21
Based on
the Committee’s review of TSFG’s performance, market conditions, and existing
salary levels, no salary increases were made for NEOs for 2010 over December
2009 levels. For primarily the same reasons, no salary increases were made for
NEOs for 2009 over December 2008 levels, except for Mr. Harton, in connection
with his February 2009 promotion to CEO, and Mr. Diaz, in connection with his
promotion from market president to President of the Company’s Florida
operations.
Management
Performance Incentive Plan (MPIP)
The MPIP
is a performance-based annual incentive plan, payments under which are
predicated on a corporate performance scorecard, as well as
individual/department goals and objectives. For 2009, no awards were made to
NEOs (and therefore no specific NEO targets were established). However, for
lower level officers, the corporate scorecard was comprised of the following
performance metrics (approved by the Committee):
·
|
achieving
pre-tax, pre-provision operating budget
(35%);
|
·
|
maintaining
credit quality relative to southeast peers
(15%);
|
·
|
achieving
deposit growth and funding mix targets
(10%);
|
·
|
achieving
loan portfolio mix and growth targets
(10%);
|
·
|
increasing
pricing spreads on loans and deposits
(10%);
|
·
|
improving
efficiency and expense management (10%);
and
|
·
|
growing
non-interest income and deepening relationship through cross-selling
(10%).
|
These
corporate criteria represented 50% of the potential target award, while
individual/department performance represented 50%. Partly because there were no
long term incentive programs in place for 2009, actual payouts were paid 60% up
front, with 40% of the payout deferred until December 15, 2011.
Each MPIP
participant has been assigned target awards (expressed as a percentage of base
salary), which generally range from 35% to 70% for NEOs (historically) and 10%
to 45% for other officers.
Participants
(outside of the Executive Management Team, who did not participate), had a
portion of their MPIP award based on corporate results and a portion based upon
their individual results. The corporate level payout was 40% of target, and in
aggregate, the individual level payout was approximately 64% of target, for an
aggregate award of $2,158,000. Of this amount, 60% was paid to 165 participants
in the MPIP at the end of February 2010, and the balance was deferred, to be
paid December 2011, assuming the participant was still employed by the
Company.
Due to
TARP-related limitations with respect to bonuses payable to NEOs and the next
ten highly compensated officers, no MPIP awards were made to these persons (or
to any member of the executive management team) for 2009. Of the other eligible
participants (165 persons), the corporate performance percentage earned was 40%
and the average individual/team component earned was 64%, for an overall
percentage of bonus target earned of 52%. Furthermore, based on its
assessment of 2008 performance and the overall market environment, the Committee
did not make any MPIP payouts to NEO’s for 2008.
The
Committee is responsible for reviewing the financial results and strategic
achievements in determining the aggregate amount payable to all executives under
the MPIP and the individual awards to executives, if any. The Committee reviews
financial progress at each scheduled Committee meeting, and recommends a
specific level of accrual for MPIP bonuses to TSFG management based on their
assessment of the levels of performance and expected bonuses awards under the
provisions of the MPIP. At year end, the Committee approves the total annual
incentive pool, and considers the recommendations of the CEO for bonuses for
executives (other than the CEO). The Committee has sole responsibility for
reviewing CEO’s performance and determining the amount of his MPIP award, if
any.
Retention
Bonus Awards to Operating Council Members
On
September 18, 2008, prior to the announcement or adoption of the TARP program in
October 2008, and in connection with the retirement of Mack I. Whittle,
Jr.,, the Committee recommended and the Board of Directors ratified and approved
retention bonus awards for each of James R. Gordon, H. Lynn Harton and
Christopher T. Holmes, who then formed the Operating Council. The objective of
these agreements was to ensure business continuity of TSFG’s operations during
the immediate period following Mr. Whittle’s retirement. Under the terms of the
awards, each executive would be paid a retention bonus of $500,000 in a lump sum
on or about January 1, 2010 but not later than January 31, 2010, so long as he
is employed by TSFG on December 31, 2009.
22
The
bonuses were paid in January 2010.
Long-Term
Incentive Plan (LTIP)
Since
2001, TSFG has used a long-term incentive program that provides compensation to
participants based predominantly on meeting pre-determined, multi-year financial
performance targets. The Committee believes that this type of program is
consistent with TSFG’s compensation philosophy of awarding pay that is dependent
on longer-term operational success. Long-term awards have historically been
provided in the form of performance shares of TSFG stock or TSFG stock options.
The Committee believes that the use of stock-based compensation elements is
consistent with our commitment to using executive compensation to align the
interests of executives and TSFG shareholders.
The
long-term incentive program is operated in three-year cycles and until 2009 a
new cycle began each year. There were, however, no LTIP program awards in 2009
(for a cycle that would have run from 2009 – 2011). The LTIP for senior
executives were suspended during this cycle because of the uncertainty around
TARP, and Company performance. Current cycles are the 2007–2009 LTIP and the
2008–2010 LTIP. Awards under these programs vest based on a combination of
service and performance.
In
determining target awards under the LTIP, the Committee considers each
executive’s base salary, peer group data, and his/her expected contributions
over the LTIP period. Once awards are granted, awards are based on specific
performance and/or vesting requirements and there is no discretion to adjust
award levels. In setting compensation targets under the LTIP, the Committee
considers market practice, whether or not prior bonus targets have been met and
the actual level of prior bonus compensation. However, there is no particular
weight accorded this factor.
2007 -2009
Program
For the
2007–2009 program, two-thirds of the awards are performance shares that vest
based on TSFG’s performance over the three years subsequent to the grant;
one-third of the award vest ratably over three years based on continued
employment. The service based component focuses on our goal of shareholder
ownership and alignment as well as to encourage retention. The performance-based
component rewards future performance based on standards established by the
Committee at the beginning of the performance period. For the 2007-2009 grant
performance goals were: (1) TSFG’s compound annual growth in operating
earnings per share during the respective performance period versus peer banks
(as referenced above), and (2) Return on Equity for the respective
performance period compared to pre-established targets. For the relative
operating earnings per share measure, the plans pay out as follows (with awards
being evenly interpolated between the stated levels):
|
Relative Operating EPS
|
Return on Equity
|
2007-2009
Plan
|
35th
percentile of
peers: 50%
of target
50th
percentile of
peers: 100%
of target
75th
percentile of
peers: 200%
of target
|
10%
ROE: 50%
of target
12%
ROE: 100%
of target
14%
ROE: 200%
of target
|
2007 – 2009 LTIP
Results
For the
2007-2009 LTIP program, based on peer group analysis of performance share plans,
the maximum award attainable under the program were 200% of target, and the
scale for threshold, target, and maximum performance were as outlined in the
table below.
Grants
made under the 2007-2009 LTIP are outlined in the table below. At the time of
grant, the TSFG share price was $22.86. These grants represented approximately
40% to 121% of the executive’s base salary.
23
Executive
|
2007 LTIP Award Shares –Target
|
|
2007 LTIP Award Shares –Maximum
|
|
Time
|
|
Performance
|
|
Total
|
|
Time
|
|
Performance
|
|
Total
|
H.
Lynn Harton
|
4,500
|
|
9,000
|
|
13,500
|
|
4,500
|
|
18,000
|
|
22,500
|
James
R. Gordon
|
4,500
|
|
9,000
|
|
13,500
|
|
4,500
|
|
18,000
|
|
22,500
|
William
P. Crawford, Jr.
|
3,333
|
|
6,667
|
|
10,000
|
|
3,333
|
|
13,334
|
|
16,667
|
Christopher
T. Holmes
|
3,333
|
|
6,667
|
|
10,000
|
|
3,333
|
|
13,334
|
|
16,667
|
J.
Ernie Diaz
|
1,500
|
|
3,000
|
|
4,500
|
|
1,500
|
|
6,000
|
|
7,500
|
Based on
performance, the payout of the performance-based component referenced in the
table above, was zero.
2008 - 2010
LTIP
The
Committee changed the performance measure for the 2008 grants to reflect the
uncertain operating environment and focus on share price. In the Committee’s
estimation, growing TSFG’s share price through the next three-year cycle is the
most reliable method to align the interest of executive with those of
shareholders since operating results may not result in increases in share
price.
In 2008,
the Committee approved LTIP equity awards for Named Executive Officers that
consist primarily of market-based stock options (MBSOs) and time-vested
restricted stock units. A MBSO is a stock option that does not become
exercisable unless and until the share price meets a pre-determined level for a
sustained period of time.
The MBSOs
granted to Named Executive Officers carry an exercise price of $10.16 (which is
materially out-of-the-money), the closing price on the date of grant, and will
vest on June 30, 2011 if (1) the participant remains employed by TSFG at June
30, 2011, and (2) TSFG’s closing stock price for 20 consecutive business days
during the first six months of 2011 equals or exceeds $12 per share. If both
conditions are not met, then no vesting will occur and the options will
terminate.
The
number of MBSOs and time–based restricted stock units granted to each Named
Executive Officer are outlined in the table below
Executive
|
|
MBSOs
|
|
Time-Based
RSUs
|
H.
Lynn Harton
|
|
100,000
|
|
20,000
|
James
R. Gordon
|
|
100,000
|
|
20,000
|
Christopher
T. Holmes
|
|
100,000
|
|
20,000
|
William
P. Crawford, Jr.
|
|
50,000
|
|
10,000
|
J.
Ernie Diaz
(1)
|
|
15,000
|
|
3,000
|
(1) Mr.
Diaz was not an executive officer in September 2008, and accordingly, his
options were service-based, non-qualified stock options having an exercise price
equal to the fair market value on the date of grant ($10.16).
At the
time of grant, the TSFG share price was $10.16. These grants represented
approximately 12% to 74% of the executive’s base salary.
2009 - 2011
LTIP
There was
no LTIP equity award program for this time period.
Supplemental
Executive Retirement Plan (SERP)
TSFG
maintains non-qualified Supplemental Executive Retirement Plans (“SERPs”) for
certain executive officers. These plans provide salary continuation benefits
after the participant reaches Normal Retirement (age 65) or Early Retirement
(age 55 with seven years of service) and payments continue for up to 15 years
depending on the distribution election chosen.
24
In the
first quarter of 2010, all NEOs who are current employees of the Company, plus
three other officers, voluntarily agreed to terminate any future vesting of
benefits under their respective SERPs in order to save expenses. This is
expected to save approximately $2.7 million per year in expenses.
The SERPs also
provide limited benefits in the event of early termination or disability while
employed by TSFG and full benefits to the executive’s beneficiaries in the event
of the executive’s death. Participants are entitled to the vested portion of
their balance if terminated under certain circumstances. Early termination is
equal to the vested portion of the accrual balance. The accrued balance vests
10% per year of service from the effective date of the agreement, up to 100%. In
the event of termination due to disability prior to Early Retirement, the
participant will be entitled to receive 100% of the accrual balance on the books
as of the year-end prior to the termination date. However, if the participant
has qualified under the Early Retirement definition, they are entitled to the
Early Retirement benefit upon disability.
In the
event of a change of control as defined in the SERPs, the executive becomes 100%
vested in the total benefit. A “change of control” occurs generally
when:
·
|
Any
person or group acquires more than 50% of the combined voting power of
TSFG’s common stock (subject to limited
exceptions),
|
·
|
A
majority of the TSFG board is replaced during any 12-month period without
the new appointments being approved by a majority of the incumbent
directors, or
|
·
|
TSFG’s
stockholders approve a merger or consolidation in which the TSFG
shareholders prior to the transaction do not continue to hold at least a
majority of the voting power after
consummation.
|
In
certain instances, TSFG has purchased life insurance policies on executives in
order to fund the payments required by the SERPs. However, the SERPs are
unfunded plans, which mean there are no specific assets set aside by TSFG in
connection with the plans. The executive has no rights under the SERP beyond
those of a general creditor of the Company. TSFG has currently entered into SERP
contracts with approximately nine active executives, including each of the Named
Executive Officers who are currently employees.
All
benefits earned under the SERPs are calculated as a specified percentage of the
annual average of the highest three fiscal years of compensation (defined as
annual base salary and annual bonus) earned by the executive during the last ten
fiscal years of employment. The SERP provides benefits that would otherwise be
denied participants under a qualified retirement plan because of Internal
Revenue Code limitations on qualified plan benefits, as well as additional
benefits that attract and retain quality senior executives for the
organization.
To give
executives incentives to continue their service to TSFG, the specified
percentage for normal retirement benefits is generally higher than those payable
at Early Retirement. The specified percentage for Early Retirement benefits
generally begins at 30% upon reaching eligibility for Early Retirement, and
increases by 3% per year until Normal Retirement, at which point it becomes 60%.
None of the Named Executive Officers qualified for Early Retirement benefits at
December 31, 2009.
TSFG does
not have a formal policy of granting extra years of credited service, although
in a small minority of instances, an additional 5% vesting has been credited
beyond what was otherwise mandated by the actual length of service.
The
Committee believes that the SERP significantly aids in our retention of
executives by providing benefits that would otherwise be denied to our
executives under a qualified retirement plan because of Internal Revenue Code
limitations on qualified plan benefits, and by providing benefits that increase
with executives’ continued service.
Other
Benefits and Perquisites
TSFG
provides executives with certain benefits and perquisites that are typically
provided to promote safety and efficiency in conducting Company business. These
are listed in detail in the notes to the Summary Compensation
Table.
Employment
Agreements
TSFG
currently maintains employment agreements with all of its senior executive
officers, including the Named Executive Officers. In addition to the benefits
provided, the agreements enable TSFG to mandate non-compete and non-disclosure
provisions for these executives. These agreements include provisions for, among
other things:
25
·
|
minimum
compensation levels, benefits, and
perquisites,
|
·
|
severance
payments upon certain terminations, such as other than for
cause,
|
·
|
non-compete
and non-disclosure covenants, and
|
·
|
change
of control benefits.
|
The
Committee views these agreements as important elements that encourage the
long-term retention of key employees rather than a part of annual compensation.
As a result, the benefits provided under these agreements are not a material
factor in the salary, MPIP, and LTIP decisions. These agreements are outlined in
more detail in the “Potential Payments Upon Termination or Change in Control”
section of this Proxy Statement.
As noted
above, given the ARRA’s prohibition of parachute payments, the severance
provisions of these agreements with respect to the SEOs and the next ten most
highly compensated officers cannot be given effect. Accordingly, there is some
doubt as to the enforceability of these agreements.
Timing
of Equity Grants
To ensure
that TSFG’s equity compensation awards are granted appropriately and represent
true incentives for future performance, the Committee has adopted the practices
set forth immediately below regarding the timing of equity compensation grants
and the determination of stock option exercise prices.
Timing
of Equity Compensation Grants
Equity
compensation awards have historically been granted on an annual grant cycle,
occurring at the December Board of Directors’ meeting. However, there was no
broad-based grant in either 2008 or 2009. LTIP awards have historically been
made during April but no LTIP awards were made in 2009.
On
occasion, equity compensation grants are made outside of TSFG’s annual grant
cycle for new hires, promotions, recognition or retention purposes. In these
instances, the recipient is notified that his/her grant will be recommended to
the Committee at their next meeting and effective on the date of Board approval
(with the exercise price being based on the Board approval date). In certain
instances, the vesting schedule of the award will relate to the date of the
commitment to make the grant (i.e., date of hire/promotion) instead of the date
of grant.
Determination
of Stock Option Exercise Prices
The Board
has adopted a formal policy regarding its option pricing practices. The Board
determined that it grants options under five scenarios:
Scenario
1:
|
Annually
to existing officers as bonus compensation pursuant to compensation plans
approved by the Board.
|
Scenario
2:
|
In
connection with the hiring of officers pursuant to compensation plans
approved by the Board.
|
Scenario
3:
|
To
TSFG or affiliated subsidiary directors, either quarterly or annually, as
compensation for director service.
|
Scenario
4:
|
In
acquisitions, to employees or other persons affiliated with the target
institution.
|
Scenario
5:
|
Situations
other than as set forth in Scenario 1 through 4, which are predicated upon
achievement.
|
Its policies
for each of these scenarios are as follows:
Scenarios
1, 2 and 5:
|
The
exercise price of options granted is the closing price on the date that
the Board approves the grant of the options (and not, in the case of
Scenario 2, the date of hire, unless it is also the date of Board
approval).
|
Scenario
3:
|
The
exercise price of options granted is the closing price on the first
trading day of the period for which the compensation is being paid, except
in cases of the options issued under the Directors Stock Option Plan,
which have historically been granted on May 1 (or the first business day
thereafter if May 1 is not a business
day).
|
Scenario
4:
|
The
exercise price of options granted is the closing price on the closing date
of the acquisition, provided the Board has approved the acquisition and
the grant of such options in advance of such closing date; otherwise, the
exercise price of options granted under Scenario 4 shall be the closing
price on the date that the Board approves the grant of the
options.
|
26
TSFG
currently does not grant options to directors of subsidiaries.
Executive
Equity Ownership
TSFG does
not require specific multiples of salary or other dollar amounts to be reached,
but executives are encouraged to retain their after-tax portion of share awards
throughout their tenure with TSFG. Historically, there have been instances where
such retention has been required, with any exceptions being approved by the
Committee.
Equity
Dilution Rates
The
following table sets forth equity dilution rates for TSFG for 2007 through 2009.
The Committee has not adopted formal dilution or “burn rate” policies. However,
it does not currently expect future grant levels to be materially different from
past levels. In analyzing this data, the Committee also considers the number of
options, shares and RSUs which in fact become vested and exercisable, and how
many have been cancelled or have expired.
Year
|
Award
Type
|
Total
Granted
From
TSFG
Plans
|
Total
Granted
as
a %
of
Total
Outstanding*
|
%
Vested, Exercisable or Exercised
at
December 31, 2009
|
%
of Outstanding
Awards
In-the-Money
at
December 31, 2009
|
Total
Cancelled
and/or
Expired
at December
31,
2009
|
2007
|
Options
|
600,930
|
0.83%
|
38%
|
―
|
113,145
|
|
Service-based
Restricted Stock & RSUs
|
183,952
|
0.25%
|
88.1%
|
100%
|
19,722
|
|
Performance-based
Restricted Stock & RSUs - Target Level
|
215,569
|
0.30%
|
15.5%
|
100%
|
182,235
|
|
Total
|
1,000,451
|
1.38%
|
|
|
315,102
|
2008
|
Options
|
1,245,150
|
1.7%
|
.5%
|
―
|
164,750
|
|
Service-based
Restricted Stock & RSUs
|
318,089
|
.4%
|
30.1%
|
100%
|
16,319
|
|
Performance-based
Restricted Stock & RSUs - Target Level
|
―
|
―
|
―
|
―
|
―
|
|
Total
|
1,563,239
|
2.1%
|
|
|
181,069
|
2009
|
Options
|
36,250
|
―
|
―
|
9.7%
|
500
|
|
Service-based
Restricted Stock & RSUs
|
25,103
|
―
|
20%
|
100%
|
―
|
|
Performance-based
Restricted Stock & RSUs
|
―
|
―
|
―
|
―
|
―
|
|
Total
|
61,353
|
―
|
|
|
500
|
* Total
shares outstanding at year end: 2007 – 72,453,775, 2008 – 74,641,178, 2009 –
215,455,541
Termination
and Change in Control Provisions
The
Committee believes that senior management should not be unreasonably distracted
by the possibility of a change in control. Accordingly, TSFG’s SERP plans and
employment agreements have provisions that govern how the plans operate and the
benefits provided in the event of a termination of employment following a change
in control of TSFG. These benefits are provided under employment agreements that
were negotiated at various times and under different circumstances for each
Named Executive Officer. In establishing the levels of benefits provided under
each agreement at the time of execution, the Committee considered recent trends
in contract terms, as well as the benefits provided to other executives at
similar levels within TSFG, and the advice of third-party advisors. The
Committee believes that it is in the best interests of the Company and its
shareholders to maintain as much consistency as possible across individual
agreements, to provide a “standard” level of benefit under the agreement for
executives at similar levels.
27
Under the
standard form of SERP and employment agreements, benefits are only paid if, in
association with or following a change in control, the executive is terminated
by TSFG without cause or the executive resigns for what is generally understood
to be “good reason.” TSFG chooses to pay severance benefits following a “good
reason” termination because TSFG believes that such a termination is
conceptually the same as an actual termination without cause, and that potential
acquirers would otherwise have an incentive to constructively terminate
executives to avoid paying severance.
TSFG uses
such a structure – often referred to as a “double trigger” – in most situations
because we believe that cash severance and retirement benefits should only be
enhanced if the executive suffers an actual or constructive termination of
employment following a change of control. The level of severance that we provide
to our executives we believe is appropriate in order to attract and retain key
executives and is generally consistent with the severance benefits provided to
senior executives of other financial institutions. In addition, some of our
employment agreements contain so-called “golden parachute” excise tax gross ups,
which are generally intended to place executives who are subject to the excise
tax under Section 4999 of the Internal Revenue Code in the same after-tax
position as if no excise tax had been imposed. Each of our Named Executive
Officers, except Mr. Diaz, has such a gross-up. The Committee believed that,
absent such a provision, following a change of control, the severance benefits
intended to be provided under the agreement would be eliminated or greatly
reduced in order to avoid the adverse effects of the excise tax. The Committee
believed that the elimination or significant reduction of the severance benefits
would tend to nullify a primary purpose of the agreements: to attract and retain
employees in the event of a change of control.
All
existing executive officers have signed agreements with the Company agreeing to
any amendments necessary for compliance with the provisions of the
CPP.
Harton
Appointment
On
November 13, 2008, the Board of Directors appointed H. Lynn Harton as the
Company’s Interim President and Chief Executive Officer. On November 18, 2008,
the Company and Mr. Harton entered into a letter agreement detailing additional
compensation payable to him in connection with his appointment as Interim
President and Chief Executive Officer. This agreement provided for an additional
monthly stipend of $25,000 (above existing compensation), which was to be paid
in accordance with the Company’s regular payroll policies, but which would not
be taken into account in computing any compensation or benefits to be paid to
Mr. Harton under any plan, program, agreement or arrangement of the Company. On
February 9, 2009, the Board of Directors appointed Mr. Harton as TSFG’s
President and Chief Executive Officer. In connection with this appointment, Mr.
Harton was also appointed to TSFG’s Board of Directors, as well as named CEO of
Carolina First Bank (TSFG’s primary operating subsidiary). As an executive
officer of TSFG, Mr. Harton does not receive compensation for Board service. In
connection with Mr. Harton’s appointment as permanent President and CEO, Mr.
Harton’s base salary was set at $650,000 per year, and the target level of his
participation in TSFG's Management Incentive Performance Plan was confirmed
(unchanged) at 70% of base compensation.
Recapture
Policy
TSFG
intends to recapture compensation as required under the Sarbanes-Oxley Act of
2002. TSFG has also adopted a policy of recapturing compensation (like that set
forth in the Sarbanes-Oxley Act) from all TSFG officers who are reporting
persons under Section 16 of the Exchange Act. However, there have been no
instances to date where TSFG has needed to recapture any
compensation.
Deductibility
of Compensation Expenses
Section
162(m) of the Internal Revenue Code of 1986 generally limits the tax
deductibility by the Company for compensation paid to the CEO and other highly
compensated executive officers to $1 million per officer per year, unless it
qualifies as “performance-based” compensation. To qualify as
“performance-based,” compensation payments must satisfy certain conditions,
including limitations on the discretion of the Committee in determining the
amounts of such compensation.
Under the
EESA, as relates to NEO compensation, the Code Section 162(m) deduction limit is
reduced to $500,000 for financial institutions (such as TSFG) participating in
the CPP. The existing exceptions from Section 162(m), including the exception
for qualified performance-based compensation, do not apply under the new rules.
Accordingly, by participating in the Treasury’s CPP, TSFG will incur tax expense
that would not have otherwise been incurred if TSFG had not participated in the
CPP. Despite the increased tax expense, the Board of Directors and executive
management believed participation in the CPP was warranted in light of the
competitive disadvantages TSFG would have experienced by not
participating.
28
We have
attempted, to the extent consistent with the Company’s business goals, to design
our incentive compensation programs such that compensation paid to our executive
officers under such programs generally would not fail to be deductible as a
result of Section 162(m) of the Internal Revenue Code. The Committee believes
that the compensation program and actions taken during 2009 are consistent with
this policy. Specifically, our compensation programs have been
shareholder-approved, and are designed to allow us to comply with the tax
deductibility limitations of Section 162(m) of the Internal Revenue Code.
However, it is possible that the Committee will approve some amount of
compensation in the future that is non-deductible under Section
162(m).
Incentive
Compensation Plan Risk Assessment
In
accordance with EESA rules, the Compensation Committee must:
·
|
discuss,
evaluate and review at least every six months with TSFG’s senior risk
officer, compensation plans in which senior executive officers participate
to ensure that compensation earned under those plans does not encourage
senior executive officers to take unnecessary or excessive risks that
threaten the value of TSFG;
|
·
|
discuss,
evaluate and review at least every six months with the senior risk officer
employee compensation plans in light of the risks posed to TSFG by such
plans and how to limit such risks;
|
·
|
discuss,
evaluate and review at least every six months TSFG’s employee compensation
plans to ensure that the plans do not encourage the manipulation of TSFG
reported earnings to enhance the compensation of any TSFG
employees;
|
·
|
at
least once per year, provide a narrative description
of;
|
o
|
how
senior executive officer plans do not encourage the senior executive
officers to take unnecessary and excessive risks that threaten the value
of TSFG, including how these compensation plans do not encourage behavior
focused on short-term results rather than long-term value
creation,
|
o
|
the
risks posed by employee compensation plans and how these risks were
limited, including how these employee compensation plans do not encourage
behavior focused on short-term results rather than long-term value
creation, and
|
o
|
how
TSFG has ensured the employee compensation plans do not encourage the
manipulation of reported earnings of TSFG to enhance the compensation of
any TSFG employees; and
|
·
|
certify
the completion of the reviews of the senior executive officer compensation
plans and employee compensation plans required by
EESA.
|
In
February 2009, TSFG’s Chief Risk Officer met with the Compensation Committee to
discuss each of the TSFG compensation plans (including those covering senior
executive officers) to identify any component of any of the TSFG compensation
plans (A) which may encourage behavior focused on short-term results rather than
long-term value creation or (B) that may encourage senior executive officers to
take unnecessary or excessive risks that could threaten the value of TSFG. A
detailed Risk Analysis was prepared as part of this process and was utilized by
the Committee in its evaluation of the compensation plans.
In August
2009, the Risk Analysis was updated and the Committee again discussed each
compensation plan from a risk perspective.
Based on
the Risk Analysis of February 2009, as updated in August 2009, the Committee
concluded that
·
|
the
senior executive officer compensation plans do not encourage those senior
executive officers to take unnecessary and excessive risks that threaten
the value of TSFG;
|
·
|
the
other employee compensation plans property mitigate the risk inherent in
those plans with respect to TSFG;
and
|
·
|
the
TSFG compensation plans, taken as a whole, do not encourage the
manipulation of the reported earnings of TSFG to enhance the compensation
of any TSFG employee.
|
29
In March
2010, the Risk Analysis was again presented to the Committee, with the same
conclusions reached. However, such will be reported in next year’s Proxy
Statement (which related to the 2010 fiscal year).
Restrictions
on Executive Compensation under the U.S. Treasury’s Capital Purchase
Plan
Emergency
Economic Stabilization Act of 2008
As noted
above, TSFG and its existing executive officers have agreed to certain
restrictions under the U.S. Emergency Economic Stabilization Act of 2008 as a
result of TSFG's participation in the U.S. Treasury’s Capital Purchase Program
(“CPP”), whereby it issued perpetual non-convertible preferred stock and common
stock warrants to the U.S. Treasury in exchange for a $347 million capital
investment. These restrictions generally apply while the U.S. Treasury continues
to own any debt or equity position in TSFG, and are as follows:
·
|
TSFG
must provide to the U.S. Treasury a certification that its compensation
programs do not encourage its Senior Executive Officers (“SEOs”) (as
defined in the CPP) to take excessive risks that threaten the value of
TSFG during the time that the U.S. Treasury maintains an investment in
TSFG. (SEOs are defined as the principal executive officer, principal
financial officer and the next three most highly compensated executive
officers who are employed by a financial institution that is participating
in the CPP while the Treasury holds an equity or debt position acquired
under the CPP.)
|
·
|
TSFG
must recover any bonus or incentive compensation paid to its SEOs (plus
its next 20 highest compensated officers) based on statements of earnings,
gains, or other criteria that are later proven to be materially
inaccurate.
|
·
|
TSFG
is prohibited from paying tax gross-ups to its SEOs (plus the next 20
highest compensated officers).
|
·
|
TSFG
is prohibited from paying or accruing cash bonuses, incentives or
retention awards to its SEOs (plus the next ten highest compensation
officers), except for restricted stock that cannot vest prior to the time
the Company’s CPP preferred stock investment has been repaid and may not
be valued in excess of more than 1/3 of the total compensation of the
individual.
|
·
|
TSFG
is prohibited from making certain golden parachute payments to its SEOs
and its next ten most highly compensated
officers.
|
·
|
TSFG
is prohibited from taking a compensation deduction for U.S. federal
corporate tax purposes for amounts in excess of $500,000 per SEO per
year.
|
Each of
TSFG’s existing executive officers (including the NEOs who remain TSFG
employees), has agreed in writing to accept any changes or modifications to
awards or agreements that may become necessary as a result of TSFG’s
participation in the CPP.
As
required under CPP, the Committee met with William P. Crawford, Jr., TSFG’s
Chief Risk Officer, to discuss its incentive compensation programs and to
confirm that TSFG’s programs do not encourage its SEOs to take unnecessary or
excessive risks that threaten the value of TSFG. Included in the Compensation
Committee Report is the Committee's certification that it has reviewed, with
TSFG’s Chief Risk Officer, TSFG’s incentive compensation arrangements and has
made reasonable efforts to ensure that such arrangements do not encourage its
SEOs to take unnecessary or excessive risks that may threaten TSFG's
value.
American
Recovery and Reinvestment Act of 2009
On
February 17, 2009, the American Recovery and Reinvestment Act of 2009 (the
“ARRA”) was enacted as a sweeping economic recovery package intended to
stimulate the economy and provide for extensive infrastructure, energy, health
and education needs. The ARRA also imposes certain new executive compensation
and corporate governance obligations on all current and future participants in
the CPP, including TSFG, until the institution has redeemed the preferred stock.
The executive compensation restrictions under the ARRA (described below) are
more stringent than those imposed in connection with the CPP. The ARRA amends
Section 111 of the Emergency Economic Stabilization Act (“EESA”) to require the
Secretary of the Treasury Department (the “Secretary”) to adopt additional
standards with respect to executive compensation and corporate governance for
TARP participants (including TSFG). The standards established by the Secretary
include, in part, (a) prohibitions on making golden parachute payments to senior
executive officers and the next ten most highly compensated employees during
such time as any obligation arising from financial assistance provided under the
TARP, including the CPP, remains outstanding (the “Restricted Period”), (b)
prohibitions on paying or accruing bonuses or other incentive awards for certain
senior executive officers and the next 20 most highly-compensated employees,
except for awards of long-term restricted stock with a value equal to no greater
than one-third of the subject employee’s annual compensation that do not fully
vest during the Restricted Period, or unless such compensation is pursuant to a
valid written employment contract effective prior to February 11, 2009, (c)
requirements that CPP participants provide for the recovery of any bonus or
incentive compensation paid to senior executive officers and the next 20 most
highly-compensated employees based on statements of earnings, revenues, gains or
other criteria later found to be materially inaccurate, with the Secretary
having authority to negotiate for reimbursement, and (d) a review by the
Secretary of all bonuses and other compensation paid by TARP participants to
senior executive employees and the next 20 most highly compensated employees
before the date of enactment of the ARRA to determine whether such payments were
inconsistent with the purposes of the act or contrary to public
policy.
30
The ARRA
also sets forth additional corporate governance obligations for TARP recipients,
including requirements for the Secretary to establish standards that provide for
semi-annual meetings of compensation committees of the board of directors to
discuss and evaluate employee compensation plans in light of an assessment of
any risk posed from such compensation plans. TARP participants are further
required by the ARRA to (a) have in place company-wide policies regarding
excessive or luxury expenditures, (b) permit non-binding shareholder
“say-on-pay” proposals to be included in proxy materials, and (c) provide
written certifications by the chief executive officer and chief financial
officer with respect to compliance. The Secretary is required to promulgate
regulations to implement the executive compensation and certain corporate
governance provisions detailed in the ARRA.
TSFG will
comply in all material respects with the EESA, the ARRA and all applicable rules
and regulations, as the same are promulgated or amended from time to time.
Accordingly, historical compensation practices (such as the use of particular
elements of compensation like cash bonuses and payments upon certain events) may
be changed materially (including potentially eliminated) going forward,
depending upon what is necessary for ARRA compliance. Any statements in this
CD&A regarding future compensation practices will be subject to compliance
with applicable law.
Compensation
Committee Report
|
The
following report does not constitute soliciting material and is not considered
filed or incorporated by reference into any other filing by TSFG under the
Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as
amended.
The
Compensation Committee has reviewed and discussed with TSFG management the
Compensation Discussion and Analysis that precedes this Report as required by
Item 402(b) of the SEC’s Regulation S-K. Based on its review and discussions
with management, the Compensation Committee recommended to the TSFG Board of
Directors the inclusion of the Compensation Discussion and Analysis in this
Proxy Statement. The Compensation Discussion and Analysis discusses the
philosophy, principles, and policies underlying TSFG’s compensation programs
that were in effect during 2009 and which will be applicable in
2010.
The
Compensation Committee has reviewed with TSFG's Chief Risk Officer, incentive
compensation arrangements and has made reasonable efforts to ensure that such
arrangements do not encourage senior executive officers to take unnecessary or
excessive risks that may threaten TSFG's value.
TSFG is a
participant in the Capital Purchase Program portion of the U.S. Treasury
Department’s Troubled Asset Relief Program (“TARP”) authorized under the
Emergency Economic Stabilization Act of 2008, as amended. In compliance with
TARP requirements in effect at that time, the Committee met in January 2009 with
our chief risk officer to review and assess TSFG’s key business and other risks,
and the relationship of those risks, along with our risk management policies and
practices, to TSFG’s compensation arrangements in which the named executive
officers participate, especially the incentive plans and programs. Under the
TARP rules, the executive officers named in the Summary Compensation Table of
this proxy statement are referred to as “senior executive officers” or “SEOs”
for the year 2009. The Committee concluded that those plans and programs do not
encourage our SEOs to take unnecessary and excessive risks that threaten the
value of TSFG.
31
In June
2009 the TARP rules were amended. Under the amended rules, the Committee is
required to conduct an expanded, semi-annual review of all compensation plans of
TSFG in relation to the risks facing TSFG. The first such review took place in
February 2009, and it was updated in each of August 2009 and February 2010. In
connection with that review, the Committee met with our chief legal and risk
officer, our chief financial officer and our chief human resources officer. The
reviews included all plans, programs, and arrangements (collectively referred to
as “plans”) involving two or more employees, regardless of rank and regardless
of the dollars involved.
During
the course of this review, a total of 15 plans were identified as applicable to
one or more groups of employees. In addition, the compensation arrangements of
SEOs (consisting of the LTIP, MPIP, their SERP contract, their employment
contract, and the general healthcare and benefits) were also analyzed. The
analysis also considered eight broad categories of risk (credit, market,
liquidity, operational, legal regulatory/compliance, financial reporting and
reputational), which could be implicated by the Company’s plans, and the
negative behaviors that might be engendered by ill-designed plans. It also
looked at the various risk management and risk mitigation activities (both
inherent in the plans and existing in the Company’s operations) that sought to
mitigate any inherent risks.
These
plans were set forth separately in a table, with the structure of each plan
summarized. The review process then set forth the plan features which posed one
or more risks to TSFG (including those risks encouraging short term results vs.
long term value). This resulted in the assignment of an “inherent risk.” The
review process then examined the controls and other mitigating factors that
affect how each plan’s inherent risks are managed or controlled, and also
examined other factors that would bear upon an assessment of the real-world
risks to which the plan could expose us. A residual risk rating was assigned to
each plan as a result of this analysis.
The risk
analysis then examined three broad mitigating factors:
(1)
The Internal Control
Structure
. Many of the risks are addressed on a systematic level by the
overall internal control structure in place at TSFG (the “internal control
structure”). This includes the work done by the Internal Audit Department, the
audit of the financials (including analysis of fraud controls) by TSFG’s
external auditors, the Sarbanes-Oxley internal controls over financial reporting
framework (which is tested and audited by both Internal Audit and external
auditors), and the Company’s Risk Management operations, which include (i) for
lending, the credit department, (ii) for market risk, the treasury function and
(iii) for operational and similar risks, the enterprise risk management
framework.
(2)
Compensation Committee Oversight of
Compensation.
The Compensation Committee is fully independent, and
integrally involved with the compensation process, and has numerous meetings
(both formal and informal) regarding the proper levels and parameters of
compensation. The Compensation Committee has engaged an independent compensation
consultant, which provides it with peer information and other analysis, as well
as outside legal counsel.
(3)
Plan Metrics.
The Company’s
compensation plans are designed on an individual basis to minimize excessive
risk taking. This is evidenced particularly by the fact that mere growth is not
a metric, operating earnings are generally used in lieu of GAAP earnings, which
is designed to eliminate items of income and expense that are “non-core”; and
all plans reserve the authority for the Board of Directors to alter compensation
to take into account qualitative factors. In other words, incentive compensation
for SEOs is not rigidly formulaic.
The
overall risk-assessment process was guided by the following
principles:
(1)
Short-term incentives are an appropriate part of a total compensation strategy,
especially when they reward achievement of short-term tactical objectives that
are considered consistent with the achievement of long-term
objectives.
(2) Plans
should encourage long-term performance and long-term value
creation.
(3) Each plan should be judged based on
its inherent risk, and its residual risk, after review of mitigating
factors.
(4) Plans
should be considered both individually, and as part of the overall compensation
arrangement.
(5) Each
plan should be considered in light of whether it has any unusual impact upon the
eight enumerated risk types.
(6) Plans which could not under any foreseeable circumstances result in
the payment of more than $500,000 annually, while not devoid of risk, generally
do not involve risk taking opportunities which if realized, would result in
material losses to TSFG.
32
Substantially
all the plans were viewed as having low inherent risk. The reasons for that
rating varied with the plan, but the most common reasons were that the
activities encouraged exposed us to little or no risk, the total amount of
compensation expense was very low or the scope of the plan was limited to low
risk areas.
The MPIP,
LTIP and Relationship Manager plans were considered inherently high risk. This
was due to the total amount of the compensation expense associated with these
plans, the percentage of the total compensation that the plans represent with
respect to certain participants, and the inherent risk of the activities used as
metrics in such plans.
The
residual risk rating of all plans, after considering controls and other factors,
was low risk. This was the case primarily because of the presence, impact and
effectiveness of the internal control group structure. Furthermore, specific
plan revisions were made to further mitigate inherent risk, including
elimination of loan growth as a metric; increasing the weighting and emphasis on
credit quality; utilizing multiple categories to mitigate impact of any one
area; moving toward a balance of individual and team goals vs. all individual
categories; using “hurdles” such as credit quality thresholds; using annual
payouts vs. quarterly payouts; capping payout totals; and retaining management
discretion to reduce or eliminate payout as appropriate. Also, specific
procedures were adopted to provide for proper vetting among the executive
management team of the various incentive plans, to ensure proper risk management
and alignment with overall strategic objectives. Lastly, the Company has adopted
“clawbacks” which require the Company to seek recovery of officer bonuses paid
based on materially inaccurate information.
In
all cases, the Committee judged the residual risks to be acceptable and
appropriate in relation to the benefits to TSFG from having the
plans.
Based on
the foregoing, the Compensation Committee certifies that:
(1) It has reviewed with senior risk
officers the senior executive officer (SEO) compensation plans and has made all
reasonable efforts to ensure that these plans do not encourage SEOs to take
unnecessary and excessive risks that threaten the value of TSFG;
(2) It has reviewed with senior risk
officers the employee compensation plans and has made all reasonable efforts to
limit any unnecessary risks these plans pose to TSFG; and
(3) It has reviewed the employee
compensation plans to eliminate any features of these plans that would encourage
the manipulation of reported earnings of TSFG to enhance the compensation of any
employee.
The first
two decisions are subject to legal restrictions imposed by the TARP rules on
bonuses, stock awards, and other incentives to the SEOs and certain other
employees during the time we continue to have Series 2008-T preferred stock
issued to the U.S. Treasury under the TARP.
Compensation
Committee:
Challis
M. Lowe,
Chair H.
Earle Russell,
Jr. Edward
J.
Sebastian
David C. Wakefield
III
Description
of Compensation Committee
|
The Board
of Directors has adopted a written charter for the Compensation Committee. A
copy of the charter is included on TSFG’s website,
www.thesouthgroup.com
,
under the Corporate Governance tab. The general purpose of the Compensation
Committee is to discharge the Board’s responsibilities relating to compensation
for TSFG’s Directors and officers. The Compensation Committee has overall
responsibility for approving and evaluating the Director and officer
compensation plans, policies, and programs. Pursuant to its charter, the
Compensation Committee should (i) use its best efforts to develop compensation
policies that create a direct relationship between pay levels and corporate
performance and returns to shareholders and (ii) vigilantly monitor the results
of such policies to assure that compensation payable to the Company’s executives
and Directors provides overall competitive pay levels, creates proper incentives
to enhance shareholder value, rewards superior performance, and is justified by
the returns available to shareholders, particularly when compared to the returns
received by the shareholders of the Company’s principal
competitors.
The
Compensation Committee has authority in its charter to delegate its
responsibilities to a subcommittee, and from time to time, has done so. It also
has the authority to delegate certain responsibility to management; however, to
date it has not done so in any material respect.
33
In past
years, management, and in particular the CEO, has played a role in making
recommendations to the Compensation Committee (except that the CEO has not made
recommendations with respect to his own compensation). These recommendations
from the CEO related to the total option pool that should be made available for
option grants for the broader group of Company officers, the persons who should
participate in the MPIP and the LTIP and their respective target bonus amounts,
and the base salary and actual bonus amounts to be paid to senior executive
officers.
The
Compensation Committee has engaged a nationally known compensation
consultant,
Pearl
Meyer, to provide advice and recommendations with respect to virtually all
aspects of the Company’s compensation program, including Director compensation,
base salary levels, structure and types of incentive plans, peer data and
industry trends, among other things. During the first half of 2009, the
Committee had retained Semler Brossy Consulting Group, LLC, also an independent,
third party consultant which performed substantially the same services as Pearl
Meyer (collectively, the Compensation Consultants). No final decisions or
authority have been delegated to the Compensation Consultants. The Compensation
Committee, from time to time, also engages third party legal counsel. The
Compensation Consultants’ assignment has been to provide advice and
recommendations as to the matters described above in a manner consistent with
the fact that they have been engaged by the Compensation Committee and not by
management. Please refer to the paragraph entitled “Outside Advisors” in the
Compensation Discussion and Analysis included above for additional information
regarding the Compensation Consultants.
Compensation
Committee Interlocks and
Insider
Participation
|
The
Compensation Committee is comprised of independent, non-employee members of the
Board of Directors, none of whom have interlocking relationships as defined by
the SEC and all of whom meet the definition of “Independent Director” as
currently promulgated by FINRA and the NASDAQ Stock Market.
Summary
Compensation Table
|
The
following table sets forth information concerning compensation paid by TSFG
during the 2009 fiscal year to TSFG’s CEO, CFO and to each of the three most
highly compensated executive officers other than the CEO and CFO who were
executive officers at December 31, 2009 (collectively, the “Named Executive
Officers”) for services rendered in all capacities to TSFG and its subsidiaries.
Data is only provided for those years for which the listed person was a Named
Executive Officer.
Name
and
Principal
Position
|
Year
|
Salary
($)
|
Bonus
($)(1)
|
Stock
Awards
($)(2)
|
Option
Awards
($)(2)
|
Non-Equity
Incentive
Plan
Compensation
($)
|
Changes
in
Pension
Value And
Non-Qualified
Deferred
Compensation
Earnings
($)
|
All
Other
Compensation
($)
|
Total
($)
|
H.
Lynn Harton
(4)
President
& CEO
|
2009
2008
2007
|
$611,250
299,675
255,256
|
$
500,000
―
―
|
―
203,200
357,182
|
―
213,000
164,117
|
―
―
(3)
|
|
$410,674
183,692
105,467
|
$87,399
91,782
90,762
|
$1,609,323
991,349
972,784
|
James
R. Gordon
(5)
Chief
Financial Officer
|
2009
2008
2007
|
345,000
326,350
249,375
|
500,000
―
―
|
―
203,200
361,324
|
―
213,000
76,467
|
―
―
(3)
|
|
161,007
181,392
104,976
|
37,661
71,058
92,268
|
1,043,668
995,000
884,410
|
W.
P. Crawford, Jr.
(6)
General
Counsel and
Chief
Risk Officer
|
2009
2008
|
275,625
275,625
|
―
―
|
―
101,600
|
―
106,500
|
―
―
|
|
131,757
140,804
|
58,803
71,548
|
466,185
696,077
|
J.
Ernie Diaz
(7)
President,
Mercantile
(FL)
Banking Division
|
2009
2008
|
325,000
260,000
|
―
―
|
―
30,480
|
―
50,550
|
―
―
|
|
160,961
―
|
38,519
63,095
|
524,480
404,125
|
Christopher
T. Holmes
(8)
Director
- Corporate
Financial
Services
|
2009
2008
|
262,500
274,375
|
500,000
―
|
―
203,200
|
―
213,000
|
―
―
|
|
105,114
136,091
|
37,144
50,610
|
904,758
877,276
|
(1)
|
These
amounts represent the Retention Bonuses previously disclosed and discussed
in detail in
“Retention
Bonuses”
in the Compensation Discussion and
Analysis.
|
(2)
|
These
amounts represent the amount equal to the grant date fair value of the
Named Executive Officer’s stock or option awards in accordance with FASB
ASC Topic 718. In the case of restricted stock units awards, the grant
date fair value is based on the closing price of TSFG stock on the date of
grant. In the case of stock options, the grant date fair value is
calculated using a valuation model. See Note 27 to the audited
consolidated financial statements included in TSFG’s Annual Report on Form
10-K filed on March 16, 2010 with the SEC for the assumptions used in
determining compensation cost on option awards granted in accordance with
FASB ASC Topic 718. With respect to the stock awards issued in 2007 to
Messrs. Harton and Gordon, a portion of the expense shown related to
performance-based awards that expired in 2009 unvested. All of the expense
related to these performance-based awards, $193,741 for Mr. Harton and
$196,230 for Mr. Gordon, was reversed. Had these awards been earned at
their maximum level, the total grant date fair value of the awards would
have been $847,535 for Mr. Harton and $856,654 for Mr.
Gordon.
|
34
(3)
|
For
2007 awards, the Compensation Committee directed that at least 50% of MPIP
awards to Named Executive Officers be paid in the form of restricted
stock. Executives were given the alternative of receiving up to 100% of
their 2007 MPIP award in restricted stock. Based on individual elections,
Mr. Harton elected to receive no cash and $168,000 in restricted stock and
Mr. Gordon elected to receive no cash and $192,000 in restricted stock.
The grants of restricted stock made to the Named Executive Officers
pursuant to this arrangement were made on January 29,
2008.
|
(4)
|
All
Other Compensation for 2009 for Mr. Harton is comprised of (1) $9,188
contributed to the TSFG 401(k) Plan, (2) $1,630 in premiums paid on behalf
of Mr. Harton with respect to insurance not generally available to all
TSFG employees, (3) $3,400 paid in matching contributions to charitable
organizations made pursuant to TSFG’s charitable awards program for
executive officers, (4) $280 paid in dividends and dividend equivalents on
unvested restricted stock and restricted stock units, (5) $6,700 paid for
tax and financial, (advisory services, (6) $19,200 paid for auto
allowance, (7) $3,368 in taxes paid with respect to certain benefit and
contractual obligations, (8) $2,470 for personal use of airplane, (9)
$10,363 paid in fees for club memberships, and (10) $37,500 paid as a
stipend for Mr. Harton’s service as Interim CEO prior to his permanent
appointment.
|
(5)
|
All
Other Compensation for 2009 for Mr. Gordon is comprised of (1) $8,500
contributed to the TSFG 401(k) Plan, (2) $4,810 in premiums paid on behalf
of Mr. Gordon with respect to insurance not generally available to all
TSFG employees, (3) $312 paid in dividends and dividend equivalents on
unvested restricted stock and restricted stock units, (4) $4,839 paid in
fees for club memberships, and (5) $19,200 paid in auto
allowance.
|
(6)
|
All
Other Compensation for 2009 for Mr. Crawford is comprised of (1) $9,188
contributed to the TSFG 401(k) Plan, (2) $5,567 in premiums paid on behalf
of Mr. Crawford with respect to insurance not generally available to all
TSFG employees, (3) $118 paid in dividends and dividend equivalents on
unvested restricted stock and restricted stock units, (4) $3,725 paid for
tax and financial advisory services, (5) $12,000 paid in auto allowance,
(6) $4,500 paid in matching contributions to charitable organizations made
pursuant to TSFG's charitable awards program for executive officers, (7)
$2,600 paid in Company contributions to a dependent care flexible spending
account, (8) $6,105 paid in fees for club memberships, and (9) $15,000
paid in connection with the Deferred Compensation
Plan.
|
(7)
|
All
Other Compensation for 2009 for Mr. Diaz is comprised of (1) $8,792
contributed to the TSFG 401(k) Plan, (2) $220 paid in dividends and
dividend equivalents on unvested restricted stock and restricted stock
units, (3) $5,507 paid in fees for club memberships, and (4) $24,000 paid
in auto allowance.
|
(8)
|
All
Other Compensation for 2009 for Mr. Holmes is comprised of (1) $8,118
contributed to the TSFG 401(k) Plan, (2) $3,707 in premiums paid on behalf
of Mr. Holmes with respect to insurance not generally available to all
TSFG employees, (3) $215 paid in dividends and dividend equivalents on
unvested restricted stock and restricted stock units, (4) $750 paid for
tax and financial advisory services, (5) $377 in taxes paid with respect
to certain benefit and contractual obligations, (6) $4,777 paid in fees
for club memberships, and (7) $19,200 paid in auto
allowance.
|
Grants
of Plan-Based Awards
|
No
plan-based awards were made to any Named Executive Officer during
2009.
Outstanding Equity
Awards at Fiscal Year end
|
The
following table sets forth information with respect to outstanding equity awards
held by each Named Executive Officer on December 31, 2009.
35
Name
|
Number
of Securities Underlying
Unexercised
Options
Exercisable
(#)
|
Number
of
Securities
Underlying Options
Unexercisable
(#)
(1)
|
Equity
Incentive Plan Awards: Number of Securities Underlying Unexercised
Unearned Options
(#)
(2)
|
Option
Exercise
Price
($)
|
Option
Expiration
Date
|
Number
of
Shares
or
Units
of
Stock
That
Have
Not
Vested
(#)
|
Market
Value
of
Shares
or
Units
of
Stock
That
Have
Not
Vested
($)
|
Equity
Incentive
Plan Awards:
Number
of Unearned
Shares,
Units or Other Rights
That
Have
Not
Vested
(#)
|
Equity
Incentive Plan Awards:
Market
or Payout Value of Unearned Shares, Units or Other Rights That Have Not
Vested
($)
|
L.
Harton
(3)
|
10,000
|
15,000
|
|
27.26
|
2/20/17
|
|
|
|
|
|
|
|
100,000
|
10.16
|
9/18/18
|
|
|
|
|
|
|
|
|
|
|
26,724
|
$
17,228
|
|
|
J.
Gordon
(4)
|
6,000
|
9,000
|
|
23.34
|
5/7/2017
|
|
|
|
|
|
|
|
100,000
|
10.16
|
9/18/18
|
|
|
|
|
|
|
|
|
|
|
27,470
|
17,709
|
|
|
W.
Crawford
(5)
|
5,000
|
|
|
22.54
|
4/29/12
|
|
|
|
|
|
5,962
|
|
|
21.42
|
1/2/13
|
|
|
|
|
|
1,639
|
|
|
28.30
|
1/16/14
|
|
|
|
|
|
9,000
|
6,000
|
|
25.95
|
12/14/16
|
|
|
|
|
|
|
|
50,000
|
10.16
|
9/18/18
|
|
|
|
|
|
|
|
|
|
|
12,697
|
8,185
|
|
|
E.
Diaz
(6)
|
6,666
|
3,334
|
|
15.76
|
12/16/17
|
|
|
|
|
|
0
|
15,000
|
|
10.16
|
9/18/18
|
|
|
|
|
|
|
|
|
|
|
6,834
|
4,405
|
|
|
C.
Holmes
(7)
|
5,500
|
|
|
27.00
|
8/16/16
|
|
|
|
|
|
10,000
|
|
|
26.92
|
8/30/16
|
|
|
|
|
|
9,000
|
6,000
|
|
25,95
|
12/14/16
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
100,000
|
10.16
|
9/18/18
|
|
|
|
|
|
|
|
|
|
|
25,215
|
16,256
|
|
|
(1)
|
Each
of the options set forth in this column has a grant date that is ten years
prior to the referenced expiration date. All of these options provide for
a vesting schedule of 20% per year on each of the five anniversaries
subsequent to the grant date except the grants held by Mr. Holmes with
exercise prices of $27.00 and $26.92, each of which vest one-third per
year on each of the three anniversaries subsequent to the grant
date.
|
(2)
|
Each
of the options set forth in this column have a grant date that is ten
years prior to the referenced expiration date. All of these options vest
if the closing price of TSFG common stock is $12.00 or more for twenty
consecutive trading days during the period beginning January 1, 2011 and
ending June 30, 2011.
|
(3)
|
Of
the 26,724 unvested shares shown for Mr. Harton, 16,724 shares vested on
January 31, 2010 and the remainder of these shares will vest on January
31, 2010.
|
(4)
|
Of
the 27,470 unvested shares shown as held by Mr. Gordon, 17,470 shares
vested on January 31, 2010; the remainder will vest on January 31,
2010.
|
(5)
|
Of
the 12,697 unvested shares shown as held by Mr. Crawford, 7,697 shares
vested on January 31, 2010 and the remainder of these shares will vest on
January 31.
|
(6)
|
Of
the 6,834 unvested shares shown as held by Mr. Diaz, 5,334 shares vested
on January 31, 2010 and the remainder of these shares will vest on January
31.
|
(7)
|
Mr.
Holmes employment was terminated effective January 15, 2010 and, as a
result, Mr. Holmes forfeited all unvested outstanding restricted stock
units awards. In accordance with the terms of TSFG’s Stock Option Plan,
all vested options held by Mr. Holmes on the date of his termination will
expire on April 15, 2010.
|
Option Exercises and
Stock Vested
|
The
following table sets forth information with respect to exercises of stock
options and vesting of stock awards held by each Named Executive Officer during
the fiscal year which ended December 31, 2009.
|
Option
Awards
|
Stock
Awards
|
|
Number
of Shares
Acquired
on Exercise (#)
|
Value
Realized
on
Exercise ($)
|
Number
of Shares
Acquired
on Vesting (#)
|
Value
Realized
on
Vesting ($)
|
L.
Harton
|
―
|
―
|
7,834
|
$ 13,631
|
J.
Gordon
|
―
|
―
|
8,803
|
15,317
|
W.
Crawford
|
―
|
―
|
3,729
|
6,488
|
E.
Diaz
|
―
|
―
|
3,833
|
2,739
|
C.
Holmes
|
―
|
―
|
5,882
|
10,234
|
36
Supplemental
Executive Retirement Plans
|
A
detailed discussion of the Supplemental Executive Retirement Plans maintained by
TSFG is found above at “Supplemental Executive Retirement Plans (SERP)” within
the Compensation Discussion and Analysis. The table below shows the present
value of accumulated benefits under SERP agreements for each Named Executive
Officer.
|
Years
of
Credited
Service
|
Normal
Retirement Present Value of Accumulated Benefits
($)
(1)
(2)
|
Early
Retirement Present Value at December 31, 2008
($)
(1)
(2)
|
Payments
During Last Fiscal Year
($)
|
L.
Harton
|
2
|
$ 11,846,110
|
―
|
―
|
J.
Gordon
|
2
|
6,793,384
|
―
|
―
|
W.
Crawford
|
7
|
4,688,326
|
―
|
―
|
E.
Diaz
|
2
|
6,399,565
|
―
|
―
|
C.
Holmes
|
3
|
4,018,565
|
―
|
―
|
(1)
|
The
discount rate used to calculate present value benefits for active
participants is 5.54%, Moody’s Aa Corporate Bond rate at December 31,
2008, used for 2009 plan year. The new rate as of 12/31/2009 to be used
for the 2010 plan year is 5.49%.
|
(2)
|
The
Normal Retirement Benefit is the highest three-year average compensation
times the applicable benefit percentage. Estimated amounts are based on
current compensation with no increases in 2010 and 2011 and 5% annual
growth thereafter.
|
NonQualified
Deferred Compensation Plan
|
TSFG
maintains Deferred Compensation Plans for its executive officers and Directors.
TSFG’s original deferred compensation plan was implemented March 3, 2000 (the
“Prior Plan”). In connection with amendments to Internal Revenue Code Section
409A, the Prior Plan was frozen as of December 31, 2004 so that the benefits
payable under the Prior Plan are limited to those benefits, including earnings
accrued after December 31, 2004, that are not subject to Code Section 409A
because they were earned and vested as of December 31, 2004 (i.e., they are
“grandfathered” within the meaning of applicable Treasury Regulations). The
Prior Plan is substantially similar to the current Deferred Compensation Plan,
except for amendments mandated by Section 409A.
This
paragraph provides a general description of the current Deferred Compensation
Plan (in this section, the “Plan”), but is qualified in all respects to the
terms of the Plan itself, which has been filed by TSFG as an exhibit to its
Annual Report on Form 10-K. Participation in the Plan is limited to certain
“highly compensated employees” (as defined in ERISA) and Directors of TSFG, as
determined by the Compensation Committee in its sole discretion. From that
group, the Committee selects, in its sole discretion, employees and Directors to
participate in the Plan. All Directors have been selected for participation.
Approximately 15 employees participate in the Plan. Cash compensation, and stock
compensation in the case of Directors, may be deferred. Minimum deferrals are
$1,000. Maximum deferrals are 80% of base and 100% of bonus and Director fees.
Irrevocable initial deferral elections must be made within various timeframes
prescribed in the Plan, with special rules applicable to deferrals related to
performance-based compensation. TSFG matches up to a maximum of 10% of such
deferrals, except that Director fees are not eligible for the Company match.
Participants are 100% vested in their deferral accounts. A participant does not
vest in Company match amounts until the fifth year anniversary of the match, at
which point the Participant shall become 100% vested in such amount, provided
that in the event of a change in control, or upon a participant’s retirement,
death or disability, the match amount becomes 100% vested. Participants elect
one or more investment alternatives made available. There is a TSFG stock fund
that is available to all participants. Distributions may be made under various
circumstances and pursuant to detailed rules set forth in the Plan, including
in-service distributions if adequately designated in advance by the participant,
distributions upon unforeseeable emergencies (determined in the discretion of
the Compensation Committee), distributions upon a change in control of TSFG (if
so elected by the participant) and distributions upon retirement, termination of
employment, death and disability. Participants and their beneficiaries, heirs,
successors and assigns have no legal or equitable rights, interests or claims in
any property or assets of TSFG. For purposes of the payment of benefits under
the Plan, any and all of TSFG’s assets remain the general, unpledged,
unrestricted assets of TSFG.
37
The table
below sets forth matters with respect to both the Prior Plan and the Plan on a
combined basis.
Name
|
Executive
Contributions
in
Last FY ($)
|
Registrant
Contributions
in Last FY ($)(1)
|
Aggregate
Earnings
in
Last
FY ($)
|
Aggregate
Withdrawals/
Distributions
($)
|
Aggregate
Balance
at Last FYE ($)(2)
|
L.
Harton
|
―
|
―
|
―
|
―
|
―
|
J.
Gordon
|
―
|
―
|
$
(19,573)
|
$ 14,323
|
$ 1,049
|
W.
Crawford
|
―
|
15,000
|
34,927
|
92,257
|
84,360
|
E.
Diaz
|
―
|
―
|
114
|
21,507
|
2,154
|
C.
Holmes
|
―
|
―
|
(4,940)
|
89,151
|
8,873
|
(1)
This
amount is included in the amount shown in the All Other Compensation column of
the Summary Compensation Table.
(2)
|
TSFG
contributions paid on behalf of each Named Executive Officer for 2009 and
for the previous two years are shown below. All such amounts have been
reported in the Summary Compensation Table for the year in which they were
paid to the extent that the individual was a Named Executive Officer in
that year.
|
Name
|
2009
($)
|
Past
Two Years ($)
|
Total
($)
|
H.
Lynn Harton
|
―
|
―
|
―
|
James
R. Gordon
|
―
|
5,567
|
5,567
|
William
P. Crawford, Jr.
|
15,000
|
30,000
|
45,000
|
Ernie
Diaz
|
―
|
2,000
|
2,000
|
Christopher
T. Holmes
|
―
|
11,395
|
11,395
|
Potential
Payments Upon Termination or
Change
in Control
|
The
following tables set forth the payments that would have been made to each Named
Executive Officer according to the terms of their respective employment
agreement upon a termination or change in control.
It should
be noted, however, that with respect to any termination or change in control
events occurring during the period that TSFG remains a participant in the CPP,
TSFG will be subject to the new limitations imposed by the American Recovery and
Reinvestment Act which will prohibit TSFG from making any payments to any Named
Executive Officer in connection with his or her departure from the Company for
any reason except for payments for services performed or benefits
accrued.
H.
Lynn Harton
TSFG and
Mr. Harton entered into an employment agreement dated February 25, 2008. The
following is a summary of its material provisions.
The term
of the contract is a “rolling” three years, provided that upon notice, either
party may make it a fixed term of three years. TSFG agreed to employ Mr. Harton
as an executive officer (now president and chief executive officer). His base
salary is determined by the Board of Directors from time to time. Mr. Harton is
entitled to participate in the MPIP and the LTIP at levels within the Board’s
discretion. Mr. Harton was eligible to participate in TSFG’s 401(k), its SERP
and other plans and programs provided by TSFG to other senior executives of the
Company. Mr. Harton is also entitled to fringe benefits and perquisite plans and
programs on a basis commensurate with his position.
Mr.
Harton’s employment may be terminated by him voluntarily at Early Retirement or
at Normal Retirement, by him for “good reason,” by TSFG for cause or without
cause, or by his death or disability. The term “good reason” is generally
defined as TSFG breaching the agreement, Mr. Harton being assigned duties
inconsistent with his position or TSFG requiring Mr. Harton to relocate or
travel significantly more. The table below sets forth the compensation payable
to Mr. Harton in each such situation. In each case, the payments must be made in
a lump sum, unless indicated otherwise, or unless Mr. Harton elects a non-lump
sum alternative. All unvested forms of compensation vest upon a termination of
Mr. Harton’s employment by him for good reason, or by TSFG in the absence of
cause. Mr. Harton’s agreement provides that he will be entitled to a “gross-up”
payment to compensate him for any excise tax liability under Section 4999 of the
Internal Revenue Code.
Mr.
Harton is obligated for the two-year period following his termination of
employment, not to solicit or hire TSFG employees or to compete against TSFG by
working for any other bank, thrift, or other lending institution headquartered
in any county in which the Company has a physical presence which would involve
Executive engaging in the same or substantially similar activities as those he
provided to TSFG at the time of his termination.
38
The table
below sets forth the compensation that would have been payable to Mr. Harton in
each such situation if it had occurred on December 31, 2009. The compensation
set forth will be subject to the limitations imposed by the American Recovery
and Reinvestment Act, which will prohibit TSFG from making any payments to any
Named Executive Officer in connection with their departure from the Company for
any reason except for payments for services performed or benefits
accrued.
Benefit
|
Voluntary
Termination
(pre-CIC)
(1)
|
Good
Reason by EE (pre-CIC);
Voluntary
Termination (post-CIC) (1)
|
Not
for Cause by Company; Good Reason by EE (post-CIC);
|
For
Cause Termination
|
Change
in Control (2)
|
Death
or Disability
|
Cash
Compensation
|
|
|
|
|
|
|
Base
Salary and Auto Allowance
|
―
|
$669,200
|
$2,007,600
|
―
|
$2,007,600
|
―
|
Cash
Bonus (MPIP)
|
―
|
56,000
|
168,000
|
―
|
168,000
|
―
|
Retention
Award
|
―
|
―
|
500,000
|
―
|
500,000
|
―
|
Equity
Compensation
|
|
LTIP
Restricted Shares and Units
|
―
|
―
|
17,228
|
―
|
17,228
|
―
|
Stock
Options
|
―
|
―
|
―
|
―
|
―
|
―
|
Benefits
and Perquisites
|
|
SERP
(3)
|
―
|
―
|
―
|
―
|
388,922
|
―
|
Life/Disability
Insurance Payments
|
―
|
―
|
4,890
|
―
|
4,890
|
―
|
Financial
Planning
|
―
|
―
|
20,100
|
―
|
20,100
|
―
|
Tax
Gross Up on Perquisites
|
―
|
―
|
10,104
|
―
|
10,104
|
―
|
280G
Tax Gross Up
|
―
|
―
|
1,301,010
|
―
|
1,301,010
|
―
|
Deferred
Compensation Contribution
|
―
|
―
|
―
|
―
|
―
|
―
|
Executive
Physical
|
―
|
―
|
―
|
―
|
―
|
―
|
Charitable
Match
|
―
|
―
|
10,200
|
―
|
10,200
|
―
|
Health
Benefits
|
―
|
―
|
24,351
|
―
|
24,351
|
―
|
TOTAL
|
―
|
$725,200
|
$4,063,483
|
―
|
$4,452,405
|
―
|
(1)
|
Given
Mr. Harton’s age and tenure with the Company, he would not qualify for
Early Retirement or Normal Retirement under any agreements or compensation
plans.
|
(2)
|
Except
for the restricted stock shares and units referenced under “Equity
Compensation,” which would vest immediately upon a change in control, the
change in control must be accompanied by a termination of employment in
order to receive the benefits set forth in this
column.
|
(3)
|
Reflects
only SERP benefits not included in the SERP Plan Benefits table
above.
|
James
R. Gordon
TSFG and
Mr. Gordon entered into an employment agreement dated February 25, 2008. The
following is a summary of its material provisions.
The term
of the contract is a “rolling” three years, provided that upon notice, either
party may make it a fixed term of three years. TSFG agreed to employ Mr. Gordon
as its chief financial officer. His base salary is determined by the Board of
Directors from time to time. Mr. Gordon is entitled to participate in the MPIP
and the LTIP at levels within the Board’s discretion. Mr. Gordon was eligible to
participate in TSFG’s 401(k), its SERP and other plans and programs provided by
TSFG to other senior executives of the Company. Mr. Gordon is also entitled to
fringe benefits and perquisite plans and programs on a basis commensurate with
his position.
Mr.
Gordon’s employment may be terminated by him voluntarily at Early Retirement or
at Normal Retirement, by him for “good reason,” by TSFG for cause or without
cause, or by his death or disability. The term “good reason” is generally
defined as TSFG breaching the agreement, Mr. Gordon being assigned duties
inconsistent with his position or TSFG requiring Mr. Gordon to relocate or
travel significantly more.
39
The table
below sets forth the compensation payable to Mr. Gordon in each such situation.
In each case, the payments must be made in a lump sum, unless indicated
otherwise, or unless Mr. Gordon elects a non-lump sum alternative. All unvested
forms of compensation vest upon a termination of Mr. Gordon’s employment by him
for good reason, or by TSFG in the absence of cause. Mr. Gordon’s agreement
provides that he will be entitled to a “gross-up” payment to compensate him for
any excise tax liability under Section 4999 of the Internal Revenue Code. Mr.
Gordon is obligated for the two-year period following his termination of
employment, not to solicit or hire TSFG employees or to compete (broadly
defined) against TSFG by working for any financial institution which is
headquartered in any county in which TSFG conducts its business.
The table
below sets forth the compensation that would have been payable to Mr. Gordon in
each such situation if it had occurred on December 31, 2009. The compensation
set forth will be subject to the limitations imposed by the American Recovery
and Reinvestment Act, which will prohibit TSFG from making any payments to any
Named Executive Officer in connection with their departure from the Company for
any reason except for payments for services performed or benefits
accrued.
Benefit
|
Voluntary
Termination
(pre-CIC)
(1)
|
Good
Reason by EE (pre-CIC);
Voluntary
Termination (post-CIC) (1)
|
Not
for Cause by Company; Good Reason by EE (post-CIC);
|
For
Cause Termination
|
Change
in Control (2)
|
Death
or Disability
|
Cash
Compensation
|
|
|
|
|
|
|
Base
Salary and Auto Allowance
|
―
|
$364,200
|
$1,092,600
|
―
|
$1,092,600
|
―
|
Cash
Bonus (MPIP)
|
―
|
64,000
|
192,000
|
―
|
192,000
|
―
|
Retention
Bonus
|
―
|
―
|
500,000
|
―
|
500,000
|
―
|
Equity
Compensation
|
|
LTIP
Restricted Shares and Units
|
―
|
―
|
17,709
|
―
|
17,709
|
―
|
Stock
Options
|
―
|
―
|
―
|
―
|
―
|
―
|
Benefits
and Perquisites
|
|
SERP
(3)
|
―
|
―
|
―
|
―
|
394,488
|
―
|
Life/Disability
Insurance Payments
|
―
|
―
|
14,430
|
―
|
14,430
|
―
|
Financial
Planning
|
―
|
―
|
―
|
―
|
―
|
―
|
Tax
Gross Up on Perquisites
|
―
|
―
|
―
|
―
|
―
|
―
|
280G
Tax Gross Up
|
―
|
―
|
785,387
|
―
|
785,387
|
―
|
Deferred
Compensation Contribution
|
―
|
―
|
―
|
―
|
―
|
―
|
Executive
Physical
|
―
|
―
|
―
|
―
|
―
|
―
|
Charitable
Match
|
―
|
―
|
―
|
―
|
―
|
―
|
Health
Benefits
|
―
|
―
|
24,351
|
―
|
24,351
|
―
|
TOTAL
|
―
|
$428,200
|
$2,626,477
|
―
|
$3,020,965
|
―
|
(1)
|
Given
Mr. Gordon’s age and tenure with the Company, he would not qualify for
Early Retirement or Normal Retirement under any agreements or compensation
plans.
|
(2)
|
Except
for the restricted stock shares and units referenced under “Equity
Compensation,” which would vest immediately upon a change in control, the
change in control must be accompanied by a termination of employment in
order to receive the benefits set forth in this
column.
|
(3)
|
Reflects
only SERP benefits not included in the SERP Plan Benefits table
above.
|
William
P. Crawford, Jr.
TSFG and
Mr. Crawford entered into an employment agreement dated February 25, 2008. The
following is a summary of its material provisions.
The term
of the contract is a “rolling” three years, provided that upon notice, either
party may make it a fixed term of three years. TSFG agreed to employ Mr.
Crawford as its general counsel and chief risk officer. His base salary is
determined by the Board of Directors from time to time. Mr. Crawford is entitled
to participate in the MPIP and the LTIP at levels within the Board’s discretion.
Mr. Crawford was eligible to participate in TSFG’s 401(k), its SERP and other
plans and programs provided by TSFG to other senior executives of the Company.
Mr. Crawford is also entitled to fringe benefits and perquisite plans and
programs on a basis commensurate with his position.
40
Mr.
Crawford’s employment may be terminated by him voluntarily at Early Retirement
or at Normal Retirement, by him for “good reason,” by TSFG for cause or without
cause, or by his death or disability. The term “good reason” is generally
defined as TSFG breaching the agreement, Mr. Crawford being assigned duties
inconsistent with his position or TSFG requiring Mr. Crawford to relocate or
travel significantly more. The table below sets forth the compensation payable
to Mr. Crawford in each such situation. In each case, the payments must be made
in a lump sum, unless indicated otherwise, or unless Mr. Crawford elects a
non-lump sum alternative. All unvested forms of compensation vest upon a
termination of Mr. Crawford’s employment by him for good reason, or by TSFG in
the absence of cause. Mr. Crawford’s agreement provides that he will be entitled
to a “gross-up” payment to compensate him for any excise tax liability under
Section 4999 of the Internal Revenue Code. Mr. Crawford is obligated for the
two-year period following his termination of employment, not to solicit or hire
TSFG employees or to compete (broadly defined) against TSFG by working for any
financial institution which is headquartered in any county in which TSFG
conducts its business.
The table
below sets forth the compensation that would have been payable to Mr. Crawford
in each such situation if it had occurred on December 31, 2009. The compensation
set forth will be subject to the limitations imposed by the American Recovery
and Reinvestment Act, which will prohibit TSFG from making any payments to any
Named Executive Officer in connection with their departure from the Company for
any reason except for payments for services performed or benefits
accrued.
Benefit
|
Voluntary
Termination
(pre-CIC)
(1)
|
Good
Reason by EE (pre-CIC);
Voluntary
Termination (post-CIC) (1)
|
Not
for Cause by Company; Good Reason by EE (post-CIC);
|
For
Cause Termination
|
Change
in Control (2)
|
Death
or Disability
|
Cash
Compensation
|
|
|
|
|
|
|
Base
Salary and Auto Allowance
|
―
|
$287,625
|
$862,875
|
―
|
$862,875
|
―
|
Cash
Bonus (MPIP)
|
―
|
31,167
|
93,501
|
―
|
93,501
|
―
|
Equity
Compensation
|
|
LTIP
Restricted Shares and Units
|
―
|
―
|
8,185
|
―
|
8,185
|
―
|
Stock
Options
|
―
|
―
|
―
|
―
|
―
|
―
|
Benefits
and Perquisites
|
|
SERP
(3)
|
―
|
―
|
―
|
―
|
244,215
|
―
|
Life/Disability
Insurance Payments
|
―
|
―
|
16,701
|
―
|
16,701
|
―
|
Financial
Planning
|
―
|
―
|
11,175
|
―
|
11,175
|
―
|
Tax
Gross Up on Perquisites
|
―
|
―
|
―
|
―
|
―
|
―
|
280G
Tax Gross Up
|
―
|
―
|
516,197
|
―
|
516,197
|
―
|
Deferred
Compensation Contribution
|
―
|
―
|
45,000
|
―
|
45,000
|
―
|
Executive
Physical
|
―
|
―
|
―
|
―
|
―
|
―
|
Charitable
Match
|
―
|
―
|
13,500
|
―
|
13,500
|
―
|
Health
Benefits
|
―
|
―
|
24,351
|
―
|
24,351
|
―
|
TOTAL
|
―
|
$318,792
|
$1,591,485
|
―
|
$1,835,700
|
―
|
(1)
|
Given
Mr. Crawford's age and tenure with the Company, he would not qualify for
Early Retirement or Normal Retirement under any agreements or compensation
plans.
|
(2)
|
Except
for the restricted stock shares and units referenced under “Equity
Compensation,” which would vest immediately upon a change in control, the
change in control must be accompanied by a termination of employment in
order to receive the benefits set forth in this
column.
|
(3)
|
Reflects
only SERP benefits not included in the SERP Plan Benefits table
above.
|
41
J.
Ernie Diaz
TSFG and
Mr. Diaz entered into an employment agreement dated September 12, 2007. The
following is a summary of its material provisions.
The term
of the contract is a “rolling” one year, provided that upon notice, either party
may make it a fixed term of one year. TSFG agreed to employ Mr. Diaz as the
president of its banking operations in Florida. His base salary is determined by
the Board of Directors from time to time. Mr. Diaz is entitled to participate in
the MPIP and the LTIP at levels within the Board’s discretion. Mr. Diaz is
eligible to participate in TSFG’s 401(k), its SERP and other plans and programs
provided by TSFG to other senior executives of the Company. Mr. Diaz is also
entitled to fringe benefits and perquisite plans and programs on a basis
commensurate with her position.
Mr. Diaz’
employment may be terminated by her voluntarily at Early Retirement or at Normal
Retirement, by her for “good reason,” by TSFG for cause or without cause, or by
his death or disability. The term “good reason” is generally defined as TSFG
breaching the agreement, Mr. Diaz being assigned duties inconsistent with his
position or TSFG requiring Mr. Diaz to relocate or travel significantly more.
The table below sets forth the compensation payable to Mr. Diaz in each such
situation. In each case, the payments must be made in a lump sum, unless
indicated otherwise, or unless Mr. Diaz elects a non-lump sum alternative. All
unvested forms of compensation vest upon a termination of Mr. Diaz’ employment
by him for good reason, or by TSFG in the absence of cause. Mr. Diaz is
obligated for the one-year period following his termination of employment, not
to solicit or hire TSFG employees or to compete (broadly defined) against TSFG
by working for any financial institution which is headquartered in any county in
which TSFG conducts its business.
The table
below sets forth the compensation that would have been payable to Mr. Diaz in
each such situation if it had occurred on December 31, 2009. The compensation
set forth will be subject to the limitations imposed by the American Recovery
and Reinvestment Act, which will prohibit TSFG from making any payments to any
Named Executive Officer in connection with their departure from the Company for
any reason except for payments for services performed or benefits
accrued.
Benefit
|
Voluntary
Termination
(pre-CIC)
(1)
|
Good
Reason by EE (pre-CIC);
Voluntary
Termination (post-CIC) (1)
|
Not
for Cause by Company; Good Reason by EE (post-CIC);
|
For
Cause Termination
|
Change
in Control (2)
|
Death
or Disability
|
Cash
Compensation
|
|
|
|
|
|
|
Base
Salary and Auto Allowance
|
―
|
$349,000
|
$698,000
|
―
|
$698,000
|
―
|
Cash
Bonus (MPIP)
|
―
|
66,667
|
133,334
|
―
|
133,334
|
―
|
Equity
Compensation
|
|
LTIP
Restricted Shares and Units
|
―
|
―
|
4,405
|
―
|
4,405
|
―
|
Stock
Options
|
―
|
―
|
―
|
―
|
―
|
―
|
Benefits
and Perquisites
|
|
SERP
(3)
|
―
|
―
|
―
|
―
|
193,062
|
―
|
Life/Disability
Insurance Payments
|
―
|
―
|
―
|
―
|
―
|
―
|
Financial
Planning
|
―
|
―
|
―
|
―
|
―
|
―
|
Tax
Gross Up on Perquisites
|
―
|
―
|
―
|
―
|
―
|
―
|
280G
Tax Gross Up
|
―
|
―
|
―
|
―
|
―
|
―
|
Deferred
Compensation Contribution
|
―
|
―
|
―
|
―
|
―
|
―
|
Executive
Physical
|
―
|
―
|
―
|
―
|
―
|
―
|
Charitable
Match
|
―
|
―
|
―
|
―
|
―
|
―
|
Health
Benefits
|
―
|
―
|
16,234
|
―
|
16,234
|
―
|
TOTAL
|
―
|
$415,667
|
$851,973
|
―
|
$1,045,035
|
―
|
(1)
|
Given
Mr. Diaz’ age and tenure with the Company, he would not qualify for Early
Retirement or Normal Retirement under any agreements or compensation
plans.
|
(2)
|
Except
for the restricted stock shares and units referenced under “Equity
Compensation,” which would vest immediately upon a change in control, the
change in control must be accompanied by a termination of employment in
order to receive the benefits set forth in this
column.
|
(3)
|
Reflects
only SERP benefits not included in the SERP Plan Benefits table
above.
|
42
Christopher
T. Holmes
Mr.
Holmes’ employment was terminated in January 2010. However, at December 31,
2009, the terms of an employment agreement between TSFG and Mr. Holmes dated
February 25, 2008 were in effect. The following is a summary of material
provisions of that agreement.
The term
of the contract was a “rolling” three years, provided that upon notice, either
party may make it a fixed term of three years. TSFG agreed to employ Mr. Holmes
as its director of retail operations. His base salary is determined by the Board
of Directors from time to time. Mr. Holmes was entitled to participate in the
MPIP and the LTIP at levels within the Board’s discretion. Mr. Holmes was
eligible to participate in TSFG’s 401(k), its SERP and other plans and programs
provided by TSFG to other senior executives of the Company. Mr. Holmes was also
entitled to fringe benefits and perquisite plans and programs on a basis
commensurate with his position.
The terms
of the agreement provided for termination by him voluntarily at Early Retirement
or at Normal Retirement, by him for “good reason”, by TSFG for cause or without
cause, or by his death or disability. The term “good reason” was generally
defined as TSFG breaching the agreement, Mr. Holmes being assigned duties
inconsistent with his position or TSFG requiring Mr. Holmes to relocate or
travel significantly more. The table below sets forth the compensation payable
to Mr. Holmes in each such situation. In each case, the payments would have been
made in a lump sum, unless indicated otherwise, or unless Mr. Holmes elected a
non-lump sum alternative. All unvested forms of compensation would have vested
upon a termination of Mr. Holmes’s employment by him for good reason, or by TSFG
in the absence of cause. Mr. Holmes’s agreement provided that he would have been
entitled to a “gross-up” payment to compensate him for any excise tax liability
under Section 4999 of the Internal Revenue Code. Mr. Holmes is obligated for the
two-year period following his termination of employment, not to solicit or hire
TSFG employees or to compete (broadly defined) against TSFG by working for any
financial institution which is headquartered in any county in which TSFG
conducts its business.
The table
below sets forth the compensation that would have been payable to Mr. Holmes in
each such situation if it had occurred on December 31, 2009. The compensation
set forth would be subject to the limitations imposed by the American Recovery
and Reinvestment Act, which would prohibit TSFG from making any payments to any
Named Executive Officer in connection with their departure from the Company for
any reason except for payments for services performed or benefits
accrued.
Benefit
|
Voluntary
Termination
(pre-CIC)
(1)
|
Good
Reason by EE (pre-CIC);
Voluntary
Termination (post-CIC) (1)
|
Not
for Cause by Company; Good Reason by EE (post-CIC);
|
For
Cause Termination
|
Change
in Control (2)
|
Death
or Disability
|
Cash
Compensation
|
|
|
|
|
|
|
Base
Salary and Auto Allowance
|
―
|
$244,200
|
$732,600
|
―
|
$732,600
|
―
|
Cash
Bonus (MPIP)
|
―
|
44
|
132
|
―
|
132
|
―
|
Retention
Bonus
|
|
―
|
500,000
|
―
|
500,000
|
―
|
Equity
Compensation
|
|
LTIP
Restricted Shares and Units
|
―
|
―
|
16,256
|
―
|
16,256
|
―
|
Stock
Options
|
―
|
―
|
―
|
―
|
―
|
―
|
Benefits
and Perquisites
|
|
SERP
(3)
|
―
|
―
|
―
|
―
|
253,414
|
―
|
Life/Disability
Insurance Payments
|
―
|
―
|
11,121
|
―
|
11,121
|
―
|
Financial
Planning
|
―
|
―
|
2,250
|
―
|
2,250
|
―
|
Tax
Gross Up on Perquisites
|
―
|
―
|
1,131
|
―
|
1,131
|
―
|
280G
Tax Gross Up
|
―
|
―
|
513,529
|
―
|
513,529
|
―
|
Deferred
Compensation Contribution
|
―
|
―
|
―
|
―
|
―
|
―
|
Executive
Physical
|
―
|
―
|
―
|
―
|
―
|
―
|
Charitable
Match
|
―
|
―
|
―
|
―
|
―
|
―
|
Health
Benefits
|
―
|
―
|
24,351
|
―
|
24,351
|
―
|
TOTAL
|
―
|
$244,244
|
$1,801,370
|
―
|
$2,054,784
|
―
|
(1)
|
Given
Mr. Holmes’s age and tenure with the Company, he would not have qualified
for Early Retirement or Normal Retirement under any agreements or
compensation plans.
|
(2)
|
Except
for the restricted stock shares and units referenced under “Equity
Compensation,” which would have vested immediately upon a change in
control, the change in control must have been accompanied by a termination
of employment in order for Mr. Holmes to have been eligible to receive the
benefits set forth in this column.
|
(3)
|
Reflects
only SERP benefits not included in the SERP Plan Benefits table
above.
|
43
Equity
Compensation Plan Data
|
The table below sets forth information
regarding TSFG’s equity compensation plans at December 31, 2009.
Plan
Category
|
Number
of securities to be issued upon exercise of outstanding options, warrants
and rights
|
Weighted-average
exercise price of outstanding options, warrants and rights
|
Number
of securities remaining available for future issuance under equity
compensation plans (excluding securities reflected in the first column of
numbers)
|
Equity
compensation plans
approved
by security holders
(1)(2)
|
|
|
|
Equity
compensation plans not
approved
by security holders
(3)
|
─
|
─
|
─
|
Total
|
4,045,398
|
$18.02
|
2,456,586
|
(1)
|
These
plans (as defined in the applicable SEC rules) are as follows: TSFG Stock
Option Plan, the TSFG Restricted Stock Agreement Plan, the Director Stock
Option Plan, the Amended and Restated Fortune 50 Plan, the TSFG Long-Term
Incentive Plan, and option plans assumed by TSFG as a result of
acquisitions.
|
(2)
|
Of
this amount, 199,778 options are outstanding pursuant to non-TSFG
Plans.
|
(3)
|
TSFG
has adopted no “equity compensation plans” as defined in the applicable
SEC rules, which have not been approved by its shareholders. TSFG believes
that all equity compensation plans to which it succeeded in connection
with mergers and acquisitions were approved by such acquired entities’
shareholders.
|
Proposal
No. 2 – Approval Of
Articles
Of
Amendment Setting Authorized Common
Stock
|
The Board
of Directors has adopted resolutions (1) declaring that an amendment to our
Articles of Incorporation to set the number of authorized shares of our common
stock at 1.35 billion shares was advisable (the “Authorized Share Increase”),
and (2) directing that a proposal to approve the Authorized Share Increase
be submitted to the holders of our common stock for their approval at the Annual
Meeting.
The form
of the proposed amendment to our Articles of Incorporation to effect the
Authorized Share Increase is attached to this proxy statement as Annex
A.
Background and Reasons for the Authorized Share
Increase
Our
Articles of Incorporation currently authorize the issuance of 325,000,000 shares
of common stock. As of March 15, 2010, there were 215,625,225 shares of common
stock. Of the remaining 109,374,775 but unissued shares of common stock, an
aggregate of 18,182,284 shares were reserved for issuance under our Dividend
Reinvestment Plan, Employee Stock Purchase Plan, equity incentive plans,
conversions of outstanding preferred shares, and other outstanding warrant
agreements. As a result, we had only 91,192,491 shares of common stock
unreserved and available for future issuance as of March 15, 2010.
As
previously publicly disclosed, we have initiated a process to identify and
evaluate a broad range of strategic alternatives to substantially strengthen our
capital base and enhance shareholder value. In addition, we have also previously
publicly noted that, in order to remain well capitalized under federal banking
agencies’ guidelines and to satisfy higher regulatory capital expectations
generally, we believe that we will be need to raise substantial additional
capital. Among the capital raising alternatives under consideration are public
and private sales of common stock and preferred stock. While we have no
definitive plans, undertakings, arrangements or agreements at this time for
issuing additional shares of common stock or preferred stock, the Board of
Directors believes that it is advisable to increase the number of authorized
shares of common stock to ensure that we will have a sufficient number of
available shares to undertake a potential common stock offering and to assure
flexibility in the future. This increase would avoid the possible delay and
expense of holding a special meeting of shareholders at a later
date.
44
In
addition to providing the shares necessary for a common stock offering, we would
also be able to use the additional shares in connection with merger and
acquisition opportunities, the issuance of shares under current or future equity
incentive plans for our directors, officers and employees, the issuance of stock
dividends, stock splits, and other corporate purposes.
Procedure for Implementing the Authorized Share
Increase
The
Authorized Share Increase, if approved by our shareholders, would become
effective upon the filing of articles of amendment to our Articles of
Incorporation with the Secretary of State of the State of South Carolina. If the
Authorized Share Increase is approved by our shareholders, we expect to file the
articles of amendment effecting the Authorized Share Increase promptly upon such
approval and in any event prior to filing articles of amendment effecting the
Reverse Stock Split (and related share decrease) discussed below in “Proposal
No. 3 — Amendment to Articles of Incorporation to Effect a Reverse
Stock Split.”
As
described below in Proposal No. 3, we are proposing a Reverse Stock Split of not
less than one-for-five and not more than one-for-fifty, with the exact ratio to
be set at a whole number within this range as determined by the Board of
Directors in its sole discretion. Regardless of whether this Authorized Share
Increase proposal is approved, the Reverse Stock Split will proportionately
reduce our number of authorized common shares in accordance with reverse stock
split ratio.
Authority of the Board of Directors to Issue Additional Shares
of Common Stock
If this
amendment is approved and we are authorized to issue additional shares of common
stock, the Board of Directors will determine whether, when, and on what terms to
issue the additional shares of common stock without further action by our
shareholders, unless shareholder approval is required by applicable law or
securities exchange listing requirements in connection with a particular
transaction.
Dilution to Existing Shareholders
Our
shareholders do not have preemptive rights. Therefore, if we decide to issue
additional shares of common stock, we would have the discretion to determine to
whom we offer these additional shares and would not be obligated to first offer
these shares to our existing shareholders. Except for a stock split or stock
dividend, issuances of common shares will dilute the voting power and ownership
of our existing shareholders and will dilute earnings or loss per share of
common stock. Depending on the price at which the shares are issued, an issuance
may reduce the per share book value of the Company’s common shares. Currently,
we expect that any near-term issuance would be substantially dilutive to our
existing shareholders and would reduce our book value per share.
No Appraisal Rights
Under
South Carolina law and our Articles of Incorporation, holders of our common
stock will not be entitled to dissenter’s rights or appraisal rights with
respect to the Authorized Share Increase.
Vote Required to Approve the Amendment and
Recommendation
Approval
of the Authorized Share Increase proposal requires the affirmative vote of
holders of two-thirds of the shares of common stock and Convertible Preferred
Stock (voting together as a single class) entitled to vote as of the Record
Date. Under South Carolina law, the affirmative vote of holders of two-thirds of
the shares of common stock entitled to vote as of the Record Date, counted
separately as a class without the Convertible Preferred Stock, is also required
to approve the Authorized Share Increase. Approval by our shareholders of the
Authorized Share Increase is not conditioned upon approval by our shareholders
of the Reverse Stock Split; conversely, approval by our shareholders of the
Reverse Stock Split is not conditioned upon approval by our shareholders of the
Authorized Share Increase.
45
The
Board of Directors unanimously recommends that shareholders vote
FOR
the Authorized
Share Increase.
Proposal
No. 3 – Approval of Amendment to Articles of Incorporation to Effect a
Reverse Stock Split
|
The Board
of Directors has adopted resolutions (1) declaring that an amendment to our
Articles of Incorporation to effect a reverse stock split, as described below,
was advisable and (2) directing that a proposal to approve the Reverse
Stock Split be submitted to the holders of our common stock for their approval
at the Annual Meeting.
The form
of the proposed amendment to our Articles of Incorporation to effect the Reverse
Stock Split is attached to this proxy statement as Annex B. If approved by our
shareholders, the Reverse Stock Split would permit (but not require) the Board
of Directors to effect a reverse stock split of our common stock at any time
prior to November 30, 2010 by a ratio of not less than one-for-five and not more
than one-for-fifty, with the exact ratio to be set at a whole number within this
range as determined by the Board of Directors in its sole discretion. We believe
that enabling the Board of Directors to set the ratio within the stated range
will provide us with the flexibility to implement the Reverse Stock Split in a
manner designed to maximize the anticipated benefits for our shareholders. In
determining a ratio, if any, following the receipt of shareholder approval, the
Board of Directors may consider, among other things, factors such
as:
·
|
the
historical trading price and trading volume of our common
stock;
|
·
|
the
number of shares of our common stock
outstanding;
|
·
|
the
then-prevailing trading price and trading volume of our common stock and
the anticipated impact of the Reverse Stock Split on the trading market
for our common stock;
|
·
|
the
anticipated impact of a particular ratio on our ability to reduce
administrative and transactional costs;
and
|
·
|
prevailing
general market and economic
conditions.
|
The Board
of Directors reserves the right to elect to abandon the Reverse Stock Split,
including any or all proposed reverse stock split ratios, if it determines, in
its sole discretion, that the Reverse Stock Split is no longer in the best
interests of the Company and its shareholders.
Depending
on the ratio for the Reverse Stock Split determined by the Board of Directors,
five to fifty shares of existing common stock will be combined into one share of
common stock. The number of shares of common stock issued and outstanding will
therefore be reduced, depending upon the reverse stock split ratio determined by
the Board of Directors. The amendment to the Articles of Incorporation that is
filed to effect the Reverse Stock Split, if any, will include only the reverse
split ratio determined by the Board of Directors to be in the best interests of
our shareholders and all of the other proposed amendments at different ratios
will be abandoned.
If the
Reverse Stock Split is effected, we will also reduce the number of authorized
shares of our common stock, as described below in “— Authorized Shares.”
Accordingly, we are also proposing to adopt amendments to our Articles of
Incorporation to reduce the total number of authorized shares of common stock,
depending on the reverse split ratio determined by the Board of Directors. If
the Board of Directors abandons the Reverse Stock Split, it will also abandon
the related reduction in the number of authorized shares.
To avoid
the existence of fractional shares of our common stock, shareholders of record
who would otherwise hold fractional shares as a result of the Reverse Stock
Split will be entitled to receive cash (without interest) in lieu of such
fractional shares from our transfer agent. The total amount of cash that will be
paid to holders of fractional shares following the Reverse Stock Split will be
an amount equal to the net proceeds (after customary brokerage commissions,
other expenses and applicable withholding taxes) attributable to the sale of
such fractional shares following the aggregation and sale by our transfer agent
of all fractional shares otherwise issuable. Holders of fractional shares as a
result of the Reverse Stock Split will be paid such proceeds on a pro rata
basis, depending on the fractional amount of shares that they
owned.
46
Background and Reasons for the Reverse Stock
Split
The Board
of Director’s primary objective in proposing the Reverse Split is to raise the
per share trading price of our common stock so as to cause and maintain
compliance with the NASDAQ listing requirements. The NASDAQ listing requirements
generally require a bid price in excess of $1. The Board of Directors believes
that the liquidity and marketability of our common stock will be adversely
affected if it is not quoted on a national securities exchange, as in such
event, investors can find it more difficult to dispose of, or to obtain accurate
quotations as to the market value of, our common stock. The Board of Directors
believes that current and prospective investors will view an investment in our
common stock more favorably if our common stock remains listed on the Nasdaq
Stock Market. It is also believed that increasing the market price of our common
stock will make our common stock more attractive to a broader range of
institutional and other investors. In addition to increasing the market price of
our common stock, the Reverse Stock Split would also reduce certain of our
costs, as discussed below. Accordingly, for these and other reasons discussed
below, we believe that effecting the Reverse Stock Split is in the Company’s and
our shareholders’ best interests.
We
believe, as briefly noted above, that the Reverse Stock Split will make our
common stock more attractive to a broader range of institutional and other
investors, as we have been advised that the current market price of our common
stock may affect its acceptability to certain institutional investors,
professional investors and other members of the investing public. Many brokerage
houses and institutional investors have internal policies and practices that
either prohibit them from investing in low-priced stocks or tend to discourage
individual brokers from recommending low-priced stocks to their customers. In
addition, some of those policies and practices may function to make the
processing of trades in low-priced stocks economically unattractive to brokers.
Moreover, because brokers’ commissions on low-priced stocks generally represent
a higher percentage of the stock price than commissions on higher-priced stocks,
the current average price per share of common stock can result in individual
shareholders paying transaction costs representing a higher percentage of their
total share value than would be the case if the share price were substantially
higher. We believe that the Reverse Stock Split will make our common stock a
more attractive and cost effective investment for many investors, which will
enhance the liquidity of the holders of our common stock.
Reducing
the number of outstanding shares of our common stock through the Reverse Stock
Split is intended, absent other factors, to increase the per share market price
of our common stock. However, other factors, such as our financial results,
market conditions and the market perception of our business may adversely affect
the market price of our common stock. As a result, there can be no assurance
that the Reverse Stock Split, if completed, will result in the intended benefits
described above, that the market price of our common stock will increase
following the Reverse Stock Split or that the market price of our common stock
will not decrease in the future. Additionally, we cannot assure you that the
market price per share of our common stock after a Reverse Stock Split will
increase in proportion to the reduction in the number of shares of our common
stock outstanding before the Reverse Stock Split. Accordingly, the total market
capitalization of our common stock after the Reverse Stock Split may be lower
than the total market capitalization before the Reverse Stock
Split.
Currently,
the fees that we pay to list our shares on the NASDAQ Global Select Market are
based on the number of shares we have outstanding. Also, the fees that we pay
for custody and clearing services, the fees that we pay to the SEC to register
securities for issuance and the costs of our proxy solicitations are all based
on or related to the number of shares being held, cleared or registered as
applicable. Reducing the number of shares that are outstanding and that will be
issued in the future may reduce the amount of fees and tax that we pay to these
organizations and agencies, as well as other organizations and agencies that
levy charges based on the number of shares rather than the value of the
shares.
Procedure for Implementing the Reverse Stock
Split
The
Reverse Stock Split, if approved by our shareholders, would become effective
upon the filing (the “Effective Time”) of articles of amendment to our Articles
of Incorporation with the Secretary of State of the State of South Carolina. The
exact timing of the filing of the articles of amendment that will effect the
Reverse Stock Split will be determined by the Board of Directors based on its
evaluation as to when such action will be the most advantageous to the Company
and our shareholders. In addition, the Board of Directors reserves the right,
notwithstanding shareholder approval and without further action by the
shareholders, to elect not to proceed with the Reverse Stock Split if, at any
time prior to filing the articles of amendment, the Board of Directors, in its
sole discretion, determines that it is no longer in our best interest and the
best interests of our shareholders to proceed with the Reverse Stock Split. If
articles of amendment effecting the Reverse Stock Split have not been filed with
the Secretary of State of the State of South Carolina by the close of business
on November 30, 2010, the Board of Directors will abandon the Reverse Stock
Split.
47
Effect
of the Reverse Stock Split on Holders of Outstanding Common Stock
Depending
on the ratio for the Reverse Stock Split determined by the Board of Directors,
any whole number of shares from ten to fifty (inclusive) of existing common
stock will be combined into one new share of common stock. The number of shares
of common stock issued and outstanding will therefore be reduced, depending upon
the reverse stock split ratio determined by the Board of Directors. If the
Authorized Share Increase proposal is not approved, then the authorized shares
of common stock (currently 325,000,000) will be reduced proportionately in
accordance with reverse stock split ratio.
The table
below shows, as of March 15, 2010, the number of authorized and issued shares of
common stock that would result from the listed hypothetical reverse stock split
ratios (without giving effect to the treatment of fractional
shares):
|
|
Number
of authorized shares of common stock
following
the Reverse Stock Split
|
Reverse
Stock Split
Ratio
|
Shares
Outstanding
|
If Authorized Share
Increase
is approved
|
If Authorized Share
Increase
is not approved
|
1-for-5
|
43,125,045
|
270,000,000
|
65,000,000
|
1-for-10
|
21,562,522
|
135,000,000
|
32,500,000
|
1-for-15
|
14,375,015
|
90,000,000
|
21,666,666
|
1-for-20
|
10,781,261
|
67,500,000
|
16,250,000
|
1-for-25
|
8,625,009
|
54,000,000
|
13,000,000
|
1-for-30
|
7,187,507
|
45,000,000
|
10,833,333
|
1-for-50
|
4,312,504
|
27,000,000
|
6,500,000
|
The
actual number of shares outstanding after giving effect to the Reverse Stock
Split, if implemented, will depend on the reverse stock split ratio that is
ultimately determined by the Board of Directors. The actual number of authorized
shares after giving effect to the Reverse Stock Split, if implemented, will
depend on the reverse stock split ratio that is ultimately determined by the
Board of Directors and whether the Authorized Share Increase discussed above in
“Proposal No. 2—Amendment to Articles of Incorporation to Set Number of
Authorized Shares” is approved.
The
Reverse Stock Split will affect all holders of our common stock uniformly and
will not affect any shareholder’s percentage ownership interest in the Company,
except that as described below in “—Fractional Shares,” record holders of common
stock otherwise entitled to a fractional share as a result of the Reverse Stock
Split will receive a cash payment in lieu of such fractional share. These cash
payments will reduce the number of post-Reverse Stock Split holders of our
common stock to the extent there are currently shareholders who would otherwise
receive less than one share of common stock after the Reverse Stock Split. In
addition, the Reverse Stock Split will not affect any shareholder’s
proportionate voting power (subject to the treatment of fractional
shares).
The
Reverse Stock Split may result in some shareholders owning “odd lots” of less
than 100 shares of common stock. Odd lot shares may be more difficult to sell,
and brokerage commissions and other costs of transactions in odd lots are
generally somewhat higher than the costs of transactions in “round lots” of even
multiples of 100 shares.
After the
Effective Time, our common stock will have new Committee on Uniform Securities
Identification Procedures (CUSIP) numbers, which is a number used to identify
our equity securities, and stock certificates with the older CUSIP numbers will
need to be exchanged for stock certificates with the new CUSIP numbers by
following the procedures described below.
After the
Effective Time, we will continue to be subject to the periodic reporting and
other requirements of the Securities Exchange Act of 1934, as amended. Our
common stock will continue to be listed on the NASDAQ Global Select Market under
the symbol “TSFG”, although NASDAQ will add the letter “D” to the end of the
trading symbol for a period of 20 trading days after the Effective Time to
indicate that a reverse stock split has occurred.
48
Beneficial
Holders of Common Stock (i.e. shareholders who hold in street name)
Upon the
implementation of the Reverse Stock Split, we intend to treat shares held by
shareholders through a bank, broker, custodian or other nominee in the same
manner as registered shareholders whose shares are registered in their names.
Banks, brokers, custodians or other nominees will be instructed to effect the
Reverse Stock Split for their beneficial holders holding our common stock in
street name. However, these banks, brokers, custodians or other nominees may
have different procedures than registered shareholders for processing the
Reverse Stock Split and making payment for fractional shares. Shareholders who
hold shares of our common stock with a bank, broker, custodian or other nominee
and who have any questions in this regard are encouraged to contact their banks,
brokers, custodians or other nominees.
Registered
“Book-Entry” Holders of Common Stock (i.e. shareholders that are registered on
the transfer agent’s books and records but do not hold stock
certificates)
Certain
of our registered holders of common stock may hold some or all of their shares
electronically in book-entry form with the transfer agent. These shareholders do
not have stock certificates evidencing their ownership of the common stock. They
are, however, provided with a statement reflecting the number of shares
registered in their accounts.
Shareholders
who hold shares electronically in book-entry form with the transfer agent will
not need to take action (the exchange will be automatic) to receive whole shares
of post-Reverse Stock Split common stock or payment in lieu of any fractional
share interest, if applicable.
Holders
of Certificated Shares of Common Stock
Shareholders
holding shares of our common stock in certificated form will be sent a
transmittal letter by the transfer agent after the Effective Time. The letter of
transmittal will contain instructions on how a shareholder should surrender his,
her or its certificate(s) representing shares of our common stock (the “Old
Certificates”) to the transfer agent in exchange for certificates representing
the appropriate number of whole shares of post-Reverse Stock Split common stock
(the “New Certificates”). No New Certificates will be issued to a shareholder
until such shareholder has surrendered all Old Certificates, together with a
properly completed and executed letter of transmittal, to the transfer agent. No
shareholder will be required to pay a transfer or other fee to exchange his, her
or its Old Certificates. Shareholders will then receive a New Certificate(s)
representing the number of whole shares of common stock that they are entitled
as a result of the Reverse Stock Split. Until surrendered, we will deem
outstanding Old Certificates held by shareholders to be cancelled and only to
represent the number of whole shares of post-Reverse Stock Split common stock to
which these shareholders are entitled. Any Old Certificates submitted for
exchange, whether because of a sale, transfer or other disposition of stock,
will automatically be exchanged for New Certificates. If an Old Certificate has
a restrictive legend on the back of the Old Certificate(s), the New Certificate
will be issued with the same restrictive legends that are on the back of the Old
Certificate(s). If a shareholder is entitled to a payment in lieu of any
fractional share interest, such payment will be made as described below under
“—Fractional Shares.”
SHAREHOLDERS
SHOULD NOT DESTROY ANY STOCK CERTIFICATE(S) AND SHOULD NOT SUBMIT ANY STOCK
CERTIFICATE(S) UNTIL REQUESTED TO DO SO.
Fractional
Shares
We do not
currently intend to issue fractional shares in connection with the Reverse Stock
Split. Therefore, we do not expect to issue certificates representing fractional
shares. Shareholders of record who would otherwise hold fractional shares
because the number of shares of common stock they hold before the Reverse Stock
Split is not evenly divisible by the split ratio ultimately determined by the
Board of Directors will be entitled to receive cash (without interest and
subject to applicable withholding taxes) in lieu of such fractional shares from
our transfer agent. Our transfer agent will aggregate all fractional shares
following the Reverse Stock Split and sell them into the market. The total
amount of cash that will be paid to holders of fractional shares following the
Reverse Stock Split will be an amount equal to the net proceeds (after customary
brokerage commissions and other expenses) attributable to such sale. Holders of
fractional shares as a result of the Reverse Stock Split will be paid such
proceeds on a pro rata basis, depending on the fractional amount of shares that
they owned.
49
If a
shareholder who holds shares in certificated form is entitled to a payment in
lieu of any fractional share interest, the shareholder will receive a check as
soon as practicable after the Effective Time and after the shareholder has
submitted an executed transmittal letter and surrendered all Old Certificates,
as described above in “—Holders of Certificated Shares of Common Stock.” If a
shareholder who holds shares in book-entry form is entitled to a payment in lieu
of any fractional share interest, the shareholder will receive a check as soon
as practicable after the Effective Time without need for further action by the
shareholder. Shareholders who hold shares of our common stock with a bank,
broker, custodian or other nominee should contact their bank, broker, custodian
or other nominee for information on the treatment and processing of fractional
shares by their bank, broker, custodian or other nominee. By signing and cashing
the check, shareholders will warrant that they owned the shares of common stock
for which they received a cash payment. The cash payment is subject to
applicable federal and state income tax and state abandoned property laws.
Shareholders will not be entitled to receive interest for the period of time
between the Effective Time and the date payment is received.
Effect
of the Reverse Stock Split on Employee Plans, Options, Restricted Stock Awards
and Units, Warrants, and Convertible or Exchangeable Securities
Based
upon the reverse stock split ratio determined by the Board of Directors,
proportionate adjustments are generally required to be made to the per share
exercise price and the number of shares issuable upon the exercise or conversion
of all outstanding options, warrants, convertible or exchangeable securities
entitling the holders to purchase, exchange for, or convert into, shares of
common stock. This would result in approximately the same aggregate price being
required to be paid under such options, warrants, convertible or exchangeable
securities upon exercise, and approximately the same value of shares of common
stock being delivered upon such exercise, exchange or conversion, immediately
following the Reverse Stock Split as was the case immediately preceding the
Reverse Stock Split. The number of shares deliverable upon settlement or vesting
of restricted stock awards and units and common stock units in our 401(k)
savings plans or deferred compensation plans will be similarly adjusted. The
number of shares reserved for issuance pursuant to these securities will be
reduced proportionately based upon the reverse stock split ratio determined by
the Board of Directors.
Accounting
Matters
The
proposed amendments to our Articles of Incorporation will not affect the par
value of our common stock per share, which will remain $1.00 per share. As a
result, as of the Effective Time, the stated capital attributable to common
stock and the additional paid-in capital account on our balance sheet will not
change due to the Reverse Stock Split. Reported per share net income or loss
will be higher because there will be fewer shares of common stock
outstanding.
Certain Federal Income Tax Consequences of the Reverse Stock
Split
The
following summary describes certain material U.S. federal income tax
consequences of the Reverse Stock Split to holders of our common
stock.
Unless
otherwise specifically indicated herein, this summary addresses the tax
consequences only to a beneficial owner of our common stock that is a citizen or
individual resident of the United States, a corporation organized in or under
the laws of the United States or any state thereof or the District of Columbia
or otherwise subject to U.S. federal income taxation on a net income basis in
respect of our common stock (a “U.S. holder”). This summary does not address all
of the tax consequences that may be relevant to any particular investor,
including tax considerations that arise from rules of general application to all
taxpayers or to certain classes of taxpayers or that are generally assumed to be
known by investors. This summary also does not address the tax consequences to
(i) persons that may be subject to special treatment under U.S. federal
income tax law, such as banks, insurance companies, thrift institutions,
regulated investment companies, real estate investment trusts, tax-exempt
organizations, U.S. expatriates, persons subject to the alternative minimum tax,
traders in securities that elect to mark to market and dealers in securities or
currencies, (ii) persons that hold our common stock as part of a position
in a “straddle” or as part of a “hedging,” “conversion” or other integrated
investment transaction for federal income tax purposes, or (iii) persons
that do not hold our common stock as “capital assets” (generally, property held
for investment).
50
This
summary is based on the provisions of the Internal Revenue Code of 1986, as
amended (IRC), U.S. Treasury regulations, administrative rulings and judicial
authority, all as in effect as of August 27, 2009. Subsequent developments in
U.S. federal income tax law, including changes in law or differing
interpretations, which may be applied retroactively, could have a material
effect on the U.S. federal income tax consequences of the Reverse Stock
Split.
EACH
PROSPECTIVE INVESTOR SHOULD CONSULT ITS OWN TAX ADVISOR REGARDING THE U.S.
FEDERAL, STATE, LOCAL, AND FOREIGN INCOME AND OTHER TAX CONSEQUENCES OF THE
REVERSE STOCK SPLIT.
If a
partnership (or other entity classified as a partnership for U.S. federal income
tax purposes) is the beneficial owner of our common stock, the U.S. federal
income tax treatment of a partner in the partnership will generally depend on
the status of the partner and the activities of the partnership. Partnerships
that hold our common stock, and partners in such partnerships, should consult
their own tax advisors regarding the U.S. federal income tax consequences of the
Reverse Stock Split.
U.S. Holders
The
Reverse Stock Split should be treated as a recapitalization for U.S. federal
income tax purposes. Therefore, except as described below with respect to cash
in lieu of fractional shares, no gain or loss will be recognized upon the
Reverse Stock Split. Accordingly, the aggregate tax basis in the common stock
received pursuant to the Reverse Stock Split should equal the aggregate tax
basis in the common stock surrendered (excluding the portion of the tax basis
that is allocable to any fractional share), and the holding period for the
common stock received should include the holding period for the common stock
surrendered.
A U.S.
holder who receives cash in lieu of a fractional share of our common stock
pursuant to the Reverse Stock Split should recognize capital gain or loss in an
amount equal to the difference between the amount of cash received and the U.S.
holder’s tax basis in the shares of our common stock surrendered that is
allocated to such fractional share of our common stock. Such capital gain or
loss should be long term capital gain or loss if the U.S. holder’s holding
period for our common stock surrendered exceeded one year at the Effective Time.
The deductibility of net capital losses by individuals and corporations is
subject to limitations.
U.S. Information Reporting and
Backup Withholding
.
Information
returns generally will be required to be filed with the Internal Revenue Service
(“IRS”) with respect to the receipt of cash in lieu of a fractional share of our
common stock pursuant to the Reverse Stock Split in the case of certain U.S.
holders. In addition, U.S. holders may be subject to a backup withholding tax
(at the current applicable rate of 28%) on the payment of such cash if they do
not provide their taxpayer identification numbers in the manner required or
otherwise fail to comply with applicable backup withholding tax rules. Backup
withholding is not an additional tax. Any amounts withheld under the backup
withholding rules may be refunded or allowed as a credit against the U.S.
holder’s federal income tax liability, if any, provided the required information
is timely furnished to the IRS.
Non-U.S. Holders
The
discussion in this section is addressed to “non-U.S. holders.” A non-U.S. holder
is a beneficial owner of our common stock who is a foreign corporation or a
non-resident alien individual.
Generally,
non-U.S. holders will not recognize any gain or loss upon the Reverse Stock
Split. In particular, gain or loss will not be recognized with respect to cash
received in lieu of a fractional share provided that (a) such gain or loss
is not effectively connected with the conduct of a trade or business in the
United States (or, if certain income tax treaties apply, is not attributable to
a non-U.S. holder’s permanent establishment in the United States), (b) with
respect to non-U.S. holders who are individuals, such non-U.S. holders are
present in the United States for less than 183 days in the taxable year of the
Reverse Stock Split and other conditions are met, and (c) such non-U.S.
holders comply with certain certification requirements.
51
U.S. Information Reporting and
Backup Withholding Tax
.
In
general, backup withholding and information reporting will not apply to payment
of cash in lieu of a fractional share of our common stock to a non-U.S. holder
pursuant to the Reverse Stock Split if the non-U.S. holder certifies under
penalties of perjury that it is a non-U.S. holder and the applicable withholding
agent does not have actual knowledge to the contrary. Backup withholding is not
an additional tax. Any amounts withheld under the backup withholding rules may
be refunded or allowed as a credit against the non-U.S. holder’s U.S. federal
income tax liability, if any, provided that certain required information is
timely furnished to the IRS. In certain circumstances the amount of cash paid to
a non-U.S. holder in lieu of a fractional share of our common stock, the name
and address of the beneficial owner and the amount, if any, of tax withheld may
be reported to the IRS.
No
Appraisal Rights
Under
South Carolina law and our Articles of Incorporation, holders of our common
stock will not be entitled to dissenter’s rights or appraisal rights with
respect to the Reverse Stock Split.
Vote
Required to Approve the Amendment and Recommendation
Approval
of the Reverse Stock Split proposal requires the affirmative vote of holders of
two-thirds of the shares of common stock and Convertible Preferred Stock (voting
together as a single class) entitled to vote as of the Record Date. Under South
Carolina law, the affirmative vote of holders of two-thirds of the shares of
common stock entitled to vote as of the Record Date, counted separately as a
class without the Convertible Preferred Stock, is also required to approve the
Reverse Stock Split. Approval by our shareholders of the Reverse Stock Split is
not conditioned upon approval by our shareholders of the Authorized Share
Increase; conversely, approval by our shareholders of the Authorized Share
Increase is not conditioned upon approval by our shareholders of the Reverse
Stock Split.
The
Board of Directors unanimously recommends that shareholders vote
FOR
the Reverse Stock
Split.
Proposal
No. 4 – Approval of Certain Amendments
to
TSFG's Employee Stock Purchase Plan
|
Introduction
We are seeking approval of an amendment
to TSFG’s Employee Stock Purchase Plan (the “ESPP”) to increase the shares
available for issuance thereunder by 400,000 shares. The ESPP provides employees
of TSFG and its subsidiaries with the opportunity to acquire TSFG common stock
through a payroll deduction plan. Except as set forth above, the ESPP would
remain unaltered in all material respects.
The ESPP was originally adopted by our
board of directors and approved by our shareholders in 1994. In 2004, it was
re-approved and extended to 2014.
Reasons
for Approval
The Board recommends approval of the
proposed amendments because they are necessary to continue the operation of the
ESPP. At the Record Date, a total of 136,860 shares were available for
issuance through the ESPP. Depending upon future stock prices and employee
participation, TSFG will exhaust the available shares prior to the 2011 Annual
Meeting. The Board believes that the ESPP furthers TSFG’s goal of employee stock
ownership in TSFG. TSFG also believes that the equity ownership by employees
will serve as a significant incentive to Company employees to improve the
long-term performance of TSFG, thereby improving the long-term return to all of
TSFG's shareholders. Accordingly, the Board believes that the proposed amendment
is in the best interests of TSFG and its shareholders.
Material
Features of the Employee Stock Purchase Plan
The following is a summary of the
principal terms of the amended ESPP. Please note that the following description
is qualified in its entirety by the full text of the amended ESPP. The full text
of the ESPP has been filed electronically with the SEC and can be reviewed at
www.sec.gov
. A
copy of the ESPP document may also be obtained without charge by written request
to
Investor Relations Department, The South Financial
Group, Inc., 102 South Main Street, Greenville, SC 29601.
Eligibility.
In general,
employees of TSFG and any subsidiary who work 20 hours or more per week for more
than five months per calendar year and who have completed one year of continuous
service with TSFG or a subsidiary are eligible to participate. However,
executive officers who are reporting persons under Section 16 of the Exchange
Act and persons who beneficially own more than 5% of TSFG’s common stock may not
participate. As of the date hereof, approximately 1,950 employees are eligible
to participate in the Employee Stock Purchase Plan. None of the executive
officers set forth in the Summary Compensation Table above are eligible to
participate in the Employee Stock Purchase Plan.
52
Amounts Withheld.
Under the
terms of the Employee Stock Purchase Plan, an eligible employee may authorize
TSFG to withhold up to 10% of his or her base compensation (up to a maximum of
$25,000 per year) to be used to purchase TSFG common stock. These payroll
deductions will be accumulated for quarterly periods and used to purchase TSFG
common stock on quarterly purchase dates as set forth in the Employee Stock
Purchase Plan. TSFG common stock purchased pursuant to the ESPP is acquired from
TSFG’s authorized but unissued common stock or from shares of TSFG common stock
acquired in the market. Plan participants are subject to certain limitations
when increasing the amount of their payroll deductions.
Operation of the ESPP.
The
ESPP generally operates in successive quarterly periods (“Quarterly Purchase
Periods”) commencing on February 1, May 1, August 1 and November 1. A
participant must designate in the election the percentage of compensation to be
withheld from his or her pay during a Quarterly Purchase Period and credited to
a bookkeeping account maintained under the ESPP in his or her name on our books.
The number of shares acquired by a participant upon exercise of his or her
option will be determined by dividing the participant’s ESPP account balance as
of the last day of a Quarterly Purchase Period by the “Purchase Price”, which is
95% of the TSFG common stock’s “fair market value” on the date of purchase. Fair
market value is defined as the high and low sale prices of the TSFG common stock
on the NASDAQ Stock Market on the five business days preceding the date in
question.
A participant may elect to terminate
his or her contributions to the ESPP during a Quarterly Purchase Period at any
time prior to the Exercise Date. A participant’s participation in the ESPP will
also terminate prior to the applicable Exercise Date upon termination of
employment by us for any reason, or in the event that he or she is no longer an
eligible employee.
If a participant’s ESPP participation
terminates during a Quarterly Purchase Period, his account balance is frozen and
used to purchase shares on the Exercise Date. Once termination occurs within a
Quarterly Purchase Period, participation cannot be reinitiated until a
subsequent Quarterly Purchase Period. A participant’s termination from
participation will not have any effect upon his ability to participate in any
succeeding Quarterly Purchase Period, provided that the applicable eligibility
and participation requirements are again then met.
Shares Authorized for Sale.
The total number of shares which may be issued under the ESPP is
currently limited to 630,750, of which 493,890 shares have been
issued.
Administration.
The ESPP is
administered by a committee comprised of non-employee Board members appointed
from time to time by the Board (the “Plan Administrators”). The ESPP
Administrators have full authority to administer the Employee Stock Purchase
Plan, including, without limitation, authority to interpret and construe
provisions of the ESPP and to adopt such rules and regulations for the ESPP as
they deem necessary. The Board may, in certain instances and subject to
applicable law, amend the Employee Stock Purchase Plan. However, no material
amendments may be made without requisite shareholder approval.
Federal
Income Tax Consequences
The
current federal income tax consequences of the ESPP are summarized in the
following general discussion of the general tax principles applicable to the
ESPP. This summary is not intended to be exhaustive and does not describe state,
local, or international tax consequences.
The ESPP
is intended to qualify as an “employee stock purchase plan” under Section 423 of
the Internal Revenue Code. Participant contributions to the ESPP are made on an
after-tax basis (that is, the contributions are deducted from compensation that
is taxable to the participant and for which we or one of our subsidiaries are
generally entitled to a tax deduction). Generally, no taxable income is
recognized by a participant either as of the first day of each quarterly
purchase period (the “Grant Date”) or as of the last day of the quarterly
purchase period (the “Quarterly Purchase Date”) in which the stock is
purchased.
A
participant will generally recognize income (or loss) upon a sale or disposition
of the shares acquired under the ESPP. If the shares are held by the participant
with respect to an option granted under the ESPP for a period of two years or
more from the Grant Date and for at least one year from the Quarterly Purchase
Date (the “Required Holding Period”), and are sold at a price in excess of the
purchase price paid by the participant for the shares, the gain on the sale of
the shares will be taxed as ordinary income to the participant to the extent of
the lesser of (1) the amount by which the fair market value of the shares on the
Grant Date exceeded the purchase price, or (2) the amount by which the fair
market value of the shares at the time of their sale exceeded the purchase
price. Any portion of the gain not taxed as ordinary income will be treated as
long-term capital gain. If the shares are held for the Required Holding Period
and are sold at a price less than the purchase price paid by the participant for
the shares, the loss on the sale will be treated as a long-term capital loss to
the participant. TSFG will not be entitled to any deduction for federal income
tax purposes for shares held for the Required Holding Period that are
subsequently sold by the participant, whether at a gain or loss.
53
If a
participant disposes of shares within the Required Holding Period (a
“Disqualifying Disposition”), the participant will recognize ordinary income in
an amount equal to the difference between the purchase price paid by the
participant for the shares and the fair market value of the shares on the
Quarterly Purchase Date, and we will be entitled to a corresponding deduction
for federal income tax purposes. In addition, if a participant makes a
Disqualifying Disposition at a price in excess of the purchase price paid by the
participant for the shares, the participant will recognize a capital gain in an
amount equal to the difference between the selling price of the shares and the
fair market value of the shares on the Quarterly Purchase Date. Alternatively,
if a participant makes a Disqualifying Disposition at a price less than the fair
market value of the shares on the Quarterly Purchase Date, the Participant will
recognize a capital loss in an amount equal to the difference between the fair
market value of the shares on the Quarterly Purchase Date and the selling price
of the shares. TSFG will not receive a deduction for federal income tax purposes
with respect to any capital gain recognized by a participant who makes a
Disqualifying Disposition.
ESPP
Data
The
benefits that will be received by or allocated to eligible employees under the
ESPP in the future cannot be determined at this time because the amount of
contributions set aside to purchase shares of common stock under the ESPP
(subject to the limitations discussed above) is entirely within the discretion
of each participant. During 2009, 185,400 shares were purchased by
employees through the ESPP, none of whom were executive officers.
Vote
Required
This
amendment to the ESPP requires the approval of holders of a majority of TSFG’s
outstanding common stock. Abstentions and broker non-votes will have no effect
upon the vote on this matter.
Recommendation
Our
Board of Directors unanimously recommends a vote “FOR” approval of the amendment
to the Employee Stock Purchase Plan.
Proposal
No. 5 – Nonbinding Vote
with
Respect to Executive Compensation
|
The
American Recovery and Reinvestment Act of 2009 (“ARRA”), signed into law on
February 17, 2009, includes a provision requiring Capital Purchase Program
(“CPP”) participants, during the period in which any obligation arising from
assistance provided under the CPP remains outstanding, to permit a separate
shareholder vote to approve the compensation of executives as disclosed pursuant
to the compensation rules of the Securities and Exchange Commission. This
requirement applies to any proxy, consent, or authorization for an annual or
other meeting of the participant’s shareholders. Under this legislation, the
shareholder vote is not binding on the board of directors of the CPP
participant, and may not be construed as overruling any decision by the
participant’s board of directors.
Therefore,
shareholders are being given the opportunity to vote on an advisory
(non-binding) resolution at the Annual Meeting to approve TSFG’s executive
compensation policies and procedures as described above in the Compensation
Discussion and Analysis, the compensation tables, and related discussion in this
Proxy Statement. This proposal, commonly known as a “say-on-pay” proposal, gives
Shareholders the opportunity to endorse or not endorse TSFG’s executive pay
program. (Apart from the ARRA requirements, TSFG’s Board of Directors had
concluded to include a say-on-pay proposal in this year’s Proxy Statement
because TSFG’s shareholders had approved a non-binding resolution at last year’s
annual meeting requesting that such an advisory vote be sought.)
54
The
purpose of TSFG’s compensation policies and procedures is to attract and retain
experienced, highly qualified executives critical to TSFG’s long-term success
and enhancement of shareholder value. The Board of Directors believes TSFG’s
compensation policies and procedures achieve this objective, and therefore
recommend Shareholders vote “FOR” the proposal through the following
resolution:
“RESOLVED,
that the Shareholders approve the compensation of TSFG’s executive officers, as
described in the Compensation Discussion and Analysis and the tabular disclosure
and accompanying narrative disclosure regarding named executive compensation in
TSFG’s 2010 Proxy Statement.”
Because
your vote is advisory, it will not be binding upon the Board. However, TSFG’s
Compensation Committee will take into account the outcome of the vote when
considering future executive compensation arrangements.
The
Board of Directors unanimously recommends that Shareholders vote “FOR” this
Resolution.
Proposal
No. 6 – Ratification of PricewaterhouseCoopers LLP as TSFG’S
Independent Registered Public Accounting Firm for
2010
|
The Board
of Directors recommends the ratification of the appointment of
PricewaterhouseCoopers LLP as the independent registered public accounting firm
for TSFG and its subsidiaries for fiscal year 2010 and to audit and report to
the shareholders upon the financial statements and internal controls of TSFG as
of and for the period ending December 31, 2010.
Representatives
of PricewaterhouseCoopers LLP will be present at the Annual Meeting, and such
representatives will have the opportunity to make a statement if they desire to
do so and will be available to respond to appropriate questions that the
shareholders may have. Neither the firm nor any of its members has any relation
with TSFG except in the firm’s capacity as auditors or as advisors. The
appointment of auditors is approved annually by the TSFG Board and, commencing
with fiscal year 2003, subsequently submitted to the shareholders for
ratification. The decision of the Board is based on the recommendation of the
Audit Committee.
Ratification
requires the approval of holders of a majority of the votes cast by the TSFG
shareholders with respect to this matter. Abstentions and broker non-votes will
have no effect upon the vote on this matter.
The
Board of Directors unanimously recommends a vote “FOR” the ratification of the
appointment of PricewaterhouseCoopers LLP as independent auditors.
Related
Person Transactions
TSFG’s
Directors and officers and their associates have had, and TSFG expects them to
have in the future, banking transactions in the ordinary course of business with
TSFG’s banking subsidiaries. These transactions are on the same terms, including
interest rates and collateral, as those prevailing at the time for comparable
transactions with unrelated third parties. Such loans have not involved more
than normal risks of collectibility nor have they presented any other
unfavorable features. The aggregate dollar amount of these loans was
approximately $16,811,032 at December 31, 2009. During 2009, loans, either new
or renewed, of approximately $15,435,689 million were made, and repayments of
principal totaled approximately $15,470,736 million.
55
On August
/ September 2007, TSFG, through its banking subsidiary, extended loans (the
“Kingsley Loans”) to Kingsley Beach, LLC and Kingsley Ventures Development
Company, LLC (collectively, “Kingsley”). Principals in Kingsley include Jon
Pritchett (a TSFG director), and Mr. Pritchett’s father (Marvin Pritchett) and
brother (Phillip Pritchett). During 2009, the largest amount outstanding under
the Kingsley Beach Loan was $6,498,745.15, and $6,498,745.15 was outstanding as
of March 22, 2010. No principal payments were made on the Kingsley Beach Loan
during 2009. Interest payments, at a rate of 5% per annum, totaled $445,272.36
on the Kingsley Beach Loan during 2009. During 2009, the largest amount
outstanding under the Kingsley Ventures Loan was $3,032,000.00 and $3,032,000.00
was outstanding as of March 22, 2010. No principal payments were made on the
Kingsley Venture Loan during 2009. Interest payments, at a rate of 5% per annum,
totaled $206,407.62 on the Kingsley Ventures Loan during 2009. Mr. Pritchett,
his father and brother have respective interests of approximately 25%, 25% and
0% interests in Kingsley Beach, LLC. Mr. Pritchett, his father and brother have
respective interests of approximately 16.67%, 0% and 16.67% interests in
Kingsley Ventures Development Company. The Kingsley Loans have never been past
due or in default, although the Company carries them on non-accrual. At the time
the loans were made, they were made on substantially the same terms, including
interest rates and collateral, as those prevailing at the time for comparable
loans with persons not related to the lender.
Related
Party Policy
All
“Interested Transactions” with “Related Parties” are subject to certain policy
guidelines adopted by the board of directors. An “Interested Transaction” is
generally any transaction (broadly defined) in which (1) more than $100,000 per
year is involved, (2) TSFG is a participant, and (3) any Related Party has a
direct or indirect interest. A “Related Party” is generally a person who (a) is
an executive officer, Director or nominee, (b) beneficially owns 5% or more of
TSFG’s common stock, or (c) an immediate family member of any of the foregoing.
Under the Policy, the Nominating and Corporate Governance Committee is required
to review all Interested Transactions in advance. However, if advance approval
is not feasible, the Interested Transaction shall be considered subsequently,
and, if appropriate, ratified. In reviewing an Interested Transaction, the
Nominating and Corporate Governance Committee may take into account whatever
factors it deems appropriate, including comparable third-party transactions and
the extent of the Related Person’s interest in the transaction.
Certain
types of Interested Transactions have been pre-approved, including employment
contracts which would be reportable with the SEC if the person were a Named
Executive Officer, any Director compensation reportable in TSFG’s proxy
statement, transactions with another company at which a Related Person is only
an employee and not a control person, and which does not exceed certain dollar
and revenue percentage thresholds, certain charitable contributions,
transactions where the all shareholders receive proportional benefits,
transactions involving competitive bids, transactions which are subject to
governmental regulation as to pricing and banking transactions subject to the
Federal Reserve Board’s Regulation O and other applicable banking
laws.
Miscellaneous
Matters Relating to the Annual
Meeting
|
Householding
of Proxy Statement, Form 10-K and
Annual
Report
|
Our stock
transfer agent and a number of brokers with accountholders who are owners of
TSFG voting stock will be “householding” our proxy materials. This means that
only one copy of this Proxy Statement and the 2009 Annual Report may have been
sent to you and the other TSFG shareholders who share your address. Householding
is designed to reduce the volume of duplicate information that shareholders
receive and reduce TSFG’s printing and mailing expenses.
If your
household has received only one copy of these materials, and you would prefer to
receive separate copies of these documents, either now or in the future, please
call our transfer agent (Registrar and Transfer Company) at 800-368-5948 or
e-mail them at info@rtco.com. They will deliver separate copies promptly. If you
are now receiving multiple copies of our proxy materials and would like to have
only one copy of these documents delivered to your household in the future,
please contact Registrar and Transfer Company in the same manner.
56
TSFG will
bear the cost associated with this solicitation, including the cost of
preparing, handling, printing and mailing these proxy materials. Proxies will be
solicited principally through these proxy materials. Proxies may also be
solicited by telephone or through personal solicitation conducted by regular
TSFG employees. Employees will be reimbursed for the actual out-of-pocket
expenses incurred in connection with such solicitation. Banks, brokers and other
custodians are requested to forward these proxy materials to their customers
where appropriate, and TSFG will reimburse such banks, brokers and custodians
for their reasonable out-of-pocket expenses incurred in sending these proxy
materials to beneficial owners of the shares.
The
Company has also engaged the firm Innisfree M&A Incorporated (“Innisfree”)
as proxy solicitors to assist the Company in this proxy solicitation. Employees
of Innisfree may contact shareholders by mail, by telephone or through personal
solicitation. The Company expects to pay Innisfree a fee of $10,000 plus
expenses and fees for additional services as required.
Proposals
by Shareholders For 2010
Annual
Meeting
|
A
shareholder who wishes to either (1) present a proposal for inclusion in the
proxy materials relating to TSFG’s Annual Meeting of Shareholders to be held in
2011 or (2) propose one or more Director nominees for consideration by the
Nominating and Corporate Governance Committee, should submit his or her
proposals on or before November [__], 2010, to the Corporate Secretary of The
South Financial Group, 102 S. Main Street, Greenville, South Carolina 29601.
After that date, a proposal will not be considered timely. Shareholders
submitting proposals for inclusion in the proxy statement and form of proxy must
comply with the proxy rules under the Securities Exchange Act of 1934, as
amended, and all shareholders submitting proposals must comply with the Bylaw
requirements described below.
The
Bylaws of TSFG require timely advance written notice of shareholder nominations
of Director candidates and of any other proposals to be presented at an annual
meeting of shareholders. In the case of Director nominations by shareholders,
the Bylaws require that a shareholder’s notice be delivered to the principal
executive offices of TSFG during the period of time from the 30th day to the
60th day prior to the annual meeting of shareholders at which Directors are to
be elected, unless such requirement is expressly waived in advance of the
meeting by formal action of the Board of Directors. In the case of other
proposals by shareholders at an annual meeting, the Bylaws require that advance
written notice be delivered to TSFG’s Corporate Secretary (at the address
indicated above). To be timely, a shareholder’s notice must be delivered to or
mailed and received at the principal executive offices of TSFG between the 60th
and 90th days prior to the first anniversary of the preceding year’s annual
meeting. However, in the event that the date of the annual meeting is more than
30 days before or more than 60 days after such anniversary date, such
shareholder notice must be so delivered between the 60th and 90th days prior to
such annual meeting or within 10 days following the day on which public
announcement of the date of such meeting is first made by TSFG. Such written
notification to the Board must contained certain information about the
shareholder making the proposal (as detailed in TSFG’s Bylaws) and otherwise
comply with the procedure set forth in TSFG’s Bylaws. A copy of the Bylaws is
available upon request to the Corporate Secretary of TSFG at the address
indicated above.
Section
16(a) Beneficial Ownership Reporting
Compliance
|
Section
16(a) of the Exchange Act requires TSFG’s Directors, executive officers and 10%
shareholders to file reports of holdings and transactions in TSFG common stock
with the SEC. Based on a review of Section 16(a) reports received by TSFG and
written representations from its Directors and executive officers, TSFG believes
that all of its executive officers, Directors and 10% shareholders have made all
filings required under Section 16(a) for 2009 in a timely manner, except as
follows: Mr. Brant filed one late Form 4 in February 2009 reporting the purchase
of shares and Mr. Crawford filed one late Form 4 related to the sale of shares
from a brokerage account in April 2008.
57
TSFG’s
Annual Report on Form 10-K for the year ended December 31, 2009 (without
exhibits) is enclosed. Additional copies may be obtained upon request from The
South Financial Group, Post Office Box 1029, Greenville, South Carolina 29602,
Attention: Investor Relations Department. Copies may also be obtained online at
www.thesouthgroup.com
.
March
[__], 2010
By order of the Board of
Directors,
William P. Crawford, Jr.
Secretary
58
ANNEX
A
Text
of Authorized Share Increase Amendment.
That the
first sentence of Section 5 of the Amended and Restated Articles of
Incorporation of the Corporation now reads:
“The
Corporation is authorized to issue a single class of common shares, $1.00 par
value per share and the total number of such shares authorized is three hundred
and twenty-five million (325,000,000).”
Is
amended to read as follows:
“The
Corporation is authorized to issue a single class of common shares, $1.00 par
value per share and the total number of such shares authorized is one billion
and three hundred and fifty million (1,350,000,000).”
59
ANNEX
B
Text
Of Reverse Stock Split Amendment
Upon the
filing and effectiveness (the “Effective Time”) of these Articles of Amendment,
each [number of whole shares between five to fifty, inclusive] shares of Common
Stock issued and outstanding immediately prior to the Effective Time shall be
combined into one (1) validly issued, fully paid and non-assessable share of
Common Stock without any further action by this Corporation or the holder
thereof, subject to the treatment of fractional share interests as described
below (the “Reverse Stock Split”). No certificates representing fractional
shares of Common Stock shall be issued in connection with the Reverse Stock
Split. Shareholders who otherwise would be entitled to receive fractional shares
of Common Stock shall be entitled to receive cash (without interest or
deduction) from this Corporation’s transfer agent in lieu of such fractional
share interests upon the submission of a transmittal letter by a shareholder
holding the shares in book-entry form and, where shares are held in certificated
form, upon the surrender of the shareholder’s Old Certificates (as defined
below), in an amount equal to the proceeds attributable to the sale of such
fractional shares following the aggregation and sale by this Corporation’s
transfer agent of all fractional shares otherwise issuable. Each certificate
that immediately prior to the Effective Time represented shares of Common Stock
(“Old Certificates”), shall thereafter represent that number of shares of Common
Stock into which the shares of Common Stock represented by the Old Certificate
shall have been combined, subject to the elimination of fractional share
interests as described above.”
60
REVOCABLE
PROXY
THE
SOUTH FINANCIAL GROUP, INC.
ANNUAL
MEETING OF SHAREHOLDERS
MAY
18, 2010, 10:30 A.M.
THIS
PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The
undersigned shareholder of The South Financial Group, Inc. ("TSFG") hereby
revoking all previous proxies, hereby appoints William P. Crawford, Jr.
and H. Lynn Harton and each of them, the attorneys of the undersigned,
with power of substitution, to vote all stock of The South Financial Group,
Inc. standing in the name of the undersigned upon all matters at
TSFG’s Annual Meeting to be held in the Gunter Theatre, Peace Center
for the Performing Arts, 200 South Main Street, Greenville, SC on
Tuesday, May 18, 2010 at 10:30 a.m. and at any adjournments thereof, with
all powers the undersigned would possess if personally present, and without
limiting the general authorization and power hereby given, directs said
attorneys or either of them to cast the undersigned's vote as specified in this
instruction card.
This
proxy is solicited on behalf of the Board of Directors of The South Financial
Group, Inc. If not otherwise specified, this proxy will be voted for approval of
Proposals 1 2, 3, 4, 5, and 6.
PLEASE
COMPLETE, DATE, SIGN, AND MAIL THIS PROXY CARD PROMPTLY IN THE ENCLOSED
POSTAGE-PAID ENVELOPE OR PROVIDE YOUR INSTRUCTIONS TO VOTE VIA THE INTERNET OR
BY TELEPHONE.
(Continued,
and to be marked, dated and signed, on the other side)
FOLD
AND DETACH HERE
THE
SOUTH FINANCIAL GROUP, INC. — ANNUAL MEETING, MAY 18,
2010
YOUR VOTE IS
IMPORTANT!
Annual
Meeting Materials are available on-line at:
www.thesouthgroup.com/proxy
You
can vote in one of three ways:
1. Call
toll free
1-866-855-9697
on a
Touch-Tone Phone and follow the instructions on the reverse side. There
is
NOCHARGE
to you for this
call.
or
2. Via the Internet at
https://www.proxyvotenow.com/tsfg
and follow the
instructions.
or
3. Mark,
sign and date your proxy card and return it promptly in the enclosed
envelope.
PLEASE
SEE REVERSE SIDE FOR VOTING INSTRUCTIONS
Please
mark votes as indicated in this example
x
REVOCABLE
PROXY
The
South Financial Group, Inc.
Annual
Meeting of Shareholders
May
18, 2010
C
O M M O N
|
1.
ELECTION OF DIRECTORS
set forth below (except as marked to the contrary below) and to set the
number of directors at 9 persons.
|
Nominee:
(01) William S. Hummers III
|
2.
Proposal to approve an
amendment to our Articles of Incorporation setting the number of
authorized common shares at 1.35
billion.
|
|
3.
Proposal to approve an amendment to our Articles of Incorporation to
effect a reverse stock split of our common stock by a ratio of not less
than one-for-five and not more than one-for-fifty, with the exact ratio to
be set at a whole number within this range as determined by the Board of
Directors in its sole discretion.
|
|
4.
Proposal to amend the Employee Stock Purchase Plan to increase the
authorized shares thereunder for issuance by 400,000
shares.
|
|
5.
Proposal to vote on nonbinding resolution to ratify the compensation
of the Named Executive Officers set forth in this Proxy
Statement.
|
|
6.
Proposal to ratify the
appointment of PricewaterhouseCoopers LLP as TSFG's independent registered
public accounting firm for fiscal year
2010.
|
|
7.
At their discretion upon such other matters as may properly come before
the Annual Meeting and any
adjournment.
|
YOUR
BOARD OF DIRECTORS RECOMMENDS A VOTE FOR PROPOSALS 1, 2, 3, 4, 5, AND
6.
Mark here if you plan to attend the
meeting
o
Mark here for address change and note
change
o
___________________________________________
___________________________________________
Please
sign this instruction card as your name or names appear hereon. If stock is held
jointly, signature should appear for both names. When signing as attorney,
administrator, trustee, guardian or agent, please indicate the capacity in which
you are acting. If stock is held by a corporation, please sign in full corporate
name by authorized officer and give title of office. If shares are held jointly,
each holder should sign.
Please be
sure to date and sign
this
instruction card in the box below.
Date
__________________________________
_______________________________________
Sign
above
IF
YOU WISH TO PROVIDE YOUR INSTRUCTIONS TO VOTE BY TELEPHONE OR INTERNET, PLEASE
READ THE INSTRUCTIONS BELOW
FOLD
AND DETACH HERE IF YOU ARE VOTING BY MAIL
PROXY
VOTING INSTRUCTIONS
Shareholders
of record have three ways to vote:
1. By
Mail; or
2. By
Telephone (using a Touch-Tone Phone); or
3. By
Internet.
A telephone or Internet vote authorizes
the named proxies to vote your shares in the same manner as if you marked,
signed, dated and returned this proxy. Please note telephone and Internet votes
must be cast prior to 3 a.m., May 18, 2010. It is not necessary to return
this proxy if you vote by telephone or Internet.
Vote
by Telephone
Call
Toll-Free on a Touch-Tone Phone anytime prior to
3
a.m., May 18, 2010.
1-866-855-9697
Vote
by Internet
anytime
prior to
3
a.m., May 18, 2010: go to
https://www.proxyvotenow.com/tsfg
Please
note that the last vote received, whether by telephone, Internet or by mail,
will be the vote counted.
ON-LINE PROXY
MATERIALS:
Access at
w
ww.thesouthgroup.com/proxy
Your
vote is important!