-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, OZKC2F4WKTiw/+ZZ4LwpqXPNig4vuMRpualIKXK+BOwa1oKcVypQ0t5ZmVP0u+1h SVLt9Tkr0W6qvGawLZv4CA== 0000904280-01-000001.txt : 20010123 0000904280-01-000001.hdr.sgml : 20010123 ACCESSION NUMBER: 0000904280-01-000001 CONFORMED SUBMISSION TYPE: DEF 14A PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 20010215 FILED AS OF DATE: 20010112 FILER: COMPANY DATA: COMPANY CONFORMED NAME: FIRST SOUTH BANCORP INC /VA/ CENTRAL INDEX KEY: 0001027183 STANDARD INDUSTRIAL CLASSIFICATION: SAVINGS INSTITUTION, FEDERALLY CHARTERED [6035] IRS NUMBER: 561999749 STATE OF INCORPORATION: VA FISCAL YEAR END: 0930 FILING VALUES: FORM TYPE: DEF 14A SEC ACT: SEC FILE NUMBER: 000-22219 FILM NUMBER: 1508087 BUSINESS ADDRESS: STREET 1: 1311 CAROLINA AVE CITY: WASHINGTON STATE: NC ZIP: 27889 BUSINESS PHONE: 2529464178 MAIL ADDRESS: STREET 1: 1311 CAROLINA AVENUE CITY: WASHINGTON STATE: NC ZIP: 27889 FORMER COMPANY: FORMER CONFORMED NAME: NEWSOUTH BANCORP INC DATE OF NAME CHANGE: 19961115 DEF 14A 1 0001.txt SCHEDULE 14A INFORMATION (RULE 14a-101) INFORMATION REQUIRED IN PROXY STATEMENT SCHEDULE 14A INFORMATION PROXY STATEMENT PURSUANT TO SECTION 14(A) OF THE SECURITIES EXCHANGE ACT OF 1934 (AMENDMENT NO. ___) Filed by the Registrant [x] Filed by a Party other than the Registrant [ ] Check the appropriate box: [ ]Preliminary Proxy Statement [ ]Confidential, for Use of the [x]Definitive Proxy Statement Commission Only (as permitted [ ]Definitive Additional Materials by Rule 14a-6(e)(2)) [ ]Soliciting Material Under Rule 14a-12 FIRST SOUTH BANCORP, INC. - -------------------------------------------------------------------------------- (Name of Registrant as Specified in Its Charger) - -------------------------------------------------------------------------------- (Name of Person(s) Filing Proxy Statement, if Other Than the Registrant) Payment of Filing Fee (Check the appropriate box): [x] No fee required. [ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11. 1. Title of each class of securities to which transaction applies: ----------------------------------------------------------------------- 2. Aggregate number of securities to which transaction applies: ----------------------------------------------------------------------- 3. Per unit price or other underlying value of transaction computed pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the filing fee is calculated and state how it was determined): ----------------------------------------------------------------------- 4. Proposed maximum aggregate value of transaction: ----------------------------------------------------------------------- 5. Total fee paid: ----------------------------------------------------------------------- [ ] Fee paid previously with preliminary materials: __________________________ [ ] Check box if any part of the fee is offset as provided by Exchange Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee was paid previously. Identify the previous filing by registration statement number, or the Form or Schedule and the date of its filing. 1. Amount Previously Paid: ----------------------------------------------------------------------- 2. Form, Schedule or Registration Statement No.: ----------------------------------------------------------------------- 3. Filing Party: ----------------------------------------------------------------------- 4. Date Filed: ----------------------------------------------------------------------- [LOGO] [FIRST SOUTH BANCORP, INC. LETTERHEAD] January 15, 2001 Dear Stockholder: We invite you to attend the Annual Meeting of Stockholders (the "Annual Meeting") of First South Bancorp, Inc. (the "Company") to be held at the main office of First South Bank (the "Bank") located at 1311 Carolina Avenue, Washington, North Carolina on Thursday, February 15, 2001, at 11:00 a.m., Eastern time. The attached Notice of Annual Meeting and Proxy Statement describe the formal business to be transacted at the meeting. During the meeting, we will also report on the operations of First South Bank, the Company's wholly owned subsidiary. Directors and officers of the Company and the Bank will be present to respond to any questions the stockholders may have. ON BEHALF OF THE BOARD OF DIRECTORS, WE URGE YOU TO SIGN, DATE AND RETURN THE ACCOMPANYING FORM OF PROXY AS SOON AS POSSIBLE EVEN IF YOU CURRENTLY PLAN TO ATTEND THE ANNUAL MEETING. Your vote is important, regardless of the number of shares you own. This will not prevent you from voting in person but will assure that your vote is counted if you are unable to attend the meeting. On behalf of the Board of Directors and all the employees of the Company and the Bank, I wish to thank you for your continued support. Sincerely, /s/ Thomas A. Vann Thomas A. Vann President - -------------------------------------------------------------------------------- FIRST SOUTH BANCORP, INC. 1311 CAROLINA AVENUE WASHINGTON, NORTH CAROLINA 27889 - -------------------------------------------------------------------------------- NOTICE OF ANNUAL MEETING OF STOCKHOLDERS TO BE HELD ON FEBRUARY 15, 2001 - -------------------------------------------------------------------------------- NOTICE IS HEREBY GIVEN that the Annual Meeting of Stockholders (the "Annual Meeting") of First South Bancorp, Inc. (the "Company") will be held at the main office of First South Bank (the "Bank") located at 1311 Carolina Avenue, Washington, North Carolina on Thursday, February 15, 2001, at 11:00 a.m., Eastern time. A Proxy Statement and Proxy Card for the Annual Meeting are enclosed. The Annual Meeting is for the purpose of considering and acting upon the following matters: 1. The election of two directors to serve three-year terms; and 2. The transaction of such other business as may properly come before the Annual Meeting or any adjournment thereof. The Board of Directors is not aware of any other business to come before the Annual Meeting. Any action may be taken on any one of the foregoing proposals at the Annual Meeting on the date specified above or on any date or dates to which, by original or later adjournment, the Annual Meeting may be adjourned. Stockholders of record at the close of business on January 2, 2001, are the stockholders entitled to notice of and to vote at the Annual Meeting and any adjournment thereof. You are requested to fill in and sign the enclosed proxy card which is solicited by the Board of Directors and to mail it promptly in the enclosed envelope. The proxy will not be used if you attend and vote at the Annual Meeting in person. BY ORDER OF THE BOARD OF DIRECTORS /s/ William L. Wall William L. Wall Secretary Washington, North Carolina January 15, 2001 IMPORTANT: THE PROMPT RETURN OF PROXIES WILL SAVE THE COMPANY THE EXPENSE OF FURTHER REQUESTS FOR PROXIES IN ORDER TO INSURE A QUORUM. A SELF-ADDRESSED ENVELOPE IS ENCLOSED FOR YOUR CONVENIENCE. NO POSTAGE IS REQUIRED IF MAILED IN THE UNITED STATES. - -------------------------------------------------------------------------------- PROXY STATEMENT OF FIRST SOUTH BANCORP, INC. 1311 CAROLINA AVENUE WASHINGTON, NORTH CAROLINA 27889 - -------------------------------------------------------------------------------- ANNUAL MEETING OF STOCKHOLDERS FEBRUARY 15, 2001 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- GENERAL - -------------------------------------------------------------------------------- This Proxy Statement is furnished to stockholders of First South Bancorp, Inc. (the "Company") in connection with the solicitation by the Board of Directors of the Company of proxies to be used at the Annual Meeting of Stockholders (the "Annual Meeting") which will be held at the main office of First South Bank (the "Bank") located at 1311 Carolina Avenue, Washington, North Carolina on Thursday, February 15, 2001, at 11:00 a.m., Eastern time, and at any adjournment thereof. The accompanying Notice of Annual Meeting and proxy card and this Proxy Statement are being first mailed to stockholders on or about January 15, 2001. - -------------------------------------------------------------------------------- VOTING AND REVOCABILITY OF PROXIES - -------------------------------------------------------------------------------- Stockholders who execute proxies retain the right to revoke them at any time. Unless so revoked, the shares represented by properly executed proxies will be voted at the Annual Meeting and all adjournments thereof. Proxies may be revoked by written notice to William L. Wall, Secretary of the Company, at the address shown above, by filing a later-dated proxy prior to a vote being taken on a particular proposal at the Annual Meeting or by attending the Annual Meeting and voting in person. The presence of a stockholder at the Annual Meeting will not in itself revoke such stockholder's proxy. Proxies solicited by the Board of Directors of the Company will be voted in accordance with the directions given therein. WHERE NO INSTRUCTIONS ARE INDICATED, PROXIES WILL BE VOTED FOR THE NOMINEES FOR DIRECTOR SET FORTH IN THIS PROXY STATEMENT. The proxy confers discretionary authority on the persons named therein to vote with respect to the election of any person as a director where the nominee is unable to serve or for good cause will not serve, and matters incident to the conduct of the Annual Meeting. If any other business is presented at the Annual Meeting, proxies will be voted by those named therein in accordance with the determination of a majority of the Board of Directors. Proxies marked as abstentions will not be counted as votes cast. Shares held in street name which have been designated by brokers on proxies as not voted will not be counted as votes cast. Proxies marked as abstentions or as broker non-votes, however, will be treated as shares present for purposes of determining whether a quorum is present. - -------------------------------------------------------------------------------- VOTING SECURITIES AND SECURITY OWNERSHIP - -------------------------------------------------------------------------------- The securities entitled to vote at the Annual Meeting consist of the Company's common stock, par value $.01 per share (the "Common Stock"). Stockholders of record as of the close of business on January 2, 2001 (the "Record Date") are entitled to one vote for each share of Common Stock then held. As of the Record Date, there were 3,094,573 shares of Common Stock issued and outstanding. The presence, in person or by proxy, of at least one-third of the total number of shares of Common Stock outstanding and entitled to vote will be necessary to constitute a quorum at the Annual Meeting. Persons and groups beneficially owning more than 5% of the Common Stock are required to file certain reports with respect to such ownership pursuant to the Securities Exchange Act of 1934, as amended (the "Exchange Act"). The following table sets forth information regarding the shares of Common Stock beneficially owned as of November 30, 2000 by persons who beneficially own more than 5% of the Common Stock, each of the Company's directors, including the executive officer of the Company named in the Summary Compensation Table, set forth under "Proposal I -- Election of Directors -- Executive Compensation -- Summary Compensation Table," and all of the Company's directors and executive officers as a group.
SHARES OF COMMON STOCK BENEFICIALLY OWNED PERCENT OF AS OF NOVEMBER 30, 2000 (1) CLASS (2) --------------------------- ---------- Persons Owning Greater Than 5%: - ------------------------------ First South Bancorp, Inc. 322,491 (3) 10.37% Employee Stock Ownership Plan Trust ("ESOP") 1311 Carolina Avenue Washington, North Carolina 27889 Thomas A. Vann 228,816 (4) 7.11 1311 Carolina Avenue Washington, North Carolina 27889 Directors: - --------- Edmund T. Buckman, Jr. 85,730 (5) 2.73 Linley H. Gibbs, Jr. 68,430 (6) 2.18 Frederick N. Holscher 54,274 (7) 1.73 Frederick H. Howdy 71,980 (8) 2.32 Charles E. Parker, Jr. 64,901 (9) 2.07 Marshall T. Singleton 85,591 (10) 2.73 H.D. Reaves, Jr. 200 .01 All directors and executive officers of the 868,144 (11) 25.16 Company as a group (17 persons) ____________ (1) In accordance with Rule 13d-3 under the Exchange Act, a person is deemed to be the beneficial owner, for purposes of this table, of any shares of Common Stock if he or she has or shares voting or investment power with respect to such Common Stock. As used herein, "voting power" is the power to vote or direct the voting of shares and "investment power" is the power to dispose or direct the disposition of shares. Except as otherwise noted, ownership is direct, and the named individuals and group exercise sole voting and investment power over the shares of the Common Stock. The listed amounts do not include shares with respect to which Directors Gibbs, Holscher, and Howdy have voting power by virtue of their positions as trustees of the trust holding 322,491 shares under the ESOP trust. Shares held by the ESOP trust and allocated to the accounts of participants are voted in accordance with the participants' instructions, and unallocated shares are voted in the same ratio as ESOP participants direct the voting of allocated shares or, in the absence of such direction, in the ESOP trustees' best judgment. (2) Based on a total of 3,109,059 shares of Common Stock outstanding as of November 30, 2000. (3) These shares are currently held in a suspense account for future allocation and distribution among participants as the loan used to purchase the shares is repaid. At November 30, 2000, 152,997 shares had been allocated. See footnote 1 above for information on how these shares are voted. (4) Includes 29,441 shares owned by Mr. Vann's spouse, 9,668 shares owned by his son, 8,469 shares allocated to Mr. Vann's account under the ESOP, 6,947 shares owned by Mr. Vann through the Bank's 401(k) Plan and 109,103 shares Mr. Vann has the right to acquire upon the exercise of options exercisable within 60 days of November 30, 2000. (5) Includes 17,300 shares owned by Mr. Buckman's spouse and 27,450 shares Mr. Buckman has the right to acquire upon the exercise of options exercisable within 60 days of November 30, 2000. (6) Includes 2,100 shares owned by Mr. Gibbs' spouse and 27,450 shares Mr. Gibbs has the right to acquire upon the exercise of options exercisable within 60 days of November 30, 2000. 2 (7) Includes 2,025 shares owned by Mr. Holscher's spouse, 300 shares owned by his son and 27,450 shares Mr. Holscher has the right to acquire upon the exercise of options exercisable within 60 days of November 30, 2000. (8) Includes 3,660 shares owned by Dr. Howdy's spouse. (9) Includes 27,450 shares Mr. Parker has the right to acquire upon the exercise of options exercisable within 60 days of November 30, 2000. (10) Includes 15,000 shares owned by B.E. Singleton & Sons, Inc., a corporation co-owned by Mr. Singleton, 2,226 shares owned by his spouse and 27,450 shares Mr. Singleton has the right to acquire upon the exercise of options exercisable within 60 days of November 30, 2000. (11) Includes 340,853 shares all directors and executive officers as a group have the right to acquire upon the exercise of options exercisable within 60 days of November 30, 2000.
- -------------------------------------------------------------------------------- PROPOSAL I -- ELECTION OF DIRECTORS - -------------------------------------------------------------------------------- GENERAL The Company's Board of Directors consists of eight members. The Company's Articles of Incorporation require that directors be divided into three classes, as nearly equal in number as possible, with approximately one-third of the directors elected each year. At the Annual Meeting, two directors will be elected for terms expiring at the 2004 Annual Meeting. The Board of Directors has nominated Linley H. Gibbs, Jr. and Thomas A. Vann to serve as directors for a three-year period. Both nominees are currently members of the Board. Under Virginia law and the Company's Bylaws, directors are elected by a plurality of the votes present in person or by proxy at a meeting at which a quorum is present. It is intended that the persons named in the proxies solicited by the Board of Directors will vote for the election of the named nominees. If any nominee is unable to serve, the shares represented by all valid proxies will be voted for the election of such substitute as the Board of Directors may recommend or the size of the Board may be reduced to eliminate the vacancy. At this time, the Board knows of no reason why any nominee might be unavailable to serve. The following table sets forth, for each nominee for director and continuing director of the Company, his age, the year he first became a director of the Bank, which is the Company's principal operating subsidiary, and the expiration of his term as a director. All such persons were appointed as directors in 1996 in connection with the incorporation and organization of the Company with the exception of Mr. Reaves, who became a director of the Company and the Bank upon the Company's acquisition of Green Street Financial Corp and Home Federal Savings and Loan Association on November 30, 1999. Each director of the Company also is a member of the Board of Directors of the Bank. 3
YEAR FIRST AGE AT ELECTED AS CURRENT SEPTEMBER 30, DIRECTOR OF TERM NAME 2000 THE BANK TO EXPIRE - ---- -------- ---------- --------- BOARD NOMINEES FOR TERMS TO EXPIRE IN 2004 Linley H. Gibbs, Jr. 69 1985 2001 Thomas A. Vann 51 1979 2001 DIRECTORS CONTINUING IN OFFICE Charles E. Parker, Jr. 64 1971 2002 Marshall T. Singleton 61 1990 2002 H.D. Reaves, Jr. 63 1999 2002 Edmund T. Buckman, Jr. 74 1975 2003 Frederick N. Holscher 52 1985 2003 Frederick H. Howdy 68 1975 2003
Set forth below is information concerning the Company's directors. Unless otherwise stated, all directors have held the positions indicated for at least the past five years. LINLEY H. GIBBS, JR. has been retired since 1992. Prior to his retirement, Mr. Gibbs served as a general manager with Hamilton Beach, an appliance manufacturing company in Washington, North Carolina. THOMAS A. VANN serves as President and Chief Executive Officer of the Company and the Bank. He joined the Bank in 1972 as Assistant Manager. Mr. Vann was promoted to a number of positions prior to becoming President of the Bank in 1977 and Chief Executive Officer in 2000. CHARLES E. PARKER, JR. is Senior Vice President of the Robinson and Stith Insurance Agency in New Bern, North Carolina. He joined the agency in 1989. MARSHALL T. SINGLETON has been a co-owner of B.E. Singleton & Sons since 1960, a highway construction firm in Washington, North Carolina. H.D. REAVES, JR. was employed with Home Federal Savings and Loan Association, Fayetteville, North Carolina, from 1962 to November 1999 and served as Home Federal's President and Chief Executive Officer since 1992. Upon consummation of the Company's acquisition of Home Federal, Mr. Reaves was given the title of Executive Vice President of the Bank but does not actively participate in the day-to-day operations of the Bank. EDMUND T. BUCKMAN, JR. has been retired since 1994. Prior to his retirement, Mr. Buckman was the owner of Buckman Auto Supply in Washington, North Carolina. FREDERICK N. HOLSCHER is a partner with the Washington, North Carolina law firm of Rodman, Holscher, Francisco & Peck, P.A. and has been with the firm since 1973. FREDERICK H. HOWDY is President of Drs. Freshwater and Howdy P.A., a dental health care corporation of North Carolina. Prior to that, he was a dentist in Washington, North Carolina for 36 years. 4 EXECUTIVE OFFICERS WHO ARE NOT DIRECTORS The following sets forth information with respect to executive officers who do not serve on the Board of Directors.
AGE AT SEPTEMBER 30, NAME 2000 TITLE (1) - ---- ------ --------- William L. Wall 54 Executive Vice President, Chief Financial Officer and Secretary of the Company and the Bank Joseph C. Dunn 60 Executive Vice President -- Commercial Lending and Credit Administration Jack L. Ashley 55 Executive Vice President -- Branch Administration and Operations Walter P. House 54 Executive Vice President -- Mortgage Operations William R. Outland 63 Senior Vice President -- Consumer Lending James F. Buckman, IV 49 Senior Vice President - Regional Executive Sherry L. Correll 45 Senior Vice President -- Savings and Deposit Administration Mary R. Boyd 50 Senior Vice President -- Loan Servicing Kristie W. Hawkins 35 Treasurer and Controller of the Company and the Bank - --------------- (1) All positions are with the Bank unless indicated otherwise.
WILLIAM L. WALL joined the Bank in 1993 and currently serves as Executive Vice President, Chief Financial Officer and Secretary of the Company and the Bank. Prior to joining the Bank, Mr. Wall served as Senior Vice President, Treasurer and Chief Financial Officer of Pioneer Savings Bank in Rocky Mount, North Carolina. JOSEPH C. DUNN joined the Bank in April 1997 and currently serves as an Executive Vice President of Commercial Lending and Credit Administration. Prior to joining the Bank, Mr. Dunn served as Senior Underwriter for Eastern North Carolina for First Union National Bank, from October 1994 to March 1997. Prior to that, Mr. Dunn served for two years as President of American National Bank in Jacksonville, Florida. JACK L. ASHLEY joined the Bank in 1997 and currently serves as Executive Vice President of Branch Administration and Operations. Prior to joining the Bank, from June 1995 to August 1997, Mr. Ashley served as Senior Vice President and Region Executive of United Carolina Bank in Greenville, North Carolina. Prior to that, Mr. Ashley was employed for 17 years with Southern National Bank in various capacities, most recently as Senior Vice President. WALTER P. HOUSE joined the Bank in 1990 and currently serves as Executive Vice President of Mortgage Operations. WILLIAM R. OUTLAND currently serves as the Bank's Senior Vice President of Consumer Lending. He joined the Bank in 1983. JAMES F. BUCKMAN, IV joined the Bank in 1995 and currently is a Senior Vice President serving as both City Executive and Regional Executive in Washington, North Carolina. Prior to joining the Bank, Mr. Buckman was employed for 21 years with Nations Bank in various capacities. SHERRY L. CORRELL is currently the Senior Vice President of Savings and Deposit Administration. She joined the Bank in 1985. 5 MARY R. BOYD has been with the Bank since 1983 and currently serves as a Senior Vice President - Loan Servicing. KRISTIE W. HAWKINS joined the Bank in 1982. Prior to her current position of Controller and Treasurer, she served as the Bank's Assistant Treasurer and Secretary as well as accounting department supervisor. COMMITTEES OF THE BOARD OF DIRECTORS The Board of Directors of the Company meets monthly and may have additional special meetings. During the year ended September 30, 2000, the Board of Directors of the Company met 13 times. No director attended fewer than 75% in the aggregate of the total number of Company Board of Directors meetings held during the year ended September 30, 2000 and the total number of meetings held by committees on which he served during such fiscal year. The Company's Board of Directors has standing Audit and Executive Committees. The Board of Directors' Audit Committee consists of Directors Buckman, Holscher, Singleton and Reaves, who serves as Chairperson. The members of the Audit Committee are "independent," as "independent" is defined in Rule 4200(a)(15) of the National Association of Securities Dealers listing standards. The function of the Audit Committee is to examine and approve the audit report prepared by the independent auditors of the Company, to review and recommend the independent auditors to be engaged by the Company and to review and approve audit policies. The Company's Board of Directors has adopted a written charter for the Audit Committee. A copy of the Audit Committee's charter is attached to this Proxy Statement as Exhibit A. The Audit Committee meets quarterly and met four times during the year ended September 30, 2000. The Bank's Board of Directors has an Examining Committee (a requirement of the North Carolina Commissioner of Banks) consisting of Directors Buckman, Holscher, Singleton and Reaves, who serves as Chairperson. The function of the Examining Committee is to review the internal audit function, internal accounting controls and approve the internal audit plan and policies. The Examining Committee meets quarterly and met four times during the year ended September 30, 2000. The Board of Directors' Executive Committee consists of Directors Gibbs, Holscher, Vann and Howdy, who serves as Chairperson. The Executive Committee, among other things, evaluates the compensation and benefits of the directors, officers and employees, recommends changes, and monitors and evaluates employee performance. The Executive Committee reports its evaluations and findings to the full Board of Directors and all compensation decisions are ratified by the full Board of Directors. Directors who also are officers abstain from discussion and voting on matters affecting their compensation. The Executive Committee is empowered to exercise all of the authority of the Board when the Board is not in session. The Executive Committee met 15 times during the year ended September 30, 2000. The Company's full Board of Directors acts as a nominating committee. The Board of Directors met once during the year ended September 30, 2000 in this capacity for the purpose of considering potential nominees to the Board of Directors. In its deliberations, the Board, functioning as a 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 its market area. The Company's Articles of Incorporation set forth procedures that must be followed by stockholders seeking to make nominations for director. In order for a stockholder of the Company to make any nominations, he or she must give written notice thereof to the Secretary of the Company not less than thirty days nor more than sixty days prior to any such meeting; provided, however, that if less than forty days' notice of the meeting is given to stockholders, such written notice shall be delivered or mailed, as prescribed, to the Secretary of the Company not later than the close of business on the tenth day following the day on which notice of the meeting was mailed to stockholders. Each such notice given by a stockholder with respect to nominations for the election of directors must set forth (i) the name, age, business address and, if known, residence address of each nominee proposed in such notice; (ii) the principal occupation or employment of each such nominee; and (iii) the number of shares of stock of the Company which are beneficially owned by each such nominee. In addition, the stockholder making such nomination must promptly provide any other information reasonably requested by the Company. 6 COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION Overview and Philosophy. The Company's executive compensation policies are established by the Executive Committee of the Board of Directors (the "Committee") composed of three outside directors and the Company's President, Thomas Vann. Mr. Vann does not participate in deliberations regarding his compensation. The Committee is responsible for developing the Company's executive compensation policies. The Company's President, under the direction of the Committee, implements the Company's executive compensation policies. The Committee's objectives in designing and administering the specific elements of the Company's executive compensation program are as follows: o To link executive compensation rewards to increases in stockholder value, as measured by favorable long-term operating results and continued strengthening of the Company's financial condition. o To provide incentives for executive officers to work towards achieving successful annual results as a step in achieving the Company's long-term operating results and strategic objectives. o To correlate, as closely as possible, executive officers' receipt of compensation with the attainment of specified performance objectives. o To maintain a competitive mix of total executive compensation, with particular emphasis on awards related to increases in long-term stockholder value. o To attract and retain top performing executive officers for the long-term success of the Company. In furtherance of these objectives, the Committee has determined that there should be three specific components of executive compensation: base salary, a cash bonus and stock benefit plans. Base Salary. The Committee makes recommendations to the Board concerning executive compensation on the basis of surveys of salaries paid to executive officers of other bank holding companies, non-diversified banks and other financial institutions similar in size, market capitalization and other characteristics. In addition, the Company maintains a salary administration program, pursuant to which it assembles a list of executive positions, with job descriptions and salary ranges, which the Committee uses in setting executive salaries. In setting executive salaries, the Committee also takes into consideration the relative complexity of the Bank's operations, compared to those of other similarly sized banks, attributable to the large volume of loans serviced for others. The Committee's objective is to provide for base salaries that are competitive with the average salary paid by the Company's peers. Bonus. The Bank pays a discretionary bonus on an annual basis based on satisfaction of a combination of individual and Bank performance objectives. Whether bonuses are paid each year and the amount of such bonuses are determined by the Committee, subject to ratification by the Board of Directors, at year end based on the Bank's ability to achieve performance goals established by the Board in each year's Business Plan. Discretionary bonuses for achieving specific performance goals during the year are paid during the next fiscal year. Stock Benefit Plans. In addition, the Committee believes that stock related award plans are an important element of compensation since they provide executives with incentives linked to the performance of the Common Stock. Accordingly, the Company has adopted a stock option plan and a management recognition plan. Under the stock option plan, the Company reserved for issuance a number of shares equal to 10% of the originally issued Common Stock. At the 2000 annual meeting of stockholders, the stockholders approved an amendment to the stock option plan to authorize an additional 350,923 shares of Common Stock for award under the stock option plan. The Committee believes that stock options are an important element of compensation because 7 they provide executives with incentives linked to the performance of the Common Stock. The Company awards stock options as a means of providing employees the opportunity to acquire a proprietary interest in the Company and to link their interests with those of the Company's stockholders. Options are granted with an exercise price equal to the market value of the Common Stock on the date of grant, and thus acquire value only if the Company's stock price increases. Although there is no specific formula, in determining the level of option awards, the Committee takes into consideration individual and corporate performance. No options were granted to directors or executive officers during the year ended September 30, 2000. Under the management recognition plan, officers and directors were granted awards of restricted Common Stock, subject to vesting and forfeiture as determined by the Committee. Under this plan, the Company reserved for issuance a number of shares equal to 4% of the originally issued Common Stock. The purpose of a management recognition plan is to reward and retain personnel of experience and ability in key positions of responsibility by providing such employees with a proprietary interest in the Company as compensation for their past contributions to the Company and the Bank and as an incentive to make further contributions in the future. The management recognition plan has been terminated, and no further awards will be made thereunder. Compensation of the President. Mr. Vann's base salary is established in accordance with the terms of the employment agreement entered into between the Company and Mr. Vann. See " -- Executive Compensation -- Employment Agreements." The Committee determines the President's compensation on the basis of several factors. In determining Mr. Vann's base salary, the Committee conducted surveys of compensation paid to chief executive officers of similarly situated banks and non-diversified banks and other financial institutions of similar asset size. The Committee believes that Mr. Vann's base salary is generally competitive with the average salary paid to executives of similar rank and expertise at banking institutions which the Committee considered to be comparable and taking into account the Bank's superior performance and complex operations relative to comparable institutions. Mr. Vann received a $100,000 bonus based on fiscal year 2000 performance pursuant to the same basic factors as described above under "-- Bonus." In establishing Mr. Vann's bonus, the Committee considered the Company's overall performance, record of increase in the Company's earnings per share and success in meeting strategic objectives and his personal leadership and accomplishments. These factors were considered in conjunction with the Company's financial results for fiscal 2000 in relation to the established Business Plan and achieving certain annual performance goals, including, but not limited to return on equity, satisfactory results of regulatory examinations and independent audits, and successfully undertaking increased responsibility due to the Company's status as a publicly traded corporation. Specifically, during the year ended September 30, 2000, the Company's assets increased from $292.3 million at September 30, 1999 to $559.7 million at September 30, 2000 and deposits increased from $234.6 million at September 30, 1999 to $471.9 million at September 30, 2000. Net income per share increased from $.91 for the year ended September 30, 1999 to $1.14 for the year ended September 30, 2000, and return on average equity was 7.71% for the year ended September 30, 2000, as compared to 6.03% for the year ended September 30, 1999. The Board of Directors also took into consideration Mr. Vann's success in consummating the acquisition of Green Street Financial Corp and the integration of the three Home Federal Savings and Loan Association branch offices into the Bank's branch system. In addition, the Board of Directors took into consideration Mr. Vann's success in negotiating an agreement for and consummating the Company's acquisition of six branch offices formerly owned by Triangle Bank. These two acquisitions collectively increased the Company's assets by approximately 91.5% from September 30, 1999 to September 30, 2000. 8 The Committee believes that the Company's executive compensation program serves the Company and its stockholders by providing a direct link between the interests of executive officers and those of stockholders generally and by helping to attract and retain qualified executive officers who are dedicated to the long-term success of the Company. Members of the Executive Committee Frederick H. Howdy (Chairman) Linley H. Gibbs, Jr. Frederick N. Holscher Thomas A. Vann COMPARATIVE STOCK PERFORMANCE GRAPH The graph and table which follow show the cumulative total return on the Common Stock for the period from April 8, 1997 (the day trading began in the Common Stock following completion of the Company's initial public offering) through the fiscal year ended September 30, 2000 with (1) the total cumulative return of all companies whose equity securities are traded on the Nasdaq Stock Market and (2) the total cumulative return of banking companies traded on the Nasdaq Stock Market. The comparison assumes $100 was invested on April 8, 1997 in the Company's Common Stock and in each of the foregoing indices and assumes reinvestment of dividends. The stockholder returns shown on the performance graph are not necessarily indicative of the future performance of the Common Stock or of any particular index. CUMULATIVE TOTAL STOCKHOLDER RETURN COMPARED WITH PERFORMANCE OF SELECTED INDEXES April 8, 1997 through September 30, 2000 [Line graph appears here depicting the cumulative total shareholder return of $100 invested in the Common Stock as compared to $100 invested in all companies whose equity securities are traded on the Nasdaq Stock market and $100 invested in banking companies traded on the Nasdaq Stock market. Line graph plots the cumulative total return from April 8, 1997 to September 30, 2000. Plot points are provided below.]
04/08/97 09/30/97 09/30/98 09/30/99 09/30/00 -------- -------- -------- -------- -------- Company $100 $154.82 $164.32 $136.93 $179.90 Nasdaq 100 134.45 136.58 223.13 296.17 Nasdaq Banks 100 136.03 134.94 143.67 154.14
9 EXECUTIVE COMPENSATION Summary Compensation Table. The following table sets forth the cash and noncash compensation for the fiscal years ended September 30, 2000, 1999 and 1998 awarded to or earned by the President. No other executive officer of the Company earned salary and bonus in fiscal 2000 exceeding $100,000 for services rendered in all capacities to the Company and the Bank.
LONG-TERM COMPENSATION --------------------------- AWARDS ANNUAL COMPENSATION --------------------------- -------------------------------------- RESTRICTED SECURITIES FISCAL OTHER ANNUAL STOCK UNDERLYING ALL OTHER NAME YEAR SALARY BONUS(1) COMPENSATION(2) AWARDS (3) OPTIONS (3) COMPENSATION - ---- ---- ------ -------- --------------- ---------- ----------- ------------ Thomas A. Vann 2000 $203,750 $ 100,000 $ -- $ -- -- $ 106,969 (4) President 1999 182,500 60,000 -- -- 109,103 (5) 96,755 1998 175,000 50,000 -- 1,007,257 (6) 109,103 105,470 _____________ (1) Bonuses were paid in the succeeding fiscal year based on performance during the indicated fiscal year. (2) Executive officers of the Company and the Bank receive indirect compensation in the form of certain perquisites and other personal benefits. The amount of such benefits received by the named executive officer in fiscal 2000 did not exceed 10% of the executive officer's salary and bonus. (3) Share amounts and price per share data on this table and in the footnotes have been adjusted to reflect the effect of a three-for-two stock split paid on August 19, 1998. (4) For the year ended September 30, 2000, consists of $13,181 in Board of Directors and committee fees, $46,988 representing the value as of September 30, 2000 of shares of Common Stock allocated to Mr. Vann's account under the ESOP during fiscal 2000, $26,900 accrued under a Supplemental Income Plan Agreement, $11,500 accrued under a Directors Deferred Compensation Plan Agreement, $3,250 accrued under a Directors Deferred Retirement Plan Agreement and $8,400 accrued pursuant to the Bank's Pension Plan. (5) The options represent the repricing of options granted during the year ended September 30, 1998. (6) Amount shown in the table is based on the closing price of the Common Stock of $23.08 as quoted on the Nasdaq National Market on the date of grant, April 8, 1998. The restricted Common Stock awarded vested at the rate of 331/3% per year following the date of grant, with the last 331/3% having vested on April 8, 2000.
Fiscal Year-End Option Values. The following table sets forth information concerning the value as of September 30, 2000 of options held by the executive officer named in the Summary Compensation Table set forth above. No options were granted to or exercised by the executive officer named in the Summary Compensation Table during fiscal year 2000. The options held by Mr. Vann repriced on November 19, 1998.
NUMBER OF VALUE OF UNDERLYING UNEXERCISED UNEXERCISED OPTIONS IN-THE-MONEY OPTIONS (1) ------------------- ------------------------ NAME EXERCISABLE/UNEXERCISABLE EXERCISABLE/UNEXERCISABLE - ---- ------------------------- ------------------------- Thomas A. Vann 109,103/-0- $545,515/$-0- - ----------- (1) Calculated based on the product of: (a) the number of shares subject to options and (b) the difference between the fair market value of underlying Common Stock at September 30, 2000, determined based on the closing sale price of the Common Stock of $23.25 as quoted on the Nasdaq National Market System, and the exercise price of the options.
Pension Plan. The Bank sponsors a defined benefit plan (the "Pension Plan") in which employees who have one year of service and have reached age 21 are eligible to participate. Participating employees become 100% vested in their right to benefits upon completing five years of service, except that participants become 100% vested upon attaining age 65, regardless of years of service. If vested, a participant in the Pension Plan will receive, after completion of 30 or more years of service, an annual normal retirement benefit at age 65 equal to the sum of (a) 37.5% of the participant's average salary over his highest five years of compensation up to the "covered 10 compensation level" (as defined in the Pension Plan), plus (b) 52.5% of the participant's average salary of his highest five years of compensation over the covered compensation level. Upon termination of employment at or after age 65 before completion of 30 years of service, the retirement benefit will be multiplied by the ratio the employee's actual years of service bear to 30 years. On an actuarially reduced basis, the Pension Plan also provides for both early retirement benefits, beginning at age 55, and death benefits. The Bank makes all contributions to the Pension Plan. At September 30, 2000, Mr. Vann had approximately 28 years of credited service under the Pension Plan. The following table illustrates annual pension benefits at age 65 under the Pension Plan at various levels of compensation and years of service, assuming 100% vesting of benefits and retirement at September 30, 2000. All retirement benefits illustrated in the table below are without regard to any Social Security benefits to which a participant might be entitled. The Pension Plan is not subject to offset for Social Security benefits.
Years of Service Average Final -------------------------------------------------------------------------- Compensation (1) 15 20 25 30 35 ---------------- ------ ------ ------ ------ ------ 125,000 $30,200 $ 40,200 $ 50,300 $ 60,400 $ 60,400 150,000 36,700 49,000 61,200 73,500 73,500 175,000 43,300 57,700 72,200 86,600 86,600 200,000 49,900 66,500 83,100 99,700 99,700 225,000 56,400 75,200 94,100 112,900 112,900 250,000 63,000 84,000 105,000 126,000 126,000 300,000 76,100 101,500 126,900 152,200 152,200 ____________ (1) The compensation covered by the Pension Plan consists of salary and bonus and the portion of all other compensation represented by Board of Directors and Committee fees listed on the Summary Compensation Table.
Employment Agreements. The Company and the Bank have entered into employment agreements (the "Employment Agreements") pursuant to which Thomas A. Vann (the "Employee") serves as President of the Bank and President of the Company. In such capacities, the Employee is responsible for overseeing all operations of the Bank and the Company and for implementing the policies adopted by the Boards of Directors. The Employment Agreements became effective on April 7, 1997 and provide for a term of three years. On each anniversary date of the commencement of the Employment Agreements, the term of the Employee's employment will be extended for an additional one-year period beyond the then effective expiration date, upon a determination by the Board of Directors that the performance of the Employee has met the required performance standards and that such Employment Agreements should be extended. The Employment Agreements provide the Employee with a salary review by the Board of Directors not less often than annually, as well as with inclusion in any discretionary bonus plans, retirement and medical plans, customary fringe benefits, vacation and sick leave. The Employment Agreements terminate upon the Employee's death, may terminate upon the Employee's disability and is terminable by the Bank for "just cause" (as defined in the Employment Agreements). In the event of termination for just cause, no severance benefits are available. If the Company or the Bank terminates the Employee without just cause, the Employee will be entitled to a continuation of his salary and benefits from the date of termination through the remaining term of the Employment Agreements plus an additional 12 month's salary and, at the Employee's election, either continued participation in benefits plans in which the Employee would have been eligible to participate through the Employment Agreements' expiration date or the cash equivalent thereof. If the Employment Agreements are terminated due to the Employee's "disability" (as defined in the Employment Agreements), the Employee will be entitled to a continuation of his salary and benefits through the date of such termination, including any period prior to the establishment of the Employee's disability. In the event of the Employee's death during the term of the Employment Agreements, his estate will be entitled to receive his salary through the last day of the calendar month in which the Employee's death occurred. The Employee is able to voluntarily terminate his Employment Agreements by providing 90 days' written notice to the Boards of Directors of the Bank and the Company, in which case the Employee is entitled to receive only his compensation, vested rights and benefits up to the date of termination. 11 In the event of (i) the Employee's involuntary termination of employment other than for "just cause" during the period beginning six months before a change in control and ending on the later of the second anniversary of the change in control or the expiration date of the Employment Agreements (the "Protected Period"), (ii) the Employee's voluntary termination within 90 days of the occurrence of certain specified events occurring during the Protected Period which have not been consented to by the Employee, or (iii) the Employee's voluntary termination of employment for any reason within the 30-day period beginning on the date of the change in control, the Employee will be paid within 10 days of such termination (or the date of the change in control, whichever is later) an amount equal to the difference between (i) 2.99 times his "base amount," as defined in Section 280G(b)(3) of the Internal Revenue Code, and (ii) the sum of any other parachute payments, as defined under Section 280G(b)(2) of the Internal Revenue Code, that the Employee receives on account of the change in control. "Change in control" generally refers to the acquisition, by any person or entity, of the ownership or power to vote more than 25% of the Bank's or Company's voting stock, the control of the election of a majority of the Bank's or the Company's directors, or the exercise of a controlling influence over the management or policies of the Bank or the Company. In addition, under the Employment Agreements, a change in control occurs when, during any consecutive two-year period, directors of the Company or the Bank at the beginning of such period cease to constitute two-thirds of the Board of Directors of the Company or the Bank, unless the election of replacement directors was approved by a two-thirds vote of the initial directors then in office. The Employment Agreement with the Bank provides that within 10 business days following a change in control, the Bank shall fund a trust in the amount of 2.99 times the Employee's base amount, that will be used to pay the Employee amounts owed to him. The aggregate payment that would be made to Mr. Vann assuming his termination of employment under the foregoing circumstances at September 30, 2000 would have been approximately $609,213. These provisions may have an anti-takeover effect by making it more expensive for a potential acquiror to obtain control of the Company. In the event that the Employee prevails over the Company and the Bank, or obtains a written settlement, in a legal dispute as to the Employment Agreement, he will be reimbursed for his legal and other expenses. DIRECTOR COMPENSATION Fees. Through September 30, 2000, each member of the Bank's Board of Directors received a fee of $1,150 for each regular and special Board meeting attended and $125 for each Board committee meeting attended. Beginning with the October 2000 Board meeting, these fees were increased to $1,500 and $200, respectively. No fees are paid for attendance at meetings of the Company's Board. Directors also participate in certain benefit plans of the Company and the Bank, as described below. Directors are eligible to receive awards under the Company's stock option plan and MRP. During the year ended September 30, 2000, no awards were made to directors under these plans. Other. The Bank has entered into a Supplemental Income Agreement (as amended, the "SIA") with Thomas A. Vann. Pursuant to the terms of the SIA, Mr. Vann may elect to defer a portion of his cash compensation on a monthly basis. Upon the earlier of Mr. Vann's (i) attainment of age 65 ("SIA Retirement Age") and (ii) the date of Mr. Vann's retirement before the SIA Retirement Age, but after attaining age 55 and completing at least 10 years of service with the Bank ("SIA Early Retirement Date"), the Bank shall pay Mr. Vann (in lieu of cash compensation otherwise receivable) an amount equal to $19,250 ("SIA Retirement Amount") annually for a period of 15 years. This amount shall be increased by 5% for every full year of service after July 1, 1990, provided that there will be no increases in benefits (i) after Mr. Vann reaches age 65 and (ii) for more than 10 years of additional service. In the event of Mr. Vann's death after becoming entitled to receive the SIA Retirement Amount, but before any payments have been made, his beneficiary shall receive all remaining payments. In the event of Mr. Vann's death prior to attaining age 65, the Bank will pay his beneficiary $19,250 annually for 15 years. In the event of Mr. Vann's termination of employment by reason other than death, retirement upon attaining age 65, or upon the occurrence of the SIA Early Retirement Date, Mr. Vann (or his beneficiary) shall be entitled to receive, on the earlier of his attainment of age 65 and his death, a percentage of the SIA Retirement Amount. This percentage will be based on Mr. Vann's full years of service up to the date of his termination, beginning with 0% for less than 20 years of service, and increased in 5% increments (from 50% to 100%) for every year of service thereafter, starting with 50% at 20 years of service up to 100% for 29 years of service. In the event that Mr. Vann's employment terminates for any reason other than his death, or retirement on the SIA Early Retirement Date prior to the time he is 12 first entitled to receive payments under the SIA, Mr. Vann shall be entitled to receive such percentages of his SIA Retirement Amount, as discussed above, when he reaches age 55 or on upon his death, whichever is earlier. In the event that a termination of protected employment occurs (i) on or before the SIA Retirement Date or SIA Early Retirement Date and (ii) following a "change in control" (as defined below), then Mr. Vann shall be deemed to have retired as of the SIA Early Retirement Date, except that the SIA Early Retirement Date shall be deemed to be the date of the change in control. The Bank has entered into a Supplemental Income Plan Agreement (as amended, the "SIPA") with Thomas A. Vann. Pursuant to the terms of SIPA, if Mr. Vann retires from employment with the Bank either at or after the age of 65 (the "Retirement Date") or at or after age 55 with at least 10 years of service with the Bank after January 1, 1994 (the "Early Retirement Date"), the Bank shall pay, in equal monthly installments, a minimum sum of $40,000 ("SIPA Retirement Amount") per annum for a period of 15 years. This amount shall increase by 5% for each full year of service completed by Mr. Vann after January 1, 1994. In the event of Mr. Vann's death after becoming entitled to receive payments, but before all payments have been made, the Bank will make the remaining payments to his designated beneficiary. In the event of Mr. Vann's death before the Retirement Date or Early Retirement Date, the Bank shall make payments in the same manner as if he had retired. In the event that Mr. Vann terminates his service for reasons other than (i) his retirement on the Early Retirement Date, (ii) a change in control, (iii) "termination of protected employment" (as defined below), or (iv) his death, and the termination occurs before he is entitled to receive payments, Mr. Vann shall be entitled to receive a percentage of his SIPA Retirement Amount upon his attainment of age 55 or prior death. This percentage will be based on Mr. Vann's full years of service after January 1, 1994, and increased in 10% increments (from 10% to 100%) for every year of service after January 1994, starting with 10% at one year of service up to 100% for 10 years of service. Payments shall be made in equal monthly installments. In the event that, prior to the Retirement Date or Early Retirement Date, a "termination of protected employment" occurs following a change in control, Mr. Vann shall be deemed to have retired as of his Early Retirement Date, and the Early Retirement Date shall be considered the date of the change in control. The Bank has entered into a Directors' Deferred Compensation Plan Agreement (as amended, the "Agreement") with each of Directors Buckman, Howdy, Gibbs, Parker, Singleton, Holscher and Vann (the "Directors"). Pursuant to the terms of the Agreements, the Directors agreed to defer the receipt of their Directors' fees in the amount of $350 per month, beginning on January 1, 1994 and ending on December 29, 1998. In exchange for the agreement to defer fees, the Directors shall receive certain retirement benefits (described below) upon the later to occur of their 65th birthday and January 1, 1999 (the "Qualifying Date"). Upon the Qualifying Date, the Bank shall pay a Director a certain amount ("Deferred Amount") per month for 120 months. The Deferred Amount for Directors Buckman, Howdy, Gibbs, Parker, Singleton, Holscher and Vann equals $513, $942, $942, $1,533, $1,975, $4,088 and $4,818, respectively. In the event of a Director's death after becoming entitled to receive the Deferred Amount but before all of the payments have been made, the Bank shall make the remaining payments to the Director's beneficiary. Similarly, in the event of a Director's death while serving as a Director but before the Qualifying Date, the Bank will pay the Deferred Amount per month for 120 months to the Director's beneficiary. In the event that a Director voluntarily resigns after January 1, 1996 but before the Qualifying Date, then the Director will receive a percentage of the monthly Deferred Amount. This percentage varies among the different Agreements, but is generally determined by a formula based on the Director's full years of service after January 1, 1994. The Deferred Amounts generally vest over a period of five to ten years under the different Agreements. In the event that the Director's service is terminated on or before the Qualifying Date for a reason other than death or voluntary resignation, then he shall be paid the vested monthly Deferred Amount, and the Qualifying Date shall be deemed to be the date of the Director's termination of service. The Bank has entered into a Directors' Retirement Plan Agreement, as amended ("Retirement Plan") with Directors Buckman, Howdy, Parker, Singleton, Holscher, Gibbs and Vann. Under the terms of the Retirement Plan, the Bank will pay a director a monthly amount (the "Retirement Plan Amount") for a period of 120 months beginning upon the later to occur of the director's 70th birthday and January 1, 1999 ("Retirement Plan Qualifying Date"). Under the Retirement Plan, Directors Vann, Buckman, Howdy, Parker, Singleton, Holscher and Gibbs each will receive $2,000 per month. 13 In the event of a director's death prior to January 1, 1999, the Bank will pay the Retirement Plan Amount on a monthly basis for a period of 120 months to the director's beneficiary. Similarly, in the event of a director's death after becoming entitled to receive the payments under the Retirement Plan but before all payments have been made, the Bank shall pay the remaining amounts to the director's beneficiary. In the event that the director voluntarily resigns prior to January 1, 1999, the director shall be entitled to receive a percentage of the monthly Retirement Plan Amount. This percentage varies among the different Retirement Plan agreements, but is generally determined by a formula based on the director's full years of service after January 1, 1994. The Retirement Plan Amounts generally vest over a period of five to ten years under the different agreements. In the event that on or before the Retirement Plan Qualifying Date the director's service is terminated for any reason within 24 months following a change in control, the Bank will pay the director the monthly Retirement Plan Amount for a period of 120 months. The Bank has entered into a deferred compensation agreement entitled Director's Deferred Payment Agreement (as amended, the "Payment Agreement") with Directors Buckman, Howdy, Gibbs, Parker, Holscher and Vann. Under the terms of each Payment Agreement, a director deferred receipt of his director's fees in an amount equivalent to $291.66 per month over a six-year period. In addition, Mr. Vann has agreed to defer receipt of his director's fees in the amount of $220.35 per month from September 1, 1995 until the end of his term as a director. In exchange for the agreement to defer receipt of his director's fees, a director will receive, upon the earlier of the director's 65th birthday or termination of service as a director for any reason on or after attaining age 55, a certain amount ("Payment") per month for a period of 120 months. Directors Buckman, Howdy, Gibbs, Parker, Holscher and Vann will receive a monthly Payment of $1,054, $1,726, $1,610, $2,748, $3,628 and $8,256, respectively. In the event of a director's death after becoming entitled to receive monthly Payments but before all Payments have been made, the Bank will pay all remaining amounts to the director's beneficiary. Similarly, in the event of the director's death prior to the commencement of his monthly Payments, the Bank will pay a monthly amount for 120 months to the director's beneficiary. In the event that prior to the commencement of the monthly Payments a director's service is terminated for any reason other than death, then the director will be entitled to begin receiving his Payments (beginning on a date to be determined by the Bank, but not later than the first day of the sixth month following the month in which the director's 55th birthday, or if earlier, death, occurs). With respect to all of the deferred compensation and retirement arrangements discussed above, the timing of the first payments under the agreements shall be determined by the Bank, provided that such payments shall commence no later than the first day of the sixth month following the month in which the event triggering the distribution occurred. In addition, each arrangement provides that within ten business days after a change in control, the Bank shall fund, or cause to be funded, a trust in an amount equal to the present value of all benefits that may become payable under the respective arrangements, unless the recipient of the benefits has provided a release of any claims under the agreement. With respect to the above plans and agreements, "change in control" generally refers to the acquisition, by any person or entity, of the ownership or power to vote more than 25% of the Bank's or Company's voting stock, the control of the election of a majority of the Bank's or the Company's directors, or the exercise of a controlling influence over the management or policies of the Bank or the Company. In addition, a change in control occurs when, during any consecutive two-year period, directors of the Company or the Bank at the beginning of such period ("Continuing Directors") cease to constitute at least two-thirds of the Board of Directors of the Company or the Bank, unless the election of replacement directors was approved by at least two-thirds of the Continuing Directors then in office. "Termination of protected employment" generally refers to an employee's termination of employment without just cause, or the employee's voluntary termination of employment for certain events which have not been consented to in advance by the employee, including but not limited to a material reduction in base compensation as in effect on the date of a change in control, the failure of the Bank to maintain existing or substantially similar employee benefit plans, the assignment of duties and responsibilities which are other than those normally associated with the employee's position, a material reduction in the employee's authority and responsibility, and the failure to elect or re-elect the employee to the Board of Directors, if he has served on the Board during the term of the applicable agreement or plan. With the exception of the Retirement Plan, the cost of which is funded through payments by the Bank, the cost of all of the director retirement and deferred compensation plans described above is funded through deferral of compensation or Board of Director fees otherwise payable to the beneficiary under the plan or agreement. The deferred amounts are then used to purchase insurance, and dividends on such insurance in turn are utilized to 14 purchase additional insurance, which will provide the funds necessary to meet the Bank's obligations under the plans and agreements when such obligations become due. The Board of Directors periodically reviews its insurance coverage to ensure that the coverage is adequate to reimburse the Bank for its anticipated expenses under the plans and agreements. If the insurance coverage is found to be inadequate as to a covered director, the Board of Directors may require the director to defer additional sums to reimburse the Bank for the purchase of additional insurance or may reduce the retirement benefit. Under the director retirement and deferred compensation plans, directors are considered general creditors of the Bank with respect to retirement benefits and will receive such benefits only if the Bank continues to be solvent or, if the Bank is insolvent, only to the extent funds remain following full payment to priority creditors such as depositors and secured creditors. TRANSACTIONS WITH MANAGEMENT The Bank offers loans to its directors and executive officers. At September 30, 2000, the Bank's loans to directors and executive officers totaled $1.7 million, or 3.8% of the Company's stockholders' equity at that date. All loans to the Company's and the Bank's directors and executive officers and members of their immediate families and corporations or organizations of which a director or executive officer is an executive officer, partner or 10% owner were made in the ordinary course of business on the same terms, including interest rates and collateral, as those prevailing at the time for comparable transactions with other persons, and do not involve more than the normal risk of collectibility or present other unfavorable features. - -------------------------------------------------------------------------------- RELATIONSHIP WITH INDEPENDENT PUBLIC ACCOUNTANTS - -------------------------------------------------------------------------------- PricewaterhouseCoopers, LLP was the Company's independent auditors for the 2000 fiscal year. PricewaterhouseCoopers, LLP has been retained by the Board of Directors to be the Company's auditors for the 2001 fiscal year. A representative of PricewaterhouseCoopers, LLP is expected to be present at the Annual Meeting and will have the opportunity to make a statement if he or she so desires. The representative will also be available to answer appropriate questions. - -------------------------------------------------------------------------------- REPORT OF THE AUDIT COMMITTEE - -------------------------------------------------------------------------------- The Audit Committee of the Board of Directors (the "Audit Committee") has: 1. Reviewed and discussed the audited financial statements for the fiscal year ended September 30, 2000 with the management of the Company. 2. Discussed with the Company's independent auditors the matters required to be discussed by Statement of Accounting Standards No. 61, as the same was in effect on the date of the Company's financial statements; and 3. Received the written disclosures and the letter from the Company's independent auditors required by Independence Standards Board Standard No. 1 (Independence Discussions with Audit Committees), as the same was in effect on the date of the Company's financial statements. 15 Based on the foregoing materials and discussions, the Audit Committee recommended to the Board of Directors that the audited financial statements for the fiscal year ended September 30, 2000 be included in the Company's Annual Report on Form 10-K for the year ended September 30, 2000. Members of the Audit Committee H.D. Reaves, Jr., Chairman Edmund T. Buckman, Jr. Frederick N. Holscher Marshall T. Singleton - -------------------------------------------------------------------------------- SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE - -------------------------------------------------------------------------------- Pursuant to regulations promulgated under the Exchange Act, the Company's officers and directors and all persons who own more than 10% of the Common Stock ("Reporting Persons") are required to file reports detailing their ownership and changes of ownership in the Common Stock and to furnish the Company with copies of all such ownership reports that are filed. Based solely on the Company's review of the copies of such ownership reports which it has received in the past fiscal year or with respect to the past fiscal year, or written representations that no annual report of changes in beneficial ownership were required, the Company believes that during fiscal year 2000 all Reporting Persons have complied with these reporting requirements. - -------------------------------------------------------------------------------- OTHER MATTERS - -------------------------------------------------------------------------------- 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 and matters incident to the conduct of the Annual Meeting. 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 determination of a majority of the Board of Directors. - -------------------------------------------------------------------------------- MISCELLANEOUS - -------------------------------------------------------------------------------- The cost of soliciting proxies will be borne by the Company. The Company will reimburse brokerage firms and other custodians, nominees and fiduciaries for reasonable expenses incurred by them in sending proxy materials to the beneficial owners of Common Stock. In addition to solicitations by mail, directors, officers and regular employees of the Company may solicit proxies personally or by telegraph or telephone without additional compensation therefor. The Company's 2000 Annual Report to Stockholders, including financial statements, is being mailed to all stockholders of record as of the close of business on the Record Date. Any stockholder who has not received a copy of such Annual Report may obtain a copy by writing to the Secretary of the Company. Such Annual Report is not to be treated as a part of the proxy solicitation material or as having been incorporated herein by reference. 16 - -------------------------------------------------------------------------------- STOCKHOLDER PROPOSALS - -------------------------------------------------------------------------------- For consideration at the Annual Meeting, a stockholder proposal must be delivered or mailed to the Company's Secretary no later than January 25, 2001. In order to be eligible for inclusion in the proxy materials of the Company for the Annual Meeting of Stockholders for the year ending September 30, 2000, any stockholder proposal to take action at such meeting must be received at the Company's executive offices at 1311 Carolina Avenue, Washington, North Carolina 27889 by no later than September 17, 2001. Any such proposals shall be subject to the requirements of the proxy rules adopted under the Exchange Act. BY ORDER OF THE BOARD OF DIRECTORS /s/ William L. Wall William L. Wall Secretary January 15, 2001 Washington, North Carolina - -------------------------------------------------------------------------------- ANNUAL REPORT ON FORM 10-K - -------------------------------------------------------------------------------- A COPY OF THE COMPANY'S ANNUAL REPORT ON FORM 10-K FOR THE FISCAL YEAR ENDED SEPTEMBER 30, 2000 AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION WILL BE FURNISHED WITHOUT CHARGE TO EACH STOCKHOLDER AS OF THE RECORD DATE UPON WRITTEN REQUEST TO CORPORATE SECRETARY, FIRST SOUTH BANCORP, INC., 1311 CAROLINA AVENUE, WASHINGTON, NORTH CAROLINA 27889. 17 EXHIBIT A FIRST SOUTH BANCORP, INC. Audit Committee Charter I. PURPOSE The primary function of the First South Bancorp, Inc. (the "Company") Audit Committee (the "Committee") is to assist the Board of Directors (the "Board") in fulfilling its oversight responsibilities by reviewing: the financial reports and other financial information provided by the Company to any governmental body or to the public; the Company's systems of internal controls regarding finance, accounting, legal compliance and ethics that management and the Board have established; and the Company's auditing, accounting and financial reporting processes generally. Consistent with this function, the Committee should encourage continuous improvement of, and should foster adherence to, the Company's policies, procedures and practices at all levels. The Committee's primary duties and responsibilities are to: A. Serve as an independent and objective party to monitor the Company's financial reporting process and internal control system. B. Review and appraise the audit efforts of the Company's independent accountants and the internal auditing department. C. Provide an open avenue of communication among the independent accountants, senior and financial management, the internal auditing department, and the Board of Directors. The Committee will primarily fulfill these responsibilities by carrying out the activities enumerated in Section IV of this Charter. II. COMPOSITION The Committee shall be comprised of four or more directors as determined by the Board, each of whom shall be independent directors, and free from any relationship that in the opinion of the Board would interfere with the exercise of his independent judgment as a member of the Committee. All members of the Committee shall have a working familiarity with basic finance and accounting practices, and at least one member of the Committee shall have accounting or related financial management experience. The members of the Committee shall be elected by the Board at the annual organizational meeting of the Board or until their successors shall be duly elected and qualified. Unless the Board elects a Chairman, the Committee members may designate a Chairman by majority vote of the Committee. III. MEETINGS The Committee shall meet at least four times annually, or more frequently as circumstances dictate. As part of its duty to foster open communication, the Committee should meet at least annually with management, the internal auditor and the independent accountants in separate executive sessions to discuss any matters the Committee or each of these groups believe should be discussed privately. In addition, the Committee or at least its Chairman should meet with the independent accountants and management quarterly to review the Company's financial statements consistent with Section IV.4. below. A-1 IV. DUTIES AND RESPONSIBILITIES To fulfill its duties and responsibilities, the Committee shall: A. Documents/Reports Review ------------------------ 1. Review and update this Charter at least annually or as conditions dictate. 2. Review the Company's annual financial statements and any reports or other financial information submitted to any governmental body, or the public, including any certification, report, opinion, or review rendered by the independent accountants. 3. Review the regular internal audit reports to management prepared by the internal auditor and management's responses. 4. Review quarterly with financial management and the independent accountants the Form 10-Q prior to its filing. The Chairman of the Committee may represent the entire Committee for purposes of this review. B. Independent Accountants ----------------------- 1. Recommend to the Board the selection of the independent accountants, considering independence and effectiveness and approve the fees and other compensation to be paid to the independent accountants. 2. On an annual basis, the Committee should review and discuss with the independent accountants all significant relationships they have with the Company in order to determine their independence. 3. Review the performance of the independent accountants and approve any proposed discharge of the independent accountants when circumstances warrant. 4. Periodically consult with the independent accountants out of the presence of management about internal controls and the fullness and accuracy of the Company's financial statements. C. Financial Reporting Processes ----------------------------- 1. In consultation with the independent accountants and the internal auditor, review the integrity of the Company's financial reporting processes, both internal and external. 2. Consider the independent accountants' judgments about the quality and appropriateness of the Company's accounting principles as applied in its financial reporting. 3. Consider and approve, if appropriate, major changes in the Company's auditing and accounting principles and practices as suggested by the independent accountants, management or the internal auditor. D. Process Improvement ------------------- 1. Establish regular and separate systems of reporting to the Committee by each of management, the independent accountants and the internal auditor regarding any significant judgments made in management's preparation of the Company's financial statements and the view of each as to appropriateness of such judgments. 2. Upon completion of the annual independent audit, review with each of management, the independent accountants and the internal auditor any significant difficulties encountered during the course of the audit, including any restrictions on the scope of work or access to required information. 3. Review any significant disagreements among management and the independent accountants or the internal auditor in connection of the preparation of the Company's financial statements. A-2 4. Review with the independent accountants, the internal auditor and management the extent to which changes or improvements in financial or accounting practices, as approved by the Committee, have been implemented. This review should be conducted at an appropriate time subsequent to implementation of changes or improvements, as decided by the Committee. E. Policies, Procedures and Legal Compliance ----------------------------------------- 1. Establish a system to annually review all Company policies and procedures and review management's monitoring of compliance with the Company's policies and procedures. 2. Review the activities, organizational structure, and qualifications of the internal auditor. 3. Review with the Company's legal counsel, compliance with matters including corporate securities trading policies and any legal matter that could have a significant impact on the Company's financial statements. 4. Maintain minutes or other records of meetings and activities of the Committee. 5. Perform any other activities consistent with this Charter, the Company's By-laws and applicable governing law, as the Committee or the Board deems necessary or appropriate. A-3 REVOCABLE PROXY FIRST SOUTH BANCORP, INC. WASHINGTON, NORTH CAROLINA ANNUAL MEETING OF STOCKHOLDERS FEBRUARY 15, 2001 The undersigned hereby appoints Frederick N. Holscher, Charles E. Parker, Jr. and Marshall T. Singleton with full powers of substitution, to act as attorneys and proxies for the undersigned, to vote all shares of the common stock of First South Bancorp, Inc. which the undersigned is entitled to vote at the Annual Meeting of Stockholders, to be held at the main office of First South Bank (the "Bank") located at 1311 Carolina Avenue, Washington, North Carolina, on Thursday, February 15, 2001, at 11:00 a.m. (the "Annual Meeting"), and at any and all adjournments thereof, as follows: VOTE FOR WITHHELD --- -------- 1. The election as directors of the nominees listed below (except as marked to the contrary below). [ ] [ ] Linley H. Gibbs, Jr. Thomas A. Vann INSTRUCTION: TO WITHHOLD YOUR VOTE FOR EITHER OF THE INDIVIDUALS NOMINATED, INSERT THAT NOMINEE'S NAME ON THE LINE PROVIDED BELOW. ______________________ THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" THE NOMINEES LISTED ABOVE. - -------------------------------------------------------------------------------- THIS PROXY WILL BE VOTED AS DIRECTED, BUT IF NO INSTRUCTIONS ARE SPECIFIED, THIS PROXY WILL BE VOTED FOR THE ELECTION OF DIRECTORS. IF ANY OTHER BUSINESS IS PRESENTED AT THE ANNUAL MEETING, INCLUDING MATTERS RELATING TO THE CONDUCT OF THE ANNUAL MEETING, THIS PROXY WILL BE VOTED BY THOSE NAMED IN THIS PROXY IN ACCORDANCE WITH THE DETERMINATION OF A MAJORITY OF THE BOARD OF DIRECTORS. AT THE PRESENT TIME, THE BOARD OF DIRECTORS KNOWS OF NO OTHER BUSINESS TO BE PRESENTED AT THE ANNUAL MEETING. - -------------------------------------------------------------------------------- THIS PROXY IS SOLICITED BY THE BOARD OF DIRECTORS Should the undersigned be present and elect to vote at the Annual Meeting or at any adjournment thereof, then the power of said attorneys and prior proxies shall be deemed terminated and of no further force and effect. The undersigned may also revoke his proxy by filing a subsequent proxy or notifying the Secretary of his or her decision to terminate his or her proxy. The undersigned acknowledges receipt from the Company prior to the execution of this proxy of a Notice of Annual Meeting, a Proxy Statement dated January 15, 2001 and an Annual Report to Stockholders. Dated: _____________________________, 2001 - --------------------------------------- ------------------------------------ PRINT NAME OF STOCKHOLDER PRINT NAME OF STOCKHOLDER - --------------------------------------- ------------------------------------ SIGNATURES OF STOCKHOLDER SIGNATURE OF STOCKHOLDER Please sign exactly as your name appears on the enclosed card. When signing as attorney, executor, administrator, trustee or guardian, please give your full title. Corporation proxies should be signed in corporate name by an authorized officer. If shares are held jointly, each holder should sign. PLEASE COMPLETE, DATE, SIGN AND MAIL THIS PROXY PROMPTLY IN THE ENCLOSED POSTAGE-PAID ENVELOPE. -----END PRIVACY-ENHANCED MESSAGE-----