<PAGE> 1
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(A) OF THE SECURITIES EXCHANGE ACT OF 1934
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[ ] Preliminary Proxy Statement
[ ] Confidential, for Use of the Commission Only (as permitted
by Rule 14a-6(e)(2))
[X] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to 240.14a-11(c) or 240.14a-12
SOUTHFIRST BANCSHARES, INC.
(Name of Registrant as Specified in Its Charter)
N/A
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and
0-11.
(1) Title of each class of securities to which transaction
applies:
(2) Aggregate number of securities to which transaction applies:
(3) Per unit price or other underlying value of transaction
computed pursuant to Exchange Act Rule 0-11 (set forth the
amount on which the filing fee is calculated and state how it
was determined):
(4) Proposed maximum aggregate value of transaction:
(5) Total fee paid:
[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee
was paid previously. Identify the previous filing by registration
statement number, or the Form or Schedule and the date of its filing.
1) Amount Previously Paid:
2) Form, Schedule or Registration Statement No.:
3) Filing Party:
4) Date Filed:
<PAGE> 2
[SOUTHFIRST LETTERHEAD]
March 10, 2000
Dear Stockholder:
You are cordially invited to attend the Annual Meeting of Stockholders
of SouthFirst Bancshares, Inc. ("SouthFirst"), which will be held on Wednesday,
April 5, 2000, at 10:00 a.m., at SouthFirst's main office, 126 North Norton
Avenue, Sylacauga, Alabama 35150.
The formal notice of the meeting and the proxy statement appear on the
following pages and describe the matters to be acted upon. Time will be provided
during the meeting for discussion, and you will have an opportunity to ask about
your Company.
Whether or not you plan to attend the meeting in person, it is
important that your shares be represented and voted. After reading the enclosed
notice of the meeting and proxy statement, please complete, sign, date and
return the enclosed proxy at your earliest convenience. Returning the signed
proxy card will not prevent you from voting in person at the meeting, should you
later decide to do so.
Sincerely,
/s/ Donald C. Stroup
-------------------------------------
Donald C. Stroup
President and Chief Executive Officer
<PAGE> 3
SOUTHFIRST BANCSHARES, INC.
126 NORTH NORTON AVENUE
SYLACAUGA, ALABAMA 35150
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD APRIL 5, 2000
To the Holders of Common Stock of SOUTHFIRST BANCSHARES, INC.:
Notice is hereby given that the Annual Meeting of Stockholders (the
"Annual Meeting") of SouthFirst Bancshares, Inc. ("SouthFirst") will be held on
Wednesday, April 5, 2000, at 10:00 a.m., at SouthFirst's principal executive
offices, 126 North Norton Avenue, Sylacauga, Alabama 35150, for the following
purposes:
(1) To elect three directors to hold office until the 2003 Annual
Meeting and until their successors are elected and qualified;
and
(2) To transact such other business as may properly come before
the Annual Meeting or any adjournment thereof.
The Board of Directors has fixed February 23, 2000, as the record date
for the determination of stockholders entitled to vote at the Annual Meeting.
Only stockholders of record at the close of business on that date will be
entitled to notice of, and to vote at, the Annual Meeting or any adjournment
thereof.
A Proxy Statement and a proxy solicited by the Board of Directors,
together with a copy of the 1999 Annual Report to Stockholders are enclosed
herewith. Stockholders are cordially invited to attend the Annual Meeting.
Whether or not you expect to attend the Annual Meeting in person, you are
requested to complete, sign and date the enclosed proxy and return it as
promptly as possible in the accompanying envelope. If you attend the Annual
Meeting, you may, if you wish, withdraw your proxy and vote in person.
By Order of the Board of Directors
/s/ Joe K. McArthur
----------------------------------
Joe K. McArthur
Secretary
Sylacauga, Alabama
March 10, 2000
YOUR VOTE IS IMPORTANT. WHETHER OR NOT YOU PLAN TO ATTEND THE ANNUAL MEETING IN
PERSON, YOU ARE URGED TO COMPLETE, SIGN, DATE AND PROMPTLY MAIL THE ENCLOSED
PROXY IN THE ACCOMPANYING POSTAGE PAID ENVELOPE. IF YOU ATTEND THE ANNUAL
MEETING, YOU MAY REVOKE THE PROXY AND VOTE YOUR SHARES IN PERSON.
<PAGE> 4
SOUTHFIRST BANCSHARES, INC.
126 NORTH NORTON AVENUE
SYLACAUGA, ALABAMA 35150
ANNUAL MEETING OF STOCKHOLDERS
APRIL 5, 2000
PROXY STATEMENT
This Proxy Statement is furnished in connection with the solicitation
of proxies by the Board of Directors of SouthFirst Bancshares, Inc.
("SouthFirst") for the Annual Meeting of Stockholders (the "Annual Meeting") to
be held on Wednesday, April 5, 2000, and any adjournment thereof, at the time
and place and for the purposes set forth in the accompanying notice of the
Annual Meeting. The expense of this solicitation, including the cost of
preparing and mailing this Proxy Statement, will be paid by SouthFirst. In
addition to solicitations by mail, officers and other employees of SouthFirst,
without receiving any additional compensation, may assist in soliciting proxies
by telephone. This Proxy Statement and the accompanying proxy are first being
mailed to stockholders on or about March 10, 2000. The address of the principal
executive offices of SouthFirst is 126 North Norton Avenue, Sylacauga, Alabama
35150, and SouthFirst's telephone number is (256) 245-4365. SouthFirst is the
parent of First Federal of the South ("First Federal"), a wholly-owned
subsidiary which is a federally chartered savings association.
Any proxy given pursuant to this solicitation may be revoked by any
stockholder who attends the Annual Meeting and gives oral notice of his or her
decision to vote in person, without complying with any other formalities. In
addition, any proxy given pursuant to this solicitation may be revoked prior to
the Annual Meeting by delivering to SouthFirst's Secretary an instrument
revoking it or a duly executed proxy for the same shares bearing a later date.
Proxies which are returned properly executed and not revoked will be voted in
accordance with the stockholder's directions specified thereon. Where no
direction is specified, proxies will be voted FOR the election of the nominees
named herein. The items enumerated herein constitute the only business which the
Board of Directors intends to present or knows will be presented at the Annual
Meeting. However, the proxy confers discretionary authority upon the persons
named therein, or their substitutes, with respect to any other business which
may properly come before the Annual Meeting. Abstentions and broker non-votes
will not be counted as votes either in favor of or against the matter with
respect to which the abstention or broker non-vote relates.
The record of stockholders entitled to vote at the Annual Meeting was
taken on February 23, 2000. On that date, SouthFirst had outstanding and
entitled to vote 928,568 shares of common stock, $.01 par value per share (the
"Common Stock"), with each share entitled to one vote. The holders of
c:one-third (1/3) of the outstanding shares of Common Stock entitled to vote
must be present, in person or by proxy, to constitute a quorum.
<PAGE> 5
SECURITY OWNERSHIP OF CERTAIN
BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information as of February 23,
2000 with respect to the beneficial ownership of SouthFirst's common stock by
(i) each person known by SouthFirst to own beneficially more than five percent
(5%) of SouthFirst Common Stock, (ii) each director of SouthFirst, (iii) each of
the Named Executive Officers (as defined herein) and (iv) all directors and
executive officers of SouthFirst as a group. Unless otherwise indicated, each of
the shareholders has sole voting and investment power with respect to the shares
beneficially owned.
<TABLE>
<CAPTION>
Shares of
Common Stock Percent of
Beneficial Owner Beneficially Owned(1) Outstanding Shares
---------------- --------------------- ------------------
<S> <C> <C>
Donald C. Stroup(2) 61,484 6.5%
Joe K. McArthur(3) 27,061 2.9%
Bobby R. Cook(4) 14,090 1.5%
H. David Foote, Jr.(5) 11,520 1.2%
J. Malcomb Massey(6) 22,834 2.5%
Allen Gray McMillan, III(7) 15,520 1.7%
John T. Robbs(8) 20,520 2.2%
Charles R. Vawter, Jr.(9) 35,809 3.8%
Jimmy C. Maples(10) 18,066 1.9%
Jeffrey L. Gendell, et. al.(11) 83,700 9.1%
Robert J. Salmon and
Mary Anne J. Salmon(12) 47,600 5.1%
Pension & Benefit Financial
Services, Inc.,(13) 66,400 7.2%
All directors and
executive officers
as a group (9 persons) 226,550 23.1%
</TABLE>
- ---------------
(1) "Beneficial Ownership" includes shares for which an individual,
directly or indirectly, has or shares voting or investment power or
both and also includes options which are exercisable within sixty days
of the date hereof. Beneficial ownership, as reported in the above
table, has been determined in accordance with Rule 13d-3 of the
Exchange Act. The percentages are based upon 928,568 shares
outstanding, except for certain parties who hold presently exercisable
options to purchase shares. The percentages for those parties holding
presently exercisable options are based upon the sum of 928,568 shares
plus the number of shares subject to presently exercisable options held
by them, as indicated in the following notes.
(2) Of the amount shown, 17,100 shares are owned jointly by Mr. Stroup and
his wife, 300 shares are held by one of Mr. Stroup's sons, 11,491
shares are held in his account under SouthFirst's 401(k) Plan, 4,707
shares are held in his account under First Federal's ESOP, 19,436
shares are subject to presently exercisable options and 8,300 shares
represent restricted stock granted under SouthFirst's Management
Recognition Plans "A" and "B," 6,640 shares of which are fully vested.
(3) Of the amount shown, 1,500 shares are owned jointly by Mr. McArthur and
his wife, 4,129 shares are held in his account under SouthFirst's
401(k) Plan, 4,008 shares are held in his account under First Federal's
ESOP, 12,110 shares are subject to presently exercisable options and
5,312 shares represent restricted stock granted under SouthFirst's
Management Recognition Plans "A" and "B," 4,250 shares of which are
fully vested.
(4) Of the amount shown, 1,624 shares are held in an Individual Retirement
Account for the benefit of Mr. Cook's wife.
(5) Of the amount shown, 3,000 shares are owned jointly by Mr. Foote and
his wife, 1,500 shares are held by Mr. Foote as custodian for each of
his two minor children, 3,860 shares are subject to presently
exercisable options and 1,660 shares represent restricted stock granted
under SouthFirst's Management Recognition Plan "A," 1,328 shares of
which are fully vested.
-2-
<PAGE> 6
(6) Of the amount shown, 15,512 shares are restricted stock acquired
pursuant to that certain employment agreement between Mr. Massey and
Benefit Financial ( now known as Pension & Benefit Trust Company),
vesting in equal increments over a period of 15 years beginning on
April 11, 1997, 3,075 shares are held in a profit sharing account, and
2,170 shares are held in an Individual Retirement Account, 332 shares
are held in his account under First Federal's ESOP, and 745 shares are
subject to presently exercisable options.
(7) Of the amount shown, 10,000 shares are held jointly by Mr. McMillan and
his wife, 3,860 shares are subject to presently exercisable options and
1,660 shares represent restricted stock granted under SouthFirst's
Management Recognition Plan "A," 1,328 shares of which are fully
vested.
(8) Of the amount shown, 2,293 shares are held jointly by Mr. Robbs and his
wife, 3,662 shares are held in an Individual Retirement Account for the
benefit of Mr. Robb's wife, 5,000 shares are held jointly with his
father, 3,860 shares are subject to presently exercisable options and
1,660 shares represent restricted stock granted under SouthFirst's
Management Recognition Plan "A," 1,328 shares of which are fully
vested.
(9) Of the amount shown, 28,500 shares are held jointly by Mr. Vawter and
his wife, 3,860 shares are subject to presently exercisable options and
1,660 shares represent restricted stock granted under SouthFirst's
Management Recognition Plan "A," 1,328 shares of which are fully
vested.
(10) Of the amount shown, 900 shares are held in an Individual Retirement
Account, 7,364 shares are held in his account under SouthFirst's 401(k)
Plan, 4,012 shares are held in his account under First Federal's ESOP,
4,130 shares are subject to presently exercisable options and 1,660
shares represent restricted stock granted under SouthFirst's Management
Recognition Plan "B," 1,328 shares of which are fully vested.
(11) Of the amount shown, Jeffrey L. Gendell has shared voting power with
respect to 83,700 shares, Tontine Management, L.L.C. ("TM") has shared
voting power with respect to 83,700 shares, Tontine Partners, L.P.
("TP") has shared voting power with respect to 10,500 shares and
Tontine Financial Partners, L.P. ("TFP") has shared voting power with
respect to 73,200 shares. TM, the general partner of TP and TFP, has
the power to direct the affairs of TP and TFP. Mr. Gendell is the
Managing Member of Tontine Management, L.L.C. and, in that capacity,
directs its operations. The business address of Mr. Gendell, TP and TFP
is 200 Park Avenue, Suite 3900, New York, New York 10166. The foregoing
information is based on a Schedule 13D/A, Amendment No. 2, dated
October 6, 1997 filed by Mr. Gendell, TP and TFP. SouthFirst makes no
representation as to the accuracy or completeness of the information
reported.
(12) Robert J. Salmon and Mary Anne J. Salmon beneficially own and have
shared voting and dispositive power with respect to 47,600 shares. The
foregoing information is based on a Schedule 13G, dated October 8, 1998
filed by Mr. and Mrs. Salmon.
(13) These shares are held in trust by Pension & Benefit Trust Company, as
trustee of First Federal's ESOP. See "Employee Stock Ownership Plan" at
page 18.
There are no arrangements known to SouthFirst the operation of which
would result in a change in control of SouthFirst.
AGENDA ITEM ONE
ELECTION OF DIRECTORS
SouthFirst's Board of Directors presently consists of eight directors,
elected to staggered three-year terms. The terms of Messrs. Stroup, Massey, and
Vawter will expire at this Annual Meeting of Stockholders. The Board of
Directors has nominated Messrs. Stroup, Massey, and Vawter for re-election as
directors of SouthFirst. Unless otherwise directed, the proxies will be voted at
the Annual Meeting FOR the election of the nominees. In the event that any of
the three nominees is unable to serve or declines to serve as a director at the
time of the Annual Meeting, the persons named as proxies will have discretionary
authority to vote the proxies for the election of such person or persons as may
be nominated in substitution by the present Board of Directors. Management knows
of no current circumstances which would render any nominee named herein unable
to accept nomination or election. The affirmative vote of a plurality of the
votes present in person or by proxy at the Annual Meeting is required for the
election of the three nominees standing for election. THE BOARD OF DIRECTORS
RECOMMENDS THAT YOU VOTE "FOR" THE ELECTION OF THE NOMINEES.
-3-
<PAGE> 7
The following individuals have been nominated by management for
election to SouthFirst's Board of Directors for a term of three years and until
their successors are elected and qualified:
DONALD C. STROUP, age 50, has served as the President and Chief
Executive Officer of First Federal since 1988 and of SouthFirst since 1994. Mr.
Stroup has also been a member of the First Federal Board of Directors since 1988
and of the SouthFirst Board of Directors since 1994. Mr. Stroup has over 25
years of experience in the banking industry and received a B.S. in Business
Administration from Samford University, and a Certificate of Achievement and
Diploma of Merit from the Institute of Financial Education, Chicago, Illinois.
He is a director of the Boys' Club, a member of the Red Cross, Hospice Care,
Talladega County Economic Development Authority and Boy Scouts Advisory, a
former Chairman of the Southern Community Bankers and a former member of the
Sylacauga School Board and the Sylacauga Industrial Development Board. Mr.
Stroup is also a current member and former President of the Sylacauga Rotary
Club and a former director of the Sylacauga Chamber of Commerce and Coosa Valley
Country Club. Mr. Stroup is a member of the First Baptist Church of Sylacauga.
J. MALCOMB MASSEY, age 50, has served as a director of SouthFirst and
First Federal since May, 1997. Mr. Massey is President and Chief Executive
Officer of First Federal's wholly owned subsidiary, Pension & Benefit Trust
Company ("Pension & Benefit"), a position he has held since he joined Pension &
Benefit in 1997 after Pension & Benefit acquired substantially all of the assets
of Lambert, Massey, Roper & Taylor, Inc., an employee benefits consulting firm
based in Montgomery in which Mr. Massey served as President since 1980. Mr.
Massey is a Qualifying and Life Member of the Million Dollar Round Table with
over 25 years experience in the financial services industry and serves as the
insurance consultant to the Southern Community Bankers, an industry trade group
comprised of 20 savings institutions and community banks located in the
Southeastern United States.
CHARLES R. VAWTER, JR., age 38, has served as a director of First
Federal since 1992 and of SouthFirst since 1994. Mr. Vawter is Chief Financial
Officer of Automatic Gas and Appliance Co., Inc., where he has been employed
since 1987. Mr. Vawter is a member of the Board of Directors of B.B. Comer
Library Foundation and the Coosa Valley Country Club. He is a past Board member
of the Sylacauga Chamber of Commerce. He is currently a member of the Planning
Commission of the City of Sylacauga Chamber of Commerce and has served on the
Planning Committee of Alabama LP Gas Association. Mr. Vawter is a member of the
First Baptist Church.
Each of the following individuals is a member of SouthFirst's Board of
Directors who is not standing for election to the Board of Directors this year
and whose term will continue after the Annual Meeting:
JOE K. MCARTHUR, age 48, has served as the Executive Vice President,
Chief Operating Officer, Chief Financial Officer and Secretary of First Federal
and SouthFirst since 1992 and 1994, respectively. Mr. McArthur has served as a
director of First Federal and SouthFirst since February 1996. Mr. McArthur has
over 23 years of experience in the banking industry and received a B.S. in
Accounting from the University of Alabama-Birmingham and a Masters of Business
Administration equivalent from the National School of Finance and Management
from Fairfield University, Fairfield Connecticut. He has also completed all
courses associated with the Institute of Financial Education (the "Institute"),
and has been awarded the Degree of Distinction, the Diploma of Merit, and the
Certificate of Achievement from the Institute. In addition, Mr. McArthur has
successfully completed Asset/Liability Management Program, in Colorado Springs,
Colorado and Financial Planning in Sarasota, Florida. Prior to joining First
Federal, Mr. McArthur was Assistant Executive Director of Finance of Humana, a
hospital, from 1990 to 1992, and Senior Vice president of First Federal of
Alabama from 1983 to 1990. Mr. McArthur is a Board member of the Southern
Community Bankers. He has also served as a manager of various
-4-
<PAGE> 8
Little League and Babe Ruth Baseball teams, as well as Boys' Club basketball
teams. Mr. McArthur is a member of the First United Methodist Church of
Sylacauga.
ALLEN GRAY MCMILLAN, III, age 43, has served as a director of First
Federal since 1993 and of SouthFirst since 1994. Mr. McMillan is President of
Brecon Knitting Mill, where he has been employed since 1979. Mr. McMillan has
been active in the Kiwanis Club, United Way, and Boy Scouts of America. He is a
member of the First United Methodist Church.
BOBBY R. COOK, age 60, has served as past president of the Clanton,
Alabama Kiwanis Club, past treasurer of the Clanton, Alabama Jaycees and serves
as a Deacon of The First Baptist Church of Clanton, Alabama.
On January 19, 2000, Mr. Cook, President of the Western Division of
First Federal and member of the Board of Directors of SouthFirst and First
Federal, filed a lawsuit, in Chilton County, Alabama, against First Federal,
SouthFirst and Donald C. Stroup, alleging wrongful termination of his employment
as President of the Western Division and other claims. On January 24, 2000, the
employment of Mr. Cook, was terminated for cause by the Board of Directors of
First Federal, pursuant to the provisions of Mr. Cook's employment agreement
with First Federal. Further, Mr. Cook, on January 25, 2000, was removed for
cause as a member of the Board of Directors of First Federal, upon the unanimous
written consent of SouthFirst, as the sole shareholder of First Federal.
Management believes Mr. Cook's lawsuit to be without merit and intends to
vigorously defend the case. Furthermore, Management has reviewed, and has
asserted against Mr. Cook, appropriate counterclaims for damages to First
Federal and South First.
H. DAVID FOOTE, JR., age 50 , has served as a director of First Federal
since 1988 and of SouthFirst since 1994. Mr. Foote has been President and owner
of Foote Bros. Furniture since 1973. Mr. Foote has been a member of the Board of
Directors of the Sylacauga Chamber of Commerce, the Coosa Valley Country Club
and Talladega County E-911. He has served as President of Wesley Chapel
Methodist Men's Club and head of the Wesley Chapel Methodist Administrative
Board.
JOHN T. ROBBS, age 45, has served as a director of First Federal since
1988 and of SouthFirst since 1994. Mr. Robbs is President of Michael Supply Co.,
Inc., where he has been employed since 1980.
In addition to the executive officers and directors listed above, the
following individual is an executive officer of First Federal:
JIMMY C. MAPLES, age 50, has served as First Vice President of First
Federal and has been largely responsible for First Federal's residential
construction lending since March, 1994. Prior to serving in this capacity with
First Federal, Mr. Maples was Senior Vice President of Lending at Pinnacle Bank
(formerly known as First Federal of Alabama) in Jasper, Alabama.
There are no family relationships between any director or executive
officer and any other director or executive officer of SouthFirst.
-5-
<PAGE> 9
COMMITTEES OF THE BOARD
SouthFirst's Board of Directors has established the following standing
committees:
(A) The Audit Committee, currently comprised of Messrs. McMillan,
Foote, Vawter, and Robbs. The Audit Committee, which held one meeting in fiscal
year 1999, is authorized to review and make recommendations to the Board of
Directors with respect to SouthFirst's audit procedures and independent
auditor's report to management and to recommend to the Board of Directors the
appointment of independent auditors for SouthFirst, to review with the
independent auditors the scope and results of audits, to monitor SouthFirst's
financial policies and control procedures, to monitor the non-audit services
provided by SouthFirst's auditors and to review all potential conflicts of
interests.
(B) The Stock Option Committee, currently comprised of Messrs. Foote,
Robbs, McMillan, and Vawter. The Stock Option Committee, which did not hold a
meeting in fiscal year 1999, is responsible for administering SouthFirst's Stock
Option and Incentive Plan adopted in 1995. The entire Board of Directors of
SouthFirst administers SouthFirst's 1998 Stock Option and Incentive Plan.
(C) The Management Recognition Plan Committee, currently comprised of
Messrs. Foote, Robbs, McMillan, and Vawter, which held no meetings in fiscal
year 1999, is responsible for administering SouthFirst's two Management
Recognition Plans.
SouthFirst does not have a Directors Nominating Committee, that
function being reserved to the entire Board of Directors.
SouthFirst presently does not have a compensation committee because no
officers of SouthFirst receive any compensation for services to SouthFirst. All
officers of SouthFirst are compensated by SouthFirst's wholly-owned subsidiary,
First Federal, solely for their services to First Federal. In addition,
non-employee directors are paid for attendance at First Federal committee
meetings, but employee members of committees are not paid.
In addition to SouthFirst's committees, First Federal has established
various committees including the Executive Committee, the Wage and Compensation
Committee, the Loan Committee, the Asset/Liability Committee and the Audit
Committee.
The Executive Committee of First Federal consists of Messrs. Stroup
(Chairman), Foote, McArthur and Vawter. The Committee, which did not meet in
fiscal year 1999, is charged with the responsibility of overseeing the business
of First Federal. The Committee has the power to exercise most powers of the
Board of Directors in the intervals between meetings of the Board of Directors,
and any activity is reported to the Board of Directors monthly. First Federal's
Loan Committee is comprised of Messrs. Stroup and Vawter. Mr. Robbs resigned
from the committee during fiscal year 1999, and Mr. Stroup, as the appointed
alternate, has been substituted for Mr. Robbs. The committee meets weekly to
consider loan applications. Approval of a loan application requires approval by
at least two members (other than the person signing the application) of the Loan
Committee. The Audit Committee of First Federal consists of Messrs. McMillan
(Chairman), Foote, Robbs, Vawter, Bice and Easterling. This committee meets at
least annually and more frequently if necessary to review the results of the
audit program. Recommendations and observations are reported to the Board of
Directors. The Asset/Liability Committee consists of Messrs. McMillan
(Chairman), Stroup, McArthur, Foote and Vawter. This Committee meets quarterly
to establish and monitor policies to control interest rate sensitivity. First
Federal's Wage and Compensation Committee consists of Messrs. Massey (Chairman),
Stroup, McArthur, Easterling and Vawter. This Committee, which held one meeting
in fiscal 1999, is responsible for reviewing salaries and benefits of directors,
officers, and employees.
-6-
<PAGE> 10
MEETINGS OF THE BOARD OF DIRECTORS
The Board of Directors of SouthFirst held five meetings during the
fiscal year ended September 30, 1999. During the 1999 fiscal year, each director
attended at least 75% of the aggregate number of meetings held by the Board of
Directors and Committee(s) on which he served.
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934 requires
SouthFirst's directors, certain officers and persons who own more than 10% of
the outstanding Common Stock of SouthFirst to file with the Securities and
Exchange Commission reports of changes in ownership of the Common Stock of
SouthFirst held by such persons. Officers, directors and greater than 10%
stockholders are also required to furnish SouthFirst with copies of all forms
they file under this regulation. SouthFirst first became subject to this
regulation on February 13, 1995. To SouthFirst's knowledge, based solely on a
review of copies of such reports, and any amendments thereto, furnished to
SouthFirst and representations that no other reports were required, during the
fiscal year ended September 30, 1999, all Section 16(a) filing requirements
applicable to its officers, directors and 10% holders were satisfied. SouthFirst
has adopted a policy requiring all Section 16 reporting persons to report
monthly to a designated employee of SouthFirst as to whether any transactions in
SouthFirst's Common Stock occurred during the previous month.
EXECUTIVE COMPENSATION
The following table provides certain summary information for fiscal
1999, 1998 and 1997 concerning compensation paid or accrued by SouthFirst and
First Federal to or on behalf of SouthFirst's Chief Executive Officer and the
other executive officers of SouthFirst whose total annual salary and bonus
exceeded $100,000 during the1999 fiscal year (the "Named Executive Officers"):
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
Annual Compensation(1) Long Term Compensation
---------------------- ----------------------
Securities
Name and Principal Fiscal Other Annual Underlying All Other
Position Year Salary Bonus Compensation(2) Options Compensation
- -------------------------- ------ -------- --------- --------------- ---------- ------------
<S> <C> <C> <C> <C> <C> <C>
Donald C. Stroup 1999 $140,000 $32,625(3) $12,250 --- $ 2,901(4)
President, Chief 1998 140,000 35,812 12,250 14,180(5) 2,886
Executive Officer 1997 100,308 27,093 12,000 --- 2,272
and Chairman
Joe K. McArthur 1999 $105,000 $21,175(6) $12,250 --- $ 1,624(7)
Executive Vice 1998 105,000 24,104 12,250 7,428(8) 1,309
President, Chief 1997 73,380 18,870 12,000 --- 1,402
Financial Officer
and Director
Bobby R. Cook (9) 1999 $ 90,000 $ 2,836(10) $11,500 --- $ 2,139(11)
Director 1998(12) 78,500 13,377 $10,000 4,726(13) 2,561(14)
</TABLE>
-7-
<PAGE> 11
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
J. Malcomb Massey 1999 $130,000 $ 2,236 $ 13,250 --- $ 1,873(15)
Director and 1998 130,000 1,677 12,250 3,726(16) 1,795
President of 1997(17) 65,000 -- 5,000
Pension & Benefit
Jimmy C. Maples 1999 $ 90,000 $34,724(18) -- --- $ 1,913(19)
First Vice 1998 75,600 32,709 -- 4,051(20) 1,737
President of First 1997 71,988 28,575 -- --- 1,325
Federal
</TABLE>
(1) All compensation received by the Named Executive Officers was paid by
First Federal, with the exception of Mr. Massey's salary, which was
paid by Pension & Benefit.
(2) Fees received as member of the Board of Directors of SouthFirst and of
First Federal.
(3) Consists of a regular bonus of $17,500 as well as $18,312 of
compensation consisting of dividends paid under SouthFirst's Dividend
Incentive Plan on unexercised stock options. See "-- Compensation of
Directors."
(4) Represents a $2,016 automobile allowance and income of $870 recognized
on employer provided group term life insurance in excess of $50,000.
(5) On January 28, 1998, SouthFirst granted options to purchase a total of
10,030 shares of SouthFirst Common Stock to Mr. Stroup, which were
intended to vest in equal annual increments commencing on January 29,
1999. On November 4, 1998, SouthFirst canceled all options granted to
Mr. Stroup on January 28, 1998, and issued options to purchase the same
number of shares at a lower exercise price. These options vest in equal
annual increments commencing on November 4, 1999. See "---Repricing of
Stock Options under the Stock Option Plans." Additionally, since
September 30, 1996, grants to purchase 4,150 shares of Common Stock
expired prior to being exercised and, consequently, the 4,150 shares
reserved to be issued pursuant to such expired options became available
for re-issuance under the 1995 Stock Option Plan. On January 28, 1998,
the Board of Directors of the Bank granted to Donald C. Stroup options
to purchase 4,150 shares available under the 1995 Stock Option Plan.
These options were issued pursuant to the vesting schedule utilized for
the 1998 Stock Option Plan. See "---Repricing of Stock Options under
the Stock Option Plans."
(6) Consists of a regular bonus of $13,125 as well as $10,979 of
compensation consisting of dividends paid under SouthFirst's Dividend
Incentive Plan on unexercised stock options. See "-- Compensation of
Directors."
(7) Represents a $439 automobile allowance and income of $870 recognized on
employer provided group term life insurance in excess of $50,000.
(8) On January 28, 1998, SouthFirst granted options to purchase 7,428
shares of SouthFirst Common Stock to Mr. McArthur, which were intended
to vest in equal annual increments commencing on January 29, 1999. On
November 4, 1998, SouthFirst canceled all options granted to Mr.
McArthur on January 28, 1998, and issued options to purchase the same
number of shares at a lower exercise price. These options vest in equal
annual increments commencing on November 4, 1999. See "---Repricing of
Stock Options under the Stock Option Plans."
(9) On January 24, 2000, the employment of Mr. Cook, as an executive
officer of First Federal was terminated for cause by the Board of
Directors of First Federal, pursuant to the provisions of Mr. Cook's
employment agreement with First Federal. Further, Mr. Cook, on January
25, 2000, was removed for cause as a member of the Board of Directors
of First Federal, upon the unanimous written consent of SouthFirst, the
sole shareholder of First Federal.
(10) Consists of a regular bonus of $11,250 as well as $2,127 of
compensation consisting of dividends paid under SouthFirst's Dividend
Incentive Plan on unexercised stock options. See "-- Compensation of
Directors."
(11) Represents a $581 automobile allowance and income of $1,980 recognized
on employer provided group term life insurance in excess of $50,000.
(12) The 1998 data for Mr. Cook reflect the partial-year period from October
31, 1997, the date SouthFirst acquired Chilton, County, through
September 30, 1998.
(13) On January 28, 1998, SouthFirst granted options to purchase 4,726
shares of SouthFirst Common Stock to Mr. Cook, which were intended to
vest in equal annual increments commencing on January 29, 1999. On
November 4, 1998, SouthFirst canceled all options granted to Mr. Cook
on January 28, 1998, and issued options to purchase the same number of
shares at a lower exercise price. These options vest in equal annual
increments commencing on November 4, 1999. See "---Repricing of Stock
Options under the Stock Option Plans."
(14) Represents a $581 automobile allowance and income of $1,980 recognized
on employer provided group term life insurance in excess of $50,000.
(15) Represents a $1,099 automobile allowance and income of $696 recognized
on employer provided group term life insurance in excess of $50,000.
(16) On January 28, 1998, SouthFirst granted options to purchase 3,726
shares of SouthFirst Common Stock to Mr. Massey, which were intended to
vest in equal annual increments commencing on January 29, 1999. On
November 4, 1998, SouthFirst canceled all options granted to Mr. Massey
on January 28, 1998, and issued options to purchase the same number of
shares at a lower exercise price. These options vest in equal annual
increments commencing on November 4, 1998. See "---Repricing of Stock
Options under the Stock Option Plans."
-8-
<PAGE> 12
(17) The 1997 data for Mr. Massey reflect the partial-year period from April
11, 1997, the date SouthFirst acquired Pension & Benefit, through
September 30, 1997.
(18) Consists of a regular bonus of $28,500 as well as $4,209 of
compensation recognized on dividends paid under SouthFirst's Dividend
Incentive Plan on unexercised stock options. See "-- Compensation of
Directors."
(19) Represents a $1,121 automobile allowance and income of $616 recognized
on employer provided group term life insurance in excess of $50,000.
(20) On January 28, 1998, SouthFirst granted options to purchase 4,051
shares of SouthFirst Common Stock to Mr. Maples, which were intended to
vest in equal annual increments commencing on January 29, 1999. On
November 4, 1998, SouthFirst canceled all options granted to Mr. Maples
on January 28, 1998, and issued options to purchase the same number of
shares at a lower exercise price. These options vest in equal annual
increments commencing on November 4, 1999. See "---Repricing of Stock
Options under the Stock Option Plans."
EMPLOYMENT AGREEMENTS
SouthFirst and First Federal have entered into employment agreements
with each of the Named Executive Officers. The terms and conditions of these
employment agreements are described below.
Donald C. Stroup, Chairman, President and Chief Executive Officer.
The employment agreement with Mr. Stroup was effective as of October 1,
1997 and is for a term of three years. On each anniversary date from the
expiration of the initial three year term of the employment agreement, the term
of Mr. Stroup's employment will be extended for an additional one-year period
beyond the then effective expiration date, upon a determination by the Boards of
Directors of SouthFirst and First Federal that the performance of Mr. Stroup has
met the required performance standards and that such employment agreement should
be extended.
Pursuant to Mr. Stroup's employment agreement, First Federal pays Mr.
Stroup an annual base salary of $140,000, for which SouthFirst is jointly and
severally liable. Mr. Stroup's employment agreement entitles him to participate
with all other senior management employees of SouthFirst or First Federal in any
discretionary bonuses that the SouthFirst or First Federal Boards of Directors
may award. In addition, Mr. Stroup participates in standard retirement and
medical plans, and is entitled to customary fringe benefits, vacation and sick
leave.
Mr. Stroup's employment agreement terminates upon his death or
disability, and is terminable for "cause" as defined in the employment
agreement. In the event of termination for cause, no severance benefits are
payable to Mr. Stroup. If SouthFirst or First Federal terminates Mr. Stroup
without cause, he will be entitled to a continuation of his salary and benefits
from the date of termination through the remaining term of the employment
agreement plus an additional twelve-month period. Mr. Stroup may voluntarily
terminate his employment agreement by providing sixty days written notice to the
Boards of Directors of SouthFirst and First Federal, in which case he is
entitled to receive only his compensation, vested rights and benefits up to the
date of termination.
Mr. Stroup's employment agreement further provides that, in the event
of Mr. Stroup's involuntary termination in connection with, or within two year
after, any change in control of First Federal or SouthFirst, other than for
"cause," or death or disability, Mr. Stroup will be paid, within 10 days of such
termination, an amount equal to the difference between: (i) 2.99 times his "base
amount," as defined in Section 280G(b)(3) of the Internal Revenue Code of 1986,
as amended (the "Internal Revenue Code"); and (ii) the sum of any other
parachute payments, as defined under Section 280G(b)(2) of the Internal Revenue
Code, that Mr. Stroup receives on account of the change in control. Such payment
would be reduced to the extent it would cause First Federal to fail to meet any
of its regulatory capital requirements. Under Mr. Stroup's employment agreement,
a "change in control" generally refers to a change in ownership, holding or
power to vote more than 25% of SouthFirst's or First Federal's voting stock, a
change in the ownership or possession of the ability to control the election of
a majority
-9-
<PAGE> 13
of First Federal's or SouthFirst's directors or the exercise of a controlling
influence over the management or policies of SouthFirst or First Federal. In
addition, under Mr. Stroup's employment agreement, a change in control occurs
when, during any consecutive two-year period, the directors of SouthFirst or
First Federal, at the beginning of such period, cease to constitute two-thirds
of the Boards of Directors of SouthFirst or First Federal, unless the election
of replacement directors was approved by a two-thirds (66 2/3%) vote of the
initial directors then in office. Mr. Stroup's employment agreement also
provides for a similar lump sum payment to be made in the event of the Mr.
Stroup's voluntary termination of employment within one year following a change
in control of First Federal or SouthFirst.
Joe K. McArthur, Executive Vice President and Chief Financial Officer.
The employment agreement with Mr. McArthur was effective as of October
1, 1997 and is for a term of three years. On each anniversary date from the
expiration of the initial three year term of the employment agreement, the term
of Mr. McArthur's employment will be extended for an additional one-year period
beyond the then effective expiration date, upon a determination by the Boards of
Directors of SouthFirst and First Federal that the performance of Mr. McArthur
has met the required performance standards and that such employment agreement
should be extended.
Pursuant to Mr. McArthur's employment agreement, First Federal pays Mr.
McArthur an annual base salary of $105,000, for which SouthFirst will be jointly
and severally liable. Mr. McArthur's employment agreement entitles him to
participate with all other senior management employees of SouthFirst or First
Federal in any discretionary bonuses that the SouthFirst or First Federal Boards
of Directors may award. In addition, Mr. McArthur participates in standard
retirement and medical plans, and is entitled to customary fringe benefits,
vacation and sick leave.
Mr. McArthur's employment agreement terminates upon his death or
disability, and is terminable for "cause" as defined in the employment
agreement. In the event of termination for cause, no severance benefits are
payable to Mr. McArthur. If SouthFirst or First Federal terminates Mr. McArthur
without cause, he will be entitled to a continuation of his salary and benefits
from the date of termination through the remaining term of the employment
agreement plus an additional twelve-month period. Mr. McArthur may voluntarily
terminate his employment agreement by providing sixty days written notice to the
Boards of Directors of SouthFirst and First Federal, in which case he is
entitled to receive only his compensation, vested rights and benefits up to the
date of termination.
Mr. McArthur's employment agreement further provides that, in the event
of Mr. McArthur's involuntary termination in connection with, or within two year
after, any change in control of First Federal or SouthFirst, other than for
"cause," or death or disability, Mr. McArthur will be paid, within 10 days of
such termination, an amount equal to the difference between: (i) 2.99 times his
"base amount," as defined in Section 280G(b)(3) of the Internal Revenue Code;
and (ii) the sum of any other parachute payments, as defined under Section
280G(b)(2) of the Internal Revenue Code, that Mr. McArthur receives on account
of the change in control. Such payment would be reduced to the extent it would
cause First Federal to fail to meet any of its regulatory capital requirements.
Under Mr. McArthur's employment agreement, a "change in control" generally
refers to a change in ownership, holding or power to vote more than 25% of
SouthFirst's or First Federal's voting stock, a change in the ownership or
possession of the ability to control the election of a majority of First
Federal's or SouthFirst's directors or the exercise of a controlling influence
over the management or policies of SouthFirst or First Federal. In addition,
under Mr. McArthur's employment agreement, a change in control occurs when,
during any consecutive two-year period, directors of SouthFirst or First
Federal, at the beginning of such period, cease to constitute two-thirds of the
Boards of Directors of SouthFirst or First Federal, unless the election of
replacement directors was approved by a two-thirds (66 2/3%) vote of the initial
directors then
-10-
<PAGE> 14
in office. Mr. McArthur's employment agreement also provides for a similar lump
sum payment to be made in the event of the Mr. McArthur's voluntary termination
of employment within one year following a change in control of First Federal or
SouthFirst.
J. Malcomb Massey, President of Pension & Benefit.
The employment agreement with Mr. Massey was effective as of April 11,
1997 and provides for a term of three years. On each anniversary date from the
expiration of the initial three year term of the employment agreement, the term
of Mr. Massey's employment will be extended for an additional one-year period
beyond the then effective expiration date, upon a determination by the Board of
Directors of Pension & Benefit that the performance of Mr. Massey has met the
required performance standards and that such employment agreement should be
extended.
The employment agreement with Mr. Massey provides for an annual base
salary of $130,000. In addition, Mr. Massey received 15,512 shares of restricted
SouthFirst Common Stock, one-fifteenth of which vest on each of the first
fifteen anniversaries of the date of the employment agreement. Should Mr.
Massey's employment be terminated due to his death or disability, all unvested
shares will vest on the last day of Mr. Massey's service with Pension & Benefit.
All unvested shares will also vest upon a "change in control" of Pension &
Benefit. Under Mr. Massey's employment agreement, "change in control" generally
refers to a change in ownership, holding or power to vote more than 25% of
Pension & Benefit's voting stock, a change in the ownership or possession of the
ability to control the election of a majority of Pension & Benefit's directors
or the exercise of a controlling influence over the management or policies of
Pension & Benefit. In addition, under Mr. Massey's employment agreement, a
change in control occurs when, during any consecutive two-year period, directors
of SouthFirst or Pension & Benefit, at the beginning of such period, cease to
constitute two-thirds of the Boards of Directors of SouthFirst or Pension &
Benefit, unless the election of replacement directors was approved by a
two-thirds (66 2/3%) vote of the initial directors then in office.
Mr. Massey's employment agreement entitles him to participate with all
other senior management employees of First Federal in any discretionary bonuses
that the Board of Directors of First Federal may award. Mr. Massey may also
participate in standard retirement and medical plans, and is entitled to
customary fringe benefits, vacation and sick leave.
Mr. Massey's employment agreement terminates upon his death or
disability, and is terminable for "cause" as defined in the employment
agreement. In the event of termination for cause, no severance benefits are
payable to Mr. Massey. If Pension & Benefit terminates Mr. Massey without cause,
he will be entitled to severance pay equal to the amount of his salary and
benefits from the date of termination through the remaining term of the
employment agreement plus an additional twelve-month period. Mr. Massey has the
option to receive this payment either (i) in periodic payments, as if the
termination had not occurred, or (ii) in one lump sum payment within ten days of
the termination of his employment. In either case, however, the severance pay is
limited to three times the average total annual compensation received by Mr.
Massey under the employment agreement over the five full fiscal years preceding
the termination, or, if Mr. Massey has been employed less than five full fiscal
years, over each full fiscal year preceding the termination. Mr. Massey may
voluntarily terminate his employment agreement by providing sixty days written
notice to the Board of Directors of Pension & Benefit, in which case he is
entitled to receive only his compensation, vested rights and benefits up to the
date of termination.
Mr. Massey's employment agreement also contains a non-competition
provision pursuant to which Mr. Massey agrees that if his employment by Pension
& Benefit terminates during the initial three year period of employment, he will
not, for two years following such termination, directly or indirectly engage in
activities related to the planning, designing, implementation or administration
of employee
-11-
<PAGE> 15
benefit plans in the same county as Pension & Benefit is located or in any
contiguous county. The employment contract also provides that during the term of
Mr. Massey's employment, and for three years thereafter, he shall refrain from
recruiting or hiring, or attempting to recruit or hire, directly or by assisting
others, any other employee of Pension & Benefit or any successor or affiliate of
Pension & Benefit.
Jimmy C. Maples, First Vice President of First Federal.
The employment agreement with Mr. Maples was effective as of January 1,
1998 and is for a term of three years. On each anniversary date from the
expiration of the initial three year term of the employment agreement, the term
of Mr. Maples' employment will be extended for an additional one-year period
beyond the then effective expiration date, upon a determination by the Board of
Directors of First Federal that the performance of Mr. Maples has met the
required performance standards and that such employment agreement should be
extended.
The employment agreement provides that First Federal will pay Mr.
Maples an annual base salary of $90,000. Mr. Maples' employment agreement
entitles him to participate with all other senior management employees of First
Federal in any discretionary bonuses that the Board of Directors of First
Federal may award. In addition, Mr. Maples participates in standard retirement
and medical plans, and is entitled to customary fringe benefits, vacation and
sick leave.
Mr. Maples' employment agreement terminates upon his death or
disability, and is terminable for "cause" as defined in the employment
agreement. In the event of termination for cause, no severance benefits are
payable to Mr. Maples. If First Federal terminates Mr. Maples without cause, he
will be entitled to a continuation of his salary and benefits from the date of
termination through the remaining term of the employment agreement plus an
additional twelve-month period. Mr. Maples may voluntarily terminate his
employment agreement by providing sixty days written notice to the Board of
Directors of First Federal, in which case he is entitled to receive only his
compensation, vested rights and benefits up to the date of termination. In
addition, Mr. Maples' employment agreement contains a provision which permits
him to voluntarily terminate his employment with First Federal and receive a
continuation of his salary and benefits from the date of termination through the
remaining term of the employment agreement plus an additional twelve-month
period in the event a constructive discharge occurs. A constructive discharge
will occur if (i) Mr. Maples is required to move his personal residence or
perform his principal executive functions more than 35 miles from his primary
office in Hoover, Alabama, except for any trips to the principal executive
offices of First Federal in Sylacauga, Alabama in connection with Mr. Maples'
duties pursuant to his employment agreement; (ii) there is a material reduction
without reasonable cause in Mr. Maples' base compensation; (iii) First Federal
fails to continue to provide Mr. Maples with compensation and benefits
substantially similar to those provided to him under any of the employee benefit
plans in which Mr. Maples currently or in the future becomes a participant; (iv)
there is a material diminution or reduction in Mr. Maples' responsibilities or
authority; or (v) there is a material diminution or reduction in the secretarial
or administrative support provided to Mr. Maples by First Federal.
Mr. Maples' employment agreement further provides that, in the event of
Mr. Maples' involuntary termination in connection with, or within two year
after, any change in control of First Federal or SouthFirst, other than for
"cause," or death or disability, Mr. Maples will be paid, within 10 days of such
termination, an amount equal to the difference between: (i) 2.99 times his "base
amount," as defined in Section 280G(b)(3) of the Internal Revenue Code; and (ii)
the sum of any other parachute payments, as defined under Section 280G(b)(2) of
the Internal Revenue Code, that Mr. Maples receives on account of the change in
control. Such payment would be reduced to the extent it would cause First
Federal to fail to meet any of its regulatory capital requirements. Under Mr.
Maples' employment
-12-
<PAGE> 16
agreement, "change in control" generally refers to a change in ownership,
holding or power to vote more than 25% of SouthFirst's or First Federal's voting
stock, a change in the ownership or possession of the ability to control the
election of a majority of First Federal's or SouthFirst's directors or the
exercise of a controlling influence over the management or policies of
SouthFirst or First Federal. In addition, under Mr. Maples' employment
agreement, a change in control occurs when, during any consecutive two-year
period, directors of SouthFirst or First Federal, at the beginning of such
period, cease to constitute two-thirds of the Boards of Directors of SouthFirst
or First Federal, unless the election of replacement directors was approved by a
two-thirds (66 2/3%) vote of the initial directors then in office. Mr. Maples'
employment agreement also provides for a similar lump sum payment to be made in
the event of the Mr. Maples' voluntary termination of employment within one year
following a change in control of First Federal or SouthFirst.
DEFERRED COMPENSATION AGREEMENTS
First Federal has entered into deferred compensation agreements
(collectively, the "Deferred Compensation Agreements") with Mr. Stroup and Mr.
McArthur, pursuant to which each will receive certain retirement benefits at age
65. Under the Deferred Compensation Agreements, benefits are payable for fifteen
years. A portion of the retirement benefits accrue each year until age 65 or, if
sooner, until termination of employment. If Mr. Stroup remains in the employment
of First Federal until age 65, his annual benefit will be $65,000. If Mr.
McArthur remains in the employment of First Federal until age 65, his annual
benefit will be $45,000. If either of these officers dies prior to age 65, while
in the employment of First Federal, the full retirement benefits available under
the deferred compensation agreements will accrue and will, thereupon, be payable
to their respective beneficiaries. The retirement benefits available under the
Deferred Compensation Agreements are unfunded. However, First Federal has
purchased life insurance policies on the lives of these officers that will be
available to SouthFirst and First Federal to provide for the retirement benefits
for both Mr. Stroup and Mr. McArthur. The costs of these arrangements was
$57,075 in each of fiscal 1998, 1997 and 1996.
MANAGEMENT RECOGNITION PLANS
The SouthFirst Board of Directors has adopted two management
recognition plans ("MRPs"), denominated SouthFirst Bancshares, Inc. Management
Recognition Plan "A" ("Plan A") and SouthFirst Bancshares, Inc. Management
Recognition Plan "B" ("Plan B") (collectively, the "Plans"). The objective of
the Plans is to enable SouthFirst and First Federal to reward and retain
personnel of experience and ability in key positions of responsibility by
providing such personnel with a proprietary interest in SouthFirst and by
recognizing their past contributions to SouthFirst and First Federal, and to act
as an incentive to make such contributions in the future.
Plan A and Plan B are identical except that while Plan B provides for
awards only to employees of SouthFirst and First Federal, Plan A provides for
awards to employees, as well as to non-employee directors. The Plans are
administered by a committee (the "Committee") of the SouthFirst Board of
Directors. Awards under the Plans are in the form of restricted stock grants
("MRP grants"). Each Plan has reserved a total of 16,600 shares of SouthFirst
Common Stock for issuance pursuant to awards made by the Committee. Such shares,
with respect to each Plan, are held in trust until awards are made by the
Committee, at which time the shares are distributed from the trust to the award
recipient. Such shares will bear restrictive legends until vested, as described
below. The Committee may make awards to eligible participants under the Plans in
its discretion, from time to time. Under Plan A, on November 15, 1995 each
non-employee director serving in such capacity on February 13, 1995 (the
effective date of the conversion of SouthFirst from a mutual to a stock form of
ownership) automatically received an award of 1,660 shares. In selecting the
employees to whom awards are granted under the Plans, the Committee considers
the position, duties and responsibilities of the employees, the value of their
services to
-13-
<PAGE> 17
SouthFirst and First Federal and any other factors the Committee may deem
relevant. As of September 30, 1996, a total of 33,200 shares had been awarded
under the Plans and, as of that date, no further shares were available for
future issuance.
Awards under the Plans vest at the rate of 20% per year, commencing on
the first anniversary of the date of the award. The Committee may, however, from
time to time and in its sole discretion, accelerate the vesting with respect to
any participant, if the Committee determines that such acceleration is in the
best interest of SouthFirst. If a participant terminates employment for reasons
other than death or disability, the participant forfeits all rights to any
shares which have not vested. If the participant's termination is caused by
death or disability, all shares become vested. Participants will recognize
compensation income on the date their interests vest, or at such earlier date
pursuant to a participant's election to accelerate recognition pursuant to
Section 83(b) of the Internal Revenue Code.
STOCK OPTION PLANS
The SouthFirst Board of Directors has adopted two Stock Option Plans.
The first was adopted November 15, 1995 and is denominated the SouthFirst
Bancshares, Inc. Stock Option and Incentive Plan (the "1995 Stock Option Plan"),
and the second was adopted on January 28, 1998 and is denominated the 1998 Stock
Option and Incentive Plan ("the 1998 Stock Option Plan"). The objective of each
of the Stock Option Plans is to attract, retain, and motivate the best possible
personnel for positions of substantial responsibility with SouthFirst and First
Federal. In order to attract and retain members of the Board of Directors of
SouthFirst who contribute to SouthFirst's success, each of the Stock Option
Plans also provides for the award of nonqualified stock options to non-employee
directors of SouthFirst.
The 1995 Stock Option Plan authorizes the grant of options for up to
83,000 shares of Common Stock to select officers and employees in the form of
(i) incentive and nonqualified stock options ("Options") or (ii) Stock
Appreciation Rights ("SARs") (Options and SARs are referred to herein
collectively as "Awards"), as determined by the committee administering the 1995
Stock Option Plan. As of September 30, 1998, options to purchase 83,000 shares
had been issued under the 1995 Stock Option Plan and, as of that date, no
further options were available for issuance.
The 1998 Stock Option Plan authorizes the grant of options for up to
63,361 shares of Common Stock to select officers and employees in the form of
Options or SARs. As of September 30, 1999, options to purchase 63,361 shares had
been issued under the 1998 Stock Option Plan and, as of that date, no further
options were available for issuance
The terms and conditions of the two Stock Option Plans are
substantially the same. The exercise price for Options and SARs granted under
the Stock Option Plans may not be less than the fair market value of the shares
on the day of the grant, and no Awards shall be exercisable after the expiration
of ten years from the date of this grant. Each Stock Option Plan has a term of
10 years unless earlier terminated by the SouthFirst Board of Directors. The
Stock Option Plans are administered by a committee of the directors of
SouthFirst (the "Option Plan Committee"). Except as discussed below with respect
to non-employee directors, the Option Plan Committee has complete discretion to
make Awards to persons eligible to participate in the Stock Option Plans, and
determines the number of shares to be subject to such Awards, and the terms and
conditions of such Awards. In selecting the persons to whom Awards are granted
under the Stock Option Plan, the Option Plan Committee considers the position,
duties, and responsibilities of the employees, the value of their services to
SouthFirst and First Federal, and any other factor the Option Plan Committee may
deem relevant to achieving the stated purpose of the Stock Option Plan.
-14-
<PAGE> 18
Options granted under the Stock Option Plans become exercisable at a
rate of 20% per year commencing one year from the date of grant, with the
exception that all options will become immediately exercisable in the event the
optionee's employment is terminated due to the optionee's death, disability or
retirement, or in the event of a change in control of First Federal or
SouthFirst.
Under the 1995 Stock Option Plan, all directors who were not employees
of SouthFirst as of November 15, 1995 (the date of the approval of the Stock
Option Plan by the shareholders of SouthFirst and the OTS), received
non-qualified stock options for the purchase of 4,150 shares with an exercise
price equal to $14.00 per share, the fair market value of SouthFirst Common
Stock on the date of grant. Likewise, under the 1998 Stock Option Plan, all
directors who were not employees of SouthFirst as of January 28, 1998 (the date
of the approval of the Stock Option Plan by the Board of Directors of
SouthFirst) received non-qualified stock options for the purchase of 2,700
shares with an exercise price equal to $21.25 per share, the fair market value
of SouthFirst Common Stock on the date of grant.
REPRICING OF STOCK OPTIONS UNDER THE STOCK OPTION PLANS
On January 28, 1998, the Wage and Compensation Committee, acting on the
approval of the Board of Directors, granted incentive stock options to purchase
14,180; 7,428; 3,726; 4,726; and 4,051 to Donald C. Stroup, Joe K. McArthur, J.
Malcomb Massey, Bobby R. Cook, and Jimmy C. Maples, respectively. Options to
purchase an aggregate of 28,000 shares were concurrently granted to
approximately 19 non-executive employees of SouthFirst and/or First Federal.
Such options were granted at an exercise price of $21.25 per share, which was
equal to the fair market value of SouthFirst's Common Stock on the date of
grant. During the ensuing nine and one half months, the market price of
SouthFirst's Common Stock declined significantly to a point below which such
options no longer served the intended purpose for which they were issued. In
order to protect the intended value and purpose of the January 28 options, the
Board of Directors elected to reprice all of such options by the cancellation of
such options and the regrant of an equal number of replacement options at the
then current lower market price. Such replacement options were granted on
November 4, 1998 at an exercise price of $15.75 a share, which was equal to the
fair market value of SouthFirst's Common Stock on the date of grant.
-15-
<PAGE> 19
The following table provides the name of the grantee, number of
securities underlying the replacement options, the exercise price of the
canceled shares, the exercise price of the replacement options, and the length
of original option term remaining after the repricing, as of September 30, 1999:
OPTION REPRICING FOR FISCAL YEAR 1999
<TABLE>
<CAPTION>
Name Date Number of Exercise Price of Exercise Price of Length of
Securities Canceled Options Replacement Original Option
Underlying ($) Options ($) Term Remaining
Replacement at Date of
Options Repricing
<S> <C> <C> <C> <C> <C>
Donald Stroup November 4, 4,150 21.25 15.75 9.2 years
(1995 Plan) (1) 1998
Donald Stroup November 4, 10,030 21.25 15.75 9.2 years
(1998 Plan) 1998
Joe McArthur November 4, 7,428 21.25 15.75 9.2 years
(1998 Plan) 1998
Malcomb Massey November 4, 3,726 21.25 15.75 9.2 years
(1998 Plan) 1998
Bobby Cook November 4, 4,726 21.25 15.75 9.2 years
(1998 Plan) 1998
Jimmy Maples November 4, 4,051 21.25 15.75 9.2 years
(1998 Plan) 1998
</TABLE>
(1) As of September 30, 1996, options to purchase a total of
83,000 shares had been issued under the 1995 Stock Option Plan, and, as of that
date, no other shares were available for future issuance. Since September 30,
1996, grants to purchase 4,150 shares of Common Stock expired prior to being
exercised and, consequently, the 4,150 shares reserved to be issued pursuant to
such expired options became available for re-issuance under the 1995 Stock
Option Plan. On January 28, 1998, the Board of Directors of the Bank granted to
Donald C. Stroup options to purchase 4,150 shares available under the 1995 Stock
Option Plan (the "1995 options") in conjunction with certain additional stock
option grants made pursuant to the 1998 Stock Option Plan. On November 4, 1999,
these 1995 options were canceled and replaced with repriced 1995 options, which
were issued pursuant to the same vesting schedule utilized for the 1998 Stock
Option Plan.
-16-
<PAGE> 20
The following table provides certain information concerning the
exercise of stock options under SouthFirst's Stock Option Plan during the fiscal
year ended September 30, 1999, by the Named Executive Officers and the fiscal
year end value of unexercised options held by those individuals:
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR END OPTION VALUES
<TABLE>
<CAPTION>
Number of Securities Value of Unexercised
Underlying In-the-Money
Unexercised Options at Options at Fiscal
Fiscal Year End Year End
Shares Acquired Value Exercisable/ Exercisable/
Name on Exercise Realized Unexercisable Unexercisable(1)
- ----------------- --------------- -------- ---------------------- --------------------
<S> <C> <C> <C> <C>
Donald C. Stroup 0 $0 12,450 / 20,750 $0 / $0
Joe K. McArthur 0 $0 7,968/ 13,280 $0 / $0
Bobby R. Cook 0 $0 0 / 4,726 $0 / $0
J. Malcomb Massey 0 $0 0 / 3,726 $0 / $0
Jimmy C. Maples 0 $0 2,490/4,150 $0 / $0
</TABLE>
(1) Represents the value of unexercised, in-the-money stock options on
September 30, 1999, using the $11.625 closing price of SouthFirst
Common Stock on that date.
EMPLOYEE RETIREMENT SAVINGS PLAN
First Federal has established a savings and profit-sharing plan that
qualifies as a tax-deferred savings plan under Section 401(k) of the Internal
Revenue Code (the "401(k) Plan") for its salaried employees who are at least 21
years old and who have completed one year of service with First Federal. Under
the 401(k) Plan, eligible employees may contribute up to 10% of their gross
salary to the 401(k) Plan or $9,500, whichever is less. Currently, all
contributions are fully vested under 401(k) Plan at the time of the
contribution. Prior to First Federal's adoption of an Employee Stock Ownership
Plan (see "--Employee Stock Ownership Plan"), the first 1% to 3% of employee
compensation was matched by a First Federal contribution of $0.50 for each $1.00
of employee contribution and contributions from 4% to 6% were 100% matched.
During this period, contributions were 100% vested following the completion of
five years of service and were invested in one or more investment accounts
administered by an independent plan administrator.
EMPLOYEE STOCK OWNERSHIP PLAN
First Federal has adopted an Employee Stock Ownership Plan (the "ESOP")
for the exclusive benefit of participating employees. All employees of First
Federal who are at least 21 years old and who have completed a year of service
with First Federal are eligible to participate in the ESOP. SouthFirst has
loaned the ESOP $664,000, which the ESOP used to purchase 66,400 shares of
SouthFirst Common Stock. This loan is secured by the shares purchased with the
proceeds of the loan. Shares purchased with the loan proceeds are held in a
suspense account for allocation among participants as the loan is repaid.
-17-
<PAGE> 21
Contributions to the ESOP are expected to be used to repay the ESOP
loan. Shares released from the suspense account as the ESOP loan is repaid, any
contributions to the ESOP that are not used to repay the ESOP loan, and
forfeitures will be allocated among participants on the basis of their relative
compensation. With the exception of terminations due to death, disability or
retirement, a participant must be employed by First Federal on the last day of
the plan year and have completed 1,000 hours of service during the plan year in
order to share in the allocation for the plan year. Any dividends paid on
unallocated shares of SouthFirst Common Stock are to be used to repay the ESOP
loan; any dividends paid on shares of SouthFirst Common Stock allocated to
participant accounts will be credited to said accounts.
Benefits under the ESOP vest at a rate of 20% per year of service, with
the first 20% vesting after the Participant has served for two years.
Participant's benefits also become fully vested upon the Participant's death,
disability, attainment of normal retirement age, or the termination of the ESOP.
For vesting purposes, a year of service means any plan year in which an employee
completes at least 1,000 hours of service with First Federal. An employee's
years of service prior to the ESOP's effective date will be considered for
purposes of determining vesting under the ESOP.
A participant who separates from service because of death, disability
or retirement will be entitled to receive an immediate distribution of his or
her benefits. A participant who separates from service for any other reason will
be eligible to begin receiving benefits once he or she has completed his or her
fifth one year break in service. Distributions will generally be made in whole
shares of SouthFirst Common Stock, with the value of fractional shares being
paid in cash. Although accounts will generally be distributed in a lump sum,
accounts valued in excess of $500,000 may be distributed in installments over a
five-year period.
SouthFirst is the plan administrator of the ESOP and Pension & Benefit
Trust Company, Montgomery, Alabama serves as the trustee of the ESOP (the "ESOP
Trustee"). Participants may vote the shares of SouthFirst Common Stock that are
allocated to their account. Any unallocated shares of SouthFirst Common Stock
and allocated shares of SouthFirst Common Stock for which no timely direction is
received are voted by the ESOP Trustee in accordance with its fiduciary
obligations.
COMPENSATION OF DIRECTORS
Each member of the First Federal Board of Directors receives a fee of
$750 for each board meeting attended (with one excused absence), and each
non-employee director of First Federal, if a member of a committee, receives
$500 for each committee meeting attended, except that members of the Loan
Committee receive $600. Each member of the SouthFirst Board of Directors
receives a fee of $500 for each board meeting attended.
SouthFirst has adopted, by resolution of the Board of Directors, a
dividend incentive plan (the "Dividend Incentive Plan"), pursuant to which each
SouthFirst director, who holds options to purchase SouthFirst Common Stock, is
paid an amount equal to the number of shares underlying the stock options held
by him, multiplied by the amount of dividends SouthFirst pays to the holders of
its Common Stock. Accordingly, during fiscal 1999, each non-employee director
was paid a total of $2,316 under the Dividend Incentive Plan with respect to the
shares of Common Stock underlying the stock options held by him. Further, each
SouthFirst director, during fiscal 1999, received a cash dividend in the amount
of $996 with respect to the restricted shares held by him, as granted under
Management Recognition Plans "A" and "B."
-18-
<PAGE> 22
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
No directors, executive officers, or immediate family members of such
individuals were engaged in transactions with SouthFirst or First Federal, other
than loans, involving more than $60,000 during the period from the year ended
September 30, 1999 through February 23, 2000. First Federal, like many other
financial institutions, has followed a policy of granting various types of loans
to officers, directors and employees. The loans have been made in the ordinary
course of business and on substantially the same terms, including interest rates
and collateral, as those prevailing at the time for comparable transactions with
First Federal's other customers, and do not involve more than the normal risk of
collectibility, nor present other unfavorable features. All loans by First
Federal to its officers and executive officers are subject to OTS regulations
restricting loans and other transactions with affiliated persons of First
Federal. In addition, all future credit transactions with such directors,
officers and related interests of SouthFirst and First Federal will be on
substantially the same terms as, and following credit underwriting procedures
that are not less stringent than, those prevailing at the time for comparable
transactions with unaffiliated persons and must be approved by a majority of the
directors of SouthFirst, including a majority of the disinterested directors. At
February 23, 2000, the aggregate of all loans by First Federal to its officers,
directors, and related interests was $3,123,347.
AUDITORS
On August 20, 1998, SouthFirst dismissed its independent auditors, KPMG
Peat Marwick LLP ("KPMG"), and on the same date engaged the firm of Jones &
Kirkpatrick, P.C. ("Jones & Kirkpatrick") as its independent auditors for the
fiscal year ending September 30, 1998. Each of these actions was approved by the
audit committee of the Board of Directors of SouthFirst.
The report of KPMG on the financial statements of SouthFirst for the
fiscal years ended September 30, 1997 and 1996 did not contain any adverse
opinion or a disclaimer of opinion, nor was it qualified or modified as to audit
scope or accounting principles.
In connection with the audit of the fiscal years ended September 30,
1997 and 1996 and for the unaudited interim period through August 20, 1998,
there were no disagreements with KPMG on any matter of accounting principle or
practice, financial statement disclosure, or audit procedure or scope which
disagreement, if not resolved to the satisfaction of KPMG, would have caused it
to make reference to the subject matter of the disagreement in its report.
KPMG has furnished SouthFirst with a letter addressed to the Securities
and Exchange Commission stating that it does not disagree with any of the above
statements, a copy of which has been filed as an exhibit to the Current Report
on Form 8-K filed with the Securities and Exchange Commission dated August 20,
1998.
Jones & Kirkpatrick audited the financial statements of SouthFirst for
the fiscal years ended September 30, 1998 and 1999. The Board of Directors has
selected this same firm to audit the accounts and records of SouthFirst for the
current fiscal year. Neither such firm nor any of its members or associates has,
or has had during the past year, any financial interest in SouthFirst, direct or
indirect, or any relationship with SouthFirst, other than in connection with
their duties as auditors and income tax preparers. Representatives of Jones &
Kirkpatrick are expected to be present at the Annual Meeting to respond to
stockholders' questions and will have an opportunity to make any statements they
consider appropriate.
-19-
<PAGE> 23
STOCKHOLDERS' PROPOSALS FOR THE 2001 ANNUAL MEETING
Stockholders may submit proposals appropriate for stockholder action at
SouthFirst's 2001 Annual Meeting, consistent with the regulations of the
Securities and Exchange Commission. Proposals by stockholders intended to be
presented at the 2001 Annual Meeting must be received by SouthFirst no later
than November 11, 2000, in order to be included in SouthFirst's proxy materials
for that meeting. With respect to any such proposals received by SouthFirst
after January 25, 2001, the persons named in the form of Proxy solicited by
management will vote the Proxy in accordance with their judgment of what is in
the best interests of SouthFirst. Such proposals should be directed to
SouthFirst Bancshares, Inc., Attention: Corporate Secretary, 126 North Norton
Avenue, Sylacauga, Alabama 35150.
OTHER MATTERS
The Board of Directors knows of no other matters to be brought before
the Annual Meeting. However, if other matters should come before the Annual
Meeting, it is the intention of the persons named in the enclosed form of proxy
to vote the proxy in accordance with their judgment of what is in the best
interest of SouthFirst.
By Order of The Board of Directors
/s/ Joe K. McArthur
----------------------------------
Joe K. McArthur
Secretary
Sylacauga, Alabama
March 10, 2000
<PAGE> 24
[X] PLEASE MARK VOTES REVOCABLE PROXY
AS IN THIS EXAMPLE SOUTHFIRST BANCSHARES, INC.
<TABLE>
<S> <C> <C> <C> <C> <C>
THIS PROXY IS SOLICITED ON BEHALF With- For All
OF THE BOARD OF DIRECTORS FOR For hold Except
THE 2000 ANNUAL MEETING OF 1. To elect DONALD C. STROUP, [ ] [ ] [ ]
STOCKHOLDERS. J. MALCOMB MASSEY, and
CHARLES R. VAWTER, JR,
for a term of three years and until
their successors are elected
The undersigned hereby appoints Donald C. and have qualified.
Stroup and Joe K. McArthur, or either of them, with
power of substitution to each, the proxies of the INSTRUCTION: TO WITHHOLD AUTHORITY TO VOTE FOR ONE
undersigned to vote the Common Stock of the INDIVIDUAL NOMINEE, MARK "FOR ALL EXCEPT" AND WRITE THAT
undersigned at the Annual Meeting of Stockholders NOMINEE'S OR THOSE NOMINEES' NAME(S) IN THE SPACE PROVIDED
of SOUTHFIRST BANCSHARES, INC., to be held BELOW.
on Wednesday, April 5, 2000, at 10:00 a.m., at the main
office of SouthFirst Bancshares, Inc., located at
126 North Norton Avenue, Sylacauga, Alabama 35150, --------------------------------------------------------------
and at any adjournments or postponements
thereof, as indicated on this revocable proxy: 2. To vote in accordance with their best judgment with respect
to any other matters that may properly come before the
meeting.
THE BOARD OF DIRECTORS FAVORS A VOTE "FOR" EACH OF THE PROPOSALS
AND UNLESS INSTRUCTIONS TO THE CONTRARY ARE INDICATED IN THE SPACE
PROVIDED, THIS PROXY WILL BE SO VOTED.
Please be sure to sign and date Date Please date and sign exactly as your name(s) appear(s) on
this Proxy in the box below. this card.
- --------------------------------------------------------
NOTE: When signing as an attorney, trustee, executor,
administrator or guardian, please give your title as such. If a
corporation or partnership, give full name of authorizing
Stockholder sign above -- Co-holder (if any) sign above officer. In the case of joint tenants, each joint owner must sign.
- --------------------------------------------------------
</TABLE>
DETACH ABOVE CARD, SIGN, DATE AND MAIL IN POSTAGE PAID ENVELOPE PROVIDED.
SOUTHFIRST BANCSHARES, INC.
126 NORTH NORTON AVENUE
SYLACAUGA, ALABAMA 35150
PLEASE ACT PROMPTLY
SIGN, DATE & MAIL YOUR PROXY CARD TODAY
