Proxy Statement Pursuant to Section 14(a) of the Securities Exchange
Act of 1934
Filed by the registrant [X]
Filed by a party other than the registrant [ ]
Check the appropriate box:
[X] Preliminary proxy statement
[ ] Confidential, for use of the Commission only (as permitted by Rule
14a-6(e)(2))
[ ] Definitive proxy statement
[ ] Definitive additional materials
[ ] Soliciting material pursuant to Section 240.14a-12
First Bancshares, Inc.
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(Name of Registrant as Specified in Its Charter)
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(Name of Person(s) Filing Proxy Statement, if Other Than the Registrant)
Payment of filing fee (Check the appropriate box):
[X] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
(1) Title of each class of securities to which transaction applies:
N/A
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(2) Aggregate number of securities to which transactions applies:
N/A
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(3) Per unit price or other underlying value of transaction computed pursuant
to Exchange Act Rule 0-11:
N/A
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(4) Proposed maximum aggregate value of transaction:
N/A
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(5) Total fee paid:
N/A
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[ ] Fee paid previously with preliminary materials:
N/A
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[ ] Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee was
paid previously. Identify the previous filing by registration statement
number, or the form or schedule and the date of its filing.
(1) Amount previously paid:
N/A
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(2) Form, schedule or registration statement no.:
N/A
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(3) Filing party:
N/A
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(4) Date filed:
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FIRST BANCSHARES, INC.
142 East First Street
Mountain Grove, Missouri 65711
Telephone: (417) 926-5151
______ __, 2008
Dear Stockholder:
You are cordially invited to attend the Annual Meeting of Stockholders
("Annual Meeting") of First Bancshares, Inc. ("First Bancshares" or the
"Company" ), to be held on _______, ______ __, 2008 at ___ p.m., Central Time,
at the ________________________, ____________________, Mountain Grove,
Missouri.
At the Annual Meeting you will be asked to consider and act upon the
following:
(1) To consider and vote on a proposal to amend the articles of
incorporation (the "Articles) of First Bancshares to effect a
1-for-1,000 reverse split of First Bancshares's common stock. The
primary purpose and effect of this transaction is to reduce the
number of holders of record of First Bancshares's common stock
below 300, in order to permit First Bancshares to apply to the
Securities and Exchange Commission (the "SEC") to terminate
registration of First Bancshares's stock and suspend First
Bancshares's reporting obligations with the SEC. The text of the
proposed amendment is attached as Appendix A-1 to the accompanying
Proxy Statement;
(2) To consider and vote on a proposal to amend the Articles to effect
a 1,000-for-1 forward split of First Bancshares's common stock. The
text of the proposed amendment is attached as Appendix A-2 to the
accompanying Proxy Statement;
(3) To elect two directors to serve until the 2010 Annual Meeting or
until their respective successors are duly elected and qualified;
(4) To act on a stockholder proposal regarding the declassification of
the Board of Directors, if properly presented at the meeting;
(5) To approve a proposal to adjourn the Annual Meeting to permit
further solicitation of proxies in the event that an insufficient
number of shares is present in person or by proxy to approve the
proposals presented at the Annual Meeting; and
(6) To transact such other business as may properly come before the
meeting and any adjournments or postponements thereof.
If approved at the Annual Meeting, the reverse/forward stock split
transaction (the "Split Transaction") will affect our stockholders as follows:
STOCKHOLDER POSITION PRIOR TO SPLIT EFFECT OF SPLIT TRANSACTION
TRANSACTION
Stockholders holding in registered Stockholders will ultimately hold the
name 1,000 or more shares of common same number of shares as they held
stock before the Split Transaction.
Stockholders holding in registered Shares will be converted into $21.00
name fewer than 1,000 shares of common per share of common stock outstanding
stock immediately prior to the reverse
stock split.
Stockholders holding common stock in If you hold shares of First
"street name" through a nominee (such Bancshares common stock in "street
as a bank or broker) name" through a nominee (such as a
broker or a bank), the effect of the
split transaction on your shares of
common stock may be different than
for record holders. Your nominee
may or may not effect the split
transaction on your shares of common
stock held in street name. First
Bancshares intends for the Split
Transaction to affect stockholders
holding common stock through a
nominee (such as a broker or bank)
in the same way as those holding
shares in a record account and
nominees will be asked to effect the
Split Transaction for their
beneficial owners. We plan to work
with nominees to treat stockholders
holding shares in street name in the
same manner as other stockholders to
allow the cash out in the Split
Transaction of shares held in street
name in accounts holding fewer than
1,000 shares. Your nominee, however,
is not legally obligated to follow
our instructions or to work with us
to effect the Split Transaction with
respect to shares held by you in
street name. To determine the Split
Transaction's effect on any shares
you hold in street name, you should
contact your nominee. To ensure that
your shares may be subject to the
Split Transaction you may ask your
nominee to have your shares taken out
of street name and registered
directly in your name. We urge you to
contact your nominee to determine how
the split transaction will affect
you.
The primary effect of this transaction is expected to reduce our total
number of stockholders of record to below 300. As a result, we expect to
terminate the registration of our common stock under federal securities laws,
upon such termination, our reporting obligations with the SEC will be
suspended, and we will no longer be eligible for trading on the NASDAQ Global
Market.
We are proposing this transaction because our Board of Directors has
concluded, after careful consideration, that the costs and other disadvantages
associated with being an SEC-reporting company outweigh the advantages. The
reasons the Board of Directors reached this conclusion include:
* We estimate that we can eliminate current costs of approximately
$199,000 on an annual basis;
* Operating as a non-SEC reporting company will reduce the burden on
our management that arises from increasingly stringent SEC reporting
requirements, including requirements of the Sarbanes-Oxley Act of
2002 ("SOX"), thus allowing management to focus more of its attention
on our customers and the communities in which we operate;
* At least 370 of our 495 record stockholders own fewer than 1,000
shares and the elimination of those small stockholders can be
expected to reduce significantly our costs of stockholder
communications; and
* These costs of being a public company outweigh the benefits to a
well-capitalized company of our size, and terminating our public
company status will free up management to focus more on long-term
business opportunities beneficial to stockholders and customers.
* The enclosed Proxy Statement includes a discussion of the
alternatives and factors considered by the Board of Directors in
connection with its approval of the reverse/forward stock split, and
we encourage you to read carefully the Proxy Statement and its
appendices. Your Board of Directors believes the terms of the
proposed transaction are fair and are in the best interest of our
stockholders, and unanimously recommends that you vote "FOR" the
proposal to amend the Articles.
I, along with the other members of the Board of Directors, look forward
to greeting you personally at the Annual Meeting. However, whether or not you
plan to attend personally and regardless of the number of shares you own, it
is important that your shares be represented. You are urged to promptly sign,
date and mail the enclosed proxy in the postage-paid envelope provided for
your convenience.
This will not prevent you from voting in person but will assure that your
vote is counted if you are unable to attend.
Very truly yours,
Daniel P. Katzfey
President and Chief Executive Officer
FIRST BANCSHARES, INC.
142 East First Street
Mountain Grove, Missouri 65711
Telephone (417) 926-5151
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON _______, ______ __, 2008
NOTICE IS HEREBY GIVEN THAT the Annual Meeting of Stockholders of First
Bancshares, Inc. will be held on _______, ________ ___, 2008, Central Time, at
____ p.m. at the ________________________, ____________________, Mountain
Grove, Missouri for the following purposes:
(1) To consider and vote on a proposal to amend the articles of
incorporation (the "Articles") of First Bancshares to effect a
1-for-1,000 reverse split of First Bancshares's common stock. The
primary purpose and effect of this transaction is to reduce the
number of holders of record of First Bancshares's common stock below
300, thereby permitting First Bancshares to apply to the Securities
and Exchange Commission (the "SEC") to terminate registration of
First Bancshares's common stock and suspend First Bancshares's
reporting obligations with the SEC. The text of the proposed
amendment is attached as Appendix A-1 to the accompanying Proxy
Statement;
(2) To consider and vote on a proposal to amend the Articles to effect a
1,000-for-1 forward split of First Bancshares's common stock. The
text of the proposed amendment is attached as Appendix A-2 to the
accompanying Proxy Statement;
(3) To elect two directors to serve until the 2010 Annual Meeting of
Stockholders or until their respective successors are duly elected
and qualified;
(4) To act on a stockholder proposal regarding the declassification of
the Board of Directors, if properly presented at the meeting;
(5) To approve a proposal to adjourn the Annual Meeting to permit
further solicitation of proxies in the event that an insufficient
number of shares is present in person or by proxy to approve the
proposals presented at the Annual Meeting; and
(6) To transact such other business as may properly come before the
meeting and any adjournments or postponements thereof.
Although the reverse stock split and forward stock split are two separate
proposals on which you may vote, unless both the reverse and forward stock
splits are approved by stockholders, neither of the splits will be
implemented. Thus, a vote in favor of one of stock splits but not the other
effectively acts as a vote against both of the splits and the transactions
described in this document. We cannot complete the stock splits unless both
amendments are approved by holders of a majority of the outstanding shares of
common stock. Approximately 6% of the shares of common stock are held by
Directors and Executive Officers of First Bancshares who have indicated they
will vote in favor of the amendments.
Although not legally obligated to do so, we are providing certain
additional rights to our non-continuing stockholders, under Missouri Law, with
respect to dissenters' rights. There are certain steps you must take to
perfect these rights. Please see "THE SPLIT TRANSACTION -- SPECIAL FACTORS --
Dissenters' Rights" for more information.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THE STOCK SPLITS, PASSED UPON THE
MERITS OR FAIRNESS OF THE STOCK SPLITS, OR PASSED UPON THE ADEQUACY OR
ACCURACY OF THE DISCLOSURE IN THIS DOCUMENT. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
NO PERSON IS AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY REPRESENTATION
NOT CONTAINED IN THIS PROXY STATEMENT AND, IF GIVEN OR MADE, SUCH INFORMATION
OR REPRESENTATION SHOULD NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY FIRST
BANCSHARES.
The foregoing items are more fully described in the Proxy Statement
accompanying this Notice.
The Board of Directors has fixed the close of business on ___ _, 2008 as
the record date for determining stockholders entitled to notice of and to vote
at the Annual Meeting and any adjournments or postponements thereof. Only
holders of common stock of record at the close of business on that date will
be entitled to notice of and to vote at the Annual Meeting and any
adjournments or postponements thereof.
By Order of the Board of Directors
SHANNON PETERSON
Secretary
Mountain Grove, Missouri
_______ __, 2008
YOUR VOTE IS IMPORTANT
----------------------
WHETHER OR NOT YOU PLAN TO ATTEND THE ANNUAL MEETING IN PERSON, YOU ARE
REQUESTED TO COMPLETE, DATE, SIGN AND RETURN THE ENCLOSED PROXY CARD IN THE
ENCLOSED ENVELOPE, WHICH REQUIRES NO POSTAGE IF MAILED IN THE UNITED STATES.
IF YOU ATTEND THE ANNUAL MEETING, YOU MAY VOTE IN PERSON IF YOU WISH, EVEN IF
YOU HAVE PREVIOUSLY RETURNED YOUR PROXY CARD.
FIRST BANCSHARES, INC.
142 East First Street
Mountain Grove Missouri 65711
Telephone (417) 926-5151
PROXY STATEMENT
ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON ____________, ______ __, 2008
This Proxy Statement and accompanying form of proxy are furnished in
connection with the solicitation of proxies on behalf of the Board of
Directors of First Bancshares, Inc., a Missouri corporation ("First
Bancshares"), for use in voting at the Annual Meeting of Stockholders (the
"Annual Meeting") to be held at _____ p.m., Central Time, on _____ __, 2008,
at the ________________________, ____________________, Mountain Grove,
Missouri and at any postponements or adjournments thereof. This Proxy
Statement and accompanying form of proxy were mailed on or about _______ __,
2008 to stockholders of record at the close of business on _____ __, 2008 in
connection with the solicitation.
This Proxy Statement provides detailed information about a proposal to
amend First Bancshares's articles of incorporation (the "Articles") to effect
a 1-for-1,000 reverse stock split of First Bancshares's common stock, followed
immediately by a 1,000-for-1 forward stock split of First Bancshares's common
stock (collectively the "Split Transaction"). If the Split Transaction is
completed:
* Each holder of fewer than 1,000 shares of common stock immediately
before the reverse stock split will receive $21.00, without interest,
for each share of common stock held immediately before the reverse
stock split and will no longer be a stockholder of First Bancshares;
and
* Each holder of 1,000 or more shares of common stock immediately
before the reverse stock split will participate in a 1,000-for-1
forward stock split, which will result in such holder owning the same
number of shares of common stock after the forward stock split as
such holder owned immediately before the reverse stock split.
At the close of business on ____ _, 2008, there were outstanding and
entitled to vote 1,550,815 shares of First Bancshares's common stock, par
value of $.01 per share.
Each stockholder is entitled to one vote per share upon each matter
submitted at the Annual Meeting. Only stockholders of record at the close of
business on _____ __, 2008 shall be entitled to vote at the Annual Meeting.
The proxies of holders of common stock are being solicited by the Board
of Directors. Stockholders are requested to complete, date, sign and promptly
return the accompanying proxy card in the enclosed envelope. Shares
represented by a properly executed proxy received prior to the vote at the
Annual Meeting and not revoked will be voted at the Annual Meeting as directed
in the proxy. IF A PROXY IS SUBMITTED AND NO DIRECTIONS ARE GIVEN, THE PROXY
WILL BE VOTED "FOR" THE APPROVAL OF THE PROPOSALS TO BE CONSIDERED AT THE
ANNUAL MEETING.
A person giving the enclosed proxy may revoke it by filing an instrument
of revocation with Shannon Peterson, Secretary, First Bancshares, Inc., 142
East First Street, Mountain Grove, Missouri 65711. Any such person may also
revoke a proxy by filing a duly executed proxy bearing a later date, or by
appearing at the Annual Meeting in person, notifying the Secretary, and voting
by ballot at the Annual Meeting. Any stockholder of record attending the
Annual Meeting may vote in person whether or not a proxy has been previously
given, but the mere presence (without notifying the Secretary) of a
stockholder at the Annual Meeting will not constitute revocation of a
previously given proxy.
First Bancshares will bear the cost of soliciting proxies from the
stockholders, including mailing costs, and will pay all printing costs in
connection with this Proxy Statement. In addition to the use of the mails,
proxies may be solicited
on First Bancshares's behalf by the Directors, officers, and certain employees
of First Bancshares and First Home Savings Bank, and by personal interviews,
telephone and facsimile. Our Directors, officers and employees will not
receive additional compensation for such solicitations but may be reimbursed
for reasonable out-of-pocket expenses incurred in connection therewith. First
Bancshares may also make arrangements with brokerage houses and other
custodians, nominees, and fiduciaries for the forwarding of solicitation
material to the beneficial owners of its common stock. First Bancshares may
reimburse such custodians, nominees, and fiduciaries for reasonable
out-of-pocket expenses incurred in connection therewith.
The presence in person or by proxy of the holders of a majority of the
issued and outstanding shares entitled to vote at the Annual Meeting is
required to constitute a quorum. Abstentions and "broker non-votes" (as
defined below) will be counted as present for purposes of determining the
presence or absence of a quorum for the transaction of business at the Annual
Meeting, but as unvoted for purposes of determining the approval of any matter
submitted to the stockholders for a vote. A "broker non-vote" is a proxy from
a broker or other nominee indicating that such person has not received
instructions from the beneficial owner or other person entitled to vote the
shares which are the subject of the proxy on a particular matter and with
respect to which the broker or other nominee does not have discretionary
voting power.
First Bancshares is a Missouri corporation and the parent of First Home
Savings Bank ("First Home"), a Missouri-chartered savings and loan association
based in Mountain Grove, Missouri. Unless the context otherwise requires,
references herein to the "Company" include First Bancshares, Inc. and its
consolidated subsidiary, First Home Savings Bank.
TABLE OF CONTENTS
SUMMARY TERM SHEET 2
QUESTIONS AND ANSWERS ABOUT THE SPLIT TRANSACTION AND THE ANNUAL MEETING 10
FORWARD LOOKING STATEMENTS 13
ABOUT THE ANNUAL MEETING 14
Date, Time and Place of Annual Meeting 14
Matters to be Considered at the Annual Meeting 14
Record Date; Voting Power 14
Quorum 14
Vote Required for Approval 15
Voting and Revocation of Proxies 15
Solicitation of Proxies; Expenses of Solicitation 16
Other Matters to be Considered at Annual Meeting 16
CORPORATE DEVELOPMENTS AND OVERVIEW 16
THE SPLIT TRANSACTION -- SPECIAL FACTORS 17
Overview of the Split Transaction 17
Background of the Split Transaction 19
Reasons for the Split Transaction 24
Current and Historical Market Prices of First Bancshares's Common Stock 25
Tangible Book Value 25
Going Concern Value 25
Liquidation Value 25
Stock Repurchases 26
Other Considerations 26
Fairness of the Split Transaction 27
Substantive Fairness 27
Procedural Fairness 29
Effects of the Split Transaction on Affiliates 30
Board of Directors Recommendation 31
Valuation and Fairness Opinions of Index Capital 31
Availability of Documents 41
Structure of the Split Transaction 41
Effects of the Split Transaction on First Bancshares 41
Elimination of Non-Continuing Stockholders 42
Financial Effects of the Split Transaction 42
Effect on Options 42
Effect on Conduct of Business after the Transaction 42
Plans or Proposals 43
Interests of Certain Persons in the Split Transaction 43
Financing of the Split Transaction 43
Federal Income Tax Consequences 44
Dissenters' Rights 45
Regulatory Requirements 46
(table continued on the following page)
Accounting Treatment 46
Fees and Expenses 47
SELECTED HISTORICAL AND PRO FORMA FINANCIAL DATA 47
MARKET PRICE OF FIRST BANCSHARES COMMON STOCK AND DIVIDEND INFORMATION 49
COMMON STOCK PURCHASE INFORMATION 50
ELECTION OF DIRECTORS 50
Meetings and Committees of the Board of Directors and
Corporate Governance Matters 52
Related Party Transactions 54
Directors' Compensation 54
Executive Officers 55
Executive Compensation 56
Audit Committee Matters 59
Security Ownership of Certain Beneficial Owners and Management 60
Section 16(a) Beneficial Ownership Reporting Compliance 62
Auditor 62
STOCKHOLDER PROPOSAL 63
ADJOURNMENT OF THE ANNUAL MEETING 64
OTHER MATTERS 65
INFORMATION INCORPORATED BY REFERENCE 65
AVAILABLE INFORMATION 65
STOCKHOLDER PROPOSALS 66
APPENDIX A-1 Proposed Form of Amendment to Amended and Restated Articles of
Incorporation to Effect Reverse Stock Split
APPENDIX A-2 Proposed Form of Amendment to Amended and Restated Articles of
Incorporation to Effect Forward Stock Split
APPENDIX B Fairness Opinion of Index Capital, LLC
APPENDIX C Section 351.455 of the Missouri General and Business Corporation
Law
APPENDIX D Audit Committee Charter
APPENDIX E Compensation Committee Charter
APPENDIX F Nominating Committee Charter
SUMMARY TERM SHEET
This summary provides an overview of material information from this Proxy
Statement. However, it is a summary only. To better understand the Split
Transaction and for a more complete description of its terms, and for a
description of other matters to be considered at the Annual Meeting, we
encourage you to read carefully this entire document and the documents to
which it refers before voting.
In this Proxy, the term "non-continuing stockholders" of First Bancshares
means all holders of common stock of First Bancshares with fewer than 1,000
shares at the effective time of the Split Transaction who will be cashed out
as a result of the Split Transaction. The term "continuing stockholders" means
all holders of common stock of First Bancshares with at least 1,000 shares at
the effective time of the Split Transaction. References to "common stock" or
"shares" refer to the First Bancshares's common stock, par value $.01 per
share. First Bancshares intends for the Split Transaction to affect "street
name" stockholders in the same way as those holding shares in a record
account, and nominees will be asked to effect the Split Transaction for their
beneficial owners. Nominees may choose, however, not to effect the Split
Transaction on street name shares. See "SUMMARY TERM SHEET -- Treatment of
Shares Held in `Street Name.'"
Proposals to be Considered at the Annual Meeting
At the Annual Meeting, stockholders will be asked:
(1) To consider and vote on a proposal to amend First Bancshares's
articles of incorporation to effect a 1-for-1,000 reverse split of
First Bancshares's common stock. The primary purpose and effect of
this transaction is to reduce the number of holders of record of
First Bancshares's common stock below 300, terminate the
registration of the common stock, and suspend First Bancshares's
reporting obligations with the SEC. The text of the proposed
amendment is attached as Appendix A-1 to this Proxy Statement;
(2) To consider and vote on a proposal to amend First Bancshares's
articles of incorporation to effect a 1,000-for-1 forward split of
First Bancshares's common stock. The text of the proposed amendment
is attached as Appendix A-2 to this Proxy Statement;
(3) To elect two directors to serve until the 2010 Annual Meeting or
until their respective successors are duly elected and qualified;
(4) To act on a stockholder proposal regarding the declassification of
the Board of Directors, if properly presented at the meeting;
(5) To adjourn the Annual Meeting if necessary to permit the further
solicitation of proxies in the event that an insufficient number of
shares is present in person or by proxy to approve the proposals
presented at the Annual Meeting; and
(6) To transact such other business as may properly come before the
meeting and any adjournments or postponements thereof.
Stockholders are also being asked to consider and vote upon any other
matters that may properly be submitted to a vote at the meeting or any
adjournment or postponement of the Annual Meeting. See "ABOUT THE ANNUAL
MEETING."
Record Date
You may vote at the Annual Meeting if you owned First Bancshares common
stock at the close of business on ____ __, 2008, which has been set as the
record date. At the close of business on the record date, there were 1,550,815
shares of First Bancshares's common stock, par value of $.01 per share,
outstanding and entitled to vote. You are entitled to one vote for each share
of First Bancshares common stock you own, unless you own more than 10% of
First
2
Bancshares' outstanding shares. As provided in our Articles of Incorporation,
record holders of common stock who beneficially own in excess of 10% of First
Bancshares' outstanding shares are not entitled to any vote in respect of the
shares held in excess of the 10% limit. On _________ __, 2008, there were
1,550,815 shares of First Bancshares common stock outstanding and entitled to
vote at the Annual Meeting.
Vote Required for Approval
The Reverse/Forward Stock Split. Approval of the Split Transaction
requires the affirmative vote of the holders of a majority of all outstanding
shares of our common stock entitled to vote at the Annual Meeting, or 775,408
of the 1,550,815 outstanding shares. Although the reverse stock split and
forward stock split are two separate proposals on which stockholders may vote,
unless both of the proposals are approved by stockholders, neither of the
splits will be implemented. Because the Directors and Executive Officers of
First Bancshares have the power to vote a total of 56,771 shares and all of
such Directors and Executive Officers have indicated they will vote in favor
of the transaction, we believe that a total of 718,637 shares held by
stockholders who are not Executive Officers or Directors of First Bancshares
will be required to vote in favor of the transaction for it to be approved.
Because the Directors and Executive Officers of First Bancshares own only
approximately 3.7% of the voting power of our outstanding common stock, there
is no assurance that the Split Transaction will be approved. In addition to
the 56,771 shares collectively owned by Directors and Executive Officers,
Director Sutherland's other family members own 265,500 shares, or 17.1% of
First Bancshares outstanding common stock. Director Sutherland has not had
any discussions with his other family members regarding how they will vote on
the proposals, however, he anticipates that they will vote in favor of the
proposals.
For additional information regarding the beneficial ownership of First
Bancshares's Directors and Executive Officers and their related persons, see
"ELECTION OF DIRECTORS -- Security Ownership of Certain Beneficial Owners and
Management."
Election of Directors. Directors will be elected by a plurality of the
votes cast at the Annual Meeting. Plurality means that the individuals who
receive the largest number of votes cast are elected up to the maximum number
of Directors to be elected at the meeting.
Stockholder Proposal. The ratification of the stockholder proposal to
declassify First Bancshares's Board of Directors requires the affirmative vote
of a majority of the shares of common stock represented at the Annual Meeting
and entitled to vote in order to be approved.
Adjournment of the Annual Meeting. Approval of the proposal to adjourn
or postpone the meeting to allow extra time to solicit proxies requires the
affirmative vote of a majority of the shares of common stock voting on the
matter. See "ABOUT THE ANNUAL MEETING -- Vote Required for Approval."
First Bancshares
First Bancshares, a Missouri corporation, was incorporated on September
30, 1993 for the purpose of becoming the holding company for First Home
Savings Bank upon First Home Savings Bank's conversion from a state-chartered
mutual to a state-chartered stock savings and loan association. The mutual to
stock conversion was completed on December 22, 1993. At December 31, 2007,
First Bancshares had consolidated total assets of $243.4 million, total
deposits of $192.0 million and stockholders' equity of $27.3 million. First
Bancshares is not engaged in any significant activity other than holding the
stock of First Home. Accordingly, the information set forth in this report,
including consolidated financial statements and related data, relates
primarily to operations of First Home Savings Bank. First Bancshares's common
shares trade on The Nasdaq Global Market under the symbol "FBSI."
First Home Savings Bank is a Missouri-chartered, federally insured stock
savings and loan association organized in 1911. First Home Savings Bank
conducts its business from its home office in Mountain Grove and ten full
service branch facilities in Marshfield, Ava, Gainesville, Sparta, Theodosia,
Crane, Galena, Kissee Mills, Rockaway Beach and Springfield, Missouri. The
full service branch in Springfield, Missouri opened in July 2006. In addition,
in March 2007 First Home Savings Bank opened a loan origination office in
Springfield, Missouri for the purpose of originating primarily loans on
single-family residences for sale into the secondary market. The deposits of
First Home Savings Bank are insured up to applicable limits by the Federal
Deposit Insurance Corporation ("FDIC"). As a Missouri-chartered savings and
loan
3
association, First Home derives its authority from, and is governed by, the
provisions of the Missouri Savings and Loan Law and regulations of the
Missouri Division of Finance ("Division") and the Office of Thrift Supervision
("OTS").
First Home Savings Bank provides its customers with a full array of
community banking services. First Home Savings Bank is primarily engaged in
the business of attracting deposits from the general public and using such
deposits, together with other funding sources, to invest in residential
mortgage loans, commercial real estate loans, land loans, second mortgage
loans, consumer loans and, to a lesser extent, commercial business loans, for
its loan portfolio. As noted above, First Home Savings Bank also originates
residential mortgage loans for sale into the secondary market. Excess funds
are typically invested in securities and other assets.
First Bancshares's business address is 142 East First Street, Mountain
Grove, Missouri 65711 and its business telephone number is (417) 926-5151.
Corporate Developments and Overview
During the quarter ended December 31, 2006, First Home Savings Bank
entered into a memorandum of understanding with the OTS. The Memorandum of
Understanding resulted from issues noted during the examination of First Home
Savings Bank conducted by the OTS, the report on which was dated in July 2006,
and included deficiencies in lending policies and procedures, recent operating
losses, and the need to revise both the business plan and the budget to
enhance profitability. A number of corrective actions were required to be
taken by First Home Savings Bank under the Memorandum of Understanding. First
Bancshares believes that First Home Savings Bank is addressing all of the
issues raised by the Memorandum of Understanding.
During the first half of fiscal 2007, there were several changes in
composition of senior management of both First Bancshares and First Home
Savings Bank.
See "CORPORATE DEVELOPMENTS AND OVERVIEW" on page 16.
Overview of the Split Transaction
If approved, the Split Transaction will consist of the following steps:
* A 1-for-1,000 reverse stock split of First Bancshares common stock
will occur on the date that the Missouri Secretary of State accepts
for filing a certificate of amendment to the Articles (such date,
the "Effective Date"). As a result:
Each record holder of less than 1,000 shares of common stock
immediately before the reverse stock split will receive from
First Bancshares cash in the amount of $21.00, without interest,
for each share of common stock held immediately before the
reverse stock split and will no longer be a stockholder of First
Bancshares; and
Each record holder of 1,000 or more shares of common stock
immediately prior to the reverse stock split will own one
one-one-thousandth of the number of shares of common stock the
stockholder immediately before the reverse stock split. We will
not purchase any fractional shares of common stock (i.e., less
than one whole common share) held by record holders of 1,000 or
more shares of common stock on the Effective Date and we will not
make any payments to holders of 1,000 or more shares of our
common stock.
* After completion of the reverse stock split, each holder of 1,000 or
more shares of common stock immediately before the reverse stock
split will participate in a 1,000-for-1 forward stock split, which
will result in such holder owning the same number of shares of
common stock after the forward stock split as such holder owned
immediately before the reverse stock split.
4
* If you are a record holder who holds less than 1,000 shares of
common stock but do not want to be cashed out in the Split
Transaction, you may remain a stockholder of First Bancshares by
purchasing a sufficient number of shares of common stock in the open
market, to the extent available, far enough in advance of the Split
Transaction so that you hold at least 1,000 shares of common stock
on the Effective Date. Conversely, if you are a record holder of
1,000 or more shares of common stock and want to be cashed out in
the Split Transaction, you may do so by selling a sufficient number
of shares of common stock in the open market far enough in advance
of the Split Transaction so that you hold less than 1,000 shares of
common stock on the Effective Date. However, given the limited
trading volume in our shares of common stock, you may not be able to
purchase or sell enough shares of common stock to remain a
stockholder of First Bancshares or liquidate shares of common stock,
as the case may be. In the absence of an active trading market for
the common stock, you would have to acquire or sell First Bancshares
shares in a privately negotiated transaction, which would require
you to identify one or more additional holders of First Bancshares
common stock who desire to sell or purchase First Bancshares common
stock.
* If you hold shares of First Bancshares common stock in "street name"
through a nominee (such as a broker or a bank), the effect of the
Split Transaction on your shares of common stock may be different
than for record holders. First Bancshares intends for the Split
Transaction to affect "street name" stockholders the same as
stockholders holding shares in a record account, and nominees will
be asked to effect the Split Transaction for their beneficial
owners. See "THE SPLIT TRANSACTION -- SPECIAL FACTORS -- Overview of
the Split Transaction."
A record holder is a stockholder who is listed as the registered owner on
the books and records of First Bancshares. Record holders have been issued
stock certificates evidencing their ownership of shares in First Bancshares.
By contrast, "street name" holders are stockholders who hold their shares
through a nominee (such as a broker or a bank). Street name holders will not
have stock certificates issued by First Bancshares; rather, their ownership is
noted on the nominee's records.
Based upon an analysis of First Bancshares's stockholder base as of June
30, 2007, we expected to pay a total of approximately $2.5 million to
stockholders in the reverse stock split and we anticipated that the number of
outstanding shares of our common stock would decrease by approximately 7.72%,
from 1,550,815 shares to approximately 1,431,079 shares as a result of the
Split Transaction. Based upon recent trading activity, First Bancshares
believes that these numbers and amounts will change, and the cost of the
transaction could increase significantly, as a result of further trading
activity in our shares between the date hereof and the effective date of the
Split Transaction. See "THE SPLIT TRANSACTION -- SPECIAL FACTORS -- Overview
of the Split Transaction."
Background of the Split Transaction
For a description of the events leading to the approval of the Split
Transaction by our Board of Directors and the reasons for its approval, you
should refer to "THE SPLIT TRANSACTION -- SPECIAL FACTORS -- Background of the
Split Transaction," "-- Reasons for the Split Transaction", "-- Fairness of
the Split Transaction," and "-- Board of Directors Recommendation" on pages 19
through 31. As we explain more fully in these sections, our Board of Directors
considered and rejected various alternative methods of effecting a transaction
that would enable us to become a non-SEC reporting company, while remaining an
independently-owned, community-based financial institution.
Reasons for the Split Transaction
First Bancshares is undertaking the Split Transaction at this time to
terminate its SEC reporting obligations, which will save First Bancshares and
our stockholders the substantial costs associated with being a reporting
company. The following are the principal reasons for the Split Transaction:
* To achieve cost savings, including estimated annual cost savings.
For 2007, the total costs of being a public company were
approximately $186,000. We are projecting additional increases in
such costs in 2008 to approximately $449,000, including $250,000 for
compliance with new regulations with regards to Section 404
5
of the Sarbanes-Oxley Act of 2002 ("SOX"). By eliminating the
requirement to make periodic reports under the Securities Exchange
Act of 1934 and reducing the expenses of stockholder communications,
we will avoid most of these costs and expenses. We expect to
continue to print and mail annual reports to our stockholders, but
anticipate the cost to be substantially less as a non-SEC-reporting
company.
* To give stockholders who own fewer than 1,000 shares of common stock
immediately prior to the Split Transaction the opportunity to
liquidate their shares of common stock at a fair price and with
minimal transaction costs.
* The Split Transaction constitutes the most expeditious, efficient,
cost effective and fair method to convert First Bancshares from a
public reporting company to a privately-held, non-reporting company
of the alternatives considered by the Board of Directors.
* First Bancshares has not realized many of the benefits normally
associated with being a public reporting company, such as access to
capital markets and an active trading market for our shares of
common stock.
Please see the sections of this document entitled "THE SPLIT TRANSACTION
-- SPECIAL FACTORS -- Reasons for the Split Transaction" and "THE SPLIT
TRANSACTION -- SPECIAL FACTORS -- Effects of the Split Transaction" for a more
detailed discussion of the principal reasons for the Split Transaction.
Fairness of the Split Transaction
Based on a careful review of the facts and circumstances relating to the
Split Transaction, our Board of Directors believes that the Split Transaction
and the terms and provisions of the Split Transaction, including the cash to
be paid to the non-continuing stockholders, are substantively and procedurally
fair to our unaffiliated stockholders, including unaffiliated stockholders
that are continuing stockholders and unaffiliated stockholders that are
non-continuing stockholders. Our Board of Directors unanimously approved the
Split Transaction. See "THE SPLIT TRANSACTION -- SPECIAL FACTORS -- Fairness
of the Split Transaction," "-- Substantive Fairness" and "Procedural
Fairness."
For a complete discussion of the positive and negative factors considered
by the Board of Directors, please see pages 27 through 29.
Fairness Opinion of Index Capital
In deciding to approve the Split Transaction and recommend it to our
stockholders, our Board of Directors considered the opinion of Index Capital
("Index Capital") that the $21.00 per share consideration proposed to be paid
to the non-continuing stockholders, whether affiliated or unaffiliated, is
fair from a financial point of view to those stockholders.
The full text of the fairness opinion is attached to this Proxy Statement
as Appendix B, and you are encouraged to read it carefully. See "THE SPLIT
TRANSACTION -- SPECIAL FACTORS -- Valuation and Fairness Opinions of Index
Capital."
Structure of the Split Transaction
The Split Transaction has been structured as a two-step stock split
because the reverse stock split will enable us to reduce the number of our
stockholders of record to fewer than 300, while the forward stock split will
bring the trading price per share of our common stock to a level more typical
for a community financial institution holding company. See "THE SPLIT
TRANSACTION -- SPECIAL FACTORS -- Background of the Split Transaction"
beginning on page 19. See SUMMARY TERM SHEET -- Overview of the Split
Transaction."
6
Treatment of Shares Held in "Street Name"
If you hold shares of First Bancshares common stock in "street name"
through a nominee (such as a broker or a bank), the effect of the Split
Transaction on your shares of common stock may be different than for record
holders. First Bancshares intends for the Split Transaction to affect
stockholders holding common stock through a nominee (such as a broker or bank)
the same as those holding shares in a record account and nominees will be
asked to effect the Split Transaction for their beneficial owners. However, a
beneficial owner is not considered the stockholder of record of shares held
in street name. The proposed amendments to the Articles of Incorporation would
operate only at the record holder level. As a result, a beneficial owner who
held fewer than 1,000 shares of common stock in street name immediately before
the reverse stock split would not have his or her shares cashed out in the
transaction. However, as a part of the Split Transaction, we plan to work with
nominees to treat stockholders holding shares in street name in the same
manner as stockholders whose shares are registered in their names.
Accordingly, we will instruct nominees to submit to us to be cashed out in the
Split Transaction shares held in street name in accounts holding fewer than
1,000 shares. However, your nominee would not be legally obligated to follow
our instructions or work with us to effect the Split Transaction with respect
to shares held by you in street name. To determine the Split Transaction's
effect on any shares you hold in street name, you should contact your nominee.
Whether or not your nominee effects the Split Transaction with respect to
shares you hold in street name, you may ensure that such shares will be
subject to the Split Transaction by working through your nominee to have such
shares taken out of street name and registered directly in your name.
Effects of the Split Transaction
The Split Transaction is a "going private" transaction for First
Bancshares, meaning it will allow us to deregister with the SEC and suspend
our reporting obligations under federal securities laws.
For a further description of how the Split Transaction will affect our
stockholders, including the different effects on the affiliated and
unaffiliated continuing and non-continuing stockholders, please see "THE SPLIT
TRANSACTION -- SPECIAL FACTORS -- Fairness of the Split Transaction" and "--
Substantive Fairness" on pages 27 through 29.
For more information on the effects on First Bancshares of the Split
Transaction, see "THE SPLIT TRANSACTION -- SPECIAL FACTORS -- Effects of the
Split Transaction on First Bancshares."
Interests of Certain Persons in the Split Transaction
You should be aware that the Directors and Executive Officers of First
Bancshares have interests in the Split Transaction that may present actual or
potential, or the appearance of actual or potential, conflicts of interest in
connection with the Split Transaction. Although it is not anticipated that
the Split Transaction will have any effect on the Board of Directors and
Executive Officers of First Bancshares, other than with respect to their
relative share ownership, because total outstanding shares will be reduced,
the Directors and Executive Officers as a group will hold a larger relative
percentage of First Bancshares following the transaction. As of the record
date, the Directors and Executive Officers collectively beneficially held
56,771 shares, or 3.7% of our common stock. Based upon our estimates, taking
into account the effect of the Split Transaction on our outstanding shares as
described above, the Directors and Executive Officers will beneficially hold
4.0% of our common stock following the Split Transaction. For additional
information regarding the beneficial ownership of First Bancshares's Directors
and Executive Officers and their related persons, see "ELECTION OF DIRECTORS
-- Security Ownership of Certain Beneficial Owners and Management."
See "THE SPLIT TRANSACTION -- SPECIAL FACTORS -- Effects of the Split
Transaction on Affiliates" and "-- Interests of Certain Persons in the Split
Transaction."
Financing of the Split Transaction
We estimate that the total funds required to fund the payment of the
Split Transaction consideration to the non-continuing stockholders and to pay
fees and expenses relating to the Split Transaction will be approximately $2.7
million. This amount may increase as a result of trading activity in our
shares between the date hereof and the effective date of the Split
Transaction. First Bancshares has sufficient working capital to pay this
amount or reasonably anticipated increases
7
in this amount. In connection with this transaction First Home Savings Bank
anticipates making dividend payment of $2.7 million to First Bancshares,
subject to the notification and approval of the OTS.
Material Federal Income Tax Consequences of the Split Transaction
We believe that the Split Transaction, if approved and completed, will
have the following federal income tax consequences:
* the Split Transaction should result in no material federal
income tax consequences to us;
* the continuing stockholders, whether affiliated or
unaffiliated, will not recognize any gain or loss or
dividend income in connection with the Split Transaction; and
* the receipt of cash in the Split Transaction by non-continuing
stockholders, whether affiliated or unaffiliated, will be
taxable to those stockholders, who will generally recognize
gain or loss in the Split Transaction in an amount determined
by the difference between the cash they receive and their
adjusted tax basis in their common stock surrendered. Any such
recognized gain will be treated as capital gain unless, in the
case of the particular stockholder, the receipt of the cash is
deemed to have the effect of a dividend.
Please see the sections of this document entitled "THE SPLIT TRANSACTION
-- SPECIAL FACTORS -- Reasons for the Split Transaction" and "THE SPLIT
TRANSACTION -- SPECIAL FACTORS -- Effects of the Split Transaction on First
Bancshares" for a more detailed discussion of the principal reasons for the
Split Transaction. Because determining the tax consequences of the Split
Transaction can be complicated, you should consult your own tax advisor to
understand fully how the Split Transaction will affect you. See "THE SPLIT
TRANSACTION -- SPECIAL FACTORS -- Federal Income Tax Consequences."
Dissenters' Rights
Although not required under Missouri law, non-continuing stockholders
will have dissenters' rights in connection with the Split Transaction. In
order to exercise dissenters' rights, a non-continuing stockholder (i) must
deliver a written notice to First Bancshares, at or prior to the Annual
Meeting, stating that the stockholder intends to exercise his dissenters'
rights and demanding payment for his shares if the Split Transaction is
completed, (ii) must not vote his shares in favor of the Split Transaction and
(iii) deliver to First Bancshares, within 20 days after completion of the
Split Transaction, a written demand for payment of the fair value of your
shares as of the day prior to the date of the Annual Meeting. Any
stockholder who does not deliver the required notice prior to the meeting, or
who votes in favor of the Split Transaction, will not have dissenters' rights
under Missouri Law.
Although you will not have appraisal rights in connection with the Split
Transaction if you are a continuing stockholder, you may pursue all available
remedies under applicable law. See "THE SPLIT TRANSACTION -- SPECIAL FACTORS -
- Dissenters' Rights."
Termination of Stock Splits
The Board of Directors may, in its discretion, at any time prior to
filing the Certificate of Amendment with the Secretary of State of Missouri,
decide not to implement the Split Transaction if it believes the Split
Transaction would not be in the best interests of First Bancshares. The Board
of Directors intends to complete the Split Transaction if it is approved by
First Bancshares's stockholders, and the Board of Directors is unaware of any
circumstance that would cause it to abandon the Split Transaction, other than
(i) an unacceptable increase in transaction costs resulting from purchases or
sales of shares prior to the effective date of the Split Transaction
apparently made solely for the purpose of receiving the premium to be paid to
holders of fewer than 1,000 shares or (ii) a determination that the
1-for-1,000 reverse split will not reduce the number of stockholders of record
to fewer than 300 (unless the Board of Directors determines that further
reduction of the number of stockholders of record is likely to result in fewer
than 300 stockholders of record within a reasonable period of time). The Board
of Directors will not make its final determination whether to implement the
Split Transaction until it has received a conclusive tally of the number of
shares to be repurchased, the cost of the repurchase
8
and the number of stockholders of record who would remain if the Split
Transaction were implemented. See "THE SPLIT TRANSACTION -- SPECIAL FACTORS
-- Overview of the Split Transaction."
Board of Directors Recommendation
Our Board of Directors has determined that the Split Transaction is
advisable and in the best interests of First Bancshares's stockholders,
including affiliated and unaffiliated stockholders. The Board of Directors
concluded that the Split Transaction was substantively and procedurally fair
to our non-continuing stockholders based upon the premium to be received in
the transaction as well as the fact that no brokerage or other transaction
costs are to be incurred. The Split Transaction was deemed to be substantively
and procedurally fair to our continuing stockholders due to the fact that they
will continue to participate in our future growth and earnings and they will
recognize the benefits of reduced expenses associated with becoming a
non-SEC-reporting company. Our Board of Directors has unanimously approved the
Split Transaction and recommends that you vote "FOR" approval of the Split
Transaction at the Annual Meeting by voting "FOR" the proposed amendments to
the Articles that will effect the Split Transaction.
Our Board of Directors also recommends that you vote "FOR" the Director
Nominees, namely Hixon and Moody.
Our Board of Directors also recommends that you vote "AGAINST" the
stockholder proposal.
Our Board of Directors also recommends that you vote "FOR" the
adjournment of the Annual Meeting.
9
QUESTIONS AND ANSWERS ABOUT THE
SPLIT TRANSACTION AND THE ANNUAL MEETING
Q: What is the date, time and place of the Annual Meeting?
A: The Annual Meeting of our stockholders will be held at ____ p.m., Central
Time, on _______ __, 2008 at the ____________________, ________________,
Mountain Grove, Missouri 65711.
Q: Why is 1,000 shares the cutoff number for determining which stockholders
will be cashed out and which stockholders will remain as stockholders of
First Bancshares?
A: The purpose of the Split Transaction is to reduce the number of our
stockholders of record to fewer than 300, which will allow us to
de-register as an SEC-reporting company. Our Board of Directors selected
1,000 shares as the "cutoff" number in order to enhance the probability
that after the Split Transaction, if approved, we will have fewer than 300
stockholders of record.
Q: What is the difference between being a stockholder of record and holding
shares in "street name"?
A: Many of our stockholders hold their shares through a nominee (such as a
broker or bank) rather than directly in their own name. If your shares are
registered directly in your name with our transfer agent, Registrar and
Transfer Company, you are considered, with respect to those shares, the
stockholder of record. If you received a stock certificate evidencing your
ownership of First Bancshares, then you are a stockholder of record.
However, if your shares are held in a stock brokerage account or by a bank
or other nominee, you are considered the "beneficial owner" of shares held
in "street name" with respect to those shares.
Q. If I am a beneficial owner and hold shares in street name, how will the
Split Transaction affect me?
A: If you are a beneficial owner holding 1,000 or more shares in street name
in an account with a nominee, you will not be cashed out in the Split
Transaction. If you are a beneficial owner holding fewer than 1,000 shares
in street name in an account with a nominee, you may or may not have your
shares cashed out in the Split Transaction. Under Missouri law, a
beneficial owner is not considered the stockholder of record of shares held
in street name. The proposed amendments to the Articles would operate only
at the record holder level. As a result, a beneficial owner who held fewer
than 1,000 shares in street name immediately before the reverse stock
split would not have his or her shares cashed out in the transaction.
However, as a part of the Split Transaction, we plan to work with
nominees to treat stockholders holding shares in street name in the same
manner as stockholders whose shares are registered in their names.
Accordingly, we will instruct nominees to submit to us to be cashed out in
the transaction shares held in street name in accounts holding fewer than
1,000 shares. However, your nominee will not be legally obligated to follow
our instructions or work with us to effect the transaction with respect to
shares held by you in street name. Therefore, to determine the
transaction's effect on any shares you hold in street name, you should
contact your broker, bank or other nominee. Whether or not your nominee
effects the Split Transaction with respect to shares you hold in street
name, you may ensure that such shares will be subject to the transaction
by working through your nominee to have such shares taken out of street
name and registered directly in your name.
Q: What is the recommendation of our Board of Directors regarding the
proposal?
A: Our Board of Directors has determined that the Split Transaction is
advisable and in the best interests of First Bancshares's stockholders,
including affiliated and unaffiliated stockholders. The Board of Directors
concluded that the Split Transaction was substantively and procedurally
fair to our non-continuing stockholders based upon the premium to be
received on the transaction as well as the fact that no brokerage or other
transaction costs are to be incurred. The Split Transaction was deemed to
be substantively and procedurally fair to our continuing stockholders
because they will continue to participate in our future growth and earnings
and will recognize the benefits of reduced expenses associated with
becoming a non-SEC-reporting company. Our Board of Directors has
unanimously approved the Split Transaction and recommends that you vote
"FOR" approval of the Split Transaction at the Annual Meeting.
10
Q: What percentage of shares held by insiders are expected to vote for the
proposals?
A: As of the record date, Directors and Executive Officers collectively
beneficially held 56,771 shares, or approximately 3.7% of our common stock,
and have indicated they will vote in favor of the proposals. In addition
to the shares collectively owned by Directors and Executive Officers,
Director Sutherland's other family members own 265,500 shares, or 17.1% of
First Bancshares outstanding common stock. Director Sutherland has not had
any discussions with his other family members regarding how they will vote
on the proposals, however, he anticipates that they will vote in favor of
the proposals.
For additional information regarding the beneficial ownership of First
Bancshares's Directors and Executive Officers and their related persons,
see "ELECTION OF DIRECTORS -- Security Ownership of Certain Beneficial
Owners and Management."
Q: When is the Split Transaction expected to be completed?
A: If the proposed amendments to the Articles are approved at the Annual
Meeting, we expect the Split Transaction to be completed as soon as
practicable thereafter. We need to file the amendments with the Missouri
Secretary of State for the Split Transaction to become effective. Prior to
authorizing the filing of the amendments, however, the Board of Directors
will review a conclusive tally of the number of shares to be repurchased,
the cost of the repurchase and the number of stockholders of record who
would remain if the Split Transaction were implemented. At that time, the
Board of Directors may determine not to proceed with the Split Transaction
because the resulting transaction costs are unacceptably higher than
expected or that the number of stockholders of record will not be reduced
below 300, which would likely be due to trading activity prior to the
effective date of the Split Transaction. Conversely, the Board of Directors
may determine to proceed with the Split Transaction despite the fact that
the costs are higher than expected or where the resulting number of
stockholders of record will be greater than 300; but in circumstances where
the number of such stockholders of record may fall below 300 within a
reasonable period of time. In any event, the Board of Directors will only
authorize the filing of the amendments if after such a review the Board of
Directors continues to believe that the Split Transaction is in the best
interests of First Bancshares.
Q: Who is entitled to vote at the Annual Meeting?
A: Holders of record of our common stock as of the close of business on _____
__, 2008, are entitled to vote at the Annual Meeting. Each of our
stockholders is entitled to one vote for each share of our common stock
owned at the record date.
Q: What vote is required for our stockholders to approve the Split
Transaction?
A: For the amendments to the Articles to be adopted and the Split Transaction
to be approved, holders of a majority of the outstanding shares entitled to
vote at the Annual Meeting must vote "FOR" the Split Transaction.
Q: What if the proposed Split Transaction is not completed?
A: It is possible that the proposed Split Transaction will not be completed.
The proposed Split Transaction will not be completed if, for example, the
holders of a majority of our common stock do not vote to adopt the proposed
amendments to the Articles and approve the proposed Split Transaction.
Alternatively, as noted above, even if stockholder approval is received, if
the Board of Directors determines that it is not in the best interests of
First Bancshares's stockholders to complete the transaction, the Board of
Directors may decide to abandon it. If the Split Transaction is not
completed, we will continue our current operations, and we will continue
to be subject to the reporting requirements of the SEC.
Q: What happens if I do not return my proxy card?
A: Because the affirmative vote of the holders of a majority of the shares of
our common stock outstanding on the record date is required to approve the
Split Transaction, unless you vote in person, a failure to return your
proxy card will have the same effect as voting against the Split
Transaction proposal.
11
Q: If my shares are held for me by my broker, will my broker vote those shares
for me?
A: Your broker will vote your shares only if you provide instructions to your
broker on how to vote. You should instruct your broker on how to vote your
shares using the voting instruction card provided by your broker.
Q: Can I change my vote after I have mailed my proxy card?
A: Yes. You can change your vote at any time before your proxy is voted at
the Annual Meeting by following the procedures outlined in this Proxy
Statement.
Q: Do I need to attend the Annual Meeting in person?
A: No. You do not have to attend the Annual Meeting to vote your First
Bancshares shares.
Q: Will I have appraisal or dissenters' rights in connection with the Split
Transaction?
A: Although not required under Missouri law, if you are a non-continuing
stockholder you will have the right to demand the appraised value of your
shares or any other dissenters' rights if you vote against the proposed
Split Transaction. If you are a continuing stockholder, or you do not vote
against the proposed transaction, you will not have the right to demand the
appraised value of your shares. Your rights are described in more detail
under "THE SPLIT TRANSACTION -- SPECIAL FACTORS -- Dissenters' Rights" at
page 45.
Q: If I am a stockholder of record, should I send in my stock certificates
now?
A: No. If you are the registered owner of fewer than 1,000 shares of common
stock on the date the Split Transaction is completed, our transfer agent
will send you a Letter of Transmittal with written instructions for
exchanging your stock certificates for cash. You will not receive your cash
payment until you tender your stock certificates together with a completed
and signed copy of the Letter of Transmittal. Please do not send your stock
certificates until you receive your Letter of Transmittal. All amounts owed
to you will be subject to state abandoned property laws. If you are the
registered owner of 1,000 or more shares of our common stock, no action
is required.
Q: If I am the registered owner of fewer than 1,000 shares and cannot locate
my stock certificates, what should I do?
A. If you are a registered owner of fewer than 1,000 shares on the date the
Split Transaction is completed, you will be sent a Letter of Transmittal
with instructions for tendering your stock certificates for cash. Those
instructions will explain what to do if you cannot find your stock
certificates. Generally, you will need to submit a lost share affidavit and
a fee for a surety bond in lieu of submitting the lost, misplaced or
destroyed stock certificate. You will not receive your cash payment until
you submit a lost share affidavit and fee. All amounts owed to you will be
subject to state abandoned property laws.
Q: Where can I find more information about First Bancshares?
A: We file periodic reports and other information with the SEC. You may read
and copy this information at the SEC's public reference facilities. Please
call the SEC at 1-800-SEC-0330 for information about these facilities. This
information is also available at the Internet site maintained by the SEC at
www.sec.gov. General information about us is available at our Internet site
at www.Firsthomesavingsbank.com; the information on our Internet site is
not incorporated by reference into this Proxy Statement and does not form a
part of this Proxy Statement. For a more detailed description of the
information available, please see page 65.
Q: Who can help answer my questions?
A: If you have questions about the Split Transaction after reading this Proxy
Statement or need assistance in voting your shares, you should contact
Daniel P. Katzfey, our President and Chief Executive Officer, at (417)
926-5151.
12
FORWARD-LOOKING STATEMENTS
Certain statements in this report are "forward-looking statements" within
the meaning of the Private Securities Litigation Reform Act of 1995; however,
any statements made in connection with the Split Transaction are specifically
excluded from the safe harbor for forward-looking statements provided by the
Private Securities Litigation Reform Act. Such forward-looking statements may
include, but are not limited to, projections of revenue, income or loss, plans
for future operations and acquisitions, projections based on assumptions
regarding market and liquidity risk, and plans related to products or services
of First Bancshares. Such forward-looking statements are subject to known and
unknown risks, uncertainties and contingencies, many of which are beyond the
control of First Bancshares. To the extent any such risks, uncertainties and
contingencies are realized, First Bancshares's actual results, performance or
achievements could differ materially from anticipated results, performance or
achievements. Factors that might affect such forward-looking statements
include, among other factors, overall economic and business conditions,
economic and business conditions in First Bancshares's market areas, interest
rate fluctuations, a prolonged continuation of the current interest rate
environment, the demand for First Bancshares's products and services,
competitive factors in the industries in which First Bancshares competes,
changes in government regulations, and the timing, impact and the success of
First Bancshares at managing and collecting assets of borrowers in default and
managing the risks of the foregoing.
In addition to the factors described above, the following are some
additional factors that could cause our financial performance to differ from
any forward-looking statement contained herein: (i) changes in interest rates
over the past year and the relative relationship between the various interest
rate indices that First Bancshares uses; (ii) a deterioration in the financial
markets affecting the ability of First Bancshares to originate loans; (iii) a
change in product mix attributable to changing interest rates, customer
preferences or competition; and (iv) further deterioration in First
Bancshares's asset quality.
The words "believe," "expect," "anticipate," "intend," "estimate,"
"project" or the negative of such terms and other similar expressions which
are predictions of or indicate future events and trends and which do not
relate to historical matters identify forward-looking statements. Reliance
should not be placed on forward-looking statements because they involve known
or unknown risks, uncertainties or other factors, which may cause the actual
results, performance or achievements of First Bancshares to differ materially
from anticipated future results, performance or achievements expressed or
implied by such forward-looking statements. First Bancshares expressly
disclaims any obligation to publicly update or revise any forward-looking
statement, whether as a result of new information, future events or otherwise.
Though First Bancshares has attempted to list comprehensively the factors
which might affect forward-looking statements, First Bancshares wishes to
caution you that other factors may in the future prove to be important in
affecting First Bancshares's results of operations. New factors emerge from
time-to-time and it is not possible for management to anticipate all of such
factors, nor can it assess the impact of each such factor, or combination of
factors, which may cause actual results to differ materially from
forward-looking statements.
13
ABOUT THE ANNUAL MEETING
Date, Time and Place of Annual Meeting
Our Board of Directors is asking for your proxy for use at our Annual
Meeting of Stockholders to be held at ____ p.m., Central Time, on ______ __,
2008 at the ________________________, ____________________, Mountain Grove,
Missouri 65711, and at any adjournments or postponements of that meeting.
Matters to be Considered at the Annual Meeting
The purpose of the Annual Meeting is for you to consider and vote upon:
Proposal 1: The adoption of an amendment to the Articles that will result in
a reverse stock split in which each 1,000 shares of our common
stock held in the record name of a stockholder at the effective
time of the reverse stock split will be converted into one share
of common stock. Each record stockholder owning fewer than 1,000
shares of common stock immediately prior to the reverse stock
split will receive a cash payment of $21.00 per share on a
pre-split basis.
Proposal 2: The adoption of an amendment to the Articles that will result in
a forward stock split, in which each share of common stock
outstanding after completion of the reverse stock split will be
converted into 1,000 shares of common stock.
Proposal 3: The election of two Directors to serve until 2010.
Proposal 4: A stockholder proposal concerning the declassification of the
Board of Directors, if properly presented at the meeting.
Proposal 5: A proposal to adjourn the meeting to permit further solicitation
of proxies in the event that an insufficient number of shares is
present in person or by proxy to approve the proposals presented
at the Annual Meeting.
Stockholders are also being asked to consider and vote upon any other
matters that may properly be submitted to a vote at the Annual Meeting or any
adjournment or postponement of the Annual Meeting. The Board of Directors is
not aware of any other business to be conducted at the Annual Meeting.
Record Date; Voting Power
You may vote at the Annual Meeting if you were the record owner of shares
of our common stock at the close of business on ____ __, 2008, which has been
set as the record date. At the close of business on the record date, there
were 1,550,815 outstanding shares of our common stock, par value of $.01 per
share. You are entitled to one vote for each share of First Bancshares common
stock you own, unless you own more than 10% of First Bancshares's outstanding
shares. As provided in our Articles of Incorporation, record holders of
common stock who beneficially own in excess of 10% of First Bancshares'
outstanding shares are not entitled to any vote in respect of the shares held
in excess of the 10% limit.
Quorum
The presence, in person or by proxy, of a majority of our outstanding
shares is necessary to constitute a quorum at the Annual Meeting. Abstentions
and broker non-votes are counted for purposes of establishing a quorum at the
Annual Meeting. If a quorum is not present at the scheduled time of the
meeting, a majority of the stockholders present or represented by proxy may
adjourn the meeting for up to 90 days until a quorum is present. The time and
place of the adjourned meeting will be announced at the time the adjournment
is taken, and no other notice need be given. An adjournment will have no
effect on the business that may be conducted at the meeting.
14
Vote Required for Approval
Approval of the Split Transaction (Proposal 1 and Proposal 2) requires
the affirmative vote of the holders of a majority of all outstanding shares of
our common stock entitled to vote at the Annual Meeting, or 775,408 of the
1,550,815 outstanding shares. Because the Directors and Executive Officers of
First Bancshares have the power to vote a total of 56,771 shares and because
we believe that all of the Directors and Executive Officers will vote in favor
of the transaction, this means a total of 718,637 shares held by stockholders
who are not Executive Officers or Directors of First Bancshares will be
required to vote in favor of the transaction for it to be approved. Because
the Directors and Executive Officers hold only approximately 3.7% of the
voting power of our outstanding common stock, there is no assurance that the
Split Transaction will be approved. In addition to the 56,771 shares
collectively owned by Directors and Executive Officers, Director Sutherland's
other family members own 265,500 shares, or 17.1% of First Bancshares
outstanding common stock. Director Sutherland has not had any discussions
with his other family members regarding how they will vote on the proposals,
however, he anticipates that they will vote in favor of the proposals.
Approval of the amendments and the Split Transaction do not require the
separate vote of a majority of our unaffiliated stockholders, and no separate
vote will be conducted. Because broker non-votes and abstentions are not
affirmative votes, they will have the effect of a vote against the Split
Transaction.
The election of Directors (Proposal 3) will be determined by a plurality
of the votes cast at the Annual Meeting. Plurality means that the individuals
who receive the largest number of votes cast are elected up to the maximum
number of Directors to be elected at the meeting. Broker non-votes,
abstentions and instructions to withhold votes for one or more Directors will
result in that nominee receiving fewer votes but will not count as a vote
against the nominee.
The stockholder proposal to declassify First Bancshares's Board of
Directors (Proposal 4) requires the affirmative vote of a majority of the
shares of common stock represented at the Annual Meeting and entitled to vote
thereon in order to be approved.
The proposal to adjourn or postpone the Annual Meeting (Proposal 5), if
necessary, must be approved by the holders of at least a majority of the
shares of our common stock voting in person or by proxy at the Annual Meeting.
Abstentions will be treated as "NO" votes and, therefore, will have an effect
on this proposal, while broker non-votes will have no impact on this proposal.
Voting and Revocation of Proxies
You may vote your shares in person by attending the Annual Meeting, or by
mailing us your completed proxy if you are unable or do not wish to attend. If
a proxy card is submitted without instructions, the proxies will be voted
"FOR" the proposal to approve the Split Transaction, the Director Nominees,
AGAINST the stockholder proposal and "FOR" the proposal to adjourn or postpone
the Annual Meeting, if necessary.
You can revoke your proxy at any time before the vote is taken at the
Annual Meeting by filing an instrument of revocation with Shannon Peterson,
Secretary, First Bancshares, Inc., 142 East First Street, Mountain Grove,
Missouri 65711. Any such person may also revoke a proxy by filing a duly
executed proxy bearing a later date, or by appearing at the Annual Meeting in
person, notifying the Secretary, and voting by ballot at the Annual Meeting.
Any stockholder of record attending the Annual Meeting may vote in person
whether or not a proxy has been previously given, but the mere presence
(without notifying the Secretary) of a stockholder at the Annual Meeting will
not constitute revocation of a previously given proxy.
If your shares are held in street name and you wish to change your voting
instructions after you have returned your voting instruction form to your
broker or bank, you must contact your broker or bank.
We maintain an employee stock ownership plan ("ESOP") for the benefit of
our employees. If you participate in the ESOP, the proxy card represents a
voting instruction to the trustees of the ESOP as to the number of shares in
your plan account. If an ESOP participant properly executes the voting
instruction card, the ESOP trustees will vote the participant's shares in
accordance with the participant's instructions. Unallocated shares of First
Bancshares common stock held by the ESOP and allocated shares for which voting
instructions are not received will be voted by trustees in the same proportion
as shares for which the trustees have received voting instructions.
15
Solicitation of Proxies; Expenses of Solicitation
We are mailing this proxy material to our stockholders on or about _____
__, 2008.
The enclosed proxy is solicited on behalf of our Board of Directors. We
will bear the cost of soliciting proxies from the stockholders, including
mailing costs, and will pay all printing costs in connection with this Proxy
Statement. In addition to the use of the mails, proxies may be solicited by
the Directors, officers, and certain employees of First Bancshares, and by
personal interviews, telephone and facsimile. Such Directors, officers and
employees will not receive additional compensation for such solicitation but
may be reimbursed for reasonable out-of-pocket expenses incurred in connection
therewith. First Bancshares may also make arrangements with brokerage houses
and other custodians, nominees, and fiduciaries for the forwarding of
solicitation material to the beneficial owners of its common stock. First
Bancshares may reimburse such custodians, nominees, and fiduciaries for
reasonable out-of-pocket expenses incurred in connection therewith.
Other Matters to be Considered at Annual Meeting
As of the date of this Proxy Statement, the only business that our Board
of Directors expects to be presented at the Annual Meeting is that set forth
above. If any other matters are properly brought before the Annual Meeting, or
any adjournments thereof, it is the intention of the persons named in the
accompanying form of proxy to vote the proxy on such matters in accordance
with their best judgment.
CORPORATE DEVELOPMENTS AND OVERVIEW
During the quarter ended December 31, 2006, First Home Savings Bank
entered into a memorandum of understanding ("MOU") with the OTS. The MOU
resulted from issues noted during the examination of First Home Savings Bank
conducted by the OTS, the report on which was dated in July 2006, and included
deficiencies in lending policies and procedures, recent operating losses, and
the need to revise both the business plan and the budget to enhance
profitability. The corrective actions required to be taken by First Home
Savings Bank under the MOU include, among others: (1) developing procedures
concerning ongoing credit administration and monitoring; (2) continuing to
identify, track and correct credit and collateral documentation exceptions and
loan policy exceptions; (3) preparing and submitting to First Home Savings
Bank's Board of Directors an accurate and complete loan-to-one borrower
report; (4) preparing and updating, where appropriate, a workout plan for each
classified asset over $250,000; (5) adopting a revised loan loss allowance
policy; (6) amending First Home Savings Bank's appraisal policy to require
written review of all appraisals prior to final loan approval; (7) adopting a
revised loan policy that provides for underwriting guidelines, loan
documentation, and credit administration procedures for unsecured loans; (8)
either requesting the consent of the FDIC for First Home Savings Bank's
subsidiary, FYBAR Service Corporation, to hold real estate for investment or
approving a plan for divestiture of such investment by June 30, 2007; (9)
implementing corrective actions with respect to the previously conducted
independent information technology audit; and (10) preparing, adopting and
submitting to the OTS a comprehensive three year business plan and budget.
During July 2007, the OTS performed an on-site review of the progress made on
the resolving the issues discussed in the MOU. First Bancshares believes that
First Home Savings Bank is addressing all of the issues raised by the MOU.
During the first half of fiscal 2007, there were several changes in
composition of senior management of both First Bancshares and First Home
Savings Bank. In November 2006, Ronald J. Walters was named Chief Financial
Officer of both First Bancshares and First Home Savings Bank, replacing the
former Chief Financial Officer who departed in September 2006. In December
2006, James W. Duncan resigned as President and Chief Executive Officer of
both First Bancshares and First Home Savings Bank. Daniel P. Katzfey,
Executive Vice President and Chief Lending Officer, was named Interim
President and Chief Executive Officer. On January 19, 2007, Mr. Katzfey became
President and Chief Executive Officer of both First Bancshares and First Home
Savings Bank. The Boards of Directors of First Bancshares and First Home
Savings Bank were expanded in connection with the addition of D. Mitch Ashlock
and the appointment of an advisory director, R.J. Breidenthal. During the
quarter ended March 31, 2007, Mr. Duncan resigned as a director of both First
Bancshares and First Home Savings Bank, and Mr. Katzfey was appointed to both
Boards of Directors.
16
As the result of the senior management changes and the MOU, and other
changes in products, operations and procedures, First Home Savings Bank needed
to fill several positions, including Chief Lending Officer, credit analyst and
controller. In March 2007, Dale W. Keenan was named Executive Vice President
and Senior Loan Officer of First Home Savings Bank, and John K. Francka was
named Senior Vice President-Chief Credit Officer of First Home Savings Bank.
Both Messrs. Keenan and Francka have extensive experience in lending and
management. In addition, Jeffrey Palmer was named Controller of First Home
Savings Bank.
During the quarter ended March 31, 2007, First Home Savings Bank obtained
permission from the State of Missouri to open a loan production office in
Springfield, Missouri. This office, which was established primarily to
originate single family mortgage loans for sale to the secondary market,
complements the full-service branch office opened in Springfield in July 2006.
First Home Savings Bank has added two originators, two loan processors and an
individual whose responsibility is packaging the loans for delivery to and
tracking receipt of funding from the companies on whose behalf the loans were
made. All loan production office personnel have extensive experience in the
origination of single-family mortgage loans for sale in the secondary market.
Since the loans involved are originated on behalf of other parties, the
servicing rights belong to the other parties as well, unless the terms of the
sale provide for the retention of servicing rights by First Home Savings Bank.
In its loan sale activity to date, First Home Savings Bank has not retained
servicing rights.
During the six month period ended December 31, 2007, First Bancshares
entered into a lease agreement for approximately 5,100 square feet of office
space in Springfield, Missouri. The new space will house First Home Savings
Bank's Loan Production Office, which has been operating out of a much smaller
location since it was approved by the State of Missouri during the third
quarter of fiscal 2007. In addition to the Loan Production Office, there will
be offices for senior officers of First Bancshares and First Home Savings
Bank, who spend time in Springfield, as well as, First Bancshares's home
office in Mountain Grove, Missouri. The move to the larger facility was
completed in November 2007.
During the six month period ended December 31, 2007, the operations of
the in-house brokerage service, which was based in Mountain Grove, Missouri,
were discontinued due to staffing difficulties. This brokerage service
operated under First Home Investments, a subsidiary of First Home Savings
Bank. First Bancshares entered into an agreement with an outside company based
in Springfield, Missouri to provide brokerage services to First Home Savings
Bank's customers.
For additional information, see "Business" and "Risk Factors" in First
Bancshares's Form 10-KSB for the year ended June 30, 2007 and information
contained in First Bancshares's Form 10-QSB for the quarter ended December 31,
2007.
THE SPLIT TRANSACTION -- SPECIAL FACTORS
Overview of the Split Transaction
This Proxy Statement is furnished in connection with the solicitation of
proxies by the Board of Directors of First Bancshares and is to be used at an
Annual Meeting at which our stockholders, among other things, will be asked to
consider and vote upon proposals to amend the Articles. If approved, the
amendments will result in a 1-for-1,000 reverse split of our common stock,
followed immediately by a 1,000-for-1 forward split of our common stock.
If the reverse and forward stock splits are approved as described below,
holders of fewer than 1,000 shares of our common stock prior to the reverse
split will no longer be stockholders of First Bancshares. Instead, those
stockholders will be entitled only to receive a cash payment of $21.00 per
share of common stock held prior to the reverse split. Stockholders holding
1,000 or more pre-split shares will remain stockholders. We intend,
immediately following the Split Transaction, to terminate the registration of
our shares, and our registration and further reporting under the Securities
Exchange Act of 1934.
17
If approved by our stockholders at the Annual Meeting and implemented by
our Board of Directors, the Split Transaction will generally affect our
stockholders as follows:
STOCKHOLDER POSITION PRIOR TO EFFECT OF SPLIT TRANSACTION
SPLIT TRANSACTION
Stockholders holding in registered Stockholders will ultimately hold the
name 1,000 or more shares of common same number as many shares as held
stock pre-Split Transaction.
Stockholders holding in registered Shares will be converted into $21.00
name fewer than 1,000 shares of per share of common stock outstanding
common stock immediately prior to the reverse stock
split.
Stockholders holding common stock in First Bancshares intends for the
"street name" through a nominee (such Split Transaction to affect
as a bank or broker) stockholders holding common stock
through a nominee (such as a broker or
bank) the same as those holding shares
in a record account and nominees will
be asked to effect the Split
Transaction for their beneficial
owners. However, a beneficial owner is
not considered the stockholder of
record of shares held in street name.
The proposed charter amendments would
operate only at the record holder
level. As a result, a beneficial owner
who held fewer than 1,000 shares of
common stock in street name
immediately before the reverse stock
split would not have his or her shares
cashed out in the transaction.
However, as a part of the Split
Transaction, we plan to work with
nominees to treat stockholders holding
shares in street name in the same
manner as stockholders whose shares
are registered in their names.
Accordingly, we will instruct nominees
to submit to us to be cashed out in
the Split Transaction shares held in
street name in accounts holding fewer
than 1,000 shares. Your nominee,
however, is not legally obligated to
follow our instructions or work with
us to effect the Split Transaction
with respect to shares held by you in
street name. To determine the Split
Transaction's effect on any shares you
hold in street name, you should
contact your nominee. Whether or not
your nominee effects the Split
Transaction with respect to shares you
hold in street name, you may ensure
that such shares will be subject to
the Split Transaction by working
through your nominee to have such
shares taken out of street name and
registered directly in your name.
The Board of Directors will have the discretion to determine if and when
to effect the Split Transaction, and reserves the right to abandon the
transaction even if it is approved by the stockholders. Under applicable
Missouri law, the Board of Directors has a duty to act in the best interests
of the corporation. Accordingly, the Board of Directors reserves the right to
abandon the Split Transaction after stockholder approval and before the
effective time of the Split Transaction, if for any reason the Board of
Directors determines that, in the best interest of First Bancshares's
stockholders, it is not advisable to proceed with the Split Transaction. The
Board of Directors intends to complete the Split Transaction if it is approved
by First Bancshares's stockholders, and the Board of Directors is unaware of
any circumstance that would cause it to abandon the transaction, other than
(i) a significant increase in transaction costs resulting from purchases of
shares prior to the effective date of the split apparently made solely for the
purpose of receiving the premium to be paid to holders of fewer than 1,000
shares or (ii) a determination that the 1-for-1,000 reverse split will not
reduce the number of stockholders of record to fewer than 300 (unless the
Board of Directors determines that further reduction of stockholders of record
is likely to result in fewer than 300 stockholders of record within a
reasonable period of time). The Board of Directors will not make its final
determination until it has received a conclusive tally of the number of shares
to be repurchased, the cost of the repurchase and the number of stockholders
of record who would remain if the Split Transaction were implemented.
18
The Split Transaction will become effective upon the filing of the
necessary amendments to the Articles with the Missouri Secretary of State or a
later date specified in that filing. The forms of the amendments to the
Articles are attached to this Proxy Statement as Appendix A-1 and Appendix
A-2. Under no circumstances would the Board of Directors consummate the
reverse stock split and not the forward stock split, for the reasons set forth
in "THE SPLIT TRANSACTION -- SPECIAL FACTORS -- Fairness of the Split
Transaction."
Although there is no date by which the Split Transaction must occur, we
expect that if the stockholders approve and the Board of Directors elects to
effect the Split Transaction, the Split Transaction will be completed as soon
as practicable after the Annual Meeting.
Background of the Split Transaction
As an SEC-reporting company, we are required to prepare and file with the
SEC, among other items, the following:
* Annual Reports on Form 10-KSB;
* Quarterly Reports on Form 10-QSB;
* Proxy Statements and related materials; and
* Current Reports on Form 8-K.
In addition to the burden on management, the costs associated with these
reports and other filing obligations comprise a significant corporate overhead
expense. These costs include securities counsel fees, auditor fees, costs of
printing and mailing stockholder documents, and EDGAR filing costs. For 2007,
the total costs of being a public company were approximately $186,000. These
costs have been increasing over the years, and we believe they will continue
as a significant expense of First Bancshares, particularly as a result of the
additional reporting and disclosure obligations imposed on SEC-reporting
companies by SOX. We are projecting additional increases in such costs in
2008 to approximately $449,000, including $250,000 for compliance with new
regulations with regards to Section 404 of SOX, and to approximately $215,000
in 2009.
Becoming a non-SEC-reporting company will allow us to avoid most of these
costs and expenses. We expect to continue printing and mailing annual reports
to our stockholders, but anticipate the cost to be substantially less as a
non-SEC-reporting company. However, we will continue to be subject to the
rules and regulations imposed by the OTS, the FDIC and the Division, including
those relating to financial reporting.
There can be many advantages to being a public company, including a more
active trading market and the enhanced ability to use company stock to raise
capital or make acquisitions. However, there is a limited market for our
common stock, and we have therefore not been able to effectively take
advantage of these benefits. This may be due, in part, to the relatively small
number of stockholders owning First Bancshares's common stock. In the six
months ended June 30, 2007, our common stock was traded on only 93 of the 126
eligible trading days and on the days that the stock traded during thise six
month period, the average trading volume was just over 1,700 shares. During
the six months ended December 31, 2007, our common stock was traded on only 82
of the 126 eligible trading days and on the days that the stock traded during
this period, the average trading volume was less than 1,600 shares. Moreover,
our limited trading market makes it difficult for our stockholders to
liquidate a large number of shares of our stock without negatively affecting
the per share sale price. In contrast, the Split Transaction will allow our
small stockholders to sell their shares at a fixed price that will not decline
based upon the number of shares sold, and allow them to do so without
incurring typical transaction costs.
Another potential advantage of being a public company is the ability to
access capital markets to meet additional capital needs. However, since
becoming a public company in 1993, we have had no additional capital needs
that required us to access the public markets. We have also not made any
additional public offerings of common stock or any other equity or debt
securities since our organization in 1993. In addition, we have not used our
common stock as consideration
19
for any acquisition since we first became a public company in 1993. Currently,
we do not anticipate issuing additional shares of common stock in either
public or private transactions.
For these and other reasons noted below, the Board of Directors and
management have concluded that the benefits of being an SEC-reporting company
are substantially outweighed by the burden on management and the expense
related to the SEC reporting obligations.
During the past several years the Board of Directors and management of
First Bancshares held discussions with outside counsel concerning the
possibility of deregistering and the advantages and disadvantages of such an
undertaking, but no action was taken. On April 27, 2007, First Bancshares's
Board of Directors had further discussion concerning such a transaction and
elected to form a special committee, consisting of Directors D. Mitch Ashlock
(Chairman), John G. Moody, and Billy E. Hixon, to evaluate, consider, explore
and investigate the facts related to and weigh options with regards to the
process of delisting/deregistering from being a public company. It was noted
by the Board of Directors that Mr. Ashlock and Mr. Hixon are independent since
neither own any shares of First Bancshares common stock. Mr. Moody, although
a stockholder of 8,850 shares, was added because he had the lowest number of
shares of the other members of the Board of Directors and because of his
standing in the community. Each member of the committee will receive $1,000
for their service. In connection with the establishment of the committee and
the commencement of their evaluation of the proposed transaction, the
committee requested that the Chief Financial Officer of First Bancshares
provide information to them regarding the cost savings of the proposed
transaction. Subsequently, the Chief Financial Officer of First Bancshares
informed the committee that (excluding the incremental cost of SOX compliance
related expenses of $250,000) he estimated that approximately $199,000 could
be saved annually on accounting, auditing and legal fees if First Bancshares
were able to delist.
At a May 7, 2007, meeting, the committee, based on a recommendation from
advisory director Jay Breidenthal, opted to hire outside counsel, Stinson
Morrison Hecker, LLP, to obtain independent counsel on this matter, in
addition to the counsel being provided to the Board of Directors of First
Bancshares by its existing securities counsel, Breyer & Associates PC.
On May 21, 2007, Stinson Morrison Hecker, LLP issued a memorandum to the
special committee entitled "Possible Structures for Taking a Corporation
Private" which outlined four options: (i) merger, (ii) issuer tender offer,
(iii) reverse stock split and (iv) sale of the company to a third party. The
memorandum requested a list of documents from First Bancshares so that the
Stinson Morrison Hecker, LLP could narrow its recommendation to the committee.
On May 25, 2007, the committee considered various strategies, including
stock splits/dividends, increasing cash dividends, creating investor interest
in First Bancshares by developing a research following, and stock buybacks,
among other steps in order to increase market capitalization and liquidity.
Reviewing the stockholder profile as of March 1, 2007, discussions centered on
how the profile had evolved. Upon the committee's request, First Bancshares's
transfer agent updated the stockholder profile as of July 2, 2007 and the
transfer agent provided it to the committee on July 3, 2007. The analysis
identified several different groups of stockholders, as well as the smallest
known stockholders and their concentration.
The committee determined from the stockholder list that more than 74% of
all of First Bancshares's registered stockholders collectively held less than
71,077 shares of First Bancshares. Steps that could be taken to become a non-
SEC-reporting company, including a reverse stock split, stock repurchases or a
tender offer were examined. In addition, as a result of discussions held by
members of the committee with several known brokerage firms who historically
had clients buying or selling shares of First Bancshares, it was determined
that most of these firms were no longer active in the stock. In this context,
management, the committee and the Board of Directors discussed, over several
meetings, the benefits of a broad-based trading market for the stock as well
as the advantages and disadvantages of becoming a non-SEC-reporting company.
20
The committee met on July 3, 2007, with all members of the committee
present (in person or by phone), as well as, members of the Board of Directors
in attendance at the invitation of the committee. Several options were
discussed including:
* Maintaining the status quo.
* Remaining public and augmenting the trend toward non-local
stockholders.
* Remaining public and focusing on local stockholder growth.
* Becoming a non-SEC reporting company through a tender offer or
reverse stock split.
* Pursuing a strategic affiliation.
The committee also researched the implications that a reverse stock split
might have on smaller investors and the extent of those individuals'
relationships with banking products and services at First Bancshares. The
committee discussed First Bancshares's institutional and retail stockholder
mix.
The committee had a meeting on July 27, 2007 and determined that in order
to best evaluate the transaction that it would be beneficial to retain a
financial advisory firm to be approved by the Board of Directors. At the
July 27, 2007 Board of Directors meeting the committee suggested to the Board
of Directors that the next step should be engaging an independent third party
to provide an opinion of the feasibility of a going private transaction and
also for valuation purposes, the market value of the shares involved. The
committee was authorized by the Board of Directors to interview financial
advisory firms and to obtain proposals with respect to the proposed engagement
and the committee requested engagement proposals from at least two financial
advisory firms.
On August 6, 2007, the committee notified the Board of Directors that two
proposals from financial advisory firms had been received.
On August 8, 2007, Mr. Ashlock contacted Index Capital, LLC, Overland
Park, Kansas ("Index Capital") about performing the required financial
advisory services.
On August 16, 2007, the committee reviewed the three proposals it had
received and voted to proceed with Index Capital because of its experience,
cost, geographic location and ability to complete the engagement in a timely
manner. An engagement letter was entered into with Index Capital on August
21, 2007.
On August 24, 2007, committee chairman Mitch Ashlock announced to the
Board of Directors that Index Capital had been retained to provide an
independent valuation estimate of First Bancshares common stock using a June
30, 2007 valuation date for use in determining the feasibility of the proposed
going-private transaction. Index Capital discussed the advantages and
disadvantages of becoming a non-SEC-reporting company in further detail with
Chairman Ashlock.
On September 19, 2007, there was a meeting between Chairman Ashlock and
David O'Toole of Index Capital at which time the valuation report and
accompanying valuation opinion were presented to Chairman Ashlock. Mr.
O'Toole covered in detail his findings and his methodology. The valuation
reflected a value of $22.50 per share based on June 30, 2007 financial
information.
Chairman Ashlock met with the committee on September 20, 2007, prior to
the Board of Directors meeting, to review and discuss the contents of the
valuation report. The committee shared comments concerning the valuation and
going private transaction from Stinson Morrison Hecker LLP, the legal counsel
to First Bancshares's special committee.
At the September 20, 2007 meeting, the committee reviewed the different
valuation methods used in the Index Capital valuation report and continued to
discuss First Bancshares's stock performance and an overview and evaluation of
the advantages and disadvantages of becoming a non-SEC-reporting company.
Also, the committee discussed the burdens and costs and potential liabilities
associated with filing reports as a public company, including risks associated
with the officer certifications required by SOX, were discussed at that
meeting. Such potential liabilities make it more difficult to
21
attract and retain directors and executive officers and generally result in
higher costs, including increased compensation, director fees, and director
and officer liability insurance premiums.
The committee presented its recommendation to the Board of Directors on
September 20, 2007 that First Bancshares should proceed on a Split
Transaction. In reviewing the committee's findings and its recommendation,
the Board of Directors focused on the strategic direction of First Bancshares
and prospects for growth in its market area. They noted that First
Bancshares's financial performance was below its peers. The Board of Directors
considered possibilities for growth as a savings and loan holding company,
through branch acquisitions within and outside of First Bancshares's current
market area and through offering other products, including attractive deposit
products, to existing and potential customers.
Chairman Ashlock discussed with the Board of Directors the comments he
had received from Stinson Morrison Hecker, LLP that, based on the information
they had received that, a going private transaction in the form of a reverse
stock split appeared to be in the best interest of First Bancshares and its
stockholders. Mr. Ashlock also made a presentation of the advantages and
disadvantages of becoming a non-SEC-reporting company and available methods of
reducing the number of its record stockholders to allow First Bancshares to
suspend SEC reporting requirements, including open market stock repurchases, a
tender offer, a cash-out merger or reverse stock split, and a reverse/forward
stock split. For a more detailed discussion of the alternative methods of
effecting a transaction that would result in First Bancshares becoming a
non-SEC-reporting company were discussed by the Board of Directors see "--
Reasons for the Split Transaction." The Board of Directors discussed the fact
that the Annual Meeting of Stockholders, which is normally held in October of
each year, would need to be delayed if the Split Transaction were to be
presented to a vote of stockholders at that meeting.
The committee also reviewed with the Board of Directors First
Bancshares's stockholder list, using the stockholder profile as of July 2,
2007, and determined that a split ratio of 1-for-1,000 more optimally balanced
the Board of Directors goals of reducing the number of stockholders to a level
sufficiently below the 300 stockholder threshold at which time our reporting
obligations would be suspended, while minimizing the number of stockholders
who would be cashed out.
The Board of Directors next considered and discussed, the Index Capital
September 19, 2007 valuation report. The report included information
regarding (i) a review of the market performance of the bank and thrift equity
markets, (ii) trading history, including volume and prices, of the common
stock, (iii) a review of historical pricing and performance of companies
comparable to First Bancshares, and (iv) premiums paid with respect to control
sales transactions. The report indicated that the current trading price of
First Bancshares shares as a percentage of tangible book value was below its
peers, but as a multiple of earnings was above the median value of its peers
primarily as a result of lower earnings than its peers. The Board of
Directors discussed the pros and cons of paying a premium above the current
trading price. In determining the premium to be paid to non-continuing
stockholders, the Board of Directors particularly focused on the fact that the
Split Transaction would not be a voluntary transaction for First Bancshares
stockholders. After reviewing Index Capital's report and opinion on the fair
market value of the stock for determining the feasibility of the Split
Transaction, the Board of Directors determined that, a price of $22.50 per
share would be a reasonable price, representing the fair value of First
Bancshares's common stock, to be paid to those stockholders being cashed out.
It was also determined by the Board of Directors that a fairness opinion
should be requested from Index Capital as additional support for the $22.50
price recommendation.
On September 28, 2007, Chairman Ashlock contacted the OTS as to the
maximum dividend that the OTS would allow First Home Savings Bank to pay to
First Bancshares in connection with this transaction.
On October 28, 2007, the OTS indicated that it would consider a dividend
request from First Home Savings Bank if the amount of the dividend was between
$2.7 million and $5.0 million.
On October 31, 2007, Index Capital was retained to expand its work to
include an opinion on the fairness, from a financial point of view of the
proposed transaction. The fairness opinion also included a discussion of the
assumptions made by Index Capital in preparing the opinion. See "-- Valuation
and Fairness Opinions of Index Capital."
22
On December 12, 2007, the Board of Directors met reviewed and discussed
with David O'Toole of Index Capital the services he had performed, the
materials he had been provided in connection with his firm's valuation and
fairness opinions. Mr. O'Toole also discussed the methodology that was used
in determining the value and the weighting assigned to each of the components
as discussed herein. In addition, John F. Breyer, Jr. of the law firm of
Breyer & Associates PC discussed the timing of the Split Transaction.
On December 21, 2007, the Board of Directors further discussed the
valuation and determined because of the dramatic changes in market conditions
that it would request Index Capital update its valuation.
On February 8, 2008, an updated valuation report and accompanying
valuation opinion were provided by David O'Toole of Index Capital to Chairman
Ashlock. Mr. O'Toole provided detailed information regarding his findings
and his methodology in determining the updated valuation. The valuation
reflected a value of $21.00 per share based on December 31, 2007 financial
information, a decrease from the prior valuation dated September 19, 2007 of
$22.50 per share.
On February 22, 2008, the updated valuation report from Index Capital and
other information regarding the proposed transaction were presented to the
Board of Directors. The Board of Directors discussed the additional
information and the feasibility of the other options that were considered.
Mr. O'Toole of Index Capital participated in the meeting via telephone to
review the updated valuation report with the Board. John F. Breyer, Jr.,
special counsel to First Bancshares, also participated in the meeting via
telephone, provided additional information on the proposed transaction, and
reviewed the Board of Directors' responsibilities with respect to the proposed
transaction. In connection with the updated valuation report provided by
Index Capital and other information provided, the Board of Directors reviewed
and discussed:
* The advantages and disadvantages of a stock split including
the Company's capital needs going forward and the possible
impact on the Company's stock price;
* The pro forma costs to be incurred and cost savings;
* An analysis of the stockholder profile of institutional,
retail and insider and break-out of larger stockholders;
* The advantages and disadvantages of going private;
* An analysis of the costs and benefits of each of the various
methods of going private;
* An analysis of the stock splits that have been completed,
risks attendant thereto and uncompleted transactions;
* The required cash outlay and an analysis of the worse case
cash outlay to complete the stock split;
* An analysis of the trading history of the stock and the
amount of the forward stock split needed to maintain
liquidity;
* Premiums paid on other reverse stock splits; and
* An analysis of the reverse stock split on insiders of the
Company.
Following a lengthy discussion, the Board of Directors unanimously
approved the Split Transaction by means of a 1-for-1,000 reverse stock split
followed by a 1,000-for-1 forward stock split, pursuant to which stockholders
owning fewer than 1,000 shares would receive $21.00 in cash for their
pre-split shares of our common stock.
23
Reasons for the Split Transaction
First Bancshares is undertaking the Split Transaction at this time to end
its SEC reporting obligations, which will enable us to save First Bancshares
and our stockholders the substantial costs associated with being a reporting
company. The specific factors considered in electing at this time to undertake
the Split Transaction and become a non-SEC reporting company are as follows:
* By reducing the share base by approximately 119,736 shares,
basic earnings per share will increase.
* Based on 2007 data, we estimate that we will eliminate
ongoing costs of approximately $199,000 on an annual basis
by eliminating the requirement to make periodic reports and
reducing the expenses of stockholder communications. These
expenses include:
Legal expense $120,000
Auditing and accounting expense 32,500
NASDAQ listing expense 32,250
Transfer agent expense 9,500
Printing expense 4,750
--------
$199,000
========
* Under Section 404 of SOX, starting in the 2008 fiscal year,
First Bancshares would be required to include a report of
management on First Bancshares's internal control over
financial reporting. Additionally, in 2009 an audit
report on First Bancshares's internal control over financial
reporting by its independent auditors will be required. The
incremental cost of such compliance is estimated to be $250,000
in 2008, bringing our total estimated costs of being a public
company to around $449,000. These costs will be avoided if the
stockholders approve the Split Transaction described in this
Proxy Statement. In February 2008, the SEC announced a proposal
to delay the implementation of the auditor's report on Section
404 of SOX for smaller reporting companies, such as First
Bancshares, by an additional year.
* We believe that, as a result of the recent disclosure and
procedural requirements resulting from SOX, the legal,
accounting and administrative expense, and diversion of our
Board of Directors, management and staff effort necessary to
continue as an SEC-reporting company will remain significant,
particularly in view of the requirements of Section 404,
without a commensurate benefit to our stockholders. We expect
to continue to provide our stockholders with company financial
information by disseminating our annual reports, but we
anticipate that the costs associated with these reports will be
substantially less than those we incur currently.
* In the Board of Directors's judgment, little justification
exists for the continuing direct and indirect costs of
registration with the SEC, which costs have recently increased
as a result of SOX, given the low trading volume in our common
stock and that our earnings are sufficient to support growth
and we therefore do not depend on raising capital in the public
market, and do not expect to do so in the near future. If it
becomes necessary to raise additional capital, we believe that
there are adequate sources of additional capital available,
whether through borrowing or through private or institutional
sales of equity or debt securities, although we recognize that
there can be no assurance that we will be able to raise
additional capital if required, or that the cost of any
required additional capital will be attractive.
* The Split Transaction allows non-continuing stockholders to
receive fair value and cash for their shares, in a simple and
cost-effective manner, particularly given the possible
ineffectiveness and inefficiencies of a tender offer, an open
market share repurchase or a cash-out merger. Stockholders
owning fewer than 1,000 shares may find in uneconomical to
dispose of those shares due to minimum brokerage commissions
which are often charged.
24
* The Split Transaction will allow the non-continuing
stockholders to realize what our Board has determined to be
fair value for their First Bancshares common stock, without
incurring brokerage commissions. In addition to the valuation
and fairness opinions of Index Capital, the Board of Directors
considered the following specific factors in reaching its
conclusion that the price to be paid in the reverse stock split
to certain unaffiliated stockholders in lieu of fractional
shares is fair to such stockholders. Individual Directors may
have given differing weights to different factors. Due to the
relative illiquidity of the common stock, the Board of
Directors as a whole generally placed more emphasis on the
valuation and fairness opinions than on the stock prices as
quoted on the NASDAQ Global Market, and the Board of Directors
ultimately relied on the findings of Index Capital in
determining that the $21.00 price per share is fair to
unaffiliated stockholders.
Current and Historical Market Prices of First Bancshares's Common Stock and
Premium Over Market Price
The Board of Directors took into consideration that, historically, there
has been a limited trading market in First Bancshares's common stock. During
the twelve months ended December 31, 2007, First Bancshares's common stock
traded in the range of $15.00 to $17.50 per share with only 26 trading days of
share volume in excess of 1,000 shares in the past six months. The Board of
Directors noted that the daily volume of trades in First Bancshares's common
stock activity occurred on just 88 trading days out of six months and that
there were only seven trading days on which more than 5,000 shares traded. In
determining the fairness of the $21.00 per share value, the Board of Directors
also reviewed the high and low trading prices for First Bancshares's shares of
common stock over the past twelve months, noting that the trading price on the
valuation date was $16.97.
Based on these observations, the Board of Directors concluded a $21.00
per share purchase price is at the high end of all historic trading activity
in the past six months and represents about a 28% premium to the weighted
average trading price of $16.44 during the past six months.
Tangible Book Value
As of December 31, 2007 the book value and tangible book value (equity
less goodwill and intangibles) per share of First Bancshares's common stock
was $17.57 and $17.40, respectively. The Board of Directors considered the
price to tangible book value based on input from management and Index Capital
that tangible book value was the more relevant industry metric of value.
Although the Board of Directors determined that tangible book value in general
is not directly relevant because book value approximates liquidation value and
is a historic figure, the Board of Directors noted that the $21.00 per share
price represented a 21% premium over tangible book value and a 20% premium
over book value.
Going Concern Value
The Board of Directors also reviewed the valuation of First Bancshares's
shares as a going concern. This value reflects, among other things, First
Bancshares's business reputation, its established customer base, its employees
and management, and its future earnings prospects. The Board of Directors
believes that comparable companies' multiples and the dividend discount model
generated by Index Capital are indicators of First Bancshares's value as a
going concern. The Board of Directors considered Index Capital's analyses
regarding (i) First Bancshares's peer group and the comparison of First
Bancshares's key pricing ratios compared to those of its peer group and (ii) a
dividend discount analysis which computed the likely present value of First
Bancshares's common stock based upon future earnings to be generated and net
of any retained earnings required to support required capital levels. Both
analyses are discussed later in this Proxy Statement under the heading "--
Valuation and Fairness Opinions of Index Capital." The Board of Directors
reviewed and concurred with Index Capital's analyses which reflect that (i)
First Bancshares's pricing multiples are consistent with those of the selected
peer group and (ii) the current value range of First Bancshares's common
stock, given the assumptions utilized, were consistent with recent trading
activity.
Liquidation Value
The Board of Directors did not consider the liquidation value of First
Bancshares when selecting the $21.00 per share price. A liquidation analysis
is not believed to be a relevant factor because the liquidation of a financial
institution
25
or discontinuance of a financial institution's operations is not considered to
be a viable alternative. Historically, financial institutions have generally
only been liquidated in the event of insolvency or receivership. Neither First
Bancshares's management nor the Board of Directors has any intention of
liquidating First Home Savings Bank.
Stock Repurchases
In reaching its determination as to fairness of the $21.00 per share
price, the Board of Directors considered the purchase prices paid by the First
Bancshares in previous purchases pursuant to its stock repurchase programs.
See "COMMON STOCK PURCHASE INFORMATION." Since the completion of the mutual to
stock conversion in 1993, 1,344,221 shares have been repurchased in eleven
stock repurchase programs at an average price of $14.22 per share which is
well below $21.00. The highest price paid for repurchased stock was $21.41 per
share in January 2004. The Board of Directors did not consider these prices to
be a material factor in their consideration of the fairness of the Split
Transaction, because these purchase prices generally approximated the
then-market value of our common stock. As discussed above, given the
relatively low number of trades in our common stock, the Board of Directors
believes that market price is not necessarily the most applicable measure of
our common stock's fair value.
Other Considerations
We considered that some stockholders may prefer to continue as
stockholders of First Bancshares as an SEC-reporting company, which is a
factor weighing against the Split Transaction. However, we believe that the
disadvantages of remaining a public company subject to the registration and
reporting requirements of the SEC outweigh the advantages. We have no present
intention to raise capital through sales of securities in a public offering in
the future or to acquire other business entities using stock as the
consideration for such acquisition. Accordingly, we are not likely to make use
of the advantages that our status as an SEC-reporting company may offer.
In view of the wide variety of factors considered in connection with its
evaluation of the Split Transaction, our
Board of Directors did not find it practicable to, and did not, quantify or
otherwise attempt to assign relative weights
to the specific factors it considered in reaching its determinations.
We considered various alternative transactions to accomplish the proposed
transaction, but ultimately elected to proceed with the Split Transaction. The
following were the alternative transactions considered, but rejected:
* Tender Offer to Stockholders. The Board of Directors determined
that it would require more funds to effect a tender offer. In
addition, there might not be a sufficient number of record
stockholders tendering their shares to reduce the number of
stockholders of record below 300.
* Open Market Stock Repurchase. The Board of Directors considered
announcing a new or expanded stock buy-back plan and purchasing
shares on the open market. Although the expenses associated
with such a transaction would be low, it might not result in
the desired reduction of stockholders of record. The Board of
Directors determined that an open market stock repurchase might
not achieve the record stockholder reduction objective.
* Cash-Out Merger. The Board of Directors considered a cash-out
merger of First Bancshares into a newly-formed corporation,
with the conversion of the outstanding shares occurring in the
same general manner and ratios as in the Split Transaction.
This type of merger would have the same net effect on
our stockholders as the Split Transaction. However, the Board
of Directors determined that a cash-out merger was not a
preferable option because it did not offer any advantages over
the Split Transaction, but would have required the formation of
a new corporation, more documentation than the Split
Transaction, including a plan of the merger, regulatory
approval of the merger and likely increased costs.
* Business Combination. Although during the last 24 months, the
Board of Directors considered possible affiliations with other
financial institutions, it concluded that First Bancshares's
stockholders would be better served if First Bancshares
achieved the cost savings attributable to becoming a non-
26
SEC-reporting company and focused on business strategies to
enhance stockholder value as an independent customer-oriented
and community-based financial institution.
* Maintaining the Status Quo. The Board of Directors considered
maintaining the status quo. In that case, we would continue to
incur the significant expenses, as outlined above, of being an
SEC-reporting company without the expected commensurate
benefits. Thus, the Board of Directors considered maintaining
the status quo not to be in our best interests or the best
interests of our stockholders and rejected this alternative.
Fairness of the Split Transaction
Based on a careful review of the facts and circumstances relating to the
Split Transaction, the Board of Directors believes that the Split Transaction
and the terms and provisions of the split transaction, including the cash to
be paid to non-continuing stockholders, are substantively and procedurally
fair to our affiliated and unaffiliated stockholders.
The Board of Directors concluded that the Split Transaction was
substantively and procedurally fair to our non-continuing stockholders based
upon the premium to be received on the transaction and that no brokerage or
other transaction costs are to be incurred.
The Split Transaction was deemed to be substantively and procedurally
fair to our continuing stockholders as they will continue to participate in
our future growth and earnings and they will recognize the benefits of reduced
expenses associated with becoming a non-SEC-reporting company.
Accordingly, the Board of Directors unanimously approved the Split
Transaction.
Substantive Fairness
In concluding that the terms and conditions of the Split Transaction,
including the cash to be paid to the non-continuing stockholders, are
substantively fair to our unaffiliated stockholders, the Board of Directors
considered a number of factors.
A positive factor the Board of Directors considered for all unaffiliated
stockholders, including both those that are continuing and non-continuing
stockholders was that our stockholders with fewer than 1000 shares who prefer
to remain as stockholders of First Bancshares, despite the Board of
Directors's recommendation, may elect to do so by acquiring sufficient shares
so that they hold at least 1,000 shares of common stock in their own names
immediately prior to the Split Transaction, understanding that the opportunity
to buy shares prior to the time of the transaction may be limited as a result
of the limited trading volume in the stock.
In addition to the positive factors applicable to all of our stockholders
set forth above, the factors that the Board of Directors considered beneficial
for the unaffiliated stockholders that are non-continuing stockholders
included:
* the cash price of $21.00 represents a multiple 1.21 times
December 31, 2007 tangible book value and 1.20 times First
Bancshares's December 31, 2007 book value. It also represents
approximately 63.7 times First Bancshares's last twelve months
earnings as of December 31, 2007, a period when earnings were
well below peer group averages;
* the factors relating to the fairness of the $21.00 per share
price set forth on pages 31 through 41 hereof; and
* no brokerage or other transaction costs are to be incurred by
them in connection with the transfer of their shares to First
Bancshares.
The factors that the Board of Directors considered positive for the
affiliated and unaffiliated stockholders that are continuing stockholders
included:
27
* they will continue to have the opportunity to participate in
our future growth and earnings;
* they will realize the potential benefits of termination of
registration of our common stock, including reduced expenses as
a result of no longer needing to comply with SEC reporting
requirements; and
* the fact that we anticipate that our shares will continue to be
traded on the OTC Bulletin Board ("OTCBB") or in the pink
sheets electronic quotation system after the Split Transaction,
which will provide opportunities for continuing stockholders to
trade their shares in the future.
The Board of Directors also considered the per-share purchase price to be
fair from the perspective of continuing stockholders, as it was based on a
price that willing buyers and sellers pay for the shares on the market
(adjusted to reflect the involuntary nature of the stock Split Transaction and
other factors described below), and that the purchase of shares in the Split
Transaction at this price to be a good use of First Bancshares's excess
capital at this time.
The Board of Directors is aware of, and has considered, the impact of
certain potentially countervailing factors on the substantive fairness of the
Split Transaction to the unaffiliated non-continuing stockholders, including
that:
* they will be required to surrender their shares involuntarily
in exchange for the cash-out price determined by the Board of
Directors without the opportunity to liquidate their shares at
a time and for a price of their choosing;
* they will not have the opportunity to participate in any of our
future growth, earnings and dividends; and
* they will be required to pay income tax on the receipt of cash
in the Split Transaction.
The factors that the Board of Directors considered as potentially
negative for the affiliated and unaffiliated stockholders that are continuing
stockholders included:
* they will have reduced access to our financial information once
we are no longer an SEC-reporting company, including forms
filed by our Directors and Executive Officers reporting changes
in their beneficial ownership. As an SEC-reporting company, we
currently provide to our stockholders quarterly current reports
on Form 10-QSB and Form 10-KSB filings as well as current
information, as applicable, in Form 8-K filings. We do intend
to continue to provide the continuing stockholders with our
annual reports and basic quarterly financial information, and
First Bancshares and First Home Savings Bank will continue to
be subject to the filing requirements of the OTS, the FDIC and
the Division, however, once our SEC reporting obligations are
suspended, we will not be subject to the provisions of SOX, and
our Chief Executive Officer and Chief Financial Officer will
not be required to certify the accuracy of our financial
statements under SEC rules. The filing requirements of the OTS
and the FDIC require the completion of quarterly reports. These
reports, which are publicly available about 45 days after the
filing deadline. They relate to the respective entity's balance
sheet and income statement and do not provide any of the
analysis presented in the SEC reports.
* the fact that future business partners might require more
information from us before entering into a business
relationship due to the lack of publicly available information
about us.
* the fact that we may have a lower public profile in our
community, which may be a negative factor with some of our
customers.
* the fact that continuing stockholders will lose certain
protections currently provided under the Securities Exchange
Act of 1934, such as limitations on short-swing transactions by
Directors and Executive Officers under Section 16 of that Act.
28
* the liquidity of our shares of common stock held by continuing
stockholders may be further reduced by the termination of the
registration of the common stock under the Securities Exchange
Act of 1934 and the delisting of the common stock from the
NASDAQ Global Market. Future trading in our shares after we
become a non-SEC-reporting company, if it occurs, will only
occur in the OTCBB, the pink sheets electronic quotation system
or in privately negotiated sales.
* First Bancshares expects to pay approximately $2.5 million
(excluding expenses) to affect the Split Transaction. This
amount may change as a result of trading activity in our shares
between the date hereof and the effective date of the Split
Transaction. First Bancshares anticipates that the book value
per share of common stock as of December 31, 2007, will be
reduced from $17.57 per share on a historical basis to $17.15
per share on a pro forma basis, which represents a 2.39%
decrease in the book value per share of our common stock as a
result of the Split Transaction.
The Board of Directors believes that these potentially countervailing
factors did not, individually or in the aggregate, outweigh the overall
substantive fairness of the Split Transaction to our affiliated and
unaffiliated stockholders, whether they be continuing or non-continuing
stockholders and that the foregoing factors are outweighed by the positive
factors previously described.
Procedural Fairness
We believe that the Split Transaction, which is being effected in
accordance with all applicable requirements of Missouri law, is procedurally
fair to our unaffiliated stockholders, including those that are continuing
stockholders and those that are non-continuing stockholders. The factors that
our Board of Directors considered positive for all stockholders, including
both continuing and non-continuing stockholders, included the following:
* the Board of Directors obtained fairness and valuations
opinions and a valuation report from Index Capital, an
independent third party, concerning the price range to be
considered for payment to cash out stockholders, and the Board
of Directors imposed no limitations upon them with respect to
the investigation made or procedures followed in rendering its
fairness opinion.
* the Board of Directors appointed a special committee and the
special committee retained and received advice from separate
legal counsel in evaluating the terms of the Split Transaction.
* Management, the special committee and the Board of Directors
considered alternative methods of effecting a transaction that
would result in our becoming a non-SEC reporting company, each
of which was determined to be impractical, more expensive than
the Split Transaction, or potentially ineffective in achieving
the goals of providing cash and value to the non-continuing
stockholders as soon as possible and eliminating the costs and
burdens of public company status.
* stockholders will have the opportunity to determine whether or
not they will remain stockholders after the Split Transaction
by acquiring sufficient shares so that they hold at least 1,000
shares immediately prior to the Split Transaction or selling
sufficient shares so that they hold fewer than 1,000 shares
immediately prior to the Split Transaction, so long as they act
sufficiently in advance of the Split Transaction so that the
sale or purchase is reflected in our stockholder records by the
close of business (local time) on the effective date of the
Split Transaction, understanding that the chance to sell shares
prior to the time of the transaction may be limited as a result
of the limited trading volume in the stock.
* First Bancshares has sufficient cash resources to undertake the
necessary actions to finance the Split Transaction, with total
expenditures estimated at $2.7 million, including estimated
expenses of $188,000, after we obtain regulatory approval for
a capital distribution from First Home Savings Bank to First
Bancshares and therefore the Split Transaction should not
materially affect our financial condition and results of
operations.
* Dissenters' rights will be available under the Missouri General
and Business Corporations Law, selected provisions of which are
attached as Appendix C, to non-continuing stockholders who
dissent
29
from the Split Transaction. Continuing stockholders and
non-continuing stockholders who do not vote against the
proposed transaction will not have the right to demand the
appraised value of their shares.
The Board of Directors is aware of, and has considered, the impact of the
following potentially countervailing factor, which affect both continuing and
non-continuing stockholders to the same degree, on the procedural fairness of
the Split Transaction:
* the transaction is not structured to require approval of at
least a majority of stockholders being cashed out in the Split
Transaction; however, we determined that any such voting
requirement would improperly usurp the power of the holders of
a majority of our outstanding shares to consider and approve
the proposed amendments as provided in the Articles and under
Missouri law.
The Board of Directors believes that the foregoing potentially
countervailing factor did not, individually or in the aggregate, outweigh the
overall procedural fairness of the Split Transaction to our unaffiliated
stockholders, whether they are continuing or non-continuing stockholders, and
the foregoing factor is outweighed by the procedural safeguards previously
described.
We therefore believe that the Split Transaction is substantively and
procedurally fair to our affiliated and unaffiliated stockholders, including
those that are continuing stockholders and those that are non-continuing
stockholders, for the reasons and factors described above. In reaching this
determination, Index Capital's valuation and fairness opinions assigned
specific weights to particular factors, and we considered all factors as a
whole.
We have not made any provision in connection with the Split Transaction
to grant unaffiliated stockholders access to our corporate files or to obtain
counsel or appraisal services at our expense. With respect to unaffiliated
stockholders' access to our corporate files, the Board of Directors determined
that this Proxy Statement, together with our other filings with the SEC,
provide adequate information for unaffiliated stockholders. With respect to
obtaining counsel or appraisal services solely for unaffiliated stockholders
at our expense, the Board of Directors did not consider these actions
necessary or customary. The Board of Directors also considered the protections
afforded by the appointment of the special committee, providing separate
counsel for the special committee and the fact that under Missouri corporate
law, subject to certain conditions set forth under Missouri law, stockholders
have the right to review our relevant books and records of account.
Effects of the Split Transaction on Affiliates
The Split Transaction will impact both affiliated and non-affiliated
stockholders of First Bancshares. As used in this Proxy Statement, the term
"affiliated stockholder" means any stockholder who is a Director or Executive
Officer of First Bancshares, and the term "unaffiliated stockholder" means any
stockholder other than an affiliated stockholder. No affiliates of First
Bancshares that own shares of the common stock are believed to own fewer than
1,000 shares of common stock, so no affiliated stockholders are likely to be
cashed out. We expect that our Directors and Executive Officers will
beneficially own approximately 56,771 shares, or 4.0%, as a group immediately
after the Split Transaction. For more information regarding the beneficial
ownership of Directors and Executive Officers of First Bancshares, see
"ELECTION OF DIRECTORS -- Security Ownership of Certain Beneficial Owners and
Management."
Other potential effects of the Split Transaction, which are unique to the
affiliated stockholders include the following:
* Reduced Reporting Requirements for Officers and Directors. The
Directors and Executive Officers will no longer be subject to
the reporting and short-swing profit provisions under the
Securities Exchange Act of 1934 with respect to changes in
their beneficial ownership of our common stock.
* Share Ownership. If the Split Transaction occurs, we expect
that the percentage of beneficial ownership of common stock of
First Bancshares held by Directors and Executive Officers of
First Bancshares as a group will increase from 3.7% to 4.0%,
resulting in greater voting power for affiliated stockholders
and less for non-affiliated stockholders.
30
* Net Book Value. The aggregate net book value of First
Bancshares, as of December 31, 2007, with respect to the
Directors' and Executive Officers' relative ownership is
expected to decrease approximately $23,000 from $997,000 to
$974,000, or a decrease of approximately 2.39%.
Board of Directors Recommendation
The Board of Directors believes the terms of the Split Transaction are
fair and in the best interests of our unaffiliated and affiliated stockholders
and unanimously recommends that you vote "FOR" the adoption of the amendments
to the Articles of Incorporation that will allow us to effect the Split
Transaction.
Valuation and Fairness Opinions of Index Capital
Overview
The Committee retained Index Capital to act as its financial advisor in
connection with the Split Transaction, which is designed to enable First
Bancshares to terminate the registration of its common shares under Section
12(g) of the Securities Exchange Act. On September 20, 2007, the Committee
delivered Index Capital's valuation report to the Board of Directors regarding
its initial evaluation of and analysis concerning First Bancshares's common
stock. The Index Capital written valuation opinion dated September 19, 2007
to the Board of Directors was used in the determination of the feasibility of
the transaction. Index Capital was asked by the Committee to update its
valuation using December 31, 2007 as the valuation date. Index Capital also
provided a fairness opinion that was updated as of December 31, 2007 that
concluded that as of such date, the price to be paid to non-continuing
stockholders was fair, from a financial point of view, to those stockholders
of First Bancshares. First Bancshares paid Index Capital a fee of $15,000 for
the delivery of the valuation and related opinion and an additional $17,500
for the fairness opinion with respect to the Split Transaction.
In connection with providing its opinions and other services rendered in
connection with the Split Transaction, Index Capital received no specific
instructions from the committee or the Board of Directors other than to
provide the Board of Directors with an opinion on the fair market value of the
stock for determining the feasibility of the Split Transaction and an opinion
stating whether or not the price would be fair to non-continuing stockholders
from a financial point of view. No limitation was imposed on Index Capital
with respect to the scope of Index Capital's investigation in rendering its
services.
The full text of Index Capital's fairness opinion dated February 8, 2008,
which sets forth the procedures followed, assumptions made, matters considered
and qualifications and limitations on the review undertaken by Index Capital,
is attached to this Proxy Statement as Appendix B. You are urged to read the
attached Index Capital fairness opinion in its entirety. The fairness opinion
is addressed to the Board of Directors and is directed only to the price
offered to non-continuing stockholders as a result of the Split Transaction.
The fairness opinion does not address First Bancshares's underlying business
decision to effect the proposed Split Transaction, nor does it constitute a
recommendation to any stockholder as to how such stockholder should vote with
respect to the proposed Split Transaction at the Annual Meeting or as to any
other matter. The fairness opinion was among many factors taken into
consideration by the Board of Directors in making its determination of the
price. The fairness opinion does not address the relative merits of the Split
Transaction as compared to any alternative business strategies that might
exist for First Bancshares or the effect of any other strategy in which First
Bancshares might engage. The summary of the fairness opinion set forth in this
Proxy Statement is qualified in its entirety by reference to the full text of
the document.
Background of Index Capital
The Board of Directors selected Index Capital as its financial advisor
because it is a recognized financial institution investment banking firm that
has substantial experience in the financial institutions industry. As part of
its business, Index Capital is regularly engaged in the valuation of
businesses and securities in connection with mergers, acquisitions, private
placements and valuation for corporate and other purposes, particularly those
of financial institutions and financial institution holding companies.
First Bancshares has agreed to pay Index Capital a fee as compensation
for financial advisory services rendered in connection with the Split
Transaction, including a fee that was not contingent on receipt of the
fairness opinion. In
31
addition, First Bancshares has agreed to reimburse Index Capital for certain
reimbursable expenses, incurred by it on First Bancshares's behalf. No
material relationship has existed within the last two years between First
Bancshares, Index Capital or any of their respective affiliates.
Factors Considered
Prior to rendering the fairness opinion, Index Capital reviewed and
analyzed, among other things, (i) First Bancshares's annual report to
shareholders and financial statements as filed on Form 10-KSB for each of the
five years ended June 30, 2007, (ii) First Bancshares's and First Home Savings
Bank's unaudited internally prepared financial statements as of December 31,
2007, (iii) First Bancshares's Form 10-KSB for the years ended June 30, 2006
and June 30, 2007 and Form 10-QSB for the quarter ended September 30, 2007,
(iv) First Bancshares's federal, state and other tax returns as filed with the
various taxing authorities, (v) OTS 2007 Thrift Financial Reports, (vi) First
Bancshares's articles of incorporation and bylaws, (vii) certain information
provided by First Bancshares regarding the historical trading activity of
First Bancshares's common stock, (viii) certain reported financial terms of
selected transaction it deemed to be relevant, (ix) publicly available banking
and thrift financial information regarding First Bancshares, (x) discussions
with First Bancshares's management regarding the background of the Split
Transactions and certain financial forecasts relating to business, earnings,
cash flows, assets and business prospects of First Bancshares, and (xi) other
studies, analyses and investigations, particularly of the banking and thrift
industry, and such other information as it deemed appropriate. For more
information regarding the financial forecasts and projections provided by
management see "-- Information Provided by First Bancshares to Index Capital"
below. Index Capital also analyzed the impact of the Split Transaction on
First Bancshares and continuing shareholders. Index Capital did not obtain,
make or receive any independent appraisal or evaluations with respect to First
Bancshares's assets or liabilities. It also did not make or receive any
analyses or evaluations of the rights of shareholders, creditors or others
holding any claims or rights against First Bancshares.
Information Provided by First Bancshares to Index Capital
At the October 28, 2007 Board of Directors meeting, First Home Savings
Bank's management presented a three-year strategic business plan which
included a three-year financial forecast consisting of a balance sheet and
income statement prepared by management. The forecast for 2008 incorporated
the 2008 budget for First Home Savings Bank and was prepared without regard to
the Split Transaction and, since it was prepared for First Home Savings Bank,
did not include the operating results for First Bancshares. The Split
Transaction was not included to give a more conservative estimate of the costs
to be incurred during the year in case the Split Transaction was not
completed. The forecasts for 2009 and 2010 were derived from First Home
Savings Bank's strategic plan which also did not incorporate the effects of
going private. The forecasts did incorporate the following material
assumptions:
Earning assets. Earning assets were forecast to grow by 3.8% between June
30, 2007 and June 30, 2008; 4.5% between June 30, 2008 and June 30, 2009; and
7.4% between June 30, 2009 and June 30, 2010. Forecasted growth was attributed
principally to increases in investment securities, commercial loans and
residential real estate loans.
Funding growth. Funding was forecast to grow by 5.2% between June 30,
2007 and June 30, 2008; 5.3% between June 30, 2008 and June 30, 2009; and 5.6%
between June 30, 2009 and June 30, 2010. Forecasted growth was attributed to
the expected impact of a newly instituted marketing program supported by a
solutions-based sales focus. Anticipated funding growth was attributed
principally to increases in core deposits (N.O.W. accounts, non-interest-
bearing demand deposit accounts and money market accounts), retail repurchase
agreements and borrowings.
Interest rate environment. Normalization of the yield curve was forecast,
with projected short-term rates declining between June 30, 2007 and June 30,
2008 and remaining at such levels through June 30, 2009.
Noninterest income growth. Noninterest income was forecast to increase by
6.9% between the year ended June 30, 2007 and the year ending June 30, 2008;
3.5% between the year ending June 30, 2009 and the year ending June 30, 2010;
and 2.6% between the year ending June 30, 2010 and the year ending June 30,
2011. This forecasted growth was attributed principally to increases in
deposit service fee income which result from the forecasted increase in core
deposits referenced above, and to profits related to the sale of single-family
loans through the loan production office opened in March 2007.
32
Noninterest expense control. Other than anticipated inflationary
increases and costs associated with the addition of another branch office, no
material changes in the level of noninterest expense were forecast.
First Home Savings Bank's resulting three-year forecast is summarized as
follows:
Fiscal Year Asset Growth Net Income
2008 $12,219,000 $1,110,000
2009 13,382,000 1,461,000
2010 15,341,000 1,887,000
When the stand alone operations of First Bancshares and the Split
Transaction are factored into the financial forecasts for the three years
ending June 30, 2010, the impact is minimal. Based on data for the last two
fiscal years, First Bancshares net pretax operating loss, excluding
non-recurring items and the equity in the income of First Home Savings Bank,
approximated the costs associated with being a public company. Elimination of
those costs would result in First Bancshares having approximately break even
stand alone results of operations.
The items anticipated to be impacted would be as follows:
1. Asset growth for fiscal 2008 would be lower by approximately $2.7
million as a result of the use of funds to repurchase stock and the
costs associated with the Split Transaction.
2. Net income for fiscal 2008 would increase by approximately $253,000,
net of taxes. Expenses related to being a public company of $449,000
would not be incurred, while interest income on investable funds
would decrease by approximately $87,000.
3. Net income for fiscal 2009 and 2010 would marginally improve with
the elimination of the costs of being a public company exceeding
the lost investment income.
Following the presentation of the forecast at the October 28, 2007
meeting, the Board of Directors and management discussed the forecast and its
underlying assumptions. The Board of Directors determined that the forecast
was supported by First Bancshares's strategic plan and marketing program and
determined that Index Capital's reliance on the forecast was reasonable.
Numerous risks and uncertainties could cause First Bancshares's actual results
to be materially different from the results set forth in the forecast,
including changes in general economic conditions, local and national market
interest rates, monetary and fiscal policies of the federal government,
legislative, local competitive environment and regulatory changes and other
factors disclosed periodically in First Bancshares's securities filings. The
projections of First Bancshares have been prepared by First Bancshares in
accordance with the rules and regulations of the Securities and Exchange
Commission. Certain information and footnote disclosures normally included in
financial statements prepared in accordance with accounting principles
generally accepted in the United States of America ("GAAP") have been omitted
in accordance with such rules and regulations. First Bancshares, however,
believes that the disclosures are adequate to make the information presented
not misleading.
In addition to the information related to the three year business plan
and budget for First Home Savings Bank, Index Capital was provided with stand
alone and consolidated financial statements for First Bancshares, First Home
Savings Bank and the other subsidiary companies as of June 30, 2007, and for
the fiscal year then ended, and as of December 31, 2007, and for the six month
period then ended. Other information provided included, but was not limited
to, First Bancshares's SEC filings, regulatory reports, interest rate risk
analyses and data on First Bancshares's interest rate spread and net interest
margin.
Summary of Financial Analyses
In connection with rendering the valuation and fairness opinions to the
Board of Directors, Index Capital performed a variety of financial and
comparative methodologies, which are summarized briefly below. No company used
in any analysis as a comparison is identical to First Bancshares and they all
differ in various ways. As a result, Index Capital applied its experience and
professional judgment in making such analyses. Accordingly, an analysis of the
results is not purely mathematical; rather, it involves complex considerations
and judgments concerning differences in financial
33
characteristics, performance characteristics and trading value of the
comparable companies to which First Bancshares is being compared. The
preparation of a valuation and fairness opinion is a complex process and is
not necessarily susceptible to partial analyses or summary description. In
arriving at the valuation range, Index Capital considered the results of all
of its analyses as a whole and did not attribute any particular weight to any
analysis or factor considered by it. Index Capital believes that the summary
provided and the analyses described below must be considered as a whole and
that selecting portions of these analyses, without considering all of them,
would create an incomplete view of the process underlying its analyses and
opinions. In addition, Index Capital may have given various analyses or
factors more or less weight than other analyses and factors and may have
deemed various assumptions more or less probable than other assumptions,
therefore the range of valuations resulting from any particular analysis
described below should not be taken to be Index Capital's view of the actual
value of First Bancshares.
The valuation opinion dated February 8, 2008, and the fairness opinion
dated February 8, 2008 provided by Index Capital to the Board of Directors was
necessarily based upon economic, monetary, financial market and other relevant
conditions as of the date of the opinions in question. Accordingly, the
opinions state that although subsequent developments may affect the opinions,
Index Capital does not have any obligation to further update, revise or
reaffirm its opinions.
In performing its analyses, with the consent of the Board of Directors,
Index Capital assumed and relied upon the accuracy and completeness of the
financial information and other pertinent information provided by First
Bancshares to Index Capital for purposes of rendering its valuation and
fairness opinions. Index Capital did not assume any obligation to
independently verify any of the information provided, including without
limitation information from published sources, as being complete and accurate
in all material aspects. With regard to the financial forecasts prepared by
First Bancshares's management, as well as projections of cost savings, Index
Capital assumed that this information reflected the best available estimates
and judgments of First Bancshares as to the future performance and that the
projections provided a reasonable basis upon which Index Capital could
formulate its valuation and fairness opinions. First Bancshares does not
normally publicly disclose its internal management projections of the type
utilized by Index Capital in connection with Index Capital's role as a
financial advisor to First Bancshares. Actual results could vary significantly
from those set forth in the respective projections. The projections were based
upon numerous variables and assumptions that are inherently uncertain,
including, among others, factors relative to the general economic and
competitive conditions facing First Bancshares.
In providing its valuation and fairness opinions, Index Capital assumed
and relied upon, without independent verification, the accuracy and
completeness of all accounting, legal, tax and other information provided to
them by First Bancshares, as well as all of the materials made available to
Index Capital by First Bancshares and other public sources. Index Capital
assumed that no material change in the First Bancshares's assets, financial
conditions, results of operations, business or prospects had occurred since
the most recent financial statements made available to Index Capital.
With First Bancshares's consent, Index Capital does not purport to be an
expert in the evaluation of loan portfolios or the allowance for loan losses
with respect to loan portfolios and, accordingly, assumes that those
allowances by First Bancshares are adequate to cover such losses. In addition,
Index Capital has not reviewed, and does not assume responsibility for, any
individual credit files and did not make an independent evaluation, appraisal
or physical inspection of the assets or individual properties of First
Bancshares, nor was Index Capital provided with those types of appraisals.
Index Capital's valuation analyses included (i) recent trading activity
of First Bancshares, (ii) a comparison of certain market multiples between
First Bancshares and similar publicly traded companies, (iii) an analysis of
selected premiums paid with respect to whole bank sale transactions, and (iv)
a discounted future returns analysis (using projected earnings). Index
Capital's fairness opinion analysis included additional analyses including a
comparison of selected premiums paid with respect to other going private
transactions and a dividend discount analysis. Index Capital, after
completing and analyzing each separate item, presented a range of fair values
of the shares to be cashed out in the Split Transaction. Index Capital
presented a valuation report and fairness opinion dated February 8, 2008 of
these analyses to the Board of Directors for review.
34
Index Capital Valuation Analysis
Index Capital considered eight possible valuation methods encompassed by
the asset, market and income based approaches to a business enterprise
valuation. Four methods were selected and the results are described as
follows:
Tangible Book Value Method. In order to derive a preliminary value using
the tangible book value method, Index Capital considered the underlying assets
and liabilities of First Bancshares as reported in the audited financial
statements as of the valuation date to represent fair market value. After
reducing this amount by the intangible assets, this method produced a value of
$26,992,000 or $17.41 per share.
Guideline Company Method. The Guideline Company Method is predicated on
the theory that the market value of a company can be estimated based on the
price investors are paying for the stocks of similar publicly-traded
companies. The market value of publicly-traded companies can be calculated by
multiplying the current price at which the stock is being traded by the number
of shares outstanding. This calculation represents the value of the aggregate
minority interest in the company, i.e., the value of the company from the
perspective of the many investors who own shares of stock but who do not have
the power to direct, or redirect, strategies employed to maximize
shareholders' value.
Index Capital selected other thrift institutions whose stock prices
reflected: (i) their geographic location in or near Missouri; (ii) the
outlook for the region's economy; and (iii) the type of customer, i.e.,
real-estate, commercial, agricultural, and industrial concerns, served by the
selected groups and made a comparison of performance ratios as of the
valuation date. First Bancshares compared unfavorably with the selected group
in most categories. Considering this situation as well as other factors,
Index Capital: (i) selected; (a) the median minority price-to-earnings
multiple of 16.4; (b) the median minority price-to-book multiple of 1.01 and
(c) the median minority price-to-tangible book multiple of 1.04; (ii) applied
a control premium of 33.0 percent to the selected minority multiples to
convert these indices to a control basis; and (iii) weighted the results
primarily in favor of the price-to-book and price-to-tangible book results to
reflect their relative significance to a prudent investor. The low weighting
assigned to the price-to-earnings result is appropriate considering the
decline in earnings caused by the problems encountered by the institution
resulting from previous mismanagement. The following table presents a
valuation result of $34,309,000, or $22.12 per share.
Technique Value Multiple Results Weight Result
--------- ----- -------- ------- ------ ------
Price-to-
Earnings $ 511,000 (1) 21.8 (2) $11,140,000 0.10 (3) $1,114,000
Price-to
Book 27,252,000 (4) 1.34 (5) 36,517,000 0.45 (3) 16,433,000
Price-to-
Tangible
Book 26,992,000 (4) 1.38 (5) 37,249,000 0.45 (3) 16,762,000
Value $34,309,000
(1) Net income after taxes for the last twelve month period ended December
31, 2007.
(2) Minority price-to-earnings multiple of 16.4, adjusted for a control
premium of 33.0 percent, or 16.4 x 1.33 = 21.8.
(3) Relative weight assigned to each of the guideline company approach
techniques reflects their relative significance to a prudent investor.
(4) Total stockholders' equity on December 31, 2007 of $27,252,000, less
intangibles of $260,000 = $26,992,000.
(5) Minority price-to-book multiple of 1.01, adjusted for a control premium
of 33.0 percent, or 1.01 x 1.33 = 1.34 and minority price-to-tangible
book multiple of 1.04 adjusted for a control premium resulting in a 1.38
multiple.
Merger and Acquisition Method. Index Capital selected all sale
transactions that occurred in the past year involving (1) thrift institutions
with total equity of less than $50 million and (2) thrift transactions
involving thrifts within the state of Missouri, regardless of size and found
that the median price to book value multiple for the transactions involving
thrifts similar in size to First Bancshares was 1.60 and 1.45 for the
transactions involving Missouri based institutions. The price to tangible
book multiples were 1.64 and 1.45. The transactions indicated a median price
to income multiple of 24.2 and 23.4, respectfully.
35
Although the specifics of selected market transactions are often not
known, the valuation ratios and pricing information is quite reliable due to
standard thrift industry financial reporting. The median multiples from the
regional transactions were approximately ten percent higher than the in-state
transaction median. Due to the fact that First Bancshares was in the early
stages of turnaround and reported performance is less than peers, we have
selected the median multiples from the in-state transactions for use in this
approach. The results indicate a value of $35,369,000 or $22.80 per share.
Technique Value Multiple Results Weight Result
--------- ----- -------- ------- ------ ------
Price-to-
Earnings $ 511,000 (1) 23.4 (2) $11,957,000 0.10 (3) $ 1,196,000
Price-to
Book 27,252,000 (4) 1.4 38,152,000 0.45 (3) 17,168,000
Price-to-
Tangible
Book 26,992,000 (5) 1.4 (5) 37,789,000 0.45 (3) 17,005,000
Value $35,369,000
(1) Net income after taxes for the last twelve month period ended December
31, 2007.
(2) Majority multiples from in-state transactional data.
(3) Relative weight assigned to each of the results reflects their relative
significance to a prudent investor.
(4) December 31, 2007 book value as reported in the First Bancshares
financial statements.
(5) December 31, 2007 tangible book value calculated from the reported
amounts.
Discounted Future Returns Method. In order to derive a value using the
Discounted Future Returns Method, Index Capital calculated the present value
of five years of projected net income for First Bancshares to be $6,497,000.
The value of net income beyond year five (residual net income) was calculated
using the Gordon formula and the result discounted to its current value of
$20,559,000.
To derive an estimated value of First Bancshares using the Discounted
Future Returns Approach, Index Capital combined the present value of the
five-year net income stream and the present value of the residual net income
as presented below resulting in a value of $27,056,000 or $17.45 per share.
Sum of Present Value of Net Income $ 6,497,000
Present Value - Residual Net Income 20,559,000
Indicated Value - Income Approach $27,056,000
Valuation Conclusion. Index Capital concluded that since the Tangible
Book Value Method does not incorporate the value of goodwill it should not be
afforded any weight in determining the value of First Bancshares. On the
other hand, the Guideline Company Method reflects the attitudes of many
investors toward the past performance and future prospects of holding
companies engaged in the thrift industry in locations with similar economic
conditions to those of First Bancshares. The Merger and Acquisitions Method
reflects actual market transaction values for control sales and the Discounted
Future Returns Method is based on forecasts of the earnings power relative to
income and expenses. In view of the foregoing, Index Capital believes that a
prudent investor on December 31, 2007 would give more weight to the Guideline
Company and Merger and Acquisitions Methods versus the Discounted Future
Returns Method due to: (i) the recent earnings problems encountered at First
Bancshares and the prospects for correcting them; (ii) the diversity of
locations and; (iii) First Bancshares's size. Index Capital assigned zero
weighting to the Tangible Book Value Method, weighted the Guideline Company
and Merger and Acquisitions Methods by 40 percent each leaving the Discounted
Future Returns Method with a 20 percent weighting. The calculations are
presented as follows resulting in a value of $33,283,000 or $21.46 per share.
36
Indicated Value %
Approach (Control Basis) Weight Result
-------- ---------------- ------ ------
Tangible Book Value Method $ 26,992,000 - $ -
Guideline Company Method 34,309,000 40.00 13,724,000
Merger and Acquisitions Method 35,369,000 40.00 14,148,000
Discounted Future Returns 27,056,000 20.00 5,411,000
Valuation $33,283,000
In preparing its valuation conclusion, Index Capital applied a two
percent marketability discount to adjust for the flotation costs associated
with a sale of First Bancshares resulting in a final conclusion of value as of
December 31, 2007 of $32,600,000 or $21.00 per share.
Historical Trading Price and Volume
Index Capital reviewed the trading volume and closing prices of First
Bancshares's common stock for each week during the 52 weeks prior to December
31, 2007 on which a trade had been reported. The 52-week high and low intraday
prices were $15.15 and $17.50 per share, respectively. Index Capital noted
that during the period, First Bancshares's common stock was traded during 38
of the possible 52 weeks. The total number of shares traded during the period
was 72,909, with a total of only 661 shares being traded the last 10 days the
market was open prior to December 31, 2007. First Bancshares stock closed at
$16.97 on December 31, 2007. As a result of the limited trading volume that
has occurred, Index Capital gave trading history no consideration in the
determination of fair value for First Bancshares's common stock.
Index Capital Fairness Opinion Analysis
In addition to its valuation opinion, Index Capital prepared an opinion
as to whether the financial terms of the going-private transaction were within
the range of fairness. The following paragraphs contain some of the
additional procedures performed by Index Capital in the rendering of its
Fairness Opinion.
Transaction Premium Analysis. As noted above, with a reverse stock split
or cash-out merger in a going private transaction, a premium adjustment is
applied to the stand-alone per share valuation because of the involuntary
nature of the transaction.
To quantify a fair market premium of First Bancshares's non-continuing
shareholders, Index Capital obtained and reviewed a schedule of transactions
deemed similar to the Split Transaction to determine what premium, if any, had
been paid in other similar transactions. The study included 25 reverse stock
splits, recapitalizations with put options and cash out mergers conducted by
bank or thrift institutions from January 1, 2005 through August 2007. Index
Capital relied on the reported repurchase price paid by these companies in
connection with the comparable transactions and compared that price to the
most recently reported trading price before announcement of the transaction
for the same shares to determine the median premium paid.
The premiums paid with respect to the selected transactions ranged from
2.2% to 38.6%. The median premium paid was 15.8%. Considering the
transactions most similar to the Split Transaction, the median premium paid
was 14.2%. By observing premiums paid in other transactions of publicly
traded banks, Index Capital was able to estimate a range of premiums
comparable for the repurchase price. The results were as follows:
37
Premium from Market Value On
Study(1) Valuation Date (2)
Maximum 38.6% $23.52
Median 15.8% $19.65
Minimum 2.2% $17.34
(1) Based on closing trading price on the day prior to announcement of such
transaction.
(2) Based on closing trading price of $16.97 on December 31, 2007.
Additionally, Index Capital reviewed Factset Mergerstat (control premium
study), a well know publication that reports annually on transaction premiums
in the financial institutions industry. The most recent statistics reflected
control premiums of 33.6% in 2006 and a five-year average of 30.2%. Utilizing
this analysis and based on the data and mix of transactions presented, Index
Capital deemed a reasonable premium to be paid could be 15 to 35% above the
market price of First Bancshares's common stock on the valuation date. For the
comparable company analysis that follows, Index Capital selected and applied a
33% transaction premium to derive a range of fair values per share for the
proposed transaction which is on the high end of the range determined in these
studies. The high end of the range was selected because First Bancshares per
share trading price has been consistently below book value per share and less
than all but two the public company peer group thrifts reviewed in the
valuation analysis.
Comparable Company Analysis. In order to establish a range of fair values
for First Bancshares's common stock, Index Capital identified a specific peer
group of six companies deemed relevant and looked at historical pricing and
other ratios to consider First Bancshares's common stock value. Although these
six companies do not exactly match all of the unique financial characteristics
of First Bancshares, the group as a whole better reflects certain material
financial characteristics of First Bancshares as compared to broad national
peer groups. In order to derive the peer group, Index Capital selected
publicly traded thrifts, excluding mutual holding companies, in the Midwest,
with assets between $95,864,000 and $1,506,483,000. All of these companies:
(i) were in or near First Bancshares's markets, (ii) were listed on NASDAQ or
OTCBB, (iii) had available pricing ratios for consideration, (iv) were not
announced as merger targets, (v) were not recently converted from mutual
ownership to stock ownership, and (vi) had been publicly traded for two years
or more. Index Capital analyzed pricing multiples and financial ratios with
respect to the selected peer group (i.e. tangible book value and reported
earnings for the last twelve months) and calculated the median of such pricing
ratios. Shown below is a comparison of the overall performance of First
Bancshares to that of the peer group using selected balance sheet and
financial measures:
Non-
Net Performing
Charge- Assets to
Offs to Total Equity
ROAA ROAE Efficiency Interest Avg Loans Assets to
(%) (%) Ratio (%) Margin (%) (%) Assets
Minimum 0.05 0.36 57.08 2.85 0.00 0.42 6.68
Median 0.66 5.10 67.24 3.02 0.09 0.81 10.71
Maximum 1.00 11.17 104.48 3.47 0.21 5.23 14.07
First Banc-
shares 0.21 1.91 91.19 2.90 0.14 1.36 11.19
Based on the selected ratios above, First Bancshares generally
underperformed in comparison to the median's of the peer group.
38
The following table summarizes the range of trading multiples, as of
January 29, 2008, of the selected peer group compared to First Bancshares's
implied trading prices based on December 31, 2007 numbers:
Price to Last Price to
Twelve Months Price to Tangible Book
Multiples Months Earnings Book Value Value
--------- --------------- ---------- -------------
Peer Average 17.1 107.6 110.1
Peer Median 16.4 101.5 104.2
First Bancshares
Implied Price per Share (1) Price per Share Price per Share
---------------- ------------------- --------------- ---------------
Average 13.62 18.91 19.17
Median 11.64 17.83 18.14
First Bancshares
Implied +
Transaction Premium Price per Share (1) Price per Share Price per Share
------------------- ------------------ --------------- ---------------
Average 18.11 25.15 25.50
Median 15.48 23.71 24.13
(1) First Bancshares's reported earnings for the last twelve month period
ended December 31, 2007 were considerably below its peer group as the
result of unusual items that resulted from changes in management and
certain regulatory matters discussed previously. For purposes of the
comparable company analysis projected earnings for year one were selected
because they are more representative of normalized performance.
As illustrated in the tables above, Index Capital derived a range of
median stand-alone values from low to high of $11.64 to $18.14 per share.
Index Capital applied a 33% transaction premium to the implied stand-alone
values of First Bancshares from the comparables to compute adjusted per share
values relevant for this transaction. The median adjusted per share values
ranged from $15.48 to $24.13.
No company used in the Comparable Company Analysis is identical to First
Bancshares. Accordingly, an analysis of the results involves complex
considerations and judgments concerning differences in financial and operating
characteristics of the companies involved, market areas in which the companies
operate and other factors that could affect the trading values of the
securities of First Bancshares or companies to which they are being compared.
Dividend Discount Analysis. Index Capital also performed a dividend
discount analysis to determine a range of fair values of First Bancshares's
common stock based on the present value of potential future dividends to be
received. As a basis for performing this analysis, Index Capital utilized a
three-year earnings forecast and asset growth rate estimates for First
Bancshares, which were based on projections provided by management. These
projections are based upon various factors and assumptions, many of which are
beyond the control of First Bancshares. These projections are, by their
nature, forward-looking and may differ materially from the actual future
values or actual future results for the reasons discussed above. Actual future
values or results may be significantly more or less favorable than suggested
by such projections. In producing a range of per share values for First
Bancshares's common stock, Index Capital utilized several assumptions that, in
its judgment, it considered appropriate, relating to the discount rates and
terminal year multiples. Index Capital discounted the estimated future
dividends and terminal value to a present value using discount rates between
14% and 16%. Index Capital determined that this was an appropriate range of
discount rates to reflect significant improvement in projected profitability
in comparison with past performance. The terminal year price to earnings
multiples, based on recent trading multiples of the banking and thrift
industry, ranged from 20x to 24x.
Terminal Multiple
Discount 20x 22x 24x
14% 18.68 20.55 22.42
15% 18.20 20.02 21.84
16% 17.73 19.51 21.28
39
Index Capital calculated that a range of price for First Bancshares's
common stock implied by this dividend discount analysis was from $17.73 to
$22.42 per share. While the dividend discount analysis is a widely used
valuation methodology, it relies on numerous assumptions, including projected
dividends, terminal values and discount rates. As such, it often yields the
widest range of values as a result of the number of assumptions necessary to
employ this model and the high degree of sensitivity to these assumptions.
This analysis does not purport to be indicative of the actual values or
expected values of First Bancshares's common stock.
Summary of Fair Value Analyses. Index Capital estimated the fair value of
the repurchased shares by analyzing the recent market value, as well as
estimates of the fair values of First Bancshares's common stock using the
Comparable Company Analysis and the Dividend Discount Analysis. The table
below summarizes these values:
Low High
Historical Prices
-----------------
Comparable Company
Analysis $15.48 $24.13
Dividend Discount $17.73 $22.42
Range of Fair Value
(Weighted Average) $16.61 $23.28
Based upon the analyses above and using equal weighting, Index Capital
selected a summary valuation range of $17.00 to $23.00, resulting in a
midpoint of $20.00. In its detailed valuation analysis Index Capital
recommended price for the repurchase of $21.00 per share, which is well within
the valuation range and slightly above the midpoint.
Comparison of Fair Value Price. Index Capital's recommended price was
$21.00 per share. The $21.00 per share value chosen by the Board of Directors
represents a 24% premium to the closing price on December 31, 2007 and a 50%
premium to the $14.00 per share closing price on February 14, 2008, the last
trading day on which the common stock was traded before the announcement of
the proposed reverse stock split on February 22, 2008.
Financial Impact Analysis. In order to measure the impact of the Split
Transaction on First Bancshares's operating results, financial condition and
capital ratios, Index Capital analyzed the pro forma effects of the Split
Transaction on 2007 operating results (assuming the Split Transaction had been
completed on December 31, 2006). In performing this analysis, Index Capital
utilized the December 31, 2007 balance sheet and income statement and relied
on certain assumptions provided by the management of First Bancshares relating
to earnings projections, as well as cost savings associated with becoming a
non-SEC-reporting company. First Bancshares estimated the annual cost savings
related to becoming a non-SEC-reporting company to be $199,000 pre-tax.
Index Capital analyzed the expected pro forma impact on First
Bancshares's financial statements for the twelve months ended December 31,
2007 as a result of the 1-for-1000 reverse stock split using prices from
$17.00 per share to $23.00 applied to the expected reduction in share base of
119,736 results in or total costs ranging from approximately $2.0 million to
$2.8 million. The analysis assumed annual cost savings of $190,000, an
opportunity cost of 5% for the cost of funds, a tax rate of 35% and excludes
one-time transaction costs. The pro forma analysis resulted in changes in net
income for the twelve months ended December 31, 2007 of approximately $59,000
using a split price of $17.00 and $33,000 using a split price of $23.00 and
per share accretion of approximately $0.02 to $0.03 per share. First
Bancshares's average assets would decrease slightly for the twelve months
ended December 31, 2007 and pro forma return on average assets would increase
by approximately 0.02%. Book value per share of $17.57 on December 31, 2007,
would change from amounts ranging from an increase of $17.69 to a decrease of
$17.11. The actual results achieved may vary materially from the projected
results.
Conclusion
Index Capital, in its valuation report, provided to the Board of
Directors, with a fair value for the repurchase price of $21.00 per share. The
Board of Directors elected to pay $21.00 per share to non-continuing
stockholders affected by the Split Transaction. Noting that the repurchase
price of $21.00 per share and considering all other relevant factors,
40
Index Capital delivered a written opinion dated February 8, 2008 to First
Bancshares's Board of Directors that the repurchase price of $21.00 was fair,
from a financial point of view, as of the date of the opinion.
Index Capital received fees for issuing valuation and fairness opinions
regarding the reverse stock split as discussed herein. First Bancshares has
also agreed to reimburse Index Capital for all reasonable out-of-pocket
expenses and disbursements incurred in connection with its engagement and to
indemnify Index Capital against certain expenses and liabilities.
Availability of Documents
Index Capital's fairness opinion is attached as Appendix B to this Proxy
Statement. In addition, the opinion, as well as the valuation opinion and
other reports prepared by Index Capital in conjunction with this transaction,
will be made available for inspection and copying by seeing our Corporate
Secretary at our principal executive offices, located at 142 East First
Street, Mountain Grove, Missouri, during our regular business hours by any
interested stockholder or representative who has been designated in writing. A
copy of these materials will also be sent to any interested stockholder or
representative who has been designated in writing, upon written request and at
the expense of the requesting stockholder. In addition, these materials were
filed as exhibits to First Bancshares's Schedule 13E-3 filed on February 22,
2008 and may therefore also be accessed via the EDGAR system on the SEC
website at www.sec.gov.
Structure of the Split Transaction
The proposed transaction has been structured as a two-step stock Split
Transaction to allow stockholders holding a few number of shares to easily
obtain the fair value in cash for their shares, to avoid disruption to
stockholders of 1,000 or more shares who would not be cashed out in the
transaction, and to limit the costs of the Split Transaction by avoiding costs
associated with cashing out the fractional shares of the holders of 1,000 or
more shares of common stock.
The Board of Directors intends the transaction to take effect at the
beneficial stockholder level. Nominees will be asked to effect the Split
Transaction for their beneficial owners. However, nominees may choose not to
effect the Split Transaction on some street name shares, and some nominees may
have different procedures that stockholders must follow. If you hold your
shares in "street name," you should talk to your broker, nominee or agent to
determine how they expect the Split Transaction to affect you. See "SUMMARY
TERM SHEET -- Structure of the Split Transaction."
Effects of the Split Transaction on First Bancshares
The Split Transaction will have various effects on us, which are
described below.
Effect of the Proposed Transaction on Common Stock and Trading of Common
Stock. The Articles currently authorize the issuance of 8,000,000 shares of
common stock. The number of authorized shares of common stock will remain
unchanged after completion of the Split Transaction. As of the valuation date,
the number of outstanding shares of common stock was 1,550,815. Based upon our
best estimates, if the Split Transaction had been consummated as of the record
date, the number of outstanding shares of common stock would have been reduced
approximately 7.72% from 1,550,815 to approximately 1,431,079, cash would have
been paid for approximately 119,736 shares, and the number of registered
record stockholders would have been reduced from approximately 495 to
approximately 125.
Our common stock is publicly traded on the NASDAQ Global Market under the
symbol FBSI, and we will not be able to trade our common stock on NASDAQ
Global Market after we become a non-SEC-reporting. We anticipate that our
common stock will be traded on the OTCBB or in the pink sheets electronic
quotation system following the completion of the Split Transaction.
Termination of Securities Exchange Act Registration and Reporting
Requirements
Upon the completion of the Split Transaction, we expect that our common
stock will be held by fewer than 300 record stockholders. Accordingly, our
obligation to continue to file periodic reports with the SEC will be suspended
pursuant to Rule 12h-3 of the Securities Exchange Act of 1934.
41
The suspension of the filing requirement will substantially reduce the
information required to be furnished by us to our stockholders and to the SEC.
Therefore, we estimate that we will eliminate annual costs associated with
these filing requirements, which for fiscal 2007 were approximately $186,000.
These costs are broken down as follows:
Legal expense $115,000
Auditing and accounting expense 31,000
NASDAQ listing expense 27,000
Transfer agent expense 9,000
Printing expense 4,000
--------
$186,000
========
Comparable totals for fiscal 2008 and 2009 are forecast to be $199,000
and $215,000, respectively. An additional expenditure of approximately
$250,000 is anticipated for 2008 if First Bancshares remains a public company
in order to comply with the requirements of Sarbanes-Oxley Section 404.
We will apply for termination of the registration of our common stock and
suspension of our SEC reporting obligations as soon as practicable following
completion of the Split Transaction. Following completion of the Split
Transaction, we intend to continue to provide our stockholders with financial
information by continuing to disseminate annual reports.
Elimination of Non-Continuing Stockholders
As a result of the Split Transaction, all shares held by non-continuing
stockholders will be converted into the right to receive $21.00 in cash. As a
result, the non-continuing stockholders will not have the opportunity to
participate in our earnings and growth after the Split Transaction. Similarly,
the non-continuing stockholders will not face the risk of losses generated by
our operations or any decline in our value after the Split Transaction. For
more effects of the Split Transaction on our stockholders, see "--Fairness of
the Split Transaction."
Financial Effects of the Split Transaction
We expect that the Split Transaction and the use of approximately $2.7
million in cash to complete the Split Transaction, which includes
approximately $2.5 million to be paid to non-continuing stockholders in
exchange for their shares, and approximately $188,000 in professional fees,
printing and mailing costs, filing fees, and other expenses related to the
Split Transaction, will not have any material adverse effect on our capital
adequacy, liquidity, results of operations or cash flow. The amount to be paid
to non-continuing stockholders may change as a result of trading activity in
our shares between the date hereof and the effective date of the Split
Transaction. See "-- Fees and Expenses" for a description of the fees and
expenses we expect to incur in connection with the split transaction. See "--
Financing of the Split Transaction" below for a description of how the Split
Transaction will be financed.
Effect on Options
Upon effectiveness of the Split Transaction, the number of shares of
common stock subject to outstanding options under First Bancshares's stock
option plans will be the same and the existing number and the exercise prices
of the options will also remain unchanged.
Effect on Conduct of Business after the Transaction
We expect our business and operations to continue as they are currently
being conducted and the transaction is not anticipated to have any effect upon
the conduct of our business. On March 1, 2007 First Bancshares suspended the
payment of dividends on it common stock. The Board of Directors of First
Bancshares will continue to reassess this policy based on First Bancshares's
results of operations, financial position, asset quality and capital needs.
No changes in our Board of Directors or Executive Officers are anticipated to
result from the Split Transaction.
42
Plans or Proposals
As described above, First Bancshares during the last 24 months considered
possible affiliations with other financial institutions within and outside of
its market area although it never engaged in serious negotiations with any
such potential merger parties and is not engaged in any discussions with such
parties at this time. First Bancshares has no present plans to engage in a
merger with or acquisition of any financial institutions. Other than as
described in this Proxy Statement, First Bancshares has no current plans or
proposals to effect any extraordinary corporate transaction, either with
respect to First Bancshares or First Home Savings Bank, such as a merger,
reorganization or liquidation, to sell or transfer any material amount of our
or First Home Savings Bank's assets, to change either the Board of Directors
or management, to change materially our indebtedness or capitalization, or
otherwise to effect any material change in our corporate structure or business
or that of First Home Savings Bank. Although First Bancshares does not
presently have any intent to enter into any transaction described above,
either at the holding company or First Home Savings Bank level, nor is our
management in negotiations with respect to any such transaction, there is
always a possibility that we may enter into such an arrangement or transaction
in the future, including, but not limited to, entering into a merger or
acquisition transaction, making a public or private offering of our shares or
entering into any other arrangement or transaction we may deem appropriate. In
such event, our continuing stockholders may receive payment for their shares
in any such transaction lower than, equal to or in excess of the amount paid
to the non-continuing stockholders in the Split Transaction. Any acquisition
strategy is dependent upon the opportunities that might arise, and there can
be no certainty that any such transactions will occur.
Interests of Certain Persons in the Split Transaction
It is not anticipated that the Split Transaction will have any effect on
the Directors and Executive Officers of First Bancshares, other than with
respect to their relative share ownership. We do not expect that any of our
Directors or Executive Officers will hold between one and 1,000 shares at the
effective time of the Split Transaction, and therefore they will continue to
own the same number of shares after the Split Transaction.
Because total outstanding shares will be reduced, the Directors and
Executive Officers as a group will hold a larger relative percentage of First
Bancshares. As of the record date, these Directors and Executive Officers
collectively held 56,771 shares, or 3.7% of our common stock. Based upon our
estimates, taking into account the effect of the Split Transaction on our
outstanding shares as described above, the Directors and Executive Officers
will hold 4.0% of our common stock following the Split Transaction. For
additional information regarding the beneficial ownership of First
Bancshares's Directors and Executive Officers and their related persons, see
"ELECTION OF DIRECTORS -- Security Ownership of Certain Beneficial Owners and
Management."
This represents a potential conflict of interest because the Directors of
First Bancshares approved the split transaction and are recommending that you
approve it. Despite this potential conflict of interest, the Board of
Directors believes the proposed Split Transaction is fair to our unaffiliated
stockholders for the reasons discussed in this Proxy Statement.
Financing of the Split Transaction
Based upon an analysis of First Bancshares's stockholder base as of July
3, 2007, First Bancshares expected that the Split Transaction would require
approximately $2.7 million in cash, which included approximately $2.5 million
to be paid to non-continuing stockholders in exchange for their shares and
approximately $188,000 in professional fees, printing and mailing costs,
filing fees, and other expenses payable by us related to the Split
Transaction. See "-- Fees and Expenses" for a breakdown of the expenses
associated with the Split Transaction. If there is an increase in stock price
as a result of the Split Transaction, the amount payable to non-continuing
stockholders will change, and the cost of the transaction could increase
significantly, as a result of further trading activity in our shares between
the date hereof and the effective date of the Split Transaction. It is
anticipated that First Home Savings Bank will pay a dividend of approximately
$2.7 million to First Bancshares in connection with this transaction, subject
to prior notification to the OTS, which will provide sufficient working
capital at the holding company level to pay these amounts or projected
increases in these amounts. In no event will First Home Savings Bank increase
the dividend payment to First Bancshares. to more than $5.0 million.
43
Federal Income Tax Consequences
The following discusses the material federal income tax consequences to
us and our stockholders that would result from the Split Transaction. No
opinion of counsel or ruling from the Internal Revenue Service has been sought
or obtained with respect to the tax consequences of the Split Transaction, and
the conclusions contained in this summary are not binding on the Internal
Revenue Service. This discussion is based on existing United States federal
income tax law, which may change, even retroactively. This discussion does not
discuss all aspects of federal income taxation that may be important to you in
light of your individual circumstances. In particular, it does not address the
federal income tax considerations applicable to certain types of stockholders,
such as: financial institutions; insurance companies; tax-exempt
organizations; dealers in securities or currency; traders in securities that
elect mark-to-market; persons who hold our common stock as part of a straddle,
hedge, risk reduction, constructive sale, or conversion transaction; persons
who are considered foreign persons for U.S. federal income tax purposes, or
who acquired their shares of First Bancshares common stock through the
exercise of an employee stock option or otherwise as compensation. In
addition, this discussion does not address any state, local, foreign or other
tax considerations. This discussion also assumes that you have held and, in
the case of continuing stockholders will continue to hold, your shares as
capital assets within the meaning of the Internal Revenue Code of 1986, as
amended, which we refer to as the Code. Stockholders are encouraged to consult
their own tax advisor as to the particular federal, state, local, foreign and
other tax consequences of the Split Transaction, in light of their individual
circumstances.
First Bancshares. The Split Transaction will constitute a tax-free
"recapitalization" for federal income tax purposes, within the meaning of
Section 368(a)(1)(E) of the Code, meaning that First Bancshares will not
recognize any gain or loss with respect to the transaction.
Affiliated and Unaffiliated Stockholders Who Receive No Cash. If you
continue to hold First Bancshares common stock immediately after the Split
Transaction, then you will only receive stock and will not receive any cash as
a result of the Split Transaction. Thus you will not recognize any gain or
loss or dividend income in connection with the transaction and you will have
the same adjusted tax basis and holding period in your First Bancshares common
stock as you had in such stock immediately prior to the Split Transaction.
Affiliated and Unaffiliated Stockholders Who Receive Cash. If you receive
cash for your First Bancshares common stock as a result of the Split
Transaction, you will be treated as having had your shares redeemed by First
Bancshares and you will recognize gain or loss on the redeemed shares equal to
the difference between the cash and your adjusted tax basis in the redeemed
shares. Any recognized gain will be treated as capital gain unless the receipt
of cash is deemed to have the effect of a dividend under Section 302 of the
Code, in which case the gain will be treated: (a) first, as a taxable dividend
to the extent of your allocable share of First Bancshares's accumulated
earnings and profits, if any; (b) second, as a tax-free return of capital to
the extent of your adjusted tax basis in the redeemed shares; and (c) finally,
any remaining amount as capital gain. Under the principles of Section 302, you
will recognize capital gain rather than dividend income with respect to the
cash received if the redemption is (1) "not essentially equivalent to a
dividend," (2) is "substantially disproportionate," or (3) is a "complete
termination" of the your interest in First Bancshares. In applying the
principles of Section 302, the constructive ownership rules of Section 318 of
the Code will apply in determining your ownership interest in First
Bancshares. Whether a redemption by First Bancshares is "not essentially
equivalent to a dividend" with respect to you will depend on whether the
redemption was a "meaningful reduction" of your interest in First Bancshares
based on the facts and circumstances. For example, if (1) you exercise no
control over the affairs of First Bancshares (e.g., you are not an officer,
director, or high ranking employee), (2) your relative stock interest in First
Bancshares is minimal, and (3) your post-Split Transaction ownership
percentage is less than your pre-Split Transaction ownership percentage, then
your receipt of cash would be generally regarded as "not essentially
equivalent to a dividend." A redemption would be "substantially
disproportionate" and, therefore, would not have the effect of a distribution
of a dividend with respect to you if the percentage of First Bancshares shares
of common stock actually and constructively owned by you immediately after the
redemption is less than 80% of the percentage of all shares of First
Bancshares common stock actually and constructively owned by you immediately
before the redemption. Your interest in First Bancshares is "completely
terminated" if all of First Bancshares shares of common stock actually and
constructively owned by you are redeemed, unless you make a waiver of family
attribution election and file it with the Internal Revenue Service pursuant to
Section 302(c) of the Code in which case the First Bancshares common stock
constructively owned by you does not have to be redeemed.
44
Any capital gain will be long-term capital gain subject to a rate not to
exceed 15% if, as of the date of the exchange, the holding period for your
First Bancshares shares is greater than one year. Any gain recognized by you
and classified as a dividend under Section 302 of the Code will be treated as
either ordinary income or qualified dividend income. Any gain treated as
qualified dividend income will be taxable to you, if you are an individual
stockholder, at the long-term capital gains rate, provided that you held the
shares giving rise to such income for more than 61 days during the 121 day
period beginning 60 days before the closing date. Gain treated as ordinary
income will be taxed at ordinary income rates.
Payments of cash to you for the surrender of your redeemed shares of
First Bancshares common stock will be subject to information reporting and
"backup" withholding at a rate of 28% of the cash payment, unless you furnish
First Bancshares with your taxpayer identification number in the manner
prescribed in applicable Treasury Regulations, certify that such number is
correct, certify as to no loss of exemption from backup withholding, and
satisfy certain other conditions. Backup withholding is not an additional tax.
Any amounts withheld from payments to you under the backup withholding rules
will be allowed as a refund or credit against your United States federal
income tax liability, provided the required information is furnished to the
Internal Revenue Service.
As explained above, the amounts paid to you as a result of the Split
Transaction may result in dividend income, capital gain income, or some
combination of dividend and capital gain income to you depending on your
individual circumstances. The foregoing discussion of material United States
federal income tax consequences of the Split Transaction set forth above
represents general information only and is based upon the Code, its
legislative history, existing and proposed regulations thereunder, published
rulings and decisions, all as currently in effect as of the date hereof, and
all of which are subject to change, possibly with retroactive effect. You
should consult your tax advisor as to the particular federal, state, local,
foreign and other tax consequences of the Split Transaction, as well as the
applicability of the alternative minimum tax to you, in light of your specific
circumstances.
Dissenters' Rights
Even though we are not required to do so under Missouri law, we are
providing our non-continuing stockholders dissenters' rights with respect to
the Split Transaction for those stockholders who dissent from the Split
Transaction. If you follow the procedures set forth in Section 351.455 of the
Missouri General and Business Corporations Law, these rights will entitle you
to receive the fair value of your shares of First Bancshares common stock
rather than having your shares converted into the right to receive the cash
payment. Accompanying this Proxy Statement as Appendix C is a copy of the text
of Section 351.455 of the Missouri General and Business Corporations Law,
which prescribes the procedures for the exercise of dissenters' rights and for
determining the fair value of First Bancshares common stock. First
Bancshares's stockholders electing to exercise dissenters' rights must comply
with the provisions of Section 351.455 of the Missouri General and Business
Corporations Law in order to perfect their rights. First Bancshares will
require strict compliance with the statutory procedures.
The following is intended as a brief summary of the material provisions
of the Missouri statutory procedures required to be followed by a stockholder
in order to dissent from the merger and perfect the shareholder's dissenters'
rights. This summary, however, is not a complete statement of all applicable
requirements and is qualified in its entirety by reference to Section 351.455
of the Missouri General Business and Corporations Law, the full text of which
appears in Appendix C of this Proxy Statement.
If you wish to exercise your dissenters' rights, you must satisfy each of
the following conditions:
* You must deliver to First Bancshares prior to or at the Annual
Meeting a written objection to the Split Transaction. This written
objection must be in addition to and separate from any proxy or vote
abstaining from or against the Split Transaction. Voting against or
failing to vote for the Split Transaction by itself does not
constitute a written objection within the meaning of Section
351.455.
* You must not vote in favor of the Split Transaction. An abstention
or failure to vote will satisfy this requirement, but a vote in
favor of the Split Transaction, by proxy or in person, will
constitute a waiver of your dissenters' rights in respect of the
shares so voted and will nullify any previously filed written
objection.
45
* You must make a written demand on First Bancshares, within 20 days
after the Split Transaction is consummated for the fair value of
your shares. This written demand must be in addition to and separate
from any written objection delivered to First Bancshares at or prior
to the Annual Meeting.
First Bancshares will notify all non-continuing stockholders who deliver
a written objection to First Bancshares and who do not vote in favor of the
Split Transaction of the completion of the Split Transaction. The fair value
of dissenters' shares shall be determined as of the day prior to the Annual
Meeting.
If within 30 days after the completion of the Split Transaction, the
value of a dissenting stockholder's shares is agreed upon between the
dissenting stockholder and First Bancshares, payment for the dissenting
stockholder's shares will be made within 90 days after the completion of the
Split Transaction upon surrender of the certificate(s) representing such
shares.
If within 30 days after the completion of the Split Transaction the
dissenting stockholder and First Bancshares do not agree as to the fair value
of such stockholder's shares, then, within 60 days after such 30 day period,
the dissenting stockholder may file a petition asking for a finding and
determination of the fair value of such shares, and shall be entitled to
judgment against First Bancshares for the amount of such fair value as of the
day prior to the Annual Meeting, together with interest thereon. The "fair
value" determined by the court may be more or less than the amount offered to
First Bancshares stockholders in the Split Transaction. The judgment will be
payable only upon the surrender of the dissenting stockholder's certificates
representing such stockholder's shares of First Bancshares common stock. A
dissenting shareholder who does not file a petition within the specified time
frame will be conclusively presumed to have approved the Split Transaction as
described above and will receive cash in the amount of $21.00 per share,
without interest, as described above in exchange for his or her shares.
The foregoing discussion of the law relating to dissenters' rights is not
a complete statement of such rights. THIS DISCUSSION AND APPENDIX C SHOULD BE
REVIEWED CAREFULLY BY ANY STOCKHOLDER WHO WISHES TO EXERCISE STATUTORY
DISSENTERS' RIGHTS OR WHO WISHES TO PRESERVE THE RIGHT TO DO SO BECAUSE
FAILURE TO STRICTLY COMPLY WITH SUCH PROCEDURES WILL RESULT IN THE LOSS OF
DISSENTERS' RIGHTS.
There may exist other rights or actions under Missouri law or federal or
state securities laws for stockholders who can demonstrate that they have been
damaged by the Split Transaction. Although the nature and extent of these
rights or actions are uncertain and may vary depending upon facts or
circumstances, stockholder challenges to corporate actions in general are
related to the fiduciary responsibilities of corporate officers and directors
and to the fairness of corporate transactions.
Regulatory Requirements
In connection with the Split Transaction, we will be required to make a
number of filings with, and obtain a number of approvals from, various federal
and state governmental agencies, including:
* filing of certificates of amendment to the Articles with the
Missouri Secretary of State, in accordance with Missouri law;
and
* complying with federal and state securities laws, including
filing of this Proxy Statement on Schedule 14A and a
transaction statement on Schedule 13E-3 with the SEC.
Accounting Treatment
We anticipate that we will account for the Split Transaction by treating
the shares repurchased in the Split Transaction as treasury shares.
46
Fees and Expenses
We will be responsible for paying the Split Transaction related fees and
expenses. We estimate that our expenses will total approximately $188,000,
assuming the Split Transaction is completed. This amount consists of the
following estimated fees:
Legal expense $120,000
Valuation and fairness opinions expense 35,000
Transfer agent expense 20,000
NASDAQ expense 7,500
Other expense 5,500
--------
$188,000
========
SELECTED HISTORICAL AND PRO FORMA FINANCIAL DATA
Set forth below is our selected historical and pro forma consolidated
financial information. The historical financial information was derived from
the audited consolidated financial statements included in our Annual report on
Form 10-KSB for the fiscal year ended June 30,2007, from the unaudited
consolidated financial statements included in our Quarterly Report on Form 10-
QSB for the quarter ended December 31, 2007, and from other information and
data contained in the Annual Report and the Quarterly Report. The Annual
Report and the Quarterly Report are incorporated herein by reference in their
entirety. More comprehensive financial information is included in the Annual
Report and Quarterly Report. The financial information that follows is
qualified in its entirety by reference to, and should be read in conjunction
with, the Annual Report and Quarterly Report, and all of the financial
statements and related notes contained in the Annual Report and Quarterly
Report, copies of which may be obtained as set forth below under the caption
"Available Information."
The following summary pro forma financial information is based on
historical data, adjusted to give effect to the cash payment for fractional
shares resulting from the transaction, and expenses related to the
transaction. The pro forma financial information is based on the assumption
that an aggregate of 119,736 shares will result in fractional shares and will
be purchased for approximately $2.5 million, plus $188,000 in related costs.
We have not included pro forma income statement data, which would reflect only
a decrease in interest income, resulting from the use of investable cash to
repurchase shares, and cost savings of $449,000 in fiscal 2008.
The following summary unaudited selected consolidated financial
information gives effect to the transaction as if it had occurred on July 1,
2007. The pro forma information set forth below is not necessarily indicative
of what our actual financial position would have been had the transaction been
consummated as of the above referenced dates or of the financial position that
may be reported by us in the future.
47
FIRST BANCSHARES, INC.
SELECTED CONSOLIDATED FINANCIAL INFORMATION
(Dollars in thousands, except per share data)
Fiscal Year
Ended June 30, Six Months
------------------- Ended
December 31,
2006 2007 2007 Change Pro Forma
-------- -------- --------- -------- --------
Cash, investments and
cash equivalents $ 23,474 $ 21,030 $ 22,152 $ (2,702) $ 19,450
Loans 141,987 158,993 158,732 158,732
Other assets 62,934 61,308 62,562 62,562
-------- -------- --------- -------- --------
Total Assets $228,395 $241,331 $ 243,446 $ (2,702) $240,744
======== ======== ========= ======== ========
Deposits $179,141 $190,090 $191,991 $ $191,991
Borrowings 22,000 24,103 23,136 23,136
Other liabilities 963 670 1,067 1,067
-------- -------- -------- -------- --------
Total Liabilities 202,104 214,863 216,194 - 216,194
Common Stock 29 29 29 29
Surplus 17,852 17,936 17,984 17,984
Retained earnings 27,703 27,851 28,163 28,163
Treasury stock (19,085) (19,113) (19,113) (2,702) (21,815)
Accumulated other
comprehensive loss (208) (235) 189 189
-------- -------- -------- -------- --------
Total Stockholders
Equity 26,291 26,468 27,252 (2,702) 24,550
-------- -------- -------- -------- --------
Total Liabilities
and Stockholders
Equity $228,395 $241,331 $243,446 $ (2,702) $240,744
======== ======== ======== ======== ========
Book value per share $ 16.93 $ 17.07 $ 17.57
======== ======== ========
Pro forma book value
per share $ 17.15
========
Interest income $ 12,913 $ 13,724 $ 7,552
Interest expense 5,987 7,354 4,068
Provision for loan
losses 1,520 426 152
-------- -------- --------
Net interest income
after provision
for loan losses 5,406 5,944 3,332
-------- -------- --------
Noninterest income 1,481 2,304 1,465
Noninterest expense 7,151 8,094 4,279
-------- -------- --------
Net income before
income taxes (264) 154 518
-------- -------- --------
Income taxes (91) (118) 206
-------- -------- --------
Net income (loss) $ (173) $ 272 $ 312
======== ======== ========
Basic earnings (loss)
per common share $ (0.11) $ 0.18 $ 0.20
======== ======== ========
Diluted earnings (loss)
per common share $ (0.11) $ 0.18 $ 0.20
======== ======== ========
48
MARKET PRICE OF FIRST BANCSHARES
COMMON STOCK AND DIVIDEND INFORMATION
First Bancshares's shares are traded on the NASDAQ Global Market under
the trading symbol "FBSI." The following table sets forth, for the periods
indicated, the high and low closing sale prices for the common stock, as
reported by The NASDAQ Global Market, and the dividends paid on the common
stock:
Fiscal 2008 High Low Dividend
----------- ---- ----- --------
Second Quarter $17.50 $15.00 N/A
First Quarter $17.51 $15.15 N/A
Fiscal 2007
-----------
Fourth Quarter $17.00 $15.10 N/A
Third Quarter $17.50 $16.41 N/A
Second Quarter $17.99 $16.00 $.04
First Quarter $17.15 $16.00 $.04
Fiscal 2006
-----------
Fourth Quarter $18.18 $16.46 $.04
Third Quarter $18.73 $16.60 $.04
Second Quarter $19.39 $15.95 $.04
First Quarter $20.23 $15.95 $.04
There were _____ record holders of our common stock on ____, 2008.
We have a formal dividend policy. Regulations issued by the OTS govern
First Bancshares's capital requirements and may affect the amount of dividends
we can pay. Generally, the timing and amount of future dividends on our shares
will depend on earnings, cash requirements, our and First Home Savings Bank's
financial condition, applicable government regulations and other factors that
our Board of Directors deems relevant.
Federal regulations prohibit banking companies from paying dividends on
their stock if the effect would cause stockholders' equity to be reduced below
applicable regulatory capital requirements or if such declaration and payment
would otherwise violate regulatory requirements.
As of June 30, 2007, First Home Savings Bank is restricted from declaring
dividends to First Bancshares in an amount greater than $5.0 million, based on
preliminary discussions with the OTS regarding the Stock Split Transaction.
49
COMMON STOCK PURCHASE INFORMATION
First Bancshares has effected the following repurchases of its shares
during the last two fiscal years:
Maximum
Total Number Number of
of Shares Shares that
Purchased as may Yet Be
Total Number Average Part of Purchased
of Shares Price Paid Publicly Under the
Period Purchased per Share Announced Plan Plan
April 1-30, 2006 - - - 70,713
May 1-31, 2006 - - - 70,713
June 1-30, 2006 130 $16.73 130 70,583
---- ------ ------ ------
Total 130 $16.73 130 70,583
==== ====== ====== ======
April 1-30, 2007 500 $16.06 95,618 -
May 1-31, 2007 - -
June 1-30, 2007 - -
---- ------ ------ ------
Total 500 $16.06 95,618 -
==== ====== ====== ======
First Bancshares has ended its repurchase program, originally announced
in May 2004, in April 2007. No repurchase program has been in effect since
that time. There were no shares of common stock purchased by First Bancshares
between July 1, 2007 and _______, 2008.
Since June 30, 2005, the only purchases of shares of First Bancshares by
Directors or Executive Officers is as follows. On March 1, 2006 and May 17,
2006, Director Thomas M. Sutherland acquired 250 and 500 shares, respectively
in a custodial account of a minor child at prices of $17.45 and $19.20
respectively. On March 7, 2006 Director Harold Glass acquired 500 shares at
$17.50 per share.
ELECTION OF DIRECTORS
Our Board of Directors consists of six members and is divided into three
classes. One-third of the directors are elected annually to serve for a
three-year period or until their respective successors are elected and
qualified. The Nominating Committee of the Board of Directors selects
nominees for election as directors. Both of our nominees currently serve as
directors. Each nominee has consented to being named in this Proxy Statement
and has agreed to serve if elected. If a nominee is unable to stand for
election, the Board of Directors may either reduce the number of directors to
be elected or select a substitute nominee. If a substitute nominee is
selected, the proxy holders will vote your shares for the substitute nominee,
unless you have withheld authority. At this time, we are not aware of any
reason why a nominee might be unable to serve if elected.
The Board of Directors recommends a vote "FOR" the election of Billy E.
Hixon and John G. Moody.
The following table provides information regarding the nominees for
election at the meeting and each director continuing in office. Unless
otherwise indicated, the principal occupation listed for each person below has
been his occupation for the past five years.
50
Year
First Year
Age Elected Term
Name (1) Principal Occupation Director (2) Expires
----------------- --- ------------------------------- ----------- -------
BOARD NOMINEES
Billy E. Hixon 60 Retired partner from regional
CPA firm of BKD, LLP 2005 2010 (3)
John G. Moody 55 Judge of the 44th Missouri
Judicial Circuit 1993 2010 (3)
DIRECTORS CONTINUING IN OFFICE
D. Mitch Ashlock 50 President and Chief Executive
Officer of First Federal of
Olathe Bancorp, Inc. and First
Federal Savings and Loan
Association of Olathe 2006 (5) 2008
Thomas M.
Sutherland (4) 56 One of the owners and operators
of the Sutherlands Home
Improvement Centers group
of stores 2004 2008
Harold F. Glass 66 Partner of Millington, Glass &
Love, a law firm located in
Springfield, Missouri 1978 2009
Daniel P. Katzfey 45 President and Chief Executive
Officer of First Bancshares
and First Home Savings Bank 2007 (6) 2009
(1) At June 30, 2007.
(2) Includes prior service on the Board of Directors of First Home Savings
Bank.
(3) Assuming election at the Annual Meeting.
(4) Mr. Sutherland serves as Chairman of the Board of Directors of First
Bancshares and First Home Savings Bank.
(5) Mr. Ashlock was appointed to the Board of Directors as of December 26,
2006 to fill a vacancy created by an increase in the size of the Board of
Directors from five to six directors.
(6) Mr. Katzfey was appointed to the Board of Directors as of March 30, 2007
to fill the vacancy created by the resignation of James W. Duncan.
In addition to our six directors, R.J. Breidenthal has served as an
advisory director since December 2006. Mr. Breidenthal does not own any
shares of First Bancshares common stock as of January 31, 2008.
51
Meetings and Committees of the Board of Directors
and Corporate Governance Matters
Board of Directors
The Boards of Directors of First Bancshares and First Home Savings Bank
conduct their business through Board and committee meetings. The Boards of
Directors meet monthly and hold additional special meetings as needed. During
the fiscal year ended June 30, 2007, the Board of Directors of First
Bancshares held 15 meetings and the Board of Directors of First Home Savings
Bank held 15 meetings. No director of First Bancshares or First Home Savings
Bank attended fewer than 75% of the total meetings of the Boards of Directors
and committee meetings on which he served during this period.
Committees and Committee Charters
The Board of Directors of First Bancshares has standing Executive, Audit,
Compensation and Nominating Committees, and has adopted written charters for
each of these committees except the Executive Committee. Although copies of
our Audit, Compensation and Nominating Committee charters are not available on
our website, they are attached to our Annual Meeting proxy statement at least
once every three years or when the charter has been materially amended.
Copies of our Audit, Compensation and Nominating Committee charters are
attached to this year's Proxy Statement as Appendix D, Appendix E and Appendix
F, respectively. Stockholders may also obtain copies of these charters from
the Corporate Secretary, First Bancshares Inc., P.O. Box 777, Mountain Grove,
Missouri 65711.
Executive Committee
The Executive Committee consists of Messrs. Glass and Moody. The
Executive Committee meets for the purpose of acting as our long range planning
committee and taking any and all actions it deems necessary or appropriate
between regular meetings of the Board of Directors. This Committee did not
meet during fiscal 2007.
Audit Committee
The Audit Committee consists of Messrs. Sutherland, Moody and Hixon.
This Committee meets for the purpose of reviewing our audit procedures and the
report and performance of our independent auditor, and taking such other
actions and responsibilities as shall from time to time be deemed necessary or
appropriate by the Committee. The Audit Committee has a charter which
specifies its obligations and the Committee believes it has fulfilled its
responsibilities under the charter. Each member of the Audit Committee is
"independent," in accordance with the requirements for companies listed on The
Nasdaq Stock Market. The Board of Directors has determined that Billy E.
Hixon meets the definition of "audit committee financial expert," as defined
by the SEC. This Committee met four times during fiscal 2007.
Compensation Committee
Messrs. Glass and Ashlock are the members of the Compensation Committee.
Each member of the Committee is independent in accordance with the
requirements for companies listed on Nasdaq. The Compensation Committee has a
charter which specifies its obligations and the Committee believes it has
fulfilled its responsibilities under the charter. The Compensation Committee
met once during the fiscal year ended June 30, 2007.
The Compensation Committee's primary purpose is to oversee our
compensation policies and their specific application to our Chief Executive
Officer and Chief Financial Officer. The Committee is also responsible for
reviewing the goals and objectives of our compensation plans, and
administering these plans. The Committee evaluates on an annual basis the
performance of our Chief Executive Officer and Chief Financial Officer and
makes compensation recommendations to the full Board of Directors. In
addition, the Compensation Committee reviews the Chief Executive Officer's
evaluation of executive management and compensation recommendations. The
Committee is also responsible for reviewing director compensation. The
Compensation Committee has the authority to retain compensation consultants to
assist in the evaluation of the compensation of the directors, Chief Executive
Officer and Chief Financial Officer or other experts deemed necessary by the
Committee.
52
Nominating Committee
The Board of Directors also has a Nominating Committee, currently
consisting of Messrs. Moody, Hixon, Ashlock, Glass and Sutherland, for
selecting the nominees for election as directors. Each member of the
Committee is independent in accordance with the requirements for companies
listed on the Nasdaq Stock Market. The Nominating Committee met one time
during the fiscal year ended June 30, 2007.
Only those nominations made by the Committee or properly presented by
stockholders will be voted upon at the Annual Meeting. In its deliberations
for selecting candidates for nominees as director, the Nominating Committee
considers the candidate's knowledge of the banking business and involvement in
community, business and civic affairs, and also considers whether the
candidate would provide for adequate representation of First Home Savings
Bank's market area. Any nominee for director made by the Committee must be
highly qualified with regard to some or all these attributes. In searching for
qualified director candidates to fill vacancies in the Board of Directors, the
Committee solicits its current Board of Directors for names of potentially
qualified candidates. Additionally, the Committee may request that members of
the Board of Directors pursue their own business contacts for the names of
potentially qualified candidates. The Committee would then consider the
potential pool of director candidates, select the candidate the Committee
believes best meets the then-current needs of the Board of Directors, and
conduct a thorough investigation of the proposed candidate's background to
ensure there is no past history that would cause the candidate not to be
qualified to serve as a director of First Bancshares. The Committee will
consider director candidates recommended by our stockholders. If a stockholder
submits a proposed nominee, the Committee would consider the proposed nominee,
along with any other proposed nominees recommended by members of the Board of
Directors, in the same manner in which the Committee would evaluate its
nominees for director. For a description of the proper procedure for
stockholder nominations, see "STOCKHOLDER PROPOSALS" in this Proxy Statement.
Corporate Governance
We are committed to establishing and maintaining high standards of
corporate governance. The Board of Directors is cognizant of its
responsibility to comply with the provisions contained in the SOX, the rules
and regulations of the SEC adopted thereunder, and the Nasdaq Stock Market
with respect to corporate governance. The Board of Directors and its
committees will continue to evaluate and improve our corporate governance
principles and policies as necessary and as required.
Director Independence. First Bancshares's common stock is listed on the
Nasdaq Global Market. In accordance with the Nasdaq Stock Market
requirements, at least a majority of First Bancshares's directors must be
independent directors. The Board of Directors has determined that four of the
six directors are independent, as defined by the Nasdaq Stock Market.
Directors Ashlock, Hixon, Moody, Glass and Sutherland are all independent.
Daniel P. Katzfey, who is First Bancshares's President and Chief Executive
Officer is not independent.
Code of Ethics. On August 25, 2004, the Board Directors adopted the
Officer and Director Code of Ethics. The Code is applicable to each of First
Bancshares's directors and officers, including the principal executive officer
and senior financial officers, and requires individuals to maintain the
highest standards of professional conduct. The Code was included as Exhibit
14 to First Bancshares's Form 10-KSB for the year ended June 30, 2006. A copy
of the Code of Ethics is available upon request by contacting the Corporate
Secretary, First Bancshares, Inc., P.O. Box 777, Mountain Grove, Missouri
65711.
Stockholder Communication with the Board of Directors. The Board of
Directors maintains a process for stockholders to communicate with the Board
of Directors. A stockholder may communicate with the Board of Directors or
any individual director by mailing a written communication to the Corporate
Secretary, First Bancshares, Inc., P.O. Box 777, Mountain Grove, Missouri
65711. The Corporate Secretary will forward such communication to the full
Board of Directors or to any individual director or directors to whom the
communication is directed unless the communication is unduly hostile,
threatening, illegal or similarly inappropriate, in which case the Corporate
Secretary has the authority to discard the communication or take appropriate
legal action regarding the communication.
53
Annual Meeting Attendance by Directors. All directors are requested to
attend our annual meetings of stockholders. All directors attended the 2006
annual meeting of stockholders.
Related Party Transactions
First Home Savings Bank, like many financial institutions, has followed
the policy of granting loans to its officers, directors and employees on the
security of their primary residences and also makes consumer loans to these
persons. These loans are made in accordance with all applicable federal
requirements. At June 30, 2007, loans to directors and executive officers,
including immediate family members, totaled $528,752. These loans (1) were
made in the ordinary course of business, (2) were made on substantially the
same terms and conditions, including interest rates and collateral, as those
prevailing at the time for comparable transactions with First Home Savings
Bank's other customers and (3) did not involve more than the normal risk of
collectibility or present other unfavorable features when made.
Mr. Harold F. Glass, one of First Bancshares's directors, is a partner
with the law firm of Millington, Glass & Love, which serves as legal counsel
for First Bancshares, First Home Savings Bank and its subsidiary. In this
capacity, Millington, Glass & Love was paid $54,592 in fees and expense
reimbursement during the year ended June 30, 2007. Of these fees and expense
reimbursements, Mr. Glass's interest was approximately $18,200. These
services were rendered on terms no less favorable to First Bancshares and
First Home Savings Bank than those with unaffiliated third parties.
Directors' Compensation
The following table shows the compensation paid to First Bancshares's
non-employee directors for the year ended June 30, 2007. Compensation paid to
Daniel P. Katzfey, the President and Chief Executive Officer, and James W.
Duncan, the former President and Chief Executive Officer, is included in the
section entitled "Executive Compensation." The directors did not have any
stock awards outstanding, nor did they receive any non-equity plan
compensation or non-qualified deferred compensation earnings.
Fees Earned Option All Other
or Paid in Awards Compensa-
Name Cash ($) ($)(1) tion ($) Total ($)
------------------ ----------- ------- --------- ---------
D. Mitch Ashlock 3,000 - - 3,000
Harold F. Glass 6,600 - 4,411 (2) 11,011
Billy E. Hixon 6,600 538 - 7,138
John G. Moody 6,600 - - 6,600
James F. Moore (3) 3,000 - - 3,000
Thomas M. Sutherland 6,000 538 - 6,538
---------
(1) The amounts shown represent the dollar amount of expense recognized for
financial statement reporting purposes in 2007 for awards made in prior
years and being earned by the director ratably over a five-year period
from the date of the award. Amounts are calculated pursuant to the
provisions of Financial Accounting Standards Board Statement of Financial
Accounting Standards No. 123 (revised 2004), "Share-Based Payment" ("FAS
123R"). For a discussion of valuation assumptions, see Note 10 of the
Notes to Consolidated Financial Statements in First Bancshares's Annual
Report on Form 10-KSB for the year ended June 30, 2007. As of June 30,
2007, the directors other than the President and Chief Executive Officer
had an aggregate of 2,000 stock options outstanding.
(2) Consists of medical and dental insurance premiums.
(3) Dr. Moore's term on the Board of Directors expired as of the 2006 annual
meeting of stockholders.
54
Members of First Bancshares's Board of Directors do not receive any fees.
Members of First Home Savings Bank's Board of Directors currently receive a
fee of $600 per Board of Directors meeting, and Director Glass receives an
additional $200 per meeting for legal fees. Directors receive a fee of $250
for attendance at committee meetings except for attendance at loan committee
meetings for which they receive a fee of $125.
Executive Officers
The following table sets forth certain information with respect to the
executive officers of First Bancshares and First Home Savings Bank.
Name Age(1) Position
--------------------- ------ --------
Daniel P. Katzfey (2) 45 President and Chief Executive Officer
of First Bancshares and First Home Savings
Bank
James W. Duncan (3) 50 President and Chief Executive Officer
of First Bancshares and First Home Savings
Bank
Ronald J. Walters (4) 57 Senior Vice President, Treasurer and
Chief Financial Officer of First Bancshares
and First Home Savings Bank
Dale W. Keenan (5) 44 Executive Vice President and Senior
Lender of First Home Savings Bank
Adrian C. Rushing (6) 38 Chief Operating Officer of First Home Savings
Bank
--------------
(1) As of June 30, 2007.
(2) Mr. Katzfey was named Interim President and Chief Executive Officer of
First Bancshares and First Home Savings Bank by the Board of Directors on
December 22, 2006 following the resignation of James W. Duncan from those
positions. Mr. Katzfey was named President and Chief Executive Officer of
First Bancshares and First Home Savings Bank by the Board of Directors on
January 22, 2007. He originally joined both First Bancshares and First
Home Savings Bank as Chief Lending Officer on October 3, 2006.
(3) Mr. Duncan resigned as president and Chief Executive Officer of First
Bancshares and First Home Savings Bank on December 22, 2006 and as a
director of First Bancshares and First Home Savings Bank on January 26,
2007.
(4) Mr. Walters was named Senior Vice President, Treasurer and Chief
Financial Officer of both First Bancshares and First Home Savings Bank on
November 20, 2006. He replaced the previous Chief Financial Officer who
stepped down from those positions on September 18, 2006.
(5) Mr. Keenan was named Executive Vice President and Senior Lender of First
Home Savings Bank on March 11, 2007.
(6) Mr. Rushing was named Senior Vice President of First Home Savings Bank on
June 21, 2006, the date on which he joined First Home Savings Bank.
The principal occupation of each executive officer of First Bancshares is
set forth below. All executive officers reside in First Home Savings Bank's
primary trade area in Missouri, unless otherwise stated. There are no family
relationships among or between the executive officers, unless otherwise
stated.
Daniel P. Katzfey joined First Bancshares and First Home Savings Bank on
October 3, 2006 as Executive Vice President and Chief Lending Officer, was
named interim President and Chief Executive Officer on December 22, 2006 and
was appointed President and Chief Executive Officer on January 22, 2007.
Previously, Mr. Katzfey was Executive Vice President, Commercial Lender for
Village Bank, Springfield, Missouri from 2004 to 2006. Mr. Katzfey has over
twenty-two years experience in financial services.
55
James W. Duncan joined First Bancshares and First Home Savings Bank as
President and Chief Executive Officer effective December 16, 2005.
Previously, Mr. Duncan was the Executive Vice President and Chairman of the
Loan Department at Southern Missouri Bank and Trust Company in Poplar Bluff,
Missouri from 1999-2005. Effective December 22, 2006, Mr. Duncan resigned as
President and Chief Executive Officer of both First Bancshares and First Home
Savings Bank.
Ronald J. Walters joined First Bancshares and First Home Savings Bank on
November 20, 2006 as Senior Vice President, Treasurer and Chief Financial
Officer. Mr. Walters, a CPA, was previously Senior Vice President, Secretary,
Treasurer and Chief Financial Officer of Meta Financial Group and MetaBank in
Storm Lake, Iowa from 2003 to 2006. He has over thirty years experience in
financial services.
Dale W. Keenan joined First Home Savings Bank on March 11, 2007 as
Executive Vice President and Senior Lender. Mr. Keenan was previously a Senior
Vice President and Senior Lender for Heritage Bank of the Ozarks in Lebanon,
Missouri from 2003 to 2007. Mr. Keenan has over twenty-four years of
experience in financial services.
Adrian Rushing joined First Home Savings Bank on June 21, 2006 as Senior
Vice President and Chief Operating Officer. Mr. Rushing was previously Senior
Vice President, Chief Operations Officer with Southern Missouri Bank and
Trust, Poplar Bluff, Missouri from 1998 to 2006. Mr. Rushing has over sixteen
years experience in financial services.
Executive Compensation
Summary Compensation Table. The following table shows information
regarding 2007 compensation for First Bancshares's named executive officers:
(1) Daniel P. Katzfey, the principal executive officer; and (2) James W.
Duncan, the former principal executive officer. First Bancshares had no other
executive officers who earned in excess of $100,000 during the year ended June
30, 2007. The named executive officers did not have any stock awards
outstanding, nor did they receive any bonus, non-equity plan compensation or
non-qualified deferred compensation earnings.
Option All Other
Awards Compensa-
Name and Principal Position Year Salary ($) ($)(1) tion ($)(2) Total ($)
--------------------------- ---- --------- ------ ----------- ---------
Daniel P. Katzfey (3) 2007 100,223 19,760 1,812 121,795
President and
Chief Executive Officer
James W. Duncan (4) 2007 93,771 22,333 5,429 121,533
Former President and
Chief Executive Officer
---------
(1) The amounts shown represent the dollar amount of expense recognized for
financial statement reporting purposes in 2007 for awards made in the
current and prior years and being earned by the officer ratably over a
five-year period from the date of the award. Amounts are calculated
pursuant to the provisions FAS 123R. For a discussion of valuation
assumptions, see Note 10 of the Notes to Consolidated Financial
Statements in First Bancshares's Annual Report on Form 10-KSB for the
year ended June 30, 2007.
(2) Please see the table below for more information on the other compensation
paid to the named executive officers in the year ended June 30, 2007.
(3) Mr. Katzfey was appointed President and Chief Executive Officer on
December 29, 2006. Prior to that, he had served as Executive Vice
President and Chief Lending Officer since September 29, 2006.
(4) Mr. Duncan resigned as President and Chief Executive Officer on December
22, 2006.
56
All Other Compensation. The following table sets forth details of "All
Other Compensation," as presented above in the Summary Compensation Table.
401(k)
Contribution Directors' Automobile
Name ($) Fees ($) Allowance ($) Total ($)
----------------- ------------ ---------- ------------- ---------
Daniel P. Katzfey - 1,800 12 1,812
James W. Duncan 2,585 600 2,244 5,429
Employment Agreement and Potential Post-Employment Compensation.
Employment Agreement. First Home Savings Bank entered into an employment
agreement with Mr. Katzfey effective January 1, 2007. The agreement has a
term of one year and may be renewed by the Board of Directors for an
additional year each year unless First Home Savings Bank gives Mr. Katzfey 60
days prior written notice that the agreement will not be extended. The
agreement provides for a base salary which may not be reduced. Mr. Katzfey's
current base salary under the agreement is $145,430 and is subject to annual
review by the Board of Directors. Under the agreement, Mr. Katzfey is
eligible to participate in retirement and employee benefit programs available
to First Home Savings Bank's executive officers.
In the event of an involuntary termination (other than for cause or after
a change of control), First Home Savings Bank must pay to Mr. Katzfey his
salary for a period of six months following the termination, at the rate in
effect immediately prior to the date of termination, payable in such manner
and at such times as the salary would have been payable to Mr. Katzfey if he
had continued to be employed by First Home Savings Bank. An involuntary
termination is defined as: (1) the termination of Mr. Katzfey's employment by
First Home Savings Bank without his consent; (2) a material demotion of Mr.
Katzfey; or (3) the failure of First Home Savings Bank's Board of Directors to
elect Mr. Katzfey as President and Chief Executive Officer of First Home
Savings Bank or any action by the Board of Directors removing him from that
office. If Mr. Katzfey's employment had been terminated as of June 30, 2007
for any of these reasons, he would have been entitled to payments totaling
$72,715.
If Mr. Katzfey's employment terminates by reason of this death, First
Home Savings Bank will pay to his estate or other designee, an amount equal to
two months salary together with any other benefits provided under First Home
Savings Bank's insurance or retirement plan. If Mr. Katzfey had died on June
30, 2007, his estate or other designee would have been entitled to a payment
of $25,400.
In the event of Mr. Katzfey's involuntary termination in connection with,
or within 12 months before or after, a change in control of First Bancshares
or First Home Savings Bank, First Home Savings Bank will pay Mr. Katzfey a
lump sum in an amount equal to 299% of his "base amount" as defined in Section
280G of the Internal Revenue Code of 1986. If Mr. Katzfey's employment had
been terminated in connection with a change in control on June 30, 2007, he
would have received a lump sum payment of approximately $455,700. The
agreement contains a provision that if this payment and the value of benefits
received or to be received under the agreement, together with any other
amounts and the value of benefits received or to be received by Mr. Katzfey,
would cause any amount to be nondeductible by First Home Savings Bank for
federal income tax purposes, then the payments and benefits will be reduced to
maximize the amounts and value of benefits to be received by Mr. Katzfey
without causing any amount to become nondeductible.
Equity Plans. First Bancshares's 2004 Stock Option Plan and 2004
Management Recognition Plan provide for accelerated vesting of awards in the
event of a change in control. If a tender offer or exchange offer for First
Bancshares's common stock is commenced, or if a change in control occurs, all
options granted and not fully exercisable shall become exercisable in full
upon the happening of such event. With respect to unvested awards of
restricted stock, at the election of a participant that is made within 60 days
following such date, the restricted period shall lapse and all shares awarded
as restricted stock shall become fully vested in the participant to whom such
shares were awarded. If the participant does not make an election within 60
days following such tender offer, exchange offer or change in control, the
57
shares will continue to be vested in accordance with the other provisions of
the award. If a tender offer or exchange offer had commenced or a change in
control had occurred as of June 30, 2007, the named executive officers would
have received the following benefits:
Accelerated Vesting of Stock Accelerated Vesting of
Name Options ($)(1) Restricted Stock Awards ($)
------------------ ---------------------------- ---------------------------
Daniel P. Katzfey 3,200 --
James W. Duncan -- --
---------
(1) Reflects the excess of the fair market value of the underlying shares as
of June 30, 2007 over the exercise price of all unvested options.
The 2004 Management Recognition Plan provides that if a participant
incurs a termination of service by reason of death, disability or normal
retirement after attainment of age 65, the restricted period with respect to
the participant's restricted stock will lapse. The named executive officers
had no restricted stock awards outstanding as of June 30, 2007.
Outstanding Equity Awards. The following information with respect to
outstanding options and restricted stock as of June 30, 2007 is presented for
the named executive officers. The named executive officers had no equity
incentive plan awards outstanding.
Option Awards (1) Stock Awards (1)
-------------------------------------------------------- -----------------------
Number of Number of Market
Securities Securities Number of Value of
Underlying Underlying Shares or Shares or
Unexercised Unexercised Units of Units of
Options Options Option Stock That Stock That
(#) (#) Exercise Option Expir- Have Not Have Not
Grant Exer- Unexer- Price ation Vested Vested
Name Date cisable cisable ($) Date (#) ($)
------------------ ----- ---------- ---------- -------- ------------ ---------- ----------
Daniel P. Katzfey 11/09/06 2,000 8,000 16.10 11/09/16 - -
3/30/07 - 20,000 17.00 03/30/17 - -
James W. Duncan - - - - - -
----------
(1) Option and stock awards vest ratably over the five-year period from the grant date, with the first 20%
vesting one year after the grant date.
58
Equity Compensation Plan Information. The following table summarizes
share and exercise price information about First Bancshares's equity
compensation plans as of June 30, 2007.
(c)
Number of
securities
(a) remaining
Number of (b) available for
securities to Weighted- future issuance
be issued upon average under equity
exercise of exercise price compensation plans
outstanding of outstanding (excluding
options, options, securities
warrants and warrants and reflected in
Plan Category rights rights column (a))
----------------------- ------------- ------------- -----------------
Equity compensation plans
approved by security
holders:
Option Plan 64,500 $16.76 35,500
Restricted stock plan - - 50,000
Equity Compensation Plans
not approved by security
holders: - - -
------ ------ ------
Total 64,500 $16.76 85,500
====== ====== ======
Audit Committee Matters
Audit Committee Charter
The Audit Committee operates pursuant to a charter approved by our Board
of Directors. A copy of the charter is attached to this Proxy Statement as
Appendix D. The Audit Committee reports to the Board of Directors and is
responsible for overseeing and monitoring financial accounting and reporting,
the system of internal controls established by management and First
Bancshares' audit process. The charter sets out the responsibilities,
authority and specific duties of the Audit Committee. The charter specifies,
among other things, the structure and membership requirements of the Audit
Committee, as well as the relationship of the Committee to the independent
auditor, the internal audit department and our management.
Audit Committee Report
The Audit Committee has issued the following report with respect to the
audited financial statements of First Bancshares for the fiscal year ended
June 30, 2007:
* The Audit Committee has reviewed and discussed with management
the fiscal 2007 audited financial statements;
* The Audit Committee has discussed with McGladrey & Pullen, LLP,
the independent auditor, the matters required to be discussed
by Statement on Auditing Standards No. 61, Communication with
Audit Committees, as amended, as adopted by the Public Company
Accounting Oversight Board in Rule 3200T;
59
* The Audit Committee has received the written disclosures and
letter from the independent auditor required by Independence
Standards Board No. 1, Independence Discussions with Audit
Committee, as adopted by the Public Company Accounting
Oversight Board in Rule 3600T, and has discussed with the
independent auditor its independence from First Bancshares; and
* Based on the review and discussions referred to in the three
items above, the Audit Committee recommended to the Board of
Directors that the fiscal 2007 audited financial statements be
included in the Annual Report on Form 10-KSB for the fiscal
year ended June 30, 2007.
Submitted by the Audit Committee of First Bancshares's Board of Directors:
Billy E. Hixon
John G. Moody
Thomas M. Sutherland
This report shall not be deemed to be incorporated by reference by any general
statement incorporating by reference this Proxy Statement into any filing
under the Securities Act of 1933 or the Securities Exchange Act of 1934, and
shall not otherwise be deemed filed under such acts.
Security Ownership of
Certain Beneficial Owners and Management
The following table sets forth, as of January 31, 2008, information
regarding share ownership of:
* those persons or entities (or groups of affiliated persons or
entities) known by management to beneficially own more than
five percent of First Bancshares's common stock other than
directors and executive officers;
* each director and director nominee of First Bancshares;
* each executive officer of First Bancshares or First Home
Savings Bank named in the Summary Compensation Table appearing
under "Executive Compensation" above (known as "named executive
officers"); and
* all current directors and executive officers of First
Bancshares and First Home Savings Bank as a group.
Persons and groups who beneficially own in excess of five percent of
First Bancshares's common stock are required to file with the SEC, and provide
a copy to First Bancshares, reports disclosing their ownership pursuant to the
Securities Exchange Act of 1934. To First Bancshares's knowledge, no other
person or entity, other than those set forth below, beneficially owned more
than five percent of the outstanding shares of First Bancshares's common stock
as of the close of business on January 31, 2008
Beneficial ownership is determined in accordance with the rules and
regulations of the SEC. In accordance with Rule 13d-3 of the Securities
Exchange Act, a person is deemed to be the beneficial owner of any shares of
common stock if he or she has voting and/or investment power with respect to
those shares. Therefore, the table below includes shares owned by spouses,
other immediate family members in trust, shares held in retirement accounts or
funds for the benefit of the named individuals, and other forms of ownership,
over which shares the persons named in the table may possess voting and/or
investment power. In addition, in computing the number of shares beneficially
owned by a person and the percentage ownership of that person, shares of
common stock subject to outstanding options that are currently exercisable or
exercisable within 60 days after January 31, 2008 are included in the number
of shares beneficially owned by the person and are deemed outstanding for the
purpose of calculating the person's percentage ownership. These shares,
however, are not deemed outstanding for the purpose of computing the
percentage ownership of any other person.
60
Number of Shares Percent of
Beneficially Common Stock
Name Owned (1) Outstanding
----------------------------------- ---------------- ------------
Beneficial Owners of More Than 5%
Jeffrey L. Gendell (2) 108,880 7.02%
Tontine Financial Partners, L.P.
Tontine Management, L.L.C.
55 Railroad Avenue, 3rd Floor
Greenwich, Connecticut 06830
James W. Sight (3) 78,865 5.09
2100 Brookwood
Mission Hills, Kansas 66208
Directors
D. Mitch Ashlock - -
Harold F. Glass 45,649 2.94
Billy E. Hixon 400 0.03
John G. Moody 8,850 0.57
Thomas M. Sutherland (4) 2,672 0.17
Named Executive Officers
Daniel P. Katzfey (5) 6,000 0.39
James W. Duncan (6) 4,587 0.30
All Executive Officers and
Directors as a Group (seven persons) 68,158 4.08
----------
(1) The amounts shown include the following number of shares which the
indicated individuals have the right to acquire within 60 days of the
close of business on January 31, 2008, through the exercise of stock
options granted pursuant to First Bancshares's stock option plan: Mr.
Hixon, 400 shares; Mr. Sutherland, 400 shares; and Mr. Katzfey, 6,000
shares.
(2) Based on information disclosed in a Schedule 13D/A, dated September 10,
2003. According to this filing, Tontine Management, L.L.C., the general
partner of Tontine Financial Partners, L.P., has the power to direct
the affairs of Tontine Financial Partners, L.P., including decisions
respecting the receipt of dividends from, and the disposition of the
proceeds from the sale of, the shares. Mr. Gendell is the managing member
of Tontine Management, L.L.C., and in that capacity directs its
operations. Accordingly, Tontine Management, L.L.C., Tontine Financial
Partners, L.P. and Mr. Gendell have shared voting and dispositive power
with respect to the shares reported.
(3) Based on information disclosed in a Schedule 13D/A, dated March 6, 2007.
(4) Includes 1,355 shares held directly, 407 shares held in his wife's
individual retirement account, and 510 shares held in trust for one adult
child. The 2,672 shares does not include (a) shares held individually by
Mr. Sutherland's adult children not living in the household, estimated to
be approximately 93,500 shares, and, (b) shares estimated at approxi-
mately 172,000 held by other members of Mr. Sutherland's family, whose
beneficial ownership is determined by other rules of the SEC and of the
OTS.
(5) Mr. Katzfey is also a director of First Bancshares.
(6) Mr. Duncan resigned as the President and Chief Executive Officer of First
Bancshares and First Home Savings Bank effective December 22, 2006.
61
Section 16(a) Beneficial Ownership Reporting Compliance
Section 16(a) of the Securities Exchange Act requires our executive
officers and directors, and persons who beneficially own more than ten percent
of any registered class of First Bancshares' common stock, to file reports of
ownership and changes in ownership with the SEC and to provide copies of these
reports to us. Based solely on our review of the forms we have received and
written representations provided to us, we believe that during the fiscal year
ended June 30, 2007, all filing requirements applicable to our reporting
officers, directors and greater than ten percent beneficial owners were
properly and timely complied with.
Auditor
McGladrey & Pullen, LLP served as our independent auditor for the fiscal
year ended June 30, 2007. The Audit Committee of the Board of Directors has
appointed McGladrey & Pullen as the independent auditor for the fiscal year
ending June 30, 2008. A representative of McGladrey & Pullen will be present
at the Annual Meeting to respond to stockholders' questions and will have the
opportunity to make a statement if he or she so desires.
On April 26, 2006, the Audit Committee selected McGladrey & Pullen to
serve as our independent auditor for the fiscal year ending June 30, 2006. We
terminated the engagement of Kirkpatrick, Phillips & Miller, CPAs, P.C. as our
independent auditor effective April 26, 2006. The decision to change
accountants was approved by the Audit Committee and the Board of Directors on
April 26, 2006. In connection with the audit for the 2005 fiscal year and
through April 26, 2006, (1) there were no disagreements with Kirkpatrick,
Phillips & Miller on any matter of accounting principle or practice, financial
statement disclosure, auditing scope or procedure, whereby such disagreements,
if not resolved to the satisfaction of Kirkpatrick, Phillips & Miller, would
have caused them to make reference thereto in their report on the financial
statements for such years; and (2) there have been no reportable events (as
defined in Item 304(a)(1)(iv) of Regulation S-B).
We requested that Kirkpatrick, Phillips & Miller furnish us with a letter
addressed to the SEC, stating whether they agree with the foregoing
statements, and if not, stating the respects in which they do not agree. We
received this letter and filed it as an exhibit to our Current Report on Form
8-K filed on May 2, 2006.
The report of Kirkpatrick, Phillips & Miller on our financial statements
for fiscal year ended June 30, 2005 contained no adverse opinion or disclaimer
of opinion and was not qualified or modified as to uncertainty, audit scope or
accounting principles.
We had not consulted with McGladrey & Pullen during 2005 or the period
from July 1, 2005 through April 26, 2006, on either the application of
accounting principles to a specified transaction, either completed or
proposed, or the type of audit opinion McGladrey & Pullen might issue on our
financial statements.
The following table sets forth the aggregate fees billed, or expected to
be billed, to us by McGladrey & Pullen for professional services rendered for
the fiscal years ended June 30, 2007 and 2006.
June 30,
2007 2006
------ ------
Audit Fees (1) $133,629 $136,270
Audit-Related Fees -- --
Tax Fees 15,749 12,500
All Other Fees -- --
The Audit Committee will establish general guidelines for the permissible
scope and nature of any permitted non-audit services to be provided by the
independent auditor in connection with its annual review of its charter. Pre-
approval may be granted by action of the full Audit Committee or by delegated
authority to one or more members of the Audit Committee. If this authority is
delegated, all approved non-audit services will be presented to the Audit
Committee at its next meeting. In considering non-audit services, the Audit
Committee or its delegate will consider various factors,
62
including but not limited to, whether it would be beneficial to have the
service provided by the independent auditors and whether the service could
compromise the independence of the independent auditors.
STOCKHOLDER PROPOSAL
PROPOSAL 4
Dr. Gary G. Roberts, Trustee, Marjory P. Roberts Trust Q, 3533 N.W. Grand
Boulevard, Oklahoma City, OK 73116, beneficial owner of 44,000 shares, has
submitted the following proposal for consideration at the Annual Meeting:
BE IT RESOLVED, that the stockholders of First Bancshares, Inc. recommend
that the Board of Directors take the necessary steps, in compliance with state
law, to declassify the Board of Directors for the purposes of election of
directors and establish annual elections of directors, whereby all of the
directors would be elected annually and not by classes. This declassification
of the Board of Directors would be applicable to the election of any new
director or the re-election of any incumbent director whose term, under the
current classified system, subsequently expires.
Stockholder's Supporting Statement. Our Company's Board of Directors is
divided into three classes, with approximately one-third of all directors
elected annually to three-year terms. In our opinion, this director
classification system, which results in only a portion of the Board of
Directors being elected annually, is not in the best interests of our Company
and its stockholders. We believe stockholders should have the opportunity to
vote on the performance of the entire Board of Directors each year.
In our view, the election of directors is the primary avenue for
stockholders to influence corporate governance policies and to hold management
accountable for implementing those polices. Eliminating this classification
system would require each director to stand for election annually and would
give stockholders an opportunity to register their views on the performance of
the Board of Directors collectively and each director individually.
We believe that electing directors annually is one of the best methods
available to stockholders to ensure that our Company is managed in the
appropriate interests of its investors. Several in-depth studies of the past
five years have found significant positive links between governance practices
favoring stockholders (like declassifying the Board of Directors) and firm
value. A recent study, "The Costs of Entrenched Board," by Harvard Law
School's Lucian Bebchuk and Alma Cohen, found that staggered boards were
associated with an economically meaning reduction in firm value. The authors
also found "evidence that staggered boards bring about, not merely reflect, an
economically significant reduction in firm value" (Journal of Financial
Economics, 2005).
We believe investors increasingly favor requiring annual elections for
all directors. The Council of Institutional Investors, the California Public
Employees' Retirement System, and Institutional Shareholder Services ("ISS")
have supported this reform. ISS' 2006 Board Practices/Board Pay study found
the number of companies with staggered boards continued to decline. According
to ISS, 42 proposals to repeal classified boards averaged support of 66.8%
during the first six months of 2006, compared with 60.5% average support for
46 proposals during the same period in 2005, a 6.3% point increase (2006
Postseason Report, 2006).
In our opinion, electing all directors annually is one of the best
methods available to stockholders to ensure that First Bancshares will be
managed in a manner that is in the best interest of all stockholders. We
therefore urge fellow stockholders to support this Stockholder Proposal.
Management's Response. Missouri law permits the articles of
incorporation or bylaws of a Missouri corporation to provide for the
classification of directors into separate classes. We currently have three
classes of directors with members serving three-year terms. Each year,
one-third of the Board of Directors is up for election. The Board of
Directors believes that the current classified board structure, which has been
in place since First Bancshares was incorporated in 1993, continues to provide
significant benefits to First Bancshares and you, our stockholders. The Board
of Directors has carefully considered the stockholder proposal and, for the
reasons set forth below, has concluded that it would not be appropriate to
take the action requested in the proposal.
63
The Board of Directors believes that the current classified board
structure does not compromise the directors' accountability to stockholders.
All directors, regardless of the length of their term of office, have the same
fiduciary responsibility to stockholders. Furthermore, because one-third of
the directors must stand for election each year, the stockholders have an
annual opportunity to vote against the Board of Directors's nominees in order
to express any dissatisfaction they may have with the Board of Directors. The
Board of Directors feels that the current classified board structure maximizes
stockholder value because it promotes continuity, stability and knowledge of
the business affairs and financial strategies of First Bancshares by ensuring
that at any time a majority of the directors have prior experience as
directors of First Bancshares.
The Board of Directors also believes that the classified board structure
enhances the Board of Directors's ability to negotiate the best results for
the stockholders in a takeover situation. While the existence of a classified
board will not prevent a party from acquiring control of a board or
accomplishing a hostile acquisition, it is intended to cause the party seeking
to obtain control of First Bancshares to negotiate with the Board of
Directors. Because at least two annual meetings would be required to effect a
change in control of the Board of Directors, the classified board structure
reduces the threat of removal of a majority of the Board of Directors through
a single proxy contest and thus provides incumbent directors with additional
time and bargaining power to evaluate the terms of the takeover proposal,
negotiate on behalf of stockholders and consider alternative proposals.
The Board of Directors is aware that proposals to declassify boards are
receiving an increasing level of support from investor groups. The Board of
Directors is committed to good governance practices and the Board of Directors
and its Nominating Committee regularly evaluate all of our corporate
governance practices to ensure that such practices remain in the best
interests of First Bancshares and its stockholders. As part of its annual
evaluation of governance matters, the Board of Directors will continue to
review the classified board structure. At the present time, the Board of
Directors feels that the current structure is in the best interests of First
Bancshares and its stockholders.
Approval of this stockholder proposal would not automatically eliminate
our classified board structure, which is provided for in our Articles of
Incorporation. Further action by the Board of Directors, and subsequently the
stockholders, would be required to amend the Articles in order to declassify
the Board of Directors. Under the Articles of Incorporation, the affirmative
vote of the holders of at least 80% of the total votes to which all of the
shares then entitled to vote at a meeting of stockholders called for an
election of directors would be required to amend the Articles to declassify
the Board of Directors, unless the amendment has previously been expressly
approved by the Board of Directors by the affirmative vote or consent of at
least two-thirds of the number of directors then authorized by the Bylaws, in
which case only the affirmative vote of a majority of the outstanding shares
entitled to vote thereon would be required. While the Board of Directors
would consider the merits of such an amendment, it would do so consistent with
its fiduciary duty to act in a manner it believes to be in the best interest
of First Bancshares and all of its stockholders.
Your Board of Directors recommends a vote "AGAINST"
the stockholder proposal.
ADJOURNMENT OF THE ANNUAL MEETING
In addition to the proposals to approve the split transaction and to
elect directors, the stockholders of First Bancshares are also being asked to
approve a proposal to adjourn or postpone the Annual Meeting to permit further
solicitation of proxies in the event that an insufficient number of shares is
present in person or by proxy to approve the split transaction. Pursuant to
Missouri law, the holders of a majority of the outstanding shares of common
stock of First Bancshares are required to approve the split transaction. It is
rare for a company to achieve 100% (or even 90%) stockholder participation at
an annual or annual meeting of stockholders, and only a majority of the
holders of the outstanding shares of common stock of First Bancshares are
required to be represented at the meeting, in person or by proxy, for a quorum
to be present. In the event that stockholder participation at the annual
meeting is lower than expected, First Bancshares would like the flexibility to
postpone or adjourn the meeting in order to attempt to secure broader
stockholder participation in the decision to approve the Split Transaction.
Approval of the proposal to adjourn or postpone the annual meeting to
allow extra time to solicit proxies (Proposal 5 on your proxy card) requires a
vote of a majority of the shares voting on the proposal. Abstentions will be
treated as "NO" votes and, therefore, will have an effect on this proposal,
and broker non-votes will have no impact on this proposal.
64
The Board of Directors of First Bancshares unanimously recommends that
you vote "FOR" this proposal (which is Proposal 5 on your proxy card).
OTHER MATTERS
We will bear the cost of solicitation of proxies. In addition to
solicitations by mail, our directors, officers and employees may solicit
proxies personally or by e-mail, telecopier or telephone without additional
compensation.
The Board of Directors is not aware of any business to come before the
Annual Meeting other than those matters described above in this Proxy
Statement. However, if any other matters should properly come before the
Annual Meeting, it is intended that proxies in the accompanying form will be
voted in respect thereof in accordance with the judgment of the person or
persons voting the proxies.
INFORMATION INCORPORATED BY REFERENCE
In our filings with the SEC, information is sometimes incorporated by
reference. This means that we are referring you to information that we have
filed separately with the SEC. The information incorporated by reference
should be considered part of this Proxy Statement, except for any information
superceded by information contained directly in this Proxy Statement. The
following documents are incorporated by reference herein:
* our Annual Report on Form 10-KSB for fiscal year ended June 30,
2007, including audited financial statements;
* our Quarterly Report on Form 10-QSB reporting the financial results
for the fiscal quarter ended September 30, 2007 and December 31,
2007; and
* our Form 8-K announcing the Board of Director approval of a reverse
forward stock split filed on February 22, 2008.
We will provide, without charge, upon the written or oral request of any
person to whom this document is delivered, by first class mail or other
equally prompt means within one business day of receipt of such request, a
copy of any and all information that has been incorporated by reference,
without exhibits unless such exhibits are also incorporated by reference in
this document. You may obtain a copy of these documents and any amendments
thereto by written request addressed to First Bancshares, Inc., 142 East First
Street, Mountain Grove, Missouri 65711.
AVAILABLE INFORMATION
A copy of First Bancshares's Annual Report to Stockholders, including
financial statements has been mailed to all stockholders of record as of the
close of business on ____ __, 2008. Any stockholder who has not received a
copy of such Annual Report or would like to obtain a copy of First
Bancshares's Annual Report on Form 10-KSB may do so, free of charge, by
writing to Ronald J. Walters, Senior Vice President & Chief Financial Officer,
c/o First Bancshares, Inc., 142 East First Street, Mountain Grove, Missouri
65711. Alternatively, this report is available free of charge on First
Bancshares's website at www.FirstBancsharesbank.com as soon as reasonably
practicable after such material is electronically filed with or furnished to
the Securities and Exchange Commission. Such Annual Report is not to be
treated as a part of the proxy solicitation material or as having been
incorporated herein by reference.
First Bancshares is currently subject to the information requirements of
the Exchange Act, and in accordance therewith, files periodic reports, proxy
statements and other information with the SEC relating to its business,
financial and other matters. Copies of such reports, proxy statements and
other information, as well as the Schedule 13E-3, may be copied (at prescribed
rates) at the public reference facilities maintained by the SEC at 100 F
Street, N.E., Washington, D.C. 20549. For further information concerning the
SEC's public reference rooms, you may call the SEC at 1-800-SEC-0330. Some of
this information may also be accessed on the World Wide Web through the SEC's
internet address at www.sec.gov.
65
STOCKHOLDER PROPOSALS
Proposals of stockholders intended to be presented at our annual meeting
to be held in October 2008 must be received by us no later than June 16, 2008
to be considered for inclusion in the proxy materials and form of proxy
relating to the meeting. Provided we are still registered with the SEC, any
such proposals shall be subject to the requirements of the proxy rules adopted
under the Securities Exchange Act.
Our Bylaws provide that in order for a stockholder to make nominations
for the election of directors or proposals for business to be brought before
an annual meeting, the stockholder must deliver notice of nominations and/or
proposals to the Secretary of First Bancshares not less than 30 nor more than
60 days prior to the date of the annual meeting; provided that if less than 40
days' notice of the annual meeting is given to stockholders, the stockholder's
notice must be delivered not later than the close of the tenth day following
the day on which notice of the annual meeting was mailed to stockholders. We
anticipate that, in order to be timely, stockholder nominations or proposals
intended to be made at this year's meeting must be made by October 23, 2008.
As specified in our Articles of Incorporation, the notice with respect to
nominations for election of directors must set forth certain information
regarding each nominee for election as a director, including that person's
written consent to being named in the proxy statement as a nominee and to
serving as a director, if elected, and certain information regarding the
stockholder giving the notice. The notice with respect to business proposals
to be brought before the meeting must state the stockholder's name, address
and number of shares of First Bancshares common stock held, and briefly
discuss the business to be brought before the meeting, the reasons for
conducting such business at the meeting and any interest of the stockholder in
the proposal.
BY ORDER OF THE BOARD OF DIRECTORS
SHANNON PETERSON
SECRETARY
Mountain Grove, Missouri
_________ __, 2008
66
APPENDIX A-1
PROPOSED FORM OF AMENDMENT TO
ARTICLES OF INCORPORATION
TO EFFECT REVERSE STOCK SPLIT
Article 3.1 of the Articles of Incorporation is hereby amended by deleting
Section 3.1 in its entirety and replacing it with the following Section 3.1:
II. 3.1 The Corporation shall have authority to issue the following shares:
(a) Eight million (8,000,000) shares shall be voting Common Stock
with a par value of $.01 per share ("Common Stock"); and
(b) Two million (2,000,000) shares shall be Preferred Stock with a
par value of $.01 per share ("Preferred Stock").
(i) The Board of Directors, by adoption of an authorizing
resolution, may cause Preferred Stock to be issued from time to time in one or
more series.
(ii) The Board of Directors, by adoption of an authorizing
resolution, may with regard to the shares of any series of Preferred Stock:
(A) Fix the distinctive serial designation of the shares:
(B) Fix the dividend rate, if any:
(C) Fix the date from which dividends on shares issued
before the date for payment of the first dividend shall be cumulative, if any:
(D) Fix the redemption price and terms of redemption, if
any:
(E) Fix the amounts payable per share in the event of
dissolution or liquidation of the Corporation, if any;
(F) Fix the terms and amounts of any sinking fund to be
used for the purchase or redemption of shares, if any;
(G) Fix the terms and conditions, if any, under which the
shares may be converted into, or exchanged for, shares of any other class or
series;
(H) Provide whether such shares shall have voting powers,
full or limited, or no voting powers, and the rights, if any, of such shares
to vote as a class on some or all matters on which such shares may be entitled
to vote; and
(I) Fix such other designations, preferences, and
relative, participating, optional or other special rights, qualifications,
limitations or restrictions not required by law.
A-1
Without regard to any other provision of these Amended and Restated Articles
of Incorporation, each one (1) share of Common Stock, either issued and
outstanding or held by the Corporation as treasury stock, immediately prior to
the time this amendment becomes effective shall be and is hereby automatically
reclassified and changed (without any further act) into one-one thousandth
(1/1,000th) of a fully-paid and nonassessable share of Common Stock, provided
that no fractional shares shall be issued to any registered holder of fewer
than 1,000 shares of Common Stock immediately prior to the time this amendment
becomes effective, and that instead of issuing such fractional shares, the
Corporation shall pay in cash $21.00 for each share of Common Stock held by
any registered holder of fewer than 1,000 shares of Common Stock immediately
before the time this amendment becomes effective."
A-2
APPENDIX A-2
PROPOSED FORM OF AMENDMENT TO
ARTICLES OF INCORPORATION
TO EFFECT FORWARD STOCK SPLIT
Article 3.1 of the Articles of Incorporation is hereby amended by deleting
Section 3.1 in its entirety and replacing it with the following Section 3.1:
II. 3.1 The Corporation shall have authority to issue the following shares:
(a) Eight million (8,000,000) shares shall be voting Common Stock
with a par value of $.01 per share ("Common Stock"); and
(b) Two million (2,000,000) shares shall be Preferred Stock with a
par value of $.01 per share ("Preferred Stock").
(i) The Board of Directors, by adoption of an authorizing
resolution, may cause Preferred Stock to be issued from time to time in one or
more series.
(ii) The Board of Directors, by adoption of an authorizing
resolution, may with regard to the shares of any series of Preferred Stock:
(A) Fix the distinctive serial designation of the shares:
(B) Fix the dividend rate, if any:
(C) Fix the date from which dividends on shares issued
before the date for payment of the first dividend shall be cumulative, if any:
(D) Fix the redemption price and terms of redemption, if
any:
(E) Fix the amounts payable per share in the event of
dissolution or liquidation of the Corporation, if any;
(F) Fix the terms and amounts of any sinking fund to be
used for the purchase or redemption of shares, if any;
(G) Fix the terms and conditions, if any, under which the
shares may be converted into, or exchanged for, shares of any other class or
series;
(H) Provide whether such shares shall have voting powers,
full or limited, or no voting powers, and the rights, if any, of such shares
to vote as a class on some or all matters on which such shares may be entitled
to vote; and
(I) Fix such other designations, preferences, and
relative, participating, optional or other special rights, qualifications,
limitations or restrictions not required by law.
A-1
Without regard to any other provision of these Amended and Restated Articles
of Incorporation, each one (1) share of Common Stock, either issued and
outstanding and any fractional share held by any stockholder who holds in
excess of one (1) share immediately prior to the time this amendment becomes
effective shall be and is hereby automatically reclassified and changed
(without any further act) into one thousand (1,000) fully-paid and
nonassessable shares of Common Stock (or, with respect to fractional shares,
such lesser number of shares and fractional shares as may be applicable upon
such 1,000 for one ratio), provided that no fractional shares of Common Stock
shall be issued."
A-2
APPENDIX B
PRIVATE & CONFIDENTIAL
February 8, 2008
Board of Directors
First Bancshares, Inc.
142 E. First Street
Mountain Grove, MO 65711-1742
Members of the Board:
You have asked us to render our opinion as to the fairness, from a
financial point of view, to holders of the outstanding shares of common stock
of First Bancshares, Inc. ("First Bancshares") of the cash consideration to be
paid to certain holders of First Bancshares's common stock in connection with
a proposed going-private transaction (the "Split Transaction"). The Split
Transaction is for the purpose of reducing the number of shareholders to below
300 (which will allow First Bancshares to terminate its registration with the
SEC), and does not constitute a sale of First Bancshares. First Bancshares's
principal asset is 100% of the common stock of First Home Savings Bank,
domiciled in Mountain Grove, Missouri. Our opinion is issued based on
financial information as of December 31, 2007 for First Home Savings Bank and
First Bancshares.
Index Capital, LLC, as part of its investment banking business, is
regularly engaged in performing financial analyses of financial institutions
and their securities in connection with mergers and acquisitions,
divestitures, corporate transactions, valuations, and for other purposes. We
have acted as financial advisor to First Bancshares in connection with the
redemption of shares to be conducted pursuant to the Split Transaction. Index
Capital provided First Bancshares with valuation calculations as of December
31, 2007. Nevertheless, Index Capital is independent of the parties to the
Split Transaction. We expect to receive compensation for our services in
connection with the Split Transaction, which is not contingent upon the
opinion expressed herein. First Bancshares also has agreed to reimburse our
reasonable expenses and to indemnify us against certain liabilities arising
out of our engagement, including liabilities under federal securities laws.
You have advised us that First Bancshares will engage in a reverse stock
split. In connection with such reverse stock split, and as permitted under
Missouri law, each record stockholder owning a fractional share following the
reverse stock split will receive payment from First Bancshares in an amount
equal to $21.00 for each pre-split share comprising the fractional
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share of First Bancshares common stock owned by such holder (the "Redemption
Price"). Our approach to the assignment was to consider the following
factors:
* To review of the financial performance of First Bancshares and the
value of its stock;
* To review the current and historical market prices of comparable
financial institution holding companies;
* To review the investment characteristics of First Bancshares's common
stock;
* To make an evaluation of the impact of the Split Transaction on the
expected return to the current shareholders;
* To consider all other factors considered necessary to render this
opinion.
In the course of performing our assignment it was necessary for us to
review and analyze certain information pertaining to First Bancshares and
First Home Savings Bank. The following data was reviewed in connection with
the assignment:
i. First Bancshares's annual reports to stockholders and its
financial statements as filed on form 10-KSB for each of the
five fiscal years ended June 30, 2007;
ii. First Bancshares's un-audited internally prepared parent
company only and consolidated financial statements as of
December 31, 2007;
iii. First Home Savings Bank's un-audited internally prepared
financial statements as of December 31, 2007;
iv. First Bancshares's Form 10-KSB for the years ended June 30,
2006 and June 30, 2007 and form 10QSB for the quarter ended
September 30, 2007;
v. First Bancshares's federal, state and other tax returns as
filed with the various taxing authorities;
vi. Office of Thrift Supervision 2007 Thrift Financial Reports for
First Home Savings Bank;
vii. First Bancshares's articles of incorporation and bylaws;
viii. Certain information provided by First Bancshares regarding the
historical trading activity of First Bancshares's common
stock;
ix. Certain reported financial terms of selected recent
transactions which we deemed to be relevant;
x. Publicly available banking and thrift financial information
regarding First Bancshares;
B-2
xi. Discussions with First Bancshares's management regarding the
background of the Split Transaction and certain financial
forecasts relating to the business, earnings, cash flows,
assets and business prospects of First Bancshares; and
xii. Other studies, analyses and investigations, particularly of
the banking and thrift industry, and such other information as
we deemed appropriate.
Index Capital reviewed portions of the Proxy Statement for the special
stockholder meeting of First Bancshares and discussed the same with management
and counsel for First Bancshares.
For purposes of this opinion, we have assumed and relied on, without
independent verification, the accuracy and completeness of the financial,
accounting, business, legal, tax, and other information discussed with or
furnished to us by First Bancshares and the materials otherwise made available
to us, including information from published sources, and we have not
independently verified such data. With respect to the financial information,
including any financial forecasts provided by First Bancshares's management
and information relating to certain strategic, financial and operational
benefits anticipated by First Bancshares's management from the Split
Transaction, we have assumed they reflect the best currently available
estimates and good faith judgment of the management of First Bancshares. We
express no view as to such forecasts or projected information. We have also
assumed that all government, regulatory and other consents necessary for the
consummation of the Split Transaction will be obtained without any adverse
affect on First Bancshares or the benefits of the Split Transaction expected
by First Bancshares's management. We express no opinion on matters of a
legal, regulatory, tax or accounting nature or the ability of the Split
Transaction to be consummated.
We have not made, obtained, or been provided with (i) any independent
appraisals or valuation of the assets or liabilities, and potential and/or
contingent liabilities of, First Bancshares or (ii) any independent analysis
or valuation of the rights of stockholders, creditors, or any other holders of
claims or rights against First Bancshares or any of its affiliates. We are
not experts in the evaluation of allowances for loan and lease losses and have
not independently verified such allowances, and we have relied on and assumed
that the aggregate allowances for loan and lease losses set forth on the
balance sheets of First Bancshares are adequate to cover losses and fully
comply with sound banking practices as of its respective date. We have
further relied on the assurances of the management of First Bancshares that
they are not aware of any facts that would make any information reviewed by us
inaccurate or misleading. No opinion is expressed as to whether any
alternative transaction might be more favorable to First Bancshares. We
express no opinion as to First Bancshares's future business, assets,
liabilities, operations or prospects. We were not requested to, and did not;
solicit any expressions of interest from any other parties with respect to the
actions contemplated in connection with the Split Transaction.
Our opinion is based on the market, economic and other relevant
considerations as they exist and have been evaluated by us on the date hereof.
We have assumed that there has been no material change in First Bancshares's
assets, financial condition, results of operations, business or prospects
since the date of the most recent financial statements made available to us.
B-3
This opinion does not address the underlying business decision of First
Bancshares to engage in the Split Transaction. It should be understood that
subsequent developments may affect this opinion, and we do not have any
obligation to revise or reaffirm this opinion. In addition, we express no
opinion or recommendation as to how the stockholders or creditors of or any
claimants against First Bancshares or any of its affiliates should view or
regard the Split Transaction. Our opinion is rendered in regard to the
Redemption Price and does not take into account or give effect to any
adjustment to the Redemption Price that may occur subsequent to the date
hereof. This opinion does not address the prices at which the common stock of
First Bancshares has traded in the past or may trade after the date hereof or
after the consummation of the Split Transaction.
This opinion may not be disclosed, communicated, reproduced,
disseminated, quoted or referred to at any time (in whole or part), to any
third part or in any manner or for any purpose whatsoever without our prior
written consent, which consent shall not be unreasonably withheld, based upon
review by us of the content of any such public reference, which shall be
satisfactory to us in our reasonable judgment, and which review shall be
completed by us as soon as practicable, although this opinion may be included
in its entirety in the proxy statement of First Bancshares used to solicit
stockholder approval of the Split Transaction so long as any description of or
reference to us or this opinion and the related analysis in such filing is in
a form acceptable to us and our counsel. It is understood that this letter is
addressed and directed to the Board of Directors of First Bancshares in its
consideration of the Split Transaction and is not intended to be and does not
constitute a recommendation to any stockholder as to how such stockholder
should vote with respect to the Split Transaction.
Subject to the foregoing, and based upon our experience as investment
bankers, our activities described above, and other matters as we deemed
relevant, we are of the opinion that as of the date hereof the Redemption
Price for the common stock to be paid in the Split Transaction is fair, from a
financial point of view, to the holders of First Bancshares's common stock.
Thank you for this opportunity to be of service to First Bancshares.
Sincerely yours,
INDEX CAPITAL, LLC
By /s/David L. O'Toole
-----------------------
David L. O'Toole
President
B-4
APPENDIX C
SECTION 351.455 OF THE
MISSOURI GENERAL AND BUSINESS CORPORATION LAW
Shareholder entitled to appraisal and payment of fair value, when--remedy
exclusive, when.
351.455. 1. Any shareholder shall be deemed a dissenting shareholder and
entitled to appraisal under this section if such
shareholder:
(1) Owns stock of a corporation which is a party to a merger or
consolidation as of the record date for the meeting of shareholders at which
the plan of merger or consolidation is submitted to a vote;
(2) Files with the corporation before or at such meeting a written
objection to such plan of merger or consolidation;
(3) Does not vote in favor thereof if the shareholder owns voting stock
as of such record date; and
(4) Makes written demand on the surviving or new corporation within
twenty days after the merger or
consolidation is effected for payment of the fair value of such shareholder's
shares as of the day before the date on which
the vote was taken approving the merger or consolidation.
2. The surviving or new corporation shall pay to each such dissenting
shareholder, upon surrender of his or her certificate or certificates
representing said shares in the case of certificated shares, the fair value
thereof. Such demand shall state the number and class of the shares owned by
such dissenting shareholder. Any shareholder who:
(1) Fails to file a written objection prior to or at such meeting;
(2) Fails to make demand within the twenty-day period; or
(3) In the case of a shareholder owning voting stock as of such record
date, votes in favor of the merger or consolidation;
shall be conclusively presumed to have consented to the merger or
consolidation and shall be bound by the terms thereof and shall not be deemed
to be a dissenting shareholder.
3. Notwithstanding the provisions of subsection 1 of section 351.230, notice
under the provisions of subsection 1 of section 351.230 stating the purpose
for which the meeting is called shall be given to each shareholder owning
stock as of the record date for the meeting of shareholders at which the plan
of merger or consolidation is submitted to a vote, whether or not such
shareholder is entitled to vote.
4. If within thirty days after the date on which such merger or
consolidation was effected the value of such shares is agreed upon between the
dissenting shareholder and the surviving or new corporation, payment therefor
shall be made within ninety days after the date on which such merger or
consolidation was effected, upon the surrender of his or her certificate or
certificates representing said shares in the case of certificated shares. Upon
payment of the agreed value the dissenting shareholder shall cease to have any
interest in such shares or in the corporation.
5. If within such period of thirty days the shareholder and the surviving or
new corporation do not so agree, then the dissenting shareholder may, within
sixty days after the expiration of the thirty-day period, file a petition in
any court of competent jurisdiction within the county in which the registered
office of the surviving or new corporation is situated, asking for a finding
and determination of the fair value of such shares, and shall be entitled to
judgment against the surviving or new corporation for the amount of such fair
value as of the day prior to the date on which such vote was taken approving
such merger or consolidation, together with interest thereon to the date of
such judgment. The judgment
C-1
shall be payable only upon and simultaneously with the surrender to the
surviving or new corporation of the certificate or certificates representing
said shares in the case of certificated shares. Upon the payment of the
judgment, the dissenting shareholder shall cease to have any interest in such
shares, or in the surviving or new corporation. Such shares may be held and
disposed of by the surviving or new corporation as it may see fit. Unless the
dissenting shareholder shall file such petition within the time herein
limited, such shareholder and all persons claiming under such shareholder
shall be conclusively presumed to have approved and ratified the merger or
consolidation, and shall be bound by the terms thereof.
6. The right of a dissenting shareholder to be paid the fair value of such
shareholder's shares as herein provided shall cease if and when the
corporation shall abandon the merger or consolidation.
7. When the remedy provided for in this section is available with respect to
a transaction, such remedy shall be the exclusive remedy of the shareholder as
to that transaction, except in the case of fraud or lack of authorization for
the transaction.
* * * * *
C-2
APPENDIX D
FIRST BANCSHARES, INC.
AUDIT COMMITTEE CHARTER
Objective
The objective of the Audit Committee is to assist the Board of Directors of
First Bancshares, Inc. (the "Company") in fulfilling its fiduciary and
oversight responsibilities for the internal and external audit functions;
administrative, operating and internal accounting controls; financial
reporting process; and process for monitoring compliance with laws,
regulations, policies and procedures. The Audit Committee shall give
reasonable assurance regarding the quality and integrity of financial and
other data provided by the Company.
1 Authority
The Audit Committee has authority to conduct or authorize investigations into
any matters within its scope of responsibility. It is empowered to:
> Retain outside counsel, accountants, or others to advise the
Committee or assist in the conduct of an investigation.
> Seek any information it requires from employees all of whom are
directed to cooperate with the Committee's requests or external
parties.
> Meet with Company officers, external auditors, or outside counsel,
as necessary.
2 Committee Membership
The Audit Committee shall consist of three or more independent members of the
Board of Directors. The Board or its nominating committee will appoint
Committee members and the Committee chair.
Each Committee member will be both independent and financially literate, as
defined by applicable regulations of the Securities and Exchange Commission
and the National Association of Securities Dealers, and the Board of
Directors. At least one member shall have expertise in accounting or
financial reporting, as defined by the National Association of Securities
Dealers. In the event no one member meets such definition, the collective
expertise of all members will be assessed for meeting the definition.
Members of the Audit Committee will be considered independent if they have no
relationship to the Company or the Company's subsidiary, First Home Savings
Bank (the "Bank"), that, in the opinion of the Board, may interfere with the
exercise of their independent judgment. Examples of such relationships
include, but are not limited to:
> Being employed by the Company or the Bank for the current year or
any of the past five years.
> Accepting any compensation from the Company or the Bank other than
compensation for services as a Board member.
> Serving or having served in a significant manner in any of the past
five years as a consultant, advisor, promoter, or legal counsel of
or to the Company or the Bank.
> Being an immediate family member of an individual who is, or has
been in any of the past five years, employed as an officer of the
Company or the Bank.
3 Meetings
The Audit Committee shall meet at least four times per year, with authority to
convene additional meetings as circumstances require. All Committee members
are expected to attend each meeting, in person or via tele-conference. The
Committee will invite members of the Board, management, auditors, or others to
attend meetings and provide pertinent information, as necessary. As part of
its job to foster open communication, the Committee should meet at least
D-1
annually with management, the Director of Internal Audit and the external
auditors in separate executive sessions to discuss any matters that the
Committee or any of these parties believes should be discussed privately. In
addition, the Committee or at least its Chair should meet with the external
auditors and management quarterly to review the Company's quarterly and annual
financial statements. Meeting agendas will be prepared and provided in
advance to members, along with appropriate briefing materials. Minutes will
be prepared.
4 Responsibilities
The Audit Committee will carry out the following responsibilities:
..1 Financial Statements
> Review significant accounting and reporting issues, including
complex or unusual transactions and highly judgmental areas, and
recent professional and regulatory pronouncements, and understand
their impact on the financial statements.
> Review with management and the external auditors the results of the
audit, including any difficulties encountered.
> Review the Company's annual financial statements and any financial
statements submitted to the public, including any certification,
report, opinion or review rendered by the external auditors.
> Review with management and the external auditors all matters
required to be communicated to the Committee under generally
accepted auditing standards.
> Understand how management develops interim financial information and
the nature and extent of internal and external auditor involvement.
> Review with financial management and the external auditors the
financial statements, including disclosures made in Management's
Discussion and Analysis of Financial Condition and Results of
Operations, in the Company's reports on Forms 10-QSB and 10-KSB and
annual report to stockholders prior to the filing of the report or
prior to the release of earnings. The Committee shall recommend to
the Board whether or not the audited financial statements should be
included in the Company's Form 10-KSB.
> Review disclosures made by the Company's chief executive officer and
chief financial officer regarding compliance with their
certification obligations as required under the Sarbanes-Oxley Act
of 2002 and the rules promulgated thereunder, including the
Company's disclosure controls and procedures and internal control
over financial reporting and evaluations thereof.
..2 Internal Control
> Ensure that management has established and maintains an adequate
system of internal controls and performs risk assessments of each
significant function.
> Consider the effectiveness of the company's internal control over
annual and interim financial reporting, including information
technology security and control.
> Evaluate security for computer systems, facilities, and back-up
systems.
> Understand the scope of internal and external auditors' reviews of
internal control over financial reporting, and obtain reports on
significant findings and recommendations, together with management's
responses.
..3 Internal Audit
> Review with management and the Director of Internal Audit the
charter, Audit Policy, risk assessment, audit plan, audit schedule,
activities, staffing, and organizational structure of the internal
audit function at least annually.
> Review Audit Reports submitted by the Director of Internal Audit at
least quarterly, evaluate management's response to audit findings,
and ascertain that appropriate implementation of significant
recommendations is undertaken.
D-2
> As necessary, meet separately with the Director of Internal Audit to
discuss any matters that the Committee or internal audit believes
should be discussed privately.
> Ensure there are no unjustified restrictions or limitations, and
review and concur in the appointment, replacement, or dismissal of
the Director of Internal Audit, who is ultimately accountable to the
Committee and the Board.
> Review the effectiveness of the internal audit function, including
compliance with The Institute of Internal Auditors' Standards for
the Professional Practice of Internal Auditing.
..4 External Audit
> Be directly responsible for the appointment, compensation, retention
and oversight of the work of any registered public accounting firm
engaged for the purpose of preparing or issuing an audit report, or
performing other audit, review or attest services for the Company,
and each such registered accounting firm shall report directly to
the Audit Committee.
> Review the external auditors' annual engagement letter, including
proposed audit scope and approach, coordination of audit effort with
internal audit, and estimated fees as proposed.
> Pre-approve all audit engagement fees and terms and all non-audit
engagements with the external auditors. The Committee may delegate
authority to pre-approve non-audit services to one or more members
of the Committee, provided that the delegatee must present all
approved non-audit services to the Committee at its next meeting.
> Ensure the external auditors' ultimate accountability to the Audit
Committee and the Board of Directors, as representatives of the
stockholders, receiving reports directly from the auditors.
> Ensure receipt from the external auditors of a formal written
statement delineating all relationships between the auditors and the
Company, consistent with Independence Standards Board Standard 1.
On an annual basis, review and discuss with the auditors any such
relationships to determine the auditors' independence and
objectivity. The Committee should take, or recommend to the Board
that it take, appropriate action to oversee the independence of the
auditors.
> Discuss with the external auditors all matters required to be
communicated to audit committees in accordance with Statement of
Auditing Standards No. 61.
> Review significant accounting policies, significant risks and
exposures, audit activities, and audit findings.
> As necessary, meet separately with the external auditors to discuss
any matters that the Committee or auditors believe should be
discussed privately, such as internal controls and the completeness
and accuracy of the Company's financial statements.
> Ensure that the lead audit partner of the external auditors and the
concurring audit partner are rotated at least every five years, and
that all other audit partners are rotated at least every seven
years.
..5 Compliance
> Review the effectiveness of the system for monitoring compliance
with laws, regulations, and internal policies and the results of
management's investigation and follow-up (including disciplinary
action) of any instances of noncompliance.
> Review the findings of any examinations by regulatory agencies and
any auditor observations.
> Review the process for communicating the code of conduct to Company
personnel and for monitoring compliance therewith.
> Coordinate the investigation of conflicts of interest and unethical
conduct.
> On an ongoing basis, review all related party transactions for
potential conflict of interest situations. Approve related party
transactions when warranted.
> Obtain regular updates from management and/or Company legal counsel
regarding compliance matters.
..6 Reporting Responsibilities
> Regularly report the results of audits, findings, related
recommendations, and Committee activities to the Board of Directors.
D-3
> Provide an independent, direct communication channel between the
Board of Directors and the Company's internal auditors, external
auditors, and regulators.
> Prepare the Audit Committee Report for inclusion in the Company's
annual proxy statement, consulting with the Company's legal counsel,
if necessary.
> Review any other reports the Company issues that relate to Committee
responsibilities.
..7 Other Responsibilities
> Review (and in the case of the external auditors, settle) any
disagreement among management and the external auditors or the
internal auditors in connection with the preparation of financial
statements.
> Establish procedures that allow employees of the Company or any of
its subsidiaries to submit confidential and anonymous concerns
regarding questionable accounting or auditing matters.
> Establish procedures for the receipt, retention and treatment of
complaints received by the Company regarding accounting, internal
accounting controls or auditing matters.
> Ensure policies in place are reasonably designed to achieve
disclosure and clarity regarding the Company's true financial
performance and business strategy.
> Perform other activities related to this Charter as requested by the
Board of Directors.
> Institute and oversee special investigations, examinations, or
reviews as the Committee deems advisable to ensure the adequacy of
the systems of internal controls and accounting practices.
> Review and assess the adequacy of this Charter annually, requesting
Board approval for proposed changes.
> Determine the appropriate funding for payment of (i) compensation to
the external auditors, (ii) compensation to any advisers employed by
the Committee and (iii) ordinary administrative expenses of the
Committee that are necessary or appropriate in carrying out its
duties.
> Confirm annually that all responsibilities outlined in this charter
have been carried out.
> Evaluate the Committee's and individual members' performance on a
regular basis.
5 Limitations of the Audit Committee's Roles
While the Committee has the responsibilities and powers set forth in this
Audit Committee Charter, it is not the duty of the Committee to prepare
financial statements, plan or conduct audits, or determine that the Company's
financial statements and disclosures are complete and accurate and are in
accordance with generally accepted accounting principles and applicable rules
and regulations. These are the responsibilities of management and the
external auditors.
Date Approved: August 25, 2004
D-4
APPENDIX E
CHARTER OF THE COMPENSATION COMMITTEE
OF THE BOARD OF DIRECTORS
I. The Committee's Purpose
-----------------------
The Committee is appointed by the Board of Directors ("Board") for the
primary purpose of:
* Overseeing Company compensation policies and their specific
application to the Chief Executive Officer and Chief Financial
Officer appointed by the Board and to members of the Board; and
* Preparing an annual report on executive compensation for
inclusion in the Company's proxy statement, in accordance with
applicable rules and regulations.
II. Committee Composition and Meetings
----------------------------------
The Committee shall be comprised of three or more members, all of whom
must qualify as independent directors ("Independent Directors") under the
listing standards of The Nasdaq Stock Market, Inc.. In addition, each
member shall be free from any relationship that, in the opinion of the
Board , would interfere with the exercise of his or her independent
judgment.
The members shall be appointed annually to one-year terms by the Board.
The Committee shall designate one member of the Committee as Chair. The
members shall serve until their resignation, retirement, removal by the
Board or until their successors shall be appointed. No member of the
Compensation Committee shall be removed except by majority vote of the
Independent Directors of the Board then in office.
The Committee shall fix its own rules of procedure, which shall be
consistent with the Bylaws of the Company and this Charter.
The Committee shall meet at least once annually or more frequently as
circumstances require.
The Chairperson of the Committee or a majority of the members of the
Committee may call a special meeting of the Committee.
A majority of the members of the Committee shall constitute a quorum.
The Committee may request that any directors, officers or employees of
the Company, or other persons whose advice and counsel are sought by the
Committee, attend any meeting of the Committee to provide such pertinent
information as the Committee requests.
Following each of its meetings, the Committee shall deliver a report on
the meeting to the Board, including a description of all actions taken by
the Committee at the meeting.
The Committee shall keep written minutes of its meetings, which minutes
shall be maintained with the books and records of the Company.
E-1
III. The Committee's Duties and Responsibilities
-------------------------------------------
The Committee shall:
A. General.
* Review from time to time the goals and objectives of the Company's
compensation plans, and, if the Committee deems it appropriate,
recommend that the Board amend these goals and objectives.
* Review from time to time the Company's director and executive
compensation plans in light of the Company's goals and objectives with
respect to such plans, and, if the Committee deems it appropriate,
recommend to the Board, the adoption of new compensation plans or
amendments to existing plans.
* Select a peer group of companies against which to benchmark/compare
the Company's compensation systems for the Chief Executive Officer and
Chief Financial Officer appointed by the Board.
* Administer and otherwise exercise the various authorities prescribed
for the Committee by the Company's Stock Plans.
* Monitor compensation trends and solicit independent advice where
appropriate.
* Perform any other activities as the Committee deems appropriate, or as
are requested by the Board, consistent with this Charter, the
Company's Articles of Incorporation and By-laws and applicable laws
and regulations.
B. Executive Officers.
* In collaboration with the Board of Directors, review and approve
corporate goals and objectives relevant to the Chief Executive
Officer's and Chief Financial Officer's compensation.
* Evaluate annually the performance of the Company's Chief Executive
Officer and Chief Financial Officer, in light of the goals and
objectives of the Company's executive compensation plans and
performance goals, and recommend to the Board, the Chief Executive
Officer and Chief Financial Officer compensation level based on this
evaluation.
* Receive and review the evaluation of the executive management of the
Company by the Chief Executive Officer, and review the compensation
for the Company's executive officers as recommended by the Chief
Executive Officer.
* Recommend to the Board of Directors the base salary and short-term
incentive compensation of the Chief Executive Officer and Chief
Financial Officer based on the Committee's evaluation of competitive
compensation practices and the Chief Executive Officer's and Chief
Financial Officer's performance in achieving the corporate goals
established for the positions by the Committee.
C. Directors.
* Regularly review and evaluate the compensation program for Directors
and, as appropriate, recommend changes to the Board.
* Administer and otherwise exercise the various duties prescribed for
the Committee by the Company.
E-2
D. This Charter. To maintain and update, as appropriate, this Charter, which
will be made available to shareholders of record upon request to the Corporate
Secretary.
IV. Authority to Retain Experts. The Committee has the authority to retain
any compensation consultant used to assist in the evaluation of Director,
Chief Executive Officer, or Chief Financial Officer, compensation, as
well as such other experts as the Committee deems necessary in the
performance of its duties.
V. Annual Performance Evaluation of the Committee. At least annually, the
Committee will evaluate how well it has fulfilled its purpose during the
previous year, and will report its findings to the entire Board.
Date Approved: August 25, 2004
E-3
APPENDIX F
FIRST BANCSHARES, INC.
Nominating Committee Charter
I. Purpose
The Nominating Committee (the "Committee") is appointed by the Board of
Directors (the "Board") of First Bancshares, Inc. (the "Company"):
* to assist the Board, on an annual basis, by identifying individuals
qualified to become Board members, and to nominate the director
nominees for the elections to be held at the next annual meeting of
shareholders;
* to assist the Board in filling any vacancy that may arise on the
Board by identifying individuals qualified to become Board members,
and to recommend to the Board qualified individuals to fill any such
vacancies; and
* to lead the Board in its periodic evaluation of the performance of
the Board.
II. Composition and Qualifications
The Committee shall be comprised of three (3) or more directors as
determined by the Board, all of whom shall be independent non-executive
directors, who are not employees of the Company, its subsidiaries or
affiliates, and meet the "independent" definition of the NASD (Rule
4200). Members of the Committee shall be appointed and removed only by
the Board. The Board shall appoint one member of the Committee as its
Chair. A majority of the members of the Committee present at any of its
meetings shall constitute a quorum.
III. Meetings
The Committee shall meet at least once annually, and at such other times
as it deems necessary to fulfill its responsibilities and duties set
forth in this Charter.
IV. Responsibilities and Duties
The Committee shall have the primary responsibility to develop the
criteria for the selection of new directors to the Board, including, but
not limited to skills, experience, diversity, age, time availability, and
such other criteria set forth in corporate policies or as the Committee
shall determine to be relevant at the time. The Committee shall have the
authority to apply such criteria in connection with the identification of
individuals to be Board members, as well as to apply all applicable
federal laws and the underlying purpose and intent thereof in connection
with such identification process.
In addition, the Committee is responsible for establishing and
administering the necessary processes associated with nominating
potential directors, including, but not limited to, applications,
screening, and interviewing prospective candidates; and finalizing its
slate of candidates for recommendation to the Board. These processes
will apply to the filling of vacancies that may occur on the Board from
time to time, and the election of directors at the annual meeting of
shareholders.
F-1
The Committee is also responsible for the development and administration
of the internal evaluation of the Board's performance and any related
individual Board member performance. Such evaluations shall be used by
the Committee in carrying out its nominating responsibilities.
Duties
------
1. When Board vacancies occur, or otherwise at the direction of the Board,
the Committee shall actively identify, recruit, interview, and evaluate
individuals whom the Committee determines meet its criteria and
standards for recommendation to the Board.
2. The Committee shall be responsible for reviewing all candidates
nominated by shareholders, and determining whether or not to include the
candidate as a nominee in the Company's proxy materials.
3. The Committee shall nominate, on an annual basis, nominees for election
as directors for the next annual meeting of shareholders and shall be
responsible for administering the Company's compliance with the election
provisions of its Articles of Incorporation, Bylaws, and related
policies.
4. The Committee shall monitor the independence of the Board, to the extent
that its nomination process ensures that the majority of the Board
consists of independent directors as set forth in the Company's
policies.
5. The Committee will establish, or identify and provide access to,
appropriate orientation programs, sessions, or materials for newly
elected directors of the Company for their benefit either prior to or
within a reasonable period of time after their nomination or election as
a director.
6. The Committee will provide a report of the Company's nomination process,
activities, and resulting nominations in connection with the proxy
materials associated with the Company's annual meeting of shareholders.
7. The Committee shall annually review its own performance, as well as the
adequacy of this Charter and related corporate policies. Any proposed
changes shall be recommended to the Board for approval.
8. Minutes of each meeting will be provided to the Board of Directors on a
timely basis. In addition, the Committee will make from time-to-time,
special presentations to the Board of Directors on topics related to
Committee activities or responsibilities.
V. Authority
The Committee has the authority to implement the provisions of this
Charter. Furthermore, the Committee shall have the authority to
retain any outside advisors at the Company's expense, as the Committee
may deem appropriate in its sole discretion, to assist it in carrying
out its responsibilities and duties.
* * * *
Date Approved: August 25, 2004
F-2
[X] PLEASE MARK VOTES
AS IN THIS SAMPLE
REVOCABLE PROXY
FIRST BANCSHARES, INC.
ANNUAL MEETING OF STOCKHOLDERS
___________, 2008
The undersigned hereby appoints John G. Moody and Thomas M. Sutherland as the
official Proxy Committee of the Board of Directors with full powers of
substitution, as attorneys and proxies for the undersigned, to vote all shares
of common stock of First Bancshares, Inc. ("Company") which the undersigned is
entitled to vote at the Annual Meeting of Stockholders, to be held at the
__________, _______________, Mountain Grove, Missouri, on __________,
_________, 2008 at __:__ p.m., Central Time, and at any and all adjournments
thereof, as follows:
FOR AGAINST ABSTAIN
--- ------- -------
1. Stock Split Transaction
1. Approval of an amendment to the Company's [ ] [ ] [ ]
articles of incorporation to effect a reverse
1-for-1000 stock split. Each registered stock-
holder owning fewer than 1,000 shares of
common stock immediately prior to the reverse
stock split will, instead of participating in
the forward stock split, receive a cash payment
equal to $21.00 per share on a pre-split basis.
FOR AGAINST ABSTAIN
--- ------- -------
2. Approval of an amendment to the Company's [ ] [ ] [ ]
articles of incorporation to effect a forward
1,000-for-1 stock split of common shares im-
mediately following the reverse stock split.
FOR ALL
FOR AGAINST EXCEPT
--- ------- -------
2. The election as director of the nominees listed [ ] [ ] [ ]
below for a three year term (except as marked
to the contrary below)
Billy E. Hixon
John G. Moody
INSTRUCTION: To withhold authority to vote for
the nominee, mark "For All Except" and write
the nominee's name on the line below.
-----------------------------------------------
FOR AGAINST ABSTAIN
--- ------- -------
3. A stockholder proposal to declassify the Board [ ] [ ] [ ]
of Directors
4. Adjournment of the Annual Meeting [ ] [ ] [ ]
Proposal to adjourn the annual meeting to permit
further solicitation of proxies in the event that
an insufficient number of shares is present in
person or by proxy to approve the proposals pre-
sented at the annual meeting.
Such other business as may properly come before
the meeting or any adjournments or postponements
thereof.
Please be sure to sign and date this The Board of Directors recommends
Proxy in the box below. a Vote "FOR" the above proposals.
THIS PROXY WILL BE VOTED AS
------------------- DIRECTED, BUT IF NO INSTRUCTIONS
Date ARE SPECIFIED, THIS PROXY WILL BE
VOTED FOR THE PROPOSITIONS
STATED. IF ANY OTHER BUSINESS IS
PRESENTED AT SUCH MEETING, THIS
PROXY WILL BE VOTED BY THE
THOSE NAMED IN THIS PROXY IN
----------------- ------------------- THEIR BEST JUDGMENT. AT THE
Stockholder Co-holder (if any) PRESENT TIME, THE BOARD OF
sign above sign above DIRECTORS KNOWS OF NO OTHER
BUSINESS TO BE PRESENTED AT THE
MEETING.
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Detach above card, sign, date and mail in postage paid envelope provided.
FIRST BANCSHARES, INC.
THIS PROXY IS SOLICITED BY THE BOARD OF DIRECTORS
Should the above signed be present and elect to vote at the Annual
Meeting or at any adjournment thereof and after notification to the Secretary
of the Company at the Meeting of the stockholder's decision to terminate this
proxy, then the power of said attorneys and proxies shall be deemed terminated
and of no further force and effect.
The above signed acknowledges receipt from the Company prior to the
execution of this proxy of notice of the Meeting, a proxy statement dated
_________, 2008 and the 2007 Annual Report to Stockholders.
Please sign exactly as your name appears on this card. When signing as
attorney, executor, administrator, trustee or guardian, please give full
title. If shares are held jointly, each holder should sign.
PLEASE ACT PROMPTLY: SIGN, DATE AND MAIL YOUR PROXY CARD TODAY
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IF YOUR ADDRESS HAS CHANGED, PLEASE CORRECT THE ADDRESS IN THE SPACE PROVIDED
BELOW AND RETURN THIS PORTION WITH THE PROXY IN THE ENVELOPE PROVIDED.
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