
fourth quarter of 1999.
FIVE YEAR SUMMARY OF CONSOLIDATED FINANCIAL STATEMENTS AND RELATED STATISTICS
(Dollar references in thousands except per share data)
The following selected data has been taken from the Corporation's
consolidated financial statements and should be read in conjunction with the
consolidated financial statements and related notes included elsewhere.
OVERVIEW OF OPERATIONS
The major components of the Corporation's operating results for the past
five years are summarized in Table 1 - Five Year Financial Summary.
TABLE 1 - FIVE YEAR FINANCIAL SUMMARY
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31
--------------------------------------------------------------
1998 1997 1996 1995 1994
---------- ---------- ----------- --------- ---------
<S> <C> <C> <C> <C> <C>
SUMMARY OF OPERATIONS
Interest Income- tax
equivalent (1) 23,698 21,588 20,369 18,041 14,068
Interest Expense 10,860 9,659 8,684 7,727 4,934
---------- ---------- ---------- -------- --------
Net interest income-tax
equivalent 12,838 11,929 11,685 10,314 9,134
Tax equivalent adjustment (1) -147 -82 -114 -96 -80
---------- ---------- ---------- -------- --------
Net interest income 12,691 11,847 11,571 10,218 9,054
Provision for loan losses 846 740 791 604 593
---------- ---------- ---------- -------- --------
Net interest income after
provision
for loan losses 11,845 11,107 10,780 9,614 8,461
Noninterest income 3,320 2,990 2,686 2,433 2,460
Noninterest expenses 7,966 7,046 6,665 6,379 5,899
</TABLE>
16
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
Income before income taxes 7,199 7,051 6,801 5,668 5,022
Income tax expense 2,487 2,561 2,407 2,046 1,804
---------- ---------- ---------- -------- --------
NET INCOME 4,712 4,490 4,394 3,622 3,218
========== ========== ========== ======== ========
PER SHARE DATA (2)
Net Income $ 1.42 1.36 $ 1.33 $ 1.15 $ 1.02
Cash dividends 0.24 0.17 0.15 0.14 0.15
Shareholders' equity, end of
year 10.72 9.44 8.09 6.91 5.84
SELECTED ACTUAL YEAR-END BALANCES
Total assets 334,232 286,634 270,679 264,453 215,939
Earning Assets 305,963 267,467 252,047 241,495 202,586
Investment securities
available for sale 91,539 67,292 72,472 76,022 5,899
Investment securities held
for maturity 0 0 0 0 71,991
Loans-Net 208,449 191,605 177,005 154,380 123,715
Allowance for loan losses -2,900 -2,700 -2,500 -2,300 -2,100
Total deposits 282,242 248,984 229,443 238,677 186,784
Noninterest-bearing demand
deposits 37,983 35,526 34,353 35,492 31,213
Interest-bearing demand
deposits 68,394 56,904 54,960 75,857 44,105
Savings deposits 19,106 17,188 16,994 15,617 14,426
Time deposits 156,761 139,365 123,136 111,711 97,039
Long term borrowings 10,000 0 33 65 198
Shareholders' equity 35,455 31,220 26,758 22,858 19,331
Equity to assets ratio 10.61% 10.89% 9.89% 8.64% 8.95%
SELECTED AVERAGE BALANCES
Total Assets 314,896 279,961 271,241 242,024 204,720
Earning Assets 293,120 259,036 250,670 224,492 187,257
Securities 79,401 70,023 76,138 75,847 68,199
Loans 202,228 187,150 168,542 141,192 113,628
Allowance for loan losses 2,701 2,523 2,342 2,103 1,927
Total deposits 268,514 242,331 238,358 216,479 182,707
Noninterest-bearing demand
deposits 34,909 34,995 37,894 34,213 29,607
Interest-bearing demand
deposits 68,330 57,281 68,036 59,134 45,126
Savings deposits 18,201 17,313 16,681 15,154 14,556
Time deposits 147,074 132,742 115,747 107,978 93,418
Long-term borrowings 7,630 3 35 127 292
Shareholders' equity 33,513 28,920 24,610 21,195 18,391
RATIOS BASED ON AVERAGE BALANCES
Loans to deposits 75.31% 76.95% 76.16% 64.68% 65.34%
Return on average assets 1.50% 1.60% 1.62% 1.50% 1.61%
Return on average equity 14.08% 15.24% 17.77% 17.15% 17.41%
Dividend payout ratio 16.85% 12.52% 11.29% 12.15% 14.33%
Leverage capital ratio 10.61% 10.92% 9.88% 8.74% 9.20%
Efficiency ratio (3) 48.01% 45.56% 45.29% 49.02% 50.24%
</TABLE>
17
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
OTHER DATA
Number of employees (FTE) 140 138 137 133 122
Average common stock
outstanding 3,308,750 3,308,750 3,308,750 3,151,240 3,151,240
Cash dividends declared 794 562 496 441 473
</TABLE>
(1) Net interest income has been presented on both a tax equivalent and non-tax
equivalent basis. Tax equivalent basis was calculated using a 34% tax
rate for all periods presented. The tax equivalent adjustment reverses the
tax equivalent basis in order to present net interest income reflected in
the consolidated financial statements.
(2) Per share data has been retroactively adjusted to give effect for stock
dividends and splits, including the five to one (5:1) stock split that was
effective January 1, 1999.
(3) The efficiency ratio is calculated by dividing noninterest income expense
by the sum of the interest income, on a fully tax equivalent basis, and
noninterest income.
The Corporation earned $4,712,000 or $1.42 per share, for 1998, compared to
$4,490,000, or $1.36 per share, for 1997. Although the 4.9% increase in
earnings in 1998 over 1997 earnings was more than the 2.2% increase of 1997 over
1996, the yearly increase was still less than that of the previous four years.
In 1998 the decline in the net interest margin stabilized due to a decline in
the rates paid on time deposits. Loan rates also declined during this period
but to a lesser degree and loan demand remained strong. The increase in income
in 1998 was due to an increase in the Bank's assets during the year.
Earnings in 1997 were impacted by a decline in the net interest margin.
The small increase in net income was due to an increase in asset size and an
increase in fee income. Net charge-offs decreased both as a percentage of loans
outstanding and as an actual dollar amount of loans charged off in 1997.
NET INTEREST INCOME
Net interest income is the most significant component of the Corporation's
earnings. Net interest income is the difference between interest and fees
realized on earning assets, primarily loans and securities, and interest paid on
deposits and other borrowed funds. The net interest margin is this difference
expressed as a percentage of average earning assets. Net interest income is
determined by several factors, including the volume of earning assets and
liabilities, the mix of earning assets and liabilities and interest rates.
Although there are a certain number of these factors which can be controlled by
management policies and actions, certain other factors, such as the general
level of credit demand, Federal Reserve Board monetary policy, and changes in
tax law are beyond the control of management. Tables 1 through 4 are an
integral part in analyzing the components of net interest income and the changes
which have occurred between the time periods presented. Table 1 - Five Year
Financial Summary shows the corporation's net interest
18
<PAGE>
income from 1994 through 1998. Table 2 - Average Balance Sheets and Interest
Rates represent the major components of interest earning assets and interest-
bearing liabilities.
TABLE 2 - AVERAGE BALANCE SHEETS AND INTEREST RATES
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31
1998 1997
------------------------------------------------------------------
AVERAGE AVERAGE AVERAGE AVERAGE
BALANCE INTEREST RATE BALANCE INTEREST RATE
-------- -------- ------- -------- -------- -------
<S> <C> <C> <C> <C> <C> <C>
ASSETS
INTEREST EARNING ASSETS
Securities
Taxable 70,801 4,213 5.95% 63,333 4,117 6.50%
Tax-exempt (1) 8,600 565 6.57% 5,345 350 6.55%
-------- -------- ----- -------- ------ -----
Total Securities 79,401 4,778 6.02% 68,678 4,467 6.50%
Loans (2)
Commercial 181,931 16,122 8.86% 167,628 15,033 8.97%
Installment 20,297 2,185 10.77% 19,552 2,073 10.60%
-------- ------
Total loans 202,228 18,307 9.05% 187,180 17,106 9.14%
Federal Home Loan
Bank Account 1,576 91 5.77% 78 4 5.13%
Federal Funds Sold 9,804 523 5.33% 2,112 125 5.92%
-------- -------- ----- -------- ------ -----
TOTAL EARNING
ASSETS 293,009 23,699 8.09% 258,048 21,702 8.41%
NONINTEREST EARNING ASSETS
Allowance for loan
losses (2,701) (2,523)
Premises and
equipment 4,374 3,915
Cash and due from
banks 11,818 11,821
Accrued interest and
other assets 8,396 8,700
-------- --------
TOTAL ASSETS $314,896 $279,961
======== ========
</TABLE>
19
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
LIABILITIES AND SHAREHOLDERS' EQUITY
INTEREST BEARING LIABILITIES
Deposits
Interest-bearing demand
deposits 68,330 1,958 2.87% 57,281 1,590 2.78%
Savings Deposits 18,201 678 3.73% 17,313 675 3.90%
Time Deposits 147,074 7,761 5.28% 132,742 7,192 5.42%
-------- -------- ----- -------- ------ -----
Total interest-bearing
deposits 233,605 10,397 4.45% 207,336 9,457 4.56%
Borrowed funds
Short-term borrowings 635 33 5.20% 4,148 202 4.87%
Long-term debt 7,630 430 5.64% 0 0 0.00%
-------- -------- ----- -------- ------
Total borrowed funds 8,265 463 5.60% 4,148 202 4.87%
-------- -------- ----- -------- ------ -----
TOTAL INTEREST-BEARING
LIABILITIES 241,870 10,860 4.49% 211,484 9,659 4.57%
======== ======== ===== ======== ====== =====
NONINTEREST-BEARING LIABILITIES
Noninterest-bearing
demand deposits 34,909 34,995
Accrued interest and
other liabilities 4,604 4,562
Shareholders' equity 33,513 28,920
-------- --------
TOTAL LIABILITIES AND
SHAREHOLDERS'
EQUITY $314,896 $279,961
======== ========
NET INTEREST INCOME AND
INTEREST RATE SPREAD 12,839 3.60% 12,043 3.84%
======== ===== ====== =====
NET INTEREST MARGIN 4.38% 4.67%
===== =====
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
1996
--------------------------------
AVERAGE AVERAGE
BALANCE INTEREST RATE
--------------------------------
<S> <C> <C> <C>
ASSETS
INTEREST EARNING ASSETS
Securities
Taxable 68,692 4,325 6.30%
Tax-exempt (1) 6,539 463 7.08%
-------- ------ -----
Total Securities 75,231 4,788 6.36%
Loans (2)
Commercial 149,697 13,365 8.93%
Installment 18,394 1,979 10.76%
-------- ------ -----
</TABLE>
20
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Total loans 168,091 15,344 9.13%
Federal Home Loan Bank Account 40 3 7.50%
Federal Funds Sold 5,768 313 5.43%
-------- ------ -----
TOTAL EARNING ASSETS 249,130 20,448 8.21%
NONINTEREST EARNING ASSETS
Allowance for loan losses (2,343)
Premises and equipment 3,837
Cash and due from banks 13,020
Accrued interest and other assets 7,597
TOTAL ASSETS $271,241
========
LIABILITIES AND SHAREHOLDERS' EQUITY
INTEREST BEARING LIABILITIES
Deposits
Interest-bearing demand deposits 67,906 1,794 2.64%
Savings Deposits 16,397 639 3.90%
Time Deposits 115,746 6,027 5.21%
-------- ------ -----
Total interest-bearing deposits 200,049 8,460 4.23%
Borrowed funds
Short-term borrowings 4,114 220 5.35%
Long-term debt 35 4 11.43%
-------- ------ -----
Total borrowed funds 4,149 224 5.40%
-------- ------ -----
TOTAL INTEREST-BEARING
LIABILITIES 204,198 8,684 4.25%
NONINTEREST-BEARING
LIABILITIES
Noninterest-bearing demand
deposits 38,175
Accrued interest and other
liabilities 4,258
Shareholders' equity 24,610
--------
TOTAL LIABILITIES AND
SHAREHOLDERS' EQUITY $271,241
========
NET INTEREST INCOME AND
INTEREST RATE SPREAD 11,764 3.96%
======== ======
NET INTEREST MARGIN 4.72%
======
</TABLE>
21
<PAGE>
(1) Interest income on tax-exempt securities and loans has been adjusted to a
tax equivalent basis using a marginal federal income tax rate of 34% for
all years. Tax equivalent security adjustments were $146 for 1998, $81 for
1997, and $110 for 1996. Tax equivalent loan adjustments were $1 for 1998,
$1 for 1997, and $4 for 1996.
(2) Nonaccrual loans are included in average loan balances.
Table 3 - Net Interest Earning Assets illustrates net interest earning assets
and liabilities for 1998, 1997 and 1996.
TABLE 3 - NET INTEREST EARNING ASSETS
<TABLE>
<CAPTION>
1998 1997 1996
-------- -------- --------
<S> <C> <C> <C>
Average interest earning
assets $293,009 $258,048 $249,130
Average interest bearing
liabilities 241,870 211,484 204,198
-------- -------- --------
$ 51,139 $ 46,564 $ 44,932
======== ======== ========
</TABLE>
Table 4 - Volume and Rate Analysis depicts the dollar effect of volume and rate
changes from 1996 through 1998. Variances which were not specifically
attributable to volume or rate were allocated proportionately between rate and
volume using the absolute values of each for a basis for the allocation.
Nonaccruing loans were included in the average loan balances used in determining
the yields.
Interest income on tax-exempt securities and loans has been basis adjusted to a
tax equivalent using a marginal federal income tax rate of 34%.
TABLE 4 - VOLUME/RATE ANALYSIS
<TABLE>
<CAPTION>
1998 change from 1997 due to 1997 change from 1996 due to
Volume Rate Total Volume Rate Total
-------------- ------------- ---------- ----------- ---------- --------
<S> <C> <C> <C> <C> <C> <C>
INTEREST INCOME
- -----------------------------
Loans 1,367 (166) 1,201 1,745 17 1,762
Securities
Taxable 448 (352) 96 (346) 138 (208)
Tax-exempt 213 2 215 (78) (35) (113)
Federal Home Loan Bank
Account 77 10 87 2 (1) 1
Federal Funds Sold 410 (12) 398 (216) 28 (188)
-------- -------- -------- ----- ---- -----
TOTAL INTEREST INCOME 2,515 (518) 1,997 1,107 147 1,254
</TABLE>
22
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
INTEREST EXPENSE
- -----------------------------
Interest-bearing demand
deposits 317 51 368 (295) 91 (204)
Savings deposits 33 (30) 3 36 0 36
Time deposits 756 (187) 569 922 243 1,165
Short-term borrowings (183) 14 (169) 2 (20) (18)
Long-term borrowings 430 0 430 (4) 0 (4)
-------- -------- -------- ----- ---- -----
TOTAL INTEREST EXPENSE 1,353 (152) 1,201 661 314 975
-------- -------- -------- ----- ---- -----
NET INTEREST INCOME 1,162 (366) 796 446 (167) 279
======== ======== ======== ===== ==== =====
</TABLE>
Net interest income for 1998 on a tax equivalent basis was 6.61% higher
than that for 1997, while the net interest margin for 1998 was 4.38% compared to
4.67% for 1997. Tax equivalent net interest income for 1997 was 2.37% higher
than that for 1996 while the net interest margin decreased to 4.67% from 4.72%
in 1996.
The increase in net interest income during 1998 was predominantly a result
of increases in earning asset volume. The loan growth experienced in 1998 was
due to a continuing strong loan demand in the Corporation's service area. This
increase in interest income was partially offset by volume increases in
interest-bearing liabilities. The earning asset yield decreased to 8.09% in
1998, compared to 8.41% in the previous year, predominantly through the loan
portfolio, where the increase in loan volume as a percent of earning assets
provided a higher yield relative to the yield on other earning assets. The
average yield on loans decreased to 9.05% in 1998 compared to the 1997 yield of
9.14%. Although there was an increase in the investment securities average
balance, the average yield decreased to 6.02% in 1998 from 6.50% in 1997. Total
interest-bearing liabilities increased in 1998 primarily due to continued strong
growth in the Corporation's area. The interest-bearing deposit growth of 12.67%
was offset by a slightly lower interest rate paid, 4.45% in 1998 compared to
4.56% in 1997.
Net interest income in 1997 increased 2.37% over 1996 due mainly to an
increase in the volume of interest-bearing assets. The earning asset yield
increased to 8.41% in 1997 compared to 8.21% in 1996 as a result of increases in
the volume and rate of loans during this period and a slight decrease in the
traditionally lower yielding federal funds sold and securities portfolio. Like
earning assets, interest-bearing liabilities showed good growth in average
balances, and the interest rates paid on deposits increased from 4.23% in 1996
to 4.56% in 1997, increasing the rate on total interest-bearing liabilities to
4.57% in 1997 compared to the 1996 rate of 4.25%.
PROVISION FOR LOAN LOSSES AND ASSET QUALITY
The provision for loan losses represents charges made to earnings to
maintain an adequate allowance for loan losses. The allowance is maintained at
an amount believed by management to be sufficient to absorb loses inherent in
the credit portfolio. Factors considered in establishing an appropriate
allowance include: a careful assessment of the financial condition of the
borrower; a realistic determination for the value and adequacy of underlying
collateral; the condition of the local economy and the condition of the specific
industry of the borrower; a comprehensive analysis of the levels and trends of
loan categories; and review of delinquent and classified loans.
23
<PAGE>
The Corporation maintains a comprehensive loan review program to evaluate
loan administration, credit quality, and loan documentation. This program also
includes a regular review of problem loan ("watch") reports, delinquencies, and
charge-offs. The adequacy of the allowance for loan losses is evaluated on a
quarterly basis. This evaluation focuses on specific loan reviews, changes in
the type and volume of the loan portfolio given the current and forecasted
economic conditions, and historical loss experience. Any one of the following
conditions may necessitate a review of a specific loan: a question of whether
the customer's cash flow or net worth may not be sufficient to repay the loan;
the loan has been criticized in a regulatory examination; the accrual of
interest has been suspended; serious delinquency; or other reasons where either
the ultimate collectibility of the loan is in question or the loan has other
special or unusual characteristics which require special monitoring.
Activity in the allowance for loan losses is reflected in Table 5 -
Analysis of Allowance for Loan Losses. The recorded values of loans and leases
actually removed from the consolidated balance sheets are referred to as charge-
offs and, after netting out recoveries on previously charged-off assets, become
net charge-offs. The Corporation's policy is to charge-off loans, when, in
management's opinion, the loan is deemed uncollectible, although concerted
efforts are made to maximize recovery.
TABLE 5 - ANALYSIS OF ALLOWANCE FOR LOAN LOSSES
<TABLE>
<CAPTION>
1998 1997 1996 1995 1994
------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C>
BALANCE AT BEGINNING OF YEAR $2,700 $2,500 $2,300 $2,100 $1,925
LOANS CHARGED-OFF
- -----------------
Commercial and agricultural 364 326 287 163 245
Real estate 10 13 41 72 159
Installment 434 383 377 350 203
Credit card 71 66 51 17 0
------ ------ ------ ------ ------
TOTAL CHARGE-OFFS 879 788 756 602 607
CHARGE-OFFS RECOVERED
- ---------------------
Commercial and agricultural 55 89 41 76 72
Real estate 3 0 0 22 0
Installment 147 145 115 100 117
Credit card 28 14 9 0 0
------ ------ ------ ------ ------
TOTAL RECOVERIES 233 248 165 198 189
------ ------ ------ ------ ------
Net loans charged-off 646 540 591 404 418
Current year provision 846 740 791 604 593
------ ------ ------ ------ ------
</TABLE>
24
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C> <C>
BALANCE AT END OF YEAR 2,900 2,700 2,500 2,300 2,100
======= ======= ======= ======= =======
Loans at year end 208,449 191,605 177,005 154,380 123,715
Ratio of allowance to loans
at year end 1.39% 1.41% 1.41% 1.49% 1.70%
Average loans 202,228 186,843 168,542 141,192 113,628
Ratio of net loans charged-off
to average loans 0.32% 0.29% 0.35% 0.29% 0.37%
</TABLE>
<TABLE>
<CAPTION>
ALLOCATION OF ALLOWANCE FOR LOAN LOSSES AT DECEMBER 31,
1998 1997 1996 1995 1994
-------- ----------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Commercial and Agricultural $ 500 $ 450 $ 400 $ 350 $ 300
Real Estate 300 300 250 200 200
Consumer 800 750 700 650 650
Unallocated 1,300 1,200 1,150 1,100 950
-------- ----------- -------- -------- --------
$ 2,900 $ 2,700 $ 2,500 $ 2,300 $ 2,100
======== =========== ======== ======== ========
COMPOSITION OF LOAN PORTFOLIO BY TYPE AT DECEMBER 31,
1998 1997 1996 1995 1994
-------- ----------- -------- -------- --------
Commercial and agricultural 15.34% 13.15% 13.75% 15.72% 17.69%
Real estate 60.80% 62.81% 63.08% 60.60% 58.49%
Installment 22.74% 23.25% 22.41% 22.99% 23.19%
Other 1.12% 0.79% 0.76% 0.69% 0.63%
-------- ----------- -------- -------- --------
100.00% 100.00% 100.00% 100.00% 100.00%
======== =========== ======== ======== ========
</TABLE>
Nonperforming assets and relative percentages to loan balances are
presented in Table 6 -Nonperforming Assets. The level of nonperforming loans
and leases is an important element in assessing asset quality and the relevant
risk in the credit portfolio. Nonperforming loans include nonaccrual loans,
restructured loans, and loans delinquent 90 days or more. Loans are classified
as nonaccrual when management believes that collection of interest is doubtful,
typically when payments are past due over 90 days, unless well secured and in
the process of collection. Another element associated with asset quality is
other real estate owned (OREO), which represents properties acquired by the
Corporation through loan defaults by customers.
25
<PAGE>
TABLE 6 - NONPERFORMING ASSETS
<TABLE>
<CAPTION>
As of December 31,
---------------------------------------------------------
1998 1997 1996 1995 1994
PRINCIPAL BALANCE ----- -------- ------- ------- -------
- -----------------
<S> <C> <C> <C> <C> <C>
Nonaccrual $ 649 $ 344 $ 171 $ 91 $ 117
90 days or more past due 1,641 1,862 1,731 1,303 511
------ -------- ------- ------- -------
TOTAL NONPERFORMING LOANS 2,290 2,206 1,902 1,394 628
====== ======== ======= ======= =======
Nonperforming as a percent of loans 1.10% 1.15% 1.07% 0.90% 0.51%
Other real estate owned 57 10 132 217 321
OREO as a percent of loans 0.03% 0.01% 0.07% 0.14% 0.26%
Allowance as a percent of
nonperforming loans 126.64% 122.39% 12244% 164.99% 334.39%
</TABLE>
The consolidated provision for loan losses was $846,000 for 1998, $740,000
for 1997, and $791,000 for 1996. Net charge-offs ranged from .37% in 1994 to
.32% in 1998 with the highest percentage year being 1996 at .35%. The
percentage of the allowance compared to nonperforming loans increased to 126.64%
in 1998 from 122.39% in 1997 after having decreased from 334.39% in 1994. The
amount of the future years' provision for loan losses will be subject to
adjustment based on the evaluations of the loan portfolio for loss reserve
adequacy.
During the time period from 1994 to 1998, nonperforming loans increased
from $628,000 in 1994 to $2,290,000 in 1998. Nonperforming loans as a percent
of loans increased from .90% in 1995 to 1.10% in 1998 with the highest
percentage year being 1997 at 1.15%. The allowance as a percent of loans was
1.39% in 1998 compared to 1.70% in 1994. During this period, nonaccrual loan
balances increased slightly due to the Corporation's aggressive policy in
transferring loans to nonaccrual status.
Statements of Financial Accounting Standard No. 114 and 118, "Accounting by
Creditors for Impairment of a Loan," became effective January 1, 1995. These
statements changed the way loan loss allowance estimates were to be made for
problem loans. In general, when it is determined that all principal and
interest due under the contractual terms of a loan are not fully collectible,
management must value the loan using discounted future expected cash flows.
Management has not recognized any loans as being impaired in conformity with
FASB 114 and 118 for the years 1998, 1997, and 1996. Application of this
statement should not have a material effect on the Corporation's financial
statements.
26
<PAGE>
The decrease in other real estate owned was primarily the result of a
strong real estate market in the Corporation's area and the sale of a large
commercial property. All other real estate owned is carried by the Corporation
at the lower of cost or fair value, less disposal costs.
Management believes loans classified for regulatory purposes as loss,
doubtful or substandard that are not included in nonperforming or impaired loans
do not represent or result from trends or uncertainties which will have a
material impact on future operating results, liquidity, or capital resources.
The most recent safety and soundness exam conducted concurrently as of October
12, 1998 by the FDIC and the Mississippi Department of Banking and Consumer
Finance, classified $5,821,000 as Substandard loans, and $177,000 as Loss loans.
All loans that were classified Loss were charged off by December 31, 1998 except
for three loans totaling $21,000 that were paid up current by that date and
remain current.
In addition to loans classified for regulatory purposes, management also
designates certain loans for internal monitoring purposes in a watch category.
Loans may be placed on management's watch list as a result of delinquent status,
concern about the borrower's financial condition or the value of the collateral
securing the loan, substandard classification during regulatory examinations, or
simply as a result of management's desire to monitor more closely a borrower's
financial condition and performance. Watch category loans may include loans
with loss potential that are still performing and accruing interest and may be
current under the terms of the loan agreement; however, management may have a
significant degree of concern about the borrowers' ability to continue to
perform according to the terms of the loan. Loss exposure on these loans is
typically evaluated based primarily upon the estimated liquidation value of the
collateral securing the loan. Also, watch category loans may include credits
which, although adequately secured and performing, reflect a past delinquency
problem or unfavorable financial trends exhibited by the borrower.
All watch list loans are subject to additional scrutiny and monitoring.
The Corporation's policies require loan officers to identify borrowers that
should be monitored in this fashion and believe this process ultimately results
in the identification of problem loans in a more timely fashion.
At December 31, 1998, the Corporation had a total of $5,723,434 of loans on
its watch list, which included $5,453,171 in loans classified by regulatory
authorities. Non-accrual loans in the amount of $649,353 are included in the
regulatory classification total. Other loans in the amount of $270,263 were
placed on the watch list by management due to marginal capacity, insufficient
collateral, delinquency or poor performance.
27
<PAGE>
NON-INTEREST INCOME AND EXPENSE
A listing of noninterest income and expense from 1996 through 1998 and
percentage changes between years is included in Table 7 - Noninterest Income and
Expense.
TABLE 7 - NONINTEREST INCOME & EXPENSE
<TABLE>
<CAPTION>
% CHANGE % CHANGE
1998 FROM '97 1997 FROM '96 1996
------ -------- ----- -------- -----
<S> <C> <C> <C> <C> <C>
NONINTEREST INCOME
Income from fiduciary activities $ 1 -66.67% $ 3 200.00% $ 1
Service charges on deposit accounts 2,178 12.62% 1,934 8.17% 1,788
Other operating income 1,141 8.36% 1,053 17.39% 897
------ ------ ------ ------ ------
TOTAL NONINTEREST INCOME $3,320 11.04% $2,990 11.32% $2,686
====== ====== ====== ====== ======
NONINTEREST EXPENSE
Salaries and employee benefits $4,664 15.82% $4,027 3.92% $3,875
Occupancy expense 1,226 27.05% 965 14.61% 842
Other operating expense 2,076 1.07% 2,054 5.44% 1,948
------ ------ ------ ------ ------
TOTAL NONINTEREST EXPENSE 7,966 13.06% 7,046 5.72% 6,665
====== ====== ====== ====== ======
</TABLE>
Noninterest income increased 11.04% to $3,320,000 in 1998 compared to
$2,990,000 in 1997. The primary source of the increase in noninterest income
was income from service charges on deposit accounts. This increase was due to
the increase in the number and dollar amount of checking accounts opened during
this period. Noninterest income increased 11.32% in 1997 compared to 1996.
Service charges on deposit accounts increased 8.17%, again due to an increase in
the number of new customers being serviced and an increase in fee related
activities.
Total non-interest expense increased 13.06% to $7,966,000 in 1998 compared
to $7,046,000 in 1997. As a percentage of average total assets, total
noninterest expense was 2.53% in 1998 compared to 2.52% in 1997. Salaries and
employee benefits increased 15.82% due to annual salary adjustments, new hire,
increased benefit costs and payment of an extra payroll in 1998 due to the
Corporation's bi-weekly payroll periods. Total noninterest expense increased
5.72% to $7,046,000 in 1997 compared to $6,665,000 in 1996. As a percentage of
average total assets, total noninterest expense was 2.52% in 1997 compared to
2.46% in 1996. Salaries and employee benefits increased 3.92% during 1997 due
mainly to annual salary adjustments.
Occupancy expense increased 27.05% to $1,226,000 in 1998 compared to
$965,000 in 1997. The increase was due primarily to an increase in depreciation
related to the new Kosciusko branch. Occupancy and equipment expense increased
14.61% during 1997, primarily as a result
28
<PAGE>
of the first full year of operation of the new Philadelphia, Mississippi
Westside branch, purchases of new equipment and increases in the maintenance
costs of the equipment.
Other operating income increased 8.36% in 1998 from 1997. Other operating
expense increased 1.07% to $2,076,000 in 1998. This increase was due to larger
than normal increases in postage, office supplies and legal and accounting
expenses. Other operating expenses was $2,054,000 in 1997, compared to
$1,948,000 in 1996, an increase of 5.44%. Several expenses experienced
decreases during this period including, FDIC assessment and travel.
INCOME TAXES
The Corporation records a provision for income taxes currently payable,
along with a provision for those taxes in the future. Such deferred taxes arise
from differences in timing of certain items for financial statement reporting
rather than income tax reporting. The major difference between the effective
tax rate applied to the Corporation's financial statement income and the federal
statutory rate of 34% is interest on tax-exempt securities and loans.
The Corporation's effective tax rate was 33.77%, 35.05% and 34.02% in 1998,
1997 and 1996, respectively. Further tax information regarding the Corporation
is disclosed in Note 7 to the consolidated financial statements.
FINANCIAL CONDITION
SECURITIES
On January 1, 1994, the Corporation adopted Statement of Financial
Accounting Standards No. 115, "Accounting for Certain Investments in Debt and
Equity Securities," and accordingly classified certain of its securities as
available-for-sale. In December 1995, the Corporation transferred the remainder
of its held-to-maturity securities to available-for-sale during the moratorium
period granted by FASB. At December 1998, the Corporation classified all of its
securities as available-for-sale.
Securities held-to-maturity are those which the Corporation has both the
positive intent and ability to hold to maturity, and are reported at amortized
cost. Securities available-for-sale are those which the Corporation may decide
to sell if needed for liquidity, asset/liability management, or other reasons.
Securities available-for-sale are reported at fair value, with unrealized gains
and losses included as a separate component of equity, net of tax. The
Corporation does not maintain any securities for trading purposes.
Table 8 - Securities and Security Maturity Schedule summarizes the carrying
value of securities from 1996 through 1998 and the maturity distribution at
December 31, 1998, by classification. Interest on tax-exempt securities has
been adjusted to a tax equivalent basis using a marginal federal tax rate of 34%
and a state tax rate of 5% for all years.
29
<PAGE>
<TABLE>
<CAPTION>
TABLE 8 - SECURITIES
------- ------- -------
1998 1997 1996
------- ------- -------
<S> <C> <C> <C>
SECURITIES AVAILABLE FOR SALE
- -----------------------------
U. S. Treasuries $37,879 $31,345 $ 5,181
U. S. Agencies 15,757 15,261 26,449
Mortgage Backed 23,556 14,336 33,598
States, municipals and other 14,347 6,350 7,244
------- ------- -------
TOTAL SECURITIES AVAILABLE-
FOR-SALE $91,539 $67,292 $72,472
SECURITIES HELD-TO-MATURITY
- ---------------------------
U. S. Treasuries 0 0 0
U. S. Agencies 0 0 0
Mortgage Backed 0 0 0
States, municipals and other 0 0 0
------- ------- -------
TOTAL SECURITIES HELD-TO-MATURITY $ 0 $ 0 $ 0
------- ------- -------
TOTAL SECURITIES 91,539 67,292 72,472
======= ======= =======
</TABLE>
30
<PAGE>
SECURITIES MATURITY SCHEDULE
<TABLE>
<CAPTION>
1 Year and less 1 to 5 Years 5 to 10 Years Over 10 years
-------------------------------------------------------------------------------------------------------------------------------
Average Average Average Average
Balance Rate Balance Rate Balance Rate Balance Rate
--------------- ------------- -------- -------- -------- -------------- -------- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
AVAILABLE-FOR-SALE
- ------------------
U. S. Treasury 8,513 5.43% 29,366 6.38% 0 0.00% 0 0.00%
U. S. Agencies 301 5.75% 8,685 6.53% 5,335 6.15% 1,436 5.56%
Mortgage-backed 99 5.80% 1,057 6.06% 2,704 6.03% 19,696 6.32%
States, municipal and
other (1) 1,956 6.30% 4,196 7.72% 884 6.87% 7,311 7.84%
------- ---- ------- ---- ------ ---- ------- ----
TOTAL AVAILABLE-
FOR-SALE $24,524 5.60% $49,486 6.53% $9,106 6.18% $ 8,423 6.67%
======= ==== ======= ==== ====== ==== ======= ====
TOTAL HELD-TO-
MATURITY 0 0.00% 0 0.00% 0 0.00% 0 0.00%
</TABLE>
(1) Average rates were calculated on tax equivalent basis using a marginal
federal income tax rate of 34% and a state tax rate of 5%.
The majority of the securities portfolio is composed of U.S. Treasury
securities, Federal agency securities, state municipal securities (tax exempt),
and mortgage-backed securities.
The securities portfolio carries varying degrees of risk. Investments in
U.S. Treasury and Federal agency securities have little or no credit risk.
Mortgage-backed securities are substantially issues of Federal agencies.
Obligations of states and political subdivisions are the areas of highest
potential credit exposure in the portfolio. This risk is minimized through the
purchase of high quality investments. When purchased, obligations of states and
political subdivisions and corporate bonds must have a credit rating by Moody's
or Standard & Poors of A or better. Substantially all of these investments were
rated A or better at December 31, 1998. The risk of non-rated municipal bonds is
minimized by limiting the amounts invested in local issues. Management believes
the non-rated securities are of high quality. No securities of an individual
issuer, excluding U.S. government and its agencies, exceeded 10% of the
Corporation's shareholders' equity as of December 31, 1998. The Corporation
does not use off-balance sheet derivative financial instruments as defined in
SFAS No. 119, "Disclosure about Derivative Financial Instruments and Fair Value
of Financial Instruments."
As total earning assets have increased over the past years, the security
portfolio balances have also increased. Total securities were $91,539,000,
$67,292,000 and $72,472,000 as of December 31, 1998, 1997 and 1996,
respectively.
The Corporation had an increase in the amount of securities available for
sale in 1998 of $24,247,000 or 36.03%. This increase is due in part to the
purchase of $5,000,000 in GNMA securities and $5,000,000 of municipals that were
purchased with $10,000,000 borrowed from the Federal Home Loan Bank. This
arrangement allowed the Corporation to take advantage of
31
<PAGE>
its heavy capital position to increase its income. The remainder of the increase
was due to the investment of funds not currently needed for loans.
In the first half of 1997, the Corporation sold $23,228,375 in agency and
mortgage-backed securities in an effort to supply suitable collateral for its
largest governmental depositor. The Corporation was able to take advantage of
the market at that time and to make the swap with a minimum of loss on the sale
of the securities. This loss was recovered by an increase in the yield of the
purchased securities. The Corporation invested the proceeds from this sale in
U.S. Treasury obligations.
There was very little change in the mix of investment securities from 1995
to 1996. The security balances decreased from $76,022,000 in 1995 to
$72,472,000 in 1996. This reduction was the result of a strong loan demand and
the need for additional loan funds.
U.S. Agencies increased approximately $451,000 between 1996 and 1995, while
mortgage-backed U.S. Treasury securities decreased approximately $3,824,000
during this same period. The change in portfolio mix was due to the interest
rate environment and the need to sell the small remainder portions of mortgage-
backed securities. During this period of declining interest rates and
increasing bond prices, the Corporation reduced the prepayment risk associated
with holding mortgage-backed securities by rotating out of such securities and
investing in U.S. Agency category securities with comparable yields and more
predictable prepayment characteristics.
As of December 31, 1998, the Corporation did not have any structured notes
in its portfolio. As of December 31, 1997, and 1996, the security portfolio
held structured notes totaling $0.00 and $3,459,000, respectively. The
investment policy has specific guidelines describing the types and
characteristics of acceptable structured notes for the Corporation's portfolio.
All structured notes are U.S. Government Agency issues.
Management's security strategy includes utilizing proceeds from the
maturity or sale of short-term securities, adjustable rate instruments, and
easily marketable securities to fund a portion of the continuing growth of the
loan portfolio. Tax-free and intermediate taxable bonds are used to further
enhance earnings. As of December 31, 1998, 100% of the total investment
security portfolio was classified in the available-for-sale category, which
allows flexibility in the asset/liability management function. As noted
earlier, sell strategies are executed, on occasion, when the interest rate
environment provides the opportunity to boost the overall portfolio performance.
Although the change in equity due to market value fluctuations in the
available-for-sale portfolio is not used in the Tier 1 capital calculation, the
change which occurred in the unrealized gain/loss on securities between 1997 and
1996 was a result of the swing in the interest rate environment during that
period, in conjunction with the change in the portfolio mix. Although there was
a significant change in the unrealized gain/loss on securities between 1997 and
1996, management considers these changes to be temporary in nature.
32
<PAGE>
LOANS
The loan portfolio constitutes the major earning asset of the Corporation
and in the opinion of management offers the best alternative for maximizing
interest spread above the cost of funds. The Corporation's loan personnel have
the authority to extend credit under guidelines established and approved by the
Board of Directors. Any aggregate credit which exceeds the authority of the
loan officer is forwarded to the loan committee for approval. The loan
committee is composed of various directors, including the Chairman. All
aggregate credits which exceed the loan committee's lending authority are
presented to the full Board of Directors for ultimate approval or denial. The
loan committee not only acts as an approval body to ensure consistent
application of the Corporation's loan policy but also provides valuable insight
through communication and pooling of knowledge, judgment, and experience of its
members.
The Corporation has stated in its Loan Policy the following objectives for
its loan portfolio: (a) to make loans on sound and thorough credit analysis,
(b) proper documentation of all loans, (c) to eliminate loans from the portfolio
that are under-priced, high risk or difficult and costly to administer, (d) to
seek good relationships with the customer, (e) to avoid undue concentrations of
loans, and (f) to keep non-accrual loans to a minimum by aggressive collection
policies.
The Corporation, through its policy, seeks to maintain a diversification of
its loan portfolio by limiting the various types of loans relative to the size
of the total portfolio. Agricultural loans and real estate loans are limited to
35% of total loans; land acquisition and development to 40%; commercial
construction to 25%; residential construction to 50%; and residential mortgage
to 60%.
The Corporation will extend credit both on a secured and unsecured basis to
borrowers whose credit, character and capacity to repay are firmly established.
In addition, there must be a clear purpose for the loan and a reliable and
sufficient source of repayment. Financial statements are required for all
unsecured loans of $10,000 and above. If collateral is to be used to secure the
loan, the quality and liquidity of the asset must be confirmed before the loan
is approved. All loan officers are granted lending limits under which they can
advance funds without the prior approval of the Chief Executive Officer. These
limits are assigned by the Chief Executive Officer and are subject to change
when necessary. The Chief Executive Officer can lend up to $250,000 on a
secured basis and $100,000 on an unsecured basis without the approval of the
Executive Loan Committee, which consists of the Chief Executive Officer and at
least two outside directors.
The Corporation has established certain Loan to Value (LTV) limitations for
the various types of loans offered to is customers. Each loan type has a
percentage LTV that represents the liquidity of the collateral. Real estate
LTV's range from 65% for raw land purchase to 85% for 1-4 residential
properties. LTV's on consumer loans such as automobiles, boats, aircraft and
33
<PAGE>
mobile homes are limited to 80% for new collateral and 75% for used collateral.
Timber deed loans are restricted to 80% of timber cruise.
The Corporation expects each loan to be paid in full at time of maturity.
In certain circumstances, loans may not be paid in full but renewed for another
period of time. In this event, it is the policy of the Corporation that a
principal reduction must be made on or prior to the second renewal date.
Generally, unsecured loans must have a 10% reduction before the first renewal.
In general, the loan growth experienced in 1998 was due to a continuation
of the overall growth in the area that is served by the Corporation. The
continued success of the Casino on the Choctaw Indian Reservation caused an
increase in the number of businesses to serve the visitors drawn by the Casino.
The increase of jobs in the area also helped to tighten the housing market in
the area and caused a large number of new houses to be built. This is evidenced
by the fact that real estate mortgage loans grew by $4,518,000 or 8.35% in 1998,
$3,203,000 or 6.29% in 1997 and grew by $3,435,000 or 7.23% in 1996.
Commercial and agricultural loans also showed large growth during this
period. These loans grew $8,266,000 or 9.11% in 1998, $9,601,000 or 11.84% in
1997 and $14,308,000 or 21.43% in 1996. This increase was not caused solely by
the influence of the Casino in the area, but was due in part to an increase in
the number of chicken house loans made in this period.
Commercial and agricultural loans are the largest segment of the loan
portfolio and, by nature, bear a higher degree of risk. Management is aware of
the increasing trend in this category and believes the lending practices,
policies, and procedures surrounding this loan category are adequate to manage
this risk.
Table 9 - Loans Outstanding reflects outstanding balances by loan type for
the past five years. Additional loan information is presented in Note 4 to the
consolidated financial statements.
<TABLE>
<CAPTION>
TABLE 9 - LOANS OUTSTANDING
AT DECEMBER 31,
1998 1997 1996 1995 1994
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Commercial and agricultural $ 98,956 $ 90,690 $ 81,089 $ 66,781 $ 51,476
Real estate - construction 6,645 4,533 5,826 6,174 3,006
Real estate - mortgage 58,637 54,119 50,916 47,481 39,825
Consumer 49,734 47,466 44,015 38,482 31,102
-------- -------- -------- -------- --------
TOTAL LOANS 213,972 196,808 181,846 158,918 125,409
======== ======== ======== ======== ========
</TABLE>
34
<PAGE>
Table 10 - Loan Liquidity and Sensitivity to Changes in Interest Rates reflects
the maturity schedule or repricing frequency of all loans. Also indicated are
fixed and variable rate loans maturing after one year for all loans.
TABLE 10 - LOAN LIQUIDITY
LOAN MATURITIES AT DECEMBER 31, 1998
<TABLE>
<CAPTION>
1 YEAR 1 - 5 OVER 5
AND LESS YEARS YEARS Total
-------- -------- -------- --------
<S> <C> <C> <C> <C>
All loans $ 87,912 $ 89,736 $ 36,324 $213,972
SENSITIVITY TO CHANGES IN INTEREST RATES
- ----------------------------------------
1 - 5 OVER 5
YEARS YEARS
-------- --------
Fixed rates $86,412 $21,417
Variable rates 3,324 14,907
------- -------
$89,736 $36,324
======= =======
</TABLE>
DEPOSITS
The Corporation offers a wide variety of deposit services to individual and
commercial customers, such as noninterest-bearing and interest-bearing checking
accounts, savings accounts, money market deposit accounts, and certificates of
deposit. The deposit base provides the major funding source for earning assets.
Total average deposits have shown steady growth over the past few years,
increasing 10.75% and 1.72% in 1998 and 1997, respectively. The decrease shown
in interest-bearing demand accounts and the increase in certificates of deposit
since 1996 are the result of a change in deposit choices by customers and not as
a result of any particular incentive. Time deposits continue to be the largest
single source of the Corporation's deposit base.
A three year schedule of deposits by type and maturities of time deposits
greater than $100,000 is presented in Table 11 - Deposit Information.
35
<PAGE>
TABLE 11 - DEPOSIT INFORMATION
<TABLE>
<CAPTION>
----------------------------------------------------------------
1998 1997 1996
----------------------------------------------------------------
Average Average Average Average Average Average
Balance Rate Balance Rate Balance Rate
----------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Noninterest-bearing $ 34,909 $ 34,717 $37,895
Interest-bearing demand 68,330 2.87% 57,406 2.78% 68,036 2.64%
Savings 18,201 3.73% 17,594 3.90% 16,681 3.90%
Certificates of deposit 147,074 5.28% 132,742 5.42% 115,746 5.19%
-------- ----- -------- ----- -------- -----
$268,514 3.88% $242,459 3.91% $238,358 3.55%
======== ===== ======== ===== ======== =====
</TABLE>
MATURITY RANGES OF TIME DEPOSITS
WITH BALANCES OF $100K OR MORE AT DECEMBER 31, 1998
3 months or less $29,503
3 through 6 months 11,642
6 through 12 months 16,970
over 12 months 1,486
-------
$59,601
=======
The Corporation in its normal course of business will acquire large certificates
of deposit, generally from public entities, for a variety of maturities. These
funds are acquired on a bid basis and are considered to be part of the deposit
base of the Corporation.
BORROWINGS
Aside from the core deposit base and large denomination certificates of
deposit mentioned above, the remaining funding sources include short-term and
long-term borrowings. Short-term borrowings consist of federal funds purchased
from other financial institutions on an overnight basis, short-term borrowings
from the Federal Home Loan Bank of Dallas (FHLB), and U.S. Treasury demand notes
for treasury, tax and loan (TT&L).
TABLE 12 - SHORT-TERM BORROWINGS
As of December 31,
---------------------
1998 1997 1996
---- ---- ----
Year-end balance of federal funds purchased $ 0 $8,800 $ 0
Year-end balance of FHLB borrowings 0 0 0
Year-end balance of treasury tax and loan note 700 700 438
----- ------ ------
$700 $ 700 $9,238
===== ====== ======
Average balance of short term borrowings $635 $4,148 $4,114
Weighted average rate of borrowings 5.20% 4.87% 5.34%
36
<PAGE>
As of December 31, 1998 and 1997, the Corporation's short-term borrowings
consisted only of the treasury tax open-end note in the amount of $700,000. As
of December 31, 1996, the Corporation had, in addition to the TT&L note in the
amount of $438,000, federal funds purchased in the amount of $8,800,000. The
Corporation foresees short-term borrowings to be a continued source of liquidity
and will continue to use these borrowings as a method to fund short-term needs.
The Corporation has the capacity to borrow up to $59 million from the FHLB and
other financial institutions in the form of federal funds purchased and will use
these borrowings if circumstances warrant such action.
The Corporation, at the end of 1998, had long-term debt in the amount of
$10,000,000 to the Federal Home Loan Bank for advances and $2,416,000 payable to
the State of Mississippi for advances under the Agribusiness Enterprise Loan
program. This program provides monies to banks to be extended to qualifying
farmers at no interest. Farmers that qualify for the program receive 20% of
their loan at zero interest. When the loan is repaid, the State receives its
pro-rata share of 20% of the principal payment. The last of the Corporation's
debentures matured on January 31, 1997 in the amount of $32,695. The remaining
maturity schedule of the long-term debt at December 31, 1998 is listed below.
<TABLE>
<CAPTION>
<S> <C>
Less than one year $ 1,000
One year to three years 18,000
Over three years 12,397,000
</TABLE>
LIQUIDITY AND RATE SENSITIVITY
Liquidity management is the process by which the Corporation ensures that
adequate liquid funds are available to meet financial commitments on a timely
basis. These commitments include honoring withdrawals by depositors, funding
credit obligations to borrowers, servicing long-term obligations, making
shareholder dividend payments, paying operating expenses, funding capital
expenditures, and maintaining reserve requirements.
Interest rate risk is the exposure to Corporation earnings and capital from
changes in future interest rates. All financial institutions assume interest
rate risk as an integral part of normal operations. Managing and measuring the
interest rate risk is the process that ranges from reducing the exposure of the
Corporation's interest margin regarding swings in interest rates to assuring
that there are sufficient capital and liquidity to support future balance sheet
growth.
The asset/liability committee is responsible for managing liquidity issues
and interest rate risk, among other matters. Various interest rate movements
are factored into a simulation model to assist the asset/liability committee in
assessing interest rate risk. The committee analyzes the results of the
simulation model to formulate strategies to effectively manage the interest rate
risk that may exist.
37
<PAGE>
The liquidity of the Corporation is dependent on the receipt of dividends
from the Bank. Certain restrictions exist regarding the transfer of funds from
the Bank as explained in Item 1. Management expects that in the aggregate, the
Bank will continue to have the ability to provide adequate funds to the
Corporation.
The Bank's source of funding is predominantly core deposits consisting of
both commercial and individual deposits, maturities of securities, repayments of
loan principal and interest, and federal funds purchased, and long-term
borrowing from the FHLB. The deposit base is diversified between individual and
commercial accounts which helps avoid dependence on large concentrations of
funds. The Corporation does not solicit certificates of deposit from brokers.
The primary sources of liquidity on the asset side of the balance sheet are
federal funds sold and securities classified as available-for-sale. All of the
investment securities portfolio are classified in the available-for-sale
category, and are available to be sold, should liquidity needs arise. Table 13
- - Funding Uses and Sources details the main components of cash flows for 1998
and 1997.
TABLE 13 - FUNDING USES AND SOURCES
<TABLE>
<CAPTION>
1998 1997
--------------------------------------------------------------------------
Average Increase/(decrease) Average Increase/(decrease)
Balance Amount Percent Balance Amount Percent
--------------------------------------------------------------------------
FUNDING USES
- ------------
<S> <C> <C> <C> <C> <C> <C>
Loans $202,228 $ 15,048 8.04% $187,180 $45,988 32.57%
Taxable
securities 70,801 $ 7,468 11.79% 63,333 (6,109) -8.80%
Tax-exempt
securities 8,600 $ 3,255 60.90% 5,345 (368) -6.44%
Federal Home
Loan Bank stock 1,142 ($ 203) -15.09% 1,345 653 94.36%
Federal funds
sold 9,804 $ 7,692 364.20% 2,112 (5,203) -71.13%
-------- --------- ---------- -------- ------- ------
$292,575 $ 33,260 12.83% $259,315 $34,961 15.58%
======== ========= ========== ======== ======= ======
FUNDING SOURCES
- ---------------
Noninterest-
bearing deposits $ 34,909 $ (86) (0.25)% $ 34,995 $ 782 2.29%
Interest-bearing
demand and
savings deposits 86,531 $ 11,937 16.00% 74,594 306 0.41%
Time Deposits 147,074 $ 14,332 10.80% 132,742 24,764 22.93%
Short-term
borrowings 635 $ (3,513) (84.69)% 4,148 2,904 233.44%
Long-term debt 7,630 $ 7,627 254233.33% 3 (124) (97.64)%
$276,779 $ 30,297 12.29% $246,482 $28,632 13.14%
======== ========= ========== ======== ======= ======
</TABLE>
38
<PAGE>
Rate sensitivity gap is defined as the difference between the repricing of
interest earning assets and the repricing of interest bearing liabilities within
certain defined time frames. The Corporation's interest rate sensitivity
position is influenced by the distribution of interest earning assets and
interest-bearing liabilities among the maturity categories. Table 14 -
Liquidity and Interest Rate Sensitivity reflects interest earning assets and
interest-bearing liabilities by maturity distribution. Product lines repricing
in time periods predetermined by contractual agreements are included in the
respective maturity categories.
TABLE 14 - LIQUIDITY AND INTEREST RATE SENSITIVITY
<TABLE>
<CAPTION>
AT DECEMBER 31, 1998
1 - 90 91 - 365 1 - 5
Days Days Years Over 5 years Total
------------------------------------------------------------
INTEREST EARNING ASSETS
- -----------------------
<S> <C> <C> <C> <C> <C>
Loans $ 59,431 $52,635 $ 88,504 $ 7,879 $ 208,449
Investment securities 11,452 13,347 50,711 15,110 90,620
Federal Home Loan Bank stock 0 0 0 919 919
Federal Funds Sold 4,500 4,500
-------- ------- -------- ------- ---------
75,383 65,982 139,215 $23,908 304,488
======== ======= ======== ======= =========
INTEREST BEARING LIABILITIES
- ----------------------------
Interest bearing demand
deposits 68,394 0 0 0 68,394
Savings deposits 19,106 0 0 0 19,106
Time deposits 67,206 84,108 5,447 0 156,761
Short term borrowings 700 0 0 0 700
Long term borrowings 0 0 0 10,000 10,000
-------- ------- -------- ------- ---------
TOTAL INTEREST BEARING
LIABILITIES 155,406 84,108 5,447 $10,000 $ 254,961
======== ======= ======== ======= =========
Rate sensitive gap (80,023) (18,126) 133,768 13,908 49,527
Rate sensitive
cumulative gap (80,023) (98,149) 35,619 49,527
Cumulative gap as a
percentage of total
earning assets (26.28)% (32.23)% (11.70)% 16.27%
</TABLE>
39
<PAGE>
The purpose of the above table is to measure interest rate risk utilizing
the repricing intervals of interest sensitive assets and liabilities. Rate
sensitive gaps constantly change as funds are acquired and invested and as rates
change. Rising interest rates are likely to increase net interest income in a
positive gap position while falling interest rates are beneficial in a negative
gap position.
The above rate sensitivity analysis places interest-bearing demand and
savings deposits in the shortest maturity category because these liabilities do
not have defined maturities. If these deposits were placed in a maturity
distribution representative of the Corporation's deposit base history, the
shortfall of the negative rate sensitive gap position would be reduced in the 1-
to-90 day time frame.
The Corporation's large negative cumulative gap position in the one year
time period as of December 31, 1998 was mainly due to: (1) the interest-bearing
and savings deposits being classified in the 1-90 day category; (2)
approximately 97% of certificates of deposit maturing during the next twelve
months; and (3) a significant portion of the Corporation's loans maturing after
one year. A decline in the interest rate environment would enhance earnings,
while an increase in interest rates would have the opposite effect on corporate
earnings. The effect would be mitigated by the fact that interest-bearing
demand and savings deposits may not be immediately affected by changes in
general interest rates.
CAPITAL ADEQUACY
The Corporation and Bank are subject to various regulatory capital
guidelines as required by federal and state banking agencies, as discussed in
greater detail under Item 1 hereof. These guidelines define the various
components of core capital and assign risk weights to various categories of
assets.
The Federal Deposit Insurance Corporation Improvement Act of 1991
("FDICIA") requires federal regulatory agencies to define capital tiers. These
are: well capitalized, adequately capitalized, undercapitalized, significantly
undercapitalized, and critically undercapitalized. Under these regulations, a
"well-capitalized" institution must achieve a Tier 1 risk-based capital ratio of
at least 6.00%, and a total capital ratio of at least 10.00%, and a leverage
ratio of at least 5.00% and not be under a capital directive order. Failure to
meet capital requirements can initiate regulatory action that could have a
direct material effect on the Corporation's financial statements. If adequately
capitalized, regulatory approval is required to accept brokered deposits. If
undercapitalized, capital distributions, asset growth, and expansion is limited,
in addition to the institution being required to submit a capital restoration
plan.
40
<PAGE>
Management believes the Corporation and the Bank meet all the capital
requirements as of December 31, 1998, as noted below in Table 15 - Capital
Ratios, and is well-capitalized under the guidelines established by the banking
regulators. To be well-capitalized, the Corporation and Bank must maintain the
prompt corrective action capital guidelines described above.
Exclusive of the effect of the unrealized gains/losses on securities
component, which is driven by the interest rate environment, the Corporation's
shareholders' equity increased $3,928,000, or 14.72% in 1997. The Corporation
increased the amount of dividends paid to $794,100 in 1998 compared to $562,000
in 1997, an increase of $232,100 or 41.30%. The higher dividend payout, in
addition to the stock dividend declared in 1996, represent management's effort
to increase the value and return of each shareholder's investment in the
Corporation.
At December 31, 1998, management was not aware of any current
recommendations by banking regulatory authorities which, if they were to be
implemented, would have, or are reasonably likely to have, a material effect on
the Corporation's consolidated liquidity, capital resources or operations.
TABLE 15 - CAPITAL RATIOS
<TABLE>
<CAPTION>
At December 31,
1998 1997 1996
-------- -------- --------
<S> <C> <C> <C>
Tier 1 capital
Shareholders' equity $ 35,456 $ 31,221 $ 26,753
Less: Intangibles (717) (784) (851)
Add/less: Unrealized loss/(gain) on securities (930) (613) ( 78)
Add: Minority interest in equity accounts of
unconsolidated subsidiaries 1,200 1,106 (944)
-------- --------
TOTAL TIER 1 CAPITAL 35,009 30,930 26,773
======== ========
Total capital
Tier 1 capital 35,009 30,930 26,773
Allowable allowance for loan losses 2,597 2,356 2,205
-------- --------
TOTAL CAPITAL 37,606 33,286 28,978
======== ======== ========
RISK WEIGHTED ASSETS 207,437 188,098 176,077
======== ======== ========
AVERAGE ASSETS (FOURTH QUARTER) 330,079 283,195 271,087
======== ======== ========
RISK BASED RATIOS
TIER 1 16.88% 16.44% 15.21%
======== ======== ========
TOTAL CAPITAL 18.13% 17.70% 16.46%
======== ======== ========
LEVERAGE RATIOS 10.61% 10.92% 9.88%
======== ======== ========
</TABLE>
41
<PAGE>
PENDING CHARGES
Statement of Financial Accounting Standards No. 125 (SFAS 125), "Accounting
for Transfers and Servicing Financial Assets and Extinguishments of
Liabilities," has been issued and will apply to some institutions that sell
certain assets. SFAS 125 establishes standards for determining the
circumstances under which transfers of financial assets should be considered
sales or as secured borrowing and when a liability should be considered
extinguished, and addresses the accounting requirements for servicing financial
assets, including mortgage servicing rights. The Corporation did not have any
transactions that would be subject to SFAS 125 at December 31, 1998 or 1997 and
does not have any at the current time. However, the Statement will be followed
in the future should the Corporation have any activity that would fall under
this accounting standard.
INFLATION
For a financial institution, effects of price changes and inflation vary
considerably from an industrial organization. Changes in the prices of goods
and services are the primary determinant of the industrial company's profit,
whereas changes in interest rates have a major impact on a financial
institution's profitability. Inflation affects the growth of total assets, but
it is difficult to assess its impact because neither the timing nor the
magnitude of the changes in the consumer price index directly coincide with
changes in interest rates.
During periods of high inflation there are normally corresponding increases
in the money supply. During such times financial institutions often experience
above average growth in loans and deposits. Also, general increases in the
price of goods and services will result in increased operation expenses. Over
the past few years the rate of inflation has been relatively low, and its impact
on the growth in the balance sheets and increased levels of income and expense
has been nominal.
2B. QUARTER ENDED MARCH 31, 1999
All information concerning the period ending December 31, 1998 presented under
2B has been retroactively adjusted to reflect the 5:1 stock split which was
effective January 1, 1999 in order to assist the reader in making an informed
analysis of these materials.
FINANCIAL INFORMATION
42
<PAGE>
<TABLE>
<CAPTION>
CITIZENS HOLDING COMPANY AND SUBSIDIARY
CONSOLIDATED STATEMENT OF CONDITION
(UNAUDITED)
March 31, December 31,
1999 1998
<S> <C> <C>
ASSETS
Cash and due from banks $ 11,580,939 $ 15,234,594
Interest bearing balances at Federal Home Loan Bank 855,480 1,063,244
Federal funds sold 10,000,000 4,500,000
------------ ------------
Cash and cash equivalents 22,436,419 20,797,838
Federal Home Loan Bank stock 1,011,600 918,500
Investment securities available for sale, at fair value 92,965,961 90,620,004
Loans, net of allowance for loan losses of
$2,950,000 in 1999 and $2,900,000 in 1998 212,566,279 208,449,416
Premises and equipment, net 4,338,316 4,433,652
Other real estate owned, net 68,281 57,094
Accrued interest receivable 3,838,160 3,697,109
Cash value of life insurance 2,516,361 2,516,361
Goodwill (net) 700,110 716,862
Other Assets 2,349,055 2,024,973
------------ ------------
TOTAL $342,790,542 $334,231,809
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
LIABILITIES:
Deposits:
Noninterest-bearing demand 37,849,937 37,983,554
Interest-bearing NOW and money market accounts 76,541,438 68,391,505
Savings deposits 19,433,622 19,106,323
Certificates of deposit 155,100,974 156,760,846
------------ ------------
Total deposits 288,925,971 282,242,228
Accrued interest payable 1,203,420 1,274,059
Federal Home Loan Bank advances 10,000,000 10,000,000
ABE loan liability 2,734,548 2,416,327
Treasury tax and loan note option 700,000 700,000
Directors deferred compensation payable 741,517 718,868
Income taxes payable 727,341 0
Other liabilities 68,722 225,390
------------ ------------
Total liabilities 305,101,519 297,576,872
------------ ------------
Minority interest in consolidated subsidiaries 1,235,185 1,199,628
SHAREHOLDERS' EQUITY
Common stock; $.20 par value, 3,750,000 shares 670,750 670,750
authorized, and 3,353,750 shares outstanding at
March 31, 1999 and $1.00 par value, 750,000 shares
authorized and 670,750 shares outstanding at
December 31, 1998
</TABLE>
43
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C>
Less: Treasury stock, at cost 45,000 shares at
March 31, 1999 and 9,000 at December 31, 1998 (239,400) (239,400)
Additional paid-in capital 3,353,127 3,353,127
Retained earnings 32,136,096 30,740,947
Unrealized gain on securities available for sale, net of
income taxes of $290,725 in 1999 and $495,909 in 1998 533,265 929,885
------------ ------------
Total Shareholders' equity 36,453,838 35,455,309
------------ ------------
TOTAL $342,790,542 $334,231,809
============ ============
</TABLE>
See notes to consolidated financial statements
44
<PAGE>
CITIZENS HOLDING COMPANY
CONSOLIDATED STATEMENT OF INCOME
(UNAUDITED)
<TABLE>
<CAPTION>
For the three months ended
March 31,
1999 1998
------------ ------------
<S> <C> <C>
INTEREST INCOME:
Loans, including fees 4,737,316 4,476,051
Federal funds sold 62,469 129,961
Investment securities 1,302,222 1,063,329
Other interest 11,781 2,778
------------ ------------
Total interest income 6,113,788 5,672,119
INTEREST EXPENSE:
Deposits 2,491,068 2,499,515
Other borrowed funds 147,871 32,974
------------ ------------
Total interest expense 2,638,939 2,532,489
------------ ------------
NET INTEREST INCOME 3,474,849 3,139,630
PROVISION FOR LOAN LOSSES 145,634 51,262
------------ ------------
NET INTEREST INCOME AFTER PROVISION FOR
LOAN LOSSES 3,329,215 3,088,368
------------ ------------
OTHER INCOME:
Service charges on deposit accounts 562,629 511,541
Other service charges and fees 91,166 91,166
Other income 86,656 109,714
------------ ------------
Total other income 740,451 712,421
OTHER EXPENSES:
Salaries and employee benefits 1,052,322 1,129,288
Occupancy expense 308,069 308,857
Other operating expense 313,725 317,233
Office supplies 74,605 76,950
Postage and freight 52,465 60,986
Advertising 37,760 51,748
Earnings applicable to minority interest 49,279 41,883
------------ ------------
Total other expenses 1,888,225 1,986,945
------------ ------------
INCOME BEFORE PROVISION FOR INCOME TAXES 2,181,441 1,813,844
------------ ------------
PROVISION FOR INCOME TAXES 786,291 636,653
------------ ------------
NET INCOME $ 1,395,150 $ 1,177,191
============ ============
NET INCOME PER SHARE $2.11 $1.78
============ ============
See notes to consolidated financial statements
</TABLE>
45
<PAGE>
CITIZENS HOLDING COMPANY AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(UNAUDITED)
<TABLE>
<CAPTION>
For the three months ended
March 31,
1999 1998
------------ ------------
<S> <C> <C>
Net Income $ 1,395,150 $ 1,177,191
Other comprehensive income, net of tax
Unrealized gains (losses) (396,620) (81,678)
Less reclassification adjustment 0 0
Total other comprehensive income (396,620) (81,678)
------------ ------------
Comprehensive income $ 998,530 $ 1,095,513
============ ============
CITIZENS HOLDING COMPANY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED) For the three months ended
March 31,
1999 1998
------------ ------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 1,395,150 $ 1,177,191
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation 123,000 115,500
Amortization of goodwill 16,752 16,752
Amortization of premium and accretion of
discounts on investment securities 57,692 861
Provision for loan losses 145,634 51,262
Investment security losses 0 0
Deferred income tax benefit (22,433) (12,615)
Net earnings applicable to minority interest 49,279 41,883
(Increase) decrease in foreclosed real estate (11,187) 956
Increase in accrued interest receivable (141,051) 35,447
Increase (decrease) in other assets (112,695) (67,114)
Increase (decrease) in income taxes payable 749,774 578,551
Increase (decrease) in accrued interest payable (70,639) (40,209)
Increase in directors deferred compensation 22,649 17,024
Increase in other liabilities (156,667) (102,234)
------------ ------------
Net Cash Provided by Operating Activities 2,045,258 1,813,255
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from maturities of securities avail for sale 8,677,036 2,742,655
</TABLE>
46
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C>
Purchases of investment securities (11,795,515) (10,197,627)
Purchases of bank premises, furniture, fixtures and
equipment (27,664) (228,846)
Increase in interest bearing deposits with other banks 207,764 (22,186)
Net (increase) decrease in federal funds sold (5,500,000) (9,000,000)
Net increase in loans (4,262,497) (4,225,032)
------------ ------------
Net Cash Used by Investing Activities (12,700,876) (20,931,036)
CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase (decrease) in deposits 6,683,743 16,982,020
Net increase (decrease) in ABE loans 318,220 (13,058)
Increase in FHLB advances 0 5,000,000
------------ ------------
Net Cash Provided by Financing Activities 7,001,963 21,968,962
Net Increase (Decrease) in Cash and Due from Banks (3,653,655) 2,851,181
Cash and Due From Banks, beginning of year 15,234,594 10,025,883
Cash and Due from Banks, end of period $ 11,580,939 $ 12,877,064
============ ============
</TABLE>
NOTES TO UNAUDITED CONSOLIDATED
FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED MARCH 31, 1999
1. The interim consolidated financial statements are unaudited and reflect all
adjustments and reclassifications which, in the opinion of management, are
necessary for a fair presentation of the results of operations and
financial condition of the interim period. All adjustments and
reclassifications are of a normal and recurring nature. Results for the
period ending March 31, 1999, are not necessarily indicative for results
which may be expected for any other interim period or for the year as a
whole.
2. Summary of Significant Account Policies. See note 1 of the Notes to
Consolidated Financial Statements in the Citizens Holding Company 1998
Audit Report that is a part of this filing.
Statements concerning future performance, developments or events,
concerning expectations for growth and market forecasts, and any other
guidance on future periods, constitute forward-looking statements which are
subject to a number of risks and uncertainties which might cause actual
results to differ materially from stated expectations. These factors
include, but are not limited to, the approval of regulatory agencies and
shareholders, the effect of interest rates changes, the growth of the
Corporation, competition in the financial services market for both deposits
and loans, and general economic conditions.
47
<PAGE>
Investment Securities - The Corporation classifies all of its securities as
available-for-sale and carries them at fair value with unrealized gains or
losses reported as a separate component of capital, net of any applicable
income taxes. Realized gains or losses on the sale of securities available-
for-sale, if any, are determined on an identification basis. The
Corporation does not have any securities classified as Held for Trading.
3. In the ordinary course of business, the Corporation enters into commitments
to extend credit to its customers. These commitments are not reflected in
the accompanying financial statements. As of March 31, 1999, the
Corporation had entered into commitments with certain customers amounting
to $16,241,000 compared to $19,350,000 at December 31, 1998. There were
$313,000 of letters of credit outstanding at March 31, 1999, compared to
$290,000 at December 31, 1998.
4. Net income per share - Basic, has been computed based on the weighted
average number of shares outstanding during each period. Net income per
share - Diluted, has been computed based on the weighted average number of
shares outstanding during each period plus the dilutive effect of
outstanding granted options. Basic weighted average shares for 1998 have
been adjusted to reflect the five-for-one stock split on the common stock
effective January 1, 1999. Earnings per share were computed as follows:
March 31, March 31,
1999 1998
---------- ----------
Basic weighted average shares outstanding 3,308,750 3,308,750
Dilutive effect of granted options 12,100 0
---------- ----------
Diluted weighted average shares outstanding 3,320,850 3,308,750
========== ==========
Net income $1,395,150 $1,177,191
Net income per share - Basic $ .42 $ .36
Net income per share - diluted $ .42 $ .36
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
Management's discussion and analysis is written to provide greater insight into
the results of operations and the financial condition of the Corporation.
LIQUIDITY
The Corporation has an asset and liability management program that assists
management in maintaining its interest margins during times of both rising and
falling interest rates and in
48
<PAGE>
maintaining sufficient liquidity. Liquidity of the Corporation at March 31,
1999, was 39.48% and at December 31, 1998 was 38.21%. Liquidity is the ratio of
short-term investments to potentially volatile liabilities. Management believes
it maintains adequate liquidity for the Corporation's current needs.
When the Corporation has more funds than it needs for its reserve requirements
or short term liquidity needs, the Corporation increases its securities
investments or sells federal funds. It is management's policy to maintain an
adequate portion of its portfolio of assets and liabilities on a short term
basis to insure rate flexibility and to meet loan funding and liquidity needs.
The Corporation has federal funds lines with correspondent banks in the amount
of $28,500,000. In addition, the Corporation has the ability to draw on its
line of credit with the Federal Home Loan Bank in excess of $20,000,000 at March
31, 1999.
CAPITAL RESOURCES
The Corporation's equity capital was $36,453,838 at March 31, 1999. The main
source of capital for the Corporation has been the retention of net income.
On January 1, 1999, the Corporation issued a five-for-one (5:1) split to the
shareholders of the Corporation. This split increased the number of shares
outstanding to 3,308,750 from 661,750. The number of shares authorized
increased from 750,000 to 3,750,000 after the split. No dividends were paid
during this period as the custom of the Corporation is to pay dividends semi-
annually in June and December. Dividends paid in June and December of 1998
totaled $.24 per share, adjusted for the five-for-one split.
Quantitative measures established by regulation to ensure capital adequacy
require the Corporation to maintain minimum amount and ratios of Total and
Tier 1 capital (primarily common stock and retained earnings less goodwill) to
risk-weighted assets, and of Tier 1 capital to average assets. Management
believes, as of March 31, 1999, that the Corporation meets all capital adequacy
requirements to which it is subject.
The Corporation's actual capital amounts and ratios for the periods indicated
are as follows:
<TABLE>
<CAPTION>
To Be Well
Capitalized Under
For Capital Prompt Corrective
Actual Adequacy Purposes Action Provisions:
Amount Ratio Amount Ratio Amount Ratio
<S> <C> <C> <C> <C> <C> <C>
As of March 31, 1999
Total Capital $37,849,906 17.99% $16,828,433 *8.00% $21,035,542 *10.00%
(to Risk-Weighted Assets)
Tier 1 Capital $35,220,463 16.74% $ 8,414,217 *4.00% $12,621,325 *6.00%
(to Risk-Weighted Assets)
Tier 1 Capital $35,220,463 10.42% $13,518,360 *4.00% $16,897,950 *5.00%
(to Average Assets)
</TABLE>
- ----------
* Denotes greater than.
49
<PAGE>
RESULTS OF OPERATIONS
The following table sets forth for the periods indicated, certain items in the
consolidated statements of income of the Corporation and the related changes
between those periods:
<TABLE>
<CAPTION>
For the three Months Ended
----------------------- Amount of Percent of
March 31, March 31, Increase Increase
1999 1998 (Decrease) (Decrease)
---------- ---------- -------- -------
<S> <C> <C> <C> <C>
Interest Income $6,113,788 $5,672,119 $441,669 7.79%
Interest Expense 2,638,939 2,532,489 106,450 4.20%
---------- ---------- -------- ------
Net Interest Income 3,474,849 3,139,630 335,219 10.68%
Provision for Loan Losses 145,634 51,262 94,372 184.10%
---------- ---------- -------- ------
Net Interest Income after
Provision for Loan Losses 3,329,215 3,088,368 240,847 7.80%
Other Income 740,451 712,421 28,030 3.93%
Other Expense 1,888,225 1,986,945 (98,720) (4.97%)
---------- ---------- -------- ------
Income before Provision
For Income Taxes 2,181,441 1,813,844 367,597 20.27%
Provision for Income Taxes 786,291 636,653 149,638 23.50%
---------- ---------- -------- ------
Net Income $1,395,150 $1,177,191 217,959 18.52%
========== ========== ======== ======
Net Income Per Share-Basic $ .42 $ .36 $ .06 16.67%
========== ========== ======== ======
Net Income Per Share-
Diluted $ .42 $ .36 $ .06 16.67%
========== ========== ======== ======
</TABLE>
Net Income Per Share - Basic is calculated using weighted average number of
shares outstanding for the period. Net Income Per Share - Diluted is calculated
using the weighted average number of shares outstanding for the period, plus the
net effect of granted stock options.
50
<PAGE>
Annualized return on average equity was 15.52% for the three months ended March
31, 1999, and 13.34% for the three months ended March 31, 1998.
The book value per share increased to $11.02 at March 31, 1999 compared to
$10.72 at December 31, 1998. This increase is due to the increased earnings
during this period. Average assets for the three months ended March 31, 1999,
were $337,959,000 compared to $295,869,000 for the same period in 1998; average
equity increased to $35,955,000 for the three months ended March 31, 1999, from
$31,768,000 for the same period in 1998.
NET INTEREST INCOME / NET INTEREST MARGIN
One component of the Corporation's earnings is net interest income, which is the
difference between the interest and fees earned on loans and investments and the
interest paid for deposits and borrowed funds. The net interest margin is net
interest income expressed as a percentage of average earning assets.
The annualized net interest margin was 4.50% for the three months ended March
31, 1999, compared to an annualized net interest margin of 4.61% for the three
months ended March 31, 1998. The decrease resulted primarily from a decrease in
loan interest rates and deposit interest rates not declining proportionately due
to local competition. Earnings assets averaged $314,829,000 for the three months
ended March 31, 1999. This represented an increase of $40,770,000 or 14.88%,
over average earning assets of $274,059,000 for the three months ended March 31,
1998. This increase in average earning assets was due to normal growth of the
Corporation and not from any special program or promotion.
The net interest income figures above include income from the Corporation's
securities. The following table shows the interest and fees and corresponding
yields for loans only.
For the Three Months Ended
---------------------------------
March 31, 1999 March 31, 1998
--------------- ---------------
Interest and Fees $ 4,669,473 $ 4,436,654
Average Loans $211,930,929 $195,454,670
Annualized Yield 8.92% 9.19%
CREDIT LOSS EXPERIENCE
The following table summarizes the Corporation's allowance for loan loss for the
dates indicated:
51
<PAGE>
<TABLE>
<CAPTION>
Amount of Percent of
March 31, December 31, Increase Increase
1999 1998 (Decrease) (Decrease)
BALANCES: ---------- ------------- ------------ --------
<S> <C> <C> <C> <C>
Gross loans $218,081,536 $213,972,111 $4,109,425 1.92%
Allowance for loan losses 2,950,000 2,900,000 50,000 1.72%
Nonaccrual loans 525,000 649,000 (124,000) 19.11%
Ratios:
Allowance for loan losses to
gross loans 1.35% 1.36%
Net loans charged off to allowance
For loan losses 3.25% 22.28%
</TABLE>
The provision for loan losses was $145,634 for the three months ended March 31,
1999. This is an increase of $94,372 or 184.1%, over the $51,262 for the three
months ended March 31, 1998. Gross loans outstanding increased 8.5% from March
1998 to March 1999. For the three months ended March 31, 1999, losses charged
to the allowance for loan losses totaled $187,911. This was offset by
recoveries of $92,277, with the net effect being $95,634 in loans charged to the
allowance.
Management of the Corporation reviews with the Board of Directors the adequacy
of the allowance for possible loan losses on a quarterly basis. The loan loss
provision is adjusted when specific items reflect a need for such an adjustment.
Management believes that there were no material loan losses during the last
fiscal year that has not been charged off. Management also believes that the
Corporation has adequately reserved for all credits in its portfolio which may
result in a loss to the Corporation.
OTHER OPERATING INCOME
Other operating income includes service charges on deposit accounts, wire
transfer fees, safe deposit box rentals and other revenue not derived from
interest on earning assets. Other operating income for the three months ended
March 31, 1999, increased 3.93% over the three months ended March 31, 1998. In
periods of declining net interest margins, the Corporation has sought to
increase the income derived from these sources and will continue to seek
opportunities to do so.
OTHER OPERATING EXPENSE
Other expenses include salaries and employee benefits, occupancy and equipment,
and other operating expenses. The continued growth of the Corporation has put
pressure on Management to control overhead expenses. This desire to control
overhead has resulted in a decrease in other operating expenses in the three
months ended March 31, 1999 compared to the three months ended March 31, 1998 of
$98,720 or 4.97%. The Corporation's efficiency ratio at March 31, 1999 was
47.64%.
52
<PAGE>
<TABLE>
<CAPTION>
BALANCE SHEET ANALYSIS
Amount of Percent of
March 31, December 31, Increase Increase
1999 1998 (Decrease) (Decrease)
------------ ------------ ---------- ------
<S> <C> <C> <C> <C>
Cash and Cash Equivalents $ 22,436,419 $ 20,797,838 1,638,581 7.88%
Investment Securities 93,977,561 91,538,504 2,439,057 2.66%
Loans 212,566,279 195,778,485 16,787,794 8.57%
Total Assets 342,790,542 334,231,809 8,558,733 2.56%
Total Deposits 288,925,971 282,242,228 6,683,743 2.37%
Total Shareholders' Equity 36,453,838 35,455,309 998,529 2.81%
</TABLE>
CASH AND CASH EQUIVALENTS
Cash and cash equivalents are made up of cash and federal funds sold. The
decrease of 18.42% is partly because of an effort by the Corporation to reduce
the float on cash letters sent to clearing banks. During this period federal
funds sold were reduced to fund the strong loan demand and the increase in
investment securities.
INVESTMENT SECURITIES
The investment securities are made up of U. S. Treasury Notes, U. S. Agency
debentures, mortgage-backed securities, obligations of states, counties and
municipal governments and Federal Home Loan Bank Stock. The increase of 2.66%
was due to need for additional pledging for governmental deposit accounts and
the desire to move surplus funds from the traditionally lower yielding federal
funds sold into higher yielding investments.
LOANS
Loan demand remained strong in the service area of the Corporation as evidenced
by the 8.57% increase in loans. Residential housing loans continue to be in
demand along with commercial and industrial loans. No special loan programs
were initiated during this period to add to this growth.
DEPOSITS
The following shows the balance and percentage change in the various deposits:
<TABLE>
<CAPTION>
Amount of Percent of
March 31, December 31, Increase Increase
1999 1998 (Decrease) (Decrease)
------------ ------------ ------------ -----------
<S> <C> <C> <C> <C>
Noninterest-bearing Deposits $ 37,849,937 $ 37,983,554 (133,617) (.35%)
Interest-Bearing Deposits 76,541,438 68,391,505 8,149,933 11.92%
Savings 19,433,622 195,778,485 327,299 1.71%
Certificates of Deposit 155,100,974 156,760,846 (1,659,872) 1.06%
------------ ------------ ----------- -----
Total Deposits $288,925,971 $282,242,228 $ 6,683,743 2.37%
============ ============ =========== =====
</TABLE>
53
<PAGE>
The increase in deposits reflected in the above table is solely the result of
normal deposit growth for the Corporation's service area. The Corporation does
not have any brokered deposits. There were no special deposit programs or
incentives in place during this period.
YEAR 2000
Management believes that the Corporation has been diligent in preparing for the
possible consequences of the date change on January 1, 2000. As previously
discussed herein, the Board has undertaken a diligent review of its operations
and in management's opinion made the necessary adjustments. The Board approved a
budget for the solutions of these potential problems in the amount of $376,713.
As of March 31, 1999, $365,773 or 97.1% of this budget had been expended, and
the Corporation's efforts were nearly 100% complete. The balance of this budget
was due to certain savings over originally proposed costs, plus a portion of the
budget was and is intended for continued advertisement and customer awareness
programs. The Corporation has set a goal to have identified and corrected all
potential Y2K problems by June 30, 1999.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
There have been no material change in the Corporation's market risk since the
end of the last fiscal year end of December 31, 1998.
OTHER INFORMATION
LEGAL PROCEEDINGS - None.
CHANGES IN SECURITIES - See discussions of items presented to and approved
by the shareholders at the April 13, 1999 Annual Shareholders meeting, found
under Item 11 herein..
DEFAULTS UPON SENIOR SECURITIES - None.
SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS - See discussion of
items presented to and approved by the shareholders at the April 13, 1999 Annual
Shareholders meeting, found under Item 11 herein.
OTHER INFORMATION - None.
ITEM 3. PROPERTIES
54
<PAGE>
The Corporation through the Bank, currently operates from its main office
in downtown Philadelphia, from 12 additional branches in Neshoba, Newton, Leake,
Scott, Attala, and Kemper counties and from its loan production office in
Lauderdale County, all located in Mississippi. Information about these branches
is set forth in the table below:
BANKING
LOCATION/ FUNCTIONS
NAME OF OFFICE TELEPHONE NUMBER OFFERED
Main Office 521 Main Street Loans
Philadelphia, Mississippi Trust
(601) 656-4692
Eastside Branch 585 East Main Street Drive-up
Philadelphia, Mississippi
(601) 656-4976
Westside Branch 912 West Beacon Street Loans
Philadelphia, Mississippi 24 Hour Teller
(601) 656-4978
Northside Branch 720 Pecan Avenue 24 Hour Teller
Philadelphia, Mississippi
(601) 656-4977
Pearl River Branch Choctaw Shopping Center Drive-up
Philadelphia, Mississippi
(601) 656-4971
Union Branch Corner of Horne & Bank Loans
Philadelphia, Mississippi
(601) 774-9231
Carthage Main Office 219 West Main Street Loans
Carthage, Mississippi
(601) 267-4525
Crossroads Branch Intersection of Hwys 35 & 16 Drive-up
Carthage, Mississippi
(601) 267-4525
Madden Branch Highway 488 Deposits
Madden, Mississippi
(601) 267-7366
55
<PAGE>
Sebastopol Branch Main Street Loans
Sebastopol, Mississippi
(601) 625-7447
DeKalb Branch Corner of Main & Bell Loans
DeKalb, Mississippi
(601) 743-2115
Kosciusko Branch 775 North Jackson Avenue Loans
Kosciusko, Mississippi 24-hour Teller
(601) 289-4356
Scooba Branch 1048 Johnston Street Loans
Scooba, Mississippi
(601) 476-8431
Meridian Office 1821 Hwy 39 North Loan Production
Meridian, Mississippi
(601) 693-8367
The Bank owns its main office and all its branch offices, except for the
Pearl River Branch, which is leased from the Mississippi Band of Choctaw Indians
and its Loan Production office in Meridian. The main office facility,
originally occupied in 1966, is used solely by the Corporation and the Bank.
This facility contains approximately 20,000 square feet and houses the executive
offices and all operations functions. The other branches range in size from
nearly 4,000 square feet to 619 square feet.
ITEM 4. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
(a) PRINCIPAL HOLDERS OF COMMON STOCK
At April 13, 1999, the Corporation had three shareholders that were the
beneficial owners of more than 5% of the common stock of the Corporation (the
"Common Stock") and are listed below:
(i) The Molpus Company
Philadelphia, Mississippi 39350
252,525 shares or 7.63%
56
<PAGE>
<TABLE>
<CAPTION>
NAME/ADDRESS AMOUNT AND PERCENT
OF BENEFICIAL NATURE OF OF
OWNER BENEFICIAL OWNERSHIP CLASS
------------- -------------------- ------
<S> <C> <C>
Richard H. Molpus, Jr. 63,131.25 25%
502 Valley View Drive
Philadelphia, MS 39350
Melanie Molpus Meyers 63,131.25 25%
same address as above
Nancy Molpus Pace 63,131.25 25%
same address as above
Dorothy Molpus Howorth 63,131.25 25%
same address as above
(ii) Herbert A. King
Starkville, Mississippi
239,015 shares or 7.22%
(iii) George R. Mars
Philadelphia, Mississippi
194,210 shares or 5.8%
</TABLE>
(b) SECURITY OWNERSHIP OF MANAGEMENT
The following table sets forth as of April 13, 1999 the number and
percentage of Common Stock beneficially owned by each Director of the
Corporation and the Bank and by all the Corporation's and the Bank's Directors
and Executive Officer as a group at April 13, 1999. Unless indicated otherwise
in a footnote, the Directors and Executive Officer possess sole voting and
investment power with respect to all shares shown.
<TABLE>
<CAPTION>
NAME OF COMMON STOCK PERCENT
BENEFICIAL OWNER BENEFICIALLY OWNED OF CLASS
----------------- ------------------ --------
<S> <C> <C>
M. G. Bond 33,085 1.00%
Karl Brantley 10,160 .31
W. W. Dungan 140,140(1) 4.24
Don Fulton 5,250 .16
Andy King 50,355(2) 1.52
Herbert A. King 239,015(3) 7.22
George R. Mars 194,210(4) 5.87
William M. Mars 12,335(5) .37
David P. Webb 14,075(7) .43
J. Steve Webb 90,305(7) 2.73
------- -----
All Directors and Executive Officers
as a group (10 persons) 788,830(8) 23.84
------- -----
</TABLE>
57
<PAGE>
- -----------------
(1) Includes 94,500 shares owned by Mr. Dungan's spouse.
(2) Includes 890 shares owned by Mr. King's spouse and 1,460 shares owned
by his children.
(3) Includes 7,275 shares owned jointly by Mr. King's spouse, 42,920 owned
by his children; also includes 147,260 shares held in trust for his
children.
(4) Includes 20,000 shares owned by Mr. Mars' spouse and 20,000 owned by
his child; also includes 45,795 shares owned by Mr. Mars' mother that
he has authority to vote.
(5) Includes 3,285 shares owned by Mr. Mars' spouse.
(6) Includes 170 shares owned by Mr. Webb's spouse and 90,000 shares held
in a limited partnership of which Mr. Webb is the managing general
partner and has the power to vote the stock in such capacity.
(7) David P. Webb is the son of J. Steve Webb.
(8) Includes 7,275 shares owned jointly with or of record by others with
Directors and Executive Officers; also includes 237,260 in various
entities controlled by Directors and 45,745 controlled by Power of
Attorney.
ITEM 5. DIRECTORS AND EXECUTIVE OFFICERS
The following table sets forth information concerning the Directors and
executive officers of the Corporation and Bank. Unless otherwise indicated in a
footnote, each person has held the same or a comparable position with his
present employer for the last five years. As of April 13, 1999, the Directors
serve on a staggered Board, of staggered three year terms. The Officers of both
the Corporation and the Bank are all elected for terms of one year. The Board
has, by resolution, designated Steve Webb, Chairman, President and Chief
Executive Officer as the sole executive officer of the Corporation and the Bank.
58
<PAGE>
<TABLE>
<CAPTION>
POSITIONS CURRENTLY DIRECTOR OR
HELD WITH THE EXECUTIVE OFFICER
NAME AND AGE CORPORATION AND BANK SINCE OTHER PRINCIPAL OCCUPATION
- ------------ -------------------- ------------------ ---------------------------
<S> <C> <C> <C>
M. G. Bond, 66 Director of the Corporation 1986 Retired, Mississippi State Senator
and the Bank
Karl Brantley, 62 Director of the Corporation 1992 Plant Manager, U.S. Electrical
and the Bank Motors, Philadelphia
W. W. Dungan, 65 Director of the Corporation 1981 (1) Partner, McDaniel Timber Company
and the Bank
Don Fulton, 52 Director of the Corporation 1994 President and General Manager,
and the Bank Nemanco, Inc.
Andy King, 44 Director of the Corporation 1997 Proprietor, Philadelphia Motor
and the Bank Company
Herbert A. King, 46 Director of the Corporation 1997 Engineer, King Engineering, Inc.
and the Bank
George R. Mars, 59 Director of the Corporation 1977 (1) Retired Proprietor, Mars
and the Bank Department Store
William M. Mars, 61 Director of the Corporation 1977 (1) Attorney, Mars, Mars and Mars
and the Bank Attorneys
David P. Webb, 39 Director of the Corporation 1998 Attorney, Phelps Dunbar, L.L.P.
and the Bank
Joe Steve Webb, 67 Director, Chairman, 1970 (1) Chairman, President and CEO of
President and CEO of Corporation and the Bank
Corporation and the Bank
</TABLE>
(1) Year that Director was elected to the Board of The Citizens Bank of
Philadelphia. These Directors were elected to the Board of Citizens
Holding Company at the time it was formed in 1982.
ITEM 6. EXECUTIVE COMPENSATION
The following table sets forth information regarding compensation paid for
the fiscal years indicated to the Corporation's and Bank's Chief Executive
Officer based on salary and bonus earned during fiscal 1998. Officers of the
Corporation receive their salary from the Bank.
SUMMARY COMPENSATION TABLE
ANNUAL COMPENSATION
Name and Principal All other
Position Year Salary Bonus Compensation
------------------ ---- ------ ----- ------------
J. Steve Webb, Chairman, 1998 $130,000 $30,000 $22,741 (1)
President and CEO 1997 $125,000 $25,000 (2)
of the Corporation 1996 $115,062 $20,000 (2)
and the Bank
59
<PAGE>
(1) Represents matching contributions of $10,734 under The Citizens Bank
Profit Sharing and Savings Plan (the 401-k plan), Directors fees in the
amount of $10,925, and includes the value of the use of a company
automobile in the amount of $1,082.
(2) Information for previous years not required to be disclosed.
EMPLOYEES' LONG-TERM INCENTIVE PLAN
On April 13, 1999, the Corporation adopted the Citizens Holding Company
Employees' Long-Term Incentive Plan (the "Employees' Plan"). The Employees Plan
is intended to provide for the grant of shares of Common Stock in the form of
stock options and restricted stock, in accordance with usual and customary terms
and conditions. To that end, seven percent (7%) of the issued and outstanding
Common Stock, as the same may be determined from time to time, is available for
grant under the Employees Plan, which shares are authorized but unissued
shares, treasury shares or shares acquired on the open market. The only options
granted during this fiscal year were to Steve Webb. See table below.
The Board of Directors will administer the Employees' Plan.
OPTION GRANTS UNDER EMPLOYEE PLAN DURING 1999 FISCAL YEAR
The following table presents information on the stock option grants that
were made during fiscal year 1999 to the Executive Officers of the Corporation,
pursuant to the Employee Plan. (Numbers of options and per share exercise prices
have been adjusted to reflect the five for one (5:1) split that occurred January
1, 1999).
INDIVIDUAL GRANTS
<TABLE>
<CAPTION>
Potential Realizable Value at
Number of % of Annual Rates of Stock Price
Options Options Exercise Expiration Appreciation for Option Term (1)
Granted Granted Price Date 5% 10%
<S> <C> <C> <C> <C> <C> <C>
Steve Webb-Initial Grant 2,800 13.12% 10.72 01/01/09 9,233.04 20,579.30
Annual Grant 1,000 4.52% 11.02 04/14/09 3,134.11 6,949.09
</TABLE>
(1) The amounts in the table are not intended to forecast possible future
appreciation, if any, of the Corporation's Common Stock. Actual gains, if
any, are dependent upon the future market price of the Corporation's Common
Stock and there can be no assurance that the amounts reflected in this
table will be achieved. Furthermore, because there is no established
market for the shares of Common Stock of the Corporation, there is no
accurate market value to assign as of the date of grant.
60
<PAGE>
AGGREGATED OPTION EXERCISES TO DATE
At the time of this application, no options have been exercised under the
Employee Plan because no options are currently exercisable.
DIRECTOR COMPENSATION
During 1998, all Directors of the Corporation received $725 per month
regardless of attendance at meetings or committee participation. In addition to
this, all Directors receive $125 for attending the monthly meetings. Those
Directors that serve on the Loan Committee receive an additional $50 per month.
Eight of the current Directors and one retired Director participate in a
Deferred Compensation Plan that was established in June 1986. The Plan provides
that a Director may defer a portion of his monthly fees for ten years in return
for a benefit to be paid when they attain the retirement age of 70. After the
ten year deferral period, the Director resumes receiving his full fee. The
deferral amount is increased each year by a percentage of the Moody's Average
Corporate Bond Rate for the month of October each year. Four of the Directors
(S. Webb, Dungan, G. Mars and Bond) receive a rate of 130% of the Moody's rate
and four (A. King, H. King, Brantley and Fulton) receive a rate of 100% of the
Moody's rate. Due to his age at the time of acceptance into the Plan, one
Director's benefits are defined and are not subject to the increases in the
Moody's rate. The Moody's Average Corporate Bond Rate for October 1998 was
6.77%. To fund the Plan, the Corporation purchased individual life insurance
policies for each of the participants.
PENSION PLAN
The Corporation maintains a 401-k plan, The Citizens Bank Profit Sharing
and Savings Plan and Trust (the "401-k plan"). All Employees who have attained
the age of 21 and completed one year of service are eligible to participate in
the 401-k plan. The Corporation matches employee deferrals up to 6% of total
compensation (including any overtime and bonuses) and a discretionary
contribution to each participant is made regardless of deferral. This
contribution for 1998 was 2.7% of total compensation. The 401-k plan recognizes
a participant to be fully vested after five years in which the employee has at
least 1,000 hours of service.
DIRECTORS' STOCK COMPENSATION PLAN
On April 13, 1999, the Company adopted the Citizens Holding Company
Directors' Stock Compensation Plan (the "Directors' Plan"), to be effective as
of January 1, 1999, providing for the grant of shares of $0.20 par value voting
common stock issued by this Company (the "Common Stock"), subject to usual and
customary terms and conditions. All non-employee Directors are eligible to
receive options under the Directors' Plan. To provide for utilization of the
Directors' Plan, 70,000 shares of Common Stock, (determined immediately after
the five-for-one (5:1) stock split approved by the Board of Directors effective
as of January 1, 1999) were made available for grant under the Directors' Plan.
Such shares are authorized but unissued shares, treasury shares or
61
<PAGE>
shares acquired on the open market, as the same may be adjusted for stock
splits, dividends or other adjustments in the capitalization of this Company.
The Board of Directors will administer the Directors' Plan.
OPTION GRANTS UNDER THE DIRECTORS' PLAN DURING FISCAL YEAR 1999
Pursuant to the Directors' Plan, effective January 1, 1999, the Non-
Employee Directors were compensated with the grant of certain options. For the
years of service prior to January 1, 1999, options were granted at the rate of
100 per year of service, otherwise the grants were all on the same terms and
conditions. On April 14, 1999, each Director was granted 1,000 options for the
annual option grant provided for in the Directors' Plan. The Directors' Plan
further provides that the options are first exercisable six months and one day
from the date of grant and must be exercised no later than ten years from the
date of grant. However, the options must be exercised within one year from the
date of cessation of service as a director. If a Director ceases to serve as a
member of the Board of Directors on account of Cause, Options granted hereunder
which are unexercised as of the occurrence of such Cause shall be forfeited.
AGGREGATED OPTION EXERCISES TO DATE
At the time of this application, no options have been exercised under the
Directors' Plan because no options are currently exercisable. The Initial Grant
Options cannot be exercised earlier than July 2, 1999 and the Annual Grant
Options cannot be exercised until October 15, 1999.
ITEM 7. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The Corporation has had, and expects to have in the future, banking
transactions in the ordinary course of its business with Directors, officers and
their associates. These transactions have been on substantially the same terms,
including interest rates, collateral, and repayment terms on extensions of
credit, as those prevailing at the same time for comparable transactions with
others and did not involve more than the normal risk of collectibility or
present other unfavorable features.
In the past several years, the Corporation has employed the legal services
of Phelps Dunbar, L.L.P., of which Mr. David Webb, a current Director of the
Corporation and Bank, is a partner. Phelps Dunbar has represented the
Corporation in various legal areas, including tax audits, pension plan
administration, civil lawsuit defense, and general corporate law. The
Corporation expects that the firm will continue to represent the Corporation in
similar matters in the future.
62
<PAGE>
ITEM 8. LEGAL PROCEEDINGS
There are no material pending legal proceedings, other than routine
litigation incidental to their business, to which the Corporation or the Bank is
a party or which any of its property is subject.
ITEM 9. MARKET PRICE OF AND DIVIDENDS ON THE REGISTRANT'S COMMON EQUITY AND
RELATED SHAREHOLDER MATTERS
MARKET PRICE
The Common Stock of the Corporation is fairly closely held and is not
traded on a regular basis, therefore, there is no established market for the
shares of common stock of the Corporation. According to the best knowledge of
the management of the Corporation, there have been only 30 sales transactions in
Common Stock since November 1996, at prices ranging from $7 to $12 per share, as
adjusted for the 5:1 stock split effective January 1, 1999. Management has not
verified the accuracy of the prices that have been reported. Because of the
lack of active trading of the Common Stock, these prices do not necessarily
reflect the prices at which the Common Stock would trade in an active market.
The Shares of Common Stock are currently held of record by approximately
485 shareholders.
DIVIDENDS
The Corporation paid cash dividends totaling $.17 per share in 1997 and
$.24 per share in 1998. The Corporation declares dividends on a semi-annual
basis in June and December with payment following at the end of that month.
Funds for the payment by the Corporation of cash dividends are obtained
from dividends received by the Corporation from the Bank. Accordingly, the
declaration and payment of dividends by the Corporation depend upon the Bank's
earnings and financial condition, general economic conditions, compliance with
regulatory requirements, and other factors.
ITEM 10. RECENT SALES OF UNREGISTERED SECURITIES
None.
ITEM 11. DESCRIPTION OF REGISTRANT'S SECURITIES TO BE REGISTERED
The following summary of the terms of the common stock of the Corporation
does not purport to be complete and is qualified in its entirety by reference to
the Corporation's Articles of Incorporation and Bylaws, which are filed as
Exhibits to this Form 10.
63
<PAGE>
AUTHORIZED BUT UNISSUED SHARES
As a result of a 5:1 stock split approved on October 27, 1998 and effective
January 1, 1999, the Corporation's Amended Articles of Incorporation authorized
the issuance of 3,750,000 shares of Common Stock, $.20 par value, of which
3,308,750 shares were issued and outstanding at April 13, 1999. However, at the
April 13, 1999 Annual Shareholders Meeting, the Shareholders voted to increase
the number of authorized shares to 15,000,000. Therefore, as of April 14, 1999,
15,000,000 shares were authorized and 3,308,750 were issued and outstanding.
The remaining authorized but unissued Shares of Common Stock may be issued
upon authorization of the Board of Directors without prior shareholder approval.
If additional shares of the Corporation are issued, the shareholders are not
entitled to subscribe for such additional shares in proportion to the number of
Shares of Common Stock owned by them prior to such issuance. Accordingly, the
shareholders of the Corporation could have their percentage ownership interest
in the Corporation diluted if these shares are issued in the future.
COMMON STOCK
VOTING RIGHTS
Except for (a) supermajority votes required to approve certain business
combinations and certain other specific matters to be discussed below and (b)
certain corporate actions that must be approved by a majority of the outstanding
votes of the relevant voting group under the Mississippi Business Corporation
Act, the affirmative vote of the holders of the majority of the votes cast at a
meeting at which a quorum is present is sufficient to approve matters submitted
for shareholder approval, except that Directors are elected by cumulative
voting.
DIVIDEND RIGHTS
The holders of shares of Common Stock are entitled to receive dividends as
and when declared by the Board of Directors from funds legally available for
their payment. A dividend may be paid by the Corporation only if, after paying
such dividend, (a) the Corporation would be able to pay its debts as they become
due in the usual course of business, and (b) the Corporation's total assets
would not be less than the sum of its total liabilities. Furthermore, because
funds for the payment of the dividends by the Corporation must come primarily
from the earnings of the Bank, restrictions on the amount of dividends that the
Bank may pay also restrict the amount of funds available for payment of
dividends by the Corporation. See Item 1. BUSINESS -- "Supervision and
Regulation," and Item 9, MARKET PRICE OF AND DIVIDENDS ON THE REGISTRANT'S
COMMON EQUITY AND RELATED SHAREHOLDER MATTERS -- "Dividends."
64
<PAGE>
LIQUIDATION
Upon any liquidation, dissolution, or winding up of the affairs of the
Corporation, the holders of Common Stock are entitled to share ratably in the
assets legally available for distribution to the Common Shareholders.
OTHER MATTERS
Holders of the Common Stock do not have preemptive rights with respect to
the issuance of any securities of the Corporation. There are no sinking fund
provisions applicable to the Common Stock. All outstanding Shares of Common
Stock are, when issued, fully paid and nonassessable. Such shares are not
redeemable at the option of the Corporation or holders thereof.
The Corporation presently serves as the registrar and transfer agent of the
Corporation's Common Stock.
STAGGERED BOARD OF DIRECTORS; FILLING VACANCIES ON THE BOARD OF DIRECTORS
The Corporation's Bylaws and Articles of Incorporation, both as amended,
provide for a staggered Board of Directors. Under this staggered Board of
Directors, the Board of Directors are divided into three classes of directors
serving staggered three-year terms.
A vacancy on the Board of Directors, including a vacancy created by an
increase in the number of directors, can be filled only at the annual
shareholder meeting succeeding the creation of the vacancy. Any director
elected to the Board of Directors to replace another director will hold office
for the unexpired term of the director he replaced. The holders of 75% of the
voting power of the Corporation's voting stock have the power to remove
directors, but only the shareholders voting at the next annual meeting of
shareholders have the power to fill the vacancies created by such removal.
Pursuant to shareholder action at the Annual Shareholder meeting held on
April 13, 1999, any future amendment, repeal, or attempted adoption of any
provision inconsistent with the above provisions shall require the affirmative
vote of the holders of at least 75% of the voting power of the Corporation's
voting stock.
ADOPTION OF THE MISSISSIPPI CONTROLLED SHARE ACT
The Corporation has elected, effective May 1, 1999, to be governed by the
Mississippi Controlled Share Act. In 1990, Mississippi adopted the Mississippi
Controlled Share Act in response to perceived abuses related to tender offers
and other transactions that result in a change of control of a corporation. The
effect of adopting the Mississippi Controlled Share Act is to deprive a person
acquiring "controlled shares" in an issuing public corporation from voting such
shares unless approved by the holders of a majority of the shares that are not
"interested shares." Basically, the term "controlled shares" is defined as the
shares that when added to the shares
65
<PAGE>
already held, either alone or as part of a group, would enable the acquiror to
have either (a) one-fifth or more but less than one-third of the voting power;
(b) one-third or more but less than a majority voting power; or (c) a majority
or more of all voting power. In the event of a controlled share acquisition (the
direct or indirect acquisition of ownership of voting power over controlled
shares), the acquiring person is required to file an acquiring person's
statement with the company setting forth the number of shares acquired and
certain other specified information. The company would then be required to call
a special shareholders meeting for the purpose of considering the voting rights
to be afforded the shares acquired or to be acquired in the controlled shares
acquisition. At the meeting, the voting rights to be afforded the controlled
shares are to be voted on by the voting shares other than the "interested
shares," defined to include the shares owned by the acquiring person or group,
the officers of the company, and any director of the corporation who is an
employee of the company. Unless approved by the vote of a majority of the shares
other than the interested shares, the controlled shares are afforded no voting
rights.
Pursuant to shareholder action at the Annual Shareholder meeting held on
April 13, 1999, any future amendment, repeal, or attempted adoption of any
provision inconsistent with the Mississippi Controlled Share Act shall require
the affirmative vote of the holders of at least 75% of the voting power of the
Corporation's voting stock.
SHAREHOLDERS RIGHTS AGREEMENT
On April 13, 1999, the Shareholders of the Corporation adopted a
Shareholder Rights Agreement. The Shareholder Rights Agreement provides for the
issuance of rights to purchase additional shares of the Common Stock ("Rights")
and contains provisions that are designed to protect shareholders in the event
of an unsolicited attempt to acquire the Corporation. The implementation of the
Shareholder Rights Agreement increases the Board of Directors' ability to
represent effectively the interests of shareholders of the Corporation in the
event of an unsolicited acquisition proposal by enabling it, among other things,
to assure the various constituencies of the Corporation (i.e., its creditors,
customers, employees, etc.) that the Corporation's stability can be maintained
in a takeover environment. In addition, the Shareholder Rights Agreement will
give the Board of Directors more time and the opportunity to evaluate an offer
and exercise its good faith business judgment to take appropriate steps to
protect and advance shareholder interests by negotiating with the bidder,
auctioning the Corporation, implementing a recapitalization or restructuring
design as an alternative to the offer, or taking other action.
The Rights are not intended to prevent a takeover of the Corporation and
will not preclude a successful cash tender offer for all of the outstanding
shares of Common Stock coupled with a requirement for the tender of Rights
formerly attached to such shares. However, the Shareholder Rights Agreement
should discourage most efforts to acquire the Corporation (short of such an all
inclusive tender offer) in a manner or on terms not approved by the Board of
Directors. The Rights may be redeemed by the Corporation at a redemption price
of $.001 per Right, and thus they should not interfere with any merger or other
business combination approved by the Board
66
<PAGE>
of Directors nor affect any prospective offeror willing to negotiate in good
faith with the Board of Directors.
Distribution of the Rights will not in any way alter the financial strength
of the Corporation or interfere with its business plans. The distribution of
the Rights is not dilutive, does not effect reported earnings per share, is not
taxable either to the recipient or to the Corporation, and will not change the
way in which shareholders can currently trade shares of the Corporation's common
stock. However, under certain circumstances, more specifically described below,
exercise of the Rights may be dilutive or affect reported earnings per share.
Set forth below is a summary of specific provisions of the Shareholders Rights
Agreement.
DIVIDEND DECLARATION; PURCHASE PRICE. The Board of Directors of the
Corporation will declare a dividend distribution of one purchase right (a
"Right") for each outstanding share of Common Stock, $.20 par value (the
"Common Stock"), of the Corporation. The distribution will be payable on a
future record date (the "Rights Record Date") to the shareholders of record
on that date and a Right will be included with each new share of Common
Stock issued after that date. Each Right will entitle the registered
holder to purchase from the Corporation one share of Common Stock of the
Corporation at a price of $150.00 per share (the "Purchase Price"), subject
to adjustment in specified circumstances.
COMMON STOCK CERTIFICATES EVIDENCING RIGHTS. Initially, the Rights are not
exercisable, and only become exercisable upon the occurrence of a
Distribution Date, as described below. Certificates for the Rights will not
be sent to shareholders, and the Rights will attach to and trade only
together with the Common Stock until the Distribution Date. Accordingly,
Common Stock certificates outstanding on the Rights Record Date evidence
the Rights related thereto, and Common Stock certificates issued after the
Rights Record Date will contain a notation incorporating the Rights
Agreement by reference.
DISTRIBUTION DATE. The Rights will separate from the Common Stock
("Distribution Date") upon the earlier of (i) ten business days following a
public announcement (the "Share Acquisition Date") that a person or group
of affiliated or associated persons (an "Acquiring Person"), other than the
Corporation or certain other exempt persons, has acquired or obtained the
right to acquire, beneficial ownership of 20% or more of the outstanding
Common Stock of the Corporation, or (ii) ten business days following the
commencement of, or announcement of an intention to make, a tender offer or
exchange offer by any person or group of affiliated or associated persons,
(after the acquisition of 20% or more that person also being an "Acquiring
Person") other than the Corporation or certain other exempt persons, the
consummation of which would result in the beneficial ownership by a person
or group of affiliated or associated persons of 20% or more of such
outstanding Common Stock.
67
<PAGE>
ISSUANCE OF RIGHT CERTIFICATES; EXPIRATION OF RIGHTS. If the Distribution
Date occurs, then as soon as practical following the Distribution Date,
separate certificates evidencing the Rights ("Right Certificates") will be
mailed to holders of record of the Common Stock as of the close of business
on the Distribution Date and such separate Right Certificates alone will
evidence the Rights from and after the Distribution Date. The Rights will
expire ten (10) years from the date they are declared (the "Expiration
Date"), unless earlier redeemed by the Corporation as described below.
RIGHT TO BUY CORPORATION COMMON STOCK AT HALF PRICE. Unless the Rights are
earlier redeemed, in the event that a person (other than an exempt person)
becomes the beneficial owner of 20% or more of the Corporation's Common
Stock then outstanding, then proper provision will be made so that each
holder of a Right (other than Rights that were beneficially owned by the
Acquiring Person, which will thereafter be void) will thereafter have the
right to receive, upon exercise, Common Stock having a value equal to two
times the Purchase Price. In other words, a shareholder who owned one
right to buy a share of stock at $150 per share would have the right to buy
$300 worth of stock (valued at the public market price at that time) for a
purchase of $150.
RIGHT TO BUY ACQUIRING CORPORATION STOCK AT HALF PRICE. Similarly, unless
the Rights are earlier redeemed, in the event that, after there is an
Acquiring Person, (i) the Corporation were to be acquired in a merger or
other business combination transaction in which the Corporation was not the
surviving corporation or in which the Corporation's outstanding Common
Stock were changed or exchanged for stock or assets of another person or
(ii) fifty percent (50%) or more of the Corporation's consolidated assets
or earning power were to be sold (other than transactions in the ordinary
course of business), proper provision will be made so that each holder of a
Right (other than Rights that were beneficially owned by the Acquiring
Person, which will thereafter be void) will thereafter have the right to
receive, upon exercise, shares of common stock of the acquiring company
having a value equal to two times the Purchase Price.
REDEMPTION. At any time on or prior to the close of business on the
earlier of (i) the Expiration Date, or (ii) the occurrence of an event
whereby the Rights are exercisable for Common Stock of the Corporation (or
of the Acquiring Corporation, as the case may be), the Corporation may
redeem the Rights in whole, but not in part, at a price of $.001 per Right
("Redemption Price"). Immediately upon the action of the Board of Directors
authorizing redemption of the rights, the right to exercise the Rights will
terminate and the only right of the holders of Rights will be to receive
the Redemption Price.
68
<PAGE>
NO SHAREHOLDERS' RIGHTS PRIOR TO EXERCISE. Until a Right is exercised, the
holder thereof, as such, will have no rights as a shareholder of the
Corporation (other than rights resulting from such holder's ownership of
Common Stock), including, without limitation, the right to vote or to
receive dividends.
ITEM 12. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Reference is made to Article VI of the Corporation's Bylaws filed as an
exhibit to this Form 10, which contains certain indemnification provisions
pursuant to authority contained in the Mississippi Business Corporation Act.
In addition, the Corporation also maintains insurance coverage for the
benefit of Directors and officers with respect to many types of claims that may
be made against them, some of which claims are in addition to those described in
Article VI of the Bylaws.
ITEM 13. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The Consolidated Financial Statements and Supplementary Information for
years ended December 31, 1996, 1997 and 1998, identified in Item 15(a), and
attached immediately after the Exhibit List, are hereby filed as part of this
Form 10, and consist of the following:
(i) Independent Auditor's Report
(ii) Consolidated Statements of Financial Condition
(iii) Consolidated Statements of Income
(iv) Consolidated Statements of Comprehensive Income
(v) Consolidated Statements of Changes in Shareholders' Equity
(vi) Consolidated Statements of Cash Flows
(vii) Notes to Consolidated Financial Statements
The Interim Unaudited Financial Statements and Supplementary Information
for the quarter ended March 31, 1999, included under 2B of Item 2 hereof are
also filed as part of this Form 10 and consist of the following:
(i) Consolidated Financial Statements
(ii) Unaudited Consolidated Balance Sheets
March 31, 1999 and December 31, 1998
69
<PAGE>
(iii) Unaudited Consolidated Statements of Income
Three months ended March 31, 1999 and 1998
(iv) Unaudited Consolidated Statements of Comprehensive Income
Three months ended March 31, 1999 and 1998
(v) Unaudited Consolidated Statements of Cash Flows
Three months ended March 31, 1999 and 1998
(vi) Notes to Unaudited Consolidated Financial Statements
ITEM 14. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
A. T. Williams, CPA ("Williams"), the Corporation's prior accountant,
indicated in late December of 1998 that because the Corporation is seeking to
register its Common Stock under Section 12(g) of the Securities Exchange Act of
1934, as amended, he would no longer be able to stand as the Corporation's
accountant. A copy of Williams' letter is attached to this filing as Exhibit
16. Therefore, the Board of Directors, after reviewing proposals from several
accounting firms, selected The Horne Group as the new accountant for the
Corporation. The Horne Group was responsible for preparing the audited
financial statements of the Corporation for the year ending December 31, 1998.
The Horne Group's reports on the financial statement of the Corporation for
the year ending December 31, 1998 did not contain any adverse opinions or
disclaimers of opinion, and were not qualified or modified as to uncertainty,
audit scope or accounting principles. Moreover, there were no disagreements on
any matter of accounting principles or practices, financial statement
disclosure, or auditing scope of procedure between The Horne Group and the
Corporation during the 1998 calendar year, or during any subsequent interim
period during 1999.
Williams' reports on the financial statements of the Corporation for the
years ending December 31, 1996 and December 31, 1997 did not contain any adverse
opinions or disclaimers of opinion, and were not qualified or modified as to
uncertainty, audit scope or accounting principles. Moreover, there were no
disagreements on any matter of accounting principles or practices, financial
statement disclosure, or auditing scope of procedure between Williams and the
Corporation during the 1996 and 1997 calendar years, or during any subsequent
interim period during 1998.
ITEM 15. FINANCIAL STATEMENTS AND EXHIBITS
(a) Financial Statements filed as part of this Form 10
70
<PAGE>
The following are included in Item 13 of this Form 10, and are
attached immediately after the Exhibit List:
Consolidated Financial Statements and Supplementary Information for
years ended December 31, 1996, 1997 and 1998, which include the following:
(i) Independent Auditor's Report
(ii) Consolidated Statements of Financial Condition
(iii) Consolidated Statements of Income
(iv) Consolidated Statements of Comprehensive Income
(v) Consolidated Statements of Changes in Shareholders' Equity
(vi) Consolidated Statements of Cash Flows
(vii) Notes to Consolidated Financial Statements
Included under 2B of Item 2 are Interim Unaudited Consolidated
Financial Statements and Supplementary Information for the quarter ended March
31, 1999, which include the following:
(i) Unaudited Consolidated Balance Sheets
March 31, 1999 and December 31, 1998
(ii) Unaudited Consolidated Statements of Income
Three months ended March 31, 1999 and 1998
(iii) Unaudited Consolidated Statements of Comprehensive Income
Three months ended March 31, 1999 and 1998
(iv) Unaudited Consolidated Statements of Cash Flows
Three months ended March 31, 1999 and 1998
(v) Notes to Unaudited Consolidated Financial Statements
(b) Exhibits filed as part of this Form 10
The following Exhibits are hereby filed as part of this Form 10:
3(i) Amended Articles of Incorporation of the Corporation
71
<PAGE>
3(ii) Amended and Restated Bylaws of the Corporation
4 Rights Agreement between Citizens Holding Company
and The Citizens Bank of Philadelphia, Mississippi
10 Directors' Deferred Compensation Plan - Form of
Agreement
10(a) Citizens Holding Company 1999 Directors' Stock
Compensation Plan
10(b) Citizens Holding Company 1999 Employees' Long-Term
Incentive Plan
16 CPA Letter
21 Subsidiaries of Registrant
27 Financial Data Schedule
(c) Financial Statement Schedules
None
72
<PAGE>
Pursuant to the requirements of Section 12 of the Securities Exchange Act
of 1934, the Registrant has duly caused this Registration Statement to be signed
on its behalf by the undersigned, thereunto duly authorized.
Dated this the 18th day of June, 1999.
CITIZENS HOLDING COMPANY
BY: /S/STEVE WEBB
----------------------------------------------
STEVE WEBB, CHAIRMAN, PRESIDENT AND CHIEF
EXECUTIVE OFFICER
73
<PAGE>
EXHIBIT INDEX
-------------
EXHIBIT NUMBER: DESCRIPTION:
- -------------- -----------
3(i) Amended Articles of Incorporation of the Corporation
3(ii) Amended and Restated Bylaws of the Corporation
4. Rights Agreement between Citizens Holding Company
and The Citizens Bank of Philadelphia, Mississippi
10. Directors' Deferred Compensation Plan - Form of
Agreement
10(a) Citizens Holding Company 1999 Directors' Stock
Compensation Plan
10(b) Citizens Holding Company 1999 Employees' Long-
Term Incentive Plan
16. CPA Letter
21 Subsidiaries of Registrant
27 Financial Data Schedule
74
<PAGE>
CITIZENS HOLDING COMPANY
AND SUBSIDIARY
Consolidated Financial Statements
Years Ended December 31, 1998, 1997 and 1996
<PAGE>
CONTENTS
- --------------------------------------------------------------------------------
Independent Auditor's Report 1
- --------------------------------------------------------------------------------
Financial Statements
Consolidated Balance Sheets 2
Consolidated Statements of Income 3
Consolidated Statements of Comprehensive Income 4
Consolidated Statements of Stockholders' Equity 5
Consolidated Statements of Cash Flows 6
Notes to Consolidated Financial Statements 7 - 23
- --------------------------------------------------------------------------------
<PAGE>
INDEPENDENT AUDITOR'S REPORT
Board of Directors
Citizens Holding Company
Philadelphia, Mississippi
We have audited the accompanying consolidated balance sheets of Citizens Holding
Company and Subsidiary as of December 31, 1998, and the related consolidated
statements of income, comprehensive income, stockholders' equity and cash flows
for the year then ended. These financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
financial statements based on our audit. The consolidated balance sheet of
Citizens Holding Company and Subsidiary at December 31, 1997 and the related
consolidated statements of income, comprehensive income, stockholders' equity
and cash flows for the years ended December 31, 1997 and 1996 were audited by
other auditors whose report, dated July 2, 1998, expressed an unqualified
opinion on those financial statements.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audits to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the 1998 consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Citizens
Holding Company and Subsidiary as of December 31, 1998 and the results of their
operations and their cash flows for the year then ended, in conformity with
generally accepted accounting principles.
Jackson, Mississippi
February 26, 1999
<PAGE>
<TABLE>
<CAPTION>
CITIZENS HOLDING COMPANY AND SUBSIDIARY
Consolidated Balance Sheets
December 31, 1998 and 1997
1998 1997
- ----------------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
Cash and due from banks $ 15,234,594 $ 10,025,883
Interest bearing deposits with other banks 1,063,244 147,441
Federal funds sold 4,500,000 5,500,000
Securities Available for Sale, at Fair Value (amortized cost
of $90,079,947 in 1998, and $66,328,556 in 1997) 91,538,504 67,292,272
Loans, net of allowance for loan losses of
$2,900,000 in 1998 and $2,700,000 in1997 208,449,416 191,604,716
Bank premises, furniture, fixtures and equipment, net 4,433,652 4,250,819
Real estate acquired by foreclosure 57,094 9,920
Accrued interest receivable 3,697,109 3,153,868
Cash value of life insurance 2,516,361 2,217,613
Goodwill (net) 716,862 783,870
Other assets 2,024,973 1,647,599
----------------------------------
Total Assets $ 334,231,809 $ 286,634,001
==================================
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits
Non-interest bearing demand deposits $ 37,983,554 $ 35,526,426
Interest bearing NOW and money market accounts 68,391,505 56,904,291
Interest bearing time deposits 156,760,846 139,364,724
Interest bearing savings deposits 19,106,323 17,188,104
----------------------------------
Total deposits 282,242,228 248,983,545
Federal funds purchased 10,000,000 -
Accrued interest payable 1,274,059 1,316,057
Income taxes payable - current - 34,029
Directors deferred compensation payable 718,868 630,311
Treasury tax & loan 700,000 700,000
ABE loans 2,416,327 2,488,319
Other Liabilities 225,389 155,507
----------------------------------
Total Liabilities 297,576,871 254,307,768
----------------------------------
Minority interest 1,199,628 1,105,752
Stockholders' Equity
Common stock, $1 par value, authorized
750,000 shares; 670,750 shares issued 670,750 670,750
Additional paid in capital 3,353,127 3,353,127
Accumulated other comprehensive income, net of
income taxes of $495,909 in 1998 and $327,663 in 1997 929,885 613,392
Retained earnings 30,740,948 26,822,612
----------------------------------
35,694,710 31,459,881
Less cost of treasury stock - 9,000 shares
in 1998 and 1997 (239,400) (239,400)
----------------------------------
Total Stockholders' Equity 35,455,310 31,220,481
----------------------------------
Total Liabilities and Stockholders' Equity $ 334,231,809 $ 286,634,001
==================================
</TABLE>
See accompanying notes.
2
<PAGE>
CITIZENS HOLDING COMPANY AND SUBSIDIARY
Consolidated Statements of Income
Years Ended December 31, 1998, 1997 and 1996
<TABLE>
<CAPTION>
1998 1997 1996
- ---------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Interest Income
Loans $ 18,305,619 $ 17,104,693 $ 15,341,060
Investment securities
Taxable 4,212,634 4,034,214 4,274,824
Non-taxable 418,787 238,050 323,318
Other 614,469 129,141 315,304
--------------------------------------------------
Total Interest Income 23,551,509 21,506,098 20,254,506
--------------------------------------------------
Interest Expense
Deposits 10,397,077 9,659,139 8,679,540
Other borrowed funds 463,051 333 4,257
--------------------------------------------------
Total Interest Expense 10,860,128 9,659,472 8,683,797
--------------------------------------------------
Net Interest Income 12,691,381 11,846,626 11,570,709
Provision for loan losses (846,466) (740,309) (790,761)
--------------------------------------------------
Net interest income after provision
for loan losses 11,844,915 11,106,317 10,779,948
--------------------------------------------------
Non-Interest Income
Service charges on deposit accounts 2,177,631 1,933,769 1,788,211
Other service charges and fees 427,008 263,137 254,985
Other income 716,011 793,220 642,873
--------------------------------------------------
Total Non-Interest Income 3,320,650 2,990,126 2,686,069
--------------------------------------------------
Non-Interest Expense
Salaries and employee benefits 4,663,908 4,027,335 3,875,368
Occupancy expense 533,091 339,234 327,670
Equipment expense 693,107 626,165 514,206
Net bond losses 18,941 116,859 47,382
Earnings applicable to minority 163,662 165,121 160,995
Other expense 1,893,738 1,771,461 1,739,181
--------------------------------------------------
Total Non-Interest Expense 7,966,447 7,046,175 6,664,801
--------------------------------------------------
Income Before Income Taxes 7,199,118 7,050,269 6,801,216
Income tax expense 2,486,682 2,560,695 2,407,001
--------------------------------------------------
Net Income $ 4,712,436 $ 4,489,573 $ 4,394,216
==================================================
Net income per share of common stock $ 1.42 $ 1.36 $ 1.33
==================================================
Average shares outstanding 3,308,750 3,308,750 3,308,750
</TABLE>
See accompanying notes.
3
<PAGE>
CITIZENS HOLDING COMPANY AND SUBSIDIARY
Consolidated Statements of Comprehensive Income
Years Ended December 31, 1998, 1997 and 1996
<TABLE>
<CAPTION>
1998 1997 1996
- ---------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net Income $ 4,712,436 $ 4,489,573 $ 4,394,216
Other comprehensive income, net of tax
Unrealized holding gains (losses)
during period 297,552 418,185 (45,206)
Less reclassification adjustment for
gains included in net income (18,941) (116,849) (47,382)
--------------------------------------------------
Total other comprehensive income 316,493 535,034 2,176
--------------------------------------------------
Comprehensive Income $ 5,028,929 $ 5,024,607 $ 4,396,392
==================================================
</TABLE>
See accompanying notes.
4
<PAGE>
CITIZENS HOLDING COMPANY AND SUBSIDIARY
Consolidated Statements of Cash Flows
Years Ended December 31, 1998, 1997 and 1996
<TABLE>
<CAPTION>
1998 1997 1996
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Cash Flows from Operating Activities
Net Income $ 4,712,436 $ 4,489,573 $ 4,394,216
Adjustments to reconcile net income to net
cash provided by operating activities
Depreciation 450,039 402,071 366,170
Amortization of goodwill 67,008 67,008 67,008
Amortization of premiums and accretion
of discounts on investment securities (46,683) (106,504) (72,776)
Provision for loan losses 846,466 740,309 790,761
Investment securities losses 18,940 116,859 47,382
Gain on sale of land - - (55,000)
Deferred income tax benefit (113,214) (117,793) (215,067)
Net earnings applicable to minority interest 93,876 142,120 135,903
(Increase) decrease in real estate
acquired by foreclosure (47,174) 122,306 84,941
Increase in accrued interest receivable (543,241) (264,105) (188,474)
Increase in cash value of life insurance (298,748) (309,709) (291,856)
Increase in other assets (439,529) (491,427) (227,152)
Increase (decrease) in income taxes payable (34,029) (132,429) 303,308
Increase (decrease) in accrued interest payable (41,998) 189,296 23,641
Increase in directors deferred compensation 88,557 64,304 73,106
Increase in other liabilities 69,882 13,275 24,273
---------------------------------------------------
Net Cash Provided By
Operating Activities 4,782,588 4,925,154 5,260,384
---------------------------------------------------
Cash Flows from Investing Activities
Proceed from maturities of securities available-for-sale 18,965,865 11,911,072 20,586,470
Proceed from sales of securities available-for-sale 11,812,981 23,211,856 5,620,828
Purchases of investment securities (54,505,473) (29,112,960) (22,628,459)
Proceeds from sale of land 80,000
Purchases of bank premises, furniture, fixtures and
equipment (632,872) (873,137) (457,959)
Increase in interest bearing deposits
with other banks (915,803) (114,017) (6,207)
Net (increase) decrease in federal funds sold 1,000,000 (5,400,000) 9,350,000
Net decrease in loans (17,691,166) (15,078,380) (22,329,428)
---------------------------------------------------
Net Cash Used By Investing Activities (41,966,468) (15,455,566) (9,784,755)
---------------------------------------------------
Cash Flows from Financing Activities
Net increase (decrease) in federal funds purchased 10,000,000 (8,800,000) 8,800,000
Net increase (decrease) in deposits 33,258,683 19,540,826 (9,234,663)
Net increase (decrease) in ABE Loans (71,992) 226,740 1,284,225
Dividends paid to stockholders (794,100) (562,487) (496,313)
Redeemed debentures - (32,696) (32,695)
---------------------------------------------------
Net Cash Provided By Financing Activities 42,392,591 10,372,383 320,554
---------------------------------------------------
Net Increase (Decrease) in Cash
and Due from Banks 5,208,711 (158,029) (4,203,817)
Cash and due from banks, beginning of year 10,025,883 10,183,912 14,387,729
---------------------------------------------------
Cash and due from banks, end of year $ 15,234,594 $ 10,025,883 $ 10,183,912
===================================================
Supplemental Disclosures of Cash
Flow Information
Cash Paid for
Interest $ 10,902,126 $ 9,470,176 $ 8,660,156
===================================================
Income taxes $ 2,647,655 $ 2,810,917 $ 2,317,212
===================================================
Supplemental Schedule of Noncash Activities
Unrealized gain on securities
available for sale $ 494,841 $ 840,556 $ 3,081
===================================================
Decrease in deferred income tax asset on
unrealized gain on securities $ (168,246) $ (285,790) $ (1,047)
===================================================
Minority interest on unrealized
(gain) loss on securities $ (10,102) $ (19,732) $ 142
===================================================
</TABLE>
See accompanying notes.
5
<PAGE>
CITIZENS HOLDING COMPANY AND SUBSIDIARY
Consolidated Statements of Stockholders' Equity
Years Ended December 31, 1998, 1997 and 1996
<TABLE>
<CAPTION>
ACCUMULATED
NUMBER ADDITIONAL OTHER
OF SHARES COMMON PAID IN COMPREHENSIVE RETAINED TREASURY
ISSUED STOCK CAPITAL INCOME EARNINGS STOCK TOTAL
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1995 639,248 $ 639,248 $ 3,353,127 $ 76,182 $ 19,029,125 $ (239,400) $ 22,858,282
Net income - - - - 4,394,216 - 4,394,216
Stock dividend 31,502 31,502 - - (31,502) - -
Dividends paid - - - - (496,313) - (496,313)
Other comprehensive income - - - 2,176 - - 2,176
-------------------------------------------------------------------------------------------------
Balance, December 31, 1996 670,750 670,750 3,353,127 78,358 22,895,526 (239,400) 26,758,361
Net income - - - - 4,489,573 - 4,489,573
Dividends paid - - - - (562,487) - (562,487)
Other comprehensive income - - - 535,034 - - 535,034
-------------------------------------------------------------------------------------------------
Balance, December 31, 1997 670,750 670,750 3,353,127 613,392 26,822,612 (239,400) 31,220,481
Net income - - - - 4,712,436 - 4,712,436
Dividends paid - - - - (794,100) - (794,100)
Other comprehensive income - - - 316,493 - - 316,493
-------------------------------------------------------------------------------------------------
Balance, December 31, 1998 670,750 $ 670,750 $ 3,353,127 $ 929,885 $ 30,740,948 $ (239,400) $ 35,455,310
=================================================================================================
</TABLE>
See accompanying notes.
6
<PAGE>
CITIZENS HOLDING COMPANY AND SUBSIDIARY
Years Ended December 31, 1998, 1997 and 1996
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Financial Statement Presentation
- -----------------------------------------
The accounting policies of Citizens Holding Company and Subsidiary conform to
generally accepted accounting principles and to general practices within the
banking industry. At December 31, 1998, 1997 and 1996, the consolidated
financial statements of Citizens Holding Company include the accounts of its
96.59% owned subsidiary, The Citizens Bank (collectively referred to as "the
Company"). All significant intercompany transactions have been eliminated in
consolidation.
Nature of Business
- ------------------
Citizens Bank operates under a state bank charter and provides general banking
services. As a state bank, the bank is subject to regulations of the
Mississippi Department of Banking and Consumer finance and the Federal Deposit
Insurance Corporation. Citizens Holding Company is subject to the regulations
of the Federal Reserve. The area served by Citizens Bank is Neshoba County,
Mississippi, and the immediately surrounding areas. Services are provided at
several branch offices.
Fair Value of Financial Instruments
- -----------------------------------
Statement of Financial Accounting Standards (SFAS) No. 107, "Disclosures about
Fair Value of Financial Instruments", requires disclosure of financial
instruments' fair values, as well as the methodology and significant assumptions
used in estimating fair values. These requirements have been incorporated
throughout the notes to the consolidated financial statements. In cases where
quoted market prices are not available, fair values are based on estimates using
present value or other valuation techniques. Those techniques are significantly
affected by the assumptions used, including the discount rate and estimates of
future cash flows. In that regard, the derived fair value estimates cannot be
substantiated by comparison to independent markets and, in many cases, could not
be realized in immediate settlement of the instrument. Statement No. 107
excludes certain financial instruments from its disclosure requirements.
Accordingly, the aggregate fair value amounts presented do not represent the
underlying value of the Corporation and may not be indicative of amounts that
might ultimately be realized upon disposition or settlement of those assets and
liabilities.
Estimates
- ---------
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
7
<PAGE>
CITIZENS HOLDING COMPANY AND SUBSIDIARY
Years Ended December 31, 1998, 1997 and 1996
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 1. CONTINUED
Material estimates that are particularly susceptible to significant change
relate to the determination of the allowance for losses on loans and the
valuation of real estate acquired in connection with foreclosures or in
satisfaction of loans. In connection with the determination of the allowances
for losses on loans and foreclosed real estate, management obtains independent
appraisals for significant properties.
A portion of the Company's loan portfolio consists of loans secured by
residential property in the East Central Mississippi area. The regional economy
depends heavily on light industry, agriculture and the gambling industry.
Accordingly, the ultimate collectibility of a substantial portion of the
Company's loan portfolio and the recovery of a substantial portion of the
carrying amount of foreclosed real estate are susceptible to changes in local
market conditions.
While management uses available information to recognize losses on loans and
foreclosed real estate, future additions to the allowances may be necessary
based on changes in local economic conditions. In addition, regulatory
agencies, as an integral part of their examination process, periodically review
the Company's allowances for losses on loans and foreclosed real estate. Such
agencies may require the Company to recognize additions to the allowances based
on their judgments about information available to them at the time of their
examination. Because of these factors, it is reasonably possible that the
allowances for losses on loans and foreclosed real estate may change materially
in the near term.
Trust Assets
- ------------
Assets held by the trust department of The Citizens Bank in fiduciary or agency
capacities are not assets of the Bank and are not included in these statements
of financial condition.
Cash and Due from Banks
- -----------------------
Cash and due from banks consist of cash on hand, demand deposits with banks, and
time deposits maturing within three months. Cash flows from loans originated by
the Bank, deposits, and federal funds purchased and sold are reported at net in
the statement of cash flows.
Securities Available-for-Sale
- -----------------------------
Securities available-for-sale are reported at fair value with unrealized gains
and losses net of income taxes, reported as other comprehensive income. Fair
values for securities are based on quoted market prices where available. If
quoted market prices are not available, fair values are based on quoted market
prices of comparable instruments. Gains or losses on the sale of securities are
determined using the specific identification method. The bank classifies its
portfolio of U.S. Treasury notes, U.S. Government and Agency securities, taxable
state and municipal obligations, and mortgage-backed securities as securities
available for sale.
8
<PAGE>
CITIZENS HOLDING COMPANY AND SUBSIDIARY
Years Ended December 31, 1998, 1997 and 1996
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 1. CONTINUED
Realized gains or losses, determined on the basis of the cost of specific
securities sold, are included in earnings. The amortization of premiums and
accretion of discounts are recognized in interest income, using the interest
method.
Loans and Allowances for Loan Losses
- ------------------------------------
Loans are reported at the principal amount outstanding, net of unearned
discounts and unearned finance charges. Unearned discounts on installment loans
are recognized as income over the terms of the loans by a method which
approximates the interest method. Unearned finance charges and interest on
commercial loans are recognized based on the principal amount outstanding.
The allowance for loan losses is established through a provision for loan
losses. The allowance represents an amount, which, in management's judgment,
will be adequate to absorb probable losses on existing loans that may become
uncollectible. Management's judgment in determining the adequacy of the
allowance is based on evaluations of the collectibility of loans. These
evaluations take into consideration such factors as changes in the nature and
volume of the loan portfolio, current economic conditions that may affect the
borrowers' ability to pay, overall portfolio quality, and a review of specific
problem loans.
The Bank generally discontinues the accrual of interest income when a loan
becomes 90 days past due as to principal or interest; however, management may
elect to continue the accrual when the estimated net realizable value of
collateral is sufficient to cover the principal balance and the accrued
interest. Interest on impaired loans is discontinued when, in management's
opinion, the borrower may be unable to meet payments as they become due. Any
unpaid interest previously accrued on nonaccrual loans is reversed from income
to charges to the allowance for loan losses. Interest income, generally, is not
recognized on specific impaired loans unless the likelihood of further loss is
remote. Interest payments received on such loans are applied as a reduction of
the loan principal balance. Interest income on other nonaccrual loans is
recognized only to the extent of interest payments received.
The fair values of loans, as disclosed in Note 16, are estimated for portfolios
of loans with similar financial characteristics. The fair values of certain
mortgage loans, such as one-to-four family residential properties, are based on
quoted market prices of similar loans sold in conjunction with securitization
transactions, adjusted for differences in loan characteristics. The fair values
of other types of loans are estimated by discounting the future cash flows using
the current rates at which similar loans would be made to borrowers with similar
credit ratings and for the same remaining maturities.
9
<PAGE>
CITIZENS HOLDING COMPANY AND SUBSIDIARY
Years Ended December 31, 1998, 1997 and 1996
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 1. CONTINUED
Bank Premises, Furniture, Fixtures, and Equipment
- -------------------------------------------------
Bank premises and equipment are stated at cost less accumulated depreciation
computed on the straight-line basis for buildings and on an accelerated method
for fixtures and equipment.
Real Estate Acquired by Foreclosure
- -----------------------------------
Real estate acquired by foreclosure consists of properties repossessed by the
Company on foreclosed loans. These assets are stated at the lower of the
outstanding loan amount (including accrued interest, if any) or fair value based
on appraised value at the date acquired less estimated costs to sell. Losses
arising from the acquisition of such property are charged against the allowance
for loan losses; declines in value resulting from subsequent reappraisals or
losses resulting from disposition of such property are expensed.
Deposits
- --------
The fair values of deposits with no stated maturity, such as noninterest-bearing
demand deposits, NOW accounts, MMDA products and savings accounts are, by
definition, equal to the amount payable on demand. This amount is commonly
referred to as the carrying value. Fair values for certificates of deposit
approximates carrying value.
Income Taxes
- ------------
Provisions for income taxes are based on taxes payable or refundable for the
current year (after exclusion of nontaxable income such as interest on state and
municipal securities) and deferred taxes on temporary differences between the
amount of taxable and pretax financial income and between the tax bases of
assets and liabilities and their reported amounts in the financial statements.
Deferred tax assets and liabilities are included in the financial statements at
currently enacted income tax rates applicable to the period in which the
deferred tax asset and liabilities are expected to be realized or settled as
described in FASB Statement No. 109, "Accounting for Income Taxes". As changes
in tax laws or rates are enacted, deferred tax assets and liabilities are
adjusted through the provision of income taxes.
The Company and its subsidiary file a consolidated Federal income tax return.
Its subsidiary provides for income taxes on a separate return basis, and remits
to the Company amounts determined to be currently payable.
10
<PAGE>
CITIZENS HOLDING COMPANY AND SUBSIDIARY
Years Ended December 31, 1998, 1997 and 1996
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 1. CONTINUED
Net Income Per Share
- --------------------
Net income per share of common stock is computed by dividing net income by the
weighted average number of common shares outstanding during the period. The
weighted average number of shares outstanding was 3,308,750 for each of the
years ended December 31, 1998, 1997 and 1996, respectively.
Off-Balance-Sheet Financial Instruments
- ---------------------------------------
In the ordinary course of business the Bank has entered into off-balance-sheet
financial instruments consisting of commitments to extend credit, and letters of
credit. Such financial instruments are recorded in the financial statements
when they become payable.
Goodwill
- --------
Goodwill, which resulted from the acquisition of the Kosciusko and Scooba
branches, is being amortized over an estimated useful life of fifteen years.
Investment - Insurance Company
- ------------------------------
The Company is accounting for its investment in New South Life Insurance
Company, a 20% owned affiliate, by the equity method of accounting. The
Company's share of the net income of the affiliate is recognized as income in
the Company's income statement and added to the investment account, and
dividends received from the affiliate are treated as a reduction of the
investment account.
The fiscal year of New South Life Insurance Company ends on November 30 and the
Company follows the practice of recognizing the net income of the affiliate on
that basis.
The investment, which is included in other assets, totaled $895,443 and $705,432
at December 31, 1998 and 1997, respectively. Income from the investment for the
years ended December 31, 1998, 1997 and 1996 included in other income totaled
$190,011, $176,114 and $142,943, respectively.
11
<PAGE>
CITIZENS HOLDING COMPANY AND SUBSIDIARY
Years Ended December 31, 1998, 1997 and 1996
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 2. INVESTMENT SECURITIES
The carrying amounts of investment securities as shown in the consolidated
statements of financial condition and their approximate market values at
December 31 were as follows:
1998
---------------------------------------------------
GROSS GROSS ESTIMATED
AMORTIZED UNREALIZED UNREALIZED FAIR
AVAILABLE-FOR-SALE COST GAINS LOSSES VALUE
- --------------------------------------------------------------------------------
U.S. Treasury Direct $ 36,837,158 $ 1,042,087 $ 110 $ 37,879,135
U.S. Agency 15,637,483 119,048 - 15,756,531
Mortgage backed securities 23,424,118 161,449 29,365 23,556,202
State, County and Municipals 13,262,688 201,894 36,446 13,428,136
Federal Home Loan Bank Stock 918,500 - - 918,500
---------------------------------------------------
$ 90,079,947 $ 1,524,478 $ 65,921 $ 91,538,504
===================================================
1997
---------------------------------------------------
GROSS GROSS ESTIMATED
AMORTIZED UNREALIZED UNREALIZED FAIR
AVAILABLE-FOR-SALE COST GAINS LOSSES VALUE
- --------------------------------------------------------------------------------
U.S. Treasury Direct $ 30,752,250 $ 592,665 $ 50 $ 31,344,865
U.S. Agency 15,198,263 78,290 15,881 15,260,672
Mortgage backed securities 14,111,650 234,961 10,209 14,336,402
State, County and Municipals 4,755,893 105,710 21,770 4,839,833
Federal Home Loan Bank Stock 1,510,500 - - 1,510,500
---------------------------------------------------
$ 66,328,556 $ 1,011,626 $ 47,910 $ 67,292,272
===================================================
U. S. Government and municipal securities with a carrying amount of $72,253,231
(market value $73,659,355) at December 31, 1998, and $61,301,916 (market value
$61,301,916) at December 31, 1997 were pledged to secure public and trust
deposits and for other purposes as required by law.
Total gross realized gains and gross realized losses from the sale of investment
securities for each of the years ended December 31 were:
1998 1997 1996
- -----------------------------------------------------------------
Gross realized gains $ 3,408 $ 51,990 $ -
Gross realized losses (22,349) (168,849) (47,382)
------------------------------------
$ (18,941) $ (116,859) $(47,382)
====================================
12
<PAGE>
CITIZENS HOLDING COMPANY AND SUBSIDIARY
Years Ended December 31, 1998, 1997 and 1996
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 2. CONTINUED
The carrying amounts and fair values of the maturities of investment securities
at December 31, 1998 were as follows:
CARRYING FAIR
AMOUNT VALUE
- ---------------------------------------------------------------
Due in one year or less $ 24,341,068 $ 24,523,898
Due in one to five years 48,285,982 49,484,997
Due from five to ten years 9,010,667 9,106,202
Due after ten years 8,442,230 8,423,408
-------------------------------
$ 90,079,947 $ 91,538,504
===============================
The amortized cost and fair value of mortgaged-backed securities are presented
by contractual maturity in the preceding table. Expected maturities will differ
from contractual maturities because borrowers may have the right to call or
prepay obligations without call or prepayment penalties.
NOTE 3. LOANS
The components of loans in the consolidated balance sheets were as follows:
1998 1997
CARRYING CARRYING
AMOUNT AMOUNT
- ----------------------------------------------------------------------
Commercial, financial and agricultural $ 98,956,147 $ 90,690,515
Real estate - construction 6,644,663 4,533,188
Real estate - mortgage 58,637,604 54,119,088
Consumer 49,733,697 47,465,549
------------------------------
213,972,111 196,808,340
------------------------------
Unearned discount (2,622,695) (2,503,626)
Allowance for loan losses (2,900,000) (2,700,000)
------------------------------
Loans, net $ 208,449,416 $ 191,604,716
==============================
Changes in the reserve for possible loan losses were summarized as follows:
1998 1997
- ----------------------------------------------------------------------
Balance at January 1 $ 2,700,000 $ 2,500,000
Recoveries on loans previously charged-off 233,278 247,689
Loans charged-off (879,744) (787,998)
Provision charged to expense 846,466 740,309
------------------------------
Balance at December 31, $ 2,900,000 $ 2,700,000
==============================
13
<PAGE>
CITIZENS HOLDING COMPANY AND SUBSIDIARY
Years Ended December 31, 1998, 1997 and 1996
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 3. CONTINUED
Loans on nonaccrual status amounted to approximately $649,353, $344,000 and
$215,241 at December 31, 1998, 1997 and 1996, respectively. The effect of such
loans was to reduce net income by approximately $135,049, $32,305 and $21,261 in
1998,1997 and1996, respectively. No loans have been recognized as impaired in
conformity with FASB Statement 114 for 1998 and 1997.
NOTE 4. PREMISES, FURNITURE, FIXTURES AND EQUIPMENT
Components of premises, furniture, fixtures and equipment included in the
consolidated balance sheets at December 31, 1998, 1997 and 1996 were as follows:
1998 1997
- ------------------------------------------------------------------
Cost
Land $ 746,968 $ 746,968
Buildings 5,498,898 5,357,170
Furniture & equipment 4,129,692 3,638,547
--------------------------
Total cost 10,375,558 9,742,685
Less accumulated depreciation 5,941,906 5,491,866
--------------------------
Bank premises, furniture, fixtures
and equipment, net $ 4,433,652 $ 4,250,819
==========================
Depreciation expense amounted to $450,039, $402,071 and $366,170 for the years
ended December 31, 1998, 1997 and 1996, respectively.
NOTE 5. INCOME TAXES
The consolidated provision for income taxes consisted of the following:
1998 1997
- ------------------------------------------------------------------
Currently payable
Federal $ 2,370,478 $ 2,422,779
State 229,418 255,709
--------------------------
2,599,896 2,678,488
Deferred federal (benefit) (113,214) (117,793)
--------------------------
Total income tax expense $ 2,486,682 $ 2,560,695
==========================
14
<PAGE>
CITIZENS HOLDING COMPANY AND SUBSIDIARY
Years Ended December 31, 1998, 1997 and 1996
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 5. CONTINUED
The differences between the federal statutory rate and the effective tax rates
for 1998, 1997 and 1996 were as follows:
1998 1997 1996
- --------------------------------------------------------------------------------
Federal tax based on statutory rate $ 2,447,700 $ 2,310,150 $ 2,218,167
State income tax 151,416 255,708 277,195
Change due to:
Tax exempt investment interest (146,507) (82,050) (113,676)
Minority interest 46,424 56,141 54,738
Other, net (12,351) 20,745 (29,424)
----------------------------------------
Income taxes $ 2,486,682 $ 2,560,695 $ 2,407,000
========================================
The net deferred tax asset at December 31 consisted of the following:
1998 1997
- --------------------------------------------------------------------------------
Allowance for loan losses $ 763,493 $ 635,139
Deferred compensation liability 244,415 214,306
Other real estate 7,401 5,510
Investment securities basis (141,037) (94,910)
Unrealized gain or loss on available
for sale securities (495,909) (327,663)
-------------------------
$ 378,363 $ 432,382
=========================
The net deferred tax assets is included in other assets. A valuation allowance
was not considered necessary at December 31, 1998 and 1997.
NOTE 6. DEPOSITS
The aggregate amount of time deposits, each with a minimum denomination of
$100,000, was approximately $59,600,591 and $44,823,621 in 1998 and 1997,
respectively.
At December 31, 1998, the scheduled maturities of time deposits are were
follows:
- --------------------------------------------------------------------------------
1999 $ 142,285,782
2000 10,260,749
2001 4,056,182
2003 158,133
-------------
$ 156,760,846
=============
15
<PAGE>
CITIZENS HOLDING COMPANY AND SUBSIDIARY
Years Ended December 31, 1998, 1997 and 1996
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 7. INVESTMENT IN NEW SOUTH LIFE INSURANCE COMPANY
Condensed financial information of New South Life Insurance Company as of
November 30, 1998 and 1997 and for the years ended November 30, 1998, 1997 and
1996 was as follows:
1998 1997
- --------------------------------------------------------------------------------
Assets
Cash $ 358,153 $ 254,246
Investments 4,846,909 4,309,958
Deferred acquisition costs 781,928 556,062
Other assets 835 77,334
-------------------------
Total assets $ 5,987,825 $ 5,197,600
=========================
Liabilities and Stockholders' Equity
Unearned premium reserves $ 1,885,097 $ 1,916,933
Claims liability 135,613 192,456
Income taxes payable 139,678 84,182
Other liabilities 48,617 18,366
-------------------------
2,209,005 2,211,937
-------------------------
Common stock 250,000 250,000
Preferred stock 400,000 400,000
Paid-in capital 600,000 600,000
Retained earnings 2,528,820 1,735,663
-------------------------
3,778,820 2,985,663
-------------------------
Total liabilities and stockholders' equity $ 5,987,825 $ 5,197,600
=========================
1998 1997 1996
- -------------------------------------------------------------------------------
Income
Insurance premiums earned $ 358,633 $ 1,402,455 $ 1,255,656
Investment income 69,870 227,066 201,283
-------------------------------------
Total income 428,503 1,629,521 1,456,939
-------------------------------------
Expenses
Claims incurred 13,030 311,134 268,177
Commissions and service
fees incurred 165,619 466,469 433,156
Other expenses 15,266 63,999 43,774
Income taxes 50,436 166,300 249,124
-------------------------------------
Total expenses 244,351 1,007,902 994,231
-------------------------------------
Net income $ 184,152 $ 621,619 $ 462,708
=====================================
16
<PAGE>
CITIZENS HOLDING COMPANY AND SUBSIDIARY
Years Ended December 31, 1998, 1997 and 1996
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 8. SUMMARIZED FINANCIAL INFORMATION OF CITIZENS HOLDING COMPANY
Summarized financial information of Citizens Holding Company, parent company
only, at December 31, 1998, 1997 and 1996, was as follows:
Balance Sheets
December 31, 1998, 1997 and 1996
1998 1997 1996
- --------------------------------------------------------------------------------
Assets
Cash $ 278,156 $ 199,029 $ 256,539
Investment securities
available-for-sale 1,308,605 1,201,250 1,047,992
Investment in bank subsidiary 33,975,863 29,882,806 25,508,774
Other assets 21,235 24,737 20,789
-----------------------------------------
Total assets $ 35,583,859 $ 31,307,822 $26,834,094
=========================================
Liabilities
Income taxes payable - current $ 50,424 $ 66,820 $ 23,038
Other liabilities 78,126 20,521 52,695
-----------------------------------------
128,550 87,341 75,733
-----------------------------------------
Stockholders' Equity 35,455,309 31,220,481 26,758,361
-----------------------------------------
Total liabilities and
stockholders' equity $ 35,583,859 $ 31,307,822 $26,834,094
=========================================
Income Statements
Years Ended December 31, 1998, 1997 and 1996
1998 1997 1996
- --------------------------------------------------------------------------------
Interest income Assets $ 88,827 $ 81,086 $ 58,500
Interest expense 1,151 333 4,257
-----------------------------------------
Net interest income 87,676 80,753 54,243
-----------------------------------------
Other income
Other 114,201 31,504 34,827
Equity in undistributed earnings
of subsidiary 4,634,119 4,462,364 4,350,859
-----------------------------------------
Total other income 4,748,320 4,493,868 4,385,686
-----------------------------------------
Other expense 77,138 18,228 22,676
-----------------------------------------
Income before income taxes 4,758,858 4,556,393 4,417,253
-----------------------------------------
Income tax benefit 46,423 66,820 23,038
-----------------------------------------
Net income $ 4,712,435 $ 4,489,573 $ 4,394,215
=========================================
17
<PAGE>
CITIZENS HOLDING COMPANY AND SUBSIDIARY
Years Ended December 31, 1998, 1997 and 1996
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 8. CONTINUED
Statements of Cash Flows
Years Ended December 31, 1998, 1997 and 1996
<TABLE>
<CAPTION>
1998 1997 1996
- -------------------------------------------------------------------------------------
<S> <C> <C> <C>
Cash Flows from Operating Activities
Net income $ 4,712,435 $ 4,489,573 $ 4,394,215
Adjustments to reconcile net income to
net cash provided by operating
activities
(Increase) decrease in other assets 3,502 (3,948) 18,892
Increase (decrease) in income
taxes payable (16,396) 43,782 5,594
Increase (decrease) in other
liabilities 57,605 (32,174) (28,122)
----------------------------------------
Net cash provided by
operating activities 4,757,146 4,497,233 4,390,579
----------------------------------------
Cash Flows from Investing Activities
Increase in investment securities
available for sale 209,138 381,777 (137,012)
Increase in investment in bank subsidiary (4,093,057) (4,374,032) (3,668,916)
----------------------------------------
Net cash used by
operative activities (3,883,919) (3,992,255) (3,805,928)
----------------------------------------
Cash Flows from Financing Activities
Dividends paid to stockholders (794,100) (562,488) (496,313)
----------------------------------------
Net increase or (decrease) in cash 79,127 (57,510) 88,338
Cash, beginning of year 199,029 256,539 168,201
----------------------------------------
Cash, end of year $ 278,156 $ 199,029 $ 256,539
========================================
</TABLE>
NOTE 9. LEASES
The Bank leases computer equipment and some branch facilities under operating
leases. Rent expense was $43,767, $43,611 and $36,430 for 1998, 1997 and 1996,
respectively. At December 31, 1998, the future minimum lease commitments for
leases which have terms in excess of 1 year are:
1999 $ 9,250
18
<PAGE>
CITIZENS HOLDING COMPANY AND SUBSIDIARY
Years Ended December 31, 1998, 1997 and 1996
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 10. RELATED PARTY TRANSACTIONS
During the ordinary course of business, the Bank has made loans to its directors
and significant stockholders and their 10% or more owned businesses. As of
December 31, 1998, 1997 and 1996, these loans totaled $2,412,957 and $2,254,333,
respectively. During 1998, new loans to such related parties amounted to
$844,720 and repayments amounted to $734,211. The Bank has received commissions
related to credit life insurance for the years ending December 31, 1998, 1997
and 1996 totaling $108,382, $61,686 and $45,174, respectively.
NOTE 11. PROFIT SHARING PLAN
The Bank has a profit sharing and savings plan in effect for substantially all
full-time employees.
Under the profit sharing and savings plan, the Bank automatically contributes an
amount equal to 2.7% of each participant's base salary to the plan. A
participant, in addition, may elect to make contributions to the plan. The Bank
matches 100% of employee contributions up to a limit of 6% of each employee's
salary.
The Bank's contributions to the profit sharing plan in 1998, 1997 and 1996,
respectively, totaled $238,104, $217,932 and $196,675.
NOTE 12. CONCENTRATIONS OF CREDIT RISK
All of the Bank's loans, commitments, and letters of credit have been granted to
customers in the Bank's market area. All such customers are depositors of the
Bank. Investments in state and municipal securities also involve governmental
entities within the Bank's market area. The concentrations of credit by type of
loan are set forth in Note 3. The distribution of commitments to extend credit
approximates the distribution of loans outstanding. Letters of credit were
granted primarily to commercial borrowers.
At times the Bank has balances in due from bank accounts in excess of federal
deposit insurance limits.
NOTE 13. COMMITMENTS AND CONTINGENCIES
In the normal course of business, various commitments and contingent liabilities
are outstanding, such as guarantees and commitments to extend credit, that are
not reflected in the accompanying consolidated financial statements. At
December 31, 1998, 1997 and 1996, a summary of such commitments and contingent
liabilities is as follows:
19
<PAGE>
CITIZENS HOLDING COMPANY AND SUBSIDIARY
Years Ended December 31, 1998, 1997 and 1996
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 13. CONTINUED
1998 1997 1996
- --------------------------------------------------------------------------------
Commitments to extend credit $ 20,702,966 $ 16,283,342 $ 11,836,931
Letters of credit 290,025 362,000 1,134,132
------------------------------------------------
$ 20,992,991 $ 16,645,342 $ 12,971,063
================================================
Commitments to extend credit, and letters of credit all include exposure to some
credit loss in the event of nonperformance of the customer. The Bank's credit
policies and procedures for credit commitments and financial guarantees are the
same as those for extension of credit that are recorded on the consolidated
statements of financial condition. Because these instruments have fixed
maturity dates, and because many of them expire without being drawn upon, they
do not generally present any significant liquidity risk to the Bank. The Bank's
experience has been that approximately fifty-four percent of loan commitments
are drawn upon by customers. When letters of credit are utilized, a significant
portion of such utilization is on an immediate payment basis. The Bank has not
been required to perform on any financial guarantees during the past two years.
The Bank has not incurred any losses on its commitments in 1998, 1997 or 1996.
NOTE 14. REGULATORY MATTERS
The Bank is subject to various regulatory capital requirements by the federal
banking agencies. Failure to meet minimum capital requirements can initiate
certain mandatory--and possibly additional discretionary--actions by regulators
that, if undertaken, could have a direct material effect on the Bank's financial
statements. Under capital adequacy guidelines and the regulatory framework for
prompt corrective action, the Bank must meet specific capital guidelines that
involve quantitative measures of the Bank's assets, liabilities, and certain
off-balance sheet items as calculated under regulatory accounting practices.
The Bank's capital amounts and classification are also subject to qualitative
judgments by the regulators about components, risk weightings, and other
factors.
Quantitative measures established by regulation to ensure capital adequacy
require the Bank to maintain minimum amounts and ratios (set forth in the table
below) of total and Tier I capital (as defined in the regulations) to risk-
weighted assets (as defined), and of Tier I capital (as defined) to average
assets (as defined). Management believes, as of December 31, 1998, that the
Bank meets all capital adequacy requirements to which it is subject.
As of June 30, 1998, the most recent notification from the Federal Deposit
Insurance Corporation categorized the Bank as "well capitalized" under the
regulatory framework for prompt corrective action. To be categorized as
"adequately capitalized" the Bank must maintain minimum total risk-based, Tier I
risk-based, and Tier I leverage ratios as set forth in the table. There are no
conditions or events since the notification that management believes have
changed the institution's category.
20
<PAGE>
CITIZENS HOLDING COMPANY AND SUBSIDIARY
Years Ended December 31, 1998, 1997 and 1996
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 14. CONTINUED
The Bank's (rounded to the nearest thousand) capital amounts and ratios are also
presented in the table.
<TABLE>
<CAPTION>
TO BE WELL
FOR CAPITAL CAPITALIZED UNDER PROMPT
ACTUAL ADEQUACY PURPOSES CORRECTIVE ACTION PROVISIONS
----------------------------------------------------------------------------------
AMOUNT RATIO AMOUNT RATIO AMOUNT RATIO
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
As of December 31, 1998
Total Capital
(to Risk-Weighted Assets) $ 37,606,000 18.13% $ 16,595,000 8.0% $ 20,744,000 10.0%
Tier I Capital
(to Risk-Weighted Assets) $ 35,009,000 16.88% $ 8,297,000 4.0% $ 12,446,000 6.0%
Tier I Capital
(to average Assets) $ 35,009,000 10.61% $ 13,204,000 4.0% $ 16,504,000 5.0%
</TABLE>
NOTE 15. FAIR VALUES OF FINANCIAL INSTRUMENTS
The fair value estimates, methods and assumptions used by the Bank in estimating
its fair value disclosures for financial instruments were:
<TABLE>
<CAPTION>
DECEMBER 31, 1998 DECEMBER 31, 1997
--------------------------------------------------------------
CARRYING FAIR CARRYING FAIR
AMOUNT VALUE AMOUNT VALUE
- -------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Financial Assets
Cash and due from banks $ 15,234,594 $ 15,234,594 $ 10,025,883 $ 10,025,883
Interest bearing
deposits with banks 1,063,244 1,063,244 147,441 147,441
Federal Funds Sold 4,500,000 4,500,000 5,500,000 5,500,000
Securities available for sale 91,538,504 91,538,504 67,292,272 67,292,272
Loans receivable 208,449,416 209,080,983 191,604,716 191,316,224
Accrued interest receivable 3,697,109 3,697,109 3,153,868 3,153,866
Financial Liabilities
Deposits 282,942,228 28,942,228 249,683,545 249,683,545
Federal funds purchased 10,000,000 10,000,000 - -
ABE loans 2,416,327 2,416,327 2,488,319 2,488,319
Off Balance Sheet
Instruments
Commitments to extend credit - -
Letters of Credit 2,900 3,620
</TABLE>
CASH AND DUE FROM BANKS: The carrying amounts reported in the balance sheet for
cash and short-term instruments approximate those assets' fair values.
INVESTMENT SECURITIES (INCLUDING MORTGAGE-BACKED SECURITIES): Fair values for
investment securities are based on quoted market prices, where available. If
quoted market prices are not available, fair values are based on quoted market
prices of comparable instruments.
21
<PAGE>
CITIZENS HOLDING COMPANY AND SUBSIDIARY
Years Ended December 31, 1998, 1997 and 1996
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 15. CONTINUED
LOANS RECEIVABLE: For variable-rate loans that reprice frequently and with no
significant change in credit risk, fair values are based on carrying values.
The fair values for other loans (e.g., commercial real estate and rental
property mortgage loans, commercial and industrial loans, financial institution
loans, and agricultural loans) are estimated using discounted cash flow
analyses, using interest rates currently being offered for loans with similar
terms to borrowers of similar credit quality. The carrying amount of accrued
interest approximates its fair value.
DEPOSIT LIABILITIES: The fair values for demand deposits, NOW and money market
accounts and savings accounts are, by definition, equal to the amount payable on
demand at the reporting date (i.e., their carrying amounts). The carrying
amounts for variable-rate, fixed-term money market accounts and time deposits
approximate their fair values at the reporting date. Fair values for fixed-rate
time deposits are estimated using a discounted cash flow calculation that
applies interest rates currently being offered on certificates to a schedule of
aggregated expected monthly maturities on time deposits.
LONG-TERM BORROWINGS: The fair values of the Bank's long-term borrowings (other
than deposits) are estimated using discounted cash flow analyses, based on the
Bank's current incremental borrowing rates for similar types of borrowing
arrangements.
SHORT-TERM BORROWINGS: The carrying amounts of other borrowed funds approximate
their fair values.
OFF-BALANCE SHEET INSTRUMENTS: The fair value of commitments to extend credit
and letters of credit are estimated using fees currently charged to enter into
similar agreements.
NOTE 16. YEAR 2000 ISSUE
The Company is conducting a comprehensive review of its computer systems to
identify the systems that could be affected by the Year 2000 Issue, and is
developing an implementation plan to resolve the Issue.
The Issue is whether computer systems will properly recognize date-sensitive
information when the year changes to 2000. Systems that do not properly
recognize such information could generate erroneous data or cause a system to
fail or miscalculate. The Company is heavily dependent on computer processing
that is date-sensitive in the conduct of its business activities.
Based on the review of the computer systems, management does not believe the
cost of remediation will be material to the Company's financial statements.
22
<PAGE>
CITIZENS HOLDING COMPANY AND SUBSIDIARY
Years Ended December 31, 1998, 1997 and 1996
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 17. COMMON STOCK SPLIT
On January 1, 1999, the Company reduced the par value of its common stock from
$1 per share to $.20 per share and issued the 2,647,000 additional shares
necessary to effect a 5-for-1 common stock split. The earnings per common share
for the years ended December 31, 1998, 1997 and 1996 have been retroactively
adjusted for this split as if it occurred on January 1, 1996.
NOTE 18. NEW ACCOUNTING PRONOUNCEMENT ADOPTED
The Financial Accounting Standards Board issued Statement No. 130 which requires
the reporting and display of comprehensive income and its components in the
financial statements. The statement requires that an enterprise (1) classify
items of other comprehensive income by their nature in the financial statements
and (b) display the accumulated balance of other comprehensive income separately
from retained earnings and additional paid-in capital in the equity section of
the balance sheet. The Company adopted Statement No. 130 during the current
year.
23
<PAGE>
EXHIBIT 3(i)
ARTICLES OF INCORPORATION,
AS AMENDED
<PAGE>
STATE OF MISSISSIPPI
[SHIELD APPEARS HERE]
OFFICE OF SECRETARY OF STATE
JACKSON
CERTIFICATE OF INCORPORATION
OF
CITIZENS HOLDING COMPANY
The undersigned, as Secretary of State of the State of Mississippi,
hereby certifies that duplicate originals of Articles of Incorporation for the
above named corporation duly signed and verified pursuant to the provisions of
the Mississippi Business Corporation Act, have been received in this office and
are found to conform to law.
ACCORDINGLY the undersigned, as such Secretary of State, and by virtue
of the authority vested in him by law, hereby issues this CERTIFICATE OF
INCORPORATION, and attaches hereto a duplicate original of the Articles of
Incorporation.
[SEAL Given under my hand and Seal of Office,
APPEARS this the 16th day of February 1982.
[HERE]
/s/ EDWIN LLOYD PITTMAN
-----------------------------------
SECRETARY OF STATE
<PAGE>
ARTICLES OF INCORPORATION
OF
CITIZENS HOLDING COMPANY
We, the undersigned persons of the age of twenty-one years or more,
acting as incorporators of a corporation under the Mississippi Business
Corporation Act, adopt the following Articles of Incorporation for such
corporation:
FIRST: The name of the corporation is Citizens Holding Company.
SECOND: The period of its duration is ninety-nine (99) years.
THIRD: The specific purpose or purposes for which the corporation is
organized stated in general terms are:
Primarily, to purchase, own and hold the stock of other corporations,
and to do every act and thing covered generally by the denomination
"holding corporation" or "holding company," and especially to direct the
operations of other corporations through the ownership of stock therein;
to purchase, subscribe for, acquire, own, hold, sell, exchange, assign,
transfer, create security interest in, pledge or otherwise dispose of
shares of the capital stock, or any bonds, notes, securities or
evidences of indebtedness created by any other corporation or
corporations organized under the laws of this state or any other state
or district or country, nation or government and also bonds or evidences
of indebtedness of the United States or any other state, district,
territory, dependency or country or subdivision or municipality thereof;
to issue in exchange therefor shares of the capital stock, bonds, notes
or other obligations of the corporation and while the owner thereof to
exercise all the rights, powers and privileges of ownership including
the right to vote on any shares of stock; to promote, lend money to and
guarantee the bonds, notes, evidences of indebtedness, contracts or
other obligations of, and otherwise aid in any manner which shall be
lawful, any corporation or association of which any bonds, stocks or
other securities or evidences of indebtedness shall be held by or for
this corporation, or in which, or in the welfare of which, this
corporation shall have any interest, and to do any acts and things
permitted by law and designed to protect, preserve, improve or enhance
the value of any such bonds, stocks or other securities or evidences of
indebtedness or the property of this corporation.
And, to engage in such activities or businesses as may from time to time
be permitted by State or Federal statutes, regulations or authorities,
including, but not limited to, the business of acting as agent or broker
for insurance companies in soliciting and receiving application for any
and all types of insurance, collecting premiums and doing such other
business as may be delegated to agents or brokers by such insurance
companies and to conduct an insurance agency and insurance brokerage
business.
To do any and all things and exercise any and all powers, rights and
privileges which the corporation may now or hereafter be authorized to
do under the Mississippi Business Corporation Act.
This page conforms with the duplicate
original filed with Secretary of State.
/s/ EDWIN LLOYD PITTMAN
Secretary of State
State of Mississippi
<PAGE>
FOURTH: The aggregate number of shares which the corporation shall have
authority to issue is 150,000 of the par value of Five Dollars ($5.00) each.
FIFTH: The corporation will not commence business until consideration of
the value of at least $1,000 has been received for the issuance of shares.
SIXTH: The post office address of its initial registered office is 521
Main Street, P.O. Box 209, Philadelphia, Mississippi 39350, and the name of its
initial registered agent at such address is Steve Webb.
SEVENTH: The number of directors constituting the initial board of
directors of the corporation, which must not be less than three (3), is nine (9)
and the names and addresses of the persons who are to serve as directors until
the first annual meeting of shareholders or until their successors are elected
and shall qualify are:
NAME STREET AND POST OFFICE ADDRESS
D. Allan King P.O. Box 209, 514 Rose,
Philadelphia, MS 39350
Herman Alford P.O. Box 96, 313 West Beech,
Philadelphia, MS 39350
W.W. Dungan P.O. Box 647, 502 Church,
Philadelphia, MS 39350
Norman A. Johnson, Jr. P.O. Box 209, 506 Peebles
Philadelphia, MS 39350
George R. Mars P.O. Box 184, Woodland Hills,
Philadelphia, MS 39350
William M. Mars P.O. Box 96, 517 Holland Ave.,
Philadelphia, MS 39350
Willis R. McKee Route 1, Box 75,
Philadelphia, MS 39350
Steve Webb P.O. Box 209, 534 Poplar Ave.,
Philadelphia, MS 39350
W.G. Yates, Sr. P.O. Box 54, 450 Pecan Ave.,
Philadelphia, MS 39350
EIGHTH: The name and post office address of each incorporator is:
NAME STREET AND POST OFFICE ADDRESS
D. Allan King P.O. Box 209, 514 Rose,
Philadelphia, MS 39350
Steve Webb P.O. Box 209, 534 Poplar Ave.,
Philadelphia, MS 39350
DATED: February 15, 1982 /s/ D. ALLAN KING
--------------------------------------
D. Allan King, Incorporator
/s/ STEVE WEBB
--------------------------------------
Steve Webb, Incorporator
This page conforms with the duplicate
original filed with Secretary of State.
/s/ EDWIN LLOYD PITTMAN
Secretary of State
State of Mississippi
2
<PAGE>
ACKNOWLEDGMENT
STATE OF MISSISSIPPI
COUNTY OF HINDS
This day personally appeared before me, the undersigned authority within
and for the aforesaid jurisdiction, D. Allan King and Steve Webb, incorporators
of the corporation known as the Citizens Holding Company who acknowledged that
they signed and executed the above and foregoing Articles of Incorporation as
their act and deed on this the 15th day of February, 1982.
/s/ DEBRA MITCHELL
--------------------------
Notary Public
My Commission Expires:
My Commission Expires Jan. 18, 1984
- -----------------------------------
(NOTARY SEAL)
This page conforms with the duplicate
original filed with Secretary of State.
/s/ EDWIN LLOYD PITTMAN
Secretary of State
State of Mississippi
3
<PAGE>
STATE OF MISSISSIPPI
NESHOBA COUNTY
I, Bobby G. Posey, Chancery Clerk and Ex-officio Recorder in and for
said State and County, hereby certify that the foregoing instrument was filed
for record at 2:20 o'clock P.M. on the 18th day of February, 1982 and duly
recorded in Charter of Incorporation Book A-130 Pages 281-284, each inclusive of
the records of this office.
Given under my hand and seal of office, this the 18th day of February,
1982.
/s/ BOBBY G. POSEY Clerk
------------------
By: /s/ M. Croswell D.C.
-------------------
<PAGE>
STATE OF MISSISSIPPI
[SHIELD APPEARS HERE]
OFFICE OF SECRETARY OF STATE
JACKSON
CERTIFICATE OF AMENDMENT
OF
CITIZENS HOLDING COMPANY
The undersigned, as Secretary of State of the State of Mississippi,
hereby certifies that duplicate originals of Articles of Amendment to the
Articles of Incorporation of the above corporation duly signed and verified
pursuant to the provisions of the Mississippi Business Corporation Act, have
been received in this office and are found to conform to law.
ACCORDINGLY the undersigned, as such Secretary of State, and by virtue
of the authority vested in him by law, hereby issues this Certificate of
Amendment to the Articles of Incorporation and attaches hereto a duplicate
original of the Articles of Amendment.
[SEAL Given under my hand and Seal of Office,
APPEARS this the 30th day of April 1982.
[HERE]
/s/ EDWIN LLOYD PITTMAN
-----------------------------------
SECRETARY OF STATE.
<PAGE>
(TO BE EXECUTED IN DUPLICATE)
ARTICLES OF AMENDMENT
TO THE
ARTICLES OF INCORPORATION
OF
CITIZENS HOLDING COMPANY
Pursuant to the provisions of Section 61 of the Mississippi Business
Corporation Act, the undersigned corporation adopts the following Articles of
Amendment to its Articles of Incorporation:
FIRST: The name of this corporation is Citizens Holding Company.
SECOND: The following amendment of the Articles of Incorporation was
adopted by the shareholders of the corporation on April 28, 1982, in the manner
prescribed by the Mississippi Business Corporation Act:
The Articles of Incorporation are amended to add the following ARTICLE
NINTH:
NINTH: If any person, firm, or corporation, (herein referred to as the
Tender Offeror) or any person, firm, or corporation controlling the Tender
Offeror, controlled by the Tender Offeror, or under common control with the
Tender Offeror, or any group of which the Tender Offeror or any of the foregoing
persons, firms, or corporations are members, or any other group controlling the
Tender Offeror, controlled by the Tender Offeror, or under common control with
the Tender Offeror owns of record, or owns beneficially, directly
or indirectly, more than 10% of any class of equity voting security of this
Corporation with the Tender Offeror, then any merger or consolidation of this
corporation with the Tender Offeror, or any sale, lease, or exchange of
substantially all of the assets of this Corporation or of the Tender Offeror to
the other may not be effected under the laws of Mississippi unless a meeting of
the shareholders of this Corporation is held to vote thereon and the votes of
the holders of voting securities of this Company representing not less than 80%
of the votes entitled to vote thereon, vote in favor thereof. As used herein,
the term group includes persons, firms, and corporations acting in concert,
whether or not as a formal group, and the term equity security means any share
or similar security; or any security convertible, with or without consideration,
into such a security, or carrying any warrant to subscribe to or purchase such a
security; or any such warrant or right. The foregoing provision is to require a
greater vote of shareholders than is required by Mississippi Code of 1972
Section 79-3-145 (dealing with mergers and consolidations) and Section 79-3-157
(dealing with sales, mortgages, etc. of assets outside the ordinary course of
business) and the provisions of this Article NINTH shall not be amended, changed
or repealed without a similar 80% vote of the voting securities in this
Corporation, which is a greater vote than required by Mississippi Code of 1972
Section 79-3-117 (dealing with amendments to these Articles of Incorporation).
This page conforms with the duplicate
original filed with Secretary of State.
/s/ EDWIN LLOYD PITTMAN
Secretary of State
State of Mississippi
-1-
<PAGE>
THIRD: The number of shares of the corporation outstanding at the time
of such adoption was Two Hundred (200); and the number of shares entitled to
vote thereon was Two Hundred (200).
FOURTH: The designation and number of outstanding shares of each class
entitled to vote thereon as a class were as follows:
Class Number of Shares
Common 200
FIFTH: The number of shares voted for such amendment was 200; and the
number of shares voted against such amendment was -0-.
SIXTH: The number of shares of each class entitled to vote thereon as a
class voted for and against such amendment, respectively was:
Number of Shares Voted
Class For Against
Common 200 -0-
SEVENTH: The manner, if not set forth in such amendment, in which any
exchange, reclassification, or cancellation of issued shares provided for in
the amendment shall be effected, is as follows:
No Change
This page conforms with the duplicate
original filed with Secretary of State.
/s/ EDWIN LLOYD PITTMAN
Secretary of State
State of Mississippi
-2-
<PAGE>
EIGHTH: The manner in which such amendment effects a change in the
amount of stated capital (expressed in dollars) as changed by such amendment,
are as follows:
No Change
Dated April 28, 1982
CITIZENS HOLDING COMPANY
By /s/ STEVE WEBB
------------------------------
Steve Webb, President
By /s/ JEAN S. FULTON
------------------------------
Jean S. Fulton, Secretary
STATE OF MISSISSIPPI
COUNTY OF NESHOBA
I, Lucille M. Myatt, a notary public, do hereby certify that on this
28th day of April, 1982, personally appeared before me Steve Webb and Jean S.
Fulton, who, being by me first duly sworn, declared that they are the President
and Secretary of Citizens Holding Company, that they executed the foregoing
document as President and Secretary of the corporation, and that the statements
therein contained are true.
/s/ LUCILLE M. MYATT
-----------------------------------
Notary Public
[SEAL]
My commission expires 9/13/84
---------
(Notary Seal)
This page conforms with the duplicate
original filed with Secretary of State.
/s/ EDWIN LLOYD PITTMAN
Secretary of State
State of Mississippi
-3-
<PAGE>
THE STATE OF MISSISSIPPI
NESHOBA COUNTY
Personally appeared before me, the undersigned authority in and for the
above state and county, Stanley Dearman, Publisher of The Neshoba Democrat, a
newspaper published in the city of Philadelphia, in aforesaid county and state,
and having a general circulation therein, AND HAVING BEEN ESTABLISHED FOR MORE
THAN 12 MONTHS NEXT PRIOR TO THE FIRST PUBLICATION OF THE ATTACHED NOTICE AND
BEING A LEGAL PUBLICATION AS DEFINED BY SENATE BILL NO. 318 OF THE LAWS OF 1936
OF THE STATE OF MISSISSIPPI, and who, being by me first duly sworn, says on oath
that the notice, a copy of which is hereto attached, was published in said
newspaper as follows, to-wit:
In Volume 101 Number 20 dated 5-20 1982
In Volume ___ Number __ dated ____ 19__
In Volume ___ Number __ dated ____ 19__
In Volume ___ Number __ dated ____ 19__
In Volume ___ Number __ dated ____ 19__
In Volume ___ Number __ dated ____ 19__
/s/ STANLEY DEARMAN
_____________________________________________ Affiant
Sworn to and subscribed before me this the 20th day of May A.D. 1982
Notary Public
_________________________________________ Title
/s/ CAROLYN M. DEARMAN
_________________________________________ Name
My commission expires December 1, 1984 (Seal)
5-27-82, 9:30 A.M. Bill: Lawyer & Growlary
Attorneys
P.O. Box 12468
Jackson, MS 39211
STATE OF MISSISSIPPI
NESHOBA COUNTY
I, Bobby G. Posey, Chancery Clerk and Ex-Officio Recorder in and for
said State and county, hereby certify that the foregoing instrument was filed
for record at 9:30 o'clock A.M. on the 27th day of May 1982, and duly recorded
in Book A-130 Page 355-359 of the records of this office.
Given under my hand and seal of office, this the 27th day of May, 1982.
/s/ BOBBY G. POSEY Clerk
------------------------------
/s/ M. CROSWELL D.C.
------------------------------
<PAGE>
STATE OF MISSISSIPPI
[SHIELD APPEARS HERE]
OFFICE OF SECRETARY OF STATE
JACKSON
CERTIFICATE OF AMENDMENT
OF
CITIZENS HOLDING COMPANY
The undersigned, as Secretary of State of the State of Mississippi,
hereby certifies that duplicate originals of Articles of Incorporation for the
above named corporation duly signed and verified pursuant to the provisions of
the Mississippi Business Corporation Act, have been received in this office and
are found to conform to law.
ACCORDINGLY the undersigned, as such Secretary of State, and by virtue
of the authority vested in him by law, hereby issues this CERTIFICATE OF
INCORPORATION, and attaches hereto a duplicate original of the Articles of
Incorporation.
[SEAL Given under my hand and Seal of Office,
APPEARS this the 26th day of January 1983.
[HERE]
/s/ EDWIN LLOYD PITTMAN
-----------------------------------
SECRETARY OF STATE.
EXHIBIT A
<PAGE>
(TO BE EXECUTED IN DUPLICATE)
ARTICLES OF AMENDMENT
TO THE
ARTICLES OF INCORPORATION
OF
CITIZENS HOLDING COMPANY
Pursuant to the provisions of Section 61 of the Mississippi Business
Corporation Act, the undersigned corporation adopts the following Articles of
Amendment to its Articles of Incorporation:
FIRST: The name of the corporation is Citizens Holding Company.
SECOND: The following amendment of the Articles of Incorporation was
adopted by the shareholders of the corporation on January 11, 1983, in the
manner prescribed by the Mississippi Business Corporation Act:
The Articles of Incorporation are amended to add the following ARTICLE
TENTH:
TENTH: Citizens Holding Company shall have the right to
purchase its own shares to the extent of its unreserved
and unrestricted earned surplus and capital surplus
available therefor.
THIRD: The number of shares of the corporation outstanding at the time
of such adoption was 99,825; and the number of shares entitled to vote thereon
was 99,825.
FOURTH: The designation and number of outstanding shares of each class
entitled to vote thereon as a class were as follows:
Class (If inapplicable insert Number of Shares
"None".)
Common
FIFTH: The number of shares voted for such amendment was 74,494; and the
number of shares voted against such amendment was -0-.
This page conforms with the duplicate
original filed with Secretary of State.
/s/ EDWIN LLOYD PITTMAN
Secretary of State
State of Mississippi
<PAGE>
SIXTH: The number of shares of each class entitled to vote thereon as a
class voted for and against such amendment, respectively was:
Number of Shares Voted
Class (If inapplicable, For Against
insert "None".)
Common
SEVENTH: The manner, if not set forth in such amendment, in which any
exchange, reclassification, or cancellation of issued shares provided for in the
amendment shall be effected, is as follows:
(If inapplicable, insert "No Change".)
No Change
EIGHTH: The manner in which such amendment effects a change in the
amount of stated capital (expressed in dollars) as changed by such amendment,
are as follows: (if inapplicable, insert, "No Change".)
No Change
Dated: January 11, 1983
CITIZENS HOLDING COMPANY
By /s/ STEVE WEBB
--------------------------------------
Steve Webb, President
By /s/ Jean S. Fulton
--------------------------------------
Secretary
This page conforms with the duplicate
original filed with Secretary of State.
/s/ EDWIN LLOYD PITTMAN
Secretary of State
State of Mississippi
<PAGE>
STATE OF MISSISSIPPI
COUNTY OF NESHOBA
I, Lucille M. Myatt, a notary public, do hereby certify that on this
11th day of January, 1983, personally appeared before me Steve Webb and Jean S.
Fulton, who, being by me first duly sworn, declared that they are the President
and Secretary, respectively, of Citizens Holding Company, that they executed the
foregoing document as duly authorized officers of the corporation, and that the
statements therein contained are true.
/s/ LUCILLE M. MYATT
--------------------------
Notary Public
My Commission Expires:
My Commission Expires Sept. 13, 1984
- ------------------------------_-----
(NOTARY SEAL)
This page conforms with the duplicate
original filed with Secretary of State.
/s/ EDWIN LLOYD PITTMAN
Secretary of State
State of Mississippi
3
<PAGE>
STATE OF MISSISSIPPI
NESHOBA COUNTY
I, Bobby G. Posey, Chancery Clerk and Ex-Officio Recorder in and for
said State and County, hereby certify that the foregoing instrument was filed
for record at 10:00 o'clock A.M. on the 3rd day of February, 1983 and duly
recorded in Charter of Inc. Book A-130 Page 671-675 of the records of this
office.
Given under my hand and seal of office, this the 3rd day of February,
1983.
/s/ BOBBY G. POSEY Clerk
------------------
By: /s/ M. Croswell D.C.
-------------------
<PAGE>
ARTICLES OF AMENDMENT
(Attach conformed copy)
[X] PROFIT [ ] NONPROFIT
(Mark appropriate box)
The undersigned corporation pursuant to Section 79-4-10 06 (if a profit
corporation) or Section 79-11-300 if a nonprofit corporation of the Mississippi
Code of 1972 hereby executes the following document and sets forth
1. The name of the corporation is Citizens Holding Company
----------------------------------------------
2. Set forth the text of each amendment adopted. (Attach page.) SEE ATTACHED
3. If a profit amendment provides for an exchange, reclassification, or
cancellation of issued shares set forth the provisions for implementing the
amendment if they are not contained in the amendment itself (Attach page)
4. The amendment(s) was (were) adopted September 18, 1991
-----------------------------------------
DATE(S)
FOR PROFIT CORPORATION
(a) adopted by [ ] the incorporators [X] directors without shareholder action
and shareholder action was not required. (Check appropriate box)
FOR NONPROFIT CORPORATION
(b) adopted by [ ] board of directors [ ] incorporators without member action
and member action was not required. (Check appropriate box)
FOR PROFIT CORPORATIONS
5. If the amendment was approved by shareholders
(a) The designation, number of outstanding shares, number of votes entitled
to be cast by each voting group entitled to vote separately on the
amendment, and the number of votes of each voting group indisputably
represented at the meeting was
<TABLE>
<CAPTION>
N/A
No. outstanding No. of votes No. of votes
Designation shares entitled to be cast indisputably represented
----------- --------------- ------------------- ------------------------
<S> <C> <C> <C>
----------- ------------ ------------- ----------------
----------- ------------ ------------- ----------------
</TABLE>
(b) Either the total number of votes cast for and against the amendment by
each voting group entitled to vote separately on the amendment was
N/A
Total no. of Total no. of
Voting group votes cast FOR votes cast AGAINST
------------ -------------- ------------------
--------- ---------- ----------
--------- ---------- ----------
or the total number of undisputed votes cast for the amendment by each voting
group was
Total no. of undisputed
Voting group votes cast FOR the plan
------------ -----------------------
-------- ------------
-------- ------------
and the number cast for the amendment by each voting group was sufficient for
approval by that voting group.
FOR NONPROFIT CORPORATIONS
6. If the amendment was approved by the members:
(a) The designation, number of memberships outstanding, number of votes
entitled to be cast by each class entitled to vote separately on the
amendment, and number of votes of each class indisputably represented at
the meeting
<TABLE>
<CAPTION>
N/A
No. memberships No. of votes No. of votes
Designation outstanding entitled to be cast indisputably represented
----------- --------------- ------------------- ------------------------
<S> <C> <C> <C>
----------- ------------ ------------- ----------------
----------- ------------ ------------- ----------------
</TABLE>
(b) Either
(i) the total number of votes cast for and against the amendment by each
class entitled to vote separately on the amendment was
Total no. of votes cast Total no. of votes cast
Voting class FOR the amendment AGAINST the amendment
------------ ------------------------ -----------------------
-------- -------------- --------------
-------- -------------- --------------
or
(ii) the total number of undisputed votes cast for the amendment by each
class was:
Total no. of undisputed
Voting group votes cast FOR the amendment
------------ -----------------------------
-------- ------------
-------- ------------
and the number cast for the amendment by each class was sufficient for
approval by that voting group.
BY: JOE STEVE WEBB, PRESIDENT /s/ JOE STEVE WEBB, PRESIDENT
------------------------------------ ----------------------------------
Printed Name/Corporate Title Signature
<PAGE>
ARTICLES OF AMENDMENT TO
ARTICLES OF INCORPORATION
CITIZENS HOLDING COMPANY
The following Amendment to the Articles of Incorporation for the above
referenced Corporation were adopted by the Board of Directors on September 18,
1991.
Article Four of the Articles of Incorporation is amended to read as
follows:
FOURTH: The aggregate number of shares which the corporation shall have
the authority to issue is 750,000 of the par value of One Dollars
($1.00) each.
<PAGE>
[LETTERHEAD OF THE CITIZENS BANK APPEARS HERE]
October 23, 1991
Mr. Dick Molpus, Secretary of State
Business Services Division
P.O. Box 136
Jackson, MS 39205-0136
Dear Mr. Molpus:
We enclose herewith Articles of Amendment to Articles of Incorporation of
Citizens Holding Company, Philadelphia, MS, which we ask that you please record
and return one copy for our file.
Thank you,
Sincerely,
/s/ Lucille M. Myatt
- -------------------------
(Mrs.) Lucille M. Myatt
Secretary
LMM/s
Enclosure: Cashier's Check No. 227979
P.O. BOX 209 . PHILADELPHIA, MISSISSIPPI 39350 . PHONE (601) 656-4692
<PAGE>
EXHIBIT 3(i) Continued
OFFICE OF THE MISSISSIPPI SECRETARY OF STATE
P.O. BOX 136, JACKSON, MS 39205-0136 (601) 359-1333
ARTICLES OF AMENDMENT
The undersigned persons, pursuant to Section 79-4-10.06 (if a profit
corporation) or Section 79-11-305 (if a nonprofit corporation) of the
Mississippi Code of 1972, hereby execute the following document and set forth:
1. TYPE OF CORPORATION [SEAL]
[X] Profit Nonprofit FILED
11/20/1998
2. NAME OF CORPORATION Eric Clark
Secretary of State
Citizens Holding Company State of Mississippi
3. THE FUTURE EFFECTIVE DATE IS January 1, 1999
(COMPLETE IS APPLICABLE)
4. SET FORTH THE TEXT OF EACH AMENDMENT ADOPTED. (ATTACH PAGE)
5. IF AN AMENDMENT FOR A BUSINESS CORPORATION PROVIDES FOR AN EXCHANGE,
RECLASSIFICATION, OR CANCELLATION OF ISSUED SHARES, SET FORTH THE PROVISIONS FOR
IMPLEMENTING THE AMENDMENT IF THEY ARE NOT CONTAINED IN THE AMENDMENT ITSELF.
(ATTACH PAGE)
6. THE AMENDMENT(S) WAS (WERE) ADOPTED ON
October 27, 1998 Date(s)
FOR PROFIT CORPORATION (Check the appropriate box)
Adopted by the incorporators [X] directors without shareholder
action and shareholder action
was not required
FOR NONPROFIT CORPORATION (Check the appropriate box)
Adopted by the incorporators board of directors without
member action and member
action was not required
FOR PROFIT CORPORATION
7. IF THE AMENDMENT WAS APPROVED BY SHAREHOLDERS
(a) The designation, number of outstanding shares, number of votes entitled to
be cast by each voting group entitled to vote separately on the amendment, and
the number of votes of each voting group indisputably represented at the meeting
were
<PAGE>
Designation No. of outstanding No. of votes entitled No. of votes
shares to be cast indisputably represented
F0012 - PAGE 2 OF 3 OFFICE OF THE MISSISSIPPI SECRETARY OF STATE
P.O. BOX 136, JACKSON, MS 39205-0136 (601) 359-1333
ARTICLES OF AMENDMENT
(B) EITHER
(i) the total number of votes cast for and against the amendment by each
voting group entitled to vote separately on the amendment was
Voting group Total no. of votes Total no. of votes cast
cast FOR AGAINST
OR
(ii) the total number of undistributed votes cast for the amendment by
each voting group was
Voting group Total no. of undisputed votes cast FOR the plan
and the number of votes cast for the amendment by each voting group was
sufficient for approval by that voting group.
FOR NONPROFIT CORPORATION
8. IF THE AMENDMENT WAS APPROVED BY THE MEMBERS
(a) The designation, number of memberships outstanding, number of votes
entitled to be cast by each class entitled to vote separately on the
amendment, and the number of votes of each class indisputably represented at
the meeting were
Designation No. of memberships No. of votes entitled No. of votes
outstanding to be cast indisputably represented
<PAGE>
F0012 - PAGE 3 OF 3 OFFICE OF THE MISSISSIPPI SECRETARY OF STATE
P.O. BOX 136, JACKSON, MS 39205-0136 (601) 359-1333
ARTICLES OF AMENDMENT
(B) EITHER
(i) the total number of votes cast for and against the amendment by
each class entitled to vote separately on the amendment was
Voting class Total no. of votes To no. of votes cast
cast FOR AGAINST
OR
(ii) the total number of undistributed votes cast for the amendment
by each class was
Voting class Total no. of undisputed votes cast FOR the
amendment
and the number of votes cast for the amendment by each voting group was
sufficient for approval by that voting group.
By: Signature (Please keep writing within blocks)
/s/Joe Steve Webb
Printed Name Joe Steve Webb Title President
<PAGE>
ARTICLES OF AMENDMENT TO
ARTICLES OF INCORPORATION
CITIZEN HOLDING COMPANY
The above Amendment to the Articles of Incorporation for the above
referenced Corporation were adopted by the Board of Directors on October 27,
1998, to be effective January 1, 1999.
Article Four of the Articles of Incorporation is amended to read as
follows:
FOURTH: The aggregate number of shares which the corporation shall
have the authority to issue is 3,750,000 of the par value of Twenty
Cents ($.20) per share.
CITIZENS HOLDING COMPANY
By: /s/Joe Steve Webb
-------------------------
JOE STEVE WEBB, President
<PAGE>
EXHIBIT 3(i)
ARTICLES OF AMENDMENT
FOR CITIZENS HOLDING COMPANY
Pursuant to paragraph (d) of Section 79-4-10.07 of the Mississippi Business
Corporation Act (the "Act"), the undersigned, does hereby deliver to the
Secretary of State of Mississippi these Articles of Amendment for Citizens
Holding Company, a Mississippi profit corporation and sets forth the following:
1. That pursuant to paragraph (d)(1) of Section 79-4-10.07 of the Act, these
Articles of Amendment contain various amendments to the Articles of
Incorporation which require shareholder approval.
2. That pursuant to paragraph (d)(2) of Section 79-4-10.07 of the Act, the
undersigned does further set forth the information required by Section
79-4-10.06 of the Act as follows:
a. The name and type of corporation is: Citizens Holding Company, a
Mississippi Profit Corporation.
b. The text of the Amended Articles of Incorporation are attached hereto.
c. The amendments to the Articles of Incorporation were adopted on April
13, 1999 at the Annual Meeting of the Shareholders.
d. The amendments were voted on separately and approved by the
shareholders of the Corporation and the designation, number of
outstanding shares, number of votes entitled to be cast on the
amendments, and the number of votes indisputably represented at the
meeting were:
No. of No. of Votes No. of Votes
Outstanding entitled to be indisputably
Designation shares cast represented
- -----------------------------------------------------------------
Common 3,353,750 3,353,750 3,000,112
<PAGE>
And the total number of votes cast for and against each of the amendments
was:
AMENDMENT NUMBER 1
The following Article Ten will be added to the Articles of Incorporation:
TENTH: The number of directors of the Corporation shall be not less than
nine (9), nor more than twenty-five (25), and the stockholders shall establish
by resolution at each annual meeting the number of directors to serve, subject
to the provisions of this Article Ten. The Corporation shall have three classes
of directors, each class to be as nearly equal in number as possible, the term
of office of directors of the first class to expire at the first annual meeting
of the shareholders after their election, that of the second class to expire at
the second annual meeting after their election, and that of the third class to
expire at the third annual meeting after their election. At each annual meeting
after such initial classification, the number of directors equal to the number
of the class whose term expires at the time of such meeting shall be elected to
hold office for a term of three (3) years.
Total
Total No. Of
No. Of Votes
Votes cast
cast FOR AGAINST
this this
Designation Amendment Amendment
- ---------------------------------------------------
Common 2,934,817 47,145
- ---------------------------------------------------
AMENDMENT NUMBER 2
The following Article Eleven will be added to the Articles of
Incorporation:
ELEVENTH: Directors shall be elected only at annual meetings of
shareholders, and any vacancy in the Board of Directors, however created, shall
be filled at the annual meeting succeeding the creation of such vacancy. If the
number of directors is changed, any increase or decrease shall be apportioned
among the classes so as to maintain the number of directors in each class as
nearly equal as possible, and any additional director of any class elected to
fill a vacancy resulting from an increase in such class shall hold office for a
term that shall coincide with the remaining term of that class, but in no case
will a decrease in the number of directors shorten the term of any incumbent
director.
Total
Total No. Of
No. Of Votes
Votes cast
cast FOR AGAINST
this this
Designation Amendment Amendment
- --------------------------------------------------
Common 2,903,507 41,315
- --------------------------------------------------
<PAGE>
AMENDMENT NUMBER 3
The following Article Twelve will be added to the Articles of
Incorporation:
TWELFTH: The Corporation hereby elects to be governed by the provisions of
the Mississippi Control Share Act, (S)79-27-1 et. seq., and to be an "issuing
public corporation" for all purposes thereof, effective May 1, 1999.
Total
Total No. Of
No. Of Votes
Votes cast
cast FOR AGAINST
this this
Designation Amendment Amendment
- ----------------------------------------------------
Common 2,897,807 83,070
- ----------------------------------------------------
AMENDMENT NUMBER 4
The following Article Thirteen will be added to the Articles of
Incorporation:
THIRTEENTH: No member of the Board of Directors may be removed, with or
without cause, except at a meeting called in accordance with the Bylaws
expressly for that purpose and except upon a vote in favor of such removal of
the holders of seventy-five percent (75%) of the shares then entitled to vote at
an election of directors; and in the event that less than the entire Board is to
be removed, no one of the directors may be removed if the votes cast against his
removal would be sufficient to elect him if then cumulatively voted at an
election of the class of directors of which he is a part.
Total
Total No. Of
No. Of Votes
Votes cast
cast FOR AGAINST
this this
Designation Amendment Amendment
- ------------------------------------------------------
Common 2,845,597 137,830
- ------------------------------------------------------
<PAGE>
AMENDMENT NUMBER 5
The following Article Fourteen will be added to the Articles of
Incorporation:
FOURTEENTH: The vote of shareholders required to alter, amend or repeal
Articles Ten, Eleven, Twelve or Thirteen, or to alter, amend or repeal any other
Article of the Articles of Incorporation in any respect which would or might
have the effect, direct or indirect, of modifying, permitting any action
inconsistent with, or permitting circumvention of this Article Fourteen, shall
be by the affirmative vote of at least seventy-five percent (75%) of the total
voting power of all shares of stock of the Corporation entitled to vote in the
election of directors, considered for purposes of this Article as one class.
Total
Total No. Of
No. Of Votes
Votes cast
cast FOR AGAINST
this this
Designation Amendment Amendment
- ---------------------------------------------------
Common 2,768,867 230,380
- ---------------------------------------------------
AMENDMENT NUMBER 6
Article Four of the Articles of Incorporation is amended to read as
follows:
FOURTH: The aggregate number of shares which the Corporation shall have the
authority to issue is fifteen million (15,000,000) of the par value of twenty
cents ($.20) each.
Total
Total No. Of
No. Of Votes
Votes cast
cast FOR AGAINST
this this
Designation Amendment Amendment
- -----------------------------------------------------
Common 2,819,287 179,910
- -----------------------------------------------------
and the number of votes cast for all of the above amendments was sufficient for
approval.
CITIZENS HOLDING COMPANY
BY: /s/ STEVE WEBB
----------------------------
STEVE WEBB, President
<PAGE>
EXHIBIT 3(ii)
AMENDED AND RESTATED
BYLAWS
Of
CITIZENS HOLDING COMPANY
PHILADELPHIA, MISSISSIPPI
Amended and Restated April 13, 1999
<PAGE>
CITIZENS HOLDING COMPANY
PHILADELPHIA, MISSISSIPPI
AMENDED AND RESTATED BYLAWS
Preamble: These Bylaws are subordinate to and governed by the provisions of (1)
the Articles of Incorporation of this Corporation; and (2) the Mississippi
Business Corporation Act, except to the extent that these Bylaws or the
Articles of Incorporation specifically provide to the contrary, to the extent
allowed by the Mississippi Business Corporation Act and Mississippi state law.
ARTICLE I. OFFICES
SECTION 1.01. Principal Office. The principal office shall be at 521 Main
Street, Philadelphia, Neshoba County, Mississippi. The corporation may have such
other offices as are allowable by the laws of the State of Mississippi and as
the Board of Directors may designate or the business of the corporation may
require from time to time.
SECTION 1.02. Registered Office. The registered office of the Corporation
required by the Mississippi Business Corporation Act to be maintained in the
State of Mississippi may be, but need not be identical with the principal office
in the State of Mississippi, and the address of the registered office may be
changed from time to time by the Board of Directors as provided by law.
<PAGE>
ARTICLE II. STOCKHOLDERS
SECTION 2.01. Annual Meeting. The annual meeting of the stockholders for
the purpose of fixing the number of Directors to be elected and electing such
number of Directors and for the transaction of such other business as may come
before the Board of Directors shall each year fix, which date shall be no later
than thirteen months subsequent to the last annual meeting of stockholders. The
date fixed for the annual meeting shall not be a legal holiday in the State of
Mississippi. The annual meeting of stockholders may be held conjointly with the
annual meeting of the Board of Directors.
SECTION 2.02. Special Meetings. Special meetings of the stockholders, for
any purpose or purposes, unless otherwise prescribed by statute, may be called
by the President or by a majority of the Board of Directors, and shall be called
by the President at the request of the holders of not less than one-tenth of all
the outstanding shares of the corporation entitled to vote at the meeting. On
failure of the President so to issue such call, same may be made, and notice
given as hereinafter prescribed, by those demanding such meeting. Such request
shall state the purposes of the proposed meeting. Business transacted at all
special meetings shall be confined to the objects stated in the call.
SECTION 2.03. Place of Meeting. The Board of Directors may designate any
place, either within or without the State of Mississippi, as the place of
meeting for any annual meeting or for any special meeting of the stockholders.
If no designation is made, the place of meeting shall be at the principal office
of the corporation in Philadelphia, Neshoba County, Mississippi.
SECTION 2.04. Notice of Meeting. Written or printed notice stating the
place, day and hour of the meeting, and, in case of a special meeting, the
purpose or purposes for which the meeting is called, shall be delivered not less
than ten nor more than fifty days before the date of the meeting, either
personally or by mail, by or at the direction of the President or the Secretary,
or the officer or persons calling the meeting, to each stockholder of record
entitled to vote at such meeting. If mailed, such notice shall be deemed to be
delivered when deposited in the United States mail, addressed to the stockholder
at his address as it appears on the stock transfer books of the corporation,
with postage thereon prepaid.
SECTION 2.05. Closing of Transfer Books or Fixing of Record Date. For the
purpose of determining stockholders entitled to notice of or to vote at any
meeting of stockholders or any adjournment thereof, or entitled to receive
payment of any dividend, or in order to make a determination of stockholders for
any other proper purpose, the Board of Directors of the Corporation may provide
that the stock transfer books shall be closed for a stated period but not to
exceed, in any case, fifty days. If the stock transfer books shall be closed for
the purpose of determining stockholders entitled to notice of or to vote at a
meeting of stockholders, such books shall be closed for at least ten days
immediately preceding such meeting. In lieu of closing the stock transfer books,
the Board of Directors may fix in advance a date as the record date for any such
determination of stockholders, such date to be not more than fifty days and in
case of a
3
<PAGE>
meeting of stockholders, not less than ten days prior to the date on which the
particular action, requiring such determination of stockholders, is to be taken.
If the stock transfer books are not closed and no record date is fixed for the
determination of stockholders entitled to notice of or to vote at a meeting of
stockholders, or stockholders entitled to receive payment of a dividend, the
date on which notice of the meeting is mailed or the date on which the
resolution is adopted, as the case may be, shall be the record date for such
determination of stockholders. When a determination of stockholders entitled to
vote at any meeting of stockholders has been made as provided in this section,
such determination shall apply to any adjournment thereof.
SECTION 2.06. Presiding Officer and the Secretary. The President or, in his
absence, an officer designated by the Board of Directors shall preside at all
stockholder meetings, and the Secretary shall serve as secretary. Otherwise, a
Chairman or Secretary shall be elected by the stockholders present to act in the
absence of those officers.
SECTION 2.07. Voting Lists. The officer or agent having charge of the stock
transfer books for shares of the corporation shall make, at least ten days
before each meeting of stockholders, a complete list of the stockholders
entitled to vote at such meeting, or any adjournment thereof, arranged in
alphabetical order, with the address of and the number of shares held by each,
which list, for a period of ten days prior to such meeting, shall be kept on
file at the registered office of the corporation and shall be subject to
inspection by any stockholder at any time during usual business hours. Such list
shall also be produced and kept open at the time and place of the meeting and
shall be subject to the inspection of any stockholder during the whole time of
the meeting. The original stock transfer book shall be prima facie evidence as
to who are the stockholders entitled to examine such list or transfer books or
to vote at any meeting of stockholders.
SECTION 2.08. Quorum. A majority of the outstanding shares of the
corporation entitled to vote, represented in person or by proxy, shall
constitute a quorum at a meeting of stockholders. If less than a majority of the
outstanding shares are represented at a meeting, a majority of the shares so
represented may adjourn the meeting from time to time without further notice. At
such adjourned meeting at which a quorum shall be present or represented, any
business may be transacted which might have been transacted at the meeting as
originally notified. The stockholders present at a duly organized meeting may
continue to transact business until adjournment, notwithstanding the withdrawal
of enough stockholders to leave less than a quorum, as long as not less than
one-third of the shares entitled to vote at the meeting are represented. If a
quorum is present, or the above conditions are fulfilled so that business may be
transacted, the affirmative vote of the majority of the shares represented at
the meeting and entitled to vote on the subject matter shall be the act of the
stockholders, unless the vote of a greater number is required by law or the
articles of incorporation or elsewhere in these bylaws by specific provision.
SECTION 2.09. Proxies. At all meetings of stockholders, a stockholder may
vote by proxy executed in writing by the stockholder or by his duly authorized
attorney in fact. Such proxy shall be filed with the Secretary of the
Corporation before or at the time of meeting. No
4
<PAGE>
proxy shall be valid after eleven months from the date of its execution, unless
otherwise provided in the proxy.
SECTION 2.10. Voting of Shares. Subject to the provisions of Section 12 of
this Article II, each outstanding share entitled to vote shall be entitled to
one vote upon each matter submitted to a vote of a meeting of stockholders.
SECTION 2.11. Voting of Shares by Certain Holders. Shares standing in the
name of another corporation may be voted by such officer, agent or proxy as the
bylaws of such corporation may prescribe, or, in the absence of such provision,
as the Board of Directors of such corporation may determine.
Shares held by an administrator, executor, guardian or conservator may be
voted by him, either in person or by proxy, without a transfer of such shares
into his name. Shares standing in the name of a trustee may be voted by him,
either in person or by proxy, but no trustee shall be entitled to vote shares
held by him without a transfer of such shares into his name.
Shares standing in the name of a receiver may be voted by such receiver,
and shares held by or under the control of a receiver may be voted by such
receiver without the transfer thereof into his name if authority so to do be
contained in an appropriate order of the court by which such receiver was
appointed.
A stockholder whose shares are pledged shall be entitled to vote such
shares until the shares have been transferred into the name of the pledgee, and
thereafter the pledgee shall be entitled to vote the shares so transferred.
The corporation may own shares of its own stock as provided by Mississippi
law. If the corporation owns shares of its own stock at any time, those shares
shall not be voted, directly or indirectly, at any meeting, and shall not be
counted in determining the total number of outstanding shares at any given time.
SECTION 2.12. Cumulative Voting. At each election for Directors every
stockholder entitled to vote at such election shall have the right to vote, in
person or by proxy, the number of shares owned by him for as many persons as
there are Directors to be elected and for whose election he has a right to vote,
or to cumulate his votes by giving one candidate as many votes as the number of
such Directors multiplied by the number of his shares shall equal, or by
distributing such votes on the same principle among any number of such
candidates.
SECTION 2.13. Action by Stockholders Without a Meeting. Any action required
to be taken at a meeting of the stockholders of the corporation, or any action
which may be taken at a meeting of the stockholders, may be taken without a
meeting if a consent in writing, setting forth the action so taken, shall be
signed by all of the stockholders entitled to vote with respect to the subject
matter thereof.
5
<PAGE>
SECTION 2.14. Stockholder Proposals or Nominations. Except as otherwise
provided herein or by action of the Board of Directors, stockholder proposals
for any action at a stockholder meeting or nomination for election to the Board
of Directors may be made by any stockholder entitled to vote at the meeting when
the proposal is to be acted upon, or election to be held. Proposals and
nominations, other than those made by or on behalf of the existing management of
the corporation, shall be made in writing and shall be delivered or mailed to
the President of the corporation not less than 14 days nor more than 50 days
prior to the meeting when the proposal is to be acted upon, or election to be
held, provided however, that if less than 21 days' notice of the meeting is
given to stockholders, such proposal or nomination shall be mailed or delivered
to the President of the corporation not later than the close of business on the
seventh day following the day on which the notice of meeting was mailed.
Proposals and nominations not made in accordance herewith may, in his
discretion, be disregarded by the chairman of the meeting, and upon his
instructions, the vote tellers may disregard all votes cast for each such
proposal or nominee.
SECTION 2.15. Stockholder Approval of Tender Offer. If any person, firm, or
corporation, hereinafter referred to as the Tender Offeror, or any person, firm,
or corporation controlling the Tender Offeror, controlled by the Tender Offeror,
or under common control with the Tender Offeror, or any group of which the
Tender Offeror or any of the foregoing group controlling the Tender Offeror,
controlled by the Tender Offeror, or under common control with the Tender
Offeror owns of record, or owns beneficially, directly or indirectly, more than
10% of any class of equity security of this Company with the Tender Offeror,
then any merger or consolidation of this corporation with the Tender Offeror, or
any sale, lease, or exchange of substantially all of the assets of this Company
or the Tender Offeror to the other may not be effected unless a meeting of the
shareholders of this Company is held to act thereon and the votes of the holders
of voting securities of this Company representing not less than 80% of the votes
entitled to vote thereon voted in favor thereof. As used herein, the term group
includes persons, firms, and corporations acting in concert, whether or not as a
formal group, and the term equity security means any share or similar security;
or any security convertible, with or without consideration, into such a
security, or carrying any warrant to subscribe to or purchase such a security;
or any such warrant or right. The foregoing provision is in addition to the
requirements of Title 79 of the Mississippi Business Corporation Act and may not
be amended or repealed without an 80% vote.
6
<PAGE>
ARTICLE III. BOARD OF DIRECTORS
SECTION 3.01. General Powers. The business and affairs of the corporation
shall be managed and administered by its Board of Directors. Except as limited
by law, all corporate powers shall be vested in and exercised by the Board.
SECTION 3.02. Election of Directors. The Directors of the Corporation shall
be elected as provided in the Articles of Incorporation
SECTION 3.03. Number, Tenure and Qualifications. The number of Directors of
the Corporation and their tenure shall be as set forth in the Articles of
Incorporation.
SECTION 3.04. Regular Meetings. A regular meeting of the Board of Directors
shall be held without other notice than this bylaw, immediately after or
conjointly with, and at the same place as, the annual meeting of stockholders.
The Board of Directors shall provide, by resolution, the time and place, either
within or without the State of Mississippi, for the holding of additional
meetings without other notice than such resolution.
SECTION 3.05. Special Meetings. Special meetings of the Board of Directors
may be called by or at the request of the President, Chairman of the Board of
Directors or by a majority of the Board of Directors. The person or persons
authorized to call special meetings of the Board of Directors may fix any place,
either within or without the State of Mississippi, as the place for holding any
special meeting of the Board of Directors called by them.
SECTION 3.06. Action by Directors Without a Meeting. Any action required to
be taken at a meeting of the Directors of the corporation, or any action which
may be taken at a meeting of the directors, may be taken without a meeting if a
consent in writing, setting forth the action so taken, shall be signed by all of
the directors entitled to vote with respect to the subject matter thereof.
SECTION 3.07. Notice. Notice of any special meeting shall be given by
written notice delivered personally or mailed to each director at his business
address, or by telephone or telegram. If notice is by personal delivery, the
delivery shall be at least two days prior to the special meeting. If notice is
given by mail, such notice shall be deposited in the United States mail and
addressed to each director at his business address with postage thereon prepaid
at least five days prior to any special meeting. If notice is given by telegram,
such notice shall be delivered to the telegram company at least five days prior
to any special meeting. If notice is given by telephone, such notice shall be
made at least two days prior to any special meeting. Any director may waive
notice of any meeting. The attendance of a director at a meeting shall
constitute a waiver of notice of such meeting, except where a director attends a
meeting for the express purpose of objecting to the transaction of any business
because the meeting is not lawfully called or convened. Neither the business to
be transacted at, nor the purpose of, any regular or
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special meeting of the Board of Directors need be specified in the notice or
waiver of notice of such meeting.
SECTION 3.08. Quorum. A majority of the number of directors elected and
serving within the limits fixed by Section 2 of this Article III shall
constitute a quorum for the transaction of business at any meeting of the Board
of Directors, but if less than such majority is present at the meeting, a
majority of the directors present may adjourn the meeting from time to time
without further notice.
SECTION 3.09. Organization. The Board of Directors shall elect one of its
members Chairman, who shall preside at all meetings of the Board. By resolution
the Directors shall designate from among its members other committees, each of
which shall have all the authority of the Board of Directors except as limited
in such resolution or bylaw, and except as provided by law. All such committees
shall keep regular minutes of their meetings and shall report their actions to
the Board of Directors at its next meeting.
SECTION 3.10. Manner of Acting. The act of the majority of the directors
present at a meeting at which a quorum is present shall be the act of the Board
of Directors.
SECTION 3.11. Vacancies. Any vacancy occurring on the Board of Directors
shall be filled as provided in the Articles of Incorporation.
SECTION 3.12. Compensation. By resolution of the Board of Directors, the
Directors may be paid for the expense, if any, of attendance at each meeting of
the Board of Directors, and may be paid a fixed sum for attendance at each
meeting of the Board of Directors or a stated salary as Director. However, no
such payment shall preclude any director from serving the corporation as an
officer or in any other capacity and receiving compensation therefor. Members of
special or standing committees may be allowed like compensation for attending
meetings.
SECTION 3.13. Presumption of Assent. A director of the corporation who is
present at a meeting of the Board of Directors at which action on any corporate
matter is taken shall be presumed to have assented to the action taken unless
his dissent shall be entered in the minutes of the meeting or unless he shall
file his written dissent to such action with the person acting as the secretary
of the meeting before the adjournment thereof or shall forward such dissent by
registered mail to the Secretary of the corporation within twenty-four (24)
hours after the adjournment of the meeting. Such right to dissent shall not
apply to a director who voted in favor of such action.
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ARTICLE IV. OFFICERS
SECTION 4.01. Generally. The officers of the corporation shall consist of a
President, a Vice President, a Secretary and a Treasurer. Officers shall be
elected by the Board of Directors, which shall consider that subject at its
first meeting after every annual meeting of stockholders. Each officer shall
hold his office until his successor is elected and qualified or until his
earlier resignation or removal. Any one or more offices may be held by the same
person, except the offices of President and Secretary. Officers do not have to
be stockholders.
SECTION 4.02. President. The Board of Directors shall appoint a President
of the corporation to serve at the pleasure of the Board. The President shall
supervise the carrying out of the policies adopted or approved by the Board and
shall be the Chief Executive Officer of the corporation. He shall have general
executive powers, as well as the specific powers conferred by these Bylaws. He
shall also have and may exercise such further powers and duties as from time to
time may be conferred upon, or assigned to, him by the Board of Directors. A
Vice President shall be designated by the Board of Directors, in the absence of
the President, to perform all the duties of the President.
SECTION 4.03. Vice Presidents. The Board of Directors may appoint one or
more Vice Presidents and shall have the authority to designate different classes
of Vice Presidents, including Executive Vice Presidents, Senior Vice Presidents,
Assistant Vice Presidents, and such other classes as from time to time may
appear to the Board of Directors to be required or desirable to transact the
business of the corporation. Each Vice President shall have such powers and
duties as may be assigned to him by the Board of Directors.
SECTION 4.04. Secretary. The Board of Directors shall appoint a Secretary,
who shall: (a) keep the minutes of the stockholders and of the Board of
Directors meetings in one or more books provided for that purpose; (b) see that
all notices are duly given in accordance with the provisions of these bylaws and
as required by law; (c) be custodian of the corporate records and of the seal of
the corporation and see that the seal of the corporation is affixed to all
documents, the execution of which on behalf of the corporation under its seal is
duly authorized; (d) keep a register of the post office address of each
stockholder which shall be furnished to the Secretary by each stockholder; (e)
sign with the President or other designated officer stock certificates of the
corporation, the issuance of which shall have been authorized by resolution of
the Board of Directors; (f) have general charge of the stock transfer books of
the corporation; and (g) in general perform all duties incident to the office of
Secretary and such other duties as may from time to time be assigned to him by
the President or by the Board of Directors.
SECTION 4.05. Other Officers. The Board of Directors may appoint one or
more such other officers as from time to time may appear to the Board of
Directors to be required or desirable to transact the business of the
Association. Such officers shall respectively exercise such powers and perform
such duties as pertain to their several offices, or as may be conferred upon, or
assigned to, them by the Board of Directors or the President.
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SECTION 4.06. Removal. Any officer or agent elected or appointed by the
Board of Directors may be removed by the Board of Directors whenever in its
judgment the best interests of the corporation would be served thereby, but such
removal shall be without prejudice to the contract rights, if any, of the person
so removed, and the election of another person to an office shall automatically
remove the incumbent from such office.
SECTION 4.07. Vacancies. The Board of Directors shall have authority to
fill any vacancy occurring in the offices of the corporation or any office to be
created by election at any regular meeting of the Board of Directors or at a
special meeting of the Board of Directors called for that purpose. An officer
elected to fill a vacancy shall be elected for the unexpired term of his
predecessor in office.
SECTION 4.08. Salaries. The salaries of the officers shall be fixed from
time to time by the Board of Directors and no officer shall be prevented from
receiving a salary merely by reason of the fact that he is also a director or
employee of the corporation. The President and Secretary may fix the salaries of
the employees who are not officers, subject to the approval of the Board of
Directors.
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ARTICLE V. STOCK CERTIFICATES AND THEIR TRANSFER
SECTION 5.01. Certificates for Shares. Certificates representing shares of
the corporation shall be in such form as shall be determined by the Board of
Directors. Such certificates shall be signed by the President or a Vice
President and by the Secretary or an Assistant Secretary and shall be attested
by the corporate seal. All certificates for shares shall be consecutively
numbered or otherwise identified. The name and address of the person to whom the
shares represented thereby are issued, and the number of shares and date of
issue, shall be entered on the stock transfer books of the corporation. All
certificates surrendered to the corporation for transfer shall be cancelled, and
no new certificates shall be issued until the former certificates for a like
number of shares shall have been surrendered and cancelled, except that in case
of a lost, destroyed or mutilated certificate a new one may be issued therefor
upon such terms and indemnity to the corporation as the Board of Directors may
prescribe. No stock certificates will be issued for fractional shares of stock,
and no dividend payment will be made for fractional shares of stock.
SECTION 5.02. Transfer of Shares. Transfer of shares of the corporation
shall be made only on the stock transfer books of the corporation by the holder
of record thereof or by his legal representative, who shall furnish proper
evidence of authority duly executed and filed with the Secretary of the
Corporation, and on surrender for cancellation of the certificate for such
shares. The corporation shall be entitled to treat the holder of record of any
share or shares of stock as the holder in fact thereof and accordingly shall not
be bound to recognize any equitable or other claim to or interest in such shares
on the part of any other person, whether or not it shall have express or other
notice thereof, save as may be expressly provided by the laws of Mississippi.
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ARTICLE VI. INDEMNIFICATION
SECTION 6.01. General Provision. Subject to the provisions of section 4 of
this Article, the corporation shall indemnify any person who was or is a party,
or is threatened to be made a party, to any threatened, pending or completed
claim, action, suit or proceeding, whether civil, criminal, administrative or
investigative, including appeals (other than an action by or in the right of the
corporation), by reason of the fact that he is or was a director, officer,
employee or agent of the corporation, or is or was serving at the request of the
corporation as a director, officer, partner, employee or agent of another
corporation, partnership, joint venture, trust or other enterprise, against
expenses (including attorneys' fees), judgments, fines and amounts paid in
settlement actually and reasonably incurred by him in connection with such
action, suit or proceeding if he acted in good faith and in a manner he
reasonably believed to be in or not opposed to the best interests of the
corporation, and, with respect to any criminal action or proceeding, had no
reasonable cause to believe his conduct was unlawful. The termination of any
action, suit or proceeding by judgment, order, settlement, conviction, or upon a
plea of nolo contendere or its equivalent, shall not, of itself, create a
presumption that the person did not act in good faith and in a manner which he
reasonably believed to be in or not opposed to the best interests of the
corporation, and, with respect to any criminal action or proceeding, had
reasonable cause to believe that his conduct was unlawful.
SECTION 6.02. Suits by Corporation. Subject to the provisions of section 4
of this Article, the corporation shall indemnify any person who was or is a
party, or is threatened to be made a party, to any threatened, pending or
completed claim, action or suit by or in the right of the corporation to procure
a judgment in its favor by reason of the fact that he is or was a director,
officer, employee or agent of the corporation, or is or was serving at the
request of the corporation as a director, officer, partner, employee or agent of
another corporation, partnership, joint venture, trust or other enterprise,
against expenses (including attorneys' fees) actually and reasonable incurred by
him in connection with the defense or settlement of such action or suit if he
acted in good faith and in a manner he reasonably believed to be in or not
opposed to the best interests of the corporation, except that no indemnification
shall be made in respect of any claim, issue or matter as to which such person
shall have been adjudged to be liable for negligence or misconduct in the
performance of his duty to the corporation unless and only to the extent that
the court in which such action or suit was brought shall determine upon
application that, despite the adjudication of liability but in view of all the
circumstances of the case, such person is fairly and reasonably entitled to
indemnity for such expenses which such court shall deem proper.
SECTION 6.03. Successful Defense. To the extent that a director, officer,
employee or agent of the corporation has been successful on the merits or
otherwise in defense of any action, suit or proceeding referred to in section 1
or 2 of this Article, or in defense of any claim, issue or matter therein, he
shall be indemnified against expenses (including attorneys' fees) actually and
reasonably incurred by him in connection therewith, notwithstanding that he has
not been successful on any other claim, issue or matter in any such action, suit
or proceeding.
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SECTION 6.04. Authorization of Indemnification. Any indemnification under
section 1 or 2 of this Article shall (unless ordered by a court) by made by the
corporation only as authorized in the specific case upon a determination that
indemnification of the director, officer, employee or agent is proper in the
circumstances because he has met the applicable standard of conduct set forth in
section 1 and 2, as the case may be. Such determination shall be made (1) by the
Board of Directors by a majority vote of a quorum consisting of directors who
were not parties to, or who have been wholly successful on the merits or
otherwise with respect to, such claim, action, suit or proceeding, or (2) if
such a quorum is not obtainable, or, even if obtainable, if a quorum of
disinterested directors so directs, by independent legal counsel in a written
opinion, or (3) by the stockholders.
SECTION 6.05. Advance Payments. Expenses (including attorneys' fees)
incurred in defending a civil or criminal claim, action, suit or proceeding may
be paid by the corporation in advance of the final disposition of such claim,
action, suit or proceeding as authorized in the manner provided in section 4 of
this Article upon receipt of an undertaking by or on behalf of the director,
officer, employee or agent to repay such amount if and to the extent it shall
ultimately be determined that he is not entitled to be indemnified by the
corporation as authorized in this section.
SECTION 6.06. Exclusivity. The indemnification provided by this section
shall not be deemed exclusive of, and shall be in addition to, any other rights
to which those indemnified may be entitled under any statute, rule of law,
provision in the corporation's certificate of incorporation, bylaw, agreement,
vote of members or disinterested directors or otherwise, both as to action in
his official capacity and as to action in another capacity while holding such
office, shall continue as to a person who has ceased to be a director, officer,
employee or agent and shall inure to the benefit of the heirs, executors and
administrators of such a person.
SECTION 6.07. Insurance. The corporation shall have the power to purchase
and maintain insurance on behalf of any person who is or was a director,
officer, employee or agent of the corporation, or is or was serving at the
request of the corporation as a director, officer, partner, employee or agent of
another corporation, partnership, joint venture trust or other enterprise,
against any liability asserted against him and incurred by him in any such
capacity, or arising out of his statute as such, whether or not the corporation
would have the power to indemnify him against such liability under the
provisions of this section.
SECTION 6.08. Partial Enforcement. The invalidity or unenforceability of
any provision hereof shall not in any way affect the remaining provisions
hereof, which shall continue in full force and effect.
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ARTICLE VII. CONTRACTS, LOANS, CHECKS, DEPOSITS AND INVESTMENTS
SECTION 7.01. Contracts. The Board of Directors may authorize any officer
or officers, agent or agents, to enter into any contract or execute and deliver
any instrument in the name of and on behalf of the corporation, and such
authority may be general or confined to specific instances.
SECTION 7.02. Loans. No loans shall be contracted on behalf of the
corporation and no evidences of indebtedness shall be issued in its name unless
authorized by a resolution of the Board of Directors. Such authority may be
general or confined to specific instances. Loans may be made by the corporation
to its officers or directors subject to the guidelines imposed by law.
SECTION 7.03. Checks, Drafts, etc. All checks, drafts or other orders for
the payment of money, notes or other evidences of indebtedness issued in the
name of the corporation, shall be signed by such officer or officers, agent or
agents of the corporation and in such manner as shall from time to time be
determined by resolution of the Board of Directors.
SECTION 7.04. Deposits. All funds of the corporation not otherwise employed
shall be deposited from time to time to the credit of the corporation in such
banks, trust companies or other depositories as the Board of Directors may
select.
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ARTICLE VIII. CONFIRMATION AND RATIFICATION OF CONTRACTS
SECTION 8.01. Conflicts of Interest. In the absence of fraud, no contract
or other transaction of the corporation shall be affected or invalidated in any
way by the fact that any of the directors of the corporation are in any wise
interested in or connected with any other party to such contract or transaction
or are themselves parties to such contract or transaction, provided that such
interest shall be fully disclosed or otherwise known to the Board of Directors
at its meeting at which such contract or transaction is authorized or confirmed,
and provided further that at the meeting of the Board of Directors authorizing
or confirming such contract or transaction, there shall be present a quorum of
directors not so interested or connected and such contract or transaction shall
be approved by a majority of such quorum, which majority shall consist of
directors not so interested or connected. Any such contract, transaction or act
of the corporation or of the Board of Directors or of any committee thereof
which shall be ratified by a majority of the stockholders of the corporation,
voting either in person or by proxy, at any annual meeting, or at any special
meeting called for such purpose, shall be as valid and as binding as though
ratified by every stockholder of the corporation. Any director of the
corporation may vote upon any contract or other transaction between the
corporation and any subsidiary or affiliated corporation without regard to the
fact that he is also a director of such subsidiary or affiliated corporation.
SECTION 8.02. Ratification by Stockholders. Any contract, transaction, or
act of the corporation or of the Board of Directors or any committee thereof
which shall be ratified by a majority of the stockholders of the corporation,
voting either in person or by proxy at any annual meeting, or at any special
meeting called for such purpose, shall be as valid and binding as though
ratified by every stockholder of the corporation; provided, however, that any
failure of the stockholders to approve or ratify such contract, transaction, or
act, when and if submitted, shall not be deemed in any way to invalidate the
same or to deprive the corporation, its officers or directors of their right to
proceed with such contract, transaction or action.
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ARTICLE IX. YEAR
The corporation tax and accounting year shall be a fiscal year ending
December 31 of each year.
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ARTICLE X. DIVIDENDS
The Board of Directors may from time to time declare, and the corporation
may pay, dividends on its outstanding shares, payable in cash, other assets or
by the way of stock dividends. No dividends will be made for fractional shares
of stock.
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ARTICLE XI. SEAL
The Board of Directors shall provide a corporate seal which shall be
circular in form and shall have inscribed thereon the name of the corporation,
state of incorporation and the words "Corporate Seal."
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ARTICLE XII. WAIVER OF NOTICE
Whenever any notice is required to be given to any stockholder or director
of the corporation under the provisions of these Bylaws or under the provisions
of the articles of incorporation or under the provisions of the laws of the
State of Mississippi, a waiver thereof in writing, signed by the person or
persons entitled to such notice, whether before or after the time stated
therein, shall be deemed equivalent to the giving of such notice.
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ARTICLE XIII. BYLAWS
SECTION 13.01. Inspection. A copy of the Bylaws, with all amendments
thereto, shall at all times be kept in a convenient place at the principal
office of the corporation and shall be open for inspection to all stockholders
during regular business hours.
SECTION 13.02. Amendments. These Bylaws may be altered, amended or repealed
and new Bylaws may be adopted by a two-thirds (2/3s) vote of the Directors then
holding office at any regular or special meeting of the Board of Directors.
_____________________________________
SECRETARY
(SEAL)
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EXHIBIT 4
RIGHTS AGREEMENT
between
CITIZENS HOLDING COMPANY
and
CITIZENS BANK OF PHILADELPHIA, MS
Dated as of May 1, 1999
<PAGE>
TABLE OF CONTENTS
Section 1. Certain Definitions .......................................... 1
Section 2. Appointment of Rights Agent .................................. 3
Section 3. Issuance of Right Certificates ............................... 3
Section 4. Form of Right Certificates ................................... 5
Section 5. Countersignature and Registration ............................ 5
Section 6. Transfer, Split Up, Combination and Exchange of Right
Certificates; Mutilated, Destroyed, Lost or Stolen
Right Certificates ........................................... 6
Section 7. Exercise of Rights; Purchase Price; Expiration Date
of Rights .................................................... 6
Section 8. Cancellation and Destruction of Right Certificates ........... 8
Section 9. Availability of Common Shares ................................ 8
Section 10. Common Shares Record Date .................................... 8
Section 11. Adjustment of Purchase Price; Number of Shares or
Number of Rights ............................................. 9
Section 12. Certificate of Adjusted Purchase Price or Number of Shares ... 14
Section 13. Consolidation, Merger or Sale or Transfer of Assets or
Earning Power ................................................ 14
Section 14. Fractional Rights and Fractional Shares ...................... 15
Section 15. Rights of Action ............................................. 16
Section 16. Agreement of Right Holders ................................... 16
Section 17. Right Certificate Holder Not Deemed a Stockholder ............ 16
Section 18. Concerning the Rights Agent .................................. 17
Section 19. Merger or Consolidation or Change of Name of Rights Agent .... 17
Section 20. Duties of Rights Agent ....................................... 18
<PAGE>
Section 21. Change of Rights Agent ....................................... 19
Section 22. Issuance of New Right Certificates ........................... 20
Section 23. Redemption ................................................... 20
Section 24. Exchange ..................................................... 21
Section 25. Notice of Certain Events ..................................... 22
Section 26. Notices ...................................................... 22
Section 27. Supplements and Amendments ................................... 23
Section 28. Successors ................................................... 23
Section 29. Benefits of this Agreement ................................... 23
Section 30. Severability ................................................. 24
Section 31. Governing Law ................................................ 24
Section 32. Counterparts ................................................. 24
Section 33. Descriptive Headings ......................................... 24
<PAGE>
RIGHTS AGREEMENT
Agreement, dated as of May 1, 1999, between Citizens Holding Company,
a Mississippi corporation (the "Company"), and Citizens Bank of Philadelphia, MS
(the "Rights Agent").
The Board of Directors of the Company has authorized and declared a
dividend of one common share purchase right (a "Right") for each Common Share
(as hereinafter defined) of the Company outstanding on May 1, 1999 (the "Record
Date"), each Right representing the right to purchase one Common Share, upon the
terms and subject to the conditions herein set forth, and has further authorized
and directed the issuance of one Right with respect to each Common Share that
shall become outstanding between the Record Date and the earliest of the
Distribution Date, the Redemption Date and the Final Expiration Date (as such
terms are hereinafter defined).
Accordingly, in consideration of the premises and the mutual
agreements herein set forth, the parties hereby agree as follows:
Section 1. Certain Definitions. For purposes of this Agreement, the
following terms have the meanings indicated:
(a) "Acquiring Person" shall mean any Person (as such term is hereinafter
defined) who or which, together with all Affiliates and Associates (as such
terms are hereinafter defined) of such Person, shall be the Beneficial Owner (as
such term is hereinafter defined) of 20% or more of the Common Shares of the
Company then outstanding, but shall not include the Company, any Subsidiary (as
such term is hereinafter defined) of the Company, any employee benefit plan of
the Company or any Subsidiary of the Company, or any entity holding Common
Shares for or pursuant to the terms of any such plan. Notwithstanding the
foregoing, if the Board of Directors of the Company determines in good faith
that a Person who would otherwise be an "Acquiring Person," as defined pursuant
to the foregoing provisions of this paragraph (a), has become such
inadvertently, and such Person divests as promptly as practicable a sufficient
number of Common Shares so that such Person would no longer be an "Acquiring
Person," as defined pursuant to the foregoing provisions of this paragraph (a),
then such Person shall not be deemed to be an "Acquiring Person" for any
purposes of this Agreement.
(b) "Affiliate" and "Associate" shall have the respective meanings ascribed
to such terms in Rule 12b-2 of the General Rules and Regulations under the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), as in effect
on the date of this Agreement.
(c) A Person shall be deemed the "Beneficial Owner" of and shall be deemed
to "beneficially own" any securities:
<PAGE>
(i) which such Person or any of such Person's Affiliates or
Associates beneficially owns, directly or indirectly;
(ii) which such Person or any of such Person's Affiliates or
Associates has (A) the right to acquire (whether such right is exercisable
immediately or only after the passage of time) pursuant to any agreement,
arrangement or understanding (other than customary agreements with and
between underwriters and selling group members with respect to a bona fide
public offering of securities), or upon the exercise of conversion rights,
exchange rights, rights (other than these Rights), warrants or options, or
otherwise; provided, however, that a Person shall not be deemed the
Beneficial Owner of, or to beneficially own, securities tendered pursuant
to a tender or exchange offer made by or on behalf of such Person or any of
such Person's Affiliates or Associates until such tendered securities are
accepted for purchase or exchange; or (B) the right to vote pursuant to any
agreement, arrangement or understanding; provided, however, that a Person
shall not be deemed the Beneficial Owner of, or to beneficially own, any
security if the agreement, arrangement or understanding to vote such
security (1) arises solely from a revocable proxy or consent given to such
Person in response to a public proxy or consent solicitation made pursuant
to, and in accordance with, the applicable rules and regulations
promulgated under the Exchange Act and (2) is not also then reportable on
Schedule 13D under the Exchange Act (or any comparable or successor
report); or
(iii) which are beneficially owned, directly or indirectly, by any
other Person with which such Person or any of such Person's Affiliates or
Associates has any agreement, arrangement or understanding (other than
customary agreements with and between underwriters and selling group
members with respect to a bona fide public offering of securities) for the
purpose of acquiring, holding, voting (except to the extent contemplated by
the proviso to Section 1(c)(ii)(B)) or disposing of any securities of the
Company.
Notwithstanding anything in this definition of Beneficial Ownership to the
contrary, the phrase "then outstanding," when used with reference to a Person's
Beneficial Ownership of securities of the Company, shall mean the number of such
securities then issued and outstanding together with the number of such
securities not then actually issued and outstanding which such Person would be
deemed to own beneficially hereunder.
(d) "Business Day" shall mean any day other than a Saturday, a Sunday, or a
day on which banking institutions in New York are authorized or obligated by law
or executive order to close.
(e) "Close of business" on any given date shall mean 5:00 p.m.,
Philadelphia, Mississippi time, on such date; provided, however, that if such
date is not a Business Day it shall mean 5:00 p.m., Philadelphia, Mississippi
time on the next succeeding Business Day.
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(f) "Common Shares" when used with reference to the Company shall mean the
shares of common stock, par value $.20 per share, of the Company. "Common
Shares" when used with reference to any Person other than the Company shall mean
the capital stock (or equity interest) with the greatest voting power of such
other Person or, if such other Person is a Subsidiary of another Person, the
Person or Persons which ultimately control such first-mentioned Person.
(g) "Distribution Date" shall have the meaning set forth in Section 3
hereof.
(h) "Final Expiration Date" shall have the meaning set forth in Section 7
hereof.
(i) "Person" shall mean any individual, firm, corporation or other entity,
and shall include any successor (by merger or otherwise) of such entity.
(j) "Redemption Date" shall have the meaning set forth in Section 7 hereof.
(k) "Shares Acquisition Date" shall mean the first date of public
announcement by the Company or an Acquiring Person that an Acquiring Person has
become such.
(l) "Subsidiary" of any Person shall mean any corporation or other entity
of which a majority of the voting power of the voting equity securities or
equity interest is owned, directly or indirectly, by such Person.
Section 2. Appointment of Rights Agent. The Company hereby appoints the
Rights Agent to act as agent for the Company and the holders of the Rights (who,
in accordance with Section 3 hereof, shall prior to the Distribution Date also
be the holders of the Common Shares) in accordance with the terms and conditions
hereof, and the Rights Agent hereby accepts such appointment. The Company may
from time to time appoint such co-Rights Agents as it may deem necessary or
desirable.
Section 3. Issuance of Right Certificates. (a) Until the earlier of (i)
the tenth day after the Shares Acquisition Date or (ii) the tenth business day
(or such later date as may be determined by action of the Board of Directors
prior to such time as any Person becomes an Acquiring Person) after the date of
the commencement by any Person (other than the Company any Subsidiary of the
Company, any employee benefit plan of the Company or of any Subsidiary of the
Company or any entity holding Common Shares for or pursuant to the terms of any
such plan) of, or of the first public announcement of the intention of any
Person (other than the Company, any Subsidiary of the Company, any employee
benefit plan of the Company or of any Subsidiary of the Company or any entity
holding Common Shares for or pursuant to the terms of any such plan) to
commence, a tender or exchange offer the consummation of which would result in
any Person becoming the Beneficial Owner of Common Shares aggregating 20% or
more of the then outstanding Common Shares (including any such date which is
after the date of this Agreement and prior to the issuance of the Rights; the
earlier of such dates being herein referred to as the "Distribution Date"), (x)
the Rights will be evidenced (subject to the provisions of Section 3(b)
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hereof) by the certificates for Common Shares registered in the names of the
holders thereof (which certificates shall also be deemed to be Right
Certificates) and not by separate Right Certificates, and (y) the right to
receive Right Certificates will be transferable only in connection with the
transfer of Common Shares. As soon as practicable after the Distribution Date,
the Company will prepare and execute, the Rights Agent will countersign, and the
Company will send or cause to be sent (and the Rights Agent will, if requested,
send) by first-class, insured, postage-prepaid mail, to each record holder of
Common Shares as of the close of business on the Distribution Date, at the
address of such holder shown on the records of the Company, a Right Certificate,
in substantially the form of Exhibit A hereto (a "Right Certificate"),
evidencing one Right for each Common Share so held. As of the Distribution Date,
the Rights will be evidenced solely by such Right Certificates.
(b) On the Record Date, or as soon as practicable thereafter, the Company
will send a copy of a Summary of Rights to Purchase Common Shares, in
substantially the form of Exhibit B hereto (the "Summary of Rights"), by first-
class, postage-prepaid mail, to each record holder of Common Shares as of the
close of business on the Record Date, at the address of such holder shown on the
records of the Company. With respect to certificates for Common Shares
outstanding as of the Record Date, until the Distribution Date, the Rights will
be evidenced by such certificates registered in the names of the holders thereof
together with a copy of the Summary of Rights attached thereto. Until the
Distribution Date (or the earlier of the Redemption Date or the Final Expiration
Date), the surrender for transfer of any certificate for Common Shares
outstanding on the Record Date, with or without a copy of the Summary of Rights
attached thereto, shall also constitute the transfer of the Rights associated
with the Common Shares represented thereby.
(c) Certificates for Common Shares which become outstanding (including,
without limitation, reacquired Common Shares referred to in the last sentence of
this paragraph (c)) after the Record Date but prior to the earliest of the
Distribution Date, the Redemption Date or the Final Expiration Date shall have
impressed on, printed on, written on or otherwise affixed to them the following
legend:
This certificate also evidences and entitles the holder hereof to
certain rights as set forth in a Rights Agreement between Citizens
Holding Company and Citizens Bank of Philadelphia, MS dated as of May
1, 1999 (the "Rights Agreement"), the terms of which are hereby
incorporated herein by reference and a copy of which is on file at the
principal executive offices of Citizens Holding Company. Under
certain circumstances, as set forth in the Rights Agreement, such
Rights will be evidenced by separate certificates and will no longer
be evidenced by this certificate. Citizens Holding Company will mail
to the holder of this certificate a copy of the Rights Agreement
without charge after receipt of a written request therefor. As
described in the Rights Agreement, Rights issued to
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any Person who becomes an Acquiring Person (as defined in the Rights
Agreement) shall become null and void.
With respect to such certificates containing the foregoing legend, until the
Distribution Date, the Rights associated with the Common Shares represented by
such certificates shall be evidenced by such certificates alone, and the
surrender for transfer of any such certificate shall also constitute the
transfer of the Rights associated with the Common Shares represented thereby.
In the event that the Company purchases or acquires any Common Shares after the
Record Date but prior to the Distribution Date, any Rights associated with such
Common Shares shall be deemed cancelled and retired so that the Company shall
not be entitled to exercise any Rights associated with the Common Shares which
are no longer outstanding.
Section 4. Form of Right Certificates. The Right Certificates (and the
forms of election to purchase Common Shares and of assignment to be printed on
the reverse thereof) shall be substantially the same as Exhibit A hereto and may
have such marks of identification or designation and such legends, summaries or
endorsements printed thereon as the Company may deem appropriate and as are not
inconsistent with the provisions of this Agreement, or as may be required to
comply with any applicable law or with any rule or regulation made pursuant
thereto or with any rule or regulation of any stock exchange on which the Rights
may from time to time be listed, or to conform to usage. Subject to the
provisions of Section 22 hereof, the Right Certificates shall entitle the
holders thereof to purchase such number of Common Shares as shall be set forth
therein at the price per Common Share set forth therein (the "Purchase Price"),
but the number of such Common Shares and the Purchase Price shall be subject to
adjustment as provided herein.
Section 5. Countersignature and Registration. The Right Certificates
shall be executed on behalf of the Company by its Chairman of the Board, its
Chief Executive Officer, or its President, either manually or by facsimile
signature, shall have affixed thereto the Company's seal or a facsimile thereof,
and shall be attested by the Secretary or an Assistant Secretary of the Company,
either manually or by facsimile signature. The Right Certificates shall be
manually countersigned by the Rights Agent and shall not be valid for any
purpose unless countersigned. In case any officer of the Company who shall have
signed any of the Right Certificates shall cease to be such officer of the
Company before countersignature by the Rights Agent and issuance and delivery by
the Company, such Right Certificates, nevertheless, may be countersigned by the
Rights Agent and issued and delivered by the Company with the same force and
effect as though the person who signed such Right Certificates had not ceased to
be such officer of the Company; and any Right Certificate may be signed on
behalf of the Company by any person who, at the actual date of the execution of
such Right Certificate, shall be a proper officer of the Company to sign such
Right Certificate, although at the date of the execution of this Rights
Agreement any such person was not such an officer.
Following the Distribution Date, the Rights Agent will keep or cause to be
kept, at its principal office, books for registration and transfer of the Right
Certificates issued hereunder.
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Such books shall show the names and addresses of the respective holders of the
Right Certificates, the number of Rights evidenced on its face by each of the
Right Certificates and the date of each of the Right Certificates.
Section 6. Transfer, Split Up, Combination and Exchange of Right
Certificates; Mutilated, Destroyed, Lost or Stolen Right Certificates. Subject
to the provisions of Section 14 hereof, at any time after the close of business
on the Distribution Date, and at or prior to the close of business on the
earlier of the Redemption Date or the Final Expiration Date, any Right
Certificate or Right Certificates (other than Right Certificates representing
Rights that have become void pursuant to Section 11(a)(ii) hereof or that have
been exchanged pursuant to Section 24 hereof) may be transferred, split up,
combined or exchanged for another Right Certificate or Right Certificates,
entitling the registered holder to purchase a like number of Common Shares as
the Right Certificate or Right Certificates surrendered then entitled such
holder to purchase. Any registered holder desiring to transfer, split up,
combine or exchange any Right Certificate or Right Certificates shall make such
request in writing delivered to the Rights Agent, and shall surrender the Right
Certificate or Right Certificates to be transferred, split up, combined or
exchanged at the principal office of the Rights Agent. Thereupon, the Rights
Agent shall countersign and deliver to the person entitled thereto a Right
Certificate or Right Certificates, as the case may be, as so requested. The
Company may require payment of a sum sufficient to cover any tax or governmental
charge that may be imposed in connection with any transfer, split up,
combination or exchange of Right Certificates.
Upon receipt by the Company and the Rights Agent of evidence reasonably
satisfactory to them of the loss, theft, destruction or mutilation of a Right
Certificate, and, in case of loss, theft or destruction, of indemnity or
security reasonably satisfactory to them, and, at the Company's request,
reimbursement to the Company and the Rights Agent of all reasonable expenses
incidental thereto, and upon surrender to the Rights Agent and cancellation of
the Right Certificate, if mutilated, the Company will make and deliver a new
Right Certificate of like tenor to the Rights Agent for delivery to the
registered holder in lieu of the Right Certificate so lost, stolen, destroyed or
mutilated.
Section 7. Exercise of Rights; Purchase Price; Expiration Date of Rights.
(a) The registered holder of any Right Certificate may exercise the Rights
evidenced thereby (except as otherwise provided herein) in whole or in part at
any time after the Distribution Date upon surrender of the Right Certificate,
with the form of election to purchase on the reverse side thereof duly executed,
to the Rights Agent at the principal office of the Rights Agent, together with
payment of the Purchase Price for each Common Share as to which the Rights are
exercised, at or prior to the earliest of (i) the close of business on May 1,
2009 (the "Final Expiration Date"), (ii) the time at which the Rights are
redeemed as provided in Section 23 hereof (the "Redemption Date"), or (iii) the
time at which such Rights are exchanged as provided in Section 24 hereof.
(b) The Purchase Price for each Common Share purchasable pursuant to the
exercise of a Right shall initially be $150.00, and shall be subject to
adjustment from time to time as
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provided in Sections 11 and 13 hereof and shall be payable in lawful money of
the United States of America in accordance with paragraph (c) below.
(c) Upon receipt of a Right Certificate representing exercisable Rights,
with the form of election to purchase duly executed, accompanied by payment of
the Purchase Price for the shares to be purchased and an amount equal to any
applicable transfer tax required to be paid by the holder of such Right
Certificate in accordance with Section 9 hereof by certified check, cashier's
check or money order payable to the order of the Company, the Rights Agent shall
thereupon promptly (i) requisition from any transfer agent of the Common Shares
certificates for the number of Common Shares to be purchased and the Company
hereby irrevocably authorizes its transfer agent to comply with all such
requests, (ii) when appropriate, requisition from the Company the amount of cash
to be paid in lieu of issuance of fractional shares in accordance with Section
14 hereof, (iii) after receipt of such certificates, cause the same to be
delivered to or upon the order of the registered holder of such Right
Certificate, registered in such name or names as may be designated by such
holder, and (iv) when appropriate, after receipt, deliver such cash to or upon
the order of the registered holder of such Right Certificate.
(d) In case the registered holder of any Right Certificate shall exercise
less than all the Rights evidenced thereby, a new Right Certificate evidencing
Rights equivalent to the Rights remaining unexercised shall be issued by the
Rights Agent to the registered holder of such Right Certificate or to his duly
authorized assigns, subject to the provisions of Section 14 hereof.
(e) The issuance of Rights pursuant to this Agreement shall be deemed to be
an issuance of rights created in connection with the prior and prospective
issuance and sale of the Company's Common Shares and has been authorized by a
vote of the Board of Directors of the Company by a vote of more than two-thirds
of the directors then in office. If any registered holder of Rights, other than
Rights that are or were acquired or beneficially owned by any Acquiring Person
or any Associate or Affiliate of such Acquiring Person and voided pursuant to
Section 11(a)(ii) of this Agreement, is prevented from exercising the Rights
pursuant to the terms of this Section 7 of the Agreement or any other section of
this Agreement for reasons other than as set forth in this Agreement, then the
Company shall take all steps necessary and obtain all required authorizations to
allow such registered holder to exercise his or her Rights. If the Company is
unable to take steps necessary or obtain required authorizations to allow such
holder to exercise his or her Rights, then the Company shall provide cash
compensation to such registered holder in such an amount as is required to place
said registered holder in the same economic position to the fullest extent
possible after giving effect to taxes and all other relevant considerations as
he or she would have been in had he or she been permitted to exercise the Rights
as contemplated by the terms of this Agreement; provided, however, that if the
Company is unable to pay such cash compensation or if the obligation of the
Company to pay such cash compensation is unenforceable, then no Rights granted
pursuant to this Agreement shall be exercisable until such time as all holders
intended to be able to exercise Rights under the terms of this Agreement are
permitted to do so.
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<PAGE>
Section 8. Cancellation and Destruction of Right Certificates. All Right
Certificates surrendered for the purpose of exercise, transfer, split up,
combination or exchange shall, if surrendered to the Company or to any of its
agents, be delivered to the Rights Agent for cancellation or in cancelled form,
or, if surrendered to the Rights Agent, shall be cancelled by it, and no Right
Certificates shall be issued in lieu thereof except as expressly permitted by
any of the provisions of this Rights Agreement. The Company shall deliver to
the Rights Agent for cancellation and retirement, and the Rights Agent shall so
cancel and retire, any other Right Certificate purchased or acquired by the
Company otherwise than upon the exercise thereof. The Rights Agent shall
deliver all cancelled Right Certificates to the Company, or shall, at the
written request of the Company, destroy such cancelled Right Certificates, and
in such case shall deliver a certificate of destruction thereof to the Company.
Section 9. Availability of Common Shares. The Company covenants and
agrees that it will cause to be reserved and kept available out of its
authorized and unissued Common Shares or any Common Shares held in its treasury,
the number of Common Shares that will be sufficient to permit the exercise in
full of all outstanding Rights in accordance with Section 7. The Company
covenants and agrees that it will take all such action as may be necessary to
ensure that all Common Shares delivered upon exercise of Rights shall, at the
time of delivery of the certificates for such Common Shares (subject to payment
of the Purchase Price), be duly and validly authorized and issued and fully paid
and nonassessable shares.
The Company further covenants and agrees that it will pay when due and
payable any and all federal and state transfer taxes and charges which may be
payable in respect of the issuance or delivery of the Right Certificates or of
any Common Shares upon the exercise of Rights. The Company shall not, however,
be required to pay any transfer tax which may be payable in respect of any
transfer or delivery of Right Certificates to a person other than, or the
issuance or delivery of certificates for the Common Shares in a name other than
that of, the registered holder of the Right Certificate evidencing Rights
surrendered for exercise or to issue or to deliver any certificates for Common
Shares upon the exercise of any Rights until any such tax shall have been paid
(any such tax being payable by the holder of such Right Certificate at the time
of surrender) or until it has been established to the Company's reasonable
satisfaction that no such tax is due.
Section 10. Common Shares Record Date. Each person in whose name any
certificate for Common Shares is issued upon the exercise of Rights shall for
all purposes be deemed to have become the holder of record of the Common Shares
represented thereby on, and such certificate shall be dated, the date upon which
the Right Certificate evidencing such Rights was duly surrendered and payment of
the Purchase Price (and any applicable transfer taxes) was made; provided,
however, that if the date of such surrender and payment is a date upon which the
Common Shares transfer books of the Company are closed, such person shall be
deemed to have become the record holder of such shares on, and such certificate
shall be dated, the next succeeding Business Day on which the Common Shares
transfer books of the Company are open. Prior to the exercise of the Rights
evidenced thereby, the holder of a Right Certificate shall not be entitled to
any rights of a holder of Common Shares for which the Rights shall be
exercisable,
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including, without limitation, the right to vote, to receive dividends or other
distributions or to exercise any preemptive rights, and shall not be entitled to
receive any notice of any proceedings of the Company, except as provided herein.
Section 11. Adjustment of Purchase Price; Number of Shares or Number of
Rights. The Purchase Price, the number of Common Shares covered by each Right
and the number of Rights outstanding are subject to adjustment from time to time
as provided in this Section 11.
(a) (i) In the event the Company shall at any time after the date of
this Agreement (A) declare a dividend on the Common Shares payable in
Common Shares, (B) subdivide the outstanding Common Shares, (C) combine the
outstanding Common Shares into a smaller number of Common Shares, or (D)
issue any shares of its capital stock in a reclassification of the Common
Shares (including any such reclassification in connection with a
consolidation or merger in which the Company is the continuing or surviving
corporation), except as otherwise provided in this Section 11(a), the
Purchase Price in effect at the time of the record date for such dividend
or of the effective date of such subdivision, combination or
reclassification, and the number and kind of shares of capital stock
issuable on such date, shall be proportionately adjusted so that the holder
of any Right exercised after such time shall be entitled to receive the
aggregate number and kind of shares of capital stock which, if such Right
had been exercised immediately prior to such date and at a time when the
Common Shares transfer books of the Company were open, he would have owned
upon such exercise and been entitled to receive by virtue of such dividend,
subdivision, combination or reclassification; provided, however, that in no
event shall the consideration to be paid upon the exercise of one Right be
less than the aggregate par value of the shares of capital stock of the
Company issuable upon exercise of one Right.
(ii) Subject to Section 24 of this Agreement, in the event that any
Person should become an Acquiring Person, each holder of a Right shall
thereafter have a right to receive, upon exercise thereof at a price equal
to the then current Purchase Price multiplied by the number of Common
Shares for which a Right is then exercisable, in accordance with the terms
of this Agreement, such number of Common Shares of the Company as shall
equal the result obtained by (x) multiplying the then current Purchase
Price by the number of Common Shares for which a Right is then exercisable
and dividing that product by (y) 50% of the then current per share market
price of the Company's Common Shares (determined pursuant to Section 11(d)
hereof) on the date of the occurrence of such event. In the event that any
Person shall become an Acquiring Person and the Rights shall then be
outstanding, the Company shall not take any action which would eliminate or
diminish the benefits intended to be afforded by the Rights.
From and after the occurrence of such event, any Rights that are or were
acquired or beneficially owned by any Acquiring Person or any Associate or
Affiliate of such Acquiring Person (including, without limitation, any Rights
issued in respect of any Common Shares that are beneficially owned by any
Acquiring Person at the time such Acquiring Person becomes an
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<PAGE>
Acquiring Person) shall be void and any holder of such Rights shall thereafter
have no right to exercise such Rights under any provision of this Agreement. No
Right Certificate shall be issued pursuant to Section 3 that represents Rights
beneficially owned by an Acquiring Person whose Rights would be void pursuant to
the preceding sentence or any Associate or Affiliate thereof; no Right
Certificate shall be issued at any time upon the transfer of any Rights to an
Acquiring Person whose Rights would be void pursuant to the preceding sentence
or any Associate or Affiliate thereof or to any nominee of such Acquiring
Person, Associate or Affiliate; and any Right Certificate delivered to the
Rights Agent for transfer to an Acquiring Person whose Rights would be void
pursuant to the preceding sentence shall be cancelled.
(iii) In the event that there shall not be sufficient Common Shares
issued but not outstanding or authorized but unissued to permit the
exercise in full of the Rights in accordance with the foregoing
subparagraph (ii), the Company shall take all such action as may be
necessary to authorize additional Common Shares for issuance upon exercise
of the Rights.
(b) In case the Company shall fix a record date for the issuance of rights,
options or warrants to all holders of Common Shares entitling them (for a period
expiring within 45 calendar days after such record date) to subscribe for or
purchase Common Shares or securities convertible into Common Shares at a price
per Common Share (or having a conversion price per share, if a security
convertible into Common Shares) less than the then current per share market
price of the Common Shares (as defined in Section 11(d)) on such record date,
the Purchase Price to be in effect after such record date shall be determined by
multiplying the Purchase Price in effect immediately prior to such record date
by a fraction, the numerator of which shall be the number of Common Shares
outstanding on such record date plus the number of Common Shares which the
aggregate offering price of the total number of Common Shares so to be offered
(and/or the aggregate initial conversion price of the convertible securities so
to be offered) would purchase at such current market price and the denominator
of which shall be the number of Common Shares outstanding on such record date
plus the number of additional Common Shares to be offered for subscription or
purchase (or into which the convertible securities so to be offered are
initially convertible); provided, however, that in no event shall the
consideration to be paid upon the exercise of one Right be less than the
aggregate par value of the shares of capital stock of the Company issuable upon
exercise of one Right. In case such subscription price may be paid in a
consideration part or all of which shall be in a form other than cash, the value
of such consideration shall be as determined in good faith by the Board of
Directors of the Company, whose determination shall be described in a statement
filed with the Rights Agent. Common Shares owned by or held for the account of
the Company shall not be deemed outstanding for the purpose of any such
computation. Such adjustment shall be made successively whenever such a record
date is fixed; and in the event that such rights, options or warrants are not so
issued, the Purchase Price shall be adjusted to be the Purchase Price which
would then be in effect if such record date had not been fixed.
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(c) In case the Company shall fix a record date for the making of a
distribution to all holders of the Common Shares (including any such
distribution made in connection with a consolidation or merger in which the
Company is the continuing or surviving corporation) of evidences of indebtedness
or assets (other than a regular quarterly cash dividend or a dividend payable in
Common Shares) or subscription rights or warrants (excluding those referred to
in Section 11(b) hereof), the Purchase Price to be in effect after such record
date shall be determined by multiplying the Purchase Price in effect immediately
prior to such record date by a fraction, the numerator of which shall be the
then current per share market price of the Common Shares on such record date,
less the fair market value (as determined in good faith by the Board of
Directors of the Company whose determination shall be described in a statement
filed with the Rights Agent) of the portion of the assets or evidences of
indebtedness so to be distributed or of such subscription rights or warrants
applicable to one Common Share and the denominator of which shall be such
current per share market price of the Common Shares; provided, however, that in
no event shall the consideration to be paid upon the exercise of one Right be
less than the aggregate par value of the shares of capital stock of the Company
to be issued upon exercise of one Right. Such adjustments shall be made
successively whenever such a record date is fixed; and in the event that such
distribution is not so made, the Purchase Price shall again be adjusted to be
the Purchase Price which would then be in effect if such record date had not
been fixed.
(d) For the purpose of any computation hereunder, the "current per share
market price" of the Common Shares on any date shall be deemed to be the average
of the daily closing prices per share of such Common Shares for the 30
consecutive Trading Days (as such term is hereinafter defined) immediately prior
to such date; provided, however, that in the event that the current per share
market price of the Common Shares is determined during a period following the
announcement by the issuer of such Common Shares of (A) a dividend or
distribution on such Common Shares payable in shares of such Common Shares or
securities convertible into such shares, or (B) any subdivision, combination or
reclassification of such Common Shares and prior to the expiration of 30 Trading
Days after the ex-dividend date for such dividend or distribution, or the record
date for such subdivision, combination or reclassification, then, and in each
such case, the current per share market price shall be appropriately adjusted to
reflect the current market price per Common Share. The closing price for each
day shall be the last sale price, regular way, or, in case no such sale takes
place on such day, the average of the closing bid and asked prices, regular way,
in either case as reported in the principal consolidated transaction reporting
system with respect to securities listed on the principal national securities
exchange on which the Common Shares are listed or admitted to trading or, if the
Common Shares are not listed or admitted to trading on any national securities
exchange, the last quoted price or, if not so quoted, the average of the high
bid and low asked prices in the over-the-counter market, as reported by the
National Association of Securities Dealers, Inc. Automated Quotations System
("NASDAQ") or such other system then in use, or, if on any such date the Common
Shares are not quoted by any such organization, the average of the closing bid
and asked prices as furnished by a professional market maker making a market in
the Common Shares selected by the Board of Directors of the Company. The term
"Trading Day" shall mean a day on which the principal national securities
exchange on which the Common Shares are listed or admitted to trading is open
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for the transaction of business or, if the Common Shares are not listed or
admitted to trading on any national securities exchange, a Business Day. If the
Common Shares are not publicly held or so listed or traded, "current per share
market price" shall mean the fair value per share as determined in good faith by
the Board of Directors of the Company, whose determination shall be described in
a statement filed with the Rights Agent.
(e) No adjustment in the Purchase Price shall be required unless such
adjustment would require an increase or decrease of at least 1% in the Purchase
Price; provided, however, that any adjustments which by reason of this Section
11(e) are not required to be made shall be carried forward and taken into
account in any subsequent adjustment. All calculations under this Section 11
shall be made to the nearest cent or to the nearest one ten-thousandth of a
share as the case may be. Notwithstanding the first sentence of this Section
11(e), any adjustment required by this Section 11 shall be made no later than
the earlier of (i) three years from the date of the transaction which requires
such adjustment or (ii) the date of the expiration of the right to exercise any
Rights.
(f) If as a result of an adjustment made pursuant to Section 11(a) hereof,
the holder of any Right thereafter exercised shall become entitled to receive
any shares of capital stock of the Company other than Common Shares, thereafter
the number of such other shares so receivable upon exercise of any Right shall
be subject to adjustment from time to time in a manner and on terms as nearly
equivalent as practicable to the provisions with respect to the Common Shares
contained in Section 11(a) through (c), inclusive, and the provisions of
Sections 7, 9, 10 and 13 with respect to the Common Shares shall apply on like
terms to any such other shares.
(g) All Rights originally issued by the Company subsequent to any
adjustment made to the Purchase Price hereunder shall evidence the right to
purchase, at the adjusted Purchase Price, the number of Common Shares
purchasable from time to time hereunder upon exercise of the Rights, all subject
to further adjustment as provided herein.
(h) Unless the Company shall have exercised its election as provided in
Section 11(i), upon each adjustment of the Purchase Price as a result of the
calculations made in Sections 11(b) and (c), each Right outstanding immediately
prior to the making of such adjustment shall thereafter evidence the right to
purchase, at the adjusted Purchase Price, that number of Common Shares
(calculated to the nearest one ten-thousandth of a share) obtained by (i)
multiplying (x) the number of shares covered by a Right immediately prior to
this adjustment by (y) the Purchase Price in effect immediately prior to such
adjustment of the Purchase Price and (ii) dividing the product so obtained by
the Purchase Price in effect immediately after such adjustment of the Purchase
Price.
(i) The Company may elect on or after the date of any adjustment of the
Purchase Price to adjust the number of Rights, in substitution for any
adjustment in the number of Common Shares purchasable upon the exercise of a
Right. Each of the Rights outstanding after such adjustment of the number of
Rights shall be exercisable for the number of Common Shares for
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which a Right was exercisable immediately prior to such adjustment. Each Right
held of record prior to such adjustment of the number of Rights shall become
that number of Rights (calculated to the nearest one ten-thousandth) obtained by
dividing the Purchase Price in effect immediately prior to adjustment of the
Purchase Price by the Purchase Price in effect immediately after adjustment of
the Purchase Price. The Company shall make a public announcement of its election
to adjust the number of Rights, indicating the record date for the adjustment,
and, if known at the time, the amount of the adjustment to be made. This record
date may be the date on which the Purchase Price is adjusted or any day
thereafter, but, if the Right Certificates have been issued, shall be at least
10 days later than the date of the public announcement. If Right Certificates
have been issued, upon each adjustment of the number of Rights pursuant to this
Section 11(i), the Company shall, as promptly as practicable, cause to be
distributed to holders of record of Right Certificates on such record date Right
Certificates evidencing, subject to Section 14 hereof, the additional Rights to
which such holders shall be entitled as a result of such adjustment, or, at the
option of the Company, shall cause to be distributed to such holders of record
in substitution and replacement for the Right Certificates held by such holders
prior to the date of adjustment, and upon surrender thereof, if required by the
Company, new Right Certificates evidencing all the Rights to which such holders
shall be entitled after such adjustment. Right Certificates so to be distributed
shall be issued, executed and countersigned in the manner provided for herein
and shall be registered in the names of the holders of record of Right
Certificates on the record date specified in the public announcement.
(j) Irrespective of any adjustment or change in the Purchase Price or the
number of Common Shares issuable upon the exercise of the Rights, the Right
Certificates theretofore and thereafter issued may continue to express the
Purchase Price and the number of Common Shares which were expressed in the
initial Right Certificates issued hereunder.
(k) Before taking any action that would cause an adjustment reducing the
Purchase Price below the then par value, if any, of the Common Shares issuable
upon exercise of the Rights, the Company shall take any corporate action which
may, in the opinion of its counsel, be necessary in order that the Company may
validly and legally issue fully paid and nonassessable Common Shares at such
adjusted Purchase Price.
(l) In any case in which this Section 11 shall require that an adjustment
in the Purchase Price be made effective as of a record date for a specified
event, the Company may elect to defer until the occurrence of such event the
issuing to the holder of any Right exercised after such record date of the
Common Shares and other capital stock or securities of the Company, if any,
issuable upon such exercise over and above the Common Shares and other capital
stock or securities of the Company, if any, issuable upon such exercise on the
basis of the Purchase Price in effect prior to such adjustment; provided,
however, that the Company shall deliver to such holder a due bill or other
appropriate instrument evidencing such holder's right to receive such additional
shares upon the occurrence of the event requiring such adjustment.
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(m) Anything in this Section 11 to the contrary notwithstanding, the
Company shall be entitled to make such reductions in the Purchase Price, in
addition to those adjustments expressly required by this Section 11, as and to
the extent that it in its sole discretion shall determine to be advisable in
order that any consolidation or subdivision of the Common Shares, issuance
wholly for cash of any Common Shares at less than the current market price,
issuance wholly for cash of Common Shares or securities which by their terms are
convertible into or exchangeable for Common Shares, dividends on Common Shares
payable in Common Shares or issuance of rights, options or warrants referred to
hereinabove in Section 11(b), hereafter made by the Company to holders of its
Common Shares shall not be taxable to such stockholders.
Section 12. Certificate of Adjusted Purchase Price or Number of Shares.
Whenever an adjustment is made as provided in Section 11 or 13 hereof, the
Company shall promptly (a) prepare a certificate setting forth such adjustment,
and a brief statement of the facts accounting for such adjustment, (b) file with
the Rights Agent and with each transfer agent for the Common Shares a copy of
such certificate, and (c) mail a brief summary thereof to each holder of a Right
Certificate in accordance with Section 25 hereof.
Section 13. Consolidation, Merger or Sale or Transfer of Assets or Earning
Power. In the event, directly or indirectly, at any time after a Person has
become an Acquiring Person (a) the Company shall consolidate with, or merge with
and into, any other Person, (b) any Person shall consolidate with the Company,
or merge with and into the Company and the Company shall be the continuing or
surviving entity of such merger and, in connection with such merger, all or part
of the Common Shares shall be changed into or exchanged for stock or other
securities of any other Person (or the Company) or cash or any other property,
or (c) the Company shall sell or otherwise transfer (or one or more of its
Subsidiaries shall sell or otherwise transfer), in one or more transactions,
assets or earning power aggregating 50% or more of the assets or earning power
of the Company and its Subsidiaries (taken as a whole) to any other Person other
than the Company or one or more of its wholly owned Subsidiaries, then, and in
each such case, proper provision shall be made so that (i) each holder of a
Right (except as otherwise provided herein) shall thereafter have the right to
receive, upon the exercise thereof at a price equal to the then current Purchase
Price multiplied by the number of Common Shares for which a Right is then
exercisable, in accordance with the terms of this Agreement, such number of
Common Shares of such other Person (including the Company as successor thereto
or as the surviving entity) as shall equal the result obtained by (A)
multiplying the then current Purchase Price by the number of Common Shares for
which a Right is then exercisable and dividing that product by (B) 50% of the
then current per share market price of the Common Shares of such other Person
(determined pursuant to Section 11(d) hereof) on the date of consummation of
such consolidation, merger, sale or transfer; (ii) the issuer of such Common
Shares shall thereafter be liable for, and shall assume, by virtue of such
consolidation, merger, sale or transfer, all the obligations and duties of the
Company pursuant to this Agreement; (iii) the term "Company" shall thereafter be
deemed to refer to such issuer; and (iv) such issuer shall take such steps
(including, but not limited to, the reservation of a sufficient number of its
Common Shares in accordance with Section 9 hereof) in connection with such
consummation as may be necessary to assure that the provisions hereof shall
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thereafter be applicable, as nearly as reasonably may be, in relation to the
Common Shares thereafter deliverable upon the exercise of the Rights. The
Company shall not consummate any such consolidation, merger, sale or transfer
unless prior thereto the Company and such issuer shall have executed and
delivered to the Rights Agent a supplemental agreement so providing, which
agreement shall provide among other things that all Persons who are registered
holders of the Rights entitled to exercise said Rights in accordance with the
provisions of this Agreement shall be entitled to exercise the Rights as
provided hereunder without any restrictions being imposed thereon. The Company
shall not enter into any transaction of the kind referred to in this Section 13
if at the time of such transaction there are any rights, warrants, instruments
or securities outstanding or any agreements or arrangements which, as a result
of the consummation of such transaction, would eliminate or substantially
diminish the benefits intended to be afforded by the Rights. The provisions of
this Section 13 shall similarly apply to successive mergers or consolidations or
sales or other transfers.
Section 14. Fractional Rights and Fractional Shares. (a) The Company
shall not be required to issue fractions of Rights or to distribute Right
Certificates which evidence fractional Rights. In lieu of such fractional
Rights, there shall be paid to the registered holders of the Right Certificates
with regard to which such fractional Rights would otherwise be issuable, an
amount in cash equal to the same fraction of the current market value of a whole
Right. For the purposes of this Section 14(a), the current market value of a
whole Right shall be the closing price of the Rights for the Trading Day
immediately prior to the date on which such fractional Rights would have been
otherwise issuable. The closing price for any day shall be the last sale price,
regular way, or in case no such sale takes place on such day, the average of the
closing bid and asked prices, regular way, in either case as reported in the
principal consolidated transaction reporting system with respect to securities
listed or admitted to trading on the New York Stock Exchange or, if the Rights
are not listed or admitted to trading on the New York Stock Exchange, as
reported in the principal consolidated transaction reporting system with respect
to securities listed on the principal national securities exchange on which the
Rights are listed or admitted to trading or, if the Rights are not listed or
admitted to trading on any national securities exchange, the last quoted price
or, if not so quoted, the average of the high bid and low asked prices in the
over-the-counter market, as reported by NASDAQ or such other system then in use
or, if on any such date the Rights are not quoted by any such organization the
average of the closing bid and asked prices as furnished by a professional
market maker making a market in the Rights selected by the Board of Directors of
the Company. If on any such date no such market maker is making a market in the
Rights, the fair value of the Rights on such date as determined in good faith by
the Board of Directors of the Company shall be used.
(b) The Company shall not be required to issue fractions of Common Shares
upon exercise of the Rights or to distribute certificates which evidence
fractional Common Shares. In lieu of fractional Common Shares, the Company
shall pay to the registered holders of Right Certificates at the time such
Rights are exercised as herein provided an amount in cash equal to the same
fraction of the current market value of one Common Share. For the purposes of
this Section 14(b), the current market value of a Common Share shall be the
closing price of a
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Common Share (as determined pursuant to the second sentence of Section 11(d)(i)
hereof) for the Trading Day immediately prior to the date of such exercise.
(c) The holder of a Right by the acceptance of the Right expressly waives
his right to receive any fractional Rights or any fractional shares upon
exercise of a Right (except as provided above).
Section 15. Rights of Action. All rights of action in respect of this
Agreement, excepting the rights of action given to the Rights Agent under
Section 18 hereof, are vested in the respective registered holders of the Right
Certificates (and, prior to the Distribution Date, the registered holders of the
Common Shares); and any registered holder of any Right Certificate (or, prior to
the Distribution Date, of the Common Shares), without the consent of the Rights
Agent or of the holder of any other Right Certificate (or, prior to the
Distribution Date, of the Common Shares), may, in his own behalf and for his own
benefit, enforce, and may institute and maintain any suit, action or proceeding
against the Company to enforce, or otherwise act in respect of, his right to
exercise the Rights evidenced by such Right Certificate in the manner provided
in such Right Certificate and in this Agreement. Without limiting the foregoing
or any remedies available to the holders of Rights, it is specifically
acknowledged that the holders of Rights would not have an adequate remedy at law
for any breach of this Agreement and will be entitled to specific performance of
the obligations under, and injunctive relief against actual or threatened
violations of the obligations of any Person subject to, this Agreement.
Section 16. Agreement of Right Holders. Every holder of a Right, by
accepting the same, consents and agrees with the Company and the Rights Agent
and with every other holder of a Right that:
(a) prior to the Distribution Date, the Rights will be transferable only in
connection with the transfer of the Common Shares;
(b) after the Distribution Date, the Right Certificates are transferable
only on the registry books of the Rights Agent if surrendered at the principal
office of the Rights Agent, duly endorsed or accompanied by a proper instrument
of transfer; and
(c) the Company and the Rights Agent may deem and treat the person in whose
name the Right Certificate (or, prior to the Distribution Date, the associated
Common Shares certificate) is registered as the absolute owner thereof and of
the Rights evidenced thereby (notwithstanding any notations of ownership or
writing on the Right Certificates or the associated Common Shares certificate
made by anyone other than the Company or the Rights Agent) for all purposes
whatsoever, and neither the Company nor the Rights Agent shall be affected by
any notice to the contrary.
Section 17. Right Certificate Holder Not Deemed a Stockholder. No holder,
as such, of any Right Certificate shall be entitled to vote, receive dividends
or be deemed for any purpose the
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<PAGE>
holder of the Common Shares or any other securities of the Company which may at
any time be issuable on the exercise of the Rights represented thereby, nor
shall anything contained herein or in any Right Certificate be construed to
confer upon the holder of any Right Certificate, as such, any of the rights of a
stockholder of the Company or any right to vote for the election of directors or
upon any matter submitted to stockholders at any meeting thereof, or to give or
withhold consent to any corporate action, or to receive notice of meetings or
other actions affecting stockholders (except as provided in Section 25 hereof),
or to receive dividends or subscription rights, or otherwise, until the Right or
Rights evidenced by such Right Certificate shall have been exercised in
accordance with the provisions hereof.
Section 18. Concerning the Rights Agent. The Company agrees to pay to the
Rights Agent reasonable compensation for all services rendered by it hereunder
and, from time to time, on demand of the Rights Agent, its reasonable expenses
and counsel fees and other disbursements incurred in the administration and
execution of this Agreement and the exercise and performance of its duties
hereunder. The Company also agrees to indemnify the Rights Agent for, and to
hold it harmless against, any loss, liability, or expense, incurred without
negligence, bad faith or wilful misconduct on the part of the Rights Agent, for
anything done or omitted by the Rights Agent in connection with the acceptance
and administration of this Agreement, including the costs and expenses of
defending against any claim of liability in the premises.
The Rights Agent shall be protected and shall incur no liability for, or in
respect of any action taken, suffered or omitted by it in connection with, its
administration of this Agreement in reliance upon any Right Certificate or
certificate for the Common Shares or for other securities of the Company,
instrument of assignment or transfer, power of attorney, endorsement, affidavit,
letter, notice, direction, consent, certificate, statement, or other paper or
document believed by it to be genuine and to be signed, executed and, where
necessary, verified or acknowledged, by the proper person or persons, or
otherwise upon the advice of counsel as set forth in Section 20 hereof.
Section 19. Merger or Consolidation or Change of Name of Rights Agent.
Any corporation into which the Rights Agent or any successor Rights Agent may be
merged or with which it may be consolidated, or any corporation resulting from
any merger or consolidation to which the Rights Agent or any successor Rights
Agent shall be a party, or any corporation succeeding to the stock transfer or
corporate trust powers of the Rights Agent or any successor Rights Agent, shall
be the successor to the Rights Agent under this Agreement without the execution
or filing of any paper or any further act on the part of any of the parties
hereto; provided that such corporation would be eligible for appointment as a
successor Rights Agent under the provisions of Section 21 hereof. In case at
the time such successor Rights Agent shall succeed to the agency created by this
Agreement, any of the Right Certificates shall have been countersigned but not
delivered, any such successor Rights Agent may adopt the countersignature of the
predecessor Rights Agent and deliver such Right Certificates so countersigned;
and in case at that time any of the Right Certificates shall not have been
countersigned, any successor Rights Agent may countersign such Right
Certificates either in the name of the predecessor Rights Agent
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or in the name of the successor Rights Agent; and in all such cases such Right
Certificates shall have the full force provided in the Right Certificates and in
this Agreement.
In case at any time the name of the Rights Agent shall be changed and at
such time any of the Right Certificates shall have been countersigned but not
delivered, the Rights Agent may adopt the countersignature under its prior name
and deliver Right Certificates so countersigned; and in case at that time any of
the Right Certificates shall not have been countersigned, the Rights Agent may
countersign such Right Certificates either in its prior name or in its changed
name; and in all such cases such Right Certificates shall have the full force
provided in the Right Certificates and in this Agreement.
Section 20. Duties of Rights Agent. The Rights Agent undertakes the
duties and obligations imposed by this Agreement upon the following terms and
conditions, by all of which the Company and the holders of Right Certificates,
by their acceptance thereof, shall be bound:
(a) The Rights Agent may consult with legal counsel (who may be legal
counsel for the Company), and the opinion of such counsel shall be full and
complete authorization and protection to the Rights Agent as to any action taken
or omitted by it in good faith and in accordance with such opinion.
(b) Whenever in the performance of its duties under this Agreement the
Rights Agent shall deem it necessary or desirable that any fact or matter be
proved or established by the Company prior to taking or suffering any action
hereunder, such fact or matter (unless other evidence in respect thereof be
herein specifically prescribed) may be deemed to be conclusively proved and
established by a certificate signed by any one of the Chairman of the Board, the
Chief Executive Officer, or the President of the Company and delivered to the
Rights Agent; and such certificate shall be full authorization to the Rights
Agent for any action taken or suffered in good faith by it under the provisions
of this Agreement in reliance upon such certificate.
(c) The Rights Agent shall be liable hereunder to the Company and any other
Person only for its own negligence, bad faith or wilful misconduct.
(d) The Rights Agent shall not be liable for or by reason of any of the
statements of fact or recitals contained in this Agreement or in the Right
Certificates (except its countersignature thereof) or be required to verify the
same, but all such statements and recitals are and shall be deemed to have been
made by the Company only.
(e) The Rights Agent shall not be under any responsibility in respect of
the validity of this Agreement or the execution and delivery hereof (except the
due execution hereof by the Rights Agent) or in respect of the validity or
execution of any Right Certificate (except its countersignature thereof); nor
shall it be responsible for any breach by the Company of any covenant or
condition contained in this Agreement or in any Right Certificate; nor shall it
be responsible for any change in the exercisability of the Rights (including the
Rights becoming void
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pursuant to Section 11(a)(ii) hereof) or any adjustment in the terms of the
Rights (including the manner, method or amount thereof) provided for in Section
3, 11, 13, 23 or 24, or the ascertaining of the existence of facts that would
require any such change or adjustment (except with respect to the exercise of
Rights evidenced by Right Certificates after actual notice that such change or
adjustment is required); nor shall it by any act hereunder be deemed to make any
representation or warranty as to the authorization or reservation of any Common
Shares to be issued pursuant to this Agreement or any Right Certificate or as to
whether any Common Shares will, when issued, be validly authorized and issued,
fully paid and nonassessable.
(f) The Company agrees that it will perform, execute, acknowledge and
deliver or cause to be performed, executed, acknowledged and delivered all such
further and other acts, instruments and assurances as may reasonably be required
by the Rights Agent for the carrying out or performing by the Rights Agent of
the provisions of this Agreement.
(g) The Rights Agent is hereby authorized and directed to accept
instructions with respect to the performance of its duties hereunder from any
one of the Chairman of the Board, the Chief Executive Officer, or the President
of the Company, and to apply to such officers for advice or instructions in
connection with its duties, and it shall not be liable for any action taken or
suffered by it in good faith in accordance with instructions of any such officer
or for any delay in acting while waiting for those instructions.
(h) The Rights Agent and any stockholder, director, officer or employee of
the Rights Agent may buy, sell or deal in any of the Rights or other securities
of the Company or become pecuniarily interested in any transaction in which the
Company may be interested, or contract with or lend money to the Company or
otherwise act as fully and freely as though it were not Rights Agent under this
Agreement. Nothing herein shall preclude the Rights Agent from acting in any
other capacity for the Company or for any other legal entity.
(i) The Rights Agent may execute and exercise any of the rights or powers
hereby vested in it or perform any duty hereunder either itself or by or through
its attorneys or agents, and the Rights Agent shall not be answerable or
accountable for any act, default, neglect or misconduct of any such attorneys or
agents or for any loss to the Company resulting from any such act, default,
neglect or misconduct, provided reasonable care was exercised in the selection
and continued employment thereof.
Section 21. Change of Rights Agent. The Rights Agent or any successor
Rights Agent may resign and be discharged from its duties under this Agreement
upon 30 days' notice in writing mailed to the Company and to each transfer agent
of the Common Shares by registered or certified mail, and to the holders of the
Right Certificates by first-class mail. The Company may remove the Rights Agent
or any successor Rights Agent upon 30 days' notice in writing, mailed to the
Rights Agent or successor Rights Agent, as the case may be, and to each transfer
agent of the Common Shares by registered or certified mail, and to the holders
of the Right Certificates by first-class mail. If the Rights Agent shall resign
or be removed or shall otherwise
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become incapable of acting, the Company shall appoint a successor to the Rights
Agent. If the Company shall fail to make such appointment within a period of 30
days after giving notice of such removal or after it has been notified in
writing of such resignation or incapacity by the resigning or incapacitated
Rights Agent or by the holder of a Right Certificate (who shall, with such
notice, submit his Right Certificate for inspection by the Company), then the
registered holder of any Right Certificate may apply to any court of competent
jurisdiction for the appointment of a new Rights Agent. Any successor Rights
Agent, whether appointed by the Company or by such a court, shall be a
corporation organized and doing business under the laws of the United States or
of the State of Mississippi (or of any other state of the United States so long
as such corporation is authorized to do business as a banking institution in the
State of Mississippi, in good standing, having an office in the State of
Mississippi), which is authorized under such laws to exercise corporate trust or
stock transfer powers and is subject to supervision or examination by federal or
state authority. After appointment, the successor Rights Agent shall be vested
with the same powers, rights, duties and responsibilities as if it had been
originally named as Rights Agent without further act or deed; but the
predecessor Rights Agent shall deliver and transfer to the successor Rights
Agent any property at the time held by it hereunder, and execute and deliver any
further assurance, conveyance, act or deed necessary for the purpose. Not later
than the effective date of any such appointment the Company shall file notice
thereof in writing with the predecessor Rights Agent and each transfer agent of
the Common Shares, and mail a notice thereof in writing to the registered
holders of the Right Certificates. Failure to give any notice provided for in
this Section 21, however, or any defect therein, shall not affect the legality
or validity of the resignation or removal of the Rights Agent or the appointment
of the successor Rights Agent, as the case may be.
Section 22. Issuance of New Right Certificates. Notwithstanding any of
the provisions of this Agreement or of the Rights to the contrary, the Company
may, at its option, issue new Right Certificates evidencing Rights in such form
as may be approved by its Board of Directors to reflect any adjustment or change
in the Purchase Price and the number or kind or class of shares or other
securities or property purchasable under the Right Certificates made in
accordance with the provisions of this Agreement.
Section 23. Redemption. (a) The Board of Directors of the Company
may, at its option, at any time prior to such time as any Person becomes an
Acquiring Person, redeem all but not less than all the then outstanding Rights
at a redemption price of $.001 per Right, appropriately adjusted to reflect any
stock split, stock dividend or similar transaction occurring after the date
hereof (such redemption price being hereinafter referred to as the "Redemption
Price"). The redemption of the Rights by the Board of Directors may be made
effective at such time, on such basis and with such conditions as the Board of
Directors in its sole discretion may establish.
(b) Immediately upon the action of the Board of Directors of the Company
ordering the redemption of the Rights pursuant to paragraph (a) of this Section
23, and without any further action and without any notice, the right to exercise
the Rights will terminate and the only right thereafter of the holders of Rights
shall be to receive the Redemption Price. The Company shall
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promptly give public notice of any such redemption; provided, however, that the
failure to give, or any defect in, any such notice shall not affect the validity
of such redemption. Within 10 days after such action of the Board of Directors
ordering the redemption of the Rights, the Company shall mail a notice of
redemption to all the holders of the then outstanding Rights at their last
addresses as they appear upon the registry books of the Rights Agent or, prior
to the Distribution Date, on the registry books of the transfer agent for the
Common Shares. Any notice which is mailed in the manner herein provided shall be
deemed given, whether or not the holder receives the notice. Each such notice of
redemption will state the method by which the payment of the Redemption Price
will be made. Neither the Company nor any of its Affiliates or Associates may
redeem, acquire or purchase for value any Rights at any time in any manner other
than that specifically set forth in this Section 23 or in Section 24 hereof, and
other than in connection with the purchase of Common Shares prior to the
Distribution Date.
Section 24. Exchange. (a) The Board of Directors of the Company may, at
its option, at any time after any Person becomes an Acquiring Person, exchange
all or part of the then outstanding and exercisable Rights (which shall not
include Rights that have become void pursuant to the provisions of Section
11(a)(ii) hereof) for Common Shares at an exchange ratio of one Common Share per
Right, appropriately adjusted to reflect any stock split, stock dividend or
similar transaction occurring after the date hereof (such exchange ratio being
hereinafter referred to as the "Exchange Ratio"). Notwithstanding the
foregoing, the Board of Directors shall not be empowered to effect such exchange
at any time after any Person (other than the Company, any Subsidiary of the
Company, any employee benefit plan of the Company or any such Subsidiary, or any
entity holding Common Shares for or pursuant to the terms of any such plan),
together with all Affiliates and Associates of such Person, becomes the
Beneficial Owner of 50% or more of the Common Shares then outstanding.
(b) Immediately upon the action of the Board of Directors of the Company
ordering the exchange of any Rights pursuant to paragraph (a) of this Section 24
and without any further action and without any notice, the right to exercise
such Rights shall terminate and the only right thereafter of a holder of such
Rights shall be to receive that number of Common Shares equal to the number of
such Rights held by such holder multiplied by the Exchange Ratio. The Company
shall promptly give public notice of any such exchange; provided, however, that
the failure to give, or any defect in, such notice shall not affect the validity
of such exchange. The Company promptly shall mail a notice of any such exchange
to all of the holders of such Rights at their last addresses as they appear upon
the registry books of the Rights Agent. Any notice which is mailed in the
manner herein provided shall be deemed given, whether or not the holder receives
the notice. Each such notice of exchange will state the method by which the
exchange of the Common Shares for Rights will be effected and, in the event of
any partial exchange, the number of Rights which will be exchanged. Any partial
exchange shall be effected pro rata based on the number of Rights (other than
Rights which have become void pursuant to the provisions of Section 11(a)(ii)
hereof) held by each holder of Rights.
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(c) In the event that there shall not be sufficient Common Shares issued
but not outstanding or authorized but unissued to permit any exchange of Rights
as contemplated in accordance with this Section 24, the Company shall take all
such action as may be necessary to authorize additional Common Shares for
issuance upon exchange of the Rights.
(d) The Company shall not be required to issue fractions of Common Shares
or to distribute certificates which evidence fractional Common Shares. In lieu
of such fractional Common Shares, the Company shall pay to the registered
holders of the Right Certificates with regard to which such fractional Common
Shares would otherwise be issuable an amount in cash equal to the same fraction
of the current market value of a whole Common Share. For the purposes of this
paragraph (d), the current market value of a whole Common Share shall be the
closing price of a Common Share (as determined pursuant to the second sentence
of Section 11(d) hereof) for the Trading Day immediately prior to the date of
exchange pursuant to this Section 24.
Section 25. Notice of Certain Events. (a) In case the Company shall
propose (i) to pay any dividend payable in stock of any class to the holders of
its Common Shares or to make any other distribution to the holders of its Common
Shares (other than a regular quarterly cash dividend), (ii) to offer to the
holders of its Common Shares rights or warrants to subscribe for or to purchase
any additional Common Shares or shares of stock of any class or any other
securities, rights or options, (iii) to effect any reclassification of its
Common Shares (other than a reclassification involving only the subdivision of
outstanding Common Shares), (iv) to effect any consolidation or merger into or
with, or to effect any sale or other transfer (or to permit one or more of its
Subsidiaries to effect any sale or other transfer), in one or more transactions,
of 50% or more of the assets or earning power of the Company and its
Subsidiaries (taken as a whole) to, any other Person, or (v) to effect the
liquidation, dissolution or winding up of the Company, then, in each such case,
the Company shall give to each holder of a Right Certificate, in accordance with
Section 26 hereof, a notice of such proposed action, which shall specify the
record date for the purposes of such stock dividend, or distribution of rights
or warrants, or the date on which such reclassification, consolidation, merger,
sale, transfer, liquidation, dissolution, or winding up is to take place and the
date of participation therein by the holders of the Common Shares, if any such
date is to be fixed, and such notice shall be so given in the case of any action
covered by clause (i) or (ii) above at least 10 days prior to the record date
for determining holders of the Common Shares for purposes of such action, and in
the case of any such other action, at least 10 days prior to the date of the
taking of such proposed action or the date of participation therein by the
holders of the Common Shares whichever shall be the earlier.
(b) In case the event set forth in Section 11(a)(ii) hereof shall occur,
then the Company shall as soon as practicable thereafter give to each holder of
a Right Certificate, in accordance with Section 26 hereof, a notice of the
occurrence of such event, which notice shall describe such event and the
consequences of such event to holders of Rights under Section 11(a)(ii) hereof.
Section 26. Notices. Notices or demands authorized by this Agreement to
be given or made by the Rights Agent or by the holder of any Right Certificate
to or on the Company shall
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be sufficiently given or made if sent by first-class mail, postage prepaid,
addressed (until another address is filed in writing with the Rights Agent) as
follows:
Citizens Holding Company
Post Office Box 209
Philadelphia, MS 39350
Attention: Joe Steve Webb
Subject to the provisions of Section 21 hereof, any notice or demand authorized
by this Agreement to be given or made by the Company or by the holder of any
Right Certificate to or on the Rights Agent shall be sufficiently given or made
if sent by first-class mail, postage prepaid, addressed (until another address
is filed in writing with the Company) as follows:
Citizens Bank of Philadelphia, MS
P. O. Box 209
Philadelphia, MS 39350
Attention: Joe Steve Webb
Notices or demands authorized by this Agreement to be given or made by the
Company or the Rights Agent to the holder of any Right Certificate shall be
sufficiently given or made if sent by first-class mail, postage prepaid,
addressed to such holder at the address of such holder as shown on the registry
books of the Company.
Section 27. Supplements and Amendments. The Company may from time to time
supplement or amend this Agreement without the approval of any holders of Right
Certificates in order to cure any ambiguity, to correct or supplement any
provision contained herein which may be defective or inconsistent with any other
provisions herein, or to make any other provisions with respect to the Rights
which the Company may deem necessary or desirable, any such supplement or
amendment to be evidenced by a writing signed by the Company and the Rights
Agent; provided, however, that from and after such time as any Person becomes an
Acquiring Person, this Agreement shall not be amended in any manner which would
adversely affect the interests of the holders of Rights.
Section 28. Successors. All the covenants and provisions of this
Agreement by or for the benefit of the Company or the Rights Agent shall bind
and inure to the benefit of their respective successors and assigns hereunder.
Section 29. Benefits of this Agreement. Nothing in this Agreement shall
be construed to give to any person or corporation other than the Company, the
Rights Agent and the registered holders of the Right Certificates (and, prior to
the Distribution Date, the Common Shares) any legal or equitable right, remedy
or claim under this Agreement; but this Agreement shall be for the sole and
exclusive benefit of the Company, the Rights Agent and the registered holders of
the Right Certificates (and, prior to the Distribution Date, the Common Shares).
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Section 30. Severability. If any term, provision, covenant or restriction
of this Agreement is held by a court of competent jurisdiction or other
authority to be invalid, void or unenforceable, the remainder of the terms,
provisions, covenants and restrictions of this Agreement shall remain in full
force and effect and shall in no way be affected, impaired or invalidated.
Section 31. Governing Law. This Agreement and each Right Certificate
issued hereunder shall be deemed to be a contract made under the laws of the
State of Mississippi and for all purposes shall be governed by and construed in
accordance with the laws of such State applicable to contracts to be made and
performed entirely within such State.
Section 32. Counterparts. This Agreement may be executed in any number of
counterparts and each of such counterparts shall for all purposes be deemed to
be an original, and all such counterparts shall together constitute but one and
the same instrument.
Section 33. Descriptive Headings. Descriptive headings of the several
Sections of this Agreement are inserted for convenience only and shall not
control or affect the meaning or construction of any of the provisions hereof.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed and attested, all as of the day and year first above written.
ATTEST: Citizens Holding Company
________________________________ _________________________________
____________________, Secretary Joe Steve Webb, President
ATTEST: Citizens Bank of Philadelphia, MS
________________________________ _________________________________
___________________, Secretary Joe Steve Webb, President
24
<PAGE>
EXHIBIT A
Form of Right Certificate
Certificate No. R- Rights
NOT EXERCISABLE AFTER MAY 1, 2009 OR EARLIER IF REDEMPTION
OR EXCHANGE OCCURS. THE RIGHTS ARE SUBJECT TO REDEMPTION AT
$.001 PER RIGHT AND TO EXCHANGE ON THE TERMS SET FORTH IN
THE RIGHTS AGREEMENT.
Right Certificate
CITIZENS HOLDING COMPANY
This certifies that ________________________ or registered assigns, is the
registered owner of the number of Rights set forth above, each of which entitles
the owner thereof, subject to the terms, provisions and conditions of the Rights
Agreement, dated as of May 1, 1999 (the "Rights Agreement"), between Citizens
Holding Company, a Mississippi corporation (the "Company"), and Citizens Bank of
Philadelphia, MS (the "Rights Agent"), to purchase from the Company at any time
after the Distribution Date (as such term is defined in the Rights Agreement)
and prior to 5:00 p.m., Philadelphia, Mississippi time, on May 1, 2009 at the
principal office of the Rights Agent, or at the office of its successor as
Rights Agent, one fully paid non-assessable share of Common Stock par value $.20
per share (the "Common Shares"), of the Company at a purchase price of $150.00
per Common Share (the "Purchase Price"), upon presentation and surrender of this
Right Certificate with the Form of Election to Purchase duly executed. The
number of Rights evidenced by this Right Certificate (and the number of Common
Shares which may be purchased upon exercise hereof) set forth above, and the
Purchase Price set forth above, are the number and Purchase Price as of May 1,
1999 based on the Common Shares as constituted at such date. As provided in the
Rights Agreement, the Purchase Price and the number of Common Shares which may
be purchased upon the exercise of the Rights evidenced by this Right Certificate
are subject to modification and adjustment upon the happening of certain events.
This Right Certificate is subject to all of the terms, provisions and
conditions of the Rights Agreement, which terms, provisions and conditions are
hereby incorporated herein by reference and made a part hereof and to which
Rights Agreement reference is hereby made for a full description of the rights,
limitations of rights, obligations, duties and immunities hereunder of the
Rights Agent, the Company and the holders of the Right Certificates. Copies of
the Rights Agreement are on file at the principal executive offices of the
Company and the above-mentioned offices of the Rights Agent.
This Right Certificate, with or without other Right Certificates, upon
surrender at the principal office of the Rights Agent, may be exchanged for
another Right Certificate or Right
<PAGE>
Certificates of like tenor and date evidencing Rights entitling the holder to
purchase a like aggregate number of Common Shares as the Rights evidenced by the
Right Certificate or Right Certificates surrendered shall have entitled such
holder to purchase. If this Right Certificate shall be exercised in part, the
holder shall be entitled to receive upon surrender hereof another Right
Certificate or Right Certificates for the number of whole Rights not exercised.
Subject to the provisions of the Rights Agreement, the Rights evidenced by
this Certificate (i) may be redeemed by the Company at a redemption price of
$.001 per Right or (ii) may be exchanged in whole or in part for Common Shares.
No fractional Common Shares will be issued upon the exercise of any Right
or Rights evidenced hereby, but in lieu thereof a cash payment will be made, as
provided in the Rights Agreement.
No holder of this Right Certificate shall be entitled to vote or receive
dividends or be deemed for any purpose the holder of the Common Shares or of any
other securities of the Company which may at any time be issuable on the
exercise hereof, nor shall anything contained in the Rights Agreement or herein
be construed to confer upon the holder hereof, as such, any of the rights of a
stockholder of the Company or any right to vote for the election of directors or
upon any matter submitted to stockholders at any meeting thereof, or to give or
withhold consent to any corporate action, or to receive notice of meetings or
other actions affecting stockholders (except as provided in the Rights
Agreement), or to receive dividends or subscription rights, or otherwise, until
the Right or Rights evidenced by this Right Certificate shall have been
exercised as provided in the Rights Agreement.
This Right Certificate shall not be valid or obligatory for any purpose
until it shall have been countersigned by the Rights Agent.
WITNESS the facsimile signature of the proper officers of the Company and
its corporate seal. Dated as of __________________, 19_______.
ATTEST: CITIZENS HOLDING COMPANY
By:__________________________
JOE STEVE WEBB
Countersigned:
Citizens Bank of Philadelphia, MS
By:_____________________________
Authorized Signature
<PAGE>
Form of Reverse Side of Right Certificate
FORM OF ASSIGNMENT
(To be executed by the registered holder if such
holder desires to transfer the Right Certificate.)
FOR VALUE RECEIVED ___________________________ hereby sells, assigns and
transfers unto
_________________________________________
(Please print name and address of transferee)
this Right Certificate, together with all right, title and interest therein, and
does hereby irrevocably constitute and appoint _____________________________
Attorney, to transfer the within Right Certificate on the books of the within-
named Company, with full power of substitution.
Dated: __________________, 19___.
_______________________________
Signature
Signature Guaranteed:
Signatures must be guaranteed by a member firm of a registered national
securities exchange, a member of the National Association of Securities Dealers,
Inc., or a commercial bank or trust company having an office or correspondent in
the United States.
__________________
The undersigned hereby certifies that the Rights evidenced by this Right
Certificate are not beneficially owned by an Acquiring Person or an Affiliate or
Associate thereof (as defined in the Rights Agreement).
_______________________________
Signature
__________________
<PAGE>
Form of Reverse Side of Right Certificate -- continued
FORM OF ELECTION TO PURCHASE
(To be executed if holder desires to exercise
Rights represented by the Right Certificate.)
To: CITIZENS HOLDING COMPANY
The undersigned hereby irrevocably elects to exercise _____________ Rights
represented by this Right Certificate to purchase the Common Shares issuable
upon the exercise of such Rights and requests that certificates for such Common
Shares be issued in the name of:
Please insert social security
or other identifying number
__________________________________
(Please print name and address)
If such number of Rights shall not be all the Rights evidenced by this Right
Certificate, a new Right Certificate for the balance remaining of such Rights
shall be registered in the name of and delivered to:
Please insert social security
or other identifying number
__________________________________
(Please print name and address)
Dated: _________________, 19___.
__________________________________
Signature
<PAGE>
Form of Reverse Side of Right Certificate -- continued
Signature Guaranteed:
Signatures must be guaranteed by a member firm of a registered national
securities exchange, a member of the National Association of Securities Dealers,
Inc., or a commercial bank or trust company having an office or correspondent in
the United States.
______________
The undersigned hereby certifies that the Rights evidenced by this Right
Certificate are not beneficially owned by an Acquiring Person or an Affiliate or
Associate thereof (as defined in the Rights Agreement).
____________________________
Signature
______________
NOTICE
The signature in the Form of Assignment or Form of Election to Purchase, as
the case may be, must conform to the name as written upon the face of this Right
Certificate in every particular, without alteration or enlargement or any change
whatsoever.
In the event the certification set forth above in the Form of Assignment or
the Form of Election to Purchase, as the case may be, is not completed, the
Company and the Rights Agent will deem the beneficial owner of the Rights
evidenced by this Right Certificate to be an Acquiring Person or an Affiliate or
Associate thereof (as defined in the Rights Agreement) and such Assignment or
Election to Purchase will not be honored.
<PAGE>
EXHIBIT B
SUMMARY OF RIGHTS TO PURCHASE
COMMON SHARES
On April ____, 1999, the Board of Directors of Citizens Holding Company
(the "Company") declared a dividend of one common share purchase right (a
"Right") for each outstanding share of common stock, par value $.20 per share
(the "Common Shares"), of the Company. The dividend is payable on May 1, 1999
(the "Record Date") to the stockholders of record on that date. Each Right
entitles the registered holder to purchase from the Company one Common Share of
the Company at a price of $150.00 per share (the "Purchase Price"), subject to
adjustment. The description and terms of the Rights are set forth in a Rights
Agreement (the "Rights Agreement") between the Company and Citizens Bank of
Philadelphia, MS, as Rights Agent (the "Rights Agent").
Until the earlier to occur of (i) 10 days following a public announcement
that a person or group of affiliated or associated persons (an "Acquiring
Person") have acquired beneficial ownership of 20% or more of the outstanding
Common Shares, or (ii) 10 business days (or such later date as may be determined
by action of the Board of Directors prior to such time as any person or group of
affiliated persons becomes an Acquiring Person) following the commencement of,
or announcement of an intention to make, a tender offer or exchange offer the
consummation of which would result in the beneficial ownership by a person or
group of 20% or more of the outstanding Common Shares (the earlier of such dates
being called the "Distribution Date"), the Rights will be evidenced, with
respect to any of the Common Share certificates outstanding as of the Record
Date, by such Common Share certificate with a copy of this Summary of Rights
attached thereto.
The Rights Agreement provides that, until the Distribution Date (or earlier
redemption or expiration of the Rights), the Rights will be transferred with and
only with the Common Shares. Until the Distribution Date (or earlier redemption
or expiration of the Rights), new Common Share certificates issued after the
Record Date upon transfer or new issuance of Common Shares will contain a
notation incorporating the Rights Agreement by reference. Until the
Distribution Date (or earlier redemption or expiration of the Rights), the
surrender for transfer of any certificates for Common Shares outstanding as of
the Record Date, even without such notation or a copy of this Summary of Rights
being attached thereto, will also constitute the transfer of the Rights
associated with the Common Shares represented by such certificate. As soon as
practicable following the Distribution Date, separate certificates evidencing
the Rights ("Right Certificates") will be mailed to holders of record of the
Common Shares as of the close of business on the Distribution Date and such
separate Right Certificates alone will evidence the Rights.
The Rights are not exercisable until the Distribution Date. The Rights
will expire on May 1, 2009 (the "Final Expiration Date"), unless the Final
Expiration Date is extended or unless the Rights are earlier redeemed or
exchanged by the Company, in each case, as described below.
The Purchase Price payable, and the number of Common Shares or other
securities or property issuable, upon exercise of the Rights are subject to
adjustment from time to time to prevent dilution (i) in the event of a stock
dividend on, or a subdivision, combination or reclassification of, the Common
Shares, (ii) upon the grant to holders of the Common Shares of
<PAGE>
certain rights or warrants to subscribe for or purchase Common Shares at a
price, or securities convertible into Common Shares with a conversion price,
less than the then-current market price of the Common Shares or (iii) upon the
distribution to holders of the Common Shares of evidences of indebtedness or
assets (excluding regular periodic cash dividends paid out of earnings or
retained earnings or dividends payable in Common Shares) or of subscription
rights or warrants (other than those referred to above).
In the event that the Company is acquired in a merger or other business
combination transaction or 50% or more of its consolidated assets or earning
power are sold after a person or group has become an Acquiring Person, proper
provision will be made so that each holder of a Right will thereafter have the
right to receive, upon the exercise thereof at the then current exercise price
of the Right, that number of shares of common stock of the acquiring company
which at the time of such transaction will have a market value of two times the
exercise price of the Right. In the event that any person or group of
affiliated or associated persons becomes an Acquiring Person, proper provision
shall be made so that each holder of a Right, other than Rights beneficially
owned by the Acquiring Person (which will thereafter be void), will thereafter
have the right to receive upon exercise that number of Common Shares having a
market value of two times the exercise price of the Right.
At any time after any person or group becomes an Acquiring Person and prior
to the acquisition by such person or group of 50% or more of the outstanding
Common Shares, the Board of Directors of the Company may exchange the Rights
(other than Rights owned by such person or group which will have become void),
in whole or in part, at an exchange ratio of one Common Share per Right (subject
to adjustment).
With certain exceptions, no adjustment in the Purchase Price will be
required until cumulative adjustments require an adjustment of at least 1% in
such Purchase Price. No fractional Common Shares will be issued and in lieu
thereof, an adjustment in cash will be made based on the market price of the
Common Shares on the last trading day prior to the date of exercise.
At any time prior to such time as any Person becomes an Acquiring Person,
the Board of Directors of the Company may redeem the Rights in whole, but not in
part, at a price of $.001 per Right (the "Redemption Price"). The redemption of
the Rights may be made effective at such time, on such basis and with such
conditions as the Board of Directors in its sole discretion may establish.
Immediately upon any redemption of the Rights, the right to exercise the Rights
will terminate and the only right of the holders of Rights will be to receive
the Redemption Price.
Until a Right is exercised, the holder thereof, as such, will have no
rights as a stockholder of the Company, including, without limitation, the right
to vote or to receive dividends.
A copy of the Rights Agreement is available free of charge from the
Company. This summary description of the Rights does not purport to be complete
and is qualified in its entirety by reference to the Rights Agreement, which is
hereby incorporated herein by reference.
<PAGE>
EXHIBIT 10
MATERIAL CONTRACTS:
DIRECTORS DEFERRED COMPENSATION PLAN AND FORM OF AGREEMENT
<PAGE>
DIRECTORS'
DEFERRED FEE PLAN
OF
THE CITIZENS BANK OF PHILADELPHIA, MS.
<PAGE>
THE CITIZENS BANK OF PHILADELPHIA, MS.
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Article Subject Page
------- ------- ----
<S> <C> <C>
I Definitions and Construction 1
II Eligibility and Participation 3
III Death Benefit 4
IV Deferred Termination Benefit 4
V Beneficiary 5
VI Leave of Absence 5
VII Source of Benefits 6
VIII Termination of Relationship 6
IX Termination of Participation 7
X Termination, Amendment,
Modification, or Supplement of Plan 7
XI Reorganization 8
XII Change in Voting Control 8
XIII Other Benefits and Agreements 8
XIV Restrictions on Alienation of Benefits 9
XV Administration of the Plan 9
XVI Adoption of Plan by Subsidiary, Affiliated or
Associated Companies 10
XVII Miscellaneous 10
Plan Agreement I-1
</TABLE>
i
<PAGE>
DIRECTORS'
DEFERRED FEE PLAN
OF
THE CITIZENS BANK OF PHILADELPHIA, MS.
PURPOSE AND EFFECTIVE DATE
The purpose of the Directors' Deferred Fee Plan of The Citizens Bank of
Philadelphia, MS. is to provide specified benefits to Directors who contribute
materially to the continued growth, development and future business success of
The Citizens Bank of Philadelphia, MS. It is the intention of The Citizens Bank
of Philadelphia, MS. that this program and the individual plans established
hereunder be administered as unfunded welfare benefit plans established for
Directors of the Bank. The Effective Date of this Plan is September 1, 1986.
ARTICLE I
DEFINITIONS AND CONSTRUCTION
1.1 Definitions. For purpose of this Plan, the following phrases or terms shall
have the following indicated meanings unless otherwise clearly apparent from the
context:
(a) "Beneficiary" shall mean the person, persons, or estate of a
Participant, entitled to receive any benefits subsequent to the death of a
Participant under a Plan Agreement entered into in accordance with the terms of
this Plan.
(b) "Beneficiary Designation" shall mean the form of written agreement,
attached hereto as Annex 11, by which the Participant names the Beneficiary(ies)
of the Plan.
(c) "Board of Directors" shall mean the Board of Directors of The Citizens
Bank of Philadelphia, MS unless otherwise indicated or the context otherwise
requires.
(d) "Committee" shall mean the Administrative Committee appointed to manage
and administer the Plan and individual Plan Agreements in accordance with the
provisions of Article XV hereof.
(e) "Bank" shall mean The Citizens Bank of Philadelphia, MS and any
Subsidiary that duly adopts the Plan as provided in Article XVI hereof. Where
the context dictates, the term "Bank" as used herein refers to the particular
Bank that has entered into a Plan Agreement with a particular Participant.
<PAGE>
(f) "Moody's Average Corporate Bond Rate" shall mean the Monthly Average of
the Composite Yield on Seasoned Corporate Bonds as published by Moody's
Investors Services, Inc. or its successor as stated for the month of October
preceding January 1, 1986. Such rate shall then be determined annually in
accordance with the average rate for the October preceding January 1 of each
year during the term of the Plan.
If the above mentioned "Monthly Average" is no longer published, a
substantially similar average will be used.
(g) "Director" shall mean any person who is associated as a Director or as
a member of the Advisory Board of Directors with the Bank.
(h) "Participant" shall mean a Director who is selected and elects to
participate in the Plan through the execution of a Plan Agreement in accordance
with the provisions of Article IL.
(i) "Plan" shall mean the Directors' Deferred Fee Plan of The Citizens Bank
of Philadelphia, MS. as amended from time to time.
(j) "Plan Agreement" shall mean the form of written agreement, attached
hereto as Annex 1, which is entered into from time to time by and between the
Bank and a Director selected to become a Participant as a condition to
participation in the Plan. Each Plan Agreement executed by a Participant shall
provide for the entire benefit to which such Participant is entitled under the
Plan, and the Plan Agreement bearing the latest date shall govern such
entitlement.
(k) "Subsidiary" shall mean any business organization in which The CITIZENS
BANK OF PHILADELPHIA, MS., directly or indirectly, owns an interest, excluding
ownership interests THE CITIZENS BANK OF PHILADELPHIA, MS. may hold in their
fiduciary capacities as trustee or otherwise, and any other business
organization that the Board of Directors designates as a Subsidiary for purposes
of this Plan.
(l) "Deferrals" shall be those amounts as set forth in Article II and the
Participant's Plan Agreement and any additional amounts as mutually agreeable
between the Participant and the Committee.
(m) "Parent" shall mean any corporation, partnership, association or person
which at any time owns 50% or more of the voting shares of the Bank or its
assigns or successors.
(n) "Deferred Termination Benefit" shall mean the amount of a Participant's
benefit as specified in Article IV of this Plan and in the Participant's
individual Plan Agreement.
(o) "Effective Date" shall mean the date specified as the Effective Date in
this Plan and the Participant's Plan Agreement.
2
<PAGE>
1.2 Construction. The masculine gender when used herein shall be deemed to
include the feminine gender, and the singular may include the plural unless the
context clearly indicates to the contrary. The words "hereof", "herein",
"hereunder", and other similar compounds of the word "here" shall mean and refer
to the entire Plan and not to any particular provision or section. Whenever the
words "Article" or "Section" are used in this Plan, or a cross-reference to an
"Article" or "Section" is made, the Article or Section referred to shall be an
Article or Section of this Plan unless otherwise specified.
ARTICLE II
ELIGIBILITY AND PARTICIPATION
2.1 Eligibility. In order to be eligible for participation in the Plan, a
Director must be selected by the Committee. The Committee, in its sole and
absolute discretion, shall determine eligibility for participation in accordance
with the purposes of the Plan.
2.2 Participation. After being selected by the Committee to participate in this
Plan, a Director shall, as a condition precedent to participation herein,
complete and return to the Committee a duly executed Plan Agreement electing to
participate herein and agreeing to the terms and conditions thereof, and by the
execution of such Plan Agreement a Participant shall agree that all amounts
deferred thereby shall be irrevocably deferred and that in lieu thereof the
Participant shall be entitled solely to the benefits provided under this Plan.
Such Plan Agreement shall be completed and returned to the committee at the time
specified by the Committee.
2.3 Amount of Participant Deferral and Payments. In consideration for the Death
Benefit and Deferred Termination Benefit selected in Participant's Plan
Agreement, each Participant shall defer an amount of his or her compensation or
make payments to the Bank in such amounts and at such times as shall be
specified in his or her Plan Agreement. If a Participant is authorized to take a
leave of absence from his or her relationship or is disabled, the Participant
shall be required to make payments to the Bank in order to maintain his or her
Plan Agreement in force. A Participant's obligation to defer an amount of his or
her compensation in accordance with this Section 2.3 or to make the payments
otherwise required shall be stated in his or her Plan Agreement, shall commence
on the Effective Date, and shall continue thereafter during the term of his or
her Plan Agreement for the period of time set forth in such Plan Agreement.
2.4 Time and Manner of Deferring or Making Payments. A Participant shall, in his
or her Plan Agreement, authorize the Bank to defer an amount of such
Participant's compensation equal to the amount specified pursuant to Section
2.3. A Participant who is on authorized leave of absence or is disabled, and is
therefore required to make the payments shall make such payments at such time
and in such manner as the Bank shall provide.
2.5 Participant Deferrals and Payments - Use and Forfeitability. The amount of
each Participant's compensation deferred pursuant to Sections 2.3 and 2.4 shall
be and remain solely the property of the Bank and the amount collected by the
Bank pursuant to
3
<PAGE>
Sections 2.3 and 2.4 from each Participant shall be and become solely the
property of the Bank, and a Participant shall have no right thereto, nor shall
the Bank be obligated to use such amounts in any specific manner. Except as
provided in Article IV, if a Participant's death occurs under circumstances
other than those specified in Section 3.1 or 3.2, no benefit shall be payable
hereunder or under his or her Plan Agreement to his or her Beneficiary or any
other person or entity on his or her behalf, and any payments made by such
Participant under Sections 2.3 and 2.4 shall be forfeited.
2.6 Participant's Payments. In the event there is a Reorganization as defined
under Article XI, or a "Change in Control" as defined in Section 10.4(b) or a
"Change in Voting Control" as defined in Section 12.2 (collectively referred to
as "Sale"), and the Sale occurs on or after the Effective Date, and either
immediately before or after such Sale the Participant ceases to be a Director
("Former Director"), then the Former Director may make monthly payments to the
Bank in an amount equal to the Deferrals that would have otherwise been made had
the Former Director not ceased to be a Director and the Former Director shall be
entitled to all the benefits under this Plan and as specified in his Plan
Agreement as if he had remained a Director.
ARTICLE III
DEATH BENEFIT
3.1 Amount and Payment of Death Benefit. Upon the Participant's death, if the
Plan is in effect at that time, the Bank will pay or cause to be paid a Death
Benefit to such Participant's Beneficiary. The said Death Benefit shall be set
forth in the Plan Agreement payable monthly for the next one hundred and twenty
(120) months. Such payments shall commence effective the first day of the month
following the date of death.
Notwithstanding the immediately preceding paragraph of this Section 3.1, the
Bank will pay or cause to be paid the Death Benefit specified therein only if:
(a) At the time of the Participant's death such Participant was a Director
and all Deferrals and payments required to be made by such Participant under
Sections 2.3 et seq., and as specified in his Plan Agreement, have been made, or
(b) The Participant's Plan Agreement had been kept in force throughout the
period commencing on the date of such Plan Agreement and ending on the date of
his or her death; and
(c) The Participant's death was due to causes other than suicide within two
(2) years of the date of his or her original Plan Agreement or within two (2)
years of the date of any amendment to his or her Plan Agreement or any
subsequent Plan Agreement resulting from additional Death Benefits granted; but
the Participant's suicide shall relieve the Bank only of its
4
<PAGE>
obligation to pay that portion of the Death Benefit that was granted within two
(2) years prior to the date of such suicide; and
(d) The Participant's death is determined not to be from a bodily or mental
cause or causes, information about which was withheld, or knowingly concealed,
or falsely provided by the Participant when requested by the Bank to furnish
evidence of good health upon the Participant's enrolling in the Plan or upon an
application for an increase in benefits because of an increase in Death
Benefits; and
(e) Proof of death in such form as determined acceptable by the Committee
is furnished.
3.2 Completion of Deferrals or Payments. Notwithstanding any provision in this
Plan except for (c), (d), and (e) of Section 3.1, a Participant shall be
entitled to the Death Benefit specified in his or her Plan Agreement provided
the Participant has completed all Deferrals and other payments required under
this Plan.
ARTICLE IV
DEFERRED TERMINATION BENEFIT
4.1 Deferred Termination Benefit. In the event a Participant ceases to be a
Director, other than by reason of death, prior to completion of his or her
Deferrals, the Bank shall pay or cause to be paid a Deferred Termination Benefit
to the Participant's Beneficiary upon the Participant's death. Said benefit
shall be determined by improving the Participant's Deferrals by the rate
specified in the Participant's Plan Agreement, as compounded on an annual basis,
with such amount being calculated from the date of entry until the time
Participant ceases being a Director. That amount will continue to be improved by
the rate specified in the Participant's Plan Agreement until the payments are
initiated. That amount will then be improved by the rate specified in the
Participant's Plan Agreement as compounded on an annual basis until the benefit
is completed, ten (10) years from the initiation of said Benefit, payable in
monthly installments. If Participant's Beneficiary shall die before receipt of
one hundred and twenty (120) installments, said amount shall be continued as set
forth in the Beneficiary Designation until the balance of one hundred and twenty
(120) payments have been made.
It is further stipulated that the minimum interest rate at which the Deferrals
will accrue is the rate specified in each Participant's Plan Agreement.
4.2 The Committee, in its sole and absolute discretion, may permit Participant's
Beneficiary to receive in lieu of those benefits as set forth in Sections 3.1
and 4.1, his or her current account balance as set forth in Section 4.1 as of
the date payments are first initiated under Section 4.1 or in the event 3.1
applies the lump sum benefit as specified in the Plan Agreement. In order to
qualify for the lump sum benefit the Beneficiary shall make a written request to
the Committee within 30 days after the Participant's death. The Committee shall
make a written response to the Beneficiary, in writing, within ten (10) days
after receipt of the request.
5
<PAGE>
ARTICLE V
BENEFICIARY
A Participant shall designate his or her Beneficiary to receive benefits
under the Plan and his or her Plan Agreement by completing the Beneficiary
Designation. If more than one Beneficiary is named, the shares and/or precedence
of each Beneficiary shall be indicated. A Participant shall have the right to
change the Beneficiary by submitting to the Committee a new Beneficiary
Designation. The Beneficiary Designation must be approved in writing by the
Bank; however, upon the Bank's acknowledgment of approval, the effective date of
the Beneficiary Designation shall be the date it was executed by the
Participant. If the Bank has any doubt as to the proper Beneficiary to receive
payments hereunder, it shall have the right to withhold such payments until the
matter is finally adjudicated. Any payment made by the Bank in good faith and in
accordance with the provisions of this Plan and a Participant's Plan Agreement
and Beneficiary Designation shall fully discharge the Bank from all further
obligations with respect to such payment.
ARTICLE VI
LEAVE OF ABSENCE
6.1 Required Payments. If a Participant is authorized by the Bank for any
reason, including military, medical or other, to take a leave of absence, such
Participant shall be required to make payments in order to maintain his or her
Plan Agreement in force. Such required payments shall be an amount equal to the
amount of the Participant's compensation that is to be deferred under the terms
of his or her Plan Agreement. A Participant required to make payments under this
Section 6.1 shall continue making such required payments until the earlier of
(i) the date he or she returns to his or her duties following a leave of
absence, or (ii) the effective date that he or she enters into a new Plan
Agreement.
6.2 Failure to Make Required Payments. Failure to make payments required by
Section 6.1 shall cause Participant's Plan Agreement to terminate without the
necessity of any notice from either party to the other. From and after such
termination, except as provided in Section 4.1 hereof, neither party shall have
any further obligation to the other party under this Plan or such Plan
Agreement.
ARTICLE VII
SOURCE OF BENEFITS
7.1 Benefits Payable from General Assets. Amounts payable hereunder shall be
paid exclusively from the general assets of the Bank, and no person entitled to
payment hereunder shall have any claim, right, security interest, or other
interest in any fund, trust, account, or other asset of the Bank that may be
looked to for such payment. The Bank's liability for the payment of benefits
hereunder shall be evidenced only by this Plan and each Plan Agreement entered
into between the Bank and a Participant.
6
<PAGE>
7.2 Investments to Facilitate Payment of Benefits. Although the Bank is not
obligated to invest in any specific asset or fund in order to provide the means
for the payment of any liabilities under this Plan, the Bank may elect to do so
and, in such event, no Participant shall have any interest whatever in such
asset or fund. As a condition precedent to the Bank's obligation to provide any
benefits, including incremental increases in benefits, under this Plan, the
Participant shall, if so requested by the Bank, provide evidence of insurability
at standard and other rates, in such amounts, and with such insurance carrier or
carriers as the Bank may require, including the results and reports of previous
Bank and other insurance carrier physical examinations, taking such additional
physical examinations as the Bank may request, and taking any other action that
the Bank may request. If a Participant is requested to and does not or cannot
provide evidence of insurability as specified in the immediately preceding
sentence, then the Bank shall have no further obligation to such Participant
under this Plan, and such Participant's. Plan Agreement shall terminate, except
as to benefits previously granted. Notwithstanding the foregoing, if a
Participant cannot provide evidence of insurability at standard rates or for the
amounts initially contemplated in connection with his or her participation in
the Plan, the Bank may, at its discretion, permit the Participant to participate
herein for such benefits and upon such deferral of his or her compensation as
the Bank may, in its sole discretion, deem appropriate.
7.3 Bank Obligation. The Bank shall have no obligation of any nature whatsoever
to a Participant under this Plan or a Participant's Plan Agreement, except
otherwise expressly provided herein and in such Plan Agreement.
7.4 Withholding of Information, Etc. If, in connection with a Participant's
enrolling in or applying for incremental benefit increases under the Plan, the
Bank requests the Participant to furnish evidence of insurability, the
Participant dies, and it is determined that the Participant withheld, knowingly
concealed, or knowingly provided false information about the bodily or mental
condition or conditions that caused the Participant's death, the Bank shall have
no obligation to provide the benefits contracted for on the basis of such
withholding, concealment, or false information.
ARTICLE VIII
TERMINATION OF RELATIONSHIP
Neither this Plan nor a Participant's Plan Agreement, either singly or
collectively, in any way obligate the Bank to continue the relationship of a
Participant with the Bank nor does either limit the right of the Bank at any
time and for any reason to terminate the Participant's relationship. Termination
of a Participant's relationship with the Bank for any reason, whether by action
of the Bank, shall immediately terminate his or her participation in this Plan
and his or her Plan Agreement, and all further obligations of either party
thereunder, except as may be provided in Section 4.1. In no event shall this
Plan or a Plan Agreement, either singly or collectively, by their terms or
implications constitute an employment contract of any nature whatsoever between
the Bank and a Participant.
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ARTICLE IX
TERMINATION OF PARTICIPATION
9.1 Termination of Participation - General. A Participant reserves the right to
terminate his or her participation in this Plan and his or her Plan Agreement
at his or her election at any time by giving the Committee written notice of
such termination not less than 30 days prior to an anniversary date of the date
of execution of his or her Plan Agreement. A Participant's termination shall be
effective as soon as administratively convenient after such anniversary date.
9.2 Rights After Termination of Participation. Participants who elect to
terminate participation in the Plan before their Deferrals are completed will be
entitled to the same benefits as a Participant who ceases to be a Director as
described in Section 4.1. Such Participants will not be entitled to a Death
Benefit under Article III.
ARTICLE X
TERMINATION, AMENDMENTS, MODIFICATION OR SUPPLEMENT OF PLAN
10.1 The Bank reserves the right to terminate this Plan, subject to specific
restriction on this right as stipulated in Section 10.4 hereof.
10.2 The Bank reserves the right to totally or partially amend, modify or
supplement this Plan at any time, subject to the specific restriction on this
right as stipulated in Section 10.4 hereof.
10.3 The Bank reserves the right to terminate the Plan Agreement of any
Participant, subject to the specific restriction on this right as stipulated in
Section 10.4 hereof.
10.4 (a) Neither the Bank, nor any successor or assignee of the Bank may take
any of the actions provided in Section 10.1, 10.2, or 10.3 of this Article X
within a period of one hundred twenty (120) months from the point in time that a
"Change in Control" of the Bank takes place, as such term is defined in Section
10.4(b), below.
(b) A "Change in Control" of the Bank shall be deemed to have occurred if
the persons who were the Directors of the Bank immediately before a tender
offer, exchange offer, merger, consolidation, sale of assets, or any combination
of said transactions shall cease to constitute a majority of the Board of
Directors of the Bank or of any Parent of or successor to the Bank subsequent to
the completion of such a transaction.
(c) Notwithstanding any other provision in this Plan neither the Bank nor
any successor or assignee of the Bank may take any actions provided in Sections
10.1, 10.2 or 10.3 of this Article X on or after the completion of the Deferrals
as provided in this Plan or the Participant's Plan Agreement unless requested to
do so by the Participant.
8
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10.5 The right to terminate, amend, modify, or supplement the Plan or terminate
any Plan Agreement shall be exercised for the Bank by the Committee.
10.6 No action to terminate, amend, modify or supplement the Plan or terminate
any Plan Agreement shall be taken except upon written notice to each Participant
to be affected thereby not less than 30 days prior to such action.
10.7 The Committee shall take no action to terminate the Plan or a Plan
Agreement with respect to a Participant or Participant's Beneficiary after
entitlement to any benefits pursuant to Article III or Article IV of the Plan
has occurred.
10.8 (a) Upon termination of this Plan as herein provided, the Bank shall, as a
minimum provide a benefit to each person who is a Participant at the time of
such Plan termination equal to that determined in accordance with the provisions
of Section 4.1.
(b) In no event shall any Plan modification permitted hereunder provide a
benefit less than that which would be provided by Section 10.8(a), above.
(c) In the event the Bank provides the benefits under this Section 10.8 in
the event of Plan termination, no party shall have any further obligation under
this Plan or any Plan Agreement.
(d) The provisions of this Section 10.8 shall not be deemed to permit
termination or modification within the time period during which such actions are
prohibited under Section 10.4 hereof.
ARTICLE XI
REORGANIZATION
In the event the Bank or any Parent of or successor to the Bank shall be
merged, consolidated, reorganized, or substantially sells all of its assets to
another corporation, firm, or person and such corporation, firm, or person takes
such action to terminate this Plan, the Participants will be entitled, at a
minimum, to those benefits as described in Section 4.1.
ARTICLE XII
CHANGE IN VOTING CONTROL
12.1 In the event there is an acquisition of Voting Control of the Bank or any
Parent of or successor to the Bank and subsequently action is taken to terminate
this Plan, the Participants will be entitled, at a minimum, to those benefits as
described in Section 4.1.
12.2 "Voting Control" for purposes of this Article means the ownership of 50% or
more of the voting shares of the Bank, or any Parent of or successor to the
Bank.
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ARTICLE XIII
OTHER BENEFITS AND AGREEMENTS
The benefits provided for a Participant and his or her Beneficiary
hereunder and under such Participant's Plan Agreement are in addition to any
other benefits available to such Participant under any other program or plan of
the Bank for its Directors, and, except as may otherwise be expressly provided
for, this Plan and Plan Agreements entered into hereunder shall supplement and
shall not supersede, modify, or amend any other program or plan of the Bank or a
Participant. Moreover, benefits under this Plan and Plan Agreements entered into
hereunder shall not be considered compensation for the purpose of computing
deferrals or benefits under any plan maintained by the Bank that is qualified
under Section 401 (a) of the Internal Revenue Code of 1954, as amended.
ARTICLE XIV
RESTRICTIONS ON ALIENATION OF BENEFITS
No right or benefit under this Plan or a Plan Agreement shall be subject to
anticipation, alienation, sale, assignment, pledge, encumbrance, or charge, and
any attempt to anticipate, alienate, sell, assign, pledge, encumber, or charge
the same shall be void. No right or benefit hereunder or under any Plan
Agreement shall in any manner be liable for or subject to the debts, contract,
liabilities, or torts of the person entitled to such benefit. If any Participant
or Beneficiary under this Plan or a Plan Agreement should become bankrupt or
attempt to anticipate, alienate, sell, assign, pledge, encumber, or charge any
right to a benefit hereunder or under any Plan Agreement, then such right or
benefit shall, in the discretion of the Committee, terminate, and, in such
event, the Committee shall hold or apply the same or any part thereof for the
benefit of such Participant or Beneficiary, his or her spouse, children, or
other dependents, or any of them, in such manner and in such portion as the
Committee, in its sole and absolute discretion, may deem proper.
ARTICLE XV
ADMINISTRATION OF THIS PLAN
15.1 Appointment of Committee. The general administration of this Plan, and any
Plan Agreements executed hereunder, as well as construction and interpretation
thereof, shall be vested in the Committee, the number and members of which shall
be designated and appointed from time to time by, and shall serve at the
pleasure of, the Board of Directors. Any such member of the Committee may resign
by notice in writing filed with the secretary of the Committee. Vacancies shall
be filled promptly by the Board of Directors, but any vacancies remaining
unfilled for ninety days may be filled by a majority vote of the remaining
members of the Committee. Each person appointed a member of the Committee shall
signify his or her acceptance by filing a written acceptance with the Secretary
of the Committee.
15.2 Committee Officials. The Board of Directors shall designate one of the
members of the Committee as chairman and shall appoint a secretary who need not
be a member of the Committee. The Secretary shall keep minutes of the
Committee's proceedings and all data, records and documents relating to the
Committee's administration of this Plan and any Plan
10
<PAGE>
Agreements executed hereunder. The Committee may appoint from its number such
subcommittees with such powers as the Committee shall determine and may
authorize one or more of its members or any agent to execute or deliver any
instrument or make any payment on behalf of the Committee.
15.3 Committee Action. All resolutions or other actions taken by the Committee
shall be by the vote of a majority of those present at a meeting at which a
majority of the members are present, or in writing by all the members at the
time in office if they act without a meeting.
15.4 Committee Rules and Powers - General. Subject to the provisions of this
Plan, the Committee shall from time to time establish rules, forms, procedures
and make needed determinations and interpretations for the administration of
this Plan. Such decisions, actions, and records of the Committee shall be
conclusive and binding upon the Bank and all persons having or claiming to have
any right or interest in or under this Plan.
15.5 Reliance on Certificate, etc. The members of the Committee and the officers
and directors of the Bank shall be entitled to rely on all certificates and
reports made by any duly appointed accountants, and on all opinions given by any
duly appointed legal counsel. Such legal counsel may be counsel for the Bank.
15.6 Liability of Committee. No member of the Committee shall be liable for any
act or omission of any other member of the Committee, or for any act or omission
on his or her own part, excepting only his or her own willful misconduct. The
Bank shall indemnify and save harmless each member of the Committee against any
and all expenses and liabilities arising out of his or her membership on the
Committee, excepting only expenses and liabilities arising out of his or her own
willful misconduct. Expenses against which a member of the Committee shall be
indemnified hereunder shall include, without limitation, the amount of any
settlement or judgment, costs, counsel fees and related charges reasonably
incurred in connection with a claim asserted or a proceeding brought or
settlement thereof. The foregoing right of indemnification shall be in addition
to any other rights to which any such member may be entitled as a matter of law.
15.7 Determination of Benefits. In addition to the powers hereinabove specified,
the Committee shall have the power to compute and certify, under this Plan and
any Plan Agreement, the amount and kind of benefits from time to time payable to
Participants and their Beneficiaries, and to authorize all disbursements for
such purposes.
15.8 Information to Committee. To enable the Committee to perform its functions,
the Bank shall supply full and timely information to the Committee on all
matters relating to the compensation of all Participants, their death or other
cause for termination of relationship, and such other pertinent facts as the
Committee may require.
15.9 Manner and time of Payment of Benefits. The Committee shall have the power,
in its sole and absolute discretion, to change the manner and time of payment of
benefits to be made to a Participant or his or her Beneficiary from that set
forth in the Participant's Plan Agreement if requested to do so by such
Participant or Beneficiary.
11
<PAGE>
ARTICLE XVI
ADOPTION OF PLAN BY SUBSIDIARY
AFFILIATED OR ASSOCIATED COMPANIES
Any corporation that is a Subsidiary may, with the approval of the Board of
Directors, adopt this Plan and thereby come within the definition of Bank in
Article I hereof.
ARTICLE XVII
MISCELLANEOUS
17.1 Execution of Receipts and Releases. Any payment to any Participant, a
Participant's legal representative, or Beneficiary in accordance with the
provisions of this Plan or Plan Agreement executed hereunder shall, to the
extent thereof, be in full satisfaction of all claims hereunder against the
Bank. The Bank may require such Participant, legal representative, or
Beneficiary, as a condition precedent to such payment, to execute a receipt and
release therefore in such form as it may determine.
17.2 No Guarantee of Interests. Neither the Committee nor any of its members
guarantees the payment of any amounts which may be or become due to any person
or entity under this Plan or any Plan Agreement executed hereunder. The
liability of the Bank to make any payment under this Plan or any Plan Agreement
executed hereunder is limited to the then available assets of the Bank.
17.3 Bank Records. Records of the Bank as to a Participant's relationship,
termination of relationship and the reason therefore authorized leaves of
absence, and compensation shall be conclusive on all persons and entities,
unless determined to be incorrect.
17.4 Evidence. Evidence required of anyone under this Plan and any Plan
Agreement executed hereunder may be by certificate, affidavit, document, or
other information which the person or entity acting on it considers pertinent
and reliable, and signed, made, or presented by the proper party or parties.
17.5 Notice. Any notice which shall be or may be given under this Plan or a Plan
Agreement executed hereunder shall be in writing and shall be mailed by United
States mail, postage prepaid. If notice is to be given to the Bank, such notice
shall be addressed to the Bank at:
The Citizens Bank of Philadelphia, MS.
521 Main St.
Philadelphia, MS. 39350
marked to the attention of the Secretary, Administrative Committee, Deferred Fee
and Compensation Plans; or, if notice to a Participant, addressed to the address
shown on such Participant's Plan Agreement.
12
<PAGE>
17.6 Change of Address. Any party may, from time to time, change the address to
which notices shall be mailed by giving written notice of such new address.
17.7 Effect of Provisions. The provisions of this Plan and of any Plan
Agreement executed hereunder shall be binding upon the Bank and its successors,
and assigns, and upon a Participant, his or her Beneficiary, assigns, heirs,
executors, and administrators.
17.8 Headings. The titles and headings of Articles and Sections are included for
convenience of reference only and are not to be considered in the construction
of the provisions hereof or any Plan Agreement executed hereunder.
17.9 Governing Law. All questions arising with respect to this Plan and any Plan
Agreement executed hereunder shall be determined by reference to the laws of the
State of Mississippi, as in effect at the time of their adoption and execution,
respectively.
WITNESS MY SIGNATURE, this the ______ day of April, 1987.
THE CITIZENS BANK OF PHILADELPHIA, MS.
By:
----------------------------------
Steve Webb, President
13
<PAGE>
DIRECTORS'
DEFERRED FEE PLAN AGREEMENT
OF
THE CITIZENS BANK OF PHILADELPHIA, MS.
I acknowledge that, as a Director of The Citizens Bank of Philadelphia,
MS., I have been offered an opportunity to participate in the Directors'
Deferred Fee Plan, as formally adopted by the Citizens Bank of Philadelphia, MS.
on April _______, 1987 ("Plan"), which is attached hereto, and that I have
irrevocably elected one of the two alternatives set forth as indicated by the
space which I have checked:
______ To participate in the Plan. The Effective Date of this Plan Agreement
and the Plan is September 1, 1986.
______ Not to participate in the Plan.
Participant's benefits, Deferrals and payments with respect to the Death
Benefit and Deferred Termination Benefit under the Plan are agreed to be as
follows:
1. DEATH BENEFIT (ARTICLE III OF PLAN):
$____________per month for 120 months, or a lump sum amount of
$____________ if the lump sum amount is permitted pursuant to Section 4.2
of the Plan.
2. DEFERRED TERMINATION BENEFIT (ARTICLE IV OF PLAN):
(a) It is understood that the specified rate for the Participant for
purposes of the provisions of Article IV is ______% of Moody's Average
Corporate Bond Rate.
(b) It is understood that the amount of the actual Deferred Termination
Benefit will be determined by multiplying Participant's Deferral by
______% of the Moody's Average Corporate Bond Rate as compounded on an
annual basis until the date payments are initiated under Section 4.1.
That result will then be improved by ______% of the Moody's Average
Corporate Bond Rate being used at the time payments are initiated under
Section 4.1, as compounded on an annual basis until the time the
Deferred Termination Benefit is completed in accordance with the
provisions of the Plan.
It is further understood that the minimum rate at which the Deferrals will
accrue interest is ______%, compounded on an annual basis.
(c) In lieu of benefits under Section 4.1, the Participant may be permitted
a lump sum benefit under Section 4.2 of the Plan.
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<PAGE>
3. Participant's Deferral with respect to Article II, Article III, and IV of
the Plan is in total, $_____________________ per month from the Effective
Date of this Plan Agreement until the earlier of the Participant's death or
when 10 years of Deferrals have been made. In addition to the above
Deferral, the Participant has also paid in $21,000, which will be treated
in the same manner, for purposes of this Plan, as a Deferral.
Participant hereby authorizes Bank to reduce his or her compensation by the
amount specified in the immediately preceding sentence, commencing
September 1, 1986, and continuing thereafter until no longer required by
the terms of the Plan or by the Committee.
Participant acknowledges that he has received a copy of the Plan, as adopted by
the Board of Directors, effective September 1, 1986, and that he is familiar
with the provisions of the Plan. Participant agrees to be bound by the
provisions of the Plan and this Plan Agreement and that the Citizens Bank of
Philadelphia, MS. has no obligations to the Participant with respect to this
Plan other than those provided by the Plan and the Plan Agreement.
WITNESS OUR SIGNATURES, this ______ day of April, 1987.
THE CITIZENS BANK OF PHILADELPHIA, MS.
By _________________________________________
Title ________________________________________
PARTICIPANT
____________________________________________
(Signature)
____________________________________________
(Type or print name)
____________________________________________
____________________________________________
____________________________________________
(Address of Participant)
15
<PAGE>
BENEFICIARY DESIGNATION
1. Participant: ____________________________________________________________
2. Scope: This Beneficiary Designation applies to all benefits of the Plan to
which the above-named Participant has the right to name the beneficiary.
3. COUNSEL: THE DESIGNATION OF A BENEFICIARY OR BENEFICIARIES IN SECTIONS 4,
5, AND 6 BELOW MAY HAVE SIGNIFICANT ESTATE AND GIFT TAX CONSEQUENCES TO THE
PARTICIPANT. ACCORDINGLY, THE PARTICIPANT SHOULD SEEK THE ADVICE OF
PROFESSIONAL COUNSEL WHO IS FAMILIAR WITH THE ESTATE AND GIFT TAX ASPECTS
OF NONQUALIFIED RETIREMENT AND SALARY CONTINUATION PLANS BEFORE COMPLETING
THIS FORM
4. Identification of Beneficiaries:
A. Primary Beneficiary:_________________________________________________
__________________________________________________________________________
B. Secondary Beneficiary:________________________________________________
__________________________________________________________________________
Methods of Payment (Check One)
Alternative 1. Beneficiary shall mean the Primary Beneficiary if such
Primary Beneficiary survives Participant, and shall mean the Primary
Beneficiary's estate if such Primary Beneficiary survives Participant but
thereafter dies. The term Beneficiary shall mean the Secondary Beneficiary
if the Primary Beneficiary fails to survive Participant, and shall mean the
Secondary Beneficiary's estate when the Secondary Beneficiary thereafter
dies. If both the Primary and Secondary Beneficiaries fail to survive
Participant, the term Beneficiary shall mean the Participant's estate.
Alternative 2. Beneficiary shall mean the Primary Beneficiary if such
Primary Beneficiary survives Participant, and shall mean the Secondary
Beneficiary if either the Primary Beneficiary fails to survive Participant
or the Primary Beneficiary survives Participant but thereafter dies. If
both the Primary and Secondary Beneficiaries fail to survive Participant,
the term Beneficiary shall mean the Participant's estate.
Alternative 3. ___________________________________________________________
__________________________________________________________________________
__________________________________________________________________________
__________________________________________________________________________
6. Survivorship (Check One)
16
<PAGE>
________ Alternative 1. For purposes of this Beneficiary Designation, no
person shall be deemed to have survived the Participant if that person dies
within thirty (30) days of the Participant's death.
________ Alternative 2. If the Participant and the Participant's spouse die
under circumstances such that there is insufficient evidence to determine
the order of their deaths or if the Participant's spouse outlives the
Participant for any time whatsoever, the Participant's spouse shall be
deemed to have survived the Participant. For all other purposes of this
Beneficiary Designation, no person shall be deemed to have survived the
Participant if that person dies within thirty (30) days of the
Participant's death.
7. Duration. This Beneficiary Designation is effective until the Participant
files another such Designation with the Company. Any previous Beneficiary
Designations are hereby revoked.
8. Execution.
Date: __________________________ Participant: ___________________________
Witness: _________________________________
9. Approval. This Beneficiary-Designation is acknowledged and approved April
______, 1987, and shall be effective as of the date executed by the
Participant above.
THE CITIZENS BANK OF PHILADELPHIA, MS.
By:____________________________________
Steve Webb, President
17
<PAGE>
EXHIBIT 10 (a)
CITIZENS HOLDING COMPANY
1999 DIRECTORS' STOCK COMPENSATION PLAN
JANUARY 1, 1999
INDEX
PAGE
ARTICLE I - DEFINITIONS................................................... 1
ARTICLE II - PARTICIPATION................................................ 2
ARTICLE III - COMMON STOCK................................................ 2
Shares............................................................ 2
Adjustment........................................................ 2
ARTICLE IV - OPTIONS...................................................... 3
Definitions....................................................... 3
Provisions Relating to Options.................................... 3
Initial Grant..................................................... 3
Early Termination of Options...................................... 4
Rights as Stockholder............................................. 4
ARTICLE V - GENERAL PROVISIONS............................................ 4
Effective Date and Term........................................... 4
Additional Conditions............................................. 4
Termination of Plan............................................... 5
Inurement......................................................... 5
Amendment......................................................... 5
Transfer of Rights................................................ 5
Right of Repurchase............................................... 5
Governing Law..................................................... 5
Administration.................................................... 6
<PAGE>
CITIZENS HOLDING COMPANY
1999 DIRECTORS' STOCK COMPENSATION PLAN
The purpose of the CITIZENS HOLDING COMPANY 1999 DIRECTORS' STOCK
COMPENSATION PLAN (the "PLAN") is to ensure that each member of the Board of
Directors of Citizens Holding Company, a corporation organized and existing
under the laws of the State of Mississippi (the "CORPORATION"), who is not a
common-law employee of the Corporation or any affiliate thereof (a "NON-EMPLOYEE
DIRECTOR") possesses a proprietary interest in the Corporation by transferring,
for services rendered as a member of the Board of Directors of the Corporation,
shares of $0.20 par value voting common stock issued by the Corporation (the
"COMMON STOCK").
ARTICLE I
DEFINITIONS
The following words and phrases shall have the meanings and applications
set forth below:
1.1 ACT. The Securities Exchange Act of 1934, as amended, including all
rules, regulations and orders promulgated thereunder.
1.2 AFFILIATE. A corporation with respect to which the Corporation owns
(within the meaning of Section 425(f) of the Internal Revenue Code of 1986, as
amended) 50% or more of the total combined voting power of all classes of stock.
1.3 BOARD OF DIRECTORS. The Board of Directors of Citizens Holding
Company.
1.4 BOOK VALUE. The book value of the Corporation determined in
accordance with generally accepted accounting principles as of the last day of
the calendar quarter which immediately precedes or coincides with an Option
Grant Date hereunder.
1.5 FAIR MARKET VALUE. The mean of the closing bid and asked prices of
Common Stock as quoted on the National Association of Securities Dealers
Automated Quotation System, National Market Issues or other exchange or system
of reporting as of a date specified herein; if no Common Stock is traded on such
date, then the Fair Market Value shall be determined using the mean of the
closing bid and ask prices on the date Common Stock last traded on such national
securities exchange or other recognized system of reporting.
1.6 OPTION GRANT DATE. The first business day immediately following the
annual meeting of the shareholders of the Corporation.
1.7 OPTION PRICE. The Book Value of Common Stock if the Corporation is
not a Reporting Company as of an Option Grant Date or Fair Market Value if the
Corporation is a Reporting Company as of any such date.
<PAGE>
1.8 REPORTING COMPANY. The Corporation meets the requirements of a
reporting company within Section 12(g) of the Act and Common Stock is regularly
traded on an exchange or similar system of reporting.
1.9 OTHER DEFINITIONS. The terms "Option," "Cause," and "Effective Date"
shall have the respective meanings set forth below.
ARTICLE II
PARTICIPATION
All Non-Employee Directors of the Corporation shall participate in this
Plan; unless otherwise set forth herein, such persons shall include past,
present or future members of any committee administering any other stock option,
stock appreciation, stock bonus or other form of discretionary stock-related
compensation plan maintained by the Corporation or any of its Affiliates.
In addition, each member of the board of directors of an Affiliate who is
not a common-law employee of the Corporation or any Affiliate shall participate
in this Plan when such Affiliate is designated by the Committee.
ARTICLE III
COMMON STOCK
3.1 SHARES. The maximum number of shares of Common Stock which may be
issued under the Plan shall be 70,000 shares, determined immediately after that
certain stock split authorized by the Board of Directors which is to be
effective as of January 1, 1999. Common Stock issued under the Plan may be
authorized but unissued shares, previously issued shares reacquired by the
Corporation and held as treasury shares, shares acquired on the open market or
shares acquired by private transaction. Shares of Common Stock covered by an
Option which expires without exercise or is forfeited shall again be available
for grant hereunder.
3.2 ADJUSTMENT. In the event of a merger, consolidation or reorganization
of the Corporation with any other corporation, there shall be substituted for
Common Stock then subject to the Plan or an Option granted hereunder the number
and kind of shares of stock or other securities to which the holders of Common
Stock will be entitled pursuant to the terms of the transaction. In the event
of a recapitalization, stock dividend, stock split, combination of shares or
other change in the Common Stock, the number of shares of Common Stock then
subject to the Plan or an Option granted hereunder shall be adjusted in
proportion to the change in outstanding shares of Common Stock.
2
<PAGE>
ARTICLE IV
OPTIONS
4.1 DEFINITIONS. The term "OPTION" shall mean the right to purchase
shares of Common Stock from the Corporation. All Options granted hereunder
shall be nonstatutory or nonqualified options.
4.2 PROVISIONS RELATING TO OPTIONS. Options shall be granted to each Non-
Employee Director hereunder, subject to the following terms and conditions:
a. DATE OF GRANT. Options hereunder shall be granted annually, as of
each Option Grant Date, provided the recipient thereof is a Non-
Employee Director as of such date.
b. OPTION PRICE. The price of any Option granted hereunder shall be the
Option Price, determined as of the Option Grant Date.
c. AMOUNT. The number of shares of Common Stock subject to each Option
granted hereunder shall equal 1,000 shares, which amount shall be
subject to adjustment as provided in Paragraph 3.2 hereof.
d. EXERCISE. Options granted hereunder shall first be exercisable six
months and one day from the date of grant and shall expire 10 years
from the date of grant, unless subject to earlier termination is
provided herein.
e. AGREEMENT. Options granted hereunder shall be evidenced by a written
agreement between the Committee and each Non-Employee Director.
4.3 INITIAL GRANT. As of the Effective Date, each Non-Employee Director
shall be granted an Option in accordance with the provisions of this Paragraph
4.3:
a. OPTION PRICE. The Option Price shall equal the Book Value of Common
Stock, determined as of December 31, 1998.
b. AMOUNT. The number of shares of Common Stock subject to such Option
shall equal 100 shares for each year or partial year of service as a
member of the Board of Directors of the Corporation or The Citizens
Bank of Philadelphia, subject to a maximum of 3,000 shares and
adjustment as provided in Paragraph 3.2 hereof.
c. EXERCISE. Except as provided in Paragraph 4.4, Options granted
hereunder shall be exercisable six months and one day from the date of
grant and shall expire 10 years from date of grant.
3
<PAGE>
d. AGREEMENT. Options granted hereunder shall be evidenced by a written
agreement between the Committee and each Non-Employee Director.
4.4 EARLY TERMINATION OF OPTIONS. If a Non-Employee Director ceases to
serve as a member of the Board of Directors for any reason, except Cause,
Options granted hereunder shall expire one year from the date of the cessation
of service. If a Non-Employee Director ceases to serve as a member of the Board
of Directors on account of Cause, Options granted hereunder which are
unexercised as of the occurrence of such Cause shall be forfeited.
For this purpose "CAUSE" means that a Non-Employee Director is found guilty
by a court of competent jurisdiction, pleads guilty or pleads nolo contendere to
any felony or to a misdemeanor which involves fraud or dishonesty or that a Non-
Employee Director willfully engages in conduct which is materially injurious to
the Corporation or its Affiliates. The Board of Directors shall determine
whether Cause has occurred and notify the affected Non-Employee Director.
4.5 RIGHTS AS STOCKHOLDER. Prior to the issuance of shares of Common
Stock upon the exercise of Options hereunder, a Non-Employee Director shall have
no rights as a stockholder with respect to the shares subject to such Option.
ARTICLE V
GENERAL PROVISIONS
5.1 EFFECTIVE DATE AND TERM. The Plan shall become effective as of
January 1, 1999 (the "EFFECTIVE DATE"), contingent upon its approval by a
majority of the shareholders of the Corporation present or represented at the
next succeeding annual meeting of shareholders. Grants made under the Plan
prior to such shareholder approval shall be subject to the approval of the Plan
by the shareholders.
Unless earlier terminated under Paragraph 5.3 hereof, the Plan shall remain
in effect until the date on which all shares of Common Stock subject to the Plan
have been issued hereunder.
5.2 ADDITIONAL CONDITIONS. Notwithstanding any provision of the Plan to
the contrary:
a. The Corporation may, at the time of the issuance of shares of Common
Stock, require a Non-Employee Director to deliver to the Corporation a
written representation of present intent to hold or acquire shares of
Common Stock solely for the account of the Non-Employee Director for
investment purposes and not for distribution; and
b. If at any time the Corporation determines, in its sole discretion,
that (i) the listing, registration or qualification (or any updating
of any such document) of shares of Common Stock is necessary on any
securities exchange or under any federal or
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state securities or blue sky law, or (ii) the consent or approval of
any governmental regulatory body is necessary or desirable as a
condition of, or in connection with, issuance of shares of Common
Stock, such shares shall not be issued unless such listing,
registration, qualification, consent or approval is effected or
obtained free of any conditions not acceptable to the Corporation.
5.3 TERMINATION OF PLAN. The Board of Directors of the Corporation, upon
written notice to all Non-Employee Directors, shall have the right, at any time,
to terminate this Plan.
5.4 INUREMENT. This Plan shall be binding upon and shall inure to the
benefit of the Corporation and each Non-Employee Director hereto and their
respective heirs, executors, administrators, successors and assigns.
5.5 AMENDMENT. The Board of Directors of the Corporation may amend or
discontinue this Plan at any time, without the consent of any person, to cause
the Plan to comply with the requirements of Rule 16b-3 of the Securities
Exchange Act of 1934, as amended, and the rules and regulations promulgated
thereunder. Otherwise, no amendment or discontinuance by the Board of Directors
shall change, impair or adversely affect shares of Common Stock previously
transferred to any Non-Employee Director or outstanding grants made to any non-
Employee Director without such Non-Employee Director's prior consent.
5.6 TRANSFER OF RIGHTS. No interest or expectancy in the Plan shall be
subject to transfer, pledge or assignment, other than by will or the laws of
descent and distribution and in accordance with the terms of the Plan, and the
Corporation shall not recognize any such assignment, pledge or transfer. During
a Non-Employee Director's lifetime, Common Stock shall be transferred only to a
Non-Employee Director (or guardian or legal representative of such Non-Employee
Director).
5.7 RIGHT OF REPURCHASE. If the Corporation is not a Reporting
Corporation at the time a Non-Employee Director receives a bona fide offer to
purchase all or a portion of the Common Stock acquired hereunder from a third-
party, such shares shall first be offered to the Corporation at the purchase
price proposed by such third-party. Notice of such offer shall be furnished to
the Corporation, in writing, including the terms and conditions of such offer.
The Board of Directors shall notify the affected Non-Employee Director of the
Corporation's intent to purchase such shares not later than 30 days following
receipt of written notice. If the Corporation elects not to purchase such
shares, the provisions of this Paragraph 5.7 shall not restrict such sale, and
the Corporation shall take such actions as may be reasonably required to effect
the transfer of Common Stock hereunder.
5.8 GOVERNING LAW. This Plan is governed by the laws of the State of
Mississippi, in all respects, including matters of construction, validity and
performance.
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5.9 ADMINISTRATION. To the extent required, this Plan shall be
administered by the Board of Directors. Any determination by the Board of
Directors shall be conclusive and binding on all persons. Notwithstanding the
foregoing, the Board of Directors may delegate such administrative authority to
a committee of at least two "non-employee directors" (as defined in the Act).
In no event, however, shall any director act with respect to any matter
involving an individual, specific grant to such director.
EXECUTED this ______ day of December, 1998, in multiple counterparts, each
of which shall be deemed an original.
CITIZENS HOLDING COMPANY
By: /s/ STEVE WEBB
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Title: Chairman, President & CEO
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<PAGE>
EXHIBIT 10(b)
CITIZENS HOLDING COMPANY
1999 EMPLOYEES' LONG-TERM INCENTIVE PLAN
Effective January 1, 1999
TABLE OF CONTENTS
PAGE
SECTION 1 - PURPOSE...................................................... 1
SECTION 2 - DEFINITIONS.................................................. 1
SECTION 3 - ADMINISTRATION............................................... 3
Composition...................................................... 3
Power and Authority.............................................. 3
Hold Harmless.................................................... 4
SECTION 4 - ELIGIBILITY.................................................. 4
SECTION 5 - SHARES SUBJECT TO THE PLAN AND MAXIMUM AWARDS................ 4
Number of Shares................................................. 4
Type of Common Stock............................................. 4
Cancellation..................................................... 4
SECTION 6 - STOCK OPTIONS................................................ 5
Special Definition............................................... 5
General Provisions............................................... 5
Incentive Stock Options.......................................... 5
Initial Grant.................................................... 6
Dividend Equivalents............................................. 7
Manner of Exercise............................................... 7
Equity Maintenance............................................... 7
Rights as Stockholder............................................ 7
SECTION 7 - RESTRICTED STOCK............................................. 8
Special Definition............................................... 8
General Provisions............................................... 8
Enforcement of Restrictions...................................... 8
Lapse of Restrictions............................................ 8
Shareholder Rights............................................... 9
<PAGE>
SECTION VIII - GENERAL................................................... 9
Adoption and Effective Date...................................... 9
Duration......................................................... 9
Transferability of Incentives.................................... 9
Effect of Termination of Employment.............................. 9
Additional Legal Requirements.................................... 10
Adjustment....................................................... 10
Written Agreements............................................... 10
Withholding...................................................... 11
No Continued Employment.......................................... 11
Amendment and Termination of the Plan............................ 11
Immediate Acceleration of Incentives............................. 11
Governing Law.................................................... 11
Right of Repurchase.............................................. 11
Other Benefits................................................... 12
<PAGE>
CITIZENS HOLDING COMPANY
1999 EMPLOYEES' LONG-TERM INCENTIVE PLAN
Citizens Holding Company, a corporation organized and existing under the
laws of the State of Mississippi (the "CORPORATION"), hereby establishes the
1999 Employees' Long-Term Incentive Plan (the "PLAN"), effective as of
January 1, 1999, as provided herein.
SECTION 1
PURPOSE
The Plan is established to optimize the profitability and growth of the
Corporation through the use of compensation incentives which link the interests
of executives and other key employees with the interests of the Corporation and
its shareholders. The Plan is further intended to provide flexibility to the
Corporation in connection with its compensation practices and policies and to
attract, retain and motivate officers, executives and other key employees
through the grant of nonqualified stock options, incentive options, and
restricted stock, all as more fully set forth below.
SECTION 2
DEFINITIONS
2.1 "ACT" means the Securities Exchange Act of 1934, as amended, and any
rule, regulation or interpretation promulgated thereunder.
2.2 "BOOK VALUE" means the book value of the Corporation, determined in
accordance with generally accepted accounting principles as of the last day of
the calendar quarter which immediately precedes or coincides with the date on
which such value is to be determined hereunder.
2.3 "BOARD OF DIRECTORS" means the Board of Directors of the Corporation.
2.4 "CHANGE IN CONTROL" means and shall be deemed to occur if:
a. Any "person," including any "group," determined in accordance with
Section 13(d)(3) of the Act, other than an employee benefit plan
maintained by the Corporation or a Subsidiary, becomes the beneficial
owner, directly or indirectly, of securities of the Corporation
representing 20% or more of the combined voting power of the
Corporation's then outstanding securities, without the approval,
recommendation, or support of the Board of Directors of the
Corporation as constituted immediately prior to such acquisition.
<PAGE>
b. The Federal Deposit Insurance Corporation or any other federal or
state regulatory agency negotiates and implements a plan for the
merger, transfer of assets and liabilities, reorganization and/or
liquidation of The Citizens Bank of Philadelphia.
c. The shareholders of the Corporation approve a reorganization, merger
or consolidation of the Corporation with respect to which the
individuals and entities who were beneficial owners of Common Stock of
the Corporation immediately prior to such reorganization, merger or
consolidation do not beneficially own, directly or indirectly, more
than 80% of the then outstanding common stock or then outstanding
voting securities entitled to vote generally in election of directors
of the company resulting from such reorganization, merger or
consolidation.
d. A change in the members of the Board of Directors of the Corporation
which results in the exclusion of a majority of the "continuing
board." For this purpose, the term "continuing board" means the
members of the Board of Directors of the Corporation, determined as of
the effective date of this Plan and subsequent members of such board
who are elected by or on the recommendation of a majority of such
"continuing board."
e. The sale of substantially all of the stock or the assets of The
Citizens Bank of Philadelphia by the Corporation (or any successor
thereto).
2.5 "CODE" means the Internal Revenue Code of 1986, as amended.
2.6 "COMMON STOCK" means $0.20 par value voting common stock issued by the
Corporation.
2.7 "EMPLOYEE" means a common law employee of the Corporation and/or its
Subsidiaries, determined in accordance with the Corporation's standard personnel
policies and practices.
2.8 "FAIR MARKET VALUE" means the mean of the closing bid and asked prices
of Common Stock as quoted on the National Association of Securities Dealers
Automated Quotation System (NASDAQ) national market or other exchange on which
Common Stock is regularly traded on the date of the grant or the exercise of an
Incentive or the lapse of restrictions applicable to an Incentive granted
hereunder, as the case may be. If no Common Stock is traded on such date, then
Fair Market Value shall be the mean of the closing bid and asked prices on the
date Common Stock last traded on such system or exchange. If Common Stock is
not regularly traded, then for purposes of Section 6.3 hereof, Fair Market Value
shall be determined by the Board of Directors in good faith in accordance with
generally accepted methods of valuation.
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2.9 "INCENTIVE" means a right to purchase or receive shares of Common
Stock in accordance with the terms of this Plan. An Incentive may be granted in
the form of stock options, restricted stock, or any combination thereof.
2.10 "OPTION PRICE" means the Book Value of Common Stock, if the
Corporation is not a Reporting Company as of the date on which such price is
determined or Fair Market Value if the Corporation is a Reporting Company as of
such date.
2.11 "PARTICIPANT" means an Employee who is granted or awarded an
Incentive under this Plan.
2.12 "PLAN" means this 1999 Employees' Long-Term Incentive Plan, as the
same may be amended from time to time.
2.13 "REPORTING COMPANY" means that the Corporation is a Reporting Company
within the meaning of Section 12(g) of the Act and that Common Stock is actively
traded on an established market or similar system of reporting or exchange.
2.14 "SUBSIDIARY" means any corporation of which the Corporation owns,
directly or indirectly, more than 50% of the total combined voting power of all
classes of stock.
2.15 OTHER DEFINITIONS. The terms "stock option" and "option" are defined
in Section 6.1 hereof; the term "non-employee director" is defined in Section
3.1 hereof; the term "nonqualified stock option" is defined in Section 6.1
hereof; the term "incentive stock option" is defined in Section 6.1 hereof; the
term "restricted stock" is defined in Section 7.1 hereof; the term "Cause" is
defined in Section 8.4 hereof; and the term "Effective Date" is defined in
Section 8.1 hereof.
SECTION 3
ADMINISTRATION
3.1 COMPOSITION. This Plan shall be administered by the Board of
Directors; provided, however, that the board may delegate the administrative
power and authority granted hereunder to a committee appointed by the board,
which committee shall consist of at least two "non-employee directors." For this
purpose, the term "NON-EMPLOYEE DIRECTOR" shall have the meaning ascribed to it
in Rule 16b-3 promulgated under the Act or any successor thereto.
3.2 POWER AND AUTHORITY. The Board of Directors shall have the
discretionary power and authority to award Incentives under the Plan, including
determination of the terms and conditions thereof, to construe and interpret the
provisions of the Plan and any form or agreement related thereto, to establish
and adopt rules, regulations, and procedures relating to the Plan and to
interpret, apply and construe such rules, regulations and procedures and to make
any other determination which it believes necessary or advisable for the proper
administration of the Plan.
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Decisions, interpretations and actions of the Board of Directors concerning
matters related to the Plan shall be final and conclusive on the Corporation,
its Subsidiaries and stockholders and Participants and beneficiaries hereunder.
The Board of Directors' determinations under the Plan need not be uniform, and
the board may make determinations selectively among the Participants who receive
or are eligible to receive Incentives, whether or not such Participants are
similarly situated.
3.3 HOLD HARMLESS. The Corporation shall indemnify and hold harmless the
members of the Board of Directors and individuals, including Employees of the
Corporation or a Subsidiary, performing services on behalf of the Board of
Directors hereunder, against any liability, cost or expense arising as a result
of any claim asserted by any person or entity under the laws of any state or of
the United States with respect to any action or failure to act of such
individuals taken in connection with the Plan, except claims or liabilities
arising on account of the willful misconduct or bad faith of any such
individual.
SECTION 4
ELIGIBILITY
Employees of the Corporation and its Subsidiaries shall be eligible to
receive Incentives under this Plan, when designated by the Board of Directors.
Employees may be designated for participation hereunder individually or by
groups or categories, in the discretion of the Board of Directors.
SECTION 5
SHARES SUBJECT TO THE PLAN AND MAXIMUM AWARDS
5.1 NUMBER OF SHARES. Subject to adjustment as provided in Section 8.6
hereof, the number of shares of Common Stock which may be issued under the Plan
shall not exceed 7% of the total number of shares of Common Stock which may be
issued and outstanding, from time to time. Except as provided in this Section
5, the number of shares available for grant, transfer or issuance under the Plan
shall be reduced by the number of shares actually granted, transferred or issued
hereunder, from time to time.
5.2 TYPE OF COMMON STOCK. Common Stock issued in connection with the
grant or award of an Incentive hereunder may be authorized and unissued shares
or issued shares held as treasury shares, open market shares or shares acquired
through private transaction.
5.3 CANCELLATION. Shares of Common Stock covered by Incentives which are
not earned or which are canceled, forfeited, terminated, expired or otherwise
lapsed for any reason and options or stock appreciation rights which expire
unexercised, are canceled or forfeited or which are exchanged for other forms of
options or Incentives hereunder, shall again be available for grant as an
Incentive under the Plan, to the extent permitted under Rule 16b-3 promulgated
under the Act or any successor thereto.
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SECTION 6
STOCK OPTIONS
6.1 SPECIAL DEFINITION. The term "STOCK OPTION" or "OPTION" means a right
to purchase shares of Common Stock from the Corporation. Stock options granted
hereunder may be nonqualified stock options or incentive stock options. A
"NONQUALIFIED STOCK OPTION" is an option which is designated as nonqualified and
is not intended to meet the requirements of Section 422 of the Code; an
"INCENTIVE STOCK OPTION" is an option which is designated as such and which is
intended to comply with the requirements imposed under Section 422 of the Code.
All stock options shall comply with the provisions of Section 6.2 hereof, and
incentive stock options shall comply with the provisions of Section 6.3 hereof.
6.2 GENERAL PROVISIONS. All stock options granted under this Plan shall
be granted by the Board of Directors, in its discretion, subject to the
following general terms and conditions:
a. The number of shares of Common Stock subject to an option shall be
determined by the Board of Directors at the time of grant.
b. The Option Price per share shall be determined in accordance with
Section 2.10 hereof.
c. Subject to earlier termination as provided in Section 8.4 hereof, the
term of each stock option shall be determined by the Board of
Directors.
d. The exercise of an option granted hereunder may be subject to such
performance goals and objectives as the Board of Directors deems
appropriate. Such goals and objectives may relate to any Participant,
individually, or group of Participants or to the Corporation, a
Subsidiary, or any unit, division or department thereof. The Board of
Directors shall notify any affected Participant of applicable
performance goals or objectives, if any.
e. Each stock option shall be exercisable at such time or times during
its term as may be determined by the Board of Directors; provided,
however, that no option shall be exercisable later than 10 years after
the date of grant and no option shall be exercisable earlier than six
months and one day after the date of grant.
Stock options granted hereunder shall be evidenced by a written agreement
between the Board of Directors and each affected Participant. Any such
agreement shall identify the grant of the option as an incentive stock option or
as a nonqualified stock option.
6.3 INCENTIVE STOCK OPTIONS. In addition to the provisions of Section 6.2
hereof, each incentive stock option shall be subject to the following:
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a. The aggregate Fair Market Value (determined as of the time the option
is granted) of the shares of Common Stock with respect to which
incentive stock options are exercisable for the first time by any
Participant during any calendar year (under all plans of the
Corporation), shall not exceed $100,000. If and to the extent Fair
Market Value exceeds $100,000, the incentive stock option shall be
treated as a nonstatutory stock option.
b. Incentive stock options must be granted within 10 years from the date
on which this Plan is adopted.
c. Unless sooner exercised, all incentive stock options shall expire no
later than 10 years after the date of grant.
d. Incentive stock options granted to a Participant hereunder shall be
exercisable during his or her lifetime only by such Participant.
e. No incentive stock option shall be granted to any Participant who at
the time such option is granted would own (within the meaning of
Section 422 of the Code) stock possessing more than 10% of the total
combined voting power of all classes of stock of the Corporation,
determined in accordance with Section 422(b)(6) of the Code.
f. No incentive stock option shall be granted to any Participant who is
not an employee (within the meaning of Section 3401 of the Code) of
the Corporation or its Subsidiaries during the period described under
Section 422(a)(2) of the Code.
g. Notwithstanding any provision of this Plan to the contrary, the Option
Price shall not be less than Fair Market Value.
Any certificate or agreement evidencing an incentive stock option granted under
the Plan shall contain such other provisions as the Board of Directors shall
deem advisable, but shall in all events be consistent with and contain all
provisions required in order to qualify the options as incentive stock options
under Section 422 of the Code.
6.4 INITIAL GRANT. As of the Effective Date, each Participant who is a
member of the Board of Directors shall be granted an option in accordance with
the provisions of this Paragraph 6.4:
a. OPTION PRICE. The Option Price shall equal the Book Value of Common
Stock, determined as of December 31, 1998.
b. AMOUNT. The number of shares of Common Stock subject to such Option
shall equal 100 shares for each year or partial year of service as a
member of the Board
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of Directors of the Corporation and/or The Citizens Bank of
Philadelphia, subject to a maximum of 3,000 shares and adjustment as
provided in Paragraph 8.6 hereof.
c. EXERCISE. The Option granted hereunder shall be exercisable six
months and one day from the date of grant and shall expire 10 years
from date of grant.
6.5 DIVIDEND EQUIVALENTS. The Board of Directors, in its discretion, may
grant dividend equivalents in connection with an option granted hereunder.
Dividend equivalents may be granted in cash or in the form of Common Stock and
shall be subject to such additional terms and conditions as the Board of
Directors, in its sole discretion, deems appropriate.
6.6 MANNER OF EXERCISE. A stock option may be exercised, in whole or in
part, by providing written notice to the Board of Directors, specifying the
number of shares of Common Stock to be purchased and accompanied by the full
purchase price for such shares.
The option price shall be payable to the Corporation in the form of cash
(including cash equivalents) or, if the Corporation is a Reporting Company and
permitted under the terms and conditions applicable to the specific option, by
delivery of previously acquired shares of Common Stock held by the Participant,
or in such other manner as may be authorized, from time to time, by the Board of
Directors. Common Stock tendered to the Corporation in payment of the option
price shall be valued at its Fair Market Value at the date of exercise.
If the Corporation is a Reporting Company at the time of exercise, a
Participant or group of Participants may exercise stock options and sell the
shares of Common Stock acquired thereby pursuant to a brokerage or similar
arrangement and use the proceeds of any such sale as payment of the purchase
price of the shares.
As soon as practicable after the receipt of written notification or
exercise and payment of the option price in full, the Board of Directors shall
cause the Corporation to deliver to the Participant, registered in the
Participant's name, certificates representing shares of Common Stock in the
appropriate amount.
6.7 EQUITY MAINTENANCE. If a Participant, while an Employee of the
Corporation or a Subsidiary, pays the option price by delivery of previously
owned shares of Common Stock, the Board of Directors, in its discretion, may
grant to such Participant an additional option to purchase the number of shares
of Common Stock delivered by the Participant to pay the option price. Any such
additional option granted by the Board of Directors shall be exercisable at Fair
Market Value determined as of the date on which such additional option is
granted.
6.8 RIGHTS AS STOCKHOLDER. Prior to the issuance of shares of Common
Stock upon the exercise of a stock option, a Participant shall have no rights as
a stockholder with respect to the shares subject to such option.
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SECTION 7
RESTRICTED STOCK
7.1 SPECIAL DEFINITION. The term "RESTRICTED STOCK" means shares of
Common Stock which are sold or transferred by the Corporation to a Participant
at a price which may be below Fair Market Value, or for no payment, but subject
to restrictions on sale or other transfer by the Participant.
7.2 GENERAL PROVISIONS. The Board of Directors may grant shares of
restricted stock, in its discretion, subject to the following terms and
conditions:
a. The number of shares to be transferred or sold by the Corporation to a
Participant as restricted stock shall be determined by the Board of
Directors.
b. The Board of Directors shall determine the price, if any, at which
shares of restricted stock shall be sold, which may vary from time to
time and which may be below the Fair Market Value of such shares as of
the date of sale.
c. All shares of restricted stock transferred or sold to a Participant
hereunder shall be subject to such terms, conditions and restrictions
for such period or periods as the Board of Directors, in its
discretion, may determine (including, without limitation, restrictions
on transfer, forfeiture provisions, and restrictions based upon the
achievement of specified performance goals and objectives which may
relate to the Corporation, a Subsidiary, any unit, department or
division of the Corporation or a Subsidiary or any Participant or
group of Participants or Employees).
Each grant of restricted stock hereunder shall be evidenced by a written
agreement between the Board of Directors and each affected Participant.
7.3 ENFORCEMENT OF RESTRICTIONS. In order to enforce any restrictions
imposed by the Board of Directors pursuant to Section 7.2 hereof, a Participant
receiving restricted stock shall enter into an agreement with the Corporation
setting forth the conditions of the grant. Each certificate issued with respect
to restricted shares shall bear such legends as the Board of Directors, in its
sole discretion, shall deem necessary or appropriate.
The Board of Directors, in its discretion, may require that shares of
restricted stock registered in the name of the Participant be deposited,
together with a stock power endorsed in blank, with the Corporation.
7.4 LAPSE OF RESTRICTIONS. At the end of any period during which the
shares of restricted stock are subject to forfeiture or restriction on transfer,
such restrictions shall lapse and a certificate representing the number of
shares of Common Stock with respect to which the restrictions have
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lapsed shall be delivered to the Participant free of restriction, except as may
be imposed by applicable law or as provided herein.
7.5 SHAREHOLDER RIGHTS. Subject to any restrictions or limitations
imposed by the Board of Directors, each Participant receiving restricted stock
hereunder shall have the full voting rights of a stockholder with respect to
such shares during any period in which the shares are subject to forfeiture or
restriction on transfer. During any period of restriction hereunder, dividends
paid in cash or property with respect to the underlying shares of restricted
stock shall be paid to the Participant currently, accrued by the Corporation as
a contingent obligation or converted to additional shares of stock, in the
discretion of the Board of Directors.
SECTION VIII
GENERAL
8.1 ADOPTION AND EFFECTIVE DATE. This Plan is effective as of January 1,
1999 (its "EFFECTIVE DATE"), subject to its approval by the affirmative vote of
the holders of a majority of the Common Stock of the Corporation present or
represented at the immediately succeeding annual meeting of its shareholders.
Unless approved within one year after the date of the Plan's adoption by the
Board of Directors of the Corporation, the Plan shall not be effective for any
purpose. Prior to the approval of the Plan by the shareholders of the
Corporation, the Board of Directors may award Incentives hereunder, but if such
approval is not received in the specified period, then such awards shall be void
and of no effect.
8.2 DURATION. The Plan shall commence on its effective date and shall
remain in effect, subject to the right of the Board of Directors to amend or
terminate the Plan pursuant to Section 8.10 hereof, until all Incentives
granted under the Plan have been satisfied by the issuance of shares of Common
Stock or terminated and all restrictions imposed on shares of Common Stock in
connection with their issuance under the Plan have lapsed. No Incentive shall
be granted under the Plan after the 10th anniversary of the date on which the
Plan is approved by the Corporation's stockholders.
8.3 TRANSFERABILITY OF INCENTIVES. No Incentive granted hereunder may be
transferred, pledged, assigned, hypothecated, alienated or otherwise encumbered
or sold by the holder thereof whether by operation of law or otherwise and
whether voluntarily or involuntarily (except in the event of the holder's death
by will or the laws of descent and distribution) and neither the Board of
Directors nor the Corporation shall be required to recognize any attempted
assignment of such rights by any Participant. During a Participant's lifetime,
an Incentive may be exercised only by the Participant or by the Participant's
guardian or legal representative.
8.4 EFFECT OF TERMINATION OF EMPLOYMENT. In the event that a Participant
ceases to be an Employee of the Corporation or a Subsidiary on account of death,
disability, retirement or a voluntary or involuntary termination, other than for
Cause (as defined below), an Incentive may be exercised or shall expire at such
times as may be determined by the Board of Directors; provided,
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however, that any extension of the exercise term shall not exceed the original
exercise term of the Incentive.
If a Participant's employment with the Corporation or a Subsidiary is
terminated for Cause, all rights of such Participant under any Incentive shall
expire, be terminated or forfeited, upon receipt by such Participant of notice
of such termination. In the event of forfeiture, stock certificates
representing such restricted stock shall be returned to the Corporation. For
this purpose, the term "CAUSE" shall mean fraud, misappropriation of or
intentional material damage to the property or business of the Corporation or a
Subsidiary or that a Participant is found guilty by a court of competent
jurisdiction, pleads guilty or nolo contendere to any felony or to a misdemeanor
which includes fraud or dishonesty. The Board of Directors shall determine
whether Cause exists with respect to any affected Participant.
If a Participant ceases to be an Employee of the Corporation or a
Subsidiary for any reason and the Participant then "competes" with the business
or operations of the Corporation or a Subsidiary, such Participant shall forfeit
any stock options not yet exercised, any restricted stock with respect to which
the restrictions have not yet lapsed and any credits to such Participant's
phantom share account. The Board of Directors shall determine, in accordance
with applicable law, whether a Participant's activity constitutes competition
for purposes of this Section 8.4
8.5 ADDITIONAL LEGAL REQUIREMENTS. The obligation of the Corporation or
any of its Subsidiaries to deliver Common Stock to any Participant hereunder
shall be subject to all applicable laws, regulations, rules and approvals deemed
necessary or appropriate by the Corporation. Certificates for shares of Common
Stock issued pursuant to this Plan may be legended as the Board of Directors
shall deem appropriate.
8.6 ADJUSTMENT. In the event of any merger, consolidation or
reorganization of the Corporation with any other corporation or corporations,
there shall be substituted for each of the shares of Common Stock then subject
to the Plan the number and kind of shares of stock or other securities to which
the holders of the shares of Common Stock will be entitled pursuant to the
transaction.
In the event of any recapitalization, stock dividend, stock split,
combination of shares or other change in the number of shares of Common Stock
then outstanding for which the Corporation does not receive consideration, the
number of shares of Common Stock then subject to the Plan shall be adjusted in
proportion to the change in outstanding shares of Common Stock. In the event of
any such substitution or adjustment, the purchase price of any option, the
performance objectives applicable to any Incentive, and the shares of Common
Stock issuable pursuant to any Incentive shall be adjusted to the extent
necessary to prevent the dilution or enlargement of any right granted hereunder,
determined in the discretion of the Board of Directors.
8.7 WRITTEN AGREEMENTS. The terms of each Incentive shall be stated in a
plan or agreement approved by the Board of Directors. Neither the Board of
Directors nor the Corporation
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shall be required to grant any Incentive hereunder to any Participant, unless
such Participant executes such agreements or provides such representations as
the Board of Directors deems appropriate.
8.8 WITHHOLDING. The Corporation shall have the right to withhold from
any payment made under the Plan or to collect as a condition of payment, any
taxes required by law to be withheld.
If the Corporation is a Reporting Company, a Participant required to pay to
the Corporation an amount required to be withheld under applicable income tax
laws in connection with a distribution of Common Stock may satisfy this
obligation, in whole or in part, by electing to have the Corporation withhold
from the distribution shares of Common Stock having a Fair Market Value equal to
the amount required to be withheld. The value of the shares to be withheld
shall be based on the Fair Market Value on the date that the amount of tax to be
withheld shall be determined. The Board of Directors may disapprove of any such
election, may suspend or terminate the right to make elections or may provide
with respect to any Incentive that the right to make elections shall not apply.
Once delivered to the Board of Directors, an election shall be irrevocable. Any
such election shall comply with such additional restrictions as may be imposed
under Rule 16b-3 promulgated under the Act.
8.9 NO CONTINUED EMPLOYMENT. No Participant under the Plan shall have any
right to continue in the employ of the Corporation or a Subsidiary for any
period of time or to any right to continue his or her present or any other rate
of compensation on account of participation in the Plan.
8.10 AMENDMENT AND TERMINATION OF THE PLAN. The Board of Directors of the
Corporation may amend or discontinue the Plan at any time, in its sole
discretion; provided, however, that no such amendment or discontinuance shall
materially change or impair, without the consent of each affected Participant,
an Incentive previously granted hereunder.
8.11 IMMEDIATE ACCELERATION OF INCENTIVES. Notwithstanding any provision
in the Plan or in any Incentive to the contrary and subject to any limitation
imposed under the Act (a) the restrictions on all shares of restricted stock
awarded under the Plan shall immediately lapse, (b) all outstanding options
shall become exercisable immediately, and (c) all performance objectives or
other restrictions on Incentives granted under the Plan shall be deemed to be
satisfied or lapsed and payment made immediately, upon the occurrence of a
Change in Control.
8.12 GOVERNING LAW. The Plan and any Incentive granted under the Plan
shall be governed by the laws of the State of Mississippi.
8.13 RIGHT OF REPURCHASE. If the Corporation is not a Reporting Company
at the time a Participant receives a bona fide offer to purchase all or a
portion of the Common Stock acquired hereunder from a third-party, such shares
shall first be offered to the Corporation at the purchase price proposed by such
third-party. Notice of such offer shall be furnished to the Corporation, in
writing, including the terms and conditions of such offer. The Board of
Directors shall notify the
11
<PAGE>
affected Participant of the Corporation's intent to purchase such shares not
later than 30 days following receipt of written notice. If the Corporation
elects not to purchase such shares, the provision of this Paragraph 8.13 shall
not restrict such sale, and the Corporation shall take such actions as may be
reasonably required to effect the transfer of Common Stock hereunder.
8.14 OTHER BENEFITS. Incentives granted to a Participant under the terms
of the Plan shall not impair or otherwise reduce such Participant's
compensation, life insurance or other benefits provided by the Corporation or
its Subsidiaries; provided, however, that the value of Incentives shall not be
treated as compensation for purposes of computing the value or amount of any
such benefit.
THIS PLAN was adopted by the Board of Directors of Citizens Holding Company
on December 22, 1998, to be effective as of the time determined under Section
8.1 hereof.
CITIZENS HOLDING COMPANY
By: /s/ STEVE WEBB
--------------------------
Its: Chief Executive Officer
--------------------------
12
<PAGE>
EXHIBIT 16
[ON THE CITIZENS BANK
OF PHILADELPHIA LETTERHEAD]
March 9, 1999
Mr. Cottrell Webster, Regional Director
Federal Deposit Insurance Corporation
5100 Poplar Avenue, Suite 1900
Memphis, TN 38137
Dear Mr. Webster:
On December 30, 1998, our parent company, Citizens Holding Company, filed a Form
10 registration application with the Securities and Exchange Commission (SEC)
with the intent of listing its stock on the American Stock Exchange (AMEX).
Our external auditor, Mr. A. T. Williams, CPA informed us that with the
requirements of reporting to the SEC, it would be in the best interest of the
Holding Company and the Bank to engage the services of an accounting firm that
has expertise with this type accounting and reporting. It was with regret that
we accepted this decision by Mr. Williams and started the search for a new firm
to audit our company.
Beginning with the audit for 1998 and subsequent years we have engaged the
services of the Horne CPA Group in Jackson, Mississippi. After interviewing
three different firms, we determined that Horne was the best qualified to
perform the accounting and audit functions for the Holding Company and Bank.
If I can provide any additional information about this change in accountants,
please feel free to contact me.
Thank you.
Sincerely,
/s/Steve Webb
Steve Webb
Chairman, President and Chief Executive Officer
P.O. BOX 209 . PHILADELPHIA, MISSISSIPPI 39350 . PHONE (601) 656-4692
*Exact copy sent to Mr. Ronny G. Parham, Commission, Mississippi Department
of Banking and Consumer Finance and Mr. Jack Guynn, President,
Federal Reserve Bank of Atlanta
<PAGE>
EXHIBIT 16 (Continued)
[ON A. T. WILLIAMS LETTERHEAD]
A. T. WILLIAMS
CERTIFIED PUBLIC ACCOUNTANT
322 Byrd Avenue, P. O. Box 606
Philadelphia, Mississippi 39350
601 656-2742
FAX 656-2760
MEMBER MEMBER
AMERICAN INSTITUTE OF MISSISSIPPI SOCIETY OF
CERTIFIED PUBLIC ACCOUNTANTS CERTIFIED PUBLIC ACCOUNTANTS
March 9, 1999
Mr. Cottrell Webster, Regional Director
Federal Deposit Insurance Corporation
5100 Poplar Avenue, Suite 1900
Memphis, TN 38137
Dear Mr. Webster:
I was previously the principal auditor for Citizens Holding Company and its
subsidiary, The Citizens Bank of Philadelphia. My appointment as principal
auditor was terminated when the Holding Company decided to become listed on the
American Stock Exchange. I felt that the Holding Company and the Bank should
obtain auditors who had SEC experience, therefore I declined to stand.
I have read the statements of The Citizens Bank of Philadelphia in its letter to
you dated March 9, 1999, and I agree with such statements.
Very truly yours,
/s/ A. T. Williams
A. T. Williams, CPA
* Exact copy sent to Mr. Ronny Parham, Commissioner, Mississippi
Department of Banking and Consumer Finance
and Mr. Jack Guynn, President, Federal Reserve Bank of Atlanta
<PAGE>
EXHIBIT 21
SUBSIDIARIES:
NAME:
STATE OF ORGANIZATION:
The Citizens Bank of Philadelphia
Mississippi
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<PAGE>
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<FISCAL-YEAR-END> DEC-31-1999 DEC-31-1998
<PERIOD-START> JAN-01-1999 JAN-01-1998
<PERIOD-END> MAR-31-1999 DEC-31-1998
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