UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
Washington,
D.C. 20549
SCHEDULE
14A
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Definitive
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Soliciting
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Southern
First Bancshares, Inc.
(Name
of Registrant as Specified In Its Charter)
(Name
of Person(s) Filing Proxy Statement, if other than the Registrant)
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SOUTHERN
FIRST BANCSHARES, INC.
100
Verdae Boulevard, Suite 100
Greenville,
South Carolina 29607
Notice
of Annual Meeting of Shareholders
To
Be Held on May 12, 2020
Dear
Fellow Shareholder:
We
cordially invite you to attend the 2020 Annual Meeting of Shareholders of Southern First Bancshares, Inc. (the “Company”
or “Southern First”), the holding company for Southern First Bank (the “Bank”). At the meeting, we will
report on our performance in 2019 and answer your questions. We look forward to discussing both our accomplishments and our future
plans with you. We hope that you can attend the meeting and look forward to seeing you there.
This
letter serves as your official notice that we will hold the meeting on May 12, 2020 at the Bank’s headquarters located at
100 Verdae Boulevard, Suite 100, Greenville, South Carolina, at 9:30 a.m. Eastern Standard Time, for the following purposes:
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1.
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To
elect three directors to serve a three-year term on the board of directors;
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2.
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To
approve the compensation of our named executive officers as disclosed in the accompanying proxy statement (this is a non-binding,
advisory vote);
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3.
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To
approve the Southern First Bancshares, Inc. 2020 Equity Incentive Plan;
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4.
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To
ratify the appointment of Elliott Davis, LLC as our independent registered public accountant for the year ending December 31,
2020; and
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5.
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To
transact any other business that may properly come before the meeting or any adjournment of the meeting.
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Shareholders
owning our common stock at the close of business on March 13, 2020 are entitled to attend and vote at the Annual Meeting. The
enclosed proxy statement and proxy are first being sent to our shareholders on approximately March 30, 2020. A complete list of
these shareholders will be available at our offices prior to the meeting. If your shares are held in “street name,”
you will need to obtain a proxy form from the institution that holds your shares in order to vote at our annual meeting.
Although
our informal policy is generally to have our board members be present in person at our annual meeting of shareholders, that is
not a legal requirement. Given today’s public health concerns, we are advising our directors, other than our chairman and
chief executive officer, to consider the appropriateness of attending the annual meeting in person this year. We advise our shareholders
to take into account the current health environment, the risks to your personal health and the health of others, and the advice
of health authorities to use social distancing. You have a number of ways to vote (mail-in proxy, on-line or telephone) in addition
to voting by ballot if you are present in person at the meeting, and we encourage you to use them.
Important
Notice of Internet Availability. This proxy statement and the Annual Report on Form 10-K for the year ended December 31,
2019 are available to the public for viewing on the Internet at http://www.edocumentview.com/sfst. Directions to the annual
meeting can be obtained by contacting Mrs. Ellen Kish at 864.679.9000.
Please
use this opportunity to take part in the affairs of your company by voting on the business to come before this meeting. Even if
you plan to attend the meeting, we encourage you to complete and return the enclosed proxy to us as promptly as possible.
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By
order of the Board of Directors,
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/s/
R. Arthur Seaver, Jr.
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R.
Arthur Seaver, Jr.
Chief
Executive Officer
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Greenville,
South Carolina
March
30, 2020
SOUTHERN
FIRST BANCSHARES, INC.
100
Verdae Boulevard, Suite 100
Greenville,
South Carolina 29607
Proxy
Statement for Annual Meeting of
Shareholders
to be Held on May 12, 2020
Our
Board of Directors is soliciting proxies for the 2020 Annual Meeting of Shareholders. This proxy statement contains important
information for you to consider when deciding how to vote on the matters brought before the meeting. We encourage you to read
it carefully.
In
this proxy statement, “we,” “us,” “our,” “Southern First,” or the “Company”
refer to Southern First Bancshares, Inc., the “Bank” refers to Southern First Bank, and “you” and “your”
refer to each shareholder of Southern First Bancshares, Inc.
VOTING
INFORMATION
Record
Date; Shares Outstanding
Our
Board of Directors set March 13, 2020 as the record date for the meeting. Shareholders owning our common stock at the close of
business on that date are entitled to attend and vote at the meeting, with each share entitled to one vote. There were 7,717,482
shares of common stock outstanding on the record date.
Shares
Held in Street Name
Many
of our shareholders hold their shares through a stockbroker, bank or other nominee rather than directly in their own name. If
you hold our shares in a stock brokerage account or by a bank or other nominee, you are considered the beneficial owner
of shares held in street name, and these materials are being forwarded to you by your broker or nominee, which is considered the
shareholder of record with respect to those shares. As the beneficial owner, you have the right to direct your broker
or nominee to vote your shares as you decide and are also invited to attend the annual meeting. However, since you are not the
shareholder of record, you may not vote these shares in person at the meeting unless you obtain a signed proxy from the
shareholder of record giving you the right to vote the shares. Your broker or nominee has enclosed or provided a voting
instruction card for you to use to direct your broker or nominee how to vote these shares.
Quorum
and Adjournment
A
majority of the outstanding shares of common stock represented at the meeting will constitute a quorum. If a share is represented
for any purpose at the meeting by the presence of the registered owner or a person holding a valid proxy for the registered owner,
it is deemed to be present for the purposes of establishing a quorum. Therefore, valid proxies which are marked "Abstain"
or "Withhold" or as to which no vote is marked, including proxies submitted by brokers who are the record owners of
shares but who lack the power to vote such shares (so-called "broker non-votes"), will be included in determining the
number of votes present or represented at the meeting. If a quorum is not present or represented at the meeting, the shareholders
entitled to vote, present in person or represented by proxy, have the power to adjourn the meeting from time to time until a quorum
is present or represented. If any such adjournment is for a period of less than 30 days, no notice, other than an announcement
at the meeting, is required to be given of the adjournment. If the adjournment is for 30 days or more, notice of the adjourned
meeting will be given in accordance with our Bylaws. Our directors, officers and employees may solicit proxies for the reconvened
meeting in person or by mail, telephone or other means. At any such reconvened meeting at which a quorum is present or represented,
any business may be transacted that might have been transacted at the meeting as originally noticed. Once a quorum has been established,
it will not be destroyed by the departure of shares prior to the adjournment of the meeting.
Required
Vote
Provided
a quorum is established at the annual meeting, directors will be elected by a plurality of the votes cast at the meeting. Shareholders
of the Company do not have cumulative voting rights in the election of directors. All other matters to be considered and acted
upon at the meeting, including (i) the proposal to approve, as a non-binding advisory vote, the compensation of our named executive
officers, (ii) the proposal to approve the Southern First Bancshares, Inc. 2020 Equity Incentive Plan (the “Equity Plan”),
and (iii) the proposal to ratify, as a non-binding advisory vote, the appointment of Elliott Davis, LLC (“Elliott Davis”)
as our independent registered public accountant for the year ending December 31, 2020, require that the votes cast in favor of
the matter exceed the votes cast against the matter, provided a quorum has been established. Abstentions, broker non-votes and
the failure to return a signed proxy will have no effect on the outcome of such matters.
Stockbrokers
are generally permitted by their regulatory authorities to vote shares held by them for their customers on matters considered
by the regulatory authorities to be routine, even if the stockbrokers have not received voting instructions from their customers.
If the regulatory authorities do not consider a matter routine, then a stockbroker is generally prohibited from voting a customer’s
shares on the matter unless the customer has given voting instructions on that matter to the stockbroker. Because the proposals
to elect directors, to approve, as a non-binding advisory vote, the compensation of our named executive officers, and to approve
the Equity Plan are not considered to be routine matters, it is important that you provide instructions to your bank or broker
if your shares are held in street name so that your vote with respect to these matters is counted. Stockbrokers and banks holding
shares for their customers will not have the ability to cast votes with respect to these matters unless they have received instructions
from their customers. Your stockbroker or bank will not vote on these non-routine matters if you do not give voting instructions
with respect to these matters.
Appointed
Proxies
When
you sign the enclosed proxy card, you appoint R. Arthur Seaver, Jr. and James B. Orders, III. as your representatives at the meeting.
Mr. Seaver and Mr. Orders will vote your proxy as you have instructed them on the proxy card. If you submit a proxy but do not
specify how you would like it to be voted, Mr. Seaver and Mr. Orders will vote your proxy “FOR” the election to the
board of directors of all nominees listed below under “Election of Directors,” “FOR” the non-binding advisory
resolution to approve the compensation of our named executive officers as disclosed in this proxy statement, “FOR”
the approval of our Equity Plan, and “FOR” the ratification of our independent registered public accountant. In addition,
if any other matters come before the meeting, Mr. Seaver and Mr. Orders will vote your proxy on such matters in accordance with
their judgment.
Revocability
of Proxies and Changes to Your Vote
You
may revoke your proxy and change your vote at any time before the polls close at the meeting. You may do this by signing and delivering
another proxy with a later date or by voting in person at the meeting.
Solicitation
of Proxies
We
are paying for the costs of preparing and mailing the proxy materials and reimbursing brokers and others for their expenses in
forwarding copies of the proxy materials to our shareholders. Our directors, officers and employees may assist in soliciting proxies
but will not receive additional compensation for doing so.
Availability
of Information
Our
2019 Annual Report to Shareholders and Annual Report on Form 10-K, including financial statements and financial statement schedules,
but not the exhibits to the Form 10-K, and the 2020 Notice of Annual Meeting and Proxy Statement are available on the following
website, https://materials.proxyvote.com/842873
or through the Securities and Exchange Commission’s (the “SEC”)
website at www.sec.gov. This information may be obtained without charge upon written request to Southern First Bancshares,
Inc.. Please direct your requests to Southern First Bancshares, Inc., P.O. Box 17465, Greenville, South Carolina 29606, Attention:
Corporate Secretary. Copies of exhibits to the Form 10-K may be requested at the cost of 30 cents per page from the Company.
Householding of Proxy Materials
Only
one copy of our proxy materials is being delivered to two or more shareholders who share an address unless we have received contrary
instructions from one or more of the holders. However, upon request by any shareholder, we will deliver one or more additional
copies of this proxy statement and our 2019 Annual Report on Form 10-K to shareholders at a shared address to which a single copy
of the documents was delivered. Accordingly, shareholders should contact us either by phone at 864.679.9000 or in writing to Southern
First Bancshares, Inc., P.O. Box 17465, Greenville, South Carolina 29606, Attention: Corporate Secretary, if they wish to receive
any additional copies of our proxy materials. Shareholders who share an address and are currently receiving multiple copies of
our proxy materials may contact us at the same phone number or address if they wish to receive a single copy of our proxy materials
in the future.
PROPOSAL
NO. 1:
ELECTION
OF DIRECTORS
Our
board of directors is divided into three classes with staggered terms, so that the terms of only approximately one-third of the
board members expire at each annual meeting. Our current directors and their classes are:
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Class
I
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Class
II
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Class
III
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Mark
A. Cothran
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Leighton
M. Cubbage
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Andrew
B. Cajka
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Rudolph
G. Johnstone, III, M.D.
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David
G. Ellison
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Anne
S. Ellefson
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R.
Arthur Seaver, Jr.
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James
B. Orders, III
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Fred
Gilmer, Jr.
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Anna
T. Locke
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Tecumseh
Hooper, Jr.
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The
current term of the Class III directors will expire at this annual meeting of shareholders, the term of the Class I directors
will expire at the 2021 annual meeting, and the term of the Class II directors will expire at the 2022 annual meeting. At the
Annual Meeting, shareholders will elect three nominees as Class III directors to serve a three-year term, expiring in 2023. The
directors will be elected by a plurality of the votes cast at the meeting, which means that the three nominees receiving the highest
number of votes will be elected. Shareholders do not have cumulative voting rights with respect to the election of directors.
On
February 11, 2020, Fred Gilmer, Jr., 84, a current Class III director whose term expires at this annual meeting, notified us that
he will retire from the Boards of Directors of the Company and the Bank effective upon expiration of his current term. Mr. Gilmer’s
decision to retire from the Board of Directors was voluntary and did not arise or result from any disagreement with the Company
on any matters relating to the Company’s operations, policies, or practices. Mr. Gilmer has been a director since our formation
in 1999. We are appreciative for Mr. Gilmer’s years of dedicated service to us and the Bank. As a result of Mr. Gilmer’s
retirement, our board of directors will be reduced to ten directors following the annual meeting. We do not anticipate immediately
filling the vacancy on the board caused by Mr. Gilmer’s retirement.
If
you submit a proxy but do not specify how you would like it to be voted, Mr. Seaver and Mr. Orders will vote your proxy to elect
Mr. Cajka, Ms. Ellefson, and Mr. Hooper as Class III directors. If any of these nominees are unable or fail to accept nomination
or election (which we do not anticipate), Mr. Seaver and Mr. Orders will vote instead for a replacement to be recommended by the
board of directors, unless you specifically instruct otherwise in the proxy.
The
Board of Directors unanimously recommends that you vote “FOR” the election of Andrew B. Cajka, Anne S. Ellefson, and
Tecumseh Hooper, Jr. as Class III directors.
Biographical
Information for Each Nominee for Director
Set
forth below is certain information about the current nominees, each of whom is also a director of the Bank.
Andrew
B. Cajka, 60, Class III director, has served as a director of the Company since 1999. Mr. Cajka is the founder and president
of Southern Hospitality Group, LLC, a private hotel management and development company in Greenville, South Carolina. Prior to
starting his own business, Mr. Cajka was a managing member of Hyatt Hotels Corporation from 1986 until 1998. He is a 1982 graduate
of Bowling Green State University. He serves as an executive board member for the Visit Greenville SC Convention and Visitors
Bureau and as a member of the executive committee of the Clemson University Research Foundation. He is a past chairman of the
Greenville County Research and Technology Development board, past chairman of the Greenville Convention and Visitors Bureau, past
chairman of the Greenville Tech Hospitality Board, and past vice chairman of the board for St. Joseph’s High School. Mr.
Cajka is a previous member of the BMW Nationwide Tournament advisory board and has served as a board member of the Urban League,
Upstate Red Cross, the Metropolitan Arts Council and the Thornblade Board of Governors. Additionally, Mr. Cajka previously served
on the board of directors for the Greenville Chamber of Commerce and is past president of the downtown area council, as well as
past chairman of Greenville Hospital Foundation Board and past chairman of the Children’s Hospital. Mr. Cajka has substantial
development and management experience in the hospitality industry and is extensively involved in the local community, both of
which enhance his ability to serve as a director.
Anne
S. Ellefson, 65, Class III director, has served as a director of the Company since 2001. Mrs. Ellefson is an attorney and
serves as Deputy General Counsel for Academics and Community Affairs at Prisma Health, a not-for-profit health organization, and
she has been with Prisma Health, and its predecessor, Greenville Health System, since 2013. She was formerly a shareholder with
Haynsworth Sinkler Boyd, P.A., where she practiced law from 1979 through 2013. Mrs. Ellefson is a 1976 graduate of the University
of South Carolina where she received a bachelor’s degree and a 1979 graduate of the University of South Carolina School
of Law. Mrs. Ellefson previously served on advisory boards at both United Carolina Bank and BB&T Bank. She is a past chairman
of the Greater Greenville Chamber of Commerce and the United Way of Greenville County and formerly served on the Board of Directors
of the South Carolina Chamber of Commerce. She served as a member of the Board of Governors of the South Carolina Bar (where she
recently also served as President), was President of the Board of Directors of the South Carolina Educational Television Endowment,
and currently serves as chair of South Carolina Technology & Aviation Center (SCTAC) and vice chair of its 501(c)3 affiliate,
ITIC. She is also the past President of the South Carolina Bar Foundation. In addition, she serves on the boards of the Greenville
Local Development Corporation, the Hollingsworth Fund and Verdae Development, Inc. Mrs. Ellefson has extensive legal experience,
with a specialization in real estate, and significant leadership activities in local and state chamber and other development organizations,
all of which give her useful insights and a valuable understanding of the key markets we serve.
Tecumseh
“Tee” Hooper, Jr., 72, Class III director, has served as a director of the Company since 1999. Mr. Hooper is a
private investor and chairman of the board of FGP International Inc., a private executive search and temporary placement service
company, and he has been with FGP International Inc. since 2003. He was the president of Modern Office Machines/IKON Office Solutions
in Greenville, South Carolina, from 1982 through 2001, chief executive officer of Profit Lab from 2001 through 2006, chief executive
officer of General Wholesale Distributor from 2007 through 2016, and chief executive officer of Sign Crafters, USA, LLC, from
2016 through 2018. Mr. Hooper graduated from The Citadel in 1969 with a degree in business administration, and he received a masters
in business administration from the University of South Carolina in 1971. Mr. Hooper has served the community as a board member
of the Greenville Chamber of Commerce, Camp Greenville, YMCA Metropolitan, and the United Way, and as past president of the Greenville
Urban League. Mr. Hooper has also served on the board of directors for Leadership Greenville, Leadership South Carolina, and also
served as chairman of the South Carolina Department of Transportation, and of the Patriots Point Development Authority in Charleston.
He is a former member of The Citadel Board of Visitors and serves on the boards of Verdae Development and Upstate Warrior Solution.
Mr. Hooper’s deep ties to the Greenville community, varied business career in executive management, and experience with
key government agencies provide him with a valuable perspective as a director.
Our
Other Directors
Set
forth below is information about our other directors each of whom is also a director of the Bank.
Mark
A. Cothran, 62, Class I director, has served as director of the Company since 1999. Mr. Cothran is the president and owner
of Cothran Properties, LLC, a private real estate development company in Greenville, South Carolina, and he has been with Cothran
Properties, LLC since 1986. Mr. Cothran received his bachelor’s degree in finance and banking from the University of South
Carolina in 1980 and is a licensed real estate broker in the State of South Carolina. He currently serves on the Tax and Legislative
Committee and the National Business Park Forum of the National Association of Industrial and Office Properties (NAIOP) for which
he is also the past chairman. He is also the past president of the state chapter of NAIOP. He has served on the board of directors
of the Greenville Chamber of Commerce, the Chamber of Commerce’s Economic Development Board, the Advisory Board of Greenville
National Bank, and the board of directors of General Wholesale Distributors, Inc. His extensive experience in real estate and
development activities, along with his long term ties to our local community, provide him with a valuable understanding of the
key markets we serve.
Leighton
M. Cubbage, 67, Class II director, has served as director of the Company since 1999. Mr. Cubbage is the co-founder and chairman
of Allie Capital and Serrus Capital Partners, both private real estate investment companies. Previously, he was the co-founder,
president, and chief operating officer of Corporate Telemanagement Group in Greenville, South Carolina from 1989 until 1995. Since
1995, Mr. Cubbage has been a private investor maintaining investment interests in a weekly newspaper and car dealerships. He is
a 1977 graduate of Clemson University with a bachelor’s degree in political science. Mr. Cubbage previously served as chairman
of the Greenville Hospital System board of trustees, was a former member of the Greenville Technical College Foundation Board
and has served on the board of directors of the Greenville Chamber of Commerce, Clemson Spiro College of Entrepreneurship and
Homes of Hope. Mr. Cubbage was chosen by the South Carolina Governor as Chairman of the South Carolina Venture Capital Authority
and was inducted into the Clemson University Spiro Entrepreneurial Institute Hall of Fame in 2011. In 1993 he graduated from the
University of North Carolina at Chapel Hill’s Advanced Management Program. Mr. Cubbage’s leadership experience, extensive
knowledge of the technology industry and corporate management enhance his ability to contribute to the Company as a director.
David
G. Ellison, 70, Class II director, has served as director of the Company since 2001. Mr. Ellison is currently a Wealth Management
Advisor with Northwestern Mutual, where he retired as managing director in 2010, after 28 years of service in that role. Mr. Ellison
is a 1972 graduate of Furman University where he received a bachelor’s degree and a 1976 graduate of the Clemson-Furman
University Program where he received a masters in business administration. Mr. Ellison is in his fourth term on the board of trustees
of Furman University, where he is also a former board chair. He is a past president of both the Furman Alumni Association and
Furman Paladin Club and has also served on the board of trustees for United Way of Greenville County and as a prior commissioner
of the Greenville Housing Authority. Mr. Ellison has extensive financial experience primarily in the insurance industry and has
corporate governance experience with a number of nonprofit organizations which provide a valuable perspective as a director.
Rudolph
G. “Trip” Johnstone, III, M.D., 59, Class I director, has served as a director of the Company since 1999. Dr.
Johnstone is a physician who has practiced with Allergy Partners of the Upstate since 1992. He graduated from Washington &
Lee University in 1982 with a degree in biology and from the Medical University of South Carolina in 1986. Dr. Johnstone served
on the consulting board to Greenville National Bank from 1995 until 1998. He serves on the board of directors of Allergy Partners,
PA and is a past president of the Southeastern Asthma, Allergy, and Immunology Society. Dr. Johnstone has an extensive knowledge
of and a connection to the medical community, a targeted market for the bank, which enhances his ability to contribute to the
Company as a director.
Anna
T. Locke, 43, Class I director, has served as director of the Company since 2018. Ms. Locke is the president and owner of
A.T. Locke, PC, an outsourced accounting management company. Prior to starting her own business in 2004, Ms. Locke was with Elliott
Davis, LLC, a regional accounting firm headquartered in Greenville, South Carolina. Ms. Locke is a 1998 magna cum laude graduate
of Clemson University and a certified public accountant. Ms. Locke is a member of Vistage International and the Accounting Advisory
Committees for both Greenville Technical College and Clemson University and is Treasurer of InnoVision Awards Organization. Ms.
Locke has previously served on the board for the Center for Developmental Services, NEXT School, Certified Development Corporation
of South Carolina, the Greater Greer Chamber of Commerce and Friends of the Guardian ad Litem. Ms. Locke’s financial expertise
and experience with various local businesses and non-profit organizations provide her with a valuable perspective as director.
James
B. Orders, III, 67, Class II director, has served as director the Company and chairman of our board of directors since 1999.
From 1986 to 2014, Mr. Orders was the president of Park Place Corporation, a private company engaged in the manufacture and sale
of mattresses to the wholesale market. He attended Clemson University from 1970 until 1974. Mr. Orders is a past president of
the International Sleep Products Association, a past president of the Downtown Rotary Club, a past member of the advisory board
of Greenville National Bank and a past member of the advisory board of Carolina First Bank. He is a past board member and board
chairman of Cox Industries, Inc., a private company that specialized in the manufacture and distribution of treated wood products.
Mr. Orders has executive management experience in national sales markets in addition to experience in the South Carolina real
estate market. His leadership abilities and long connection to the local communities we serve enhance his ability to serve on
our board of directors.
R.
Arthur “Art” Seaver, Jr., 56, Class I director, has served as our Chief Executive Officer since 1999. He has over
30 years of banking experience. From 1986 until 1992, Mr. Seaver held various positions with The Citizens & Southern National
Bank of South Carolina. From 1992 until February 1999, he was with Greenville National Bank, which was acquired by Regions Bank
in 1998. He was the senior vice president in lending and was also responsible for managing Greenville National Bank’s deposit
strategies prior to leaving to form the Bank. Mr. Seaver is a 1986 graduate of Clemson University with a bachelor’s degree
in financial management and a 1999 graduate of the BAI Graduate School of Community Bank Management. He currently serves as a
member of the Community Depository Institutions Advisory Council of the Federal Reserve Bank of Richmond and on the board of directors
of Thornblade Club. He is a past member of the board of the St. Francis Foundation, past chairman of the Board for the South Carolina
Bankers Association and past chair of the United Way of Greenville County Board of Trustees. In addition, he has worked with organizations
including the United Way of Greenville County, Leadership Greenville, the Greenville Chamber of Commerce, the South Carolina Network
of Business and Education Partnership, Junior League, Junior Achievement, the Greenville Convention and Visitors Bureau, the United
Way, and the First Presbyterian Church in Greenville. Mr. Seaver’s experience in banking and vision for our company give
him the leadership and consensus building skills that provide significant insight and expertise to the board. In addition, his
involvement with various local and nonprofit organizations provides him with a valuable understanding of the communities we serve.
Biographical
Information for Our Executive Officers Who are Not Directors
Our
executive officers, as such term is defined in Rule 3b-7 of the Securities Exchange Act of 1934 (the “Exchange Act), consist
of R. Arthur Seaver, Jr., the chief executive officer of the Company and the Bank and Michael D. Dowling, the chief operating
officer and chief financial officer of the Company and the Bank. Biographical information for each of our executive officers is
provided below (other than Mr. Seaver). Because Mr. Seaver also serves on our board of directors, we have provided his biographical
information above with our other directors.
Michael
D. Dowling, 48, has served as our executive vice president and the chief financial officer since 2011 and as our chief operating
officer since July 2019. He has over 25 years of experience in the banking industry. Mr. Dowling was previously employed with
KPMG LLP from 1994 until 2011, including most recently as an Audit Partner (2005-2011) and a member of KPMG’s Financial
Services practice. Mr. Dowling has extensive experience working with public companies and financial institutions. He is a 1993
graduate of Clemson University, with a degree in Accounting and is a certified public accountant in South Carolina and North Carolina.
Family
Relationships. Dr. Rudolph G. Johnstone, III, director, is Fred Gilmer, Jr.’s stepson. No other director has a family
relationship with any other director or executive officer of the Company.
PROPOSAL
NO. 2:
NON-BINDING
RESOLUTION TO APPROVE THE COMPENSATION
OF
THE NAMED EXECUTIVE OFFICERS
Pursuant
to rules adopted by the SEC under the Dodd-Frank Act Wall Street Reform and Consumer Protection Act (the “Dodd-Frank Act”)
and Section 14A of the Exchange Act, we are asking you to approve the compensation of our named executive officers as described
under “Compensation of Directors and Executive Officers” and the tabular disclosure regarding named executive officer
compensation (together with the accompanying narrative disclosure) elsewhere in this proxy statement.
As
described below under the heading “Compensation Discussion and Analysis,” we seek to align the interests of our named
executive officers with the interests of our shareholders. Therefore, our compensation programs are designed to reward our named
executive officers for the achievement of strategic and operational goals and the achievement of increased shareholder value,
while at the same time avoiding the encouragement of unnecessary or excessive risk-taking. We believe that our compensation policies
and procedures are competitive and focused on performance and are strongly aligned with the long-term interest of our shareholders.
The
proposal described below, commonly known as a “Say-on-Pay” proposal, gives you as a shareholder the opportunity to
express your views regarding the compensation of our named executive officers by voting to approve or not approve such compensation
as described in this proxy statement. This vote is advisory and will not be binding upon us, the board of directors, or our compensation
committee. However, we, the board, and the compensation committee will take into account the outcome of the vote when considering
future executive compensation arrangements. The vote on this resolution is not intended to address any specific element of compensation,
but rather relates to the overall compensation of our named executive officers, as described elsewhere in this proxy statement
in accordance with the compensation disclosure rules of the SEC.
The
board of directors believes our compensation policies and procedures achieve the aforementioned objectives, and therefore recommend
shareholders vote “FOR” the proposal through the following resolution:
“Resolved,
that the compensation of the named executive officers named in the Summary Compensation Table of Southern First Bancshares, Inc.’s
Proxy Statement for the 2020 Annual Meeting of Shareholders, including the tabular and narrative compensation disclosures, is
hereby approved.”
The
board of directors unanimously recommends a vote “FOR” the approval of the compensation of the named executive officers
as disclosed in this proxy statement.
PROPOSAL
NO. 3
APPROVAL
OF THE Southern First Bancshares, Inc.
2020
EQUITY INCentive Plan
On
March 17, 2020 our board of directors adopted, subject to shareholder approval, the Southern First Bancshares, Inc. 2020 Equity
Incentive Plan, otherwise referred to herein as the Equity Plan, which provides for the grant of stock options, restricted stock
awards and other equity awards to our officers, employees, directors, advisors and consultants. A total of 450,000 shares of common
stock have been reserved for the issuance of awards under the Equity Plan, of which all may be issued pursuant to stock options
(all of which may be incentive stock options, subject to the anti-dilution provisions of the Equity Plan). The following summary
of the material features of the Equity Plan is qualified in its entirety by reference to the copy of the Equity Plan which is
attached as Appendix A to this proxy statement and is incorporated by reference into this summary.
Purpose
of the Equity Plan
We
believe we have been able to attract highly qualified personnel in part through the use of stock option grants and awards of restricted
stock, and that it is desirable to have the continued ability to attract additional personnel and to return and reward exceptional
performance by employees through other awards that encourage stock ownership and proprietary interest in the Company. Our board
of directors believes that the Equity Plan provides a means whereby those individuals upon whom the responsibilities of the successful
administration and management of the Company rest, and whose present and potential contributions to the Company are of importance,
can acquire and maintain stock ownership, thereby strengthening their concern for the welfare of the Company. By providing such
individuals with additional incentive and reward opportunities, the Board believes that the Equity Plan enhances the profitable
growth of the Company.
Administration
of the Equity Plan
The
Equity Plan provides that it is to be administered by the board of directors, the compensation committee of the board of directors
or any other committee appointed by the board of directors to administer the Equity Plan. The Board has appointed the compensation
committee as the administrator of the Equity Plan until further notice is given. Any such committee may, but is not required to
be, comprised of three or more “non-employee directors” as defined in Rule 16b-3 under the Exchange Act.
Eligibility
The
compensation committee has sole authority, in its discretion, to determine which officers, teammates, consultants, advisors or
directors will receive awards, the number of shares of common stock to be subject to each award, and the forfeiture restrictions
(as defined below) for each award. As of March 17, 2020, the Equity Plan’s effective date, there were approximately 257
persons eligible to participate in the Equity Plan, including 50 officers of the Bank and 197 associates, no external consultants
or advisors, and 10 non-employee directors.
Shares
Subject to the Equity Plan
Stock
Options. The Equity Plan provides for awards of stock options and restricted stock. The compensation committee is also authorized,
subject to limitations under applicable law, to issue other awards that are payable in, valued in whole or in part by reference
to, or otherwise based on or related to shares of common stock, including without limitation shares awarded purely as a “bonus”
and not subject to any restrictions or conditions, awards of restricted stock units, stock appreciation rights, performance awards,
performance units, phantom stock, dividend equivalents or similar rights to purchase or acquire shares, convertible or exchangeable
debt securities and other rights convertible or exchangeable into shares. However, at this time, the Equity Plan defines only
the material terms of the stock option and restricted stock components and we presently intend to only utilize those components.
The
Equity Plan requires that stock options can only be issued at or above the fair market value per share on the date of grant. Stock
options granted to participants under the Equity Plan may be either incentive stock options (ISOs) under the provisions of Section
422 of the Code, or options that are not subject to the provisions of Section 422 of the Code (Nonqualified Options). Stock options
entitle the recipient to purchase shares of common stock at the exercise price specified in the award agreement. The administrator
at its discretion determines the number of option shares, the term of the option, the exercise price (subject to the minimum price
described above), the vesting schedule and performance conditions (if any), and any other terms and conditions. In the case of
10% shareholders who receive incentive stock options, the exercise price may not be less than 110% of the fair market value of
the common stock on the date of grant. An exception to each of these requirements may be made for options that we may grant in
substitution for options held by employees of companies that we acquire. In such a case, the exercise price is adjusted to preserve
the economic value of the employee’s stock option from his or her former employer.
The
compensation committee will determine the periods during which the options will be exercisable. However, no option will be exercisable
more than 10 years after the date of grant. Payment of the exercise price of any option may be made in cash or cash equivalent,
as determined by the compensation committee, to the extent permitted by law (1) by means of any cashless exercise procedure approved
by the compensation committee, (2) by delivering shares of common stock already owned by the option holder, (3) by such other
form of consideration as the compensation committee may determine, if permitted by applicable law, or (4) any combination of the
foregoing.
Restricted
Stock. Restricted stock consists of shares of common stock which are granted to the participant, subject to certain restrictions
against disposition and certain obligations to forfeit such shares to us under certain circumstances. The restrictions, which
may be different for each award, will be determined by the compensation committee in its sole discretion. Restricted stock awarded
under the Equity Plan will be represented by a book entry registered in the name of the participant. Unless otherwise provided
in an agreement, the participant will have the right to receive dividends, if any, with respect to such shares of restricted stock,
to vote such shares and to enjoy all other shareholder rights, except that the participant may not sell, transfer, pledge or otherwise
dispose of the restricted stock until the restrictions have expired. A breach of the terms and conditions established by the compensation
committee pursuant to an award will cause a forfeiture of the award. The compensation committee expects that participants generally
will not be required to make any payment for common stock received pursuant to an award, except to the extent otherwise determined
by the compensation committee or required by law.
The
compensation committee, in its discretion, may set restrictions on awards based upon the achievement of performance goals (collectively,
the “Performance Goals”) based upon any individual participant or Company criteria or metric that the compensation
committee may determine from time to time. Performance for any goal can be measured on an absolute basis (i.e., versus our budget
or prior year result) or relative to a peer group or industry index, as well as over a one-year or multi-year period. In any event,
the compensation committee will have the authority to adjust any Performance Goal for unusual or non-recurring events.
The
compensation committee may, in its discretion, fully vest any or all equity awards awarded to a participant under an award and,
upon such vesting, all option vesting conditions or forfeiture restrictions applicable to the award will terminate. Any such action
by the compensation committee may vary among individual participants and may vary among awards held by any individual participant.
In
addition, the maximum number of shares with respect to restricted stock awards that may be granted to non-employee directors in
a calendar year is 5,000 shares.
At
the time any award is made, the Company and the participants will enter into an equity award agreement setting forth the terms
of the award and such other matters as the compensation committee may determine to be appropriate. The terms and provisions of
the award agreements need not be identical, and the compensation committee may, in its sole discretion, amend an outstanding award
agreement at any time in any manner that is not inconsistent with the provisions of the Equity Plan.
Amendment
and Termination of the Equity Plan
The
board of directors may amend or terminate the Equity Plan, provided that shareholder approval will be required to (i) increase
the total number of shares reserved for issuance under the Equity Plan, or (ii) change the class of recipients eligible to participate
in the Equity Plan. No amendment shall adversely affect any of the rights of any holder of any award without the holder’s
consent. The compensation committee may accept surrender of outstanding equity awards under the Equity Plan and grant new awards
in substitution for them; provided that the compensation committee will not exchange underwater stock options without prior shareholder
approval. The Equity Plan will terminate in any event five years after its effective date, but outstanding awards continue until
they expire in accordance with their terms.
Authorized
Shares
In
the event of a stock dividend, stock split, reorganization, merger, recapitalization or other change affecting the common stock,
the compensation committee will make proportionate adjustments with respect to (1) the aggregate number and kind of shares that
may be issued under the Equity Plan, (2) the number, kind, and exercise price (or other cash or property) of shares issuable pursuant
to each outstanding award made under the Equity Plan, and (3) the maximum number and kind of shares that may be subject to awards
granted to any one individual under the Equity Plan.
If
any award lapses, expires, terminates or is canceled prior to the issuance of shares thereunder or if shares of common stock covered
by an award are settled in cash in a manner that some or all of the shares covered by the award are not issued, the shares subject
to such awards and the unissued shares resulting from the cash settlement shall again be available for issuance under the Equity
Plan. If any shares of common stock subject to an award are not delivered to a participant because the award is exercised through
a reduction of shares subject to the award (i.e., “net exercised”), including if the tax withholding obligations relating
to any award are satisfied by delivering shares of common stock (either actually or through attestation) or withholding shares
of common stock relating to such award, the number of shares of common stock that are not delivered to the participant will no
longer be available for issuance under the Equity Plan.
Forfeiture
and Transferability.
Awards,
including the vested portion thereof, may be subject to certain forfeiture and clawback rights in the event the participant separates
from service for cause, pursuant to a clawback policy, if the Bank experiences regulatory or capital issues, if a restatement
of our financial results is attributable to a participant’s actions, whether intentional or negligent, or if the compensation
committee determines that the vesting of an award was based on incorrect performance measurement calculations. Generally, awards
are transferable only by will, by the laws of descent and distribution, or by a domestic relations order.
U.S.
Federal Income Tax Consequences
The
following summary of the federal income tax consequences relating to the Equity Plan is based on present U.S. federal tax
laws and regulations. We cannot assure you that the laws and regulations will not change in the future and affect the tax
consequences of the matters discussed in this section. This summary is not intended to be exhaustive and does not discuss the
tax consequences of a participant’s death or the provisions of any income tax laws of any municipality, state or
foreign country in which a participant may reside.
Tax
Effects of Participation in the Equity Plan
Stock
Options
There
are no federal income tax consequences to the participant or us upon granting stock options. The federal tax consequences upon
exercise will vary depending on whether the option is an incentive stock option or a nonqualified stock option.
Incentive
Stock Options. When a participant exercises an incentive stock option, the participant will not at that time realize any income,
and we will not be entitled to a deduction. However, the difference between the fair market value of the shares on the exercise
date and the exercise price will be a preference item for purposes of the alternative minimum tax. The participant will recognize
capital gain or loss at the time of disposition of the shares acquired through the exercise of an incentive stock option if the
shares have been held for at least two years after the option was granted and one year after it was exercised. We will not be
entitled to a tax deduction if the participant satisfies these holding period requirements. The net federal income tax effect
to the holder of the incentive stock options is to defer, until the acquired shares are sold, taxation on any increase in the
shares’ value from the time of grant of the option to the time of its exercise, and to tax such gain, at the time of sale,
at capital gain rates rather than at ordinary income rates.
If
the holding period requirements are not met, then upon sale of the shares the participant generally recognizes as ordinary income
the excess of the fair market value of the shares at the date of exercise over the exercise price stated in the award agreement.
Any increase in the value of the shares subsequent to exercise is long or short-term capital gain to the participant depending
on the participant’s holding period for the shares. However, if the sale is for a price less than the value of the shares
on the date of exercise, the participant might recognize ordinary income only to the extent the sales price exceeded the option
price. In either case, we are entitled to a deduction to the extent of ordinary income recognized by the participant.
Nonqualified
Stock Options. Generally, when a participant exercises a nonqualified stock option, the participant recognizes income in the
amount of the aggregate market price of the shares received upon exercise less the aggregate amount paid for those shares, and
we may deduct as an expense the amount of income so recognized by the participant. The holding period of the acquired shares begins
upon the exercise of the option, and the participant’s basis in the shares is equal to the market price of the acquired
shares on the date of exercise.
Restricted
Stock
Under
the Code as presently in effect, a participant generally will not recognize any income for federal income tax purposes at the
time an award of restricted stock is made, nor will we be entitled to a tax deduction at that time, unless the participant elects
to recognize income at the time that award of restricted stock is made. If the participant does not make such election, the value
of the common stock will be taxable to the participant as ordinary income in the year in which the restrictions lapse with respect
to such shares of stock. We have the right to deduct, in connection with all awards, any taxes required by law to be withheld
and to require any payments required to enable it to satisfy our withholding obligations. We will generally be allowed an income
tax deduction equal to the ordinary income recognized by the participant at the time of such recognition.
Additional
Tax Matters
Unless
otherwise determined in an award agreement, in the event of a change in control, as defined in the Equity Plan: (1) each outstanding
award will become fully vested and, if applicable, exercisable, (2) the restrictions, payment conditions, and forfeiture conditions
applicable to any such award granted will lapse, and (3) any performance conditions imposed with respect to awards will be deemed
to be fully achieved. Under Section 280G of the Code, we may not deduct certain compensation payable in connection with a change
of control. The acceleration of vesting of awards in conjunction with a change in control of the Company may be limited under
certain circumstances thereby avoiding nondeductible payments under Section 280G. In addition, Code Section 409A applies to any
award that constitutes nonqualified deferred compensation, and imposes a 20% excise tax on the participant, in addition to current
income inclusion and interest at the underpayment rate plus 1%. While most awards under the Equity Plan are anticipated to be
exempt from the requirements of Code Section 409A, awards not exempt are intended to comply with Code Section 409A.
Compliance
with Section 409A of the Code
Section
409A of the Code governs certain types of non-qualified deferred compensation. The Equity Plan contemplates both deferred compensation
that is subject to Section 409A and deferred compensation that is not subject to Section 409A. The Equity Plan requires that it
be administered so that neither it nor any grant granted under it violates Section 409A of the Code. Accordingly, the compensation
committee is required to structure all grants so that they are either exempt from or comply with Section 409A of the Code, and
the Board and the compensation committee are permitted, within the bounds of the Equity Plan and applicable law, including Section
409A of the Code, to interpret the Equity Plan and/or any grant agreement, and to make any and all amendments to the Equity Plan
or any grant agreement, to ensure that all grants are either exempt from or comply with Section 409A.
Future
Awards
We
currently have no plans, proposals, or arrangements, written or otherwise, at this time to grant any awards under the Equity Plan.
Because no awards have been granted under the Equity Plan as of the date of this proxy statement and all awards will be granted
at the discretion of the compensation committee, it is not possible for us to determine and disclose the benefits, or amount,
of awards that may be granted to the named executive officers and the executive officers as a whole, if the Equity Plan is approved
by our shareholders.
Interests
of Certain Persons in Proposal
Our
named executive officers and non-employee directors are or will be eligible to receive awards under the Equity Plan.
Reasons
for Authorization and Vote Required
The
Equity Plan is being submitted to the shareholders for approval pursuant to Section 422 of the Code and the rules of The NASDAQ
Stock Market. If a quorum is present at the annual meeting, this proposal will be approved if the votes cast in favor of the proposal
exceed the votes cast against the proposal.
The
board of directors recommends that you vote “FOR” the approval of the Southern First Bancshares, Inc. 2020 Equity
Incentive Plan.
PROPOSAL
NO. 4:
RATIFICATION
OF APPOINTMENT OF
OUR
INDEPENDENT REGISTERED PUBLIC ACCOUNTANT
Although
we are not required to seek shareholder ratification on the selection of our accountants, we believe obtaining shareholder ratification
is desirable. In the event the appointment of Elliott Davis is not ratified by the required vote, the audit committee will re-evaluate
the engagement of our independent auditors. Even if the shareholders do ratify the appointment, our audit committee has the discretion
to appoint a different independent registered public accounting firm at any time during the year if the audit committee believes
that such a change would be in the best interest of us and our shareholders. We expect that a representative from Elliott Davis
will attend the meeting and will be available to respond to appropriate questions from shareholders.
If
a quorum is present at the Annual Meeting, this proposal will be approved if the votes cast in favor of the proposal exceed the
votes cast against the proposal.
The
board of directors unanimously recommends that shareholders vote “FOR” the ratification of the appointment of Elliott
Davis as our independent registered public accounting firm for the year ending December 31, 2020.
MEETINGS
AND COMMITTEES OF THE BOARD OF DIRECTORS
Attendance
at Board, Committee and Annual Shareholders’ Meetings
During
2019, our board of directors held 12 meetings and the board of directors of the bank held 12 meetings. All of the directors of
the Company and the bank attended at least 75% of the aggregate of such board meetings and the meetings of each committee on which
they served.
Although
we do not have a formal policy regarding attendance by members of the board of directors at our annual shareholders’ meetings,
directors are encouraged to attend our annual shareholders’ meeting. All of the directors were present at the 2019 Annual
Meeting of Shareholders.
Code
of Ethics
We
expect all of our employees to conduct themselves honestly and ethically, particularly in handling actual and apparent conflicts
of interest and providing full, accurate, and timely disclosure to the public.
We
have adopted a Code of Ethics that is specifically applicable to our senior management and financial officers, including our principal
executive officer, our principal financial officer, and controller. A copy of this Code of Ethics is available without charge
to shareholders upon request to our Corporate Secretary, at Southern First Bancshares, Inc., 100 Verdae Boulevard, Suite 100,
Greenville, South Carolina 29607.
Board
Leadership Structure and Role in Risk Oversight
We
are focused on our corporate governance practices and value independent board oversight as an essential component of strong corporate
performance to enhance shareholder value. Our commitment to independent oversight is demonstrated by the fact that a majority
of our directors are independent. In addition, all of the members of our board of directors’ audit, personnel, and nominating
and corporate governance committees are independent.
Our
board of directors believes that it is preferable for one of our independent directors to serve as chairman of the board. The
person our board of directors elected as chairman, James B. Orders, III, has been one of our directors since 1999 and is a long-time
resident of our primary market area. We believe it is our chairman’s responsibility to guide the board as it provides leadership
to our executive management, while our chief executive officer’s responsibility is to manage the Company. As directors continue
to be faced with more oversight responsibility than ever before, we believe it is beneficial to have separate individuals in the
role of chairman and chief executive officer. Traditionally, we have maintained the separateness of the roles of the chairman
and the chief executive officer. In making this decision to have an independent chairman, our board of directors considered the
time and attention that Mr. Seaver is required to devote to managing our day-to-day operations as the chief executive officer.
By having another director serve as chairman of our board of directors, Mr. Seaver is able to focus his entire energy on running
the Company. This also ensures there is no duplication of effort between the chairman and the chief executive officer. We believe
this board leadership structure is appropriate in maximizing the effectiveness of board oversight and in providing perspective
to our business that is independent from executive management.
Our
audit committee is primarily responsible for overseeing our risk management processes on behalf of the full board of directors.
The audit committee focuses on financial reporting risk and oversight of the internal audit process. It receives reports from
management at least quarterly regarding our assessment of risks and the adequacy and effectiveness of internal control systems,
as well as reviewing credit and market risk (including liquidity and interest rate risk), and operational risk (including compliance
and legal risk). Strategic and reputation risk are also regularly considered by this committee. The audit committee also receives
reports from management addressing the most serious risks affecting our day-to-day operations. The audit committee reports regularly
to the full board of directors, which also considers our entire risk profile. The full board of directors focuses on certain significant
risks we face and on certain aspects of our general risk management strategy. Management is responsible for the day-to-day risk
management processes. We believe this division of responsibility is the most effective approach for addressing the risks we face
and that our board leadership structure supports this approach.
With
respect to cybersecurity, on a quarterly basis, our audit committee receive reports on cybersecurity risks and preparedness. While
our audit committee, and the board of directors to which it reports, oversees our cybersecurity risk management, our management
and Information Technology department are responsible for the day-to-day cybersecurity risk management processes. Threat from
cyber attacks is severe, attacks are sophisticated and increasing in volume, and attackers respond rapidly to changes in defensive
measures. Our systems and those of our customers and third-party service providers are under constant threat and it is possible
that we could experience a significant event in the future. While we believe that our cybersecurity programs are appropriate and
have been effective to prevent material incidents thus far, risks and exposures related to cybersecurity attacks are expected
to remain high for the foreseeable future due to the rapidly evolving nature and sophistication of these threats, as well as due
to the expanding use of Internet banking, mobile banking and other technology-based products and services by us and our customers.
We
recognize that different board leadership structures may be appropriate for companies in different situations. We will continue
to reexamine our corporate governance policies and leadership structures on an ongoing basis to ensure that they continue to meet
our needs.
Director
Independence
Under
the listing standards of The NASDAQ Global Market, independent directors must constitute a majority of a listed company’s
board of directors. A director will only qualify as an “independent director” if, in the opinion of that company’s
board of directors, that person does not have a relationship that would interfere with the director’s exercise of independent
judgment in carrying out the responsibilities of a director. Our board of directors has evaluated the independence of each director
based on the independence criteria under NASDAQ rules and has determined that nine of our 11 directors are independent, specifically,
each of Mr. Cajka, Mr. Cubbage, Ms. Ellefson, Mr. Ellison, Mr. Gilmer, Mr. Hooper, Mr. Johnstone, Ms. Locke, and Mr. Orders is
an independent director. As part of this evaluation, our board of directors considered the current and prior relationships that
each independent director has with us and all other facts and circumstances our board of directors deemed relevant in determining
their independence, including the beneficial ownership of our shares by each independent director, and the matters discussed under
“Certain Relationships and Related Party Transactions.”
Our
board of directors determined that the following directors are not independent: Mr. Seaver (our chief executive officer) and Mr.
Cothran.
Committees
of the Board of Directors
The
following chart shows the current composition of the committees of our board of directors, the number of meetings held by each
committee during 2019, and which directors are “independent” based upon the independence criteria set forth in the
corporate governance listing standards of The NASDAQ Global Market. The audit committee, nominating and corporate governance committee,
and personnel committee are comprised exclusively of independent directors.
|
Director
|
|
Independent
|
|
Board
(12 Meetings)
|
|
Audit
(6 Meetings)
|
|
Nominating
& Corporate
Governance
(1 Meeting)
|
|
Personnel
(2 Meetings)
|
|
Finance
(12 Meetings)
|
|
Andrew B. Cajka, Jr.
|
|
•
|
|
•
|
|
• Chair
|
|
•
|
|
|
|
•
|
|
Mark A. Cothran
|
|
|
|
•
|
|
|
|
|
|
|
|
•
|
|
Leighton M. Cubbage
|
|
•
|
|
•
|
|
•
|
|
|
|
•
|
|
|
|
Anne S. Ellefson
|
|
•
|
|
•
|
|
•
|
|
• Chair
|
|
|
|
•
|
|
David G. Ellison
|
|
•
|
|
•
|
|
|
|
|
|
• Chair
|
|
•
|
|
Fred Gilmer, Jr.
|
|
•
|
|
•
|
|
|
|
|
|
|
|
•
|
|
Tecumseh Hooper, Jr.
|
|
•
|
|
•
|
|
•
|
|
•
|
|
•
|
|
•
|
|
Rudolph G. Johnstone, III
|
|
•
|
|
•
|
|
|
|
|
|
|
|
•
|
|
Anna T. Locke
|
|
•
|
|
•
|
|
•
|
|
|
|
|
|
•
|
|
James B. Orders, III
|
|
•
|
|
• Chair
|
|
•
|
|
|
|
•
|
|
• Chair
|
|
R. Arthur Seaver, Jr.
|
|
|
|
•
|
|
|
|
|
|
|
|
•
|
Audit
Committee
The
audit committee is comprised of six independent directors, Messrs. Cajka, Cubbage, Hooper and Orders and Ms. Ellefson and Locke,
with Mr. Cajka serving as chair. Our board of directors has also determined that Anna T. Locke is an “Audit Committee financial
expert” for purposes of the rules and regulations of the SEC adopted pursuant to the Sarbanes-Oxley Act of 2002. The audit
committee, which met six times in 2019, has the responsibility of reviewing our financial statements, evaluating internal accounting
controls, reviewing reports of regulatory authorities and determining that all audits and examinations required by law are performed.
The committee recommends to the board of directors the appointment of the independent auditors for the next fiscal year, reviews
and approves the auditor’s audit plans and reviews with the independent auditors the results of the audit and management’s
responses. The audit committee is responsible for overseeing the entire audit function and appraising the effectiveness of internal
and external audit efforts. The audit committee operates under a written charter, which is available on our website, www.southernfirst.com.
Nominating
and Corporate Governance Committee
Our
nominating and corporate governance committee (the “nominating committee”) is comprised of three independent directors,
Mr. Cajka, Ms. Ellefson, and Mr. Hooper, with Ms. Ellefson serving as chair. The nominating committee recommends nominees for
election to our board of directors at our annual meetings. The board of directors, including a majority of the independent directors,
then selects the nominees for election to the board of directors. Our nominating committee charter is available on our website,
www.southernfirst.com. The nominating committee met one time in 2019. The nominating committee also considers whether to recommend
to the board of directors the nomination of persons to serve as directors whose nominations have been recommended by shareholders.
Any
shareholder may recommend the nomination of any person to serve on the board of directors. Our policy is to require a shareholder
to submit the name of the person to our corporate secretary in writing no later than (i) with respect to an election to be held
at an annual meeting of shareholders, 90 days in advance of such meeting; and (ii) with respect to an election to be held at a
special meeting of shareholders for the election of directors, no more than seven days after notice of the special meeting is
given to shareholders. Each notice must set forth: (i) the name and address of the shareholder who intends to make the nomination
and of the person or persons to be nominated; (ii) a representation that the shareholder is a holder of record of stock of the
Company entitled to vote at such meeting and intends to appear in person or by proxy at the meeting to nominate the person or
persons specified in the notice; (iii) a description of all arrangements or understandings between the shareholder and each nominee
and any other person or persons (naming such person or persons) pursuant to which the nomination or nominations are to be made
by the shareholder; (iv) such other information regarding each nominee proposed by such shareholder as would be required to be
included in a proxy statement filed pursuant to the proxy rules of the SEC, had the nominee been nominated, or intended to be
nominated, by the board of directors; and (v) the consent of each nominee to serve as a director of the Company if so elected.
The chairman of the meeting may refuse to acknowledge the nomination of any person not made in compliance with the foregoing procedure.
The
nominating committee has not adopted a formal policy with regard to the consideration of diversity in identifying director nominees.
In determining whether to recommend a director nominee, the nominating committee members consider and discuss diversity, among
other factors, with a view toward the needs of the board of directors as a whole. The nominating committee members generally conceptualize
diversity expansively to include, without limitation, concepts such as race, gender, national origin, differences of viewpoint,
professional experience, education, skill and other qualities or attributes that contribute to board heterogeneity, when identifying
and recommending director nominees. The nominating committee believes that the inclusion of diversity as one of many factors considered
in selecting director nominees is consistent with the committee’s goal of creating a board of directors that best serves
the needs of the Company and the interest of its shareholders.
The
nominating committee has performed a review of the experiences, qualifications, attributes and skills of the board’s current
membership, including the director nominees for election to the board of directors and the other members of the board, and believes
that the current members of the board, including the director nominees, as a whole possess a variety of complementary skills and
characteristics, including the following:
|
|
●
|
successful
business or professional experience;
|
|
|
|
|
|
|
●
|
various
areas of expertise or experience which are desirable to our current business, such as financial, general management practices,
planning, legal, marketing, technology, banking and financial services;
|
|
|
|
|
|
|
●
|
personal
characteristics such as character, integrity and accountability, as well as sound business judgment and personal reputation;
|
|
|
|
|
|
|
●
|
residence
in the bank’s service area;
|
|
|
|
|
|
|
●
|
willingness
and ability to commit the necessary time to fully discharge the responsibilities of board membership to the affairs of the Company;
|
|
|
|
|
|
|
●
|
leadership
and consensus building skills; and
|
|
|
|
|
|
|
●
|
a
commitment to our success.
|
We
do not pay a third party to assist in identifying and evaluating director candidates.
Personnel
Committee
Our
personnel committee, which we may also refer to as the compensation committee, is comprised of four independent directors, Messrs.
Cubbage, Ellison, Hooper and Orders, with Mr. Ellison serving as chair. Mr. Cothran served on the personnel committee through
April 2019 at which time it was determined he was no longer independent due to the Development Services Agreement between the
Bank and a company he owns. Mr. Ellison joined the personnel committee in April 2019. The committee met two times during 2019.
The
personnel committee may form and delegate authority to subcommittees as it deems appropriate, though it has not formed or delegated
authority to any such subcommittee to date. The personnel committee is responsible for annually reviewing the performance of our
named executive officers and reviews all compensation and awards to our executive and senior officers. In addition, the personnel
committee may engage compensation advisors to assist in determining compensation levels. The personnel committee has the exclusive
authority and responsibility to determine all aspects of executive compensation, and seeks input and recommendations from the
chief executive officer for the executive and senior officers. With respect to equity compensation awards to non-executive officers,
the personnel committee has delegated restricted stock and option granting authority to our chief executive officer. As a part
of its duties, the personnel committee must certify that it has reviewed the named executive officers’ compensation arrangements
with a view toward ensuring that they do not create incentives to take unnecessary or excessive risks that threaten the value
of the Company.
The
personnel committee operates under a written charter, which is available on our website, www.southernfirst.com.
AUDIT
COMMITTEE MATTERS
Report
of the Audit Committee of the Board
The
information contained in this report shall not be subject to the liabilities of Section 18 of the Exchange Act, and shall not
be deemed to be incorporated by reference in future filings with the SEC except to the extent that we specifically incorporate
it by reference into a document filed under the Securities Act of 1933 (the “Securities Act”) or the Exchange Act.
The
audit committee has reviewed and discussed with management the audited financial statements. The audit committee has discussed
with the independent auditors the matters required to be discussed by the applicable requirements of the Public Company Accounting
Oversight Board (“PCAOB”) and the SEC. The audit committee has received from the independent auditors the written
disclosures and the letter required by applicable requirements of the PCAOB and has discussed with them their independence from
the Company and its management. In reliance on the reviews and discussions referred to above, the audit committee recommended
to our board of directors that the audited financial statements be included in our Annual Report and referenced on SEC Form 10-K
for the fiscal year ended December 31, 2019.
The
report of the audit committee is included herein at the direction of its members, Mr. Cajka, Mr. Cubbage, Ms. Ellefson, Mr. Hooper,
Ms. Locke, and Mr. Orders.
Audit
and Related Fees
Elliott
Davis was our auditor during the year ended December 31, 2019. A representative of Elliott Davis will be present at the annual
meeting and will be available to respond to appropriate questions and will have the opportunity to make a statement if he or she
desires to do so. The following table shows the fees that we paid for services performed by Elliott Davis in fiscal years ended
December 31, 2019 and 2018:
|
|
|
Year Ended December 31,
|
|
|
|
|
2019
|
|
|
2018
|
|
|
Audit Fees
|
|
$
|
190,500
|
|
|
|
186,200
|
|
|
Tax Fees
|
|
|
22,385
|
|
|
|
22,355
|
|
|
Other Fees
|
|
|
8,000
|
|
|
|
8,250
|
|
|
Total
|
|
$
|
220,885
|
|
|
|
216,805
|
|
Audit
Fees. This category includes the aggregate fees billed or to be billed for each of the last two fiscal years for professional
services rendered by Elliott Davis for the audit of our annual consolidated financial statements and employee benefit plan and
review of our quarterly reports on Form 10-Q.
Tax
Fees. This category includes the aggregate fees billed or to be billed for tax services rendered in the preparation of state
and federal tax returns for the Company and the Bank.
Other
Fees. This category includes the aggregate fees billed for non-audit services, exclusive of the fees disclosed relating to
audit fees. During the years ended December 31, 2019 and 2018, these fees include procedures related to audit requirements by
the Department of Housing and Urban Development (“HUD”) related to the Bank’s involvement in the Federal Housing
Administration lending program.
Oversight
of Accountants; Approval of Accounting Fees. Under the provisions of its charter, the audit committee is responsible for the
appointment, compensation, retention and oversight of the work of the independent auditor. All of the accounting services and
fees reflected in the table above were reviewed and approved by the audit committee, and none of the services were performed by
individuals who were not employees of the independent auditor. In addition, the board of directors approves an annual budget for
professional audit fees that includes all fees paid to the independent auditors.
Pre-Approval
Policy. In general, the audit committee is required to pre-approve all audit and non-audit services performed by the independent
auditor to assure that the provision of such services does not impair the auditor’s independence. The independent auditors
provide the audit committee with an annual engagement letter outlining the scope of the audit and permissible non-audit services
proposed for the fiscal year, along with a fee proposal. The scope and fee proposal is reviewed with the internal auditor, the
audit committee chair, and, when appropriate, our management for their input (but not their approval). Once approved by the audit
committee, the services outlined in the engagement letter will have specific approval. All other audit and permissible non-audit
services that have not been approved in connection with the independent auditor’s engagement letter for the applicable year
must be specifically pre-approved by the audit committee under the same process as noted above, where practicable. The independent
auditors shall not perform any prohibited non-audit services described in Section 10A(g) of the Exchange Act. The audit committee
must specifically pre-approve any proposed services that exceed pre-approved cost levels. All services provided by Elliott Davis,
and all fees related thereto, were approved pursuant to the pre-approval policy.
The
audit committee believes that the independent auditor can provide tax services to us, such as tax compliance, tax planning and
tax advice, without impairing the auditor’s independence. The audit committee will not permit the retention of the independent
auditor in connection with a transaction initially recommended by the independent auditor, the purpose of which may be tax avoidance
and the tax treatment of which may not be supported in the Internal Revenue Code and related regulations.
COMPENSATION
OF DIRECTORS AND EXECUTIVE OFFICERS
Compensation
Discussion and Analysis
The
following discussion provides a description of our decision-making process and philosophy for compensating our named executive
officers in 2019. This discussion also describes the material components of our 2019 compensation program. This discussion should
be read together with the compensation tables for our named executive officers located elsewhere in this proxy statement.
Our
“named executive officers” are the individuals who served as our principal executive officer and our two other most
highly compensated executive officers who were serving as executive officers at the end of 2019. Our named executive officers
as of December 31, 2019 are noted in the following table, along with their positions:
|
Name
|
|
Title
|
|
R.
Arthur Seaver, Jr.
|
|
Chief
Executive Officer
|
|
Michael
D. Dowling
|
|
Chief
Operating Officer/Chief Financial Officer
|
|
F.
Justin Strickland(1)
|
|
President
|
|
(1)
|
Mr. Strickland resigned from the Company and the Bank
effective January 21, 2020.
|
Key
Financial Highlights:
|
|
●
|
Net
income was $27.9 million for the year ended December 31, 2019, a 25.0% increase from $22.3 million for the year ended December
31, 2018.
|
|
|
|
|
|
|
●
|
Total
loans were $1.9 billion at December 31, 2019, a $266.2 million, or 15.9%, increase from 2018.
|
|
|
|
|
|
|
●
|
Total
deposits were $1.9 billion at December 31, 2019, a $228.0 million, or 13.8%, increase from 2018.
|
|
|
|
|
|
|
●
|
Net
charge-offs to average total loans were 0.08% for the year ended December 31, 2019 as compared to 0.11% for the year ended December
31, 2018.
|
|
|
|
|
|
|
●
|
Book
value increased 15.2% to $26.83 per share at December 31, 2019 from $23.29 per share at December 31, 2018.
|
General
Philosophy. We compensate our executive and senior officers through a mix of base salary, bonuses and equity compensation
designed to recruit, reward, and retain until retirement our talented management team. In addition, we seek to align management's
incentives with the long-term interests of our shareholders. Our compensation setting process consists of establishing targeted
overall compensation for executive officers consisting of cash compensation, equity compensation, and retirement benefits. For
each officer, the anticipated cash compensation is allocated among base salary and incentive compensation. We design the incentive
compensation to reward corporate performance based on the achievement of overall corporate financial and strategic goals.
Role
of the Compensation Committee. Our personnel committee, which we may also refer to as the compensation committee, is
responsible for annually reviewing the performance of our named executive officers and reviews all compensation and awards to
executive and senior officers. In addition, the compensation committee may engage compensation advisors to assist it in determining
compensation levels. The compensation committee has the exclusive authority and responsibility to determine all aspects of executive
compensation, and seeks input and recommendations from the Chief Executive Officer for the other named executive officers. The
committee operates under a written charter that establishes its responsibilities and reviews the charter annually to ensure that
the scope of the charter is consistent with the committee’s role.
Role
of the Named Executive Officers. Our named executive officers and the compensation committee work together to establish, review
and evaluate performance goals for our incentive compensation plans. While these executives provide input into our corporate strategic
goals for future performance periods, the committee carefully reviews these recommended goals before giving its final approval,
and evaluates and determines whether such goals have been achieved. We believe this process ensures that performance goals will
be appropriately balanced between short- and long-term incentives and will be motivating and challenging as well as attainable.
Role
of the Compensation Consultant. Every two to three years, we engage a consultant firm to assist with trends and benchmarks
related to executive compensation. In 2018, the Company engaged McLagan, an Aon Company, to provide limited independent consulting
services related to our executive compensation. In considering the retention of McLagan, the Company assessed McLagan’s
independence in light of SEC rules and NASDAQ listing standards and determined that McLagan was independent and their work did
not create any conflicts of interest.
McLagan
provided the following services to us in 2018:
|
|
●
|
Recommended
a compensation peer group of publicly-traded financial institutions;
|
|
|
|
|
|
|
●
|
Reviewed
the competitiveness of our compensation programs for our named executive officers, including base salary, annual incentives, long-term
incentives, employment contracts and retirement benefits; and
|
|
|
|
|
|
|
●
|
Commented
on the design of our incentive programs relative to the practices of our peers and alignment with our culture and business strategy.
|
Benchmarking.
The compensation committee did not use the compensation peer group provided by McLagan in 2018 to perform compensation benchmarking
but rather utilized broader-based compensation third-party industry surveys to obtain a better understanding of what is current
market practice for community banks. The compensation committee, however, did rely on the input of McLagan on how the design of
our incentive programs aligns with our culture and business strategy.
Risk
Considerations. The compensation committee reviews the risks and rewards associated with the Company’s compensation
programs from time to time. This review assesses the material elements of executive and non-executive employee compensation and
has concluded that our policies and practices do not create risk that is reasonably likely to have a material adverse effect on
the Company. We believe that our compensation programs encourage and reward prudent business judgment and appropriate risk taking
over the short-term and long-term.
Stock
Ownership Guidelines. We believe that it is in our best interest and that of our shareholders to align the personal financial
interests of our directors and officers with those of our shareholders. While the board of directors has not implemented stock
ownership guidelines for our directors and named executive officers, the board periodically analyzes the ownership of such individuals
and believes that their personal financial interests are aligned with those of our shareholders.
Tax
and Accounting Considerations. In consultation with our advisors, we evaluate the tax and accounting treatment of each of
our compensation programs at the time of adoption and on an annual basis to ensure an understanding of the financial impact of
the program. To preserve maximum flexibility in the design and implementation of our compensation program, we have not adopted
a formal policy that requires all compensation to be tax deductible. However, to the greatest extent possible, it is our intent
to structure our compensation programs in a tax efficient manner.
Stock
Compensation Grant and Award Practices; Timing Issues. As a general matter, the compensation committee’s process is
independent of any consideration of the timing of the release of material non-public information, including with respect to the
determination of grant dates or stock option exercise prices. Similarly, we have never timed the release of material non-public
information to affect the value of executive compensation. In general, the release of such information reflects long-established
timetables for the disclosure of material non-public information such as earnings reports or, with respect to other events reportable
under federal securities laws, the applicable requirements of such laws with respect to timing of disclosure. The compensation
committee’s decisions are reviewed by the full board of directors.
Targeted
Overall Compensation. We establish targeted overall compensation for our named executive officers by first understanding the
market value for these individuals in our regions. We seek to provide our executives with the incentive to earn above market compensation
by accomplishing significant goals related to their respective role within the Company.
Under
our compensation structure, the mix of base salary, bonus and equity compensation generally varies depending upon level. For our
named executive officers, we generally seek the mix to include a base salary of 50-60%, a bonus of 15-25%, and equity compensation
of 15-25% of total compensation.
In
allocating compensation among these elements, we believe that the compensation of our senior-most levels of management –
the levels of management having the greatest ability to influence our performance – should be significantly weighted on
performance. Therefore, we typically offer our executives a slightly lower base salary (approximately 90% of what we believe to
be average market base salary) with the potential to earn a higher than market bonus and a higher than market overall compensation.
We select allocations that we believe are consistent with our overall compensation philosophy as described above.
The
amount of equity awarded has been based primarily on the executive officer’s areas of responsibility. The objective of the
awards is to align management with the same interest as shareholders. From time to time additional equity awards may be granted
to officers based on performance, assumption of additional responsibilities and duties and other factors.
Base
Salaries. We aim to provide our named executive officers with a base salary that is commensurate with similar financial institutions
in our market area and appropriate for the overall responsibility of the individual based on experience, performance and any other
unique factors or qualifications such as the difficulty of replacing the officer with someone of comparable experience and skill.
Bonuses/Incentive
Plan. We have established a short-term incentive plan in order to reward our named executive officers for annual achievement
based on our overall strategic plan which includes performance measures such as the following:
|
|
●
|
Loan
and deposit growth;
|
|
|
|
|
The
incentive plan for our named executive officers is based on the compensation committee’s review of all key financial measures
and performance related to our strategic plan as a whole. The evaluation of these various incentive components is more subjective
in nature than objective without specific financial targets and objectives. The committee also considers whether or not the anticipated
incentive pay is within the percentage of total compensation that they have chosen to use as a guide for the allocation of total
compensation. In contrast, detailed incentive plans are developed annually for other senior officers based on the key financial
measures included in our overall strategic plan.
We
do not believe that an “all or nothing” approach is appropriate for incentive compensation. Rather, the performance
goals are scaled so that the recipient can receive part of an award in the event that acceptable, but not the desired, results
are achieved. Awards are made at various levels depending on objective quantifiable measures of accomplishments.
Equity
Compensation. At various times, we issue additional compensation to our named executive officers and senior officers in the
form of equity compensation in order to further align management and shareholder interests and to reward management for increases
in shareholder value. The awards may be issued in the form of incentive stock option grants, nonstatutory stock options grants
and restricted stock awards and are determined based on our performance related to our overall strategic goals.
With
the exception of significant promotions and new hires, we generally make these awards at the first meeting of the compensation
committee each year following the availability of the financial results for the prior year. As with the cash bonuses, the evaluation
of these financial results and corresponding determination of equity awards for our named executive officers is more subjective
in nature than objective without specific financial targets and objectives. Option exercise prices are established at market value
on the grate date and vesting provisions for granted stock options and restricted stock are at the discretion of the compensation
committee and executive management. Upon termination, unexercised options are forfeited and made available for future grants.
We fund the option shares and restricted stock from authorized but unissued shares.
Severance
Benefits. We believe we should provide reasonable severance benefits to our named executive officers. These severance benefits
should reflect the fact that it may be difficult to find comparable employment within a short period of time.
For
additional information regarding severance benefits, see “Potential Payments Upon Termination or Change in Control”
below and information about the employment agreements with the named executive officers that follows the Grants of Plan Based
Awards table.
In
addition, effective January 21, 2020, F. Justin Strickland, resigned as our president. In connection with his resignation, we
entered into a consulting agreement and a waiver and release agreement with Mr. Strickland. For a detailed description of the
actual payments upon termination Mr. Strickland received, see the discussion below under “Consulting Agreement, Waiver and
Release Agreement, with F. Justin Strickland” and "Actual Payments Upon Termination."
Retirement
Plans. We have a 401(k) plan pursuant to which we match 100% of the first 2% of the employee’s salary, and 50% of the
next 4% of the employee’s salary. In addition, we supplemented the retirement planning by adopting a salary continuation
plan for certain management at the level of senior vice president or above, including our named executive officers. This plan
was designed to enhance our ability to retain executives over the long-term and to provide a partial offset to shortfalls in the
percentage of income provided for retirement by our 401(k). Pursuant to this plan, we accrue retirement benefits at the levels
necessary so that the net present value of the anticipated cost of the salary continuation plan is accrued at the time the officer
reaches the age of 65. When we calculate targeted overall compensation for our senior management, we factor in the benefits expense
related to both the 401(k) and the accrued individual cost of the salary continuation plan. Additional details regarding the supplemental
retirement plan are provided below following the Pension Benefits Table.
Change
in Control. Our named executive officers and other employees have built Southern First into the Company that it is today,
and we believe that it is important to protect them in the event of a change in control. Further, it is our belief that the interests
of shareholders will be best served if the interests of our named executive officers are aligned with them, and providing change
in control benefits should eliminate, or at least reduce, the potential reluctance of our named executive officers to pursue potential
change in control transactions that may be in the best interests of shareholders. As such, our chief executive officer, Mr. Seaver,
has a renewable employment agreement with us for a term of three years and our chief operating officer/chief financial officer,
Mr. Dowling, has a renewable employment agreement with us for a term of two years.
Under
the terms of the employment agreements, which were amended as of January 31, 2019, if Messrs. Seaver and Dowling are terminated
without “cause” or terminate employment for “good reason" following a change in control, the executive
is entitled to receive severance compensation and any bonus accrued or unpaid through the date of termination. Mr. Seaver’s
agreement entitles him to receive severance compensation equal to three years of base salary, while Mr. Dowling’s agreement
provides for severance compensation equal to two years of base salary. We believe that these levels are comparable to our competition.
In
addition, under the terms of the employment agreements, in the event of a change in control, we will also continue to partially
fund health insurance benefits for the legally required COBRA period or until the employee obtains comparable benefits pursuant
to a subsequent employer’s benefit plans. Further, all restrictions on any outstanding incentive awards granted to the employee
and incentive plans become 100% vested, and all stock options and stock appreciation rights granted to the employee will also
become immediately exercisable. See “Compensation Arrangements – Employment Agreements” for additional
information regarding the employment agreements. With regard to Mr. Strickland, see “Compensation Arrangements – Consulting
Agreement, Waiver and Release Agreement, with F. Justin Strickland.
We
have also entered into salary continuation agreements with our named executive officers which provide, among other things, that
upon a change in control the Bank will pay to the executive a change in control benefit equal to his accrual balance at his normal
retirement age, without additional discount for the time value of money in one lump-sum payment within three days after the change
in control. If a change in control occurs at any time during the salary continuation benefit payment period and if when the change
in control occurs the executive is receiving the normal retirement benefit, the early termination benefit, or the disability benefit,
the Bank will pay the present value, calculated at the discount rate or rates established by the plan administrator, of the remaining
salary continuation benefits to the executive in a single lump-sum payment within three days after the change in control. See
“Compensation Arrangements – Salary Continuation Agreements” and “Pension Benefits” for additional
information regarding the salary continuation agreements.
Perquisites
and Other Benefits. We annually review the perquisites that our named executive officers and other senior officers receive.
The primary perquisites for these individuals are additional levels of life insurance, the payment of the monthly dues for one
golf or social club, and an automobile or an automobile allowance. We encourage our named executive officers and other senior
officers to belong to a golf or social club so that they have an appropriate entertainment forum for clients and appropriate interaction
with their communities.
Our
named executive officers also participate in our other benefit plans on the same terms as other employees. These plans include
medical insurance, life insurance and a medical reimbursement plan.
Role
of Shareholder Say on Pay Vote. As required by the Dodd-Frank Act, we held an advisory vote
on the compensation of our executive officers (“say-on-pay”) at our 2019 Annual Meeting of Shareholders. At the 2019
Annual Meeting of Shareholders, 76.3% of the votes cast on the say on pay proposal were cast in support of the compensation of
our named executive officers. A majority of the votes cast by our shareholders at our 2019 Annual Meeting of Shareholders were
in favor of holding this vote on an annual basis. Based on the results of this advisory vote, our board of directors elected a
frequency of every year to conduct an advisory vote on compensation of our named executive officers.
While
the 2019 shareholder vote reflected strong support for our executive compensation programs, the compensation committee, board
of directors and management have continued to refine compensation programs in an effort to further align interest of the executives
with those of our shareholders and to strengthen the linkage of pay for performance.
Clawback
Policy. The compensation committee is committed to adopting a formal clawback provision for adjustment or recovery of incentive
awards or payments in the event the performance measures upon which they are based are restated or otherwise adjusted in a manner
that would reduce the size of an award or payment. The compensation committee intends to fully comply with the Dodd-Frank Act
regarding this issue once rulemaking has been completed with respect to these provisions.
Until
formal guidance is available, the compensation committee will seek to address any situation that may arise and determine the proper
and appropriate course of action in fairness to shareholders and named executive officer award recipients.
Section
162(m) of the Internal Revenue Code. Section 162(m) of the Internal Revenue Service Code limits the Company’s ability
to deduct certain compensation in excess of $1 million paid to the Company’s chief executive officer and to certain other
executives (excluding the Company’s chief financial officer). Prior to 2018, this limitation generally did not apply to
compensation that qualified under applicable regulations as “performance-based.” In line with this, the Company historically
aimed to design and approve the performance-based compensation paid to its named executive officers so that such compensation
would satisfy the requirements for deductibility under Section 162(m). Prior to 2018, the compensation committee considered Section
162(m) when making compensation decisions. However, other considerations, such as providing the Company’s named executive
officers with competitive and adequate incentives to remain with the Company and increase the Company’s business operations,
financial performance and prospects, as well as rewarding extraordinary contributions, also significantly factored into the compensation
committee’s decisions.
In
December 2017, the Tax Cuts and Jobs Act was enacted. Under the Tax Cuts and Jobs Act, the qualified performance-based compensation
exception to Section 162(m) that generally provided for the continued deductibility of performance-based compensation was repealed,
effective for tax years commencing on or after January 1, 2018. Accordingly, commencing with our fiscal year ending December 31,
2018, compensation to our named executive officers in excess of $1,000,000 will not be deductible unless it is paid pursuant to
a written binding contract that was in effect on November 2, 2017, and not modified in any material respect on or after such date.
Performance-based compensation awarded to our named executive officers for periods prior to November 2, 2017 are expected to continue
to qualify for the performance-based compensation exemption under Section 162(m). The United States Treasury has not yet issued
any guidance on any limitations on the continued deductibility of these awards. Accordingly, the future deductibility of these
grandfathered awards is uncertain and cannot be guaranteed.
Compensation
Committee Report
The
compensation committee has reviewed and discussed the Compensation Discussion and Analysis contained in this Proxy Statement with
management. Based upon such review, the related discussions and such other matters deemed relevant and appropriate to the Compensation
Committee, the Compensation Committee has recommended to our board of directors that the Compensation Discussion and Analysis
be included in this Proxy Statement and incorporated by reference into our 2019 Form 10-K.
The
information contained in this report shall not be subject to the liabilities of Section 18 of the Exchange Act, and shall not
be deemed to be incorporated by reference in future filings with the SEC except to the extent that we specifically incorporate
it by reference into a document filed under the Securities Act or the Exchange Act.
This
report is submitted by the compensation committee consisting of Messrs. Cothran, Cubbage, Ellison, Hooper and Orders.
Summary
of Cash and Certain Other Compensation
The
following table shows the compensation we paid to our named executive officers for the years ended December 31, 2019, 2018 and
2017. Because we only have three “executive officers” as such term is defined in Rule 3b-7 of the Exchange Act, we
only have three “named executive officers,” and the compensation for each is disclosed in the following table.
Summary
Compensation Table
Name and Principal Position
as of December 31, 2019
|
|
Year
|
|
Salary
|
|
|
Bonus
(1)(2)
|
|
|
Stock
Awards
(3)(4)
|
|
|
Option
Awards
(3)(5)
|
|
|
Non-Equity
Incentive Plan
Compensation
|
|
|
Change in
Pension
Value and
Nonqualified
Deferred
Compensation
Earnings
|
|
|
All Other
Compensation
(6)
|
|
|
Total
|
|
|
R. Arthur Seaver, Jr.
|
|
2019
|
|
$
|
485,000
|
|
|
$
|
160,000
|
|
|
$
|
64,640
|
|
|
$
|
94,080
|
|
|
$
|
-
|
|
|
$
|
98,264
|
|
|
$
|
46,564
|
|
|
$
|
948,548
|
|
|
Chief Executive Officer
|
|
2018
|
|
|
475,000
|
|
|
|
157,832
|
|
|
|
107,000
|
|
|
|
132,740
|
|
|
|
-
|
|
|
|
123,997
|
|
|
|
47,830
|
|
|
|
1,044,399
|
|
|
|
|
2017
|
|
|
460,000
|
|
|
|
125,000
|
|
|
|
-
|
|
|
|
142,450
|
|
|
|
-
|
|
|
|
156,582
|
|
|
|
42,495
|
|
|
|
926,527
|
|
|
Michael D. Dowling
|
|
2019
|
|
|
287,000
|
|
|
|
135,000
|
|
|
|
64,640
|
|
|
|
94,080
|
|
|
|
-
|
|
|
|
35,537
|
|
|
|
46,348
|
|
|
|
662,605
|
|
|
Chief Operating Officer
|
|
2018
|
|
|
275,000
|
|
|
|
119,872
|
|
|
|
85,600
|
|
|
|
132,740
|
|
|
|
-
|
|
|
|
42,870
|
|
|
|
43,356
|
|
|
|
699,438
|
|
|
and Chief Financial Officer
|
|
2017
|
|
|
250,000
|
|
|
|
110,000
|
|
|
|
-
|
|
|
|
142,450
|
|
|
|
-
|
|
|
|
47,964
|
|
|
|
39,770
|
|
|
|
590,184
|
|
|
F. Justin Strickland
|
|
2019
|
|
|
370,000
|
|
|
|
30,000
|
|
|
|
64,640
|
|
|
|
94,080
|
|
|
|
-
|
|
|
|
86,496
|
|
|
|
40,678
|
|
|
|
685,894
|
|
|
President(7)
|
|
2018
|
|
|
360,000
|
|
|
|
142,945
|
|
|
|
85,600
|
|
|
|
132,720
|
|
|
|
-
|
|
|
|
104,231
|
|
|
|
43,281
|
|
|
|
868,777
|
|
|
|
|
2017
|
|
|
350,000
|
|
|
|
115,000
|
|
|
|
-
|
|
|
|
142,450
|
|
|
|
-
|
|
|
|
125,433
|
|
|
|
33,227
|
|
|
|
766,110
|
|
|
(1)
|
These
amounts reflect an annual discretionary bonus award determined by the personnel committee and paid in the subsequent fiscal
year. The 2019 amounts for each executive officer include a one-time bonus which was to account for certain one-time costs
related to the Supplemental Executive Retirement Plan.
|
|
(2)
|
The
2019 bonus for Mr. Strickland is based on the amount specified in his Waiver and Release Agreement effective January 23, 2020.
|
|
(3)
|
The
value for each of these awards is its grant date fair value calculated by multiplying the number of shares subject to the
award by the market price per share on the date such award was granted, computed in accordance with Financial Accounting Standards
Board Accounting Standards Codification Topic 718 and is the closing price as reported on the NASDAQ Global Market as of each
valuation date. See the discussion of assumptions used in the valuation of stock and option awards in Note 21, “Stock-Based
Compensation” in the Company’s Annual Report on Form 10-K for the year ended December 31, 2019.
|
|
(4)
|
On
January 15, 2019, Messrs. Seaver, Strickland and Dowling each received an award of 2,000 shares of restricted stock under
the Company’s 2016 Equity Incentive Plan. On January 16, 2018, Mr. Seaver received an award of 2,500 shares and Messrs.
Strickland and Dowling each received an award of 2,000 shares of restricted stock under the Company’s 2010 Stock Incentive
Plan. The restricted stock vests ratably over four years.
|
|
(5)
|
On
January 15, 2019, Messrs. Seaver, Strickland and Dowling each received a grant of stock options to purchase 8,000 shares of
the Company’s common stock which had a per share fair value of $11.76. On January 16, 2018, Messrs. Seaver, Strickland
and Dowling each received a grant of stock options to purchase 8,000 shares of the Company’s common stock which had
a per share fair value of $16.59. On January 17, 2017, Messrs. Seaver, Strickland and Dowling each received a grant of stock
options to purchase 10,000 shares of the Company’s common stock which had a per share fair value of $14.24. The stock
options vest ratably over four years.
|
|
(6)
|
All
other compensation includes the following items: (a) Company contributions under the 401(k) Plan, (b) car allowance or value
attributable to personal use of Company provided automobiles, (c) club dues, (d) premiums for the portion of the death benefits
shared by the Company with the named executive officers pursuant to bank owned life insurance and (e) premiums for life, accident
and long-term disability insurance policies. The amount attributable to each such perquisite or benefit for each named executive
officer does not exceed the greater of $25,000 or ten percent of the total amount of perquisites received by such named executive
officer.
|
|
(7)
|
Mr.
Strickland resigned from the Company and the Bank effective January 21, 2020.
|
Grants
of Plan-Based Awards
The
following table provides a summary regarding plan-based equity and non-equity incentive awards granted to the named executive
officers in 2019. Discretionary cash bonus awards made in January 2020 for the year ended December 31, 2019, as shown in the Summary
Compensation Table, are as follows: R. Arthur Seaver, Jr. - $160,000 and Michael D. Dowling - $135,000.
|
Name
|
|
Grant Date
|
|
Estimated Future Payouts Under Non-Equity Incentive Plan Awards($)
|
|
|
Estimated Future Payouts Under Equity Incentive Plan Awards($)
|
|
|
All Other Stock Awards: Number of Shares of Stock or Units
|
|
|
All Other Option Awards: Number of Securities Underlying Options(1)
|
|
|
Exercise or Base Price of Option Awards
($/Sh)(2)
|
|
|
Grant Date Fair Value of Stock and Option Awards ($)(3)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
R. Arthur Seaver, Jr.
|
|
1/15/2019
|
|
|
-
|
|
|
|
-
|
|
|
|
2,000
|
|
|
|
8,000
|
|
|
|
32.32
|
|
|
|
158,720
|
|
|
Michael D. Dowling
|
|
1/15/2019
|
|
|
-
|
|
|
|
-
|
|
|
|
2,000
|
|
|
|
8,000
|
|
|
|
32.32
|
|
|
|
158,720
|
|
|
F. Justin Strickland
|
|
1/15/2019
|
|
|
-
|
|
|
|
-
|
|
|
|
2,000
|
|
|
|
8,000
|
|
|
|
32.32
|
|
|
|
158,720
|
|
|
(1)
|
The
criteria used to determine all stock option awards is subjective rather than objective in nature. The options vest ratably
over four years.
|
|
(2)
|
The
exercise or base price of option awards is established as the closing market price of our Common Stock on the grant date.
|
|
(3)
|
This
amount represents the fair market value of all restricted stock and option awards made during the fiscal year 2019. The fair
market value for stock awards is based on the closing market price of the stock on the date of grant which was $32.32 per
share. The fair value of options is estimated at the date of grant using the Black-Scholes option pricing model. The fair
value for the options issued on January 15, 2019 was $11.76 per share. The following assumptions were used in valuing options
issued:
|
|
|
|
Assumptions
|
|
|
|
|
January 15, 2019
|
|
|
Dividend yield
|
|
|
-
|
|
|
Expected life
|
|
|
7 years
|
|
|
Expected volatility
|
|
|
28.91
|
%
|
|
Risk-free interest rate
|
|
|
2.61
|
%
|
Outstanding
Equity Awards at Fiscal Year End
The
following table shows the number of shares covered by both exercisable and non-exercisable options and stock awards owned by our
named executive officers as of December 31, 2019, as well as the related exercise prices and expiration dates for the option awards.
Option awards are granted pursuant to the 2010 Stock Incentive Plan and the 2016 Equity Incentive Plan. All stock option information
has been adjusted to reflect all prior stock splits and dividends.
|
|
|
Option Awards
|
|
|
|
|
Stock Awards
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Market
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of
|
|
|
Value of
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares or
|
|
|
Shares or
|
|
|
|
|
Number of Securities
|
|
|
|
|
|
|
|
Units of
|
|
|
Units of
|
|
|
|
|
Underlying Unexercised
|
|
|
Option
|
|
|
Option
|
|
Stock that
|
|
|
Stock that
|
|
|
|
|
Options(#)
|
|
|
Exercise
|
|
|
Expiration
|
|
Have Not
|
|
|
Have Not
|
|
|
Name
|
|
Exercisable
|
|
|
Unexercisable(1)
|
|
|
Price($)
|
|
|
Date
|
|
Vested(#)
|
|
|
Vested(#)
|
|
|
R. Arthur Seaver, Jr.
|
|
|
11,462
|
|
|
|
-
|
|
|
$
|
5.97
|
|
|
01/18/2021
|
|
|
5,125
|
|
|
|
217,761
|
|
|
|
|
|
12,100
|
|
|
|
-
|
|
|
|
6.01
|
|
|
01/17/2022
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
11,000
|
|
|
|
-
|
|
|
|
8.68
|
|
|
01/15/2023
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
10,000
|
|
|
|
-
|
|
|
|
13.43
|
|
|
01/21/2024
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
10,000
|
|
|
|
-
|
|
|
|
16.78
|
|
|
01/20/2025
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
7,500
|
|
|
|
2,500
|
|
|
|
23.00
|
|
|
01/19/2026
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
5,000
|
|
|
|
5,000
|
|
|
|
35.65
|
|
|
01/17/2027
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
2,000
|
|
|
|
6,000
|
|
|
|
42.80
|
|
|
01/16/2028
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
-
|
|
|
|
8,000
|
|
|
|
32.32
|
|
|
01/15/2029
|
|
|
-
|
|
|
|
-
|
|
|
Michael D. Dowling
|
|
|
10,000
|
|
|
|
-
|
|
|
|
16.78
|
|
|
01/20/2025
|
|
|
4,750
|
|
|
|
201,828
|
|
|
|
|
|
7,500
|
|
|
|
2,500
|
|
|
|
23.00
|
|
|
01/19/2026
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
5,000
|
|
|
|
5,000
|
|
|
|
35.65
|
|
|
01/17/2027
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
2,000
|
|
|
|
6,000
|
|
|
|
42.80
|
|
|
01/16/2028
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
-
|
|
|
|
8,000
|
|
|
|
32.32
|
|
|
01/15/2029
|
|
|
-
|
|
|
|
-
|
|
|
F. Justin Strickland
|
|
|
7,500
|
|
|
|
2,500
|
|
|
|
23.00
|
|
|
01/19/2026
|
|
|
4,750
|
|
|
|
201,828
|
|
|
|
|
|
5,000
|
|
|
|
5,000
|
|
|
|
35.65
|
|
|
01/17/2027
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
2,000
|
|
|
|
6,000
|
|
|
|
42.80
|
|
|
01/16/2028
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
-
|
|
|
|
8,000
|
|
|
|
32.32
|
|
|
01/15/2029
|
|
|
-
|
|
|
|
-
|
|
|
(1)
|
All
of the unvested options have an expiration date of ten years following the date of grant and vest in four equal increments
on the first four anniversaries of the applicable date of grant.
|
Option
Exercises and Stock Vested
|
|
|
Option Awards
|
|
|
Stock Awards
|
|
|
Name
|
|
Number of Shares Acquired on Exercise (#)
|
|
|
Value
Realized on Exercise ($)(1)
|
|
|
Number of Shares Acquired on Vesting (#)
|
|
|
Value Realized on Vesting ($)(2)
|
|
|
R. Arthur Seaver, Jr.
|
|
|
78,480
|
|
|
$
|
2,533,392
|
|
|
|
1,875
|
|
|
$
|
61,931
|
|
|
Michael D. Dowling
|
|
|
-
|
|
|
|
-
|
|
|
|
1,750
|
|
|
|
57,875
|
|
|
F. Justin Strickland
|
|
|
32,150
|
|
|
|
803,268
|
|
|
|
1,750
|
|
|
|
57,875
|
|
|
(1)
|
Value
realized is based on the difference between our common stock closing price on the date of exercise and the option exercise
price.
|
|
(2)
|
Value
realized is based on the market value of the underlying shares on the vesting date.
|
Equity
Compensation Plan Information
The
following table contains certain information as of December 31, 2019, relating to securities authorized for issuance under our
equity compensation plans. All stock option information has been adjusted to reflect prior stock splits and dividends.
|
Plan Category
|
|
Number of securities
to be issued upon exercise
of outstanding options,
warrants and rights(a)
|
|
|
Weighted-average
exercise price of
outstanding options,
warrants and rights (b)
|
|
|
Number of securities
remaining available for
future issuance under
equity compensation plans (c)
(excluding securities
reflected in column(a))
|
|
|
Equity compensation plans approved by security holders
|
|
|
541,414
|
|
|
$
|
26.65
|
|
|
|
216,339
|
|
|
Equity compensation plans not approved by security holders
|
|
|
None
|
|
|
|
n/a
|
|
|
|
n/a
|
|
|
Total
|
|
|
541,414
|
|
|
$
|
26.65
|
|
|
|
216,339
|
|
Compensation
Arrangements
Consulting
Agreement, Waiver and Release Agreement, with F. Justin Strickland
As
previously disclosed, Mr. Strickland resigned from the Company and the Bank effective January 21, 2020. On January 23, 2020, the
Company and the Bank entered into a (i) consulting agreement (the “Consulting Agreement”) with Mr. Strickland, pursuant
to which he will serve as a consultant to our management team with respect to various aspects of our business and (ii) waiver
and release agreement (the “Release Agreement”), as contemplated by Mr. Strickland’s employment agreement, in
favor of the Company and the Bank and under which Mr. Strickland received a payment of $30,000.
Under
the Consulting Agreement, Mr. Strickland is entitled to a monthly consulting fee of $30,000, as well as for reimbursement of all
reasonable business expenses. The Consulting Agreement will continue until the earlier of: (i) the 120th day following
the effective date of the Consulting Agreement; (ii) Mr. Strickland’s death; (iii) the disability of Mr. Strickland for
a period of 90 consecutive days; (iv) Mr. Strickland’s termination of the Consulting Agreement thereof upon two weeks’
prior written notice; or (v) our termination of the Consulting Agreement due to Mr. Strickland’s material breach of the
Agreement, following the expiration of a 30 day cure period.
Under
the Release Agreement, Mr. Strickland released any and all claims against the Company or the Bank, known or unknown by him, and
re-affirmed his commitment to honor the restrictive covenants set forth in his previous employment agreement and his salary continuation
agreement, each of which is discussed below.
Employment
Agreements
The
Company and the Bank are parties to an amended and restated employment agreement with R. Arthur Seaver, Jr. dated as of January
31, 2020, pursuant to which he serves as the Chief Executive Officer of both our Company and the bank. The agreement renews annually
on January 31st for an additional year, so that the then-remaining term of the agreement is three years. As of March
15, 2020, Mr. Seaver receives a minimum annual salary of $498,000, which may be increased annually by the board of directors.
He is also eligible to participate in any of our pension, profit sharing, bonus, life insurance, hospitalization, major medical,
and other employee benefit plans and programs and receives an automobile owned by the bank.
Mr.
Seaver’s employment agreement also provides that during the term of employment and for a period of 12 months following termination,
Mr. Seaver may not (a) compete with us by, directly or indirectly, forming, serving as an organizer, director or officer of, employee
or agent, or consultant to, or acquiring or maintaining more than a 1% passive investment in, a depository financial institution
or holding company thereof if such depository institution or holding company has one or more offices or branches within 30 miles
of our main office or any other offices, (b) solicit our clients with which he had contact in connection with products and services
provided by us for the purpose of providing financial services, or (c) solicit our employees. If Mr. Seaver is terminated without
cause, as defined in the employment agreement, or if following a change in control of our Company he terminates his employment
for good reason, as defined in the employment agreement, he will be entitled to severance compensation of three times his then
current monthly salary for a period of 12 months, plus accrued bonus, and all outstanding options and incentives will vest immediately.
If, following a change in control of our Company, he is terminated without cause or he terminates his employment for good reason,
he would receive continuation of health insurance for an 18 month period during which he would be required to pay the portion
of the full COBRA cost of the coverage equal to an active employee’s share of premiums for coverage for the respective plan
year.
As
of December 31, 2019, the Company and the Bank were parties to an amended and restated employment agreement with (i) Michael D.
Dowling to serve as executive vice president and Chief Operating Officer/Chief Financial Officer of the Company and the Bank and
(ii) Justin Strickland to serve as president of our Company and the Bank. Mr. Strickland resigned from the Company and the Bank
effective January 21, 2020.
The
agreement with Mr. Dowling renews annually on January 31st for an additional year, so that the then-remaining term
of the agreement is two years. As of March 15, 2020, Mr. Dowling is paid a salary of $340,000 which may be increased annually
by the board of directors. He is also eligible to participate in any of our pension, profit sharing, bonus, life insurance, hospitalization,
major medical, and other employee benefit plans and programs and has received an automobile owned by the bank. If Mr. Dowling
is terminated without cause, as defined in the employment agreement, or if following a change in control of our Company he terminates
his employment for good reason, as defined in the employment agreement, he will be entitled to severance compensation of two times
his then current monthly salary for a period of 12 months, plus accrued bonus, and all outstanding options and incentives will
vest immediately. If, following a change in control of our Company, he is terminated without cause or he terminates his employment
for good reason, he would receive continuation of health insurance for an 18 month period during which he would be required to
pay the portion of the full COBRA cost of the coverage equal to an active employee’s share of premiums for coverage for
the respective plan year.
Although
Mr. Strickland is no longer employed by us, he is still bound by the restrictive covenants from his employment agreement. Accordingly,
each employment agreement provides that during the term of employment and for a period of 12 months following termination, Messrs.
Dowling and Strickland may not (a) compete with us by, directly or indirectly, forming, serving as an organizer, director or officer
of, employee or agent, or consultant to, or acquiring or maintaining more than a 1% passive investment in, a depository financial
institution or holding company thereof if such depository institution or holding company has one or more offices or branches within
30 miles of our main office or any other offices, (b) solicit our clients with which they had contact in connection with products
and services provided by us for the purpose of providing financial services, or (c) solicit our employees.
Salary
Continuation Agreements
The
Bank, is a party to salary continuation agreements with Messrs. Seaver, Dowling, and was, as of December 31, 2019, a party to
a salary continuation agreement with Mr. Strickland. Effective upon his termination and when he attains the normal retirement
age, Mr. Strickland will receive an early termination benefit of $60,036 annually based on his previously vested amounts. Unless
a separation from service or a change in control (as defined in the salary continuation agreements) occurs before the retirement
age set forth in each agreement, the salary continuation agreements provide for an annual supplemental retirement benefit to be
paid to each of the executives in 12 equal monthly installments payable on the first day of each month, beginning with the month
immediately after the month in which the executive attains the normal retirement age and for the executive’s lifetime with
a 15-year term certain period. Under the terms of the agreements, Mr. Seaver will receive an annual supplemental retirement benefit
of $250,000, and Mr. Dowling will receive $150,000.
Pension
Benefits
|
|
|
|
|
Number
|
|
|
Present
|
|
|
Payments
|
|
|
|
|
|
|
Of Years
|
|
|
Value of
|
|
|
During
|
|
|
|
|
|
|
Credited
|
|
|
Accumulated
|
|
|
Last Fiscal
|
|
|
Name
|
|
Plan Name
|
|
Service
|
|
|
Benefit(1)
|
|
|
Year
|
|
|
R. Arthur Seaver, Jr.
|
|
Southern First Bank, Salary Continuation Agreement
|
|
|
13
|
|
|
$
|
1,215,268
|
|
|
$
|
—
|
|
|
Michael D. Dowling
|
|
Southern First Bank, Salary Continuation Agreement
|
|
|
6
|
|
|
|
236,593
|
|
|
|
—
|
|
|
F. Justin Strickland(2)
|
|
Southern First Bank, Salary Continuation Agreement
|
|
|
11
|
|
|
|
900,533
|
|
|
|
—
|
|
|
(1)
|
SERP
amounts represent the aggregate liability carried on the Company’s books for each of the named executive officers as
of December 31, 2019.
|
|
(2)
|
Mr.
Strickland resigned from the Company and the Bank effective January 21, 2020.
|
Provided
such executive has been continuously employed by the Bank for five consecutive years from the effective date of the salary continuation
agreement, if an early termination occurs (defined as separation from service before normal retirement age for reasons other than
death, disability, termination for cause, or after a change in control), each of Messrs. Seaver and Dowling early termination
benefit is calculated by taking the accrual balance (as defined in the salary continuation agreement) existing at the end of the
month immediately before the month in which separation from service occurs, compounding this accrual balance forward to the executive’s
normal retirement age taking into account interest at the discount rate or rates established by the plan administrator, and amortizing
this resulting amount for the executive’s lifetime with a 15-year term certain period, beginning with the executive’s
normal retirement age. We will pay this annual early termination benefit as calculated to the executive in 12 equal monthly installments
payable on the first day of each month, beginning with the later of (x) the seventh month after the executive’s separation
from service, or (y) the month immediately after the month in which the executive attains the normal retirement age and for the
executive’s lifetime with a 15-year term certain period. However, all of the executive’s early termination benefits
will be forfeited if at any time from the date of the executive’s early termination and for a period of one year thereafter,
the executive (without the prior written consent of the Bank) competes with the Bank, the Company, or any of its subsidiaries,
directly or indirectly, by engaging in forming, by serving as an organizer, director, officer of, employee or agent, or consultant
to, or by acquiring or maintaining more than a one percent passive investment in, a depository financial institution or holding
company thereof if such depository financial institution or holding company has or establishes one or more offices or branches
which are located within 30 miles of any office or branch of the Bank in existence at the date of the executive’s early
termination. Although Mr. Strickland is no longer employed by us, he is still bound by these restrictive covenants from his salary
continuation agreement.
Upon
Messrs. Seaver’s and Dowling’s separation from service because of disability (as defined in the salary continuation
agreement) before normal retirement age, the executive’s disability benefit is calculated by taking the accrual balance
existing at the end of the month immediately before the month in which separation from service occurs, compounding this accrual
balance forward to the executive’s normal retirement age taking into account interest at the discount rate or rates established
by the plan administrator, and amortizing this resulting amount over the executive’s lifetime with a 15-year term certain
period, beginning with the executive’s normal retirement age. Beginning with the later of (x) the seventh month after the
executive’s separation from service, or (y) the month immediately after the month in which the executive attains the normal
retirement age, the Bank will pay the disability benefit to the executive in 12 equal monthly installments on the first day of
each month and for the executive’s lifetime with a 15-year term certain period.
If
Messrs. Seaver or Dowling die in active service to the Company before normal retirement age, the executive’s beneficiary
will be entitled to an amount equal to the executive’s accrual balance at the time of the executive’s death, payable
within 60 days of the executive’s death.
If
Messrs. Seaver or Dowling die before any separation from service and the executive is receiving the executive’s normal retirement
benefit, but the executive has not received the executive’s normal retirement benefit for the full 15-year term certain
period, the executive’s beneficiary will be entitled to, at the Company’s sole discretion upon the executive’s
death, either: (i) the present value, calculated at the discount rate or rates established by the plan administrator, at the executive’s
death of the executive’s remaining salary continuation benefits, paid to the executive’s beneficiary in a lump-sum
within 60 days of the executive’s death; or (ii) the executive’s remaining salary continuation benefits, paid to the
executive’s beneficiary in 12 equal monthly installments payable on the first day of each month for the 15-year term certain
period.
If
Messrs. Seaver or Dowling die after separation from service and the executive is entitled to the early termination benefit or
the disability benefit, but has not started receiving such benefits because the executive has not reached the normal retirement
age, the executive’s beneficiary will be entitled to a lump-sum benefit equaling the present value, calculated at the discount
rate or rates established by the plan administrator, at the executive’s death of the accrual balance which existed at the
end of the month immediately before the month in which separation from service occurred, after compounding this accrual balance
forward to the executive’s normal retirement age taking into account interest at the discount rate or rates established
by the plan administrator. Assuming the two discount rates referred to in the previous sentence are the same, the resulting lump-sum
benefit would be the executive’s accrual balance which existed at the end of the month immediately before the month in which
separation from service occurred. We will pay this lump-sum benefit to the executive’s beneficiary within 60 days of the
executive’s death.
If
the executive dies after separation from service and the executive is receiving the normal retirement benefit, the early termination
benefit, or the disability benefit, the executive’s beneficiary will be entitled to, at the Bank’s sole discretion
upon the executive’s death, either: (i) the present value, calculated at the discount rate or rates established by the plan
administrator, at the executive’s death of the executive’s remaining salary continuation benefits as determined under
the applicable section of the salary continuation agreement, paid to the executive’s beneficiary in a lump-sum within 60
days of the executive’s death; or (ii) the executive’s remaining salary continuation benefits as determined under
the applicable section of the salary continuation agreement, in the amounts specified in the applicable section, paid to the executive’s
beneficiary at the times specified in the applicable section.
We
will not pay any benefits under the salary continuation agreements and the agreements will terminate if separation from service
is the result of termination for cause (as defined in the executive’s employment agreement or if the executive is not a
party to an employment agreement containing a definition of termination for cause, as defined in the salary continuation agreement).
To
offset the annual expense accruals for the benefits payable to the executives under the salary continuation agreements, we acquired
bank-owned life insurance (“BOLI”). It is anticipated that the BOLI will provide full cost recovery of the benefits
paid to the executives under the salary continuation agreements upon their deaths.
Potential
Payments Upon Termination or Change in Control
The
table below reflects the amount of compensation payable to each of Messrs. Seaver and Dowling in the event of termination of such
executive’s employment by the Company in the case of termination without cause and, in the case of good reason termination
following a change in control, by such named executive officer. The amounts shown assume that the termination occurred on December
31, 2019, which was the last trading day of the calendar year ended December 31, 2019, and at a price per share of the Company’s
common stock equal to the closing market price as of that date. These amounts are estimates of the amounts which would have been
paid out to the executive officer upon termination as of that date under the specified circumstances. The actual amounts to be
paid out can only be determined at the time of such executive officer’s separation from the Company. The information for
Mr. Strickland is detailed under “Actual Payments Upon Termination” below and reflects the actual payments or benefits
he has received or will receive in connection with his resignation.
|
Name and Principal Position
|
|
Salary(1)
|
|
|
Bonus(2)
|
|
|
Salary Continuation Plan(3)
|
|
|
Continuation of Medical
Benefits(4)
|
|
|
Acceleration and Continuation of Equity Awards
|
|
|
Total Termination Benefits
|
|
|
R. Arthur Seaver, Jr.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CEO and Director of the Company and the Bank
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Termination without cause
|
|
$
|
485,000
|
|
|
|
160,000
|
|
|
|
1,541,306
|
|
|
|
-
|
|
|
|
382,046
|
|
|
|
2,568,352
|
|
|
Good reason termination or termination without cause, each after change in control
|
|
|
485,000
|
|
|
|
160,000
|
|
|
|
1,541,306
|
|
|
|
7,400
|
|
|
|
382,046
|
|
|
|
2,575,752
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Michael D. Dowling
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
COO/CFO and Executive Vice President of the Company and the Bank
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Termination without cause
|
|
|
287,000
|
|
|
|
135,000
|
|
|
|
1,428,903
|
|
|
|
-
|
|
|
|
366,113
|
|
|
|
2,217,016
|
|
|
Good reason termination or termination without cause, each after change in control
|
|
|
287,000
|
|
|
|
135,000
|
|
|
|
1,428,903
|
|
|
|
8,800
|
|
|
|
366,113
|
|
|
|
2,225,816
|
|
|
(1)
|
Salary
is for a period of 12 months following termination without cause before or after a change in control or good reason termination
after a change in control. Effective January 31, 2020, Mr. Seaver will be paid a salary equal to three times his current salary
following a change in control, and Mr. Dowling will be paid a salary equal to two times his currently salary following a change
in control.
|
|
(2)
|
Includes
all bonus amounts earned or accrued through the date of termination.
|
|
(3)
|
Reflects
the present value of total SERP amount less the aggregate liability carried on the Company’s books for Messrs. Seaver
and Dowling as of December 31, 2019.
|
|
(4)
|
Reflects
the estimate of all future premiums which will be paid for medical benefits using the premium rates in effect at December
31, 2019 . Continuation of benefits is for an 18 month period during which the named executive officer would be required to
pay the portion of the full COBRA cost of the coverage equal to an active employee’s share of premiums for coverage
for the respective plan year.
|
“Cause”
generally will be deemed to exist where the named executive officer has been convicted of a crime involving moral turpitude, has
stolen from us, has violated his non-competition or confidentiality obligations, or, following a cure period, has been grossly
negligent in fulfillment of his responsibilities. “Good reason” generally will exist where an employee’s position
or compensation has been decreased (other than as part of a company-wide compensation reduction) or where the employee has been
required to relocate. A more detailed description of “cause,” good reason” and “change in control”
is set forth below.
If
the named executive officer’s employment is terminated for cause or upon voluntary termination, the named executive officer
shall receive only any sums due as base salary and/or reimbursement of expenses through the date of such termination.
If
the named executive officer’s employment is terminated upon the death of the named executive officer, the named executive
officer’s estate shall receive any sums due as base salary and/or reimbursement of expenses through the end of the month
during which death occurred and any bonus earned or accrued through the date of death. Regardless of death, all prior calendar
year earned bonuses must be paid within two months after the end of the calendar year in which they arise.
If
the named executive officer’s becomes incapacitated and later terminated as a result of disability, the Company shall continue
to pay the executive his full base salary at the rate then in effect and all perquisites and other benefits (other than any bonus)
until the executive becomes eligible for benefits under any long-term disability plan or insurance program maintained by the Company,
provided that the amount of any such payments to the executive shall be reduced by the sum of the amounts, if any, payable to
the executive for the same period under any disability benefit or pension plan of the Company or any of its subsidiaries. Furthermore,
the executive shall receive any bonus earned or accrued under the Bonus Plan through the date of incapacity (including any amounts
awarded for previous years but which were not yet vested) and a pro rata share of any bonus with respect to the current fiscal
year which had been earned as of the date of the executive’s incapacity.
Additional
payments that may be made to named executive officers under certain circumstances under their respective salary continuation agreement
are described in the narrative that follows the Pension Benefits table above.
For
purposes of this discussion, the terms cause, good reason, and change in control, as defined in the named executive officers’
employment agreements, are defined as follows:
“Change
in control” generally means the occurrence of any of the following events, unless the event is a result of a non-control
acquisition:
|
|
●
|
The
members of our board of directors as of the date of the employment agreement, who are referred to as incumbent directors, together
with additional directors whose election or nomination was approved by a majority of the incumbent directors and who did not assume
office as a result of an actual or threatened solicitation of proxies or consents by a person other than the board of directors,
which additional directors are also referred to as incumbent directors, cease for any reason to constitute at least fifty percent
of the board of directors.
|
|
|
●
|
A
person, group or entity other than the Company, acquires our common stock, and immediately after which such person, group or entity
has beneficial ownership of 20% or more of the combined voting power of our common stock.
|
|
|
●
|
Approval
by our shareholders of: (i) a merger, consolidation, or reorganization; (ii) a complete liquidation or dissolution; or (iii) an
agreement for the sale or other disposition of all or substantially all of our assets.
|
|
|
●
|
Regulatory
approval (or notice of no disapproval) is granted by the Federal Reserve, the OCC, the FDIC, or any other regulatory authority
for permission to acquire control of the Company or any of our banking subsidiaries, provided that if the applicable transaction
that has been approved by our board of directors then the change in control will not be deemed to occur until the closing of the
transaction.
|
A
“non-control acquisition” generally means a merger, consolidation or reorganization in which:
|
|
●
|
our
shareholders immediately before the merger, consolidation or reorganization own, immediately after such transaction, at least
50% of the combined voting power of the voting securities of the surviving corporation resulting from the such merger, consolidation
or reorganization in substantially the same proportion as their ownership of our voting securities immediately before such merger,
consolidation or reorganization; and
|
|
|
●
|
immediately
following the merger, consolidation or reorganization, the number of directors on the board of directors of the surviving corporation
who were incumbent directors at least equal the number of directors who were affiliated with or appointed by the other party to
the merger, consolidation or reorganization.
|
“Good
reason” generally means the occurrence after a change in control of any of the events or conditions described below:
|
|
●
|
an
adverse change in an employee’s status, title, position or responsibilities at any time within 90 days preceding the date
of a change in control or at any time thereafter;
|
|
|
●
|
a
reduction to the employee’s base salary or any failure to pay the employee any compensation or benefits to which the employee
is entitled within five days of the due date;
|
|
|
●
|
a
relocation of an employee at any place outside a 30 mile radius from the employee’s current work location immediately prior
to the change in control except for reasonably required travel that is not greater than the travel requirements before the change
in control;
|
|
|
●
|
the
failure by us to (A) continue any material compensation or employee benefit plan in which the employee was participating at any
time within 90 days preceding the date of a change in control or at any time thereafter, unless replaced with a plan providing
substantially equivalent compensation or benefits, or (B) provide the employee with compensation and benefits, in the aggregate,
at least equal to those provided for under each other employee benefit plan, program and practice in which the employee was participating
at any time within 90 days preceding the date of a change in control or at any time thereafter;
|
|
|
●
|
the
insolvency or the filing of a petition for bankruptcy of the Company which petition is not dismissed within sixty days;
|
|
|
●
|
any
material breach by the Company of any material provision of the employment agreement;
|
|
|
●
|
any
purported termination of the employee’s employment for cause by us which does not comply with the terms of the employment
agreement; or
|
|
|
●
|
our
failure to obtain an agreement, satisfactory to the employee, from any successor or assign to assume and agree to perform the
employment agreement.
|
Any
event or condition described above which occurs prior to a change in control but which the employee reasonably demonstrates (A)
was at the request of a third party, or (B) otherwise arose in connection with a change in control which actually occurs, shall
constitute good reason for purposes of the employment agreement, notwithstanding that it occurred prior to the change in control.
“Cause”
generally means any of the following:
|
|
●
|
a
willful act (including, without limitation, a dishonest or fraudulent act) or a grossly negligent act, or the willful or grossly
negligent omission to act by the executive, which is intended to cause, causes or is reasonably likely to cause material harm
to the Company (including harm to its business reputation);
|
|
|
●
|
an
indictment for the commission or perpetration by the executive of any felony or any crime involving dishonesty, moral turpitude
or fraud;
|
|
|
●
|
a
material breach by the executive of the employment agreement that remains uncured ten days following written notice;
|
|
|
●
|
notice
from a regulatory agency with jurisdiction over the Company of its intention to institute certain formal or informal regulatory
action against the executive or the Company, provided that, if the applicable matters relating to the executive’s performance
are susceptible of cure, such matters remain uncured to the satisfaction of the regulatory agency 30 days after receipt of the
notice from the regulatory agency;
|
|
|
●
|
disorderly
conduct by the executive that materially disrupts the Company’s business operations to a level which is materially detrimental
to the Company’s best interest, that, if susceptible of cure remains uncured ten days following written notice to the executive;
or
|
|
|
●
|
the
failure of the executive to devote his full business time and attention to his employment as provided under the employment agreement
that, if susceptible of cure, remains uncured 30 days following written notice to the executive of such failure.
|
Actual
Payments Upon Termination
The
following table summarizes the actual payments made or payable to Mr. Strickland following his resignation from the Company and
the Bank on January 21, 2020.
|
Description
|
|
Amount
|
|
|
Cash Severance(1)
|
|
$
|
-
|
|
|
Equity Award Acceleration
|
|
|
-
|
|
|
Salary Continuation(2)
|
|
|
-
|
|
|
Health Benefits
|
|
|
-
|
|
|
Vacation Entitlement
|
|
|
-
|
|
|
Total Value of Termination Arrangements
|
|
$
|
-
|
|
|
(1)
|
As
previously disclosed, the Company and Mr. Strickland have entered into a consulting agreement whereby he receives a monthly
consulting fee of $30,000 for a period not to extend beyond May 20, 2020. In addition, Mr. Strickland received $30,000 consideration
under the Release Agreement.
|
|
(2)
|
Mr.
Strickland will receive $60,036 paid annually upon his attainment of the age of normal retirement (65), subject to forfeiture
upon any breach of applicable restrictive covenants. However, this amount was previously vested based on his 11 years of service
while subject to this plan and is not a result of his resignation from employment.
|
Endorsement
Split Dollar Agreements
We
consider adequate life insurance coverage for executives to be an essential element of the compensation necessary to retain, attract
and reward excellent service. We entered into endorsement split dollar insurance agreements effective January 1, 2009, with Messrs.
Seaver and Strickland and on November 1, 2012 with Mr. Dowling, entitling each executive to designate the beneficiary of a specified
portion of the death benefits payable under bank-owned policies on the executive’s life. The executive’s right to
designate a beneficiary of the life insurance death benefit expires when the executive’s employment terminates or when the
executive attains age 65, whichever occurs first. Accordingly, Mr. Strickland’s entitlement under this agreement ended on
January 21, 2020, with his resignation of employment. The death benefit payable to the executive’s beneficiary is the lesser
of (x) 100% of the policy’s net death proceeds, meaning the total death benefit minus the policy’s cash surrender
value, or (y) three times the executives salary. The bank is entitled to all insurance policy death proceeds remaining after payment
of the death benefit to the executive’s beneficiary.
This
bank-owned life insurance financing method is not expected to result in any material cost to the bank, but it is expected to increase
the bank’s non-interest income in future operating periods. Because the bank intends to hold the bank-owned life insurance
until the death of the insureds, the increase of cash surrender value should be tax-free income under current federal income tax
law. The collection of death benefits on the life insurance policies, which is likewise tax free under current federal and state
income taxation, is expected to enhance our return as well. The combination of tax-preferred income generated by the increasing
cash value of the insurance policy, the tax-free insurance death benefit, and fully tax-deductible benefit payments to participants
enables a bank to provide this significant benefit to executives through attractive cost-recovery financing.
Chief
Executive Officer Pay Ratio
As
required by Item 402(u) of Regulation S-K, as of December 31, 2019, the pay ratio for total compensation of our Chief Executive
Officer to the median of the annual total compensation of all employees was 12 to 1. For the period ending December 31, 2019,
the median of the annual total compensation of all our employees, with the exception of R. Arthur Seaver, Jr., our Chief Executive
Officer, was $75,923, and the annual total compensation of Mr. Seaver was $948,548.
We
completed the following steps to identify the median of the annual total compensation of all our employees and to determine the
annual total compensation of our median employee and CEO.
|
|
1.
|
As
of December 27, 2019, our employee population consisted of approximately 248 individuals, including any full-time, part-time,
temporary, or seasonal employees employed on that date. This date was selected because it aligned with a payroll cycle and allowed
us to identify employees in a reasonably efficient manner.
|
|
|
2.
|
To
find the median of the annual total compensation of all our employees (other than our chief executive officer), we used wages
from our payroll records as reported to the Internal Revenue Service on Form W-2 for fiscal year 2019. In making this determination,
we annualized the compensation of full-time and part-time permanent employees who were employed on December 27, 2019, but did
not work for us for the entire year. No full-time equivalent adjustments were made for part-time employees.
|
|
|
3.
|
We
identified our median employee using this compensation measure and methodology, which was consistently applied to all our employees
included in the calculation.
|
|
|
4.
|
After
identifying the median employee, we added together all of the elements of such employee’s compensation for 2019 in accordance
with the requirements of Item 402(c)(2)(x) of Regulation S-K, resulting in annual total compensation of $75,923.
|
Total
compensation for Mr. Seaver represents the amount reported in the “Total” column of our 2019 Summary Compensation
Table and includes salary, bonus, stock awards, option awards, nonqualified deferred compensation and other compensation.
Director
Compensation
The
following table shows the compensation paid to each of our non-employee directors for board and committee meeting attendance in
2019. None of our non-employee directors received any other compensation for the year ended December 31, 2019.
|
Name
|
|
Fees Earned or
Paid in Cash
|
|
|
Andrew B. Cajka, Jr.
|
|
$
|
31,600
|
|
|
Mark A. Cothran
|
|
|
22,000
|
|
|
Leighton M. Cubbage
|
|
|
29,000
|
|
|
Anne S. Ellefson
|
|
|
31,100
|
|
|
David G. Ellison
|
|
|
25,200
|
|
|
Fred Gilmer, Jr.
|
|
|
24,000
|
|
|
Tecumseh Hooper. Jr.
|
|
|
31,000
|
|
|
Rudolph G. Johnstone, III
|
|
|
24,000
|
|
|
Anna T. Locke
|
|
|
30,000
|
|
|
James B. Orders, III
|
|
|
34,400
|
|
|
|
|
$
|
272,300
|
|
In
2019, we paid each of our non-employee directors $1,000 for each board meeting they attended and $1,000 for each committee meeting
they attended. The chairs of the board and committees are paid an additional $100 for each meeting they attend.
BENEFICIAL
OWNERSHIP OF CERTAIN PARTIES
The
following table sets forth the number and percentage of outstanding shares that exceed 5% beneficial ownership (determined in
accordance with Rule 13d-3 under the Exchange Act) by any single person or group, as known by the Company:
|
Name of Beneficial Owner
|
|
Number of
Shares
Owned
|
|
|
Right to
Acquire
|
|
|
Percentage
of Beneficial
Ownership
|
|
|
Banc Funds Company, LLC (1)
|
|
|
738,654
|
|
|
|
-
|
|
|
|
9.63
|
%
|
|
T. Rowe Price Associates, Inc. (2)
|
|
|
531,269
|
|
|
|
-
|
|
|
|
6.92
|
%
|
|
BlackRock, Inc. (3)
|
|
|
407,846
|
|
|
|
-
|
|
|
|
5.32
|
%
|
|
Manulife Financial Corporation (4)
|
|
|
396,501
|
|
|
|
-
|
|
|
|
5.17
|
%
|
|
Wellington
Management Group LLP (5)
|
|
|
390,645
|
|
|
|
-
|
|
|
|
5.09
|
%
|
|
(1)
|
The
mailing address for The Banc Funds Company, L.L.C., (“TBFC”) is 20 North Wacker Drive, Suite 3300, Chicago, IL
60606. TBFC information set forth in this proxy statement is based on information set forth in a Schedule 13G, as amended,
filed by TBFC with the SEC on February 13, 2020, reporting that jointly Banc Fund VIII L.P. (“BF VIII”), an Illinois
Limited Partnership, Banc Fund IX L.P. (“BF IX”), an Illinois Limited Partnership, and Banc Fund X L.P. (“BF
X”), an Illinois Limited Partnership, (collectively, the “Reporting Persons”) have sole voting and dispositive
power over 738,654 shares. The general partner of BF VIIII is MidBanc VIII L.P. (“MidBanc VIII”), whose principal
business is to be a general partner of BF VIII. The general partner of BF IX is MidBan IX L.P. (“MidBan IX”),
whose principal business is to be a general partner of BF IX. The general partner of BF X is MidBan X L.P. (“MidBan
X”), whose principal business is to be a general partner of BF X. The general partner of MidBanc VIII, MidBan IX, and
MidBan X is TBFC, whose principal business is to be a general partner of MidBanc VIII, MidBan IX, and MidBan X. TBFC is an
Illinois corporation whose principal shareholder is Charles J. Moore. Mr. Moore has been the manager of BF VIII, BF IX, and
BF X, since their respective inceptions. As manager, Mr. Moore has voting and dispositive power over the securities held by
each of these entities. As the controlling member of TBFC, Mr. Moore will control TBFC, and therefore each of the Partnership
entities directly and indirectly controlled by TBFC.
|
|
(2)
|
The
mailing address for T. Rowe Price Associates, Inc. is 100 E. Pratt Street, Baltimore, MD 21202. The T. Rowe Price Associates,
Inc. information set forth in this proxy statement is based on information set forth in a Schedule 13G, as amended, filed
by T. Rowe Price Associates, Inc. with the SEC on February 14, 2020, reporting that T. Rowe Price Associates, Inc. has sole
voting power over 107,090 shares and sole dispositive power over 531,269 shares.
|
|
(3)
|
The
mailing address for BlackRock, Inc. is 55 East 52nd Street, New York, NY 10055. The BlackRock, Inc. information
set forth in this proxy statement is based on information set forth in a Schedule 13G, filed by BlackRock, Inc. with the SEC
on February 7, 2020, reporting that BlackRock, Inc. has sole voting power over 395,087 shares and sole dispositive power over
407,846 shares. According to this Schedule 13G, the following subsidiaries of BlackRock, Inc. hold shares of our common stock,
none of which beneficially owns 5% or greater of our outstanding shares: BlackRock Advisors, LLC, BlackRock Asset Management
Canada Limited, BlackRock Fund Advisors, BlackRock Institutional Trust Company, National Association, BlackRock Financial
Management, Inc., and BlackRock Investment Management, LLC.
|
|
(4)
|
The
Manulife Financial Corporation (“MFC”) set forth in this proxy statement is based on information set forth in
a Schedule 13G, as amended, filed by MFC and MFC’s indirect, wholly-owned subsidiaries, Manulife Investment Management
(US) LLC (“MIM (US)”) and Manulife Investment Management Limited (“MIML”) with the SEC on February
12, 2020, reporting that MFC has sole voting and dispositive power over no shares of our common stock, MIM (US) has sole voting
and dispositive power over 391,624 shares, and MIML has sole and dispositive power over 4,877 shares. Through its parent-subsidiary
relationship to MIM (US) and MIML, MFC may be deemed to have beneficial ownership of these same shares. The mailing address
for MIM (US) is 197 Clarendon Street, Boston, MA 02116. The mailing address of MFC and MIML is 200 Bloor Street East, Toronto,
Ontario, Canada, M4W 1E5.
|
|
(5)
|
The
mailing address for Wellington Management Group LLP is 280 Congress Street, Boston, MA 02210. The Wellington Management Group
LLP information set forth in this proxy statement is based on information set forth in a Schedule 13G, as amended, filed by
Wellington Management Group LLP with the SEC on January 27, 2020.
|
BENEFICIAL
OWNERSHIP OF DIRECTORS AND EXECUTIVE OFFICERS
The
following table sets forth, as of March 13, 2020, the number and percentage of outstanding shares of our common stock beneficially
owned by (i) each director and nominee for director of the Company, (ii) our current named executive officers, and (iii) all executive
officers and directors as a group. Unless otherwise indicated, the mailing address for each beneficial owner is care of Southern
First Bancshares, Inc., 100 Verdae Boulevard, Suite 100, Greenville, South Carolina 29607.
|
Name and Address
|
|
Number of
Shares
Owned(1)
|
|
|
Right to
Acquire(2)
|
|
|
Percentage
of Beneficial
Ownership(3)
|
|
|
Andrew B. Cajka, Jr.
|
|
|
11,901
|
|
|
|
-
|
|
|
|
0.15
|
%
|
|
Mark A. Cothran(4)
|
|
|
99,191
|
|
|
|
-
|
|
|
|
1.29
|
%
|
|
Leighton M. Cubbage
|
|
|
77,032
|
|
|
|
-
|
|
|
|
1.00
|
%
|
|
Anne S. Ellefson
|
|
|
12,545
|
|
|
|
-
|
|
|
|
0.16
|
%
|
|
David G. Ellison
|
|
|
42,453
|
|
|
|
-
|
|
|
|
0.55
|
%
|
|
Fred Gilmer, Jr.
|
|
|
46,290
|
|
|
|
-
|
|
|
|
0.60
|
%
|
|
Tecumseh Hooper, Jr.
|
|
|
41,297
|
|
|
|
-
|
|
|
|
0.54
|
%
|
|
Rudolph G. Johnstone, III
|
|
|
32,881
|
|
|
|
-
|
|
|
|
0.43
|
%
|
|
Anna T. Locke
|
|
|
42
|
|
|
|
-
|
|
|
|
0.00
|
%
|
|
James B. Orders, III(4)
|
|
|
45,997
|
|
|
|
-
|
|
|
|
0.60
|
%
|
|
R. Arthur Seaver, Jr.
|
|
|
76,891
|
|
|
|
78,062
|
|
|
|
1.99
|
%
|
|
Michael D. Dowling
|
|
|
45,810
|
|
|
|
33,500
|
|
|
|
1.02
|
%
|
|
Executive officers and directors as a group (12 persons)
|
|
|
532,329
|
|
|
|
111,562
|
|
|
|
8.48
|
%
|
|
(1)
|
As
reported to the Company by the directors, nominees and executive officers.
|
|
(2)
|
Includes
shares that may be acquired within 60 days of the date of this prospectus by exercising vested stock options (or stock options
that will vest within 60 days of the date of this proxy statement), but does not include any unvested stock options.
|
|
(3)
|
For
each individual, this percentage is determined by assuming the named person exercises all options which he or she has the
right to acquire within 60 days, but that no other persons exercise any options. For the directors and executive officers
as a group, this percentage is determined by assuming that each director and executive officer exercises all options which
he or she has the right to acquire within 60 days, but that no other persons exercise any options. The calculations are based
on 7,717,482 shares of common stock outstanding on March 13, 2020.
|
|
(4)
|
Includes
shares pledged as collateral to secure personal indebtedness over which each director retains voting rights, as follows: Mr.
Cothran, 47,000 shares; Mr. Orders, 45,997 shares.
|
CERTAIN
RELATIONSHIPS AND RELATED PARTY TRANSACTIONS
We
enter into banking and other transactions in the ordinary course of business with our directors and officers of the Company and
the bank and their affiliates. Our policies and procedures related to these transactions are not in writing, but are reflected
by our course of conduct. These transactions, which would be reviewed and approved in advance by our audit committee, are made
on substantially the same terms (including price, interest rates, repayment terms, and collateral) as those prevailing at the
time for comparable transactions with unrelated parties. Loans do not involve more than the normal risks of repayment nor present
other unfavorable features. Loans to individual directors and officers must also comply with our bank’s lending policies
and statutory lending limits, and directors with a personal interest in any loan application are excluded from the consideration
of the loan application.
The
aggregate dollar amount of loans outstanding to persons affiliated with the bank was approximately $10.9 million at December 31,
2019 and $14.0 million at December 31, 2018.
Compensation
Committee Interlocks and Insider Participation.
The
members of the compensation committee – which we call our personnel committee – during fiscal year 2019 were Messrs.
Cothran, Cubbage, Ellison, Hooper, and Orders. Mr. Cothran served on the personnel committee through April 2019 at which time
it was determined he was no longer independent due to the Development Services Agreement between the Bank and a company he owns.
Mr. Ellison joined the personnel committee in April 2019. No member of this committee was at any time during 2019 or at any other
time an officer or employee of the Company or any of its subsidiaries, and except for as disclosed below with regard to Mr. Cothran,
no other member of this committee had any relationship with the Company requiring disclosure under Item 404 of Regulation S-K.
No executive officer of the Company has served on the board of directors or personnel committee of any other entity that has or
has had one or more executive officers who served as a member of the personnel committee during 2019.
Interests
of Management and Others in Certain Transactions
As
previously disclosed, on January 23, 2020, we entered into (i) the Consulting Agreement with Mr. Strickland, a former named executive
officer, pursuant to which he will serve as a consultant to our management team with respect to various aspects of our business
for a monthly consulting fee of $30,000 during the term of the agreement and (ii) the Release Agreement under which Mr. Strickland
received a payment of $30,000.
The
bank has a land lease with a company owned by our director, Mr. Cothran, on the property for one of our branch offices, with monthly
payments of $5,388. In addition, the bank periodically enters into various consulting agreements with Mr. Cothran for development,
administration and advisory services related to the purchase of property and construction of current and future branch office
sites. Payments totaling $600,000 were made to Mr. Cothran for these services during the year ended December 31, 2019 per the
Development Services Agreement dated April 9, 2019. Also, the bank contracted with a company owned by Mr. Cothran to provide property
management services for four offices in the Greenville market through July 31, 2018. The bank paid Mr. Cothran and his related
parties approximately $21,000 for these services during 2018. The Bank did not pay Mr. Cothran or any of his related companies
for any such services in 2019.
The
bank also utilized employment recruiting services from a local vendor for which one of our directors, Mr. Hooper, is an owner
and serves as the chairman of the board. The bank paid approximately $38,000 to the vendor for the year ended December 31, 2018.
The Company no longer utilizes this vendor for recruiting services and has not paid for any such services for the year ended December
31, 2019.
The
bank is of the opinion that the lease payments, management fees, and recruiting costs represent market costs that could have been
obtained in similar “arm’s length” transactions.
DELINQUENT
SECTION 16(A) REPORTS
Section
16(a) of the Exchange Act requires our officers and directors and persons who own more than 10% of our common stock to file reports
of ownership and changes in ownership with the SEC. Based solely on our review of these forms and written representations from
the officers and directors, we believe that all Section 16(a) filing requirements were met during fiscal 2019, except that Mr.
Hooper, a director, inadvertently neglected to timely report 1,100 sales of our common stock made on December 12, 2019, which
error has since been corrected in filing a late Form 4 on December 17, 2019, and Mr, Dowling, an executive officer, neglected
to timely report a gift of 140 shares of our common stock made on June 18, 2019, which error has since been corrected in filing
a late Form 4 on March 24, 2020.
SHAREHOLDER
PROPOSALS FOR THE 2021 ANNUAL MEETING OF SHAREHOLDERS
If
shareholders wish a proposal to be included in our proxy statement and form of proxy relating to the 2021 Annual Meeting of Shareholders,
they must deliver a written copy of their proposal to our principal executive offices no later than November 30, 2020. To ensure
prompt receipt by the Company, the proposal should be sent certified mail, return receipt requested. Proposals must comply with
our bylaws relating to shareholder proposals in order to be included in our proxy materials.
It
is our policy that any shareholder proposal to be made at an annual meeting, but which is not requested to be included in our
proxy materials, must be delivered to our corporate secretary between 30 and 60 days prior to the annual meeting; provided, however,
that if less than 31 days’ notice of the meeting is given to shareholders, the notice must be delivered within 10 days following
the day on which notice of the meeting was mailed to shareholders. To be timely for the 2021 annual meeting, a shareholder proposal
must be delivered to Southern First Bancshares, Inc., P.O. Box 17465, Greenville, South Carolina 29606, Attention: Corporate Secretary,
no earlier than March 13, 2021 and no later than April 12, 2021.
SHAREHOLDER
COMMUNICATIONS
We
do not have a formal process by which shareholders may communicate with our board of directors. Historically, however, the chairman
of the board or the nominating committee has undertaken responsibility for responding to questions and concerns expressed by shareholders.
In the view of our board of directors, this approach has been sufficient to ensure that questions and concerns raised by shareholders
are adequately addressed. Any shareholder desiring to communicate with the Board may do so by writing to Southern First Bancshares,
Inc., P.O. Box 17465, Greenville, South Carolina 29606, Attention: Corporate Secretary.
OTHER
BUSINESS
We
do not know of any other business to be presented at the 2020 Annual Meeting of Shareholders. If any other matters are properly
brought before the 2020 Annual Meeting of Shareholders, however, it is the intention of the persons named in the accompanying
proxy to vote such proxy in accordance with their best judgment.
March
30, 2020
Appendix
A
SOUTHERN
FIRST BANCSHARES, INC.
2020
EQUITY INCENTIVE PLAN
Section
1. General Purpose of Plan; Definitions.
The
name of this plan is the Southern First Bancshares, Inc. 2020 Equity Incentive Plan (the “Plan”). The Plan
was approved by the Board of Directors on March 17, 2020 (the “Effective Date”) and subsequently adopted by
the shareholders of Southern First Bancshares, Inc. on [May 12], 2020. The purpose of the Plan is to enable the Company and its
Subsidiaries to attract and retain highly qualified personnel who will contribute to the Company’s success and to provide
incentives to Participants to increase shareholder value and therefore further align the interests of the Participants with those
of the shareholders to benefit all shareholders of the Company.
For
purposes of the Plan, the following terms shall be defined as set forth below:
(a)
“Administrator” means the Committee, under the terms as set forth in more detail in Section 2 below and except
as limited by the express provisions of the Plan or by resolutions adopted by the Board.
(b)
“Award” means any award granted under the Plan as further described in Sections 6, 7 and 8 below including
Incentive Stock Options, Nonqualified Stock Options, Restricted Stock and other Stock-Based Awards.
(c)
“Award Agreement” means, with respect to each Award, the signed written agreement between the Company and the
Participant setting forth the terms and conditions applicable to the Award.
(d)
“Board” means the Board of Directors of the Company.
(e)
“Cause” means the meaning ascribed to such term in the Participant’s written employment, consulting,
salary continuation or similar agreement with the Company or, if “Cause” is not defined therein, or if there is no
such agreement, “Cause” shall mean termination by the Company on account of acts or omissions of fraud, dishonesty,
incompetence, willful misconduct, any breach of fiduciary duty involving personal profit, intentional failure to perform stated
duties, willful violation of any law, rule, or regulation (other than traffic violations, regulations that do not adversely affect
the Company or its employees, or similar offenses) or final cease-and-desist order, or material breach of any provision of an
agreement with the Company. In determining incompetence, the acts or omissions shall be measured against standards generally prevailing
in the community banking industry. No act or failure to act shall be considered “willful” unless done, or omitted
to be done, not in good faith and without reasonable belief that the Participant’s action or omission was in the best interest
of the Company. The determination of “Cause” may be made by the Administrator solely for purposes of this Plan and
without regard to any other purpose of the Company.
(f)
“Change in Control” means the first to occur of any one of the events:
(i)
the date any Person (as such term is defined in Section 3(a)(9) of the Securities Exchange Act of 1934 (the “Exchange Act”)
and as used in Sections 13(d)(3) and 14(d)(2) of the Exchange Act) or more than one Person acting as a group (as determined under
Treasury Regulation §1.409A-3(i)(5)(v)(B), acquires ownership of the stock of the Company that, together with stock held
by such Person or group, constitutes more than 50% of the total fair market value or total voting power of the stock of the Company.
This section applies only when there is a transfer of stock of the Company (or issuance of stock of the Company) and stock in
the Company remains outstanding after the transaction;
(ii)
the date any one Person, or more than one Person acting as a group (as defined under Treasury Regulation §1.409A-3(i)(5)(v)(B)),
acquires (or has acquired during the 12-month period ending on the date of the most recent acquisition by such Person or Persons)
ownership of stock of the Company possessing 30% or more of the total voting power of the stock of the Company;
(iii)
the date individuals who, as of the Effective Date, constituted the Board (the “Incumbent Board”) cease for
any reason to constitute at least a majority of the Board; provided, however, that any individual becoming a director
subsequent to the Effective Date whose election, or nomination for election by the Company’s shareholders, was approved
by a vote of at least two-thirds of the directors then comprising the Incumbent Board (either by a specific vote or by approval
of the proxy statement of the Company in which such person is named as a nominee for director, without objection to such nomination)
shall be considered as though such individual were a member of the Incumbent Board, but excluding or this purpose any such individual
whose initial assumption of office occurs as a result of either an actual or threatened election contest or other actual or threatened
solicitation of proxies or consents by or on behalf of a Person other than the Board; or
(iv)
the date that any Person or more than one Person acting as a group (as defined under Treasury Regulation §1.409A-3(i)(5)(v)(B))
acquires (or has acquired during the 12-month period ending on the date of the most recent acquisition by such Person or Persons)
assets from the Company that have a total gross fair market value equal to or more than 40% of the total gross fair market value
of all assets of the Company immediately before such acquisition or acquisitions. For this purpose, gross fair market value means
the value of the assets of the Company, or the value of the assets being disposed of, determined without regard to any liabilities
associated with such assets.
Notwithstanding
the foregoing, a Change in Control shall only be deemed to have occurred if the Change in Control otherwise constitutes a change
in the ownership or effective control of the Company, or a change in the ownership of a substantial portion of the assets of the
Company, within the meaning of Section 409A of the Code and the regulations and rulings thereunder (“Section 409A”).
In
addition, a Change in Control will not include (1) a transaction in which the holders of the outstanding voting securities of
the Company immediately prior to the transaction hold at least 50% of the outstanding voting securities of the successor company
immediately after the transaction; (2) any transaction or series of transactions principally for bona fide equity financing purposes
in which cash is received by the Company or any successor company or indebtedness of the Company is cancelled or converted or
a combination thereof, (3) a sale, lease, exchange or other transfer of all or substantially all of the Company’s assets
to a majority-owned subsidiary company; or (4) a transaction undertaken for the principal purpose of restructuring the capital
of the Company, including, but not limited to, reincorporating the Company in a different jurisdiction. Also, when a Change in
Control occurs due to a series of related transactions, the Change in Control is deemed to have occurred upon consummation of
the last of the related transactions.
(g)
“Code” means the Internal Revenue Code of 1986, as amended, including any applicable regulations and guidance
thereunder.
(h)
“Committee” means the Compensation Committee of the Board or, if applicable, any other committee the Board
may appoint to administer the Plan. If at any time or to any extent the Committee shall not administer the Plan, then the functions
of the Administrator specified in the Plan may be exercised by the Board. The Committee shall be comprised of three or more “non-employee
directors” as defined in Rule 16b-3 under the Securities Exchange Act of 1934 and “independent directors” as
defined by NASDAQ Listing Rule 5605(a)(2).
(i)
“Common Stock” or “Stock” means the common stock, par value $0.01 per share, of the Company.
(j)
“Company” means Southern First Bancshares, Inc., a South Carolina corporation (or any successor corporation
that assumes this Plan, either contractually or by operation of law).
(k)
“Eligible Recipient” means an officer, director, employee, consultant, or advisor (including a member of an
advisory board) of the Company or any subsidiary of the Company.
(l)
“Exercise Price” means the per share price at which a Participant holding an Award of Options may purchase
Shares issuable with respect to such Award of Options, if any.
(m)
“Fair Market Value” on any date shall mean:
(i)
if the Common Stock is readily tradable on an established securities market (as defined in Treasury Regulation §1.897-1(m))
(other than if the Common Stock is quoted on an over-the-counter market), the closing sales price of the Common Stock on such
date on the securities exchange having the greatest volume of trading in the Common Stock during the 30-day period preceding the
day the value is to be determined or, if there is no reported closing sales price on such date, the next preceding date on which
there was a reported closing price; or
(ii)
if the Common Stock also is not readily tradable on an established securities market (as defined in Treasury Regulation §1.897-1(m))
(e.g., the Common Stock is quoted on an over-the-counter market), the fair market value as determined in good faith by the Board
or the Committee by application of a reasonable valuation method consistently applied and taking into consideration all available
information material to the value of the Company; factors to be considered may include, as applicable, independent third party
valuations of the Common Stock, trading activity of the Common Stock known by the Board or the Committee, whether on the over-the-counter
market or through private transactions, the value of the tangible and intangible assets of the Company, the present value of future
cash-flows of the Company, the market value of stock or equity interests in similar corporations which can be readily determined
through objective means (such as through trading prices on an established securities market or an amount paid in an arm’s
length private transaction), and other relevant factors such as control premiums or discounts for lack of marketability. For purposes
of the foregoing, a valuation prepared in accordance with any of the methods set forth in Treasury Regulation § 1.409A-1(b)(5)(iv)(B)(2)
consistently used, shall be rebuttably presumed to result in a reasonable valuation. This paragraph is intended to comply with
the definition of “fair market value” contained in Treasury Regulation § 1.409A-1(b)(5)(iv) and should be interpreted
consistently therewith.
(n)
“Grant Date” means the date on which the Administrator completes the corporate action authorizing the grant
of an Award. Corporate action constituting a grant by the Administrator of an Award to any Participant shall be deemed completed
as of the date of such corporate action, unless otherwise determined by the Administrator, regardless of when the instrument,
certificate, or letter evidencing the Award is communicated to, or actually received or accepted by, the Participant.
(o)
“Incentive Stock Option” or “ISO” means any Option intended to qualify as an “incentive
stock option” within the meaning of Section 422 of the Code.
(p)
“Nonqualified Stock Option” or “NQSO” means any Option that is not an Incentive Stock Option,
including any Option that provides (as of the time such Option is granted) that it will not be treated as an Incentive Stock Option.
(q)
“Option” means an option to purchase Shares granted pursuant to Section 6 of the Plan.
(r)
“Other Stock-Based Award” means a right granted pursuant to Section 8 of the Plan that relates to or is valued
by reference to Shares or other Awards relating to Shares.
(s)
“Participant” means any Eligible Recipient selected by the Administrator, pursuant to the Administrator’s
authority in Section 2 of the Plan, to receive an Award.
(t)
“Participating Employer” means any member of a group within the meaning of Code Section 414(b),(c),(m) or (o),
which includes the Company, if such member agrees, in writing, to be bound by the terms of the Plan. Each Participating Employer
is identified in Appendix A. The Company shall amend Appendix A as needed to reflect a Participating Employer’s adoption
of the Plan or withdrawal from the Plan, without any need to otherwise amend the Plan. Amendment of Appendix A may be made by
any authorized officer or designated representative of the Company and shall not require approval of the Board.
(u)
“Performance Goals” means the performance goals established by the Administrator in connection with the grant
of Awards. Performance Goals may be based upon any individual Participant or Company criteria or metric that the Administrator
may determine. Performance for any goal can be measured on an absolute basis (i.e., versus the Company’s budget or prior
year result) or relative to a peer group or industry index, as well as over a one-year or multi-year period. In any event, the
Administrator shall have the authority to adjust any Performance Goal for unusual or non-recurring events.
(v)
“Performance Period” is a period not less than one calendar year, beginning not earlier than the year in which
such Performance Award is granted, which may be referred to herein and by the Administrator by use of the calendar year in which
a particular Performance Period commences; provided, however, that the Administrator shall have the authority to
adjust a Performance Period for unusual or non-recurring events to a period of not less than six months.
(w)
“Permanent and Total Disability” shall have the same meaning as given to that term by Treasury Regulation Section
1.409A-3(i)(4) and any regulations or rulings promulgated thereunder.
(x)
“Restricted Stock” means Shares subject to certain restrictions granted pursuant to Section 7 of the Plan.
(y)
“Shares” means shares of Common Stock reserved for issuance under the Plan, as adjusted pursuant to Sections
3 or 4 of the Plan, and any successor security.
(z)
“Substitute Awards” means Awards granted or shares of Common Stock issued by the Company in substitution or
exchange for awards previously granted by an Acquired Entity.
(aa)
“Treasury Regulations” means regulations promulgated by the United States Department of Treasury pursuant to
the Code, including proposed or temporary regulations as applicable.
Section
2. Administration.
The
Plan shall be administered by the Administrator. Pursuant to the terms of the Plan, the Committee shall serve as the Administrator
and shall have the power and authority:
(a)
to select those Eligible Recipients who shall be Participants;
(b)
to determine whether and the extent to which Awards are to be granted to Participants under the Plan;
(c)
to determine the number of Shares to be covered by or subject to each Award granted under the Plan;
(d)
to determine the terms and conditions, including, if applicable, Performance Goals and Performance Periods, not inconsistent with
the terms of the Plan, of each Award granted under the Plan;
(e)
to accelerate at any time the exerciseability or vesting of all or any portion of any Award; and
(f)
to determine the terms and conditions, not inconsistent with the terms of the Plan, that shall govern all written instruments
evidencing Awards granted under the Plan, including Award Agreements.
The
Administrator shall have the authority, in its sole discretion, to: adopt, alter, and repeal such administrative rules, guidelines
and practices governing the Plan as it shall from time to time deem advisable; correct any defect, supply any omission, reconcile
any inconsistency, and resolve any ambiguity in, and otherwise interpret, the terms and provisions of the Plan and any Award issued
under the Plan (and any Award Agreement relating thereto); and otherwise supervise the administration of the Plan. All decisions
made by the Administrator pursuant to the provisions of the Plan shall be final, conclusive and binding on all persons, including
the Company and the Participants. Except to the extent prohibited by applicable law, the Administrator may delegate to one or
more individuals the day-to-day administration of the Plan and any of the functions assigned to it in this Plan. Such delegation
may be revoked at any time.
Notwithstanding
the above, and subject to Sections 3, 4, 6, 9, 10, and 13, outstanding Options granted under the Plan shall not be repriced without
approval by the Company’s shareholders. In particular, neither the Board nor the Administrator may take any action: (i)
to amend the terms of an outstanding Option to reduce the Exercise Price thereof, cancel an Option and replace it with a new Option
with a lower Exercise Price, or that has an economic effect that is the same as any such reduction or cancellation or (ii) to
cancel an outstanding Option having an Exercise Price above the then-current Fair Market Value of the Stock in exchange for the
grant of another type of Award, without, in each such case, first obtaining approval of the shareholders of the Company of such
action.
Notwithstanding
the above, and subject to applicable law, the Administrator, in its discretion, may delegate to a committee consisting of one
or more officers of the Company including the Chief Executive Officer of the Company all or part of the Administrator’s
authority and duties with respect to the granting of Awards to individuals who are (i) not subject to the reporting and other
provisions of Section 16 of the Exchange Act and (ii) not members of the delegated committee. Any such delegation by the Administrator
shall include a limitation as to the amount of Stock underlying Awards that may be granted during the period of the delegation
and shall contain guidelines as to the determination of the exercise price and the vesting criteria. The Administrator may revoke
or amend the terms of a delegation at any time but such action shall not invalidate any prior actions of the Administrator’s
delegate or delegates that were consistent with the terms of the Plan.
Section
3. Shares Subject to the Plan.
Subject
to Section 4 of the Plan, the total number of Shares reserved and available for issuance under the Plan shall be 450,000 Shares.
Such Shares may consist in whole or in part, of authorized and unissued shares or treasury shares. At all times the Company shall
reserve and keep available a sufficient number of shares as shall be required to satisfy the requirements of all outstanding Options
under the Plan. No fractional Shares shall be issued or delivered pursuant to the Plan. The Administrator shall determine whether
cash, additional Awards or other securities or property shall be issued or paid in lieu of fractional Shares or whether any fractional
shares should be rounded, forfeited or otherwise eliminated.
(a)
Options. The maximum aggregate number of Shares that may be issued through ISOs shall be 450,000 shares.
(b)
Awards to Non-Employee Directors. The maximum aggregate number of shares of Stock associated with any Award granted under
this Plan in any calendar year to any one “non-employee director” (as defined in Rule 16b-3 under the Securities Exchange
Act of 1934) shall be 5,000 shares.
(c)
Reissuance of Shares. Shares of Common Stock covered by an Award shall not be counted as used unless and until they are
actually issued and delivered to a Participant. If any Award lapses, expires, terminates or is canceled prior to the issuance
of shares thereunder or if shares of Common Stock covered by an Award are settled in cash in a manner that some or all of the
shares covered by the Award are not issued, the shares subject to such Awards and the unissued shares resulting from the cash
settlement shall again be available for issuance under the Plan. If any shares of Common Stock subject to an Award are not delivered
to a Participant because the Award is exercised through a reduction of shares subject to the Award (i.e., “net exercised”),
including if the tax withholding obligations relating to any Award are satisfied by delivering Shares of Common Stock (either
actually or through attestation) or withholding Shares of Common Stock relating to such Award, the number of shares of Common
Stock that are not delivered to the Participant shall no longer be available for issuance under the Plan. For the sake of clarification,
any shares of Common Stock reacquired by the Company pursuant to Section 6 upon the exercise of an Option or as consideration
for the exercise of an Option shall no longer be available for issuance under the Plan. The number of shares of Common Stock available
for issuance under the Plan shall not be reduced to reflect any dividends that are reinvested into additional shares of Common
Stock or credited as additional shares of Common Stock subject to or paid with respect to an Award.
(d)
Substitute Awards. Notwithstanding any other provision of the Plan to the contrary, the Administrator may grant Substitute
Awards under the Plan. In the event that a written agreement between the Company and an Acquired Entity pursuant to which a merger
or consolidation is completed and approved by the Board and that agreement sets forth the terms and conditions of the substitution
for or assumption of outstanding awards of the Acquired Entity, those terms and conditions shall be deemed to be the action of
the Administrator without any further action by the Administrator, and the persons holding such awards shall be deemed to be Participants
with respect to the Substitute Awards.
(e)
Administrator’s Discretion to Accelerate Vesting of Awards. Except upon the occurrence of a Change in Control (which
is governed by the provisions of Section 10 hereof), the Administrator may, in its discretion and as of a date determined by the
Administrator, vest up to 100% (full vesting) any or all Awards awarded to a Participant pursuant to an Award and, upon such vesting,
all vesting restrictions applicable to such Award shall terminate as of such date. Any action by the Administrator pursuant to
this section may vary among individual Participants and may vary among the Awards held by any individual Participant. Notwithstanding
the preceding provisions of this section, the Administrator may not take any action described in this section if such action shall
cause any Award hereunder which is or becomes subject to Section 409A of the Code to fail to comply with the requirements of Section
409A of the Code.
(f)
Forfeiture of Awards; Clawback of Shares. If the Company’s or any of its financial institution subsidiaries’
capital falls below the minimum requirements contained in 12 CFR Section 3 or below a higher requirement as determined by the
Company’s or such subsidiary’s primary bank regulatory agency, such agency may direct the Company to require Participants
to exercise or forfeit some or all of their Awards. All Awards granted under this Plan are subject to the terms of any such directive.
In addition, Awards granted under this Plan within the prior two years of the event described in subsections (i)-(iii) below shall
be forfeited and the Participant shall be obligated to repay the value realized, if any, from the conversion of Awards into shares
of Stock under the following circumstances:
(i)
Termination of employment or service for Cause;
(ii)
A restatement of financial results attributable to the Participant’s actions, whether intentional or negligent; and
(iii)
The Administrator determines that Award vesting was based on incorrect performance measurement calculations. In such event, vesting
(and recoupment, if applicable) will be adjusted consistent with the actual, corrected results.
Notwithstanding
the forgoing sentence, the Administrator shall have the authority, in its sole discretion, to not enforce the foregoing clawback
of Shares if it determines that such clawback would not be in the best interest of the Company and its shareholders.
(g)
Deferral of Award Payments. The Administrator may establish one or more programs under the Plan to permit selected Eligible
Recipients the opportunity to elect to defer receipt of consideration upon exercise of an Award, satisfaction of performance criteria,
or other event that, absent the election, would entitle the Eligible Recipient to payment or receipt of Shares or other consideration
under an Award. The Administrator may establish the election procedures, the timing of such elections, the mechanisms for payments
of, and accrual of interest or other earnings, if any, on amounts, Shares or other consideration so deferred, and such other terms,
conditions, rules and procedures that the Administrator deems advisable for the administration of any such deferral program.
(h)
Transferability of Awards.
(i)
Except as provided in Section 3(h)(ii) below, during an Eligible Recipient’s lifetime, his or her Awards shall be exercisable
only by the Eligible Recipient or his or her legal representative or guardian (in the event of incapacity). No Awards shall be
sold, assigned, transferred or otherwise encumbered or disposed of by an Eligible Recipient other than by will or by the laws
of descent and distribution or pursuant to a domestic relations order. No Award shall be subject, in whole or in part, to attachment,
execution, or levy of any kind and ay purported transfer in violation hereof shall be null and void.
(ii)
Notwithstanding Section 3(h)(i), the Administrator, in its discretion, may provide either in the Award certificate regarding a
given Award or by subsequent written approval that the Eligible Recipient (who is an employee or director) may transfer his or
her Nonqualified Options to his or her immediate family members, to trusts for the benefit of family members, or to partnerships
in which family members are the only partners, provided that the transferee agrees in writing with the Company to be bound by
all of the terms and conditions of this Plan and the applicable Award. In no event may an Award be transferred by an Eligible
Recipient for value.
Section
4. Corporate Transactions.
Subject
to the provisions of Section 10 hereof relating to a Change in Control, in the event of any merger, consolidation, combination,
reorganization, recapitalization, reclassification, extraordinary cash dividend, stock dividend, stock split, reverse stock split,
or other change in corporate structure, the Administrator shall make an equitable substitution or proportionate adjustment in
(i) the aggregate number of Shares reserved for issuance under the Plan, and (ii) the kind, number, and Exercise Price of Shares
(or other cash or property) issuable with respect to outstanding Options granted under the Plan (which may become, without limitation,
shares of an acquiring entity or other successor corporation that assumes this Plan), and (iii) the kind and number of Shares
subject to any outstanding Awards of Restricted Stock and Restricted Stock Units granted under the Plan (which may become, without
limitation, shares of an acquiring entity or other successor corporation that assumes this Plan), in each case as may be determined
by the Administrator, in its sole discretion; provided, that with respect to ISOs, any adjustment shall be made in accordance
with the provisions of Section 424(h) of the Code and any regulations or guidance promulgated thereunder; and provided,
further, that no such adjustment shall cause any Award hereunder which is or becomes subject to Section 409A of the Code
to fail to comply with the requirements of Section 409A of the Code.
Section
5. Eligibility.
The
Participants under the Plan shall be selected from time to time by the Administrator, in its sole discretion, from among the Eligible
Recipients. Participation in the Plan through receipt of an Award in any year does not guarantee a Participant participation in
future years or participation at the same level. The Administrator shall have the authority to grant Awards under the Plan to
the Eligible Recipients; provided, however, that a grant of an ISO can only be made to an Eligible Recipient who
is also an employee within the meaning of Section 422(a)(2) of the Code.
Section
6. Options.
Options
may be granted alone or in addition to other Awards granted under the Plan. Any Option granted under the Plan shall be substantially
in the form as the Administrator may from time to time approve, and the provisions of each Option need not be the same with respect
to each Participant. Participants who are granted Options shall enter into an Award Agreement with the Company in such form as
the Administrator shall determine, which Award Agreement shall set forth, among other things, the Exercise Price of the Option,
the term of the Option and provisions regarding exercisability of the Option granted in connection with such Award Agreement.
Options
granted under the Plan may be of two types: (i) Incentive Stock Options and (ii) Nonqualified Stock Options. If and to the extent
any Option granted under the Plan intended to qualify as an ISO does not qualify as an ISO, such Option shall constitute a separate
NQSO. Options granted under the Plan shall be subject to the following terms and conditions and shall contain such additional
terms and conditions, not inconsistent with the terms of the Plan, as the Administrator shall deem desirable:
(a)
Option Exercise Price. The Exercise Price of Shares issuable with respect to an Option shall be determined by the Administrator
in its sole discretion, provided, however, that such Exercise Price shall not be less than 100% of the Fair Market
Value on the Grant Date, except in the case of Substitute Awards. If a Participant owns or is deemed to own (by reason of the
attribution rules applicable under Section 424(d) of the Code) more than 10% of the combined voting power of all classes of stock
of the Company or any subsidiary and an ISO is granted to such Participant, the Exercise Price of such ISO shall be no less than
110% of the Fair Market Value on the Grant Date of such Option.
(b)
Option Term. The term of each Option shall be fixed by the Administrator, but no Option shall be exercisable more than
10 years after the Grant Date of such Option; provided, however, that if an employee owns or is deemed to own (by
reason of the attribution rules of Section 424(d) of the Code) more than 10% of the combined voting power of all classes of stock
of the Company or any subsidiary and an ISO is granted to such employee, the term of such ISO (to the extent required by the Code
at the time of grant) shall be no more than five years from the Grant Date.
(c)
Exercisability. Options shall be exercisable at such time or times and subject to such terms and conditions as shall be
determined by the Administrator at the time of grant. Specifically such terms and conditions may include (i) the attainment of
one or more Performance Goals established by the Administrator, (ii) the Participant’s continued employment with the Company
or any subsidiary, or continued service as a director, consultant or advisor of the Company or any subsidiary, for a specified
period of time, (iii) the occurrence of any other event or the satisfaction of any other condition specified by the Administrator
in its sole discretion, or (iv) a combination of any of the foregoing. The Administrator may provide that any Option shall be
exercisable only in installments, and the Administrator may waive such installment exercise provisions at any time, in whole or
in part, based on such factors as the Administrator may determine, all in its sole discretion. An Option designated as an Incentive
Stock Option shall cease to qualify for favorable tax treatment as an Incentive Stock Option to the extent it is exercised (if
permitted by the terms of the Option) (1) more than three months after the date of a Participant’s termination of employment
if termination was for reasons other than death or disability, (2) more than one year after the date of a Participant’s
termination of employment if termination was by reason of death or disability, or (3) more than six months following the first
day of a Participant’s leave of absence that exceeds three months, unless the Participant’s reemployment rights are
guaranteed by statute or contract.
(d)
Method of Exercise. Subject to Sections 6(c) and 9 of the Plan, vested Options may be exercised in whole or in part at
any time during the Option term, by giving notice as described in the applicable Award Agreement. As determined by the Administrator
in its sole discretion, payment in whole or in part may also be made: (i) to the extent permitted by applicable law, by means
of any cashless exercise procedure approved by the Administrator, including by means of a net exercise whereby the Company issues
Shares reduced by the number of Shares needed to satisfy the Exercise Price and/or the Participant’s tax withholding obligations;
(ii) in the form of unrestricted shares of Common Stock already owned by the Participant (based on the Fair Market Value on the
date the Option is exercised); provided, however, that in the case of an ISO, the right to make payment in the form
of already owned shares of Common Stock may be authorized only at the time of grant; (iii) any other form of consideration approved
by the Administrator and permitted by applicable law; or (iv) any combination of the foregoing A Participant shall generally have
the rights to dividends and any other rights of a shareholder with respect to the Shares subject to the Option only after the
Participant has given written notice of exercise, has paid in full for such Shares, and, if requested, has given the representation
described in paragraph (b) of Section 13 of the Plan.
(e)
Annual Limit on Incentive Stock Options. To the extent that the aggregate Fair Market Value (determined as of the Grant
Date of the ISO) of Shares with respect to which ISOs granted to a Participant under this Plan and all other equity compensation
plans of the Company or any subsidiary become exercisable for the first time by the Participant during any calendar year exceeds
$100,000 (as determined in accordance with Section 422(d) of the Code), the number of Shares attributable to the amount of such
Fair Market Value exceeding $100,000 shall be treated as issuable with respect to NQSOs. The maximum aggregate number of shares
of Stock that may be subject to ISOs that may be granted under the Plan shall be 450,000 shares.
(f)
Taxation of Incentive Stock Options.
(i)
In order to obtain certain tax benefits afforded to Incentive Stock Options under Section 422 of the Code, the Participant must
hold the shares acquired upon the exercise of an Incentive Stock Option for two years after the Grant Date and one year after
the date of exercise.
(ii)
A Participant may be subject to the alternative minimum tax at the time of exercise of an Incentive Stock Option. The Participant
shall give the Company prompt notice of any disposition of shares acquired on the exercise of an Incentive Stock Option prior
to the expiration of such holding periods described in (i) above.
(g)
Certain Successor Options. To the extent not inconsistent with the terms, limitations and conditions of Section 422 of
the Code and any regulations promulgated with respect thereto, an Option issued in respect of an option held by an employee to
acquire stock of any entity acquired, by merger or otherwise, by the Company (or any subsidiary of the Company) may contain terms
that differ from those stated in this Section 6, but solely to the extent necessary to preserve for any such employee the rights
and benefits contained in such predecessor option, or to satisfy the requirements of Section 424(a) of the Code.
(h)
Code Definitions. For purposes of this Section 6, “disability,” “parent corporation” and “subsidiary
corporation” shall have the meanings attributed to those terms for purposes of Section 422 of the Code.
(i)
Non-Exempt Employees. No Option, whether or not vested, granted to an Participant who is a non-exempt employee for purposes
of the Fair Labor Standards Act of 1938, as amended, shall be first exercisable for any shares of Common Stock until at least
six months following the date of grant of the Option. Notwithstanding the foregoing, consistent with the provisions of the Worker
Economic Opportunity Act, (i) in the event of the Participant’s death or Disability, (ii) upon a Corporate Transaction as
described in Section 4 in which such Option is not assumed, continued, or substituted, or (iii) upon a Change in Control, any
such vested Options may be exercised earlier than six months following the date of grant. The foregoing provision is intended
to operate so that any income derived by a non-exempt employee in connection with the exercise or vesting of an Option will be
exempt from his or her regular rate of pay.
Section
7. Restricted Stock.
(a)
General. Awards of Restricted Stock may be granted either alone or in addition to other Awards granted under the Plan.
The Administrator shall determine the Eligible Recipients to whom, and the time or times at which, awards of Restricted Stock
shall be made; the number of Shares to be awarded with respect to an Award of Restricted Stock; and the Restricted Period (as
defined in Section 7(c) of this Plan) applicable to an Award of Restricted Stock. Award Agreements with respect to Restricted
Stock shall be in such form as the Administrator may from time to time approve, and the provisions of Awards of Restricted Stock
need not be the same with respect to each Participant. An Award of Restricted Stock shall be subject to such terms and conditions
not inconsistent with the Plan as the Administrator shall impose and shall be evidenced by an Award Agreement.
(b)
Stock Certificates. Subject to Section 7(c) below, with respect to each Participant who is granted an Award of Restricted
Stock, the Company shall either (i) issue a stock certificate in respect of such Award of Restricted Stock, which certificate
shall be registered in the name of the Participant and shall bear an appropriate legend referring to the terms, conditions, and
restrictions applicable to such Award of Restricted Stock; or (ii) enter such Award of Restricted Stock in book entry form (with
appropriate restrictions noted with respect thereto), such method to be determined by the Administrator in its sole discretion.
The Company may require that any stock certificates evidencing Restricted Stock granted under the Plan be held in the custody
of the Company until the restrictions thereon shall have lapsed, and that, as a condition of any Award of Restricted Stock, the
Participant shall have delivered a stock power, endorsed in blank, relating to the Shares covered by such Award of Restricted
Stock.
(c)
Restrictions and Conditions Applicable to Restricted Stock. An Award of Restricted Stock granted pursuant to this Section
7 shall be subject to the following restrictions and conditions:
(i)
Subject to the provisions of the Plan and the Award Agreement governing any such Award of Restricted Stock, during such period
as may be set by the Administrator commencing on the date of grant of the Award, the Participant shall not be permitted to sell,
transfer, pledge, or assign such Shares of Restricted Stock (such period, the “Restricted Period”); provided, however,
that the Administrator may, in its sole discretion, provide for the lapse of such restrictions in installments and may accelerate
or waive such restrictions in whole or in part based on such factors and such circumstances as the Administrator may determine,
in its sole discretion. Notwithstanding the preceding provision of this section, the Administrator may not take any action described
in this section if such action shall cause any Award hereunder which is or becomes subject to Section 409A of the Code to fail
to comply with the requirements of Section 409A of the Code. Such restrictions shall be determined by the Administrator in its
sole discretion, and the Administrator may provide that such restrictions lapse upon (1) the attainment of one or more Performance
Goals established by the Administrator, (2) the Participant’s continued employment with the Company or any subsidiary, or
continued service as a director, consultant or advisor of the Company or any subsidiary, for a specified period of time, (3) the
occurrence of any other event or the satisfaction of any other condition specified by the Administrator in its sole discretion,
or (4) a combination of any of the foregoing.
(ii)
Subject to paragraph (b) of Section 12 of the Plan and/or unless otherwise provided in an Award Agreement, a Participant awarded
Restricted Stock under the Plan generally shall have the rights of a shareholder of the Company with respect to such Restricted
Stock during the Restricted Period (including, without limitation, the right to vote the Restricted Stock and to receive dividends
thereon).
(iii)
If a Participant makes an election pursuant to Section 83(b) of the Code, the Participant shall be required to file promptly a
copy of such election form with the Company.
Section
8. Stock or Other Stock-Based Awards.
The
Administrator is authorized, subject to limitations under applicable law, to grant to Participants such other Awards that are
payable in, valued in whole or in part by reference to, or otherwise based on or related to Shares, as deemed by the Administrator
to be consistent with the purposes of the Plan, including without limitation Shares awarded purely as a “bonus” and
not subject to any restrictions or conditions, awards of restricted stock units, stock appreciation rights, performance awards,
performance units, phantom stock, dividend equivalents or similar rights to purchase or acquire Shares, convertible or exchangeable
debt securities, other rights convertible or exchangeable into Shares, and Awards valued by reference to book value of Shares
or the value of securities of or the performance of specified Parents or Subsidiaries. The Administrator shall determine the terms
and conditions of such Awards.
Section
9. Termination of Employment or Service.
Unless
otherwise set forth in Section 13 of the Plan and subject to Section 10 below, or as may otherwise be set forth in an Award Agreement,
if a Participant’s employment with or service as an officer, director, employee, consultant, or advisor of the Company or
of any subsidiary: (a) terminates for any reason and on the date of termination of employment or service the Participant is not
vested as to his or her entire Award, the Shares issuable with respect to the unvested portion of such Award shall be forfeited;
and (b) terminates for the reasons described below and on the date of termination of employment or service the Participant is
vested as to any Options, then if such termination is (i) by reason of his or her death or Permanent and Total Disability, any
vested Option may thereafter be exercised for a period of twelve months following termination of employment or service; (ii) for
Cause, then any vested Option shall cease to be exercisable and shall terminate; or (iii) for any other reason than listed in
subsections (b)(i) and (b)(ii) above, then any vested Option may thereafter be exercised for a period of three months following
termination of employment or service. If, and to the extent that, after termination of employment or service, the Participant
does not exercise his or her Option within the applicable time stated above, the unexercised Option shall terminate.
Section
10. Change in Control.
Unless
otherwise determined in an Award Agreement, in the event of a Change in Control:
(a)
Effective immediately prior to the occurrence of the Change in Control, (i) each outstanding Award shall become fully vested and,
if applicable, exercisable, (ii) the restrictions and forfeiture conditions applicable to any such Award granted shall lapse,
and (iii) any performance conditions imposed with respect to Awards shall be deemed to be fully achieved.
(b)
The Administrator may notify all Participants that all outstanding Awards shall be assumed by the acquiring entity or substituted
on an equitable basis with awards issued by the acquiring entity. For purposes of this Section 10, an Award shall be considered
assumed or substituted for if, following the Change in Control, the Award remains subject to the same terms and conditions that
were applicable to the Award immediately prior to the Change in Control except that, if the Award related to Shares, the Award
instead confers the right to receive common stock or other securities of the acquiring entity.
(c)
Notwithstanding any other provision of the Plan, in the event of a Change in Control, except as would otherwise result in adverse
tax consequences under Section 409A of the Code, the Board may, in its sole discretion, provide that any Award shall, immediately
upon the occurrence of a Change in Control, be cancelled in exchange for a payment in cash or securities in an amount equal to
(i) the excess (if any) of the consideration paid per Share in the Change in Control (as determined by the Administrator in its
sole discretion) over the exercise or purchase price (if any) per Share subject to the Award multiplied by (ii) the number of
Shares subject to the Award (if the consideration paid per share in the Change in Control is deemed by the Administrator to be
less than the Exercise Price or purchase price (if any) per Share subject to an Award, then such Awards may be deemed to have
been paid in full and canceled by the Administrator).
Section
11. Amendment and Termination.
The
Board may amend, alter, or discontinue the Plan, but no amendment, alteration, or discontinuation that would materially impair
the rights of a Participant under any Award granted or Award Agreement in effect under the Plan shall be made without such Participant’s
consent. The Administrator may accept surrender of outstanding Awards and grant new Awards in substitution for them; provided,
that the Administrator will not, without prior shareholder approval, exchange underwater Options or otherwise modify the exercise
price or purchase price of any Option or Award that has the effect of being a repricing. To the extent necessary and desirable,
approval of the Company’s shareholders shall be obtained for any amendment that would:
(a)
increase the total number of Shares reserved for issuance under the Plan; or
(b)
change the class of officers, directors, employees, consultants, and advisors eligible to participate in the Plan.
The
Administrator may amend the terms of any Award granted under the Plan, prospectively or retroactively, but, subject to Section
4 of the Plan, no such amendment shall impair the rights of any Participant without his or her consent. Notwithstanding the previous
sentence, the Administrator reserves the right to amend the terms of any Award or Award Agreement as may be necessary or appropriate
to avoid adverse tax consequences under Section 409A of the Code, to comply with any requirements under the forfeiture provisions
set forth in Section 3(j) of the Plan, to comply with the requirements in the Company’s “clawback” policy regarding
incentive compensation, to comply with such “clawback” requirements under the Sarbanes-Oxley Act of 2002 or the Dodd-Frank
Wall Street Reform and Consumer Protection Act, as amended from time to time, or to maintain the qualified status of any Incentive
Stock Option.
Section
12. Unfunded Status of Plan.
The
Plan is intended to constitute an “unfunded” plan. With respect to any payments not yet made to a Participant by the
Company, nothing contained herein shall give any such Participant any rights that are greater than those of a general unsecured
creditor of the Company.
Section
13. General Provisions.
(a)
Shares shall not be issued pursuant to the exercise or settlement of any Award granted under the Plan unless the exercise or settlement
of such Award and the issuance and delivery of such Shares pursuant to such Award shall comply with all relevant provisions of
law, including, without limitation, the Securities Act of 1933, the Securities Exchange Act of 1934, withholding tax requirements
and the requirements of any stock exchange upon which the Common Stock may then be listed, and shall be further subject to the
approval of counsel for the Company with respect to such compliance. The Company may rely on an opinion of its counsel as to such
compliance. Any share certificate issued to evidence Common Stock for which an Award is exercised or issued may bear such legends
and statements as the Administrator may deem advisable to assure compliance with Federal and state laws and regulations.
(b)
The Administrator may require each person acquiring Shares granted under the Plan to represent to and agree with the Company in
writing that such person is acquiring the Shares without a view to distribution thereof. All certificates for Shares delivered
under the Plan shall be subject to such stock-transfer orders and other restrictions as the Administrator may deem advisable under
the rules, regulations, and other requirements of the Securities and Exchange Commission, any stock exchange upon which the Common
Stock is then listed, and any applicable Federal or state securities law. The certificates for such Shares may include the legend
set forth below, or any other legend that the Administrator deems appropriate to reflect any restrictions on transfer for such
Shares.
“THE
ISSUANCE OF THE SHARES REPRESENTED BY THIS CERTIFICATE HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933. THE SHARES HAVE
BEEN ACQUIRED FOR INVESTMENT AND MAY NOT BE SOLD, TRANSFERRED OR ASSIGNED IN THE ABSENCE OF EITHER AN EFFECTIVE REGISTRATION STATEMENT
FOR THESE SHARES UNDER THE SECURITIES ACT OF 1933 OR AN OPINION OF COUNSEL THAT REGISTRATION IS NOT REQUIRED UNDER THE ACT.”
(c)
Nothing contained in the Plan shall prevent the Board from adopting other or additional compensation arrangements. The adoption
of the Plan or granting of an Award shall not confer upon any Eligible Recipient any right to continued employment with or service
to the Company or any subsidiary, as the case may be, nor shall it interfere in any way with the right of the Company or any subsidiary
to terminate the employment or service of any Eligible Recipient at any time.
(d)
Unless otherwise set forth in an applicable Award Agreement, a Participant may elect, no later than the date as of which the value
of an Award becomes includible in the gross income of the Participant for Federal income tax purposes (the “withholding
date”), to have the Company withhold vested whole shares of Common Stock deliverable upon the exercise of an Option or the
vesting of the Restricted Stock or Restricted Stock Units to satisfy (in whole or in part) the amount, if any, that the Company
or any subsidiary is required to withhold for taxes; provided, however, that the Fair Market Value (as of the withholding
date) of the shares of Common Stock so withheld does not exceed the amount that would be withheld if the Maximum Statutory Tax
Rate were used as the applicable tax withholding rate. “Maximum Statutory Tax Rate” means the applicable maximum statutory
federal, state and local tax rates in the Participant’s jurisdiction (including the Participant’s share of payroll
and similar taxes), even if the maximum rate exceeds the highest rate that may be applicable to the specific Participant. Any
such election shall be irrevocable.
To
the extent that a Participant does not make such an election, or such election does not fully satisfy any minimum statutorily
required withholding tax payments, then (x) the Company may require that the Participant pay to the Company, or make arrangements
satisfactory to the Company regarding payment of, any Federal, state, or local taxes of any kind required by law to be withheld
with respect to such Award, as a condition of the exercise of any Option, (y) the Company may withhold vested whole shares of
Common Stock deliverable upon exercise of an Option or vesting of the Restricted Stock or Restricted Stock Units to satisfy (in
whole or in part) the amount, if any, that the Company or any subsidiary is required to withhold for taxes; provided, however,
that the Fair Market Value (as of the withholding date) of the shares of Common Stock so withheld does not exceed the amount that
wuld be withheld if the Maximum Statutory Tax Rate were used as the applicable tax with holdingt rate, and (z) the Company shall
have the right to deduct from any payment of any kind otherwise due to a Participant up to an amount equal to any federal, state
or local taxes of any kind required by law to be withheld in connection with the granting, vesting or exercise of an Award (not
to exceed the amount determined by the Company to be the applicable maximum staturorily required withholding tax payments). Upon
request, the Participant shall reimburse the Company for any taxes that the Company withholds that are not otherwise reimbursed
as contemplated above in this Section 13(d).
(e)
No member of the Board or the Administrator, nor any officer or employee of the Company acting on behalf of the Board or the Administrator,
shall be personally liable for any action, determination, or interpretation taken or made in good faith with respect to the Plan,
and all members of the Board or the Administrator and each and any officer or employee of the Company acting on their behalf shall,
to the extent permitted by law, be fully indemnified and protected by the Company in respect of any such action, determination,
or interpretation.
(f)
If a Participant is an officer or director of the Company within the meaning of Section 16, Awards granted hereunder shall be
subject to all conditions required under Rule 16b-3, or any successor rule(s) promulgated under the Securities Exchange Act of
1934, to qualify the Award for any exemption from the provisions of Section 16 available under such Rule. Such conditions are
hereby incorporated herein by reference and shall be set forth in the agreement with the Participant, which describes the Award.
(g)
The Company shall be under no obligation to effect the registration pursuant to the Securities Act of 1933 of any shares of Stock
to be issued hereunder or to effect similar compliance under any state laws. Notwithstanding anything herein to the contrary,
the Company shall not be obligated to cause to be issued or delivered any shares of Stock pursuant to the Plan unless and until
the Company is advised by its counsel that the issuance and delivery of such shares is in compliance with all applicable laws,
regulations or governmental authority and the requirements of any securities exchange on which shares of Stock are traded or any
over-the-counter market on which the Common Stock is quoted. The Administrator may require, as a condition of the issuance and
delivery of shares of Stock pursuant to the terms hereof, that the recipient of such shares make such covenants, agreements and
representations, and that such shares, if certificated, bear such legends, and if dematerialized, be so restricted, in each case,
as the Administrator, in its sole discretion, deems necessary or desirable.
(h)
The Administrator may decide to collect, use and transfer, in electronic or other form, personal data as described in this Plan
or any Award for the exclusive purpose of implementing, administering and managing participation in the Plan. By accepting an
Award, each Eligible Recipient acknowledges that the Company holds certain personal information about the Eligible Recipient,
including, but not limited to, name, home address and telephone number, date of birth, social security number or other identification
number, salary, nationality, job title, details of all Awards awarded, cancelled, exercised, vested or unvested, for the purpose
of implementing, administering and managing the Plan (the “Data”). Each Eligible Recipient further acknowledges that
Data may be transferred to any third parties assisting in the implementation, administration and management of the Plan and that
these third parties may be located in jurisdictions that may have different data privacy laws and protections, and each Eligible
Recipient authorizes such third parties to receive, possess, use, retain and transfer the Data, in electronic or other form, for
the purpose of implementing, administering and managing the Plan, including any requisite transfer of such Data as may be required
to a broker or other third party with whom the recipient or the Company may elect to deposit any Shares acquired upon any Award.
Section
14. Compliance with Section 409A of the Code.
This
Plan and Awards granted hereunder are intended to comply with the requirements of Section 409A of the Code (“Section 409A”),
to the extent applicable. All Awards shall be construed and administered such that the Award either (i) qualifies for an exemption
from the requirements of Section 409A, or (ii) satisfies the requirements of Section 409A. If an Award is subject to Section 409A,
unless the Award Agreement specifically provides otherwise: (a) distributions shall only be made in a manner and upon an event
permitted under Section 409A; (b) payments to be made upon a Change in Control shall only be made upon a “change of control
event” under Section 409A; (c) payments to be made upon a termination of employment shall only be made upon a “separation
from service” under Section 409A; (d) each payment shall be treated as a separate payment for purposes of Section 409A;
and (e) in no event shall an Eligible Recipient, directly or indirectly, designate the calendar year in which a distribution is
made, except in accordance with Section 409A. Settlement of any Award subject to Section 409A may not be accelerated except to
the extent permitted by Section 409A. Any Award granted under this Plan that is subject to Section 409A and that is to be distributed
to a “specified employee” (as defined in Section 409A) upon a separation from service shall be administered so that
any distribution with respect to such Award shall be postponed for six months following the date of the Eligible Recipient’s
separation from service, if required by Section 409A. Upon the expiration of the applicable waiting period set forth in the preceding
sentence, all payments and benefits deferred pursuant to this Section 14 (whether they would have otherwise been payable in a
single lump sum or in installments in the absence of such deferral) shall be paid to such Participant in a lump sum as soon as
practicable, but in no event later than 60 calendar days, following such expired period, and any remaining payments due under
this Plan will be paid in accordance with the normal payment dates specified for them herein. Notwithstanding any provision of
the Plan to the contrary, in the event that following the Effective Date of the Plan, the Administrator determines that any Award
may be subject to Section 409A, the Administrator may adopt such amendments to the Plan and/or the applicable Award agreement
or adopt other policies or procedures, or take any other actions that the Administrator determines are necessary or appropriate
to (1) exempt the Award from Section 409A and/or preserve the intended tax treatment of the benefits provided with respect to
the Award, or (2) comply with the requirements of Section 409A. Notwithstanding anything in the Plan or any Award agreement to
the contrary, each Eligible Recipient shall be solely responsible for the tax consequences of Awards, including any penalties
under Section 409A(a), and in no event shall the Company have any responsibility or liability if an Award does not meet any applicable
requirements of Section 409A. Although the Company intends to administer the Plan to prevent taxation under Section 409A, the
Company does not represent or warrant that the Plan or any Award complies with any provision of federal, state, local or other
tax law.
Section
15. Notice.
All
notices, requests, waivers, and other communications required or permitted hereunder shall in writing and shall be either personally
delivered, sent by reputable overnight courier service or mailed by first class mail, return receipt requested, to the recipient
at the address below:
Southern
First Bancshares, Inc.
Attn:
Michael D. Dowling
100
Verdae Boulevard, Suite 100
Greenville,
SC 29607
(864)
679-9000
or
such other address or the attention of such other person as the recipient party shall have specified by prior written notice to
the sending party, or sent by other electronic means. All such notices, requests, waivers and other communications shall be deemed
to have been effectively given: (a) when personally delivered to the party to be notified; (b) when sent by confirmed facsimile
to the party to be notified; (c) five (5) business days after deposit in the United States Mail postage prepared by certified
or registered mail with return receipt requested at any time other than during a general discontinuance of postal service due
to strike, lockout, or otherwise (in which case such notice, request, waiver or other communication shall be effectively given
upon receipt) and addressed to the party to be notified as set forth above; or (d) two (2) business days after deposit with a
national overnight delivery service, postage prepaid, addressed to the party to be notified as set forth above with next-business-day
delivery guaranteed. A party may change its or his notice address given above by giving the other party ten (10) days’ written
notice of the new address in the manner set forth above.
The
Administrator may decide to deliver any documents related to any Award granted under the Plan through an online or electronic
system established and maintained by the Company or another third party designated by the Company (“electronic system”)
or to request an Eligible Recipient’s consent to participate in the Plan by electronic means. By accepting an Award, each
Eligible Recipient consents to receive such documents by electronic delivery and agrees to participate in the Plan through an
electronic system and such consent shall remain in effect until all Awards have been paid or until withdrawn in writing by the
Eligible Recipient.
Section
16. Governing Law and Interpretation.
The
Plan and all Awards made and actions taken thereunder shall be governed by and construed in accordance with the laws of the State
of South Carolina, without reference to principles of conflict of laws.
Section
17. Severability.
If,
for any reason, any provision of this Plan is held invalid, such invalidity shall not affect any other provision of this Plan
not held so invalid, and each such other provision shall to the full extent consistent with law continue in full force and effect.
If any provision of this Plan shall be held invalid in part, such invalidity shall in no way affect the rest of such provision
not held so invalid, and the rest of such provision, together with all other provisions of this Plan, shall to the full extent
consistent with law continue in full force and effect.
Section
18. Term of Plan.
The
Plan shall be effective as of the Effective Date. No Award shall be granted pursuant to the Plan on or after the fifth anniversary
of the Effective Date, but Awards granted under the Plan prior to the fifth anniversary of the Effective Date may extend beyond
the fifth anniversary of the Effective Date pursuant to the terms of the Award as provided for under the Plan and the terms of
the applicable Award Agreement.
*
* * * *
IN
WITNESS WHEREOF, the Board of Directors of the Company has adopted this Plan, to be executed on behalf of the Company by a duly
designated officer of the Company, as of the day and year first above written as the Effective Date.
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Southern
First Bancshares, Inc.
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By:
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Name:
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R.
Arthur Seaver, Jr.
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Title:
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Chief
Executive Officer
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Exhibit
A
Participating
Employers
Southern
First Bancshares, Inc.
Southern
First Bank
