<PAGE>
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
Commission Only (as permitted by
Rule 14a-6(e)(2))
[X] Definitive Proxy Statement
[_] Definitive Additional Materials
[_] Soliciting Material Pursuant to Section 240.14a-11(c) or Section 240.14a-12
South Street Financial Corp.
- --------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
- --------------------------------------------------------------------------------
(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)(4) and 0-11.
(1) Title of each class of securities to which transaction applies:
-------------------------------------------------------------------------
(2) Aggregate number of securities to which transaction applies:
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(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:
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(4) Date Filed:
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Notes:
<PAGE>
SOUTH STREET FINANCIAL CORP.
POST OFFICE BOX 489
155 WEST SOUTH STREET
ALBEMARLE, NORTH CAROLINA 28001
(704) 982-9184
NOTICE OF 1999 ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON FEBRUARY 25, 1999
NOTICE IS HEREBY GIVEN that the 1999 Annual Meeting of Stockholders (the
"Annual Meeting") of South Street Financial Corp. (the "Company") will be held
on February 25, 1999, at 7:00 p.m., Eastern Time, at the main office of the
Company at 155 West South Street, Albemarle, North Carolina.
THE PURPOSES OF THE ANNUAL MEETING ARE:
1. To elect six persons who will serve as directors of the Company for
one-year terms or until their successors are duly elected and
qualified;
2. To ratify the selection of McGladrey & Pullen, LLP as the independent
auditor for the Company for the fiscal year ending September 30, 1999;
and
3. To transact such other business as may properly come before the Annual
Meeting or any adjournments thereof. The Company's Board of Directors
("Board of Directors") is not aware of any other business to be
considered at the Annual Meeting.
The Board of Directors has established January 19, 1999, as the record date
for the determination of stockholders entitled to notice of and to vote at the
Annual Meeting and any adjournments thereof. In the event there are not
sufficient shares present in person or by proxy to constitute a quorum at the
time of the Annual Meeting, the Annual Meeting may be adjourned in order to
permit further solicitation of proxies by the Company.
By Order of the Board of Directors
/s/ R. Ronald Swanner
R. Ronald Swanner
Secretary
Albemarle, North Carolina
January 27, 1999
A FORM OF PROXY IS ENCLOSED TO ENABLE YOU TO VOTE YOUR SHARES AT THE ANNUAL
MEETING. YOU ARE URGED, REGARDLESS OF THE NUMBER OF SHARES YOU HOLD, TO
COMPLETE, SIGN, DATE AND RETURN THE PROXY PROMPTLY. A RETURN ENVELOPE, WHICH
REQUIRES NO POSTAGE IF MAILED IN THE UNITED STATES, IS ENCLOSED FOR YOUR
CONVENIENCE.
<PAGE>
SOUTH STREET FINANCIAL CORP.
Proxy Statement
1999 Annual Meeting of Stockholders
February 25, 1999
SOLICITATION, VOTING AND REVOCABILITY OF PROXIES
GENERAL
These proxy materials are delivered in connection with the solicitation by
South Street Financial Corp.'s (the "Company", "we" or "our") Board of Directors
of proxies to be voted at the 1999 Annual Meeting of Stockholders and at any
adjournment or postponement. You are invited to attend our Annual Meeting on
February 25, 1999, at 7:00 p.m., Eastern Time, at the main office of the Company
at 155 West South Street, Albemarle, North Carolina. This Proxy Statement and
form of proxy are being mailed starting January 28, 1999. The Company's
telephone number is (704) 982-9184.
REVOCABILITY OF PROXY
A proxy may be revoked at any time before its exercise by (1) written
notice to the Secretary of the Company, (2) timely delivery of a valid later-
dated proxy or (3) voting by ballot at the Annual Meeting. However, if you are a
beneficial owner of shares of the Company's outstanding common stock that are
not registered in your own name, you will need appropriate documentation from
the holder of record of your shares to vote personally at the Annual Meeting.
SOLICITATION
The Company will pay the expenses of soliciting proxies. Proxies may be
solicited on our behalf in person or by telephone, facsimile transmission or by
telegram by the directors, officers and regular employees of the Company and its
wholly-owned savings bank subsidiary, Home Savings Bank of Albemarle, Inc.,
S.S.B. (the "Bank"). We have requested brokerage houses and nominees to forward
these proxy materials to the beneficial owners of shares held of record and,
upon request, we will reimburse them for their reasonable out-of-pocket
expenses.
VOTING AT THE ANNUAL MEETING
Regardless of how many shares of common stock you own, your vote is
important to us. Since many of our stockholders cannot attend the Annual
Meeting, it is necessary that a large number be represented by proxy.
Accordingly, the Board of Directors has designated proxy holders to represent
those stockholders who cannot be present in person.
You are requested to vote by mail by completing, signing, dating and
returning the enclosed proxy in the postage-paid envelope provided by the
Company. You may vote for, against, abstain or withhold
<PAGE>
authority to vote on matters to come before the Annual Meeting. The designated
proxy holders will vote your shares in accordance with your instructions. If you
sign and return a proxy card without giving specific voting instructions, your
shares will be voted as follows:
. FOR the nominees for election to the Board of Directors named in this
---
Proxy Statement
. FOR ratification of the selection of McGladrey & Pullen, LLP as the
---
Company's independent auditor for the fiscal year ending September
30, 1999
If instructions are given with respect to some but not all proposals, the proxy
holders will follow the instructions given and will vote FOR the proposals on
---
which no instructions are given. If matters not described in this Proxy
Statement are presented at the Annual Meeting, the proxy holders will use their
own judgment to determine how to vote your shares. We are not now aware of any
other matters to be presented except those described in the Proxy Statement. If
the Annual Meeting is adjourned, your common stock may be voted by the proxy
holders on the new meeting date as well, unless you have revoked your proxy
instructions.
You are entitled to vote your common stock if our records showed that you
held your shares as of January 19, 1999 (the "Record Date"). At the close of
business on January 19, 1999, a total of 4,208,724 shares of common stock were
outstanding and entitled to vote. Each share of common stock has one vote on
each matter calling for a vote of stockholders at the Annual Meeting.
The presence, in person or by proxy, of the holders of a majority of the
votes entitled to be cast by the stockholders entitled to vote at the Annual
Meeting is necessary to constitute a quorum. The Annual Meeting may be
adjourned in order to permit the further solicitation of proxies if there is an
insufficient number of stockholders present to constitute a quorum.
Abstentions and broker "non-votes" are counted as present and entitled to vote
for purposes of determining a quorum. A broker "non-vote" occurs when a nominee
holding shares for a beneficial owner does not vote on a particular proposal
because the nominee does not have discretionary voting power for that particular
item and has not received instructions from the beneficial owner.
VOTE REQUIRED FOR APPROVAL
A plurality of the votes cast is required for the election of directors.
As a result, those persons nominated for election as directors who receive the
largest number of votes will be elected directors. Abstentions and broker "non-
votes" are not counted for purposes of the election of directors. No
stockholder has the right to cumulatively vote his or her shares in the election
of directors.
The affirmative vote of a majority of the votes cast is required to approve
the appointment of McGladrey & Pullen LLP. Abstentions and broker "non-votes"
are not counted for purposes of approving this matter.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
2
<PAGE>
The Securities Exchange Act of 1934, as amended (the "Exchange Act"),
requires that any person or group who acquires the beneficial ownership of more
than 5% of the common stock notify the Securities and Exchange Commission (the
"SEC") and the Company. Following is certain information, as of the Record
Date, regarding all persons or groups, as defined in the Exchange Act, who held
of record or who are known to the Company to own beneficially more than 5% of
the Company's common stock.
<TABLE>
<CAPTION>
AMOUNT AND
NATURE OF PERCENTAGE
BENEFICIAL OF
NAME AND ADDRESS OWNERSHIP/(1)/ CLASS/(2)/
- ---------------- -------------- ----------
<S> <C> <C>
Caldwell A. Holbrook, Jr. 563,077/(3),(4),(5)/ 13.31%
1700 Bellamy Circle
Albemarle, NC 28001
Joel A. Huneycutt 574,643/(4),(5),(6)/ 13.58%
P. O. Box 167 Renee Ford Road
Locust, NC 28097
Douglas Dwight Stokes 580,700/(4),(5),(7)/ 13.72%
1009 Ridge Street
Albemarle, NC 28001
Greg E. Underwood 562,643/(4),(5),(8)/ 13.30%
500 North Fourth Street
Albemarle, NC 28001
</TABLE>
____________________________________
/(1)/ Voting and investment power is not shared unless otherwise indicated.
Also, unless otherwise noted, all shares are owned directly or
indirectly by the named individuals, by their spouses and minor
children, or by other entities controlled by the named individuals.
/(2)/ Based upon a total of 4,208,724 shares of common stock outstanding at
the Record Date, plus the number of shares that such individual has
the right to purchase pursuant to the options described in the
footnotes hereto.
/(3)/ This number includes 3,100 shares for which Mr. Holbrook shares voting
and investment power with his spouse.
/(4)/ Includes 22,482 shares underlying options that have vested or are
exercisable within 60 days under the Company's Stock Option Plan.
/(5)/ Mr. Holbrook, Mr. Huneycutt, Mr. Stokes and Mr. Underwood serve as a
trustees of the Home Savings Bank of Albemarle, Inc., S.S.B. Employee
Stock Ownership Plan (the "ESOP"), which holds 528,168 shares of the
Company's common stock. The trustees of the ESOP share certain voting
and investment power of such shares.
/(6)/ This number includes 13,263 shares for which Mr. Huneycutt shares
voting and investment power with his spouse. This number also includes
1,737 shares held by Mr. Huneycutt's wife. Mr. Huneycutt disclaims
beneficial ownership of such shares.
/(7)/ This number includes 21,057 shares for which Mr. Stokes shares voting
and investment power with his spouse.
/(8)/ This number includes 3,000 shares for which Mr. Underwood shares
voting and investing power with his spouse.
3
<PAGE>
Set forth below is certain information as of the Record Date regarding
beneficial ownership of the common stock by each of the members of the Board of
Directors (including nominees for re-election at the Annual Meeting), each of
the members of the board of directors of the Bank, each of the named executive
officers of the Company and the Bank, and the directors and all executive
officers of the Company and the Bank as a group.
<TABLE>
<CAPTION>
AMOUNT AND
NATURE OF PERCENTAGE
BENEFICIAL OF
NAME AND ADDRESS OWNERSHIP/(1)/ CLASS/(2)/
- ---------------- -------------- ----------
<S> <C> <C>
Caldwell A. Holbrook, Jr. 563,077/(3),(4),(5)/ 13.31%
1700 Bellamy Circle
Albemarle, NC 28001
Joel A. Huneycutt 574,643/(4)(5),(6)/ 13.58%
P. O. Box 167 Renee Ford Road
Locust, NC 28097
Douglas Dwight Stokes 580,700/(4),(5),(7)/ 13.72%
1009 Ridge Street
Albemarle, NC 28001
Greg E. Underwood 562,643/(4),(5),(8)/ 13.30%
500 North Fourth Street
Albemarle, NC 28001
Carl M. Hill, President and 142,769/(9)/ 3.35%
Chief Executive Officer of the
Company and the Bank
1415 Melchor Road
Albemarle, NC 28001
R. Ronald Swanner, Executive Vice 89,532/(10)/ 2.10%
President of the Company and the
Bank and Secretary of the Company
1415 Northridge Drive Albemarle,
NC 28001
Directors and all executive officers 931,273/(11)/ 21.17%
------------- ------
as a group (7 persons)
</TABLE>
____________________________________
/(1)/ Voting and investment power is not shared unless otherwise indicated.
Unless otherwise noted all shares are owned directly or indirectly by
the named individuals, by their spouses or minor children, or by other
entities controlled by the named individuals.
/(2)/ Based upon a total of 4,208,724 shares of the common stock outstanding
at the Record Date, plus the number of shares that such individual has
the right to purchase pursuant to the options described in the
footnotes hereto.
4
<PAGE>
/(3)/ This number includes 3,100 shares for which Mr. Holbrook shares voting
and investment power with his spouse.
/(4)/ Includes 22,482 shares underlying options that have vested or are
exercisable within 60 days under the Company's Stock Option Plan.
/(5)/ Mr. Holbrook, Mr. Huneycutt, Mr. Stokes and Mr. Underwood serve as a
trustees of the Home Savings Bank of Albemarle, Inc., S.S.B. Employee
Stock Ownership Plan (the "ESOP"), which holds 528,168 shares of the
Company's common stock. The trustees of the ESOP share certain voting
and investment power of such shares.
/(6)/ This number includes 13,263 shares for which Mr. Huneycutt shares
voting and investment power with his spouse. This number also includes
1,737 shares held by Mr. Huneycutt's wife. Mr. Huneycutt disclaims
beneficial ownership of such shares.
/(7)/ This number includes 21,057 shares for which Mr. Stokes shares voting
and investment power with his spouse.
/(8)/ This number includes 3,000 shares for which Mr. Underwood shares
voting and investing power with his spouse.
/(9)/ This number includes 3,200 shares held by Mr. Hill's wife. Mr. Hill
disclaims beneficial ownership of such shares. This number also
includes 56,206 shares underlying options that have vested or are
exercisable within 60 days under the Stock Option Plan.
/(10)/ This number includes 10,000 shares for which Mr. Swanner shares voting
and investment power with his spouse. This number also includes 44,964
shares underlying options that have vested or are exercisable within
60 days under the Stock Option Plan.
/(11)/ The 528,168 shares held by the ESOP for which the trustees, Messrs.
Holbrook, Huneycutt, Stokes and Underwood, share voting and investment
power, and the 23,136 shares, in the aggregate, allocated under the
ESOP and held by the Bank's executive officers, have been included
only once in the total number of shares owned beneficially by the
directors and executive officers as a group. This number includes
191,098 shares underlying options that have vested or are exercisable
within 60 days under the Stock Option Plan.
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Exchange Act requires the Company's executive
officers and directors, and persons who own more than ten percent of the common
stock, to file reports of ownership and changes in ownership with the SEC.
Executive officers, directors and greater than ten percent beneficial owners are
required by SEC regulations to furnish the Company with copies of all Section
16(a) forms they file.
Based solely on a review of the copies of such forms furnished to the
Company and written representations from the Company's executive officers and
directors, the Company believes that during the fiscal year ended September 30,
1998, all of its executive officers and directors and greater than ten percent
beneficial owners complied with all applicable Section 16(a) filing
requirements, except that Caldwell A. Holbrook, Jr., was late filing a Form 4
concerning the purchase of 1,100 shares of the Company's common stock.
5
<PAGE>
PROPOSAL 1
ELECTION OF DIRECTORS
GENERAL
The Articles of Incorporation of the Company provide that the number of
directors of the Company shall not be less than five nor more than fifteen. The
exact number of directors shall be fixed or changed from time to time by the
Board of Directors. The Board of Directors has currently fixed the size of the
Board at six members.
The Board of Directors has nominated the six persons named below for
election as directors for terms of one year or until their earlier death,
resignation, retirement, removal or disqualification or until their successors
are elected and qualified.
The persons named in the accompanying form of proxy intend to vote any
shares of the common stock represented by valid proxies received by them to
elect the six nominees listed below as directors, unless authority to vote is
withheld or such proxies are revoked. Each of the nominees for election is
currently a member of the Board of Directors. In the event that any of the
nominees should become unavailable to accept nomination or election, it is
intended that the proxy holders will vote to elect in his stead such other
person as the present Board of Directors may recommend or to reduce the number
of directors to be elected at the Annual Meeting by the number of such persons
unable or unwilling to serve (subject to the requirements of the Company's
Articles of Incorporation). The present Board of Directors has no reason to
believe that any of the nominees named herein will be unable to serve if elected
to office. In order to be elected as a director, a nominee need only receive a
plurality of the votes cast. Accordingly, shares not voted for any reason
respecting any one or more nominees will not be counted as votes against such
nominees. No shareholder has the right to cumulatively vote his or her shares
in the election of directors.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR ALL OF THE FOLLOWING NOMINEES
---
FOR ELECTION AS DIRECTORS.
The following table sets forth as to each nominee, his name, age, principal
occupation during the last five years and the year he was first elected as a
director of the Bank and the Company. All nominees have previously served as
directors of the Bank and Company.
6
<PAGE>
<TABLE>
<CAPTION>
AGE ON DIRECTOR DIRECTOR OF
SEPTEMBER PRINCIPAL OCCUPATION TERM OF BANK COMPANY
NAME 30, 1998 DURING LAST FIVE YEARS EXPIRES SINCE SINCE
- ---- -------- ---------------------- ------- ----- -----
<S> <C> <C> <C> <C> <C>
Carl M. Hill 66 President and CEO, the Company 2000 1961 1996
and the Bank
Caldwell A. Holbrook, Jr. 51 Partner, D.A. Holbrook & Sons, 2000 1985 1996
General Contractors
Joel A. Huneycutt 56 President, Locust Lumber 2000 1984 1996
Company, Inc.
Douglas Dwight Stokes 52 Owner and President, Stokes 2000 1988 1996
Construction Company
R. Ronald Swanner 50 Executive Vice President, the 2000 1981 1996
Company and the Bank; Secretary
of the Company
Greg E. Underwood 35 CPA in private practice; Owner, 2000 1995 1996
Carolina Oil Co. of Albemarle, Inc.
and Barefoot Oil Co. of Albemarle,
Inc.; Secretary/Treasurer of
Southeastern Floral Corp.
</TABLE>
MEETINGS OF THE BOARD AND COMMITTEES OF THE BOARD
The Board of Directors is scheduled to meet quarterly and may have
additional meetings as needed. During fiscal 1998, the Board of Directors held 6
meetings. All directors attended at least 75% of the aggregate number of
meetings of the Board of Directors and committees of the Board on which they
served during the year ended September 30, 1998.
The Company's Board of Directors has one standing committee - the Audit
Committee. The Audit Committee of the Board consists of Messrs. Stokes,
Underwood and Huneycutt. This Committee is responsible for reviewing and
obtaining the annual audit report from the Company's and the Bank's independent
auditor. During the fiscal year ended September 30, 1998, the Audit Committee
met one time.
The Bank's board of directors has appointed five standing committees to
which certain responsibilities have been delegated - the Loan Committee, the
Audit Committee, the Nominating Committee, the Proxy Committee and the
Compensation Committee. The members of the Company's Audit Committee also serve
on the Bank's Audit Committee. The Bank's Audit Committee met one time during
the fiscal year ended September 30, 1998.
The Bank's Nominating Committee, composed of Messrs. Holbrook, Huneycutt
and Stokes, serves in that capacity for the Company's Board of Directors. The
Bank's Nominating Committee generally meets on an annual basis and met one time
during the fiscal year ended September 30, 1998.
7
<PAGE>
The Bank's Compensation Committee, composed of Messrs. Huneycutt, Holbrook
and Stokes, also serves as the Company's compensation committee. The Bank's
Compensation Committee meets on an annual basis and met one time during the
fiscal year ended September 30, 1998. In addition, the Bank's board of
directors appoints other committees of its members to perform certain more
limited functions from time to time.
DIRECTORS' COMPENSATION
DIRECTORS' FEES. Members of the Board of Directors receive no fees or
compensation for their service. However, all members of the Board of Directors
also are directors of the Bank, and are compensated for that service. For their
service on the Bank's board of directors, members of the board, including Mr.
Hill and Mr. Swanner, receive a retainer of $2,500 per year and an additional
$600 per regular monthly board meeting attended. Mr. Stokes receives an
additional $300 per month for his service on the Loan Committee.
BANK DEFERRED COMPENSATION AGREEMENTS WITH DIRECTORS. 1985 Retirement
Payment Agreements. Mr. Hill and Mr. Swanner, as well as two non-employee
directors and two retired directors of the Bank, participate in a deferred
compensation plan established in 1985 under which such directors, or their
designated beneficiaries, would be paid specified amounts over a ten-year period
beginning at age 65 (or in one case, age 70) in return for the deferral of
certain amounts of the director's fees over a five-year period. If a director
dies while serving as a director but before receiving all of his benefits under
the agreement, payments will be made to his designated beneficiary, or if none,
to his estate.
As a condition of the agreement, each director has agreed not to engage in
activities in competition with the Bank and to provide consulting services to
the Bank during the period the retirement benefits are payable.
1995 Retirement Payment Agreements. In 1995, the Bank entered into
additional deferred compensation arrangements with all of its directors. Under
the agreements, the Bank will pay each director a specified amount per month for
a period of ten years upon the director's attainment of age 65 (or in Mr. Hill's
case, beginning in 2000), in return for the deferral of certain amounts of the
director's fees over a five-year period.
If a director dies while serving as a director but before receiving all of
his benefits under the agreement, payments will be made to his designated
beneficiary, or if none, to his estate, unless the death is by suicide within
two years of the execution of the agreement (in which case the deferred fees
will be returned, with interest). If a director becomes disabled while serving
as a director, but prior to attaining age 65 (October 1, 2000 for Mr. Hill), the
Bank will pay the same benefits that would be payable in the event of the
director's death. If a director terminates his service to the Bank for reasons
other than death or disability, he or his beneficiary shall be entitled to
receive at age 65 (or October 1, 2000 for Mr. Hill) or his prior death only the
vested portion of the benefit due under the agreement. Vesting occurs according
to a schedule contained in the agreement. If any director's termination of
service shall occur after a change in control of the Bank, the director shall be
100% vested in the retirement benefits.
As a condition of the agreement, each director has agreed not to engage in
activities in competition with the Bank and to provide consulting services to
the Bank during the period that the retirement benefits are payable.
8
<PAGE>
BANK DIRECTORS RETIREMENT PLAN. In 1995, the Bank adopted a retirement
plan for directors after determining that such a plan would help it attract and
retain qualified directors. Under the plan all directors will be paid $1,000
per month over a ten-year period beginning after the director attains 70 years
of age (the "Normal Retirement Date"). If a director dies while serving as a
director but before receiving all of his benefits under the plan, payments will
be made to his designated beneficiary in a lump sum or installments at the
Bank's option, unless the death is by suicide within two years of the execution
of the agreement. If a director becomes disabled while serving as a director,
but prior to his Normal Retirement Date, the Bank will pay the benefits due
under the plan, either in installments over the ten-year period or in a lump sum
payment. If a director terminates his service to the Bank before his Normal
Retirement Date for reasons other than death or disability, he or his
beneficiary shall be entitled at the Normal Retirement Date or his prior death
to receive only the vested portion of the benefits due under the plan. Vesting
occurs according to a schedule contained in the agreement. If any director's
termination of service shall occur after a change in control of the Bank, the
director shall be 100% vested in the retirement benefits.
As a condition of the agreement, each director has agreed not to engage in
activities in competition with the Bank and to provide consulting services to
the Bank during the period the retirement benefits are payable.
The Bank has purchased life insurance on the lives of its directors to fund
its obligations under the deferred compensation and directors' retirement plan
agreements described above. Total expense related to the above-described
agreements was approximately $242,000 for the fiscal year ended September 30,
1998. The Bank's accrued liability for obligations under the plans amounted to
$1,109,000 at September 30, 1998.
STOCK OPTION PLAN. On October 15, 1997, the stockholders of the Company
approved the South Street Financial Corp. Stock Option Plan (the "Stock Option
Plan" or the "Plan"). The Company has reserved 449,650 shares of its common
stock for issuance upon the exercise of options that have been granted under the
Stock Option Plan. All directors, officers and employees of the Company, the
Bank, and any of the Bank's subsidiaries are eligible for participation in the
Plan. Options to purchase 449,650 shares of the common stock were granted
during fiscal year 1998. Of this amount, options to purchase 22,482 shares of
the common stock have been granted to each non-employee director, options to
purchase112,413 shares have been granted to Mr. Hill, options to purchase 89,931
shares have been granted to Mr. Swanner, and options to purchase 157,374 shares
have been granted to other employees. Twenty-five percent of the aggregate
number of options granted to executive officers and employees of the Company and
the Bank vest and are exercisable on the date of grant and 25% of the aggregate
number of such options granted vest and become exercisable on each of the next
three annual anniversary dates thereafter. Nonqualified stock options granted
to the nonemployee directors of the Company and the Bank vested immediately and
are nonforfeitable. If an option granted under the Stock Option Plan is
forfeited, released, expires or is terminated unexercised, the share(s)
underlying such option shall thereafter be available for the granting of options
under the Stock Option Plan. However, if such forfeiture, expiration, release
or termination date of an option is beyond the term of existence of the Stock
Option Plan, such shares shall not be available for additional option grants.
No cash consideration was paid for the options. On January 20, 1998, the
option exercise price was $12.00, the fair market value of the common stock on
the date of grant based on the average high and low selling prices of the common
stock on the Nasdaq National Market ("Nasdaq"), as provided in the Plan. Based
on the closing market price per share paid on September 30, 1998, the fair
market value of the
9
<PAGE>
common stock underlying the options is $8.375 per share. The exercise price may
be paid in cash or cash equivalent or, if permitted by the Committee, by
delivery of shares of common stock with a market value equal to the exercise
price.
All options granted to participants under the Stock Option Plan shall
become vested and exercisable at the rate determined by the Committee when
making an award. Unless the Committee shall specifically state otherwise at the
time an option is granted, all options granted to participants shall become
vested and exercisable in full on the date an optionee terminates his employment
with or service to the Company, the Bank or any subsidiary because of his
death, disability or retirement; if a participant's employment with the Company,
the Bank or any subsidiary is terminated for any reason other than the
participant's death, disability or retirement, unvested options will not vest.
In addition, all stock options will become vested and exercisable in full in the
event that the optionee ceases to be an employee or director of the Company or
the Bank after a change in control of the Company, as defined in the Stock
Option Plan. Options granted under the Plan will have a term of ten years.
Stock options are non-transferable except by will or the laws of descent and
distribution.
Options granted under the Plan were granted in tandem with stock
appreciation rights, pursuant to which optionees will have the right to
surrender exercisable options in exchange for payment by the Company of an
amount equal to the excess of the market value of shares of common stock subject
to the surrendered options over the exercise price of the surrendered options.
In the discretion of the Committee, this payment may be made in cash or in
shares of common stock or in some combination of cash and common stock. Stock
appreciation rights shall terminate upon the exercise of the options to which
they are attached. Stock appreciation rights will be subject to the same
vesting and termination provisions as are applicable to the stock options to
which they are attached.
The Stock Option Plan provides that the Company's Board of Directors shall
have the discretionary authority to authorize cash payments to the holders of
unexercised options, both vested and unvested, equal to the amount of dividends
which would have been paid on shares subject to options if the options had been
exercised. No such payment may be made in connection with dividends or other
distributions which result in a reduction in the option exercise price as
described below. If an optionee receives such a cash payment with respect to
any unvested option, and if such option is later forfeited, the optionee must
repay any cash payment made with respect to the forfeited option.
In the event of a stock split, reverse stock split or stock dividend, the
number of shares of common stock under the Stock Option Plan, the number of
shares to which any option relates and the exercise price per share under any
option shall be adjusted to reflect such increase or decrease in the total
number of shares of common stock outstanding. In addition, in the event the
Company declares a special cash dividend or return of capital, the per share
exercise price of all previously granted options which remain unexercised as of
the date of such declaration may be adjusted to give effect to such special cash
dividend or return of capital.
MANAGEMENT RECOGNITION PLAN. On October 15, 1997, the stockholders of the
Company approved the Home Savings Bank of Albemarle, Inc., S.S.B. Management
Recognition Plan and Trust (the "MRP"). Effective October 29, 1997, restricted
stock awards of 179,860 shares of the common stock were made to 41 directors,
officers and employees of the Bank. On October 29, 1997, non-employee directors
each received an award of 35,972 shares of restricted stock; Mr. Hill received
an award of 44,965 shares and Mr. Swanner received an award of 35,972 shares.
The shares awarded under the MRP were issued from
10
<PAGE>
authorized but unissued shares of common stock. Shares issued under the MRP were
issued at no cost to recipients.
The Board of Directors has appointed trustees of the MRP Trust who have the
responsibility to invest all funds contributed by the Bank to the Trust.
Recipients are entitled to direct the trustees as to the voting of MRP shares
which are not yet vested and distributed to the recipient. All dividends and
other cash and noncash distributions declared with respect to each unvested MRP
share will be held by the trustees for the benefit of each recipient, and such
dividends, including any interest earned, will be paid out proportionately by
the trustees to each recipient as soon as practicable after each recipient's MRP
shares vest. The shares granted vest at a rate of 25% on the effective date of
the award (October 29, 1997), and 25% on each of the subsequent three
anniversary dates. Awards of common stock under the MRP would immediately vest
upon the disability or death of a recipient or if the participant ceases to be
employed by the Company or the Bank after a change in control of the Company, as
defined in the MRP. The awards are not forfeitable upon vesting.
EXECUTIVE OFFICERS
The following table sets forth certain information with respect to the
persons who are executive officers of either the Company or the Bank or both.
<TABLE>
<CAPTION>
AGE ON EMPLOYED BY
SEPTEMBER 30, POSITIONS AND OCCUPATIONS DURING THE BANK OR THE
NAME 1998 LAST FIVE YEARS COMPANY SINCE
- ---- ---- --------------- -------------
<S> <C> <C> <C>
Carl M. Hill 66 President and Chief Executive 1957
Officer
of the Company and the Bank 1974
R. Ronald Swanner 50 Executive Vice President of the
Company and the Bank and Secretary
of the Company
Christopher F. Cranford 43 Treasurer and Controller of the Bank 1987
and the Company
</TABLE>
11
<PAGE>
EXECUTIVE COMPENSATION
The executive officers of the Company are not paid any cash compensation by
the Company. However, the executive officers of the Company also are executive
officers of the Bank and receive cash compensation from the Bank.
The following table sets forth for the fiscal year ended September 30, 1998
certain information as to the cash compensation received by and the amounts
accrued for the benefit of (i) the President and (ii) the Executive Vice
President of the Bank. No other executive officer of the Bank had cash
compensation during the year ended September 30, 1998 that exceeded $100,000 for
services rendered in all capacities to the Bank.
<TABLE>
<CAPTION>
LONG TERM COMPENSATION ALL OTHER
ANNUAL COMPENSATION AWARDS COMPENSATION
--------------------------------------------- ------------------------------- ------------
SECURITIES
UNDERLYING
OPTIONS/STOCK
APPRECIATION
NAME AND RESTRICTED RIGHTS ("SARS")
PRINCIPAL OTHER ANNUAL STOCK (IN
POSITION YEAR SALARY/(1)/ BONUS COMPENSATION/(4)/ AWARDS SHARES)/(7)/
-------- ---- ----------- ------------- ----------------- ------------- ---------------
<S> <C> <C> <C> <C> <C> <C> <C>
Carl M. Hill 1998 $182,197 $211,166/(2)/ - - - $598,601/(5)/ 112,413/112,413 $ 46,071/(8)/
President and CEO
1997 $173,725 $ 11,012/(2)/ - - - - - - - - - $ 25,000/(9)/
1996 $164,790 $ 10,388/(2)/ - - - - - - - - - $27,000/(10)/
R. Ronald Swanner 1998 $120,634 $167,110/(3)/ - - - $478,877/(6)/ 89,931/89,931 $28,971/(11)/
Executive Vice President 1997 $115,180 $ 7,081/(3)/ - - - - - - - - - $ 9,000/(12)/
1996 $109,420 $ 6,678/(3)/ - - - - - - - - - $11,300/(13)/
</TABLE>
____________________________________
/(1)/ In addition to salary, this amount also includes $9,700, $9,700 and
$9,700 each in directors' fees for Mr. Hill and Mr. Swanner for
services on the Company's and the Bank's board of directors for 1998,
1997 and 1996.
/(2)/ Mr. Hill received bonuses of $211,166, $11,012 and $10,388 in 1998,
1997 and 1996, respectively. In 1998, this amount includes the value
at the date of grant of a stock award made to Mr. Hill pursuant to the
MRP of 11,241 shares of the common stock that vested immediately upon
grant. Such shares had an aggregate fair market value of $199,528 on
the date of grant. The value of such shares as of September 30, 1998,
was $94,143, based on a fair market value of $8.375 per share. See
footnote 5 below for more information on the stock grant awards made
to Mr. Hill and "Management Recognition Plan" for more information
about the terms of the MRP.
/(3)/ Mr. Swanner received bonuses of $167,110, $7,081 and $6,678 in 1998,
1997 and 1996, respectively. In 1998, this amount includes the value
at the date of grant of a stock award made to Mr. Swanner pursuant to
the MRP of 8,993 shares of the common stock that vested immediately
upon grant. Such shares had an aggregate fair market value of $159,626
on the date of grant. The value of such shares as of September 30,
1998, was $75,316. See footnote 6 below for more information on the
stock grant awards made to Mr. Swanner and "Management Recognition
Plan" for more information about the terms of the MRP.
12
<PAGE>
/(4)/ Under the "Other Annual Compensation" category, perquisites for the
fiscal years ended September 30, 1998, 1997 and 1996 did not exceed
the lesser of $50,000 or 10% of salary and bonus as reported for
either Mr. Hill or Mr. Swanner.
/(5)/ This amount represents the fair market value on the date of the grant
(October 29, 1997) of 33,724 unvested shares awarded to Mr. Hill
pursuant to the MRP. On October 29, 1997, Mr. Hill was awarded 44,965
shares of the common stock that had a fair market value of $17.75 on
the date of the grant. Twenty-five percent of the shares (11,241
shares) vested immediately upon grant, another 25% (11,241 shares)
vested on October 29, 1998, and the remaining 50% will vest over the
next two years. The 44,965 shares had a value of $376,582 on September
30, 1998, based on a fair market value of $8.375 per share. Mr. Hill's
unvested shares are being held in the MRP Trust. All dividends paid on
unvested shares are held by the trustees for Mr. Hill's benefit and
such dividends, with any interest earned, will be paid to Mr. Hill
after the shares vest.
/(6)/ This amount represents the fair market value on the date of the grant
(October 29, 1997) of 26,979 unvested shares awarded to Mr. Swanner
pursuant to the MRP. On October 29, 1997, Mr. Swanner was awarded 35,
972 shares of the common stock that had a fair market value of $17.75
on the date of the grant. Twenty-five percent of the shares (8,993
shares) vested immediately upon grant, another 25% (8,993 shares)
vested on October 29, 1998, and the remaining 50% will vest over the
next two years. The 35,972 shares had a value of $301,265 on September
30, 1998, based on a fair market value of $8.375 per share. Mr.
Swanner's unvested shares are being held in the MRP Trust. All
dividends paid on unvested shares are held by the trustees for Mr.
Swanner's benefit and such dividends, with any interest earned, will
be paid to Mr. Swanner after the shares vest.
/(7)/ These options, granted pursuant to the Company's Stock Option Plan,
entitle Mr. Hill and Mr. Swanner to purchase, at any time after
vesting and before January 20, 2008, shares of the common stock in
exchange for an exercise price of $12.00 per share, which was the fair
market value of the shares on the date of grant. These options vested
25% on January 20, 1998, and will vest 25% each year thereafter until
all such options are vested on January 20, 2001. Options become 100%
vested upon death, disability, retirement or change of control, as
defined in the Stock Option Plan. In tandem with the options, Mr. Hill
and Mr. Swanner were granted Stock Appreciation Rights ("SARs"),which
vest in the same quantity and on the same schedule as the options. See
"Director Compensation - Stock Option Plan" for more information about
the terms of the Stock Option Plan, including a further description of
the SARs.
/(8)/ Includes $27,000 accrued under supplemental income agreements
established for the benefit of Mr. Hill. Such amounts accrued under
the supplemental income agreements have not been paid to Mr. Hill. See
"- Bank Supplemental Income Agreements". Also includes $19,071, the
amount contributed by the Bank for Mr. Hill's benefit under the ESOP.
/(9)/ Includes $25,000 accrued under supplemental income agreements
established for the benefit of Mr. Hill. Such amounts accrued under
the supplemental income agreements have not been paid to Mr. Hill. See
"- Bank Supplemental Income Agreements".
/(10)/ Includes $2,000 contributed to the Bank's 401(k) profit sharing plan
for Mr. Hill for fiscal year 1996 and $25,000 of accrued expense under
supplemental income agreements established for the benefit of Mr.
Hill. Such amounts accrued under the supplemental income agreements
have not been paid to Mr. Hill. See "- Supplemental Income
Agreements".
/(11)/ Includes $9,900 accrued under supplemental income agreements
established for the benefit of Mr. Swanner. Such amounts accrued under
the supplemental income agreements have not been paid to Mr. Swanner.
See "- Bank Supplemental Income Agreements". Also includes $19,071,
the amount contributed by the Bank for Mr. Swanner's benefit under the
ESOP.
/(12)/ Includes $9,000 accrued under supplemental income agreements
established for the benefit of Mr. Swanner. Such amounts accrued under
the supplemental income agreements have not been paid to Mr. Swanner.
See "- Bank Supplemental Income Agreements".
13
<PAGE>
/(13)/ Includes $1,300 contributed to the 401(k) profit sharing plan for Mr.
Swanner for fiscal year 1996 and $10,000 of accrued expense under
supplemental income agreements established for the benefit of Mr.
Swanner. Such amounts accrued under the supplemental income agreements
have not been paid to Mr. Swanner. See "- Supplemental Income
Agreements".
14
<PAGE>
The following table provides certain information with respect to the grant
of stock options to Mr. Hill and Mr. Swanner made during the fiscal year ended
September 30, 1998.
<TABLE>
<CAPTION>
OPTION/SAR GRANTS IN LAST FISCAL YEAR
POTENTIAL REALIZABLE VALUE AT
ASSUMED ANNUAL RATES OF
STOCK PRICE APPRECIATION FOR
INDIVIDUAL GRANTS OPTION TERM
- -------------------------------------------------------------------------------------------------- ----------------------------
NUMBER OF % OF TOTAL
SECURITIES OPTIONS/SARS EXERCISE
UNDERLYING GRANTED TO OR BASE
OPTIONS/SARS EMPLOYEES PRICE EXPIRATION 5% 10%
NAME GRANTED/(1)/ IN FISCAL YEAR ($/SH)/(2)/ DATE APPRECIATION/(3)/ APPRECIATION/(4)/
------- ------------ -------------- ----------- ---------- ----------------- -----------------
<S> <C> <C> <C> <C> <C> <C>
Carl M. Hill 112,413/112,413 31.25%/31.25% $12.00 January 20, 2008 $848,358 $2,149,831
R. Ronald Swanner 89,931/89,931 25.00%/25.00% $12.00 January 20, 2008 $678,691 $1,719,876
</TABLE>
____________________________________
/(1)/ Twenty-five percent of the options vested on January 20, 1998, under
the initial grant, and 25 % will vest each year thereafter until all
such options are vested on January 20, 2001.
/(2)/ Represents the average high and low selling prices of the Company's
common stock on Nasdaq on the date of grant (January 20, 1998).
/(2)/ The dollar values shown represent the potential realizable value of
the grant of options at an assumed 5% annualized appreciation rate in
the price of the common stock. The potential realizable value is
calculated under the following formula: [(A x B) - C] x D, where A =
$12.00, the per share market price at the time of the grant; B =
1.6289, the assumed rate of stock price appreciation (5%) compounded
annually over the 10-year term of the option; C = $12.00, the per
share exercise price of the option; and D = 112,413 for Mr. Hill and
89,931 for Mr. Swanner, the number of securities underlying the grant
at year end 1998.
/(4)/ The dollar values shown represent the potential realizable value of
the grant of options at an assumed 10% annualized appreciation rate in
the price of the common stock. The potential realizable value is
calculated under the following formula: [(A x B) - C] x D, where A =
$12.00, the per share market price at the time of the grant; B =
2.5937, the assumed rate of stock price appreciation (10%) compounded
annually over the 10-year term of the option; C = $12.00, the per
share exercise price of the option; and D = 112,413 for Mr. Hill and
89,931 for Mr. Swanner, the number of securities underlying the grant
at year end 1998.
No options were exercised by Mr. Hill or Mr. Swanner during the fiscal year
ended September 30, 1998.
15
<PAGE>
<TABLE>
<CAPTION>
AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION/SAR VALUES
SHARES NUMBER OF SECURITIES
ACQUIRED UNDERLYING UNEXERCISED VALUE OF UNEXERCISED IN-THE-
ON VALUE OPTIONS/SARS AT MONEY OPTIONS/SARS AT
NAME EXERCISE REALIZED FISCAL YEAR END/(1)/ FISCAL YEAR END/(2)/
------ -------- -------- ---------------------------- ------------------------------
EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
------------- ------------- ----------- --------------
<S> <C> <C> <C> <C> <C> <C>
Carl M. Hill 0 $0 28,103/28,103 84,310/84,310 $0 $0
R. Ronald Swanner 0 $0 22,482/22,482 67,449/67,449 $0 $0
</TABLE>
____________________________________
/(1)/ All stock options were granted as of January 20, 1998.
/(2)/ Dollar amounts shown represent the value of stock options held by Mr.
Hill and Mr. Swanner as of September 30, 1998. None of Mr. Hill's or
Mr. Swanner's options were "in-the-money" at such date. An option is
considered to be "in-the-money" if the fair market value of the
Company's common stock exceeds the exercise or base price of the
shares subject to the options as of the fiscal year end (in this case
September 30, 1998). At September 30, 1998, the exercise price of the
stock options was $12.00. On September 30, 1998, the closing market
price per share for the common stock as reported on Nasdaq was $8.375.
BANK SUPPLEMENTAL INCOME AGREEMENTS. 1985 Agreements. The Bank entered
into Supplemental Income Agreements with Mr. Hill and Mr. Swanner on October 1,
1985. The agreements provide that the Bank will pay Mr. Hill $1,200 per month
for a continuous period of 216 months, and Mr. Swanner $861 per month for a
continuous period of 180 months. Mr. Hill's benefits will commence on the later
of his 62nd birthday or his actual retirement. Mr. Swanner's benefits will
commence on the first day of the month following his 65th birthday. If the
executive dies while employed by the Bank but before receiving any or all of the
payments due under the agreement, the remaining payments will be made to his
designated beneficiary, or, if none, to his estate. If the executive becomes
disabled prior to his retirement from the Bank, the Bank will pay him the
benefits due under the agreement. The plan also provides for an early retirement
benefit upon retirement with 25 years of service with the Bank.
As a condition of the agreements, Mr. Hill and Mr. Swanner must be
available to provide consulting services to the Bank during the period the
retirement payments are payable and must not engage in activities in Stanly
County, North Carolina in competition with the Bank.
1995 Agreements. In September 1995, the Bank also entered into
Supplemental Income Agreements with Mr. Hill and Mr. Swanner. Under the
agreements, the Bank will pay Mr. Hill $25,000 annually and Mr. Swanner $15,000
annually for a period of fifteen years upon the executive's attainment of age
65 or actual retirement, if later.
If the executive dies while employed by the Bank but before receiving
all of his benefits under the agreement, payments will be made to his designated
beneficiary, or if none, to his estate, unless the death is by suicide within
two years of the execution of the agreement. If the executive becomes disabled
while employed by the Bank, but prior to attaining age 65, the Bank will pay the
same benefits that would be payable in the event of the executive's death,
either in installments over the fifteen-year period or in a lump sum payment. If
the executive terminates his service to the Bank for reasons other than death or
disability, he or his beneficiary shall be entitled to receive at age 65 or his
prior death only the vested portion of the
16
<PAGE>
benefits due under the agreement. Vesting occurs according to a schedule
contained in the agreement. If the executive's termination of service shall
occur after a change in control of the Bank, the executive shall be 100% vested
in the retirement benefits.
As a condition of the agreement, each executive has agreed not to
engage in activities in competition with the Bank in Albemarle, North Carolina,
and to provide consulting services to the Bank during the period that the
retirement benefits are payable.
The Bank has purchased life insurance on the lives of Mr. Hill and Mr.
Swanner to fund its obligations under the agreements described above. Total
expense related to those agreements was $30,000 for the fiscal year ended
September 30, 1998, and the Bank's accrued liability for plan obligations
amounted to $500,000 at September 30, 1998.
RETIREMENT PLAN. The Bank maintains a non-contributory defined benefit
pension plan ("Pension Plan") for the benefit of all of its employees who have
completed one year of service and who are at least 21 years of age. Under the
Pension Plan, the Bank annually contributes an actuarially determined amount to
provide a benefit for each participant at retirement.
Participants are fully vested in amounts contributed to the Pension
Plan on their behalf by the Bank after completing five years of service.
Benefits under the plan are payable in the event of the participant's
retirement, death, disability or termination of employment.
Normal retirement age under the Pension Plan is the later of (a) age
65 or (b) the fifth anniversary of the date an employee first became a
participant in the Pension Plan ("Normal Retirement Age"). Subject to certain
restrictions on maximum benefits required by federal law, upon reaching Normal
Retirement Age, each participant will receive a retirement benefit in the form
of a straight life annuity, determined pursuant to a formula which takes into
consideration a participant's "final average compensation," years of service
with the Bank and the participant's expected benefits from Social Security. In
general, for purposes of the Pension Plan, a participant's "Final Average
Compensation" is defined as his average annual compensation for those five
consecutive years in the last ten calendar years immediately preceding Normal
Retirement Age that produce the highest average. The plan also offers early
retirement to participants who have completed fifteen years of service and who
are at least fifty-five years of age.
The following table shows the retirement benefit payable for a range
of compensation and years of service for a person who retires at Normal
Retirement Age. These are hypothetical benefits based upon the plan's normal
benefit formula.
17
<PAGE>
<TABLE>
<CAPTION>
EARNINGS CREDITED FOR
RETIREMENT BENEFITS
- ----------------------
YEARS OF SERVICE AT NORMAL RETIREMENT
-------------------------------------------
15 20 25 30 35
-- -- -- -- --
<S> <C> <C> <C> <C> <C>
$ 25,000 ............. $ 4,688 $ 6,250 $ 7,813 $ 9,375 $10,938
$ 50,000 ............. $11,224 $14,966 $18,707 $22,449 $26,190
$ 75,000 ............. $18,349 $24,466 $30,582 $36,699 $42,815
$100,000 ............. $25,474 $33,966 $42,457 $50,949 $59,440
$125,000 ............. $32,599 $43,466 $54,332 $65,199 $76,065
$150,000 ............. $39,724 $52,966 $66,207 $79,449 $92,690
</TABLE>
The benefits listed above are annual amounts and are based on the assumption
that the participant is age 65. As of September 30, 1998, the Final Average
Compensation and years of service for Mr. Hill and Mr. Swanner would have been:
Mr. Hill - $143,369 and 41 years; Mr. Swanner - $101,778 and 24 years.
EMPLOYEE STOCK OWNERSHIP PLAN. The Bank has established the ESOP for
eligible employees of the Bank. Employees with 1,000 hours of employment in a
plan year and who have attained age 21 are eligible to participate. The ESOP
borrowed funds from the Company and used the funds to purchase 359,720 of the
shares of common stock issued in connection with the Bank's conversion from a
North Carolina-chartered mutual savings bank to a North Carolina-chartered stock
savings bank (the "Conversion.").
Collateral for the Company's loan to the ESOP is the common stock
purchased by the ESOP. The loan will be repaid principally from the Bank's
discretionary contributions to the ESOP over a period of 15 years or less.
Dividends, if any, paid on shares held by the ESOP may also be used to reduce
the loan. The loan has not been guaranteed by the Bank. On January 8, 1998, the
Company paid a $6.00 per share return of capital in the form of a special
dividend to its stockholders. As of September 30, 1998, the ESOP had purchased
168,448 shares of common stock in the open market using funds received as a
special dividend in addition to the 359,720 shares purchased in the Conversion
and now holds, net of shares allocated or committed to be allocated to
participants' accounts, in the aggregate, 471,981 shares.
Shares purchased by the ESOP are held in a suspense account for
allocation among participants as the loan is repaid. Contributions to the ESOP
and shares released from the suspense account in an amount proportional to the
repayment of the ESOP loan are allocated among ESOP participants on the basis of
relative compensation in the year of allocation. Benefits vest in annual
increments with full vesting upon attaining five years of service (with credit
given for years of service prior to the Conversion). Prior to the completion of
five years of credited service, a participant who terminates employment for
reasons other than death, retirement (or early retirement), or disability will
receive only vested benefits under the ESOP. Forfeitures are reallocated among
remaining participating employees in the same proportion as contributions.
Benefits immediately vest and are payable upon death or disability. The Bank's
contributions to the ESOP are not fixed, so benefits payable under the ESOP
cannot be estimated.
18
<PAGE>
The Bank has established a committee of the board of directors to
administer the ESOP. Trustees for the ESOP were appointed prior to the
Conversion. The ESOP committee may instruct the trustees regarding investment
of funds contributed to the ESOP. Participating employees may instruct the
trustees as to the voting of all shares allocated to their respective ESOP
accounts. The unallocated shares held in the suspense account, and all
allocated shares for which voting instructions are not received, will be voted
by the trustees in their discretion subject to the provisions of the Employee
Retirement Income Security Act of 1974, as amended.
STOCK OPTION PLAN AND MANAGEMENT RECOGNITION PLAN. See "Director
Compensation - Stock Option Plan" and "-Management Recognition Plan" for a
discussion of the executive officers' benefits under those plans.
EMPLOYMENT AGREEMENTS. In 1996 the Bank entered into employment
agreements with Carl M. Hill and R. Ronald Swanner in order to establish their
duties and compensation and to provide for their continued employment with the
Bank. The agreements provide for an initial term of employment of three years.
Commencing on the first anniversary date and continuing on each anniversary date
thereafter, following a performance evaluation of the employee, each agreement
may be extended for an additional year. Each agreement provides that base salary
shall be reviewed by the board of directors of the Bank not less often than
annually. Under the terms of the agreements, Mr. Hill's annual base salary was
$172,497 for the 1998 fiscal year and Mr. Swanner's annual base salary was
$110,934 for the 1998 fiscal year. In addition, the employment agreements
provide for discretionary bonuses and participation in all other pension,
profit-sharing or retirement plans maintained by the Bank or by the Company for
employees of the Bank, as well as fringe benefits normally associated with such
employee's office, including the use of a company car. The employment agreements
provide that they may be terminated by the Bank for cause, as defined in the
agreement, and that they may otherwise be terminated by the Bank (subject to
vested rights) or by the employee. In the event of a change in control (as
defined below), the terms of each agreement shall be automatically extended for
three years from the date of the change of control, and the employee's base
salary shall be increased at least 6% annually.
The employment agreements provide that the nature of the employee's
compensation, duties or benefits may not be diminished following a change in
control of the Bank or the Company. For purposes of the employment agreements,
a change in control generally will occur if (i) after the effective date of the
employment agreement, any "person" (as such term is defined in Sections 3(a)(9)
and 13(d)(3) of the Exchange Act) directly or indirectly, acquires beneficial
ownership of voting stock, or acquires irrevocable proxies or any combination of
voting stock and irrevocable proxies, representing 25% or more of any class of
voting securities of either the Company or the Bank, or acquires in any manner
control of the election of a majority of the directors of either the Company or
the Bank, (ii) either the Company or the Bank consolidates or merges with or
into another corporation, association or entity, or is otherwise reorganized,
where neither the Company nor the Bank is the surviving corporation in such
transaction, or (iii) all or substantially all of the assets of either the
Company or the Bank are sold or otherwise transferred to, or are acquired by,
any other entity or group.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The Compensation Committee of the Bank's board of directors serves the
role of the Compensation Committee for the Company. The Compensation Committee
determines the compensation of the executive officers and the Bank's other
employees. During the fiscal year ended September 30, 1998, the Compensation
Committee consisted of Caldwell A. Holbrook, Jr., Joel A. Huneycutt and Douglas
D. Stokes.
19
<PAGE>
None of the members of the Compensation Committee were officers or employees of
the Bank or the Company during 1998 or in prior years.
REPORT OF COMPENSATION COMMITTEE ON EXECUTIVE COMPENSATION
It is the responsibility of the Bank's Compensation Committee to
review and evaluate the performance of the Bank's executive officers. The salary
of each executive officer, including Mr. Hill, the President and Chief Executive
Officer, and Mr. Swanner, the Executive Vice President, is determined based upon
market factors, including salaries and benefits offered for similar positions by
financial institution competitors of similar size and characteristics, and the
executive officer's contributions to the Bank's overall profitability,
maintenance of regulatory compliance standards, professional leadership, and
management effectiveness in meeting the needs of day to day operations. In
addition, the executive officers of the Bank are eligible to receive
discretionary bonuses - as are all other employees - declared by the Bank's
board of directors.
Compensation Committee
Caldwell A. Holbrook, Jr.
Joel A. Huneycutt
Douglas Dwight Stokes
PERFORMANCE GRAPH
The Company is required to provide its stockholders with a line graph
comparing the Company's cumulative total shareholder return with a performance
indicator of the overall stock market and either a published industry index or a
Company-determined peer comparison. The purpose of the chart is to help
stockholders determine the reasonableness of the Compensation Committee's
decisions with respect to the setting of various levels of executive officer
compensation. Shareholder return (measured through increases in stock price and
payment of dividends) is often a benchmark used in assessing corporate
performance and the reasonableness of compensation paid executive officers.
However, the stockholders should recognize that corporations often use
a number of other performance benchmarks (in addition to shareholder return) to
set various levels of executive officer compensation. Stockholders should thus
consider other relevant performance indicators in assessing shareholder return,
such as growth in earnings per share, book value per share, and cash dividends
per share, along with other performance measures such as return on equity and
return on assets.
The following graph compares the Company's cumulative shareholder
return on the common stock with a Nasdaq (U.S. companies) index and with a
savings institution peer group whose stock is quoted on Nasdaq. The graph was
prepared using data through September 30, 1998.
20
<PAGE>
[LETTERHEAD OF CRSP APPEARS HERE]
Comparison of Five-Year Cumulative Total Returns
Performance Graph for
South Street Financial Corp.
Prepared by the Center for Research in Security Prices
Produced on 12/22/98 including data to 09/30/98
Date Company Index Market Index Peer Index
10/03/96 100.000 100.000 100.000
10/31/96 96.078 98.431 103.178
11/29/96 114.706 104.516 109.832
12/31/96 109.804 104.422 112.499
01/31/97 109.440 111.844 118.279
02/28/97 132.117 105.657 126.628
03/31/97 127.958 98.758 123.276
04/30/97 127.958 101.846 124.162
05/30/97 124.982 113.388 131.679
06/30/97 131.758 116.860 142.845
07/31/97 153.718 129.195 151.421
08/29/97 149.725 128.998 155.970
09/30/97 156.539 136.621 171.102
10/31/97 140.484 129.549 177.082
11/28/97 140.484 130.198 180.500
12/31/97 153.344 128.113 195.250
01/30/98 156.972 132.133 186.744
02/27/98 158.496 144.534 200.945
03/31/98 147.486 149.862 210.348
04/30/98 129.050 152.399 215.601
05/29/98 119.833 144.035 207.541
06/30/98 123.553 154.191 203.026
07/31/98 118.891 152.508 205.414
08/31/98 115.005 122.681 161.050
09/30/98 105.317 139.590 172.492
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------
Legend
Symbol CRSP Total Returns Index for: 10/03/96 03/31/97 09/30/97 03/31/98 09/30/98
- ------ ----------------------------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
____ . South Street Financial Corp. 100.0 128.0 156.5 147.5 105.3
- ---- * Nasdaq Stock Market (US Companies) 100.0 98.8 136.6 149.9 139.6
- ---- . NASDAQ Stocks (SIC 6030-6039 US Companies) 100.0 123.3 171.1 210.3 172.5
Savings Institutions
Notes:
A. The lines represent monthly index levels derived from compounded daily returns that Include all dividends.
B. The indexes are reweighted daily, using the market capitalization on the previous trading day.
C. If the monthly interval, based on the fiscal year-end, is not a trading day, the preceding trading day is used.
D. The index level for all series was set to $100.0 on 10/03/96.
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
CERTAIN INDEBTEDNESS AND TRANSACTIONS OF MANAGEMENT
The Bank makes loans to its executive officers and directors in the
ordinary course of its business. These loans are currently made on substantially
the same terms, including interest rates, collateral and repayment terms, as
those then prevailing for comparable transactions with nonaffiliated persons,
and do not involve more than the normal risk of collectibility or present any
other unfavorable features. Applicable regulations prohibit the Bank from
making loans to its executive officers and directors at terms more favorable
than could be obtained by persons not affiliated with the Bank. The Bank's
policy concerning loans to executive officers and directors currently complies
with such regulations.
PROPOSAL 2
RATIFICATION OF SELECTION OF INDEPENDENT AUDITOR
McGladrey & Pullen, LLP, the Company's and the Bank's independent
auditor for the year ended September 30, 1998, has been selected as the
Company's and the Bank's independent auditor for 1999 fiscal year. Such
selection is being submitted to the Company's stockholders for ratification. A
representative of McGladrey & Pullen, L.L.P. is expected to attend the Annual
Meeting and will be afforded an opportunity to make a statement, if he so
desires, and to respond to appropriate questions from stockholders.
THE BOARD OF DIRECTORS RECOMMENDS THAT THE STOCKHOLDERS VOTE FOR THIS
---
PROPOSAL.
PROPOSALS FOR 2000 ANNUAL STOCKHOLDERS' MEETING
It is presently anticipated that the 2000 Annual Meeting of
Stockholders will be held in February of 2000. In order for shareholder
proposals to be included in the proxy materials for that meeting, such proposals
must be received by the Secretary of the Company at the Company's executive
office not later than September 30, 1999, and meet all other applicable
requirements for inclusion therein.
The Company's bylaws provide that, in order to be eligible for
consideration at the annual meeting of stockholders, all nominations of
directors, other than those made by the Company's Board of Directors, must be
made in writing and must be delivered to the Secretary of the Company not less
than 30 days nor more than 50 days prior to the meeting at which such
nominations will be made; provided, however, if less than 21 days notice of the
meeting is given to stockholders, such nominations must be delivered to the
Secretary of the Company not later than the close of business on the seventh day
following the day on which the notice of meeting was mailed.
OTHER MATTERS
Management knows of no other matters to be presented for consideration
at the Annual Meeting or any adjournments thereof. If any other matters shall
properly come before the Annual Meeting, it is intended that the proxy holders
named in the enclosed form of proxy will vote the shares represented thereby in
accordance with their judgment, pursuant to the discretionary authority granted
therein.
22
<PAGE>
MISCELLANEOUS
The Annual Report of the Company for the year ended September 30,
1998, which includes financial statements audited and reported upon by the
Company's independent auditor, is being mailed along with this Proxy Statement;
however, it is not intended that the Annual Report be a part of this Proxy
Statement or a solicitation of proxies.
THE FORM 10-K FILED BY THE COMPANY WITH THE SEC, INCLUDING THE
FINANCIAL STATEMENTS AND SCHEDULES THERETO, WILL BE PROVIDED FREE OF CHARGE TO
THE COMPANY'S STOCKHOLDERS UPON WRITTEN REQUEST DIRECTED TO: SOUTH STREET
FINANCIAL CORP., POST OFFICE BOX 489, 155 WEST SOUTH STREET, ALBEMARLE, NORTH
CAROLINA 28001, ATTENTION: CARL M. HILL.
By Order of the Board of Directors,
/s/ R. Ronald Swanner
R. Ronald Swanner
Secretary
Albemarle, North Carolina
January 27, 1999
23
<PAGE>
PLEASE MARK VOTES REVOCABLE PROXY
[X]AS IN THIS EXAMPLE SOUTH STREET FINANCIAL CORP.
ANNUAL MEETING OF STOCKHOLDERS
FEBRUARY 25, 1999
7:00 p.m.
The undersigned hereby appoints the official proxy committee of South Street
Financial Corp. (the "Company") comprised of Douglas D. Stokes, Joel A.
Huneycutt and Greg E. Underwood, each with full power of substitution, to act
as attorneys and proxies for the undersigned, and to vote all shares of Common
Stock of the Company which the undersigned is entitled to vote only at the
Annual Meeting of Stockholders, to be held at the office of the Company, 155
West South Street, Albemarle, North Carolina, on February 25, 1999, at 7:00
p.m. and at any and all adjournments thereof, as follows:
With- For All
For hold Except
1. The approval of the election of
the following named directors: [_] [_] [_]
Carl M. Hill, Caldwell A. Holbrook, Jr., Joel A. Huneycutt, Douglas Dwight
Stokes, R. Ronald Swanner and Greg E. Underwood who will serve as directors
of the Company until the 2000 Annual Meeting of Stockholders or until their
successors are duly elected and qualify.
INSTRUCTION: To withhold authority to vote for any individual nominee, mark
"For All Except" and write that nominee's name in the space provided below.
- --------------------------------------------------------------------------------
For Against Abstain
2. The ratification of McGladrey &
Pullen, LLP as the indepen- [_] [_] [_]
dent auditor of the Company for the
year ending September 30, 1999.
PLEASE CHECK BOX IF YOU PLAN TO ATTEND THE ANNUAL MEETING: [_]
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" EACH OF THE LISTED PROPOSALS.
If no instructions are given, the proxy will be voted for the nominees for
election to the Board of Directors named in this Revocable Proxy and for the
ratification of the selection of McGladrey & Pullen, LLP as the independent au-
ditor for the Company for the 1999 fiscal year. If instructions are given with
respect to one but not both proposals, such instructions as are given will be
followed and the proxy will be voted for the proposal on which no instructions
are given.
--------------------------------------------------------
Please be sure to Date
sign and date --------------------------------------------------------
this Proxy in the box
below.
- --------------------------------------------------------------------------------
- -------Stockholder sign above---------------Co-Holder (if any) sign above-------
- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -
Detach above card, sign, date and mail in postage paid envelope provided.
SOUTH STREET FINANCIAL CORP.
THIS PROXY IS SOLICITED BY THE BOARD OF DIRECTORS
The above signed acknowledges receipt from the Company, prior to the
execution of this Proxy, of a Notice of Annual Meeting and a Proxy
Statement dated January 27, 1999.
Please sign exactly as your name appears hereon. When signing as
attorney, executor, administrator, trustee or guardian, please give
your full title. If shares are held jointly, each holder may sign, but
only one signature is required.
PLEASE ACT PROMPTLY
SIGN, DATE AND MAIL YOUR PROXY CARD TODAY
