WASHINGTON, D. C. 20549
FORM 10-QSB
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15 (D)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED: September 30, 1999
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OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (D)
OF THE SECURITIES EXCHANGE ACT OF 1934
COMMISSION FILE NUMBER: 33-94288
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THE FIRST BANCSHARES, INC.
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(EXACT NAME OF SMALL BUSINESS ISSUER AS SPECIFIED IN ITS CHARTER)
MISSISSIPPI 64-0862173
(STATE OF INCORPORATION) (I.R.S. EMPLOYER IDENTIFICATION NO.)
6480 U.S. HIGHWAY 98 WEST
HATTIESBURG, MISSISSIPPI 39404-5549
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(ADDRESS OF PRINCIPAL (ZIP CODE)
EXECUTIVE OFFICES)
(601) 268-8998
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(ISSUER'S TELEPHONE NUMBER, INCLUDING AREA CODE)
NONE
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(FORMER NAME, ADDRESS AND FISCAL YEAR, IF CHANGED SINCE LAST REPORT)
INDICATE BY CHECK MARK WHETHER THE ISSUER: (1) HAS FILED ALL REPORTS
REQUIRED TO BE FILED BY SECTION 13 OR 15 (D) OF THE SECURITIES EXCHANGE ACT
OF 1934 DURING THE PRECEDING 12 MONTHS (OR FOR SUCH SHORTER PERIOD THAT THE
REGISTRANT WAS REQUIRED TO FILE SUCH REPORTS), AND (2) HAS BEEN SUBJECT TO
SUCH FILING REQUIREMENTS FOR THE PAST 90 DAYS.
YES X NO
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ON NOVEMBER 11, 1999, 1,150,691 SHARES OF THE ISSUER'S COMMON STOCK, PAR
VALUE $1.00 PER SHARE, WERE ISSUED AND OUTSTANDING.
TRANSITIONAL SMALL BUSINESS DISCLOSURE FORMAT (CHECK ONE):
YES NO X
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PART I - FINANCIAL INFORMATION
Item 1. FINANCIAL STATEMENTS
THE FIRST BANCSHARES, INC., AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
($ amounts in thousands) (Unaudited)
September 30, December 31,
ASSETS 1999 1998
__________ ___________
Cash and due from banks $ 3,238 $ 1,457
Interest-bearing deposits with banks 195 95
Federal funds sold 886 2,964
__________ ___________
Total cash and cash equivalents 4,319 4,516
Securities held-to-maturity, at amortized cost 106 122
Securities available-for-sale, at fair value 16,318 7,364
Loans 57,548 32,406
Allowance for loan losses (684) (347)
__________ ___________
LOANS, NET 56,864 32,059
Premises and equipment 4,354 3,604
Accrued interest receivable 453 325
Other assets 1,098 1,923
__________ ___________
$ 83,512 $ 49,913
========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities:
Deposits:
Noninterest-bearing $ 7,332 $ 3,407
Time, $100,000 or more 14,137 8,372
Interest-bearing 44,665 23,888
__________ ___________
TOTAL DEPOSITS 66,134 35,667
Interest payable 232 166
Stock subscription deposits - 6,433
Borrowed funds 4,702 1,200
Other liabilities 116 25
__________ ___________
TOTAL LIABILITIES 71,184 43,491
__________ ___________
SHAREHOLDERS' EQUITY:
Common stock, $1 par value. Authorized
10,000,000 shares; issued and
outstanding 1,150,691 at September 30,
1999 and 721,848 at December 31, 1998 1,151 722
Paid-in capital 12,356 6,451
Accumulated deficit (1,149) (751)
Accumulated other comprehensive income (30) -
__________ ___________
TOTAL SHAREHOLDERS' EQUITY 12,328 6,422
__________ ___________
$ 83,512 $ 49,913
========== ===========
THE FIRST BANCSHARES, INC.
CONSOLIDATED STATEMENTS OF INCOME
($ amounts in thousands except earnings per share)
(Unaudited) (Unaudited)
Three Months Nine Months
Ended Ended
September 30, September 30,
______________ ______________
1999 1998 1999 1998
______ ______ ______ ______
INTEREST INCOME:
Loans, including fees $1,224 $ 630 $3,144 $1,801
Securities:
Taxable 210 112 453 283
Tax exempt - - 5 -
Federal funds sold 35 17 144 52
Other 2 - 35 -
______ ______ ______ ______
TOTAL INTEREST INCOME 1,471 759 3,781 2,136
INTEREST EXPENSE:
Deposits 653 340 1,638 972
Other borrowings 35 18 90 51
______ ______ ______ ______
TOTAL INTEREST EXPENSE 688 358 1,728 1,023
______ ______ ______ ______
NET INTEREST INCOME 783 401 2,053 1,113
PROVISION FOR LOAN LOSSES 116 22 346 92
______ ______ ______ ______
NET INTEREST INCOME AFTER
PROVISION FOR LOAN LOSSES 667 379 1,707 1,021
OTHER INCOME:
Service charges on deposit accounts 25 16 68 41
Other service charges, commissions and
fees 84 52 244 120
______ ______ ______ ______
TOTAL OTHER INCOME 109 68 312 161
OTHER EXPENSES:
Salaries and employee benefits 440 208 1,268 583
Occupancy and equipment expense 133 68 350 184
Preopening costs - - 187 -
Other operating expenses 246 134 657 365
______ ______ ______ ______
TOTAL OTHER EXPENSES 819 410 2,462 1,132
______ ______ ______ ______
INCOME (LOSS) BEFORE INCOME TAXES (43) 37 (443) 50
INCOME TAXES - - - -
______ ______ ______ ______
NET INCOME (LOSS) $ (43) $ 37 $ (443) $ 50
====== ====== ====== ======
INCOME (LOSS) PER SHARE - BASIC $ (.04) $ .05 $ (.42) $ .07
INCOME (LOSS) PER SHARE - ASSUMING DILUTION $ (.04) $ .05 $ (.41) $ .07
THE FIRST BANCSHARES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
($ Amounts in Thousands)
(Unaudited)
Nine Months Ended
September 30,
__________________
1999 1998
________ ________
CASH FLOWS FROM OPERATING ACTIVITIES:
NET INCOME (LOSS) $ (443) $ 50
Adjustments to reconcile net income (loss)
to net cash provided by operating activities:
Depreciation and amortization 196 124
Provision for loan losses 346 92
Increase in accrued income receivable (128) (256)
Increase in interest payable 66 46
Other, net 849 (39)
________ ________
NET CASH PROVIDED BY OPERATING ACTIVITIES 886 17
________ ________
CASH FLOWS FROM INVESTING ACTIVITIES:
Maturities and calls of held-to-maturity
securities 15 300
Maturities and calls of securities
available-for-sale 6,941 2,883
Purchases of securities available-for-sale (15,924) (7,540)
Net increase in loans (25,154) (8,672)
Purchases of premises and equipment (930) (1,212)
________ ________
NET CASH USED BY INVESTING ACTIVITIES (35,052) (14,241)
________ ________
CASH FLOWS FROM FINANCING ACTIVITIES:
Increase in deposits 30,467 15,704
Net increase in borrowed funds 3,502 -
________ ________
NET CASH PROVIDED BY FINANCING ACTIVITIES 33,969 15,704
________ ________
NET INCREASE (DECREASE) IN CASH (197) 1,480
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 4,516 2,840
________ ________
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 4,319 $ 4,320
======== ========
CASH PAYMENTS FOR INTEREST $ 1,662 $ 977
CASH PAYMENTS FOR INCOME TAXES - -
THE FIRST BANCSHARES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
NOTE A -- BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements have been
prepared in accordance with generally accepted accounting principles for
interim financial statements and with the instructions to Form 10-QSB and
Item 310(b) of Regulation S-B of the Securities and Exchange Commission.
Accordingly, they do not include all of the information and footnotes
required by generally accepted accounting principles for complete financial
statements. However, in the opinion of management, all adjustments
(consisting of normal recurring adjustments) considered necessary for a
fair presentation have been included. Operating results for the three and
nine months ended September 30, 1999, are not necessarily indicative of the
results that may be expected for the year ended December 31, 1999. For
further information, please refer to the consolidated financial statements
and footnotes thereto included in the Company's Form 10-KSB for the year
ended December 31, 1998.
Certain reclassifications have been made to the 1998 financial statements
to conform to those used in 1999.
NOTE B -- SUMMARY OF ORGANIZATION
The First Bancshares, Inc., Hattiesburg, Mississippi (the "Company"), was
incorporated June 23, 1995, under the laws of the State of Mississippi for
the purpose of operating as a bank holding company with respect to a then
proposed de novo bank, The First National Bank of South Mississippi,
Hattiesburg, Mississippi (the "Hattiesburg Bank").
The Company offered its common stock for sale to the public under an
initial public offering price of $10 per share. As of August 27, 1996,
when the offering was terminated, 721,848 shares were sold, resulting in
net proceeds of approximately $7.1 million.
During 1996, the Company obtained regulatory approval to operate a national
bank in Hattiesburg, Mississippi, and the Company purchased 100% of the
capital stock of the Hattiesburg Bank. The Hattiesburg Bank opened for
business on August 5, 1996, with a total capitalization of $5.2 million.
In June 1998, the Company entered into a bank development agreement with
the organizers of The First National Bank of the Pine Belt, a proposed de
novo community bank in Laurel, Mississippi (the "Laurel Bank"). On
August 10, 1998, the Company filed a registration statement on Form SB-2
relating to the issuance of up to 533,333 shares of Common Stock in
connection with the formation of the Laurel Bank. The offering was closed
on December 31, 1998, with 428,843 shares subscribed with an aggregate
purchase price of $6.4 million. On January 19, 1999, the Laurel Bank
received approval from its banking regulator to begin banking operations,
and the Company used $5 million of the net proceeds to purchase 100% of
the capital stock of the Laurel Bank. Simultaneously, the 428,843 shares
subscribed to in the offering were issued.
The Company's strategy is for the Hattiesburg Bank and the Laurel Bank to
operate on a decentralized basis, emphasizing each Bank's local board of
directors and management and their knowledge of their local community. Each
Bank's local board of directors acts to promote its Bank and introduce
prospective customers. The Company believes that this autonomy will allow
each Bank to generate high-yielding loans and to attract and retain core
deposits.
The Hattiesburg Bank and the Laurel Bank engage in general commercial
banking business, emphasizing in its marketing the Bank's local management
and ownership. The Banks offer a full range of banking services designed
to meet the basic financial needs of its customers. These services
include checking accounts, NOW accounts, money market deposit accounts,
savings accounts, certificates of deposit, and individual retirement
accounts. The Banks also offer short- to medium-term commercial, mortgage,
and personal loans. At September 30, 1999, the Company had approximately
$83.5 million in consolidated assets, $56.8 million in consolidated
loans, $66.1 million in consolidated deposits, and $12.3 million in
consolidated shareholders' equity. For the nine months ended September 30,
1999, the Company reported a consolidated net loss of $443,000. For the
same period, the Laurel Bank reported a net loss of $522,000, and the
Hattiesburg Bank net income of $115,000.
NOTE C - INCOME PER COMMON SHARE
Basic per share data is calculated based on the weighted-average number of
common shares outstanding during the reporting period. Diluted per share
data includes any dilution from potential common stock outstanding, such as
exercise of stock options.
Three Months Ended Nine Months Ended
September 30, September 30,
1999 1998 1999 1998
__________ __________ __________ __________
Numerator:
Net income (loss) $ (43,000) $ 37,000 $ (443,000) $ 50,000
========== ========== ========== ==========
Denominator:
Denominator for
basic income (loss)
per share -
weighted average
shares 1,150,691 721,848 1,064,922 721,848
Dilutive potential
common shares -
employee stock
options 24,062 8,865 21,930 8,865
__________ __________ __________ __________
Denominator for
diluted earnings
(loss) per share -
adjusted weighted
average shares 1,174,753 730,713 1,086,852 730,713
========== ========== ========== ==========
ITEM NO. 2 MANAGEMENT DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The following discussion contains "forward-looking statements" relating to,
without limitation, future economic performance, plans and objectives of
management for future operations, and projections of revenues and other
financial items that are based on the beliefs of the Company's management,
as well as assumptions made by and information currently available to the
Company's management. The words "expect," "estimate," "anticipate," and
"believe," as well as similar expressions, are intended to identify
forward-looking statements. The Company's actual results may differ
materially from the results discussed in the forward-looking statements,
and the Company's operating performance each quarter is subject to various
risks and uncertainties that are discussed in detail in the Company's
filings with the Securities and Exchange Commission, including the "Risk
Factors" section in the Company's Registration Statement on Form SB-2
(Registration Number 333-61081) as filed with and declared effective by the
Securities and Exchange Commission. The Hattiesburg Bank completed its
first full year of operations in 1997 and has grown substantially since
opening on August 5, 1996. The Laurel Bank has been in operation since
January 19, 1999. Comparisons of the Company's results for the periods
presented should be made with an understanding of the subsidiary Banks'
short histories.
FINANCIAL CONDITION
The subsidiary Banks represent a significant portion of the assets of
the Company. The Hattiesburg Bank reported total assets of $57.7 million
at September 30, 1999, compared to $48.9 million at December 31, 1998.
Loans of the Hattiesburg Bank increased $8.8 million, or 27.3%, during
the first nine months of 1999. Deposits at September 30, 1999, totaled
$48.9 million compared to $42.6 million at December 31, 1998. However,
at December 31, 1998, the total assets and liabilities of the Hattiesburg
Bank included the $6.4 million resulting from the stock offering which had
been deposited in the Bank in an escrow account. In January 1999, $5
million of these funds were disbursed as capitalization of the Laurel Bank.
For the nine month period ended September 30, 1999, the Hattiesburg Bank
reported net income of $115,000. At September 30, 1999, the Laurel Bank
had total assets of $25.1 million, total loans of $16.3 million, and total
deposits of $19.3 million. For the nine month period ended September 30,
1999, the Laurel Bank reported a net loss from operations of $522,000.
Included in other expense was $187,000 of preopening costs related to the
formation and opening of the Laurel Bank.
NONPERFORMING ASSETS AND RISK ELEMENTS. Diversification within the loan
portfolio is an important means of reducing inherent lending risks. At
September 30, 1999, the subsidiary Banks had no concentrations of ten
percent or more of total loans in any single industry nor any geographical
area outside their immediate market areas.
At September 30, 1999, the subsidiary banks had loans past due as follows:
($ In Thousands)
Past due 30 through 89 days $ 104
Past due 90 days or more and still accruing -
Nonaccrual loans 19
The accrual of interest is discontinued on loans which become ninety days
past due (principal and/or interest), unless the loans are adequately
secured and in the process of collection. Any other real estate owned is
carried at fair value, determined by an appraisal. A loan is classified as
a restructured loan when the interest rate is materially reduced or the
term is extended beyond the original maturity date because of the inability
of the borrower to service the debt under the original terms. The
subsidiary Banks had no restructured loans and no other real estate at
September 30, 1999.
LIQUIDITY AND CAPITAL RESOURCES
Liquidity is considered adequate with consolidated cash and cash
equivalents of $4.3 million as of September 30, 1999. In addition, loans
and investment securities repricing or maturing within one year or less
exceeded $3.9 million at September 30, 1999. Approximately $6.5 million
in loan commitments are expected to be funded within the next six months
and other commitments, primarily standby letters of credit, totaled
$242,000 at September 30, 1999. On August 10, 1998, the Company filed a
registration statement on Form SB-2 relating to the issuance of up to
533,333 shares of Common Stock in connection with the formation of the
Laurel Bank. At December 31, 1998, closing date of the offering, the
Company had received subscriptions for 428,843 shares resulting in proceeds
of $6.3 million, net of offering costs. The funds were held in escrow
until regulatory approval for the Laurel Bank was obtained, which occurred
on January 19, 1999. The Company used $5 million of the net proceeds to
purchase 100% of the capital stock of the Laurel Bank.
There are no known trends or any known commitments of uncertainties that
will result in the subsidiary banks' liquidity increasing or decreasing
in a material way. In addition, the Company is not aware of any
recommendations by any regulatory authorities which would have a material
effect on the Company's liquidity, capital resources or results of
operations.
Total consolidated equity capital at September 30, 1999, is $12.3 million,
or approximately 15% of total consolidated assets. The Hattiesburg Bank
and Laurel Bank currently have adequate capital positions to meet the
minimum capital requirements for all regulatory agencies. The Hattiesburg
Bank and the Laurel Bank have been categorized by banking regulators as
well capitalized under the regulatory framework for prompt corrective
action.
RESULTS OF OPERATIONS
Three months ended September 30, 1999, compared to three months ended
September 30,1998:
The Company had a consolidated net loss of $43,000 for the three month
period ending September 30, 1999 compared with consolidated net income of
$37,000 for the same period last year. As noted above, however, this net
loss was attributable to the opening of the Laurel Bank.
Interest income and interest expense both increased from 1998 to 1999
resulting from the increase in earning assets and interest-bearing
liabilities. Consequently, net interest income increased to $783,000
from $401,000, or an increase of 95.3%. Earning assets at September 30,
1999 reflected an increase of $37.8 million when compared to September 30,
1998, and interest-bearing liabilities also increased $30.2 million,
reflecting increases of 102.0% and 91.0%, respectively.
Noninterest income for the three months ending September 30, 1999 was
$109,000 compared to $68,000 for the same period in 1998, reflecting an
increase of $41,000, or 60.3%. Noninterest income consists mainly of
other service charges such as commissions and fees. The increase is
primarily due to an increase in origination fees on mortgage loans.
Service charges on deposit accounts for the three months ending
September 30, 1999 were $25,000 compared with $16,000 for the same period
in 1998, reflecting an increase of 56.3%. This increase corresponds with
the increase in deposit accounts and the related activities.
The provision for loan losses was $116,000 for 1999 compared with $22,000
for the same period in 1998. Provisions charged to expense reflect
management's intent to maintain the allowance for loan losses at an
adequate level. The level of this allowance is dependent upon a
number of factors, including the total amount of past due loans, general
economic conditions, regulatory reviews, and management's assessment of
potential losses. This evaluation is inherently subjective as it requires
estimates that are susceptible to significant change. Ultimately, losses
may vary from current estimates and future additions to the allowance may
be necessary. Thus, there can be no assurance that charge-offs in future
periods will not exceed the allowance for loan losses or that additional
increases in the loan loss allowance will not be required. Management
evaluates the adequacy of the allowance for loan losses quarterly and makes
provisions for loan losses based on this evaluation.
Even though net interest and noninterest income increased substantially
during the three months ended September 30, 1999 compared to the three
months ended September 30, 1998, the Company incurred a net loss of
$43,000 during this 1999 period as compared to net income of $37,000
during the comparable 1998 period. This loss was expected and is
attributable to the substantial increase in noninterest expenses
related to the formation of the Laurel Bank. The primary components
of these expenses are salaries and employee benefits and other operating
expenses. Salaries and employee benefits increased to $440,000 during
the three month period ended September 30, 1999 from $208,000 during
the three month period ended September 30, 1998. Similarly, other
operating expenses increased to $246,000 from $134,000 over these time
periods.
No provision for income tax expense has been provided. Prior to 1998, the
Company reported consolidated net operating losses, and the Company has
available approximately $437,000 of consolidated net operating loss
carryovers from prior years.
RESULTS OF OPERATIONS
Nine months Ended September 30, 1999, compared to nine months ended
September 30, 1998:
The Company had a consolidated net loss of $433,000 for the nine months
ended September 30, 1999, compared with consolidated net income of $13,000
for the same period last year. This net loss was the result of the
expenses associated with the opening of the Laurel Bank in January 1999.
As noted above, the Hattiesburg Bank generated net income of $115,000
during the first nine months of 1999, a significant increase over the net
income the Company generated during the comparable period in 1998.
Interest income and interest expense both increased from 1998 to 1999,
resulting from the increase in earning assets and interest-bearing
liabilities. Consequently, net interest income increased to $2,053,000
from $1,113,000 for the nine months ending September 30, 1999, or an
increase of 84.5%.
Noninterest income for the nine months ending September 30 1999, was
$312,000 compared to $161,000 for the same period in 1998, reflecting
an increase of $151,000, or 93.8%. Noninterest income consists mainly
of other service charges such as commissions and fees. The increase is
primarily due to origination fees on mortgage loans which are sold into
the secondary market. Service charges on deposit accounts for the nine
months ending September 30, 1999 were $68,000 compared with $41,000 for
the same period in 1998, reflecting an increase of 65.9%. This increase
corresponds to an increase in deposit accounts and related activities.
The provision for loan losses was $346,000 in the first nine months of 1999
compared with $92,000 for the same period in 1998. The allowance for loan
losses of $684,000 at September 30, 1999 (approximately 1.2% of loans)
is considered by management to be adequate to cover losses inherent in the
loan portfolio. The level of this allowance is dependent upon a number of
factors, including the total amount of past due loans, general economic
conditions, regulatory reviews, and management's assessment of potential
losses. This evaluation is inherently subjective as it requires estimates
that are susceptible to significant change. Ultimately, losses may vary
from current estimates and future additions to the allowance may be
necessary. Thus, there can be no assurance that charge-offs in future
periods will not exceed the allowance for loan losses or that additional
increases in the loan loss allowance will not be required. Management
evaluates the adequacy of the allowance for loan losses quarterly and makes
provisions for loan losses based on this evaluation.
Other expenses increased by $1,332,000, or 117.5%, in the first nine months
of 1999 primarily due to the addition of the Laurel Bank and to the
continued growth of the Hattiesburg Bank. Also, included in noninterest
expense for 1999 was $187,000 in preopening costs associated with the
formation and preparation of the opening of the Laurel Bank.
No provision for income tax expense has been provided. Prior to 1998, the
Company reported consolidated net operating losses. At December 31, 1998,
the Company had available approximately $437,000 of consolidated net
operating loss carryovers to subsequent years.
ACCOUNTING MATTERS
In June, 1998, the FASB issued SFAS 133, "Accounting for Derivative
Instruments and Hedging Activities." This statement establishes accounting
and reporting standards for derivative instruments and hedging activities.
It requires that an entity recognize all derivatives as either assets or
liabilities in its financial statements and that those instruments be
measured at fair value. Recently, the FASB delayed implementation of SFAS
133 to all fiscal quarters of fiscal years beginning after June 15, 2000.
The Company has not determined the impact the adoption of this statement
may have on its consolidated financial statements.
YEAR 2000
Like many financial institutions, the Company relies upon computers for the
daily conduct of its business and for information systems processing.
There is concern among industry experts that on January 1, 2000, computers
will be unable to "read" the new year, which may result in widespread
computer malfunctions. These problems are widely expected to increase in
frequency and severity as the year 2000 approaches and are commonly
referred to as the "Year 2000 Problem." The Year 2000 Problem could affect
computers, software, and other equipment that the Company uses. In June
1996, the Federal Financial Institutions Examination Council alerted the
banking industry that serious challenges could be encountered with Year
2000 issues. In addition, the OCC has issued guidelines to require
compliance with Year 2000 issues. In accordance with these guidelines, we
have developed and are executing a plan to ensure that our computer and
telecommunication systems do not have these Year 2000 problems. We rely on
third party vendors to supply most of our computer and telecommunication
systems and other office equipment. Our technology and processing vendors
work with many other financial institutions, all of whom, like us, are
required by their bank regulators to be Year 2000 compliant. Because our
systems are substantially similar to those used in many other banks, we
believe that the scrutiny imposed by our regulatory and the banking
industry in general have significantly reduced the Year 2000 related risks
we might otherwise have faced. Nontheless, there is a risk that the Year
2000 issues could negatively affect our business. The Company handles its
own data processing using an IBM AS 400 mainframe computer and software
licensed from Jack Henry & Associates, Inc. Jack Henry & Associates, Inc.
is a well-established company and provides computer systems and data
processing for numerous financial institutions. Jack Henry & Associates,
Inc. has tested its systems with software and hardware similar to the
Company's. The Company has reviewed these tests results and is relying on
them as a proxy for a test of its own systems with Jack Henry & Associates,
Inc. Banking regulators have approved this type of testing as a valid
means of testing. Based on this review, the Company does not believe that
its data processing system has any material Year 2000 issues. The Company
has obtained assurances about the Year 2000 compliance with respect to the
other primary third party hardware or software systems it uses, and the
Company believes that its internal systems and software and the network
connections it maintains will be adequately programmed to address the
Year 2000 issue. The Company has tested these systems to confirm that they
will be Year 2000 compliant. Based on information currently available,
management does not believe the Company will incur significant costs in
connection with the Year 2000 issue. Nevertheless, there is a risk that
some of the hardware or software that the Company uses will not be
Year 2000 compliant, and the Company cannot predict with any certainty the
costs the Company will incur to respond to any Year 2000 issues. Factors
which may affect the amount of these costs include the Company's inability
to control third party modification plans, the Company's ability to
identify and correct all relevant computer codes, the availability and cost
of engaging personnel trained in solving Year 2000 issues, and other
similar uncertainties.
The Company believes that the largest Year 2000 Problem exposure to most
financial institutions is the preparedness of their customers. The Company
is addressing with its customers the possible consequences of not being
prepared for Year 2000. Should large borrowers not sufficienty address
this issue, the Company may experience an increase in loan defaults. The
amount of potential loss from this issue is not quantifiable. The Company
is attempting to reduce this exposure by educating its customers. The
Company has implemented a comprehensive Year 2000 credit review policy for
all existing loans that exceed $100,000 as well as an underwriting policy
for all new loan requests. At present, the Company's review indicates that
the Company's exposure to credit risks associated with Year 2000 is
considered to be low. The Company's credit review procedures will continue
to include these policies throughout 1999.
Most Likely Consequences of Year 2000 Problems
The Company expects to identify and resolve all Year 2000 Problems that
could materially adversely affect its business. However, the Company
believes that it is not possible to determine with complete certainty that
all Year 2000 Problems affecting it have been identified or corrected. The
number of devices that could be affected and the interactions among these
devices are simply too numerous. In addition, the Company cannot
accurately predict how many failures related to the Year 2000 Problem will
occur with its suppliers, customers, or other third parties or the
severity, duration or financial consequences of such failures.
As a result, the Company expects that it could possibly suffer the
following consequences:
. A number of operational inconveniences and inefficiencies for the
Company, its service providers, or its customers that may divert
the Company's time and attention and financial and human resources
from its ordinary business activities; and
. System malfunctions that may require significant efforts by the
Company or its service providers or customers to prevent or
alleviate material business disruptions.
Additionally, there may be a higher than usual demand for liquidity
immediately prior to the century change due to deposit withdrawals by
customers concerned about Year 2000 issues. To address this possible
demand, the Company has secured additional credit lines with the Federal
Home Loan Bank, Federal Reserve Discount Window, and numerous correspondent
banks.
Contingency Plans
The Company has developed contingency plans to be implemented as part of
its efforts to identify and correct Year 2000 Problems affecting its
internal systems. Depending on the systems affected, these plans include
(a) accelerated replacement of affected equipment or software; (b) short
term use of backup equipment and software; (c) increased work hours for the
Company's personnel or use of contract personnel to correct, on an
accelerated schedule, any Year 2000 Problems which arise; and (d) other
similar approaches. If the Company is required to implement any of these
contingency plans, these plans could have a material adverse effect on its
business.
Proposed Legislation
On November 4, 1999, the U.S. Senate and House of Representatives each
passed the Gramm-Leach-Bliley Act, previously known as the Financial
Services Modernization Act of 1999. The Act is expected to be signed
into law by President Clinton in early November 1999. Among other things,
the Act repeals the restrictions on banks affiliating with securities firms
contained in sections 20 and 32 of the Glass-Steagall Act. The Act also
creates a new "financial holding company" under the Bank Holding Company
Act, which will permit holding companies to engage in a statutorily
provided list of financial activities, including insurance and securities
underwriting and agency activities, merchant banking, and insurance
company portfolio investment activities. The Act also authorizes
activities that are "complementary" to financial activities. The Act is
intended to grant to community banks certain powers as a matter of right
that larger institutions have accumulated on an ad hoc basis. Nevertheless,
the Act may have the result of increasing the amount of competition that
the Company faces from larger institutions and other types of companies.
In fact, it is not possible to predict the full effect that the Act will
have on the Company.
PART II -- OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
None
ITEM 2. CHANGES IN SECURITIES
None
ITEM 3. DEFAULT UPON SENIOR SECURITIES
None
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
ITEM 5. OTHER INFORMATION
None
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
a) 27 Financial Data Schedule (for SEC use only)
b) The Company did not file any reports on Form 8-K during the
quarter ended September 30, 1999.
c) Employment Agreement with Charles T. Ruffin, Chief Financial
Officer, Dated July 1, 1999
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registration has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
THE FIRST BANCSHARES, INC.
--------------------------
(Registrant)
November 10, 1999 /s/ DAVID E. JOHNSON
______________________________ David E. Johnson, President and
(Date) Chief Executive Officer
November 10, 1999 /s/ CHARLES T. RUFFIN
______________________________ Charles T. Ruffin, Principal
(Date) Accounting and Financial Officer
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EXHIBIT 99
EMPLOYMENT AGREEMENT WITH
CHARLES T. RUFFIN, CHIEF FINANCIAL OFFICER
Employment Agreement (this "Agreement") dated as of July 1, 1999, by and
between The First Bancshares, Inc., a Mississippi corporation (the
"Employer"), which is the bank holding company for The First National Bank
of South Mississippi, a national bank (the "Bank"), and Charles T. Ruffin
(the "Executive").
WITNESSETH:
WHEREAS, the Employer presently employs the Executive as its Chief
Financial Officer ("CFO") and intends to employ the Executive as President
and COO of the Bank, and intends to assure the Executive that his
employment will be of a reasonably secure nature; and
WHEREAS, the Employer desires to provide for the continued employment of
the Executive and to make certain changes in the Executive's employment
arrangements; and
WHEREAS, the Executive desires to continue his employment by the Employer
pursuant to this Agreement; and
NOW, THEREFORE, in consideration of the mutual covenants and agreements
hereinafter set forth, and other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the Employer and
the Executive hereby agree as follows:
Section 1. Definitions. For the purpose of this Agreement, the terms used
as headings in this Section 1, and parenthetically defined elsewhere in
this Agreement, shall have the indicated meanings.
1.1. Adequate Justification. The occurrence of any of the following events
or conditions: (i) a material failure of the Employer to comply with the
terms of this Agreement, (ii) any relocation of the Executive outside the
Territory, as amended from time to time, that is not approved by members of
the Board of Directors who were part of the Organizing Group, (iii) after a
Change in Control, or (iv) other than as provided for herein, any
substantial diminution in the Executive's authority or the Executive's
responsibilities that is not approved by members of the Board of Directors
who were part of the Organizing Group.
1.2. Affiliate. Any business entity controlled by, controlling or under
common control with the Employer.
1.3. Board of Directors. The Board of Directors of the Employer.
1.4. Business. The operation of a depository financial institution,
including, without limitation, the solicitation and acceptance of deposits
of money and commercial paper, the solicitation and funding of loans, and
the provision of other banking services, and any other related business
engaged in by the Employer or any of its Affiliates as of the date of
termination.
1.5. Cause. As defined in Section 7.3(a)(iii).
1.6. Change in Control. The occurrence during the Term of any of the
following events
(a) The individuals who, as of the date of this Agreement, are members of
the Board of Directors (the "Incumbent Board") cease for any reason to
constitute at least a majority of the Board of Directors; provided,
however, that if the election, or nomination for election by the Employer's
shareholders, of any new director was approved in advance by a vote of at
least a majority of the Incumbent Board, such new director shall, for
purposes of this Agreement, be considered as a member of the Incumbent
Board; provided, further, that no individual shall be considered a member
of the Incumbent Board if such individual initially assumed office as a
result of either an actual or threatened "Election Contest" (as described
in Rule 14a-11 promulgated under the Securities Exchange Act of 1934 (the
"Exchange Act") or other actual or threatened solicitation of proxies or
consents by or on behalf of any person other than the Board of Directors (a
"Proxy Contest"), including by reason of any agreement intended to avoid or
settle any Election Contest or Proxy Contest.
(b) An acquisition (other than directly from the Employer) of any voting
securities of the Employer (the "Voting Securities") by any "Person" (as
the term "person" is used for purposes of Section 13(d) or 14(d) of the
Exchange Act) immediately after which such Person has "Beneficial
Ownership" (within the meaning of Rule 13d-3 promulgated under or the
Exchange Act) of 25 % more of the combined voting power of the Employer's
then outstanding Voting Securities; provided, however, that in determining
whether a Change in Control has occurred, Voting Securities which are
acquired in a Non-Control Acquisition shall not constitute an acquisition
which would cause a Change in Control.
(c) Approval by the shareholders of the Employer of: (i) a merger,
consolidation, or reorganization involving the Employer, unless such
merger, consolidation, or reorganization is a Non-Control Transaction; (ii)
a complete liquidation or dissolution of the Employer; or (iii) an
agreement for the sale or other disposition of all or substantially all of
the assets of the Employer to any Person (other than a transfer to a
Subsidiary).
(d) A notice of an application is filed with the Federal Reserve Board (the
"FRB") pursuant to Regulation "Y" of the FRB under the Change in Bank
Control Act or the Bank Holding Employer Act for permission to acquire
control of the Employer or any of its banking subsidiaries.
1.7. COBRA. Consolidated Omnibus Budget Reconciliation Act of 1985, as
amended.
1.8. Common Stock. The common stock of the Employer, par value $1.00 per
share.
1.9. Competing Business. Any business that, in whole or in part, is the
same or substantially the same as the Business.
1.10. Confidential Business Information. Any non-public information of a
competitively sensitive or personal nature, other than Trade Secrets,
acquired by the Executive, directly or indirectly, in connection with the
Executive's employment (including his employment with the Employer prior to
the date of this Agreement), including (without limitation) oral and
written information concerning the Employer or its Affiliates relating to
financial position and results of operations (revenues, margins, assets,
net income, etc.), annual and long-range business plans, marketing plans
and methods, account invoices, oral or written customer information, and
personnel information. Confidential Business Information also includes
information recorded in manuals, memoranda, projections, minutes, plans,
computer programs, and records, whether or not legended or otherwise
identified by the Bank and its Affiliates as Confidential Business
Information, as well as information which is the subject of meetings and
discussions and not so recorded; provided, however, Confidential Business
information shall not include information that was known by the Executive
prior to his employment with this Employer and which he instituted as part
of the operating procedures of the Employer. Confidential Business
Information shall not include information that was available to the Public
or the Executive on a non-confidential basis prior to its disclosure to the
Executive.
1.11. Escrow Period. N/A
1.12. IPO. The initial public offering of the Common Stock.
1.13. Non-Control Acquisition. An acquisition by (a) an employee benefit
plan (or a trust forming a part thereof) maintained by (i) the Employer or
(ii) any corporation or other Person of which a majority of its voting
power or its equity securities or equity interest is owned directly or
indirectly by the Employer (a "Subsidiary"), (b) the Employer or any
Subsidiary, or (c) any person in connection with a Non-Control Transaction.
1.14. Non-Control Transaction. A transaction described in clauses (a) and
(b) below:
(a) the shareholders of the Employer, immediately before such merger,
consolidation, or reorganization, own, directly or indirectly, immediately
following such merger, consolidation, or reorganization, at least
two-thirds of the combined voting power of the outstanding voting
securities of the corporation resulting from such merger, consolidation, or
reorganization (the "Surviving Corporation") in substantially the same
proportion as their ownership of the Voting Securities immediately before
such merger, consolidation, or reorganization, and
(b) the individuals who were members of the Incumbent Board immediately
prior to the execution of the agreement providing for such merger,
consolidation, or reorganization constitute at least two-thirds of the
members of the board of directors of the Surviving Corporation.
1.15. Opening Date. The date of the Opening Of The First National Bank of
South Mississippi, August 5, 1996.
1.16. Organizing Group. David Waldron Bomboy, E. Ricky Gibson, John Hudson,
Fred A. McMurry, Dawn T. Parker, Perry Edward Parker, Ted E. Parker, Dennis
L. Pierce, A. L. Smith, Andrew D. Stetelman, and any other person the Board
of Directors may add from time prior to the opening of the Bank.
1.17. Term. As defined in Section 7.1.
1.18 Territory. A radius of 25 miles from (i) the main office of the Bank,
(ii) any branch of the bank or (iii) any office of the Employer.
1.19. Trade Secret. Any information, including, but not limited to,
technical or non-technical data, a formula, a pattern, a compilation, a
program, a plan, a device, a method, a technique, a drawing, a process,
financial data, financial plans, product plans, or a list of actual or
potential customers or suppliers, which: (a) derives economic value, actual
or potential, from not being generally known to, and not being readily
ascertainable by proper means by, other persons who can obtain economic
value from its disclosure or use, and (b) is the subject of efforts that
are reasonable under the circumstances to maintain its secrecy.
Section 2. Employment.
(a) The Employer hereby employs the Executive to serve in the positions
described in Section 3 below during the Term and to perform those acts and
duties for, and to furnish services to, the Bank, the Employer, and their
Affiliates as may be designated from time to time by the Board of
Directors. The Executive hereby accepts such employment. The Executive will
have such executive or managerial duties as the Board of Directors shall
direct from time to time. In the performance of his duties hereunder, the
Executive shall comply with all laws, rules, and regulations which may be
applicable to the Employer and the Bank from time to time.
(b) The Executive shall use his best efforts to promote the interests of
the Employer, the Bank, and their Affiliates and shall devote his full
business time and attention to his employment under this Agreement. The
Executive may devote a reasonable amount of time to serve as a director or
advisor to charitable and community activities and to managing his personal
investments; provided, however, that such activities and investments do not
materially interfere with the performance of his duties hereunder and are
not in conflict or competitive with, or adverse to, the interests of the
Employer, the Bank and their Affiliates, in the sole judgement of the Board
of Directors.
Section 3. Titles.
The Executive shall hold the title of President and Chief Operating
Officer(COO) of the Bank and the title of Executive Vice President and
Chief Financial Officer of the Employer.
Section 4. Compensation and Benefits: Disability.
4.1. Compensation. The Employer shall pay the Executive an annual base
salary at a rate of $85,000.00 per annum in accordance with the salary
practices of the Employer. The Board of Directors shall determine, in its
sole discretion, with the Executive abstaining from participating in the
consideration of and vote on the matter whether a merit salary increase is
warranted based upon the annual performance of the Bank.
4.2. Bonus. The Executive shall receive a bonus equal to the 2.5% of the
net profits after taxes of the Bank (determined in accordance with
generally accepted accounting principles) not to exceed 30% of annual base
salary. In the event that the Term is extended pursuant to Section 7.2,
the Executive shall receive an annual performance bonus of not less than
2.5% of the net profit after taxes of the Bank ( determined in accordance
with generally accepted accounting principles) not to exceed 30% of annual
base salary for each year of operations of the Bank thereafter; provided,
that the Bank has met the performance goals set forth in section 5.3(b)
hereof for such year.
4.3 OTHER BENEFITS.
(a) During the Term, the Employer shall provide the Executive with life
insurance in an amount of $250,000.00 payable to the beneficiary named by
the Executive, dental and health insurance, disability insurance providing
60% of the Executive's base salary, and such other benefits or plans as are
generally afforded other personnel of the Employer.
(b) The Employer shall pay the Executive's initiation fee ($300.00) for a
tennis membership at The Hattiesburg Country Club and monthly dues to the
Hattiesburg County Club ($110.00 at the time of this agreement).
(c) The Employer shall pay the Executive's dues to a civic club of the
Executive's choice.
(e) The Employer will provide the Executive with an automobile (with a cost
not to exceed $15,000.00) owned or leased by the Employer, of a make and
model appropriate to the Executive's status.
4.4 VACATION. The Executive may take paid vacation per year during the
term of this agreement in an amount equal to either three weeks or the
amount of vacation provided for employees with equivalent years of service
in the policies of the Employer, which ever is greater.
4.5 Severance Package. Twelve months salary for termination without cause
or non-renewal of contract.
4.6 Committees: The Executive shall serve on all committees of the board
of directors of the Bank except for the audit committee. If the loan
committee approves a loan over the objection of the Executive, the loan
committee shall take the loan to the full board of directors of the Bank
for approval. The compensation committee and the board of directors of the
Bank shall appoint the CEO, President and two senior vice-presidents of the
Bank. The board of directors of the Bank shall authorize the CEO and
President to appoint all other executive officers and to hire all other
employees of the Bank.
Section 5. Stock Options.
5.1 GRANT OF OPTIONS. The Employer hereby grants to the Executive an
option to purchase the number of shares of Common Stock up to 1.50% of the
number of shares sold in the Secondary Stock offering closed December 31,
1998 at a price equal to the public offering price in the Secondary
Offering, with no guarantees of additional options. The award agreement for
the Stock Options will provide that one-third of the Executive's options to
purchase Common Stock shall vest on each of the first three anniversaries
of the date of this Employment Agreement, but only if the Executive remains
employed by the Employer on such date and the Bank has met performance
goals set forth in Section 5.3 hereof for such year. In addition, the
award agreement will provide that (i) the options shall be subject to
immediate vesting in the event of a Change of Control pursuant to Section
5.2 hereof; (ii) all options shall be exercisable at any time during the
TEN years following their granting at a price equal to the public offering
price in the Secondary Offering (subject to antidilution adjustments in the
event of stock splits, dividends or combinations); (iii) all unexercised
options will expire 180 days after termination of employment for any
reason; and (iv) all options shall be transferable and assignable by the
Executive or by any other person entitled hereunder to exercise any such
rights on the same basis as any other option granted to other directors of
the Employer, if any.
The parties understand that the Employer may adopt an incentive stock
option plan (with customary provisions and benefits) at a meeting of the
shareholders after the effective date of this Agreement. Upon the
shareholders adoption of an incentive stock option plan, all of the
Executive's options shall be converted into incentive stock options under
the same terms as if the options had originally been incentive stock
options when granted. Provided, however, that such incentive stock option
plan shall not apply to any Stock Options granted by Sections
5.1(a)(b)or(c) which have vested in the Executive at the time any incentive
stock option plan is adopted.
5.2. Acceleration in the Event of a Change in Control. In the event of a
Change in Control, the restrictions on any outstanding incentive awards
(including restricted stock) granted to the Executive under any incentive
plan or arrangement shall lapse and such incentive award shall become 100%
vested; all stock options and stock appreciation rights granted to the
Executive shall become immediately exercisable and shall become 100%
vested; and all performance units granted to the Executive shall become
100% vested.
5.3. Performance Levels. For each twelve month period beginning on the
contract date and following each year thereafter for the term of the
contract, and as a condition to the vesting of the options in such year
(except in the event of a Change in Control), the Bank must meet the
following performance criteria:
(a) earnings for the Bank shall meet or exceed, (for Contract Year #1) 70 %
of the projections for the Fourth (4th) year of OCC Application Pro-forma,
(For Contract Year #2) 70% of the projections for the Fifth (5th) year of
OCC Application Pro-forma and (For Contract Year #3) 70% of the projections
for the Fifth (5th) year of OCC Application pro-forma; subject to
renegotiation for succeeding years thereafter; and
(b) satisfactory performance as evidenced by satisfactory CAMEL, Y2K, and
EDP Ratings by the Office of the Comptroller of the Currency (OCC), with no
earnings or loan quality requirements included as bonus qualification
criteria.
The Board of Directors shall notify the Executive of any options vested
hereunder within 90 days after the end of each twelve month period.
Section 6. Expenses.
Pursuant to the Employer's customary policies in force at the time of
payment, the Executive shall be promptly reimbursed, against presentation
of vouchers or receipts therefor, for all expenses properly and reasonably
incurred by him on behalf of the Employer or its Affiliates in the
performance of his duties hereunder. In addition the Employer shall provide
the Executive reimbursement for automobile mileage incurred by use of
personal vehicles on the Employer's business and appropriately documented
at the rate authorized by the Internal Revenue Service (currently, $0.30
per mile).
Section 7. Termination.
7.1. Term. The Executive's employment hereunder shall be for a term
commencing on the date hereof and ending on the third anniversary of the
Date of the Contract (the "Term"), unless further extended or sooner
terminated as provided below.
7.2. Extension of Term. On the last day of this Agreement, the term of the
Executive's employment shall be automatically extended for one additional
three-year term without further action by the parties unless, prior to the
last day of this Agreement, either party shall serve 30 days written notice
upon the other of its intention that this Agreement shall not be so
extended; provided, that if the Employer does not renew this Agreement for
an additional three-year term pursuant to this Section 7.2, the Employer
shall pay the Executive severance compensation in an amount equal to 100%
of his then current monthly base salary each month for a period ending
twelve months from the last day of this Agreement.
7.3. Termination.
(a) Notwithstanding the provisions of Section 7.1 or Section 7.2, the
Executive's employment hereunder shall terminate upon the occurrence of any
of the following events:(i)The death of the Executive, in which event such
employment shall terminate automatically.(ii) The disability of the
Executive, which renders him unable to perform the essential functions of
his job, and for which reasonable accommodation is unavailable. For
purposes of this Agreement, a "disability" is defined as a physical or
mental impairment that substantially limits one or more major life
activities; and a "reasonable accommodation" is one that does not impose an
undue hardship on the Employer. The Executive acknowledges that the
position of COO and President is one that requires the full time and energy
of the Executive and that any accommodation on part-time employment would
pose an undue hardship on the employer. (iii) Upon the determination of
Cause for termination, in which event such employment may be terminated by
written notice at the election of the employer. For purposes of this
Agreement, "Cause" shall consist of any of (A) the commission by the
Executive of a willful act (including, without limitation, a dishonest or
fraudulent act) or a grossly negligent act, or the willful or grossly
negligent omission to act by the Executive, which is intended to cause,
causes or is reasonably likely to cause material harm to the Employer
(including harm to its business reputation), (B) the indictment of the
Executive for the commission or perpetration by the Executive of any felony
or any crime involving dishonesty, moral turpitude or fraud, (C)the
material breach by the Executive of this Agreement that, if susceptible of
cure, remains uncured 30 days following written notice to the Executive of
such breach, (D) the receipt of any form of notice, written or otherwise,
that any regulatory agency having jurisdiction over the Employer or the
Bank intends to institute any form of formal or informal regulatory action
against the Executive or the Employer or the Bank provided, that the
respective board of directors determines in good faith, with the Executive
abstaining from participating in the consideration of and vote on the
matter, that the subject matter of such action involves acts or omissions
by or under the supervision of the Executive or that termination of the
Executive would materially advance the Employer's or the Bank's compliance
with the purpose of the action or would materially assist the Employer or
the Bank in avoiding or reducing the restrictions or adverse effects to the
Employer or the Bank related to the regulatory action); (E) the Executive
exhibits a standard of behavior within the scope of his employment that is
materially disruptive to the orderly conduct of the Employer's business
operations (including, without limitation, substance abuse or sexual
misconduct) to a level which, in the Board of Directors' good faith and
reasonable judgment, with the Executive abstaining from participating in
the consideration of and vote on the matter, is materially detrimental to
the Employer's best interest, that, if susceptible of cure remains uncured
30 days following written notice to the Executive of such specific
inappropriate behavior; or (F) as provided in Section 2(b), the failure of
the Executive to devote his full business time and attention to his
employment under this Agreement that, if susceptible of cure, remains
unresolved 30 days following written notice to the Executive of such
failure.
(b) If the Executive's employment is terminated by the Employer pursuant to
Section 7.3(a)(i), the Executive's estate shall receive any sums due him as
base salary and/or reimbursement of expenses through the end of the month
during which death occurred, plus a pro rata share of any bonus under
Section 4.2 and options vested under Section 5 if otherwise payable with
respect to the fiscal year during which the Executive died which was earned
as of the date of the Executive's death as a result of the Bank achieving
the goals determined by the Board of Directors.
(c) In the event of the physical or mental incapacity (other than
incapacity caused by involuntary disability) of the Executive which, if
continued for a sufficient period, would provide the Employer with grounds
for termination of the Executive's employment under Section 7.3(a)(ii), the
Employer shall continue to pay the Executive his full base salary at the
rate then in effect under Section 4.1 and all prerequisites and other
benefits (other than any bonus under Section 4.2 and options vested under
section 5) until the Executive becomes eligible for benefits under any
long-term disability plan or insurance program maintained by the Employer.
Furthermore, the Executive shall receive his pro rata Share of any bonus
under Section 4.2 or options vested under Section 5 which was earned on the
date the Executive became disabled as a result of the Bank achieving the
goals determined by the Board of Directors. Nothing in this Section 7.3(c)
shall preclude the Employer from terminating the Executive's employment
under Section 7.3(a)(iii).
(d) If the Executive's employment is terminated for Cause pursuant to
Section 7.3(a)(iii), or if the Executive resigns without Adequate
Justification, the Executive shall receive any sums due him as base salary
and/or reimbursement of expenses through the date of such termination.
Adequate Justification shall only be deemed to have occurred if not cured
by the Employer within 30 days following receipt of written notice from the
Executive which specifies with particularity the events which constitute
such Adequate Justification.
(e) If the Employer terminates the Executive other than pursuant to clauses
(i), (ii), or (iii) of Section 7.3(a), the Employer shall pay to the
Executive severance compensation in an amount equal to 100% of his then
current monthly base salary each month for a period ending on the date
which is TWELVE months from the date of termination. If the Employer
terminates the Executive other than pursuant to clauses (i), (ii), or (iii)
of Section 7.3(a) the Employer shall also pay the Executive his pro rata
share of any bonus pursuant to Section 4.2 or options vested under Section
5 which was earned as of the date of his termination. After a Change in
Control, the Executive shall have the option of (i) automatically extending
the term of this Agreement for a term commencing on the date of the Change
in Control and ending on the third anniversary thereof and (ii) receiving,
within 15 days of the date of the Change in Control, any sums due him under
Section 4.1 and reimbursement of expenses through the date of the Change in
Control plus compensation payable in either one lump sum payment in an
amount equal to one (1) times the Executive's then current annual base
salary; or one-and-one-half (1.5) times the Executive's then current annual
base salary over a period of eighteen months. If after a Change in Control,
the Executive exercises his option to automatically extend the term of this
employment agreement or agrees to continue in the employment of the new
organization, said employment shall be continued subject to a prohibition
to the relocation of the executive outside a radius of 25 miles from the
Executive's primary residence without the written consent of the Executive.
Failure to comply with this relocation prohibition shall constitute a
material failure of the Employer to comply with the terms of this Agreement
and invoke severance package compensation as defined in Paragraph 4.5 and
render Paragraphs 8.1, 8.2, 8.3, 8.4, 8.5, 8.6, 8.7, and 8.8 to be null and
void and non-binding from that point forward.
(f) With the exceptions of (i) the provisions of Section 7.3(b), (ii) the
provisions of Section 7.3(c), (iii) the provisions of Section 7,3(d), (iv)
the provisions of Section 7.3(e), and (v) the provisions of Section 7.3(f),
and the express terms of any benefit plan under which the Executive is a
participant, it is agreed that, upon termination of the Executive's
employment, the Employer shall have no obligation to the Executive for, and
the Executive waives and relinquishes, any further compensation or benefits
(exclusive of COBRA benefits). At the time of termination of employment,
the Employer and the Executive shall enter into a mutually satisfactory
form of release acknowledging such remaining obligations and discharging
both parties, as well as the Employer's officers directors and employees
with respect to their actions for or on behalf of the Employer, from any
other claims or obligations arising out of or in connection with the
Executive's employment by the Employer, including the circumstance's of
such termination.
(g) In the event that the Executive's employment is terminated for cause
under Section 7.3(a)(iii) or the Executive is no longer a shareholder of
the Employer for any reason, the Executive shall (and does hereby) tender
his resignation as a director of the Employer and its Affiliates effective
as of the date of termination.
(h) In the event that the Employer terminates the Executive, other than
pursuant to Section 7.3(a)(iii), the Employer shall, within 10 days after
termination, offer to repurchase all of the Executive's Common Stock, at a
purchase price equal to the fair market value of the Common Stock, as
determined by the Board of Directors in good faith. In the event that the
Employer terminates the Executive pursuant to Section 7.3(a)(iii), the
Executive shall be required to sell all of his Common Stock, and he shall
be deemed to have offered such Common Stock, to the Employer at a purchase
price equal to the fair market value of the Common Stock, as determined by
the Board of Directors in good faith. In the event of any disagreement
between the Executive and the Employer regarding the fair market value of
the Common StockI the question of the fair market value of the Common Stock
shall be submitted to an impartial and reputable appraiser selected by the
mutual agreement of the Executive and the Employer or failing such
agreement, two appraisers (one of which shall be selected by the Employer
and the other by the Executive). The determination of the question of the
true market value of the Common Stock by such appraiser or appraisers shall
be final and binding on the Executive and the Employer for purposes of this
Agreement. The Employer shall pay the reasonable fees and expenses of such
appraiser or appraisers.
Section 8. Confidential Information and Related Matters.
8.1. Confidential Information.
(a) The Executive agrees to maintain in strict confidence, and not use or
disclose except pursuant to written instructions from the Employer, any
Trade Secret of the Employer and its Affiliates, for so long as the
pertinent data or information remains a Trade Secret, provided that the
obligation to protect the confidentiality of any such information or data
shall not be excused if such information or data ceases to qualify as a
Trade Secret as a result of the acts or omissions of the Executive.
(b) The Executive agrees to maintain in strict confidence and, except as
necessary to perform his duties for the Employer, not to use or disclose
any Confidential Business Information for so long as the pertinent data or
information remains Confidential Business Information.
(c ) Upon termination of employment, the Executive shall leave with the
Employer all business records, contracts, calendars, telephone lists,
rolodexes, and other materials or business records relating to the Employer
and its Affiliates, its business or customers, including all physical,
electronic, and computer copies thereof, whether or not the Executive
prepared such materials or records himself. Upon such termination, the
Executive shall retain no copies of any such materials, provided, however,
the Executive may remove and retain all personal items and materials.
(d) The Executive may disclose Trade Secrets or Confidential Business
Information pursuant to any order or legal process requiring him (in his
legal counsel's reasonable opinion) to do so; provided, however, that for a
period of two years following the date of termination of this Agreement,
the Executive shall first have notified the Employer of the request or
order to so disclose the Trade Secrets or Confidential Business Information
in sufficient time to allow the Employer to seek an appropriate protective
order.
8.2. Agreement Not to Compete. If (i) the Executive is terminated for Cause
pursuant to clauses (A), (B), (C), (D), (E) or (F) of Section 7.3(a)(iii),
then for the remaining Term, or (ii) if the Executive resigns for any
reason other than following a Change in Control or (iii) other than for a
material failure of the Employer to comply with the terms of this
Agreement, then for a period of one year following the date of resignation,
the Executive shall not (without the prior written consent of the Employer)
compete with the Employer or any of its Affiliates by, directly or
indirectly, forming, serving as an organizer, director or officer of, or
consultant to, or acquiring or maintaining more than a 1% passive
investment in, a depository financial institution or holding company
therefor if such depository institution or holding company has one or more
offices or branches located in the Territory. Notwithstanding the
foregoing, if the Executive's contract is not renewed, if the Executive is
terminated other than for Cause, as specified in Section 7.3 (a) (iii) (A),
(B), (C), (D), (E), or (F), or a Change of Control occurs, this Agreement
Not to Compete is declared to be Null and Void. Notwithstanding the
foregoing, the Executive may serve as an officer of or consultant to a
depository institution or holding company therefor even though such
institution operates one or more offices or branches in the Territory, if
the Executive's employment does not directly involve, in whole or in part,
the depository financial institution's or holding company's operations in
the Territory.
8.3 Agreement Not to Solicit Customers. If (i) the Executive is terminated
for Cause pursuant to clauses (A), (B), (C), (D), (E) or (F) of Section
7.3(a)(iii), then for the remaining Term, or (ii) if the Executive resigns
for any reason other than following a Change in Control or (iii) other than
for a material failure of the Employer to comply with the terms of this
Agreement, then for a period of one year following the date of resignation,
the Executive shall not (except on behalf of or with the prior written
consent of the employer), either directly or indirectly, on the Executive's
own behalf or in the service or on behalf of others, (i) solicit, divert,
or appropriate to or for a Competing Business, or (ii) attempt to solicit,
divert, or appropriate to or for a Competing Business, any person or entity
that was a customer of the Employer or any of its Affiliates on the date of
termination and is located in the Territory.
8.4. Agreement Not to Solicit Employees. If (i) the Executive is terminated
for Cause pursuant to clauses (A), (B), (C), (D),(E), or (F) of Section
7.3(a)(iii), then for the remaining Term, or (ii) if the Executive resigns
for any reason other than following a Change in Control or (iii) other than
for material failure of the Employer to comply with the terms of this
Agreement, then for a period of one year following the date of resignation,
the Executive will not, either directly or indirectly, on the Executive's
own behalf or in the service or on behalf of others, (i) solicit, divert,
or hire away, or (ii) attempt to solicit, divert, or hire away, to any
business located in the Territory, any employee of or consultant to the
Employer or any of its Affiliates engaged or experienced in the Business,
regardless of whether the employee or consultant is full-time or temporary,
the employment or engagement is pursuant to written agreement, or the
employment is for a determined period or is at will.
8.5. Extension of Term of Restrictions. If the Executive violates any of
the restrictions set forth in Sections 8.1 to 8.4 of this Agreement, the
duration of such restriction shall be extended by a number of days equal to
the number of days in which the Executive shall have been determined to be
or shall have admitted to being in violation of such restriction.
8.6. Remedies. The Executive acknowledges and agrees that great loss and
irreparable damage would be suffered by the Employer if the Executive
should breach or violate any of the terms or provisions of the covenants
and agreements set forth in Sections 8.1 to 8.4 of this Agreement. The
Executive further acknowledges and agrees that each of these covenants and
agreements is reasonably necessary to protect and preserve the interests of
the Employer and its Affiliates. The parties agree that money damages for
any breach of Sections 8.1 to 8.4 of this Agreement by the Executive are
impossible to measure, that the Employer is entitled to preliminary and
permanent injunctive relief in the event that the Executive violates any of
the terms or provisions of the covenants set forth in Sections 8.1 to 8.4,
and that the Executive or any of the Executive's affiliates, as the case
may be, will, to the extent permitted by law, waive in any proceeding
initiated to enforce such provisions any claim or defense that an adequate
remedy at law exists.
8.7. Severability; Reformation. The Executive acknowledges and agrees that
(i) the covenants and agreements contained in Sections 8.1 to 8.4 of this
Agreement are the essence of this Agreement; (ii) that the Executive has
received good, adequate and valuable consideration for each of these
covenants; (iii) each of these covenants is reasonable and necessary to
protect and preserve the interests and properties of the Employer and the
Business; (iv) the Employer, through its Affiliates, is and will be engaged
in and throughout the Territory in the Business; (v) a Competing Business
could be engaged in from any place in the Territory; and (vi) the Employer
has a legitimate business interest in restricting the Executive's
activities throughout the Territory. The Executive also acknowledges and
agrees that (i) irreparable loss and damage will be suffered by the
Employer should the Executive breach any of these covenants and agreements;
(ii) each of these covenants and agreements in Sections 8.1 to 8.4 is
separate, distinct and severable not only from the other covenants and
agreements but also from the remaining provisions of this Agreement; and
(iii) the unenforceability of any covenants or agreements shall not affect
the validity or enforceability of any of the other covenants or agreements
or any other provision or provisions of this Agreement. The Executive
acknowledges and agrees that if any of the provisions of Sections 8.1 to
8.4 of this Agreement shall ever be deemed to exceed the time, activity, or
geographic limitations permitted by applicable law, then such provisions
shall be and hereby are reformed to the maximum time, activity, or
geographical limitations permitted by applicable law.
8.8. Modification of Section 8 and Definitions. The Executive and the
Employer hereby agree that they will negotiate in good faith to amend this
Agreement from time to time to modify the terms of this Section 8, the
definition of the term "Territory," and the definition of the term
"Business", to reflect changes in the Employer's business and affairs so
that the scope of the limitations placed on the Executive's activities by
this Section 8 accomplishes the parties' intent in relation to the then
current facts and circumstances. Any such amendment shall be effective only
when completed in writing and signed by the Executive and the Employer.
Section 9. Key-Man Life Insurance. $500,000.00 to Benefit the Employer
Section 10. Notices. All notices and other communications provided for or
permitted hereunder shall be in writing and shall be deemed to have been
duly given if delivered personally or sent by registered or certified mail
(return receipt requested) postage prepaid to the parties at the following
addresses (or at such other address for any party as shall be specified by
like notice, provided that notices of a change of address shall be
effective only upon receipt thereof):
(a) If to the Employer:
The First National Bank of South Mississippi
6480 U.S. Highway 98
Hattiesburg, Mississippi 39402
Attention: Chairman of the Board
With a copy (which shall not constitute notice) to:
Nelson Mullins Riley & Scarborough, L.L.P.
400 Colony Square, Suite 2200
Atlanta, Georgia 30361
If to the Executive, at the last address included on the Employer's payroll
records.
With a copy (which shall not constitute notice) to:
AULTMAN, TYNER, MCNEESE, & RUFFIN
Attn: Curtis Smith
315 Hemphill
Hattiesburg, MS 39401
Section 11. Miscellaneous.
11.1. Representations and Covenants. In order to induce the Employer to
enter into this Agreement, the Executive makes the following
representations and covenants to the Employer and acknowledges that the
Employer is relying upon such representations and covenants:
(a) No restrictive covenants and/or non-compete agreements exist to which
the Executive is a party or otherwise bound which will interfere with or in
any way impede his ability to perform all of the terms and conditions of
this Agreement.
(b) The Executive, during the term of this Agreement, shall use his best
efforts to disclose to the Board of Directors by any effective method any
bona fide information known by him concerning the Bank or an Affiliate that
would have any material negative impact (in excess of $50,000) on the
Employer or an Affiliate.
11.2. Entire Agreement. This Agreement contains the entire understanding of
the parties as to the subject matter hereof and fully supersedes all prior
oral and written agreements and understandings between the parties with
respect to such subject matter.
11.3. Amendment; Waiver. This Agreement may not be amended, supplemented,
canceled or discharged, except by written instrument executed by the party
against whom enforcement is sought. No failure to exercise, and no delay in
exercising, any right, power or privilege hereunder shall operate as a
waiver thereof. No waiver of any breach of this Agreement shall be deemed
to be a waiver of any preceding or succeeding breach of this Agreement.
11.4. Binding Effect; Assignment. The Executive's rights and obligations
under this Agreement may not be assigned by him, except that his right to
receive accrued but unpaid compensation, unreimbursed expenses and other
rights, if any, provided under this Agreement which survive termination of
this Agreement shall pass after death to the personal representatives of
his estate.
11.5. Headings. The headings contained in this Agreement (except those in
Section 1) are for reference purposes only and shall not affect the meaning
or interpretation of this Agreement.
11.6. Counterparts. This Agreement may be executed in one or more copies,
each of which shall be deemed an original.
11.7. Governing Law, This Agreement has been executed and delivered in the
State of Mississippi, and its validity, interpretation, performance, and
enforcement shall be governed by the internal laws but not the conflicts of
law rules of such State.
11.8. Further Assurances. Each party agrees at any time, and from time to
time, to execute, acknowledge, deliver and perform and cause to be
executed, acknowledged, delivered and performed, all such further acts,
deeds, assignments, transfers, conveyances, powers of attorney and
assurances as may be necessary or proper to carry out the provisions and
intent of this Agreement.
11.9. Gender; Number. In this Agreement, the use of one gender (e.g., "he",
"she" and "it") shall mean each other gender; and the singular shall mean
the plural, and vice versa, all as the context may require.
11.10. Severability. The parties acknowledge that the terms of this
Agreement are fair and reasonable at the date signed by them. However, in
light of the possibility of a change of conditions or differing
interpretations by a court of what is fair and reasonable, the parties
stipulate as follows: if any one or more of the terms, provisions,
covenants or restrictions of this Agreement shall be determined by a court
of competent jurisdiction 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; further, if any one or more of the
provisions contained in this Agreement shall for any reason be determined
by a court of competent jurisdiction to be excessively broad as to
duration, geographical scope, activity or subject, it shall be construed,
by limiting or reducing it, so as to be enforceable to the extent
compatible with then applicable law.
11.11. Consents. Any consent, approval or authorizations required hereunder
shall mean the written consent, approval or authorization of the chairman
of the board of the Employer or such other officer as may be designated in
writing by the Board of Directors.
11.12. Indemnification and Expenses. Both the Employer and the Bank will
indemnify the Executive and his legal representatives to the fullest extent
permitted by the laws of the State of Mississippi or any other state where
the Employer shall be incorporated from time to time and the existing or
any future bylaws of either of the Employer or the Bank, against all costs,
charges and expenses whatsoever incurred or sustained by him or his legal
representatives in connection with any action, suit or proceeding to which
he or his legal representatives may be made a party by reason of his being
or having been a director or officer of tile Employer or the Bank (other
than an action, suit or proceeding against the Executive under this
Agreement), and the Executive shall be entitled to the protection of any
insurance policies the Employer or the Bank elect to maintain generally for
the benefit of its directors and officers. To the extent permitted by law,
the Bank and the Employer shall advance all reasonable costs, charges and
expenses incurred by the Executive in defending himself against any action
referred to in this Section 11.12.
IN WITNESS WHEREOF, the Employer has caused this Agreement to be executed
and its seal to be affixed hereunto by its officers thereunto duly
authorized, and the Executive has signed and sealed this Agreement,
effective as of the date first above written.
THE FIRST BANCSHARES, INC.
By: Date:
______________________________ _______________
[CORPORATE SEAL]
Attest:____________________________
THE FIRST NATIONAL BANK OF SOUTH MISSISSIPPI
By: Date:
____________________________________ ___________________
[CORPORATE SEAL]
Attest:____________________________
THE EMPLOYEE:
BY: Date:
___________________________________ ___________________
ATTEST:
______________________________
