<PAGE>
<PAGE>
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:
[X ] Preliminary Proxy Statement
[ ] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Rule 14a-11(c) or
Rule 14a-12
[ ] Confidential, for Use of the Commission Only (as permitted
by Rule 14a-6(e)(2))
NEWSOUTH BANCORP, INC.
- ----------------------------------------------------------------
(Name of Registrant as Specified in its Charter)
- ----------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement)
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:
____________________________________________
<PAGE>
<PAGE>
[LOGO]
[NEWSOUTH BANCORP, INC. LETTERHEAD]
January 10, 2000
Dear Stockholder:
We invite you to attend the Annual Meeting of Stockholders
(the "Annual Meeting") of NewSouth 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 17, 2000, 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,
Thomas A. Vann
President
<PAGE>
<PAGE>
________________________________________________________________
NEWSOUTH BANCORP, INC.
1311 Carolina Avenue
Washington, North Carolina 27889
________________________________________________________________
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
To Be Held on February 17, 2000
________________________________________________________________
NOTICE IS HEREBY GIVEN that the Annual Meeting of
Stockholders (the "Annual Meeting") of NewSouth 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 17, 2000, 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 three directors to serve
three-year terms and one director to serve a
two-year term;
2. The approval of an amendment of the Company's
Articles of Incorporation to change the
Company's corporate name from NewSouth
Bancorp, Inc. to First South Bancorp, Inc.;
3. The approval of an amendment to the NewSouth
Bancorp, Inc. 1997 Stock Option Plan to
increase the number of shares available for
option grants from 436,425 to 787,348; and
4. 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 December 29, 1999, 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
William L. Wall
Secretary
Washington, North Carolina
January 10, 2000
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.
<PAGE>
<PAGE>
________________________________________________________________
PROXY STATEMENT
OF
NEWSOUTH BANCORP, INC.
1311 CAROLINA AVENUE
WASHINGTON, NORTH CAROLINA 27889
________________________________________________________________
ANNUAL MEETING OF STOCKHOLDERS
FEBRUARY 17, 2000
________________________________________________________________
________________________________________________________________
GENERAL
________________________________________________________________
This Proxy Statement is furnished to stockholders of
NewSouth 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 17, 2000, 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 10,
2000.
________________________________________________________________
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 AND
FOR THE OTHER PROPOSITIONS STATED. 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 December 29, 1999 (the "Record Date") are entitled
to one vote for each share of Common Stock then held. As of the
Record Date, there were 3,509,228 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.
<PAGE>
<PAGE>
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 the Record Date 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.
<TABLE>
<CAPTION>
SHARES OF COMMON STOCK
BENEFICIALLY OWNED PERCENT OF
AS OF NOVEMBER 30, 1999 (1) CLASS (2)
--------------------------- ----------
Persons Owning Greater than 5%:
- -----------------------------
<S> <C> <C>
NewSouth Bancorp, Inc. 344,779 (3) 9.82%
Employee Stock Ownership Plan
Trust ("ESOP")
1311 Carolina Avenue
Washington, North Carolina 27889
Directors:
Edmund T. Buckman, Jr. 92,115 (4) 2.60
Linley H. Gibbs, Jr. 64,770 (5) 1.83
Fred N. Holscher 50,614 (6) 1.43
Frederick H. Howdy 68,320 (7) 1.95
Charles E. Parker, Jr. 60,830 (8) 1.72
Marshall T. Singleton 77,469 (9) 2.19
Thomas A. Vann 210,112 (10) 5.81
H.D. Reaves, Jr. -- --
All directors and executive officers
of the Company as a group (15 persons) 774,174 (11) 20.22
<FN>
_____________
(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 trusts holding 344,779
shares under the ESOP and 58,187 shares under the Company's Management
Recognition Plan ("MRP"). 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. The shares held by the MRP trust
are voted in the same proportion as the ESOP trustees vote the
shares held in the ESOP trust.
(2) Based on a total of 3,509,228 shares of Common Stock outstanding
as of November 30, 1999.
(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 the Record Date, 120,693
shares had been allocated. See footnote 1 above for information
on how these shares are voted.
(4) Includes 30,000 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 the Record Date.
(5) 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 the Record Date.
2
<PAGE>
(6) 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 the Record Date.
(7) Includes 30,000 shares owned by Dr. Howdy's spouse.
(8) Includes 27,450 shares Mr. Parker has the right to acquire
upon the exercise of options exercisable within 60 days of
the Record Date.
(9) 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 the Record Date.
(10)Includes 30,525 shares owned by Mr. Vann's spouse, 8,544
shares owned by his son, 6,448 shares allocated to Mr.
Vann's account under the ESOP and 109,103 shares Mr. Vann has
the right to acquire upon the exercise of options exercisable
within 60 days of the Record Date.
(11)Includes 319,853 shares all directors and executive officers
as a group have the right to acquire upon the exercise of
options exercisable within 60 days of the Record Date.
</FN>
</TABLE>
________________________________________________________________
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, three
directors will be elected for a term expiring at the 2003 Annual
Meeting and one director will be elected for a term expiring at
the 2002 Annual Meeting. The Board of Directors has nominated
Edmund T. Buckman, Jr., Fred N. Holscher and Frederick H. Howdy
to serve as directors for a three-year period and H.D. Reaves,
Jr. to serve as a director for a two-year period. All four
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.
3
<PAGE>
<PAGE>
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.
<TABLE>
<CAPTION>
YEAR FIRST
AGE AT ELECTED AS CURRENT
SEPTEMBER 30, DIRECTOR OF TERM
NAME 1999 THE BANK TO EXPIRE
---- ------------ ----------- ---------
BOARD NOMINEES FOR TERMS TO EXPIRE IN 2003
<S> <C> <C> <C>
Edmund T. Buckman, Jr. 73 1975 2000
Fred N. Holscher 51 1985 2000
Frederick H. Howdy 67 1975 2000
BOARD NOMINEE FOR A TERM TO EXPIRE IN 2002
H.D. Reaves, Jr. 62 1999 2000
DIRECTORS CONTINUING IN OFFICE
Linley H. Gibbs, Jr. 68 1985 2001
Thomas A. Vann 50 1979 2001
Charles E. Parker, Jr. 63 1971 2002
Marshall T. Singleton 60 1990 2002
</TABLE>
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.
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.
FRED 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.
H.D. REAVES, JR. serves as Executive Vice President of the
Bank. He 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.
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.
4
<PAGE>
<PAGE>
THOMAS A. VANN serves as President 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.
CHARLES E. PARKER, JR. is a Vice President of the Robinson
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.
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.
<TABLE>
<CAPTION>
Age at
September 30,
Name 1999 Title (1)
- ---- ------------- ---------
<S> <C> <C>
William L. Wall 53 Executive Vice President, Chief Financial
Officer and Secretary of the Company and
the Bank
Joseph C. Dunn 59 Executive Vice President -- Commercial
Lending and Credit Administration
Jack L. Ashley 54 Executive Vice President -- Branch
Administration and Operations
Walter P. House 53 Executive Vice President -- Mortgage
Operations
William R. Outland 62 Senior Vice President -- Consumer Lending
Sherry L. Correll 44 Senior Vice President -- Savings and
Deposit Administration
Mary R. Boyd 49 Senior Vice President -- Loan Servicing
Kristie W. Hawkins 34 Treasurer and Controller of the Company
and the Bank
<FN>
_______________
(1) All positions are with the Bank unless indicated otherwise.
</FN>
</TABLE>
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.
5
<PAGE>
<PAGE>
SHERRY L. CORRELL is currently the Senior Vice President
of Savings and Deposit Administration. She joined the Bank in
1985.
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, 1999, the Board of Directors of the Company met 14
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, 1999 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, Singleton and Parker, who serves as
Chairperson. 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 Audit Committee met once during the year
ended September 30, 1999.
The Bank's Board of Directors has an Examining Committee
(a requirement of the North Carolina Commissioner of Banks)
consisting of Directors Holscher, Singleton and Buckman, 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, 1999.
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 four times during the year ended
September 30, 1999.
The Company's full Board of Directors acts as a nominating
committee. The Board of Directors met once during the year
ended September 30, 1999 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.
6
<PAGE>
<PAGE>
In addition, the stockholder making such nomination must
promptly provide any other information reasonably requested by
the Company.
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:
. 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.
. 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.
. To correlate, as closely as possible,
executive officers' receipt of
compensation with the attainment of
specified performance objectives.
. To maintain a competitive mix of total
executive compensation, with particular
emphasis on awards related to increases
in long-term stockholder value.
. 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.
7
<PAGE>
<PAGE>
Under the stock option plan, the Company reserved for
issuance a number of shares equal to 10% of the originally
issued Common Stock. The Committee believes that stock options
are an important element of compensation because 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.
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.
On November 19, 1998, the Company repriced all options
that had been granted upon approval of the Option Plan by the
Company's stockholders in April 1998, including options to
acquire 109,103 shares of Common Stock granted to Thomas A.
Vann, the Company's President. This was accomplished by
canceling the existing options and issuing replacement options
that were identical in every respect other than the exercise
price. The options had been granted approximately seven months
earlier and had an exercise price of $23.08 per share, which was
the fair market value of the Common Stock on the date of grant.
However, the fair market value for the Common Stock of $23.08
per share on the date of grant, April 8, 1998, proved to be one
of the highest prices ever attained by the Common Stock, and by
November 1998 the Common Stock was trading in the $17.00 to
$18.00 range. The Board of Directors believed that the decrease
in the market price for the Common Stock reflected general
declines in market prices for the stocks of banking institution
holding companies and was not attributable to actions taken by
management of the Company.
The Board further believed that maintaining the $23.08
exercise price when the market price for the Common stock was in
the $17.00 to $18.00 range would not accomplish the goals of the
Board in implementing the Option Plan because the market price
for the Common Stock would have to rise substantially before the
options could have any value to the optionees. In addition, the
Board considered the facts that (i) new employees were being
granted options with lower exercise prices than the options
granted to longstanding employees, thereby treating new
employees more favorably than employees with seniority; and (ii)
if the options were not repriced, existing employees actually
would have an incentive to leave the Company and join a
competitor where they could receive options at exercise prices
that reflected the prevailing low prices for stocks of banking
institutions.
As a result, given the abnormally high market price for
the Common Stock that happened to prevail on the specific date
the options were granted, the Board concluded that for the
options to provide the intended incentive to the optionees, it
would be necessary to reprice the options to set the exercise
price at the prevailing market price. This was done on November
19, 1998, and the new exercise price was $18.25, which
represented the average of the high and low sale price on that
date.
<PAGE>
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.
8
<PAGE>
<PAGE>
Mr. Vann received bonus compensation for fiscal year 1999
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 stockholder value 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 1999 in relation to the established Business
Plan and achieving certain annual performance goals, including
but not limited to return on assets and 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.
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.
Fred N. Holscher
Thomas A. Vann
9
<PAGE>
<PAGE>
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, 1999 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, 1999
<TABLE>
<CAPTION>
04/08/97 09/30/97 09/30/98 09/30/99
-------- -------- -------- --------
<S> <C> <C> <C> <C>
COMPANY $100 $154.8 $164.3 $135.6
NASDAQ 100 134.5 136.7 222.1
NASDAQ BANKS 100 136.0 134.9 143.7
</TABLE>
[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, 1999. Plot points are provided above.]
10
<PAGE>
<PAGE>
EXECUTIVE COMPENSATION
Summary Compensation Table. The following table sets
forth the cash and noncash compensation for the fiscal years
ended September 30, 1999, 1998 and 1997 awarded to or earned by
the President. No other executive officer of the Company earned
salary and bonus in fiscal 1999 exceeding $100,000 for services
rendered in all capacities to the Company and the Bank.
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
------------------------
AWARDS
ANNUAL COMPENSATION ------------------------
NAME AND --------------------------------- RESTRICTED SECURITIES
PRINCIPAL FISCAL OTHER ANNUAL STOCK UNDERLYING ALL OTHER
POSITION YEAR SALARY BONUS COMPENSATION(1) AWARD(S)(2) OPTIONS(2) COMPENSATION
- -------- ------ ------ ----- --------------- ----------- ---------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Thomas A. Vann 1999 $182,500 $50,000 $ -- $ -- -- $ 96,755 (3)
President 1998 175,000 50,000 -- 1,007,257 (4) 109,103 105,470
1997 156,750 50,000 -- -- -- 104,927
<FN>
________________
(1) 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 1999 did not exceed 10% of the executive
officer's salary and bonus.
(2) 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.
(3) For the year ended September 30, 1999, consists of $1,057 in matching contributions under
the Bank's 401(k) Plan, $10,556 in Board of Directors and Committee fees, $36,192
representing the value as of September 30, 1999 of shares of Common Stock allocated to Mr.
Vann's account under the ESOP during fiscal 1999, $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 $7,300
accrued pursuant to the Bank's Pension Plan.
(4) 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 vests at the rate of 33 % per year following the date of grant, with
the first 33 % having vested on April 8, 1998. As of September 30, 1999, based on the
closing sale price of the Common Stock of $17.813, as reported on the Nasdaq National
Market, the aggregate value of the 14,545 shares of restricted Common Stock held for Mr.
Vann was $259,090. In the event the Company pays dividends with respect to its Common
Stock, when shares of restricted stock vest and/or are distributed, the holder will be
entitled to receive any cash dividends and a number of shares of Common Stock equal to any
stock dividends, declared and paid with respect to a share of restricted Common Stock
between the date the restricted stock was awarded and the date the restricted stock is
distributed, plus interest on cash dividends, provided that dividends paid with respect to
unvested restricted stock must be repaid to the Company in the event the restricted stock
is forfeited prior to vesting.
</FN>
</TABLE>
11
<PAGE>
<PAGE>
Fiscal Year-End Option Values. The following table sets
forth information concerning the value as of September 30, 1999
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 1999, and no options held
by any executive officer of the Company repriced during the past
ten full fiscal years.
<TABLE>
<CAPTION>
Number of Value of
Securities Underlying Unexercised
Unexercised Options In-the-Money Options
at Fiscal Year-End at Fiscal Year-End (1)
-------------------------- -------------------------
Name Exercisable/ Unexercisable Exercisable/Unexercisable
- ---- -------------------------- -------------------------
<S> <C> <C>
Thomas A. Vann 109,103/ -- $ -- / --
<FN>
___________
(1) No options held by Mr. Vann were in-the-money at September 30, 1999.
</FN>
</TABLE>
Option Repricing in Last Fiscal Year. The following table
sets forth information regarding the repricing during the year
ended September 30, 1999 of options granted to the Company's
President.
<TABLE>
<CAPTION>
LENGTH OF
NUMBER OF ORIGINAL OPTION
SECURITIES MARKET PRICE EXERCISE TERM
UNDERLYING OF STOCK AT PRICE REMAINING
OPTIONS/SARS TIME AT TIME OF NEW AT DATE OF
REPRICED OR OF REPRICING REPRICING OR EXERCISE REPRICING OR
NAME DATE AMENDED OR AMENDMENT AMENDMENT PRICE AMENDMENT
- ---- ---- ----------- ------------ ------------- --------- ---------------
<S> <C> <C> <C> <C> <C> <C>
Thomas A. Vann 11/19/98 109,103 $18.25 (1) $23.08 $18.25 113 months
(4/8/08)
<FN>
_____________
(1) Based on the average of the high and low sales price on November 19,
1998.
</FN>
</TABLE>
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
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, 1999, Mr.
Vann had approximately 27 years of credited service under the
Pension Plan.
12
<PAGE>
<PAGE>
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, 1999. 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.
<TABLE>
<CAPTION>
YEARS OF SERVICE
AVERAGE FINAL ------------------------------------------
COMPENSATION (1) 15 20 25 30 35
- ---------------- ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C>
125,000 $30,300 $ 40,400 $ 50,600 $ 60,700 $ 60,700
150,000 36,900 49,200 61,500 73,800 73,800
175,000 43,500 57,900 72,400 86,900 86,900
200,000 50,000 66,700 83,400 100,000 100,000
225,000 56,600 75,400 94,300 113,200 113,200
250,000 63,100 84,200 105,200 126,300 126,300
300,000 76,300 101,700 127,100 152,500 152,500
<FN>
- ------------
(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.
</FN>
</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.
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
13
<PAGE>
<PAGE>
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, 1999 would
have been approximately $545,675. 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. Each member of the Bank's Board of Directors
receives a fee of $1,150 for each regular and special Board
meeting attended and $75 for each Board committee meeting
attended. 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, 1999, 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 29 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 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"
14
<PAGE>
<PAGE>
(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.
15
<PAGE>
<PAGE>
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.
16
<PAGE>
<PAGE>
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 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, 1999, the Bank's loans to directors
and executive officers totaled $1.7 million, or 3.6% 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.
________________________________________________________________
PROPOSAL II -- PROPOSAL TO CHANGE CORPORATE NAME TO
FIRST SOUTH BANCORP, INC.
________________________________________________________________
On November 18, 1999, the Board of Directors of the Company
approved, subject to stockholder approval, an amendment to
Article I of the Company's Articles of Incorporation to change
its name to "First South Bancorp, Inc." If the amendment is
approved, Article I of the Company's Articles of Incorporation
will be amended to read in its entirety as follows:
"The name of the corporation is First South Bancorp, Inc."
The Company proposes to change its corporate title to
better identify the Company as the holding company for the Bank.
In connection with its acquisition of Green Street Financial
Corp ("Green Street"), which was completed on November 30, 1999,
Green Street's wholly owned subsidiary, Home Federal Savings and
Loan Association, merged with and into the Bank. In recognition
of the resulting expansion of the Bank's market area into
southeastern North Carolina, as well as the Bank's desire to be
first in community banking, the Bank changed its name from
NewSouth Bank to First South Bank, effective December 1, 1999.
Because the Company's primary activity consists of overseeing
the operations of the Bank, and because the Company's corporate
identity is so closely tied to the business of the Bank, the
Board of Directors of the Company believes it to be in the best
interests of the Company to change to Company's name to more
closely match the corporate identity of the Bank. Accordingly,
the Board of Directors believes it to be in the best interests
of the Company to change the Company's corporate title from
NewSouth Bancorp, Inc. to First South Bancorp, Inc.
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REQUIRED AFFIRMATIVE VOTE
The affirmative vote of the holders of at least a majority
of the outstanding shares of Common Stock of the Company shall
be required to approve the proposed amendment to the Company's
Articles of Incorporation.
RECOMMENDATION OF THE BOARD OF DIRECTORS
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" THE PROPOSED
AMENDMENT TO THE COMPANY'S ARTICLES OF INCORPORATION. PROXIES
SOLICITED BY THE BOARD OF DIRECTORS WILL BE VOTED IN FAVOR OF
THE PROPOSAL UNLESS STOCKHOLDERS SPECIFY OTHERWISE.
________________________________________________________________
PROPOSAL III -- PROPOSAL TO AMEND THE COMPANY'S 1997
STOCK OPTION PLAN TO INCREASE THE NUMBER OF SHARES
FOR WHICH OPTIONS MAY BE GRANTED
________________________________________________________________
GENERAL
On April 18, 1998, the stockholders of the Company approved
the NewSouth Bancorp, Inc. 1997 Stock Option Plan (the "Option
Plan"). The Option Plan reserved 436,425 shares of Common
Stock, as adjusted for the 50% stock dividend paid on August 19,
1998, for issuance upon the exercise of options that may be
awarded under the Option Plan. Since the Option Plan was
adopted, the Company has granted options to acquire a total of
404,303 shares of Common Stock and has only 32,122 shares
available under the Option Plan for future grants. The Board of
Directors of the Company has approved, subject to stockholder
approval at the Annual Meeting, an amendment to the Option Plan
to increase the total number of shares available for option
grants under the Option Plan to 787,348 shares (the
"Amendment"). The 787,348 shares that would be available for
option grants include the 404,303 shares subject to options that
have been granted previously, so that if stockholders approve
the Amendment, the Company would have a total of 383,045 shares
available for future option grants under the Option Plan.
The Option Plan as proposed to be amended is attached
hereto as Exhibit A and should be consulted for additional
information. All statements made herein regarding the Option
Plan, which are only intended to summarize the Option Plan, are
qualified in their entirety by reference to the Option Plan.
REASONS FOR THE AMENDMENT
The Option Plan currently permits options to be granted for
a total of 436,425 shares of Common Stock, as adjusted for the
50% stock dividend paid on August 19, 1998, for issuance upon
the exercise of options that may be awarded under the Option
Plan. However, since the Option Plan was adopted, the Company
has granted options to acquire a total of 404,303 shares of
Common Stock, leaving only 32,122 shares available under the
Option Plan for future grants. For several reasons, the Board
of Directors of the Company believes that having only 32,122
shares available for future option grants is not sufficient over
the long term to attract and retain the executive personnel
needed for the Company to compete successfully.
In the past year, the Company has embarked on a path of
significant growth. On November 30, 1999, the Company completed
its acquisition of Green Street Financial Corp and its
subsidiary, Home Federal Savings and Loan Association. In
addition, on December 10, 1999, the Bank agreed to acquire six
branches from Triangle Bank. These acquisitions not only
increased the Bank's presence in its existing market areas but
expanded its market into Cumberland, Robeson and Nash Counties
in North Carolina. The Board of Directors believes that to take
advantage of the opportunities that come with this growth it
will be necessary attract and retain executive personnel of the
highest caliber. In the current economic climate, it is
necessary to offer stock options as part of the compensation
package to attract and retain high caliber personnel at the
senior and even junior executive level. The Board of Directors
believes that with only 32,122 shares available for future
grants, it would not have sufficient shares available for future
option grants in order to compete effectively over the long term
with other prospective employers to attract and retain high
caliber executive personnel. The Board of Directors believes
that the additional shares that will be available for option
grants if the Amendment is approved at the Annual Meeting will
allow the Board to make option grants from time to time over the
remaining term of the Option Plan as it deems necessary to
attract and retain qualified executive personnel.
PURPOSE OF THE OPTION PLAN
The purpose of the Option Plan is to advance the interests
of the Company by providing directors and selected employees of
the Company and its affiliates, including the Bank, with the
opportunity to acquire shares of Common Stock. By encouraging
such stock ownership, the Company seeks to attract, retain, and
motivate the best available personnel for positions of
substantial responsibility and to provide additional incentive
to directors and employees of the Company and its affiliates to
promote the success of the business of the Company.
DESCRIPTION OF THE OPTION PLAN
Effective Date. The Option Plan became effective on April
8, 1998 (the "Effective Date").
Administration. The Option Plan is administered by a
committee (the "Committee"), appointed by the Board of
Directors, consisting of at least two directors of the Company
who are "Non-employee Directors" within the meaning of the
federal securities laws. The Committee has discretionary
authority to select participants and grant options, to determine
the form and content of any options granted under the Option
Plan, to interpret the Option Plan, to prescribe, amend and
rescind rules and regulations relating to the Option Plan, and
to make other decisions necessary or advisable in connection
with administering the Option Plan. All decisions,
determinations, and interpretations of the Committee are
final and conclusive on all persons affected thereby. Members
of the Committee will be indemnified to the full
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extent permissible under the Company's governing instruments in
connection with any claims or other actions relating to any
action taken under the Option Plan. The Committee currently
consists of Directors Howdy, Gibbs and Holscher. [CONFIRM.]
Eligible Persons. Under the Option Plan, in addition to
automatic grants to all directors, including one executive
officer, which automatic grants have already been made, the
Committee has discretionary authority to grant stock options
("Options") to such employees and directors (including members
of the Committee) as the Committee shall designate. As of the
Record Date, the Company and its subsidiaries had approximately
__ employees and seven non-employee directors who were eligible
to participate in the Option Plan. However, the Company does
not anticipate making further awards of options to non-employee
directors, regardless of whether additional options are
available for grant as a result of approval of the Amendment by
the stockholders.
Shares Available for Grants. The Option Plan reserves
436,425 shares of Common Stock, as adjusted for the 50%
stockholder dividend paid on August 19, 1998, for issuance upon
the exercise of Options. If the Amendment is approved, the
number of shares reserved under the Option Plan will be
increased to 787,348, which includes the 404,303 shares subject
to options previously granted. Such shares may be (i)
authorized by unissued shares, (ii) shares held in treasury, or
(iii) shares held in a grantor trust. In the event of any
merger, consolidation, recapitalization, reorganization,
reclassification, stock dividend, split-up, combination of
shares, or similar event in which the number or kind of shares
is changed without receipt or payment of consideration by the
Company, the Committee will adjust the number and kind of shares
reserved for issuance under the Option Plan and the exercise
prices of such Options. If Options should expire, become
unexercisable or be forfeited for any reason without having
been exercised, the shares of Common Stock subject to such
Options shall, unless the Option Plan shall have been
terminated, be available for the grant of additional Options
under the Option Plan.
Options. Options may be either incentive stock options
("ISOs") as defined in Section 422 of the Internal Revenue Code,
or options that are not ISOs ("Non-ISOs"). The exercise price
as to any Option may not be less than the fair market value
(determined under the Option Plan) of the optioned shares on the
date of grant. In the case of a participant who owns more than
10% of the outstanding Common Stock on the date of grant, such
exercise price may not be less than 110% of fair market value of
the shares. As required by federal tax laws, to the extent that
the aggregate fair market value (determined when an ISO is
granted) of the Common Stock with respect to which ISOs are
exercisable by an optionee for the first time during any
calendar year (under all plans of the Company and of any
subsidiary) exceeds $100,000, the Options granted in excess of
$100,000 will be treated as Non-ISOs, and not as ISOs.
Automatic Grants. On the Effective Date, all directors,
including one executive officer, of the Company and the Bank
received one-time grants of Options to purchase shares of Common
Stock at an exercise price per share equal to its fair market
value on the Effective Date. Options granted to non-employee
directors have a term of ten years, and expire one year after a
director terminates continuous service as a director for any
reason other than death, but in no event later than the date on
which such Options would otherwise expire. In the event of a
director's death during the term of his or her directorship, the
Options shall become immediately exercisable, and will expire
two years after his or her death. In the event of such
director's disability during his or her directorship, the
director's Option shall become immediately exercisable, and such
Option may be exercised within two years of the termination of
directorship due to disability, but not later than the date that
the Option would otherwise expire.
Exercise of Options. The exercise of Options will be
subject to such terms and conditions as are established by the
Committee in a written agreement between the Committee and the
optionee. Unless the Committee specifically imposes a vesting
schedule in an agreement granting an Option, each Option shall
be fully vested and exercisable at all times. In the absence of
Committee action to the contrary, an otherwise unexpired Option
shall cease to be exercisable upon (i) an optionee's termination
of employment for "just cause" (as defined in the Option Plan),
(ii) the date that is one year after an optionee terminates
service for a reason other than just cause or death, or (iii)
the date that is two years after an optionee's death. Upon an
optionee's exercise of an Option, the Company may, in the
discretion of the Committee, pay the optionee a cash amount of
up to the amount of any dividends declared on the underlying
shares between the date of grant and the date of exercise of the
Option. The exercise price of shares subject to any outstanding
Option will be proportionately adjusted upon the payment of a
special large and nonrecurring dividend that has the effect
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of a return of capital to the stockholders, provided that
the Committee did not elect to pay the amount of such
nonrecurring dividend to the optionee upon exercise of the
Option.
An optionee may exercise Options, subject to provisions
relative to their termination and limitations on their exercise,
only by (i) written notice of intent to exercise the Option with
respect to a specified number of shares of Common Stock, and
(ii) payment to the Company (contemporaneously with delivery of
such notice) in cash, in Common Stock, or a combination of cash
and Common Stock, of the amount of the exercise price for the
number of shares with respect to which the Option is then being
exercised. Common Stock utilized in full or partial payment of
the exercise price for Options shall be valued at its market
value at the date of exercise.
Conditions on Issuance of Shares. The Committee will have
the discretionary authority to impose, in agreements, such
restrictions on shares of Common Stock issued pursuant to the
Option Plan as it may deem appropriate or desirable, including
but not limited to the authority to impose a right of first
refusal or to establish repurchase rights or both of these
restrictions. In addition, the Committee may not issue shares
unless the issuance complies with applicable securities laws,
and to that end may require that a participant make certain
representations or warranties.
Change in Control. The Option Plan provides that upon the
earlier of a "Change in Control" or the execution of an
agreement to effect a Change in Control, all Options shall
become fully exercisable, notwithstanding any other provision of
the Option Plan or any agreement with an optionee. For purposes
of the Option Plan, Change in Control means any one of the
following events: (1) the acquisition of ownership, holding or
power to vote more than 25% of the Bank's or the Company's
voting stock, (2) the acquisition of the ability to control the
election of a majority of the Bank's or the Company's directors,
(3) the acquisition of a controlling influence over the
management or policies of the Bank or the Company by any person
or by persons acting as a "group" (within the meaning of Section
13(d) of the Securities Exchange Act of 1934), (4) the
acquisition of control of the Bank or the Company within the
meaning of Section 53-42.1 of the General Statutes of
North Carolina or 12 U.S.C. Section 1817(7)(j)(8)(B) or the
regulations promulgated by any North Carolina or Federal
regulatory agency having regulatory authority over the Company
or the Bank applying such statutes, or (5) during any period of
two consecutive years, individuals (the "Continuing Directors")
who at the beginning of such period constitute the Board of
Directors of the Company or the Bank (the "Existing Board")
cease for any reason to constitute at least two-thirds thereof,
provided that any individual whose election or nomination for
election as a member of the Existing Board was approved by a
vote of at least two-thirds of the Continuing Directors then in
office shall be considered a Continuing Director. For purposes
of defining Change in Control, the term "person" refers to an
individual or a corporation, partnership, trust, association,
joint venture, pool, syndicate, sole proprietorship,
unincorporated organization or any other form of entity not
specifically listed herein. The decision of the Committee as to
whether a Change in Control has occurred shall be conclusive and
binding.
Although these provisions are included in the Option Plan
primarily for the protection of an employee-optionee in the
event of a Change in Control of the Company, they may be
regarded as having a takeover defensive effect, which may reduce
the Company's vulnerability to hostile takeover attempts and
certain other transactions which have not been negotiated with
and approved by the Board of Directors.
Transferability. Optionees may transfer their Options to
family members or trusts under specified circumstances. Options
may not otherwise be sold, pledged, assigned, hypothecated,
transferred or disposed of in any manner other than by will or
by the laws of descent and distribution. In addition, Common
Stock that is purchased upon the exercise of an Option may not
be sold within the six-month period following the grant date of
that Option, except in the event of the optionee's death or
disability, or such other event as the Board of Directors may
specifically deem appropriate.
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Effect of Dissolution and Related Transactions. In the
event of (i) the liquidation or dissolution of the Company, (ii)
a merger or consolidation in which the Company is not the
surviving entity, or (iii) the sale or disposition of all or
substantially all of the Company's assets (any of the foregoing
to be referred to herein as a "Transaction"), all outstanding
Options, together with the exercise prices thereof, will be
equitably adjusted for any change or exchange of shares for a
different number or kind of shares or other securities which
results from the Transaction. However, any such adjustment will
be made in such a manner as to not constitute a modification,
within the meaning of Section 424(h) of the Internal Revenue
Code, of outstanding ISOs.
Duration of the Option Plan and Grants. The Option Plan
has a term of 10 years from the Effective Date, after which date
no Options may be granted. The maximum term for an Option is 10
years from the date of grant, except that the maximum term of an
ISO may not exceed five years if the optionee owns more than 10%
of the Common Stock on the date of grant. The expiration of the
Option Plan, or its termination by the Committee, will not
affect any Option then outstanding.
Amendment and Termination of the Option Plan. The Board of
Directors of the Company may from time to time amend the terms
of the Option Plan and, with respect to any shares at the time
not subject to Options, suspend or terminate the Option Plan.
No amendment, suspension, or termination of the Option Plan
will, without the consent of any affected optionee, alter or
impair any rights or obligations under any Option previously
granted.
Financial Effects of Options. The Company will receive no
monetary consideration for the granting of Options under the
Option Plan. It will receive no monetary consideration other
than the exercise price for shares of Common Stock issued to
optionees upon the exercise of their Options. Under applicable
accounting standards, recognition of compensation expense is not
required when Options are granted at an exercise price equal to
or exceeding the fair market value of the Common Stock on the
date the Option is granted.
FEDERAL INCOME TAX CONSEQUENCES
ISOs. An optionee recognizes no taxable income upon the
grant of ISOs. If the optionee holds the shares purchased upon
exercise of an ISO for at least two years from the date the ISO
is granted, and for at least one year from the date the ISO is
exercised, any gain realized on the sale of the shares received
upon exercise of the ISO is taxed as long-term capital gain.
However, the difference between the fair market value of the
Common Stock on the date of exercise and the exercise price of
the ISO will be treated by the optionee as an item of tax
preference in the year of exercise for purposes of the
alternative minimum tax. If an optionee disposes of the shares
before the expiration of either of the two special holding
periods noted above, the disposition is a "disqualifying
disposition." In this event, the optionee will be required, at
the time of the disposition of the Common Stock, to treat the
lesser of the gain realized or the difference between the
exercise price and the fair market value of the Common Stock
at the date of exercise as ordinary income and the excess, if
any, as capital gain.
The Company will not be entitled to any deduction for
federal income tax purposes as the result of the grant or
exercise of an ISO, regardless of whether or not the exercise of
the ISO results in liability to the optionee for alternative
minimum tax. However, if an optionee has ordinary income
taxable as compensation as a result of a disqualifying
disposition, the Company will be entitled to deduct an
equivalent amount.
Non-ISOs. In the case of a Non-ISO, an optionee will
recognize ordinary income upon the exercise of the Non-ISO in an
amount equal to the difference between the fair market value of
the shares on the date of exercise and the option price (or, if
the optionee is subject to certain restrictions imposed by the
federal securities laws, upon the lapse of those restrictions
unless the optionee makes a special tax election within 30 days
after the date of exercise to have the general rule apply).
Upon a subsequent disposition of such shares, any amount
received by the optionee in excess of the fair market value of
the shares as of the exercise will be taxed as capital gain.
The Company will be entitled to a deduction for federal income
tax purposes at the same time and in the same amount as the
ordinary income recognized by the optionee in connection with
the exercise of a Non-ISO.
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NEW PLAN BENEFITS
Option awards are discretionary. The Company anticipates
that Options will be granted to employees of the Company during
the year ending September 30, 2000, although no specific
determination has been made as to the specific amounts to be
granted or as to who will receive grants during the year ending
September 30, 2000 if the Amendment is approved by stockholders
at the Annual Meeting. All such Options (i) will be subject to
the terms and conditions described above, and (ii) will
automatically expire ten years after the date of their grant.
The exercise price for these Options will equal the fair market
value of the Common Stock on the date of grant. The closing
sale price of the Common Stock on December __, 1999, as reported
on the Nasdaq National Market System, was $_____ per share. No
Options would have been granted to directors or officers during
the year ended September 30, 1999 had the Amendment been
approved at last year's annual meeting. The Company does not
anticipate making additional Option grants to directors under
the Option plan, regardless of whether the Amendment is approved
at the Annual Meeting.
RECOMMENDATION AND VOTE REQUIRED
The Board of Directors has determined that the Amendment is
desirable, cost effective, and produces incentives which will
benefit the Company and its stockholders. The Board of
Directors is seeking stockholder approval of the Amendment in
order to satisfy the requirements of the Code for favorable tax
treatment of ISOs and to exempt certain option transactions from
the short-swing trading rules of the Securities and Exchange
Commission ("SEC").
Stockholder approval of the Amendment requires the
affirmative vote of the holders of a majority of the votes cast
at the Special Meeting. THE BOARD OF DIRECTORS RECOMMENDS A
VOTE "FOR" APPROVAL OF THE AMENDMENT.
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________________________________________________________________
RELATIONSHIP WITH INDEPENDENT PUBLIC ACCOUNTANTS
________________________________________________________________
PricewaterhouseCoopers, LLP was the Company's independent
auditors for the 1999 fiscal year. PricewaterhouseCoopers, LLP
has been retained by the Board of Directors to be the Company's
auditors for the 2000 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.
________________________________________________________________
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 1999 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,
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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 1999 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.
________________________________________________________________
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 20, 2000. 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 12, 2000. 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
William L. Wall
Secretary
January 10, 2000
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, 1999 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, NEWSOUTH BANCORP, INC., 1311
CAROLINA AVENUE, WASHINGTON, NORTH CAROLINA 27889.
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NEWSOUTH BANCORP, INC.
1997 STOCK OPTION PLAN, AS AMENDED
1. PURPOSE OF THE PLAN.
The purpose of this Plan is to advance the interests of
the Company through providing select key Employees and Directors
of the Bank, the Company, and their Affiliates with the
opportunity to acquire Shares. By encouraging such stock
ownership, the Company seeks to attract, retain and motivate the
best available personnel for positions of substantial respon-
sibility and to provide additional incentives to Directors and
key Employees of the Company or any Affiliate to promote the
success of the business.
2. DEFINITIONS.
As used herein, the following definitions shall apply.
(a) "Affiliate" shall mean any "parent corporation" or
"subsidiary corporation" of the Company, as such terms are
defined in Section 424(e) and (f), respectively, of the Code.
(b) "Agreement" shall mean a written agreement entered
into in accordance with Paragraph 5(c).
(c) "Bank" shall mean NewSouth Bank.
(d) "Board" shall mean the Board of Directors of the
Company.
(e) "Change in Control" shall mean any one of the
following events: (1) the acquisition of ownership, holding or
power to vote more than 25% of the Bank's or the Company's
voting stock, (2) the acquisition of the ability to control the
election of a majority of the Bank's or the Company's directors,
(3) the acquisition of a controlling influence over the
management or policies of the Bank or the Company by any person
or by persons acting as a "group" (within the meaning of Section
13(d) of the Securities Exchange Act of 1934), (4) the
acquisition of control of the Bank or the Company within the
meaning of Section 53-42.1 of the General Statutes of North
Carolina or 12 U.S.C. Section 1817(7)(j)(8)(B) or the
regulations promulgated by any North Carolina or Federal
regulatory agency having regulatory authority over the Company
or the Bank applying such statutes, or (5) during any period of
two consecutive years, individuals (the "Continuing Directors")
who at the beginning of such period constitute the Board of
Directors of the Company or the Bank (the "Existing Board")
cease for any reason to constitute at least two-thirds thereof,
provided that any individual whose election or nomination for
election as a member of the Existing Board was approved by a
vote of at least two-thirds of the Continuing Directors then in
office shall be considered a Continuing Director. For purposes
of this subparagraph only, the term "person" refers to an
individual or a corporation, partnership, trust, association,
joint venture, pool, syndicate, sole proprietorship,
unincorporated organization or any other form of entity not
specifically listed herein. The decision of the Committee as to
whether a change in control has occurred shall be conclusive and
binding.
(f) "Code" shall mean the Internal Revenue Code of 1986,
as amended.
(g) "Committee" shall mean the Stock Option Committee
appointed by the Board in accordance with Paragraph 5(a) hereof.
(h) "Common Stock" shall mean the common stock of the
Company.
(i) "Company" shall mean NewSouth Bancorp, Inc.
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(j) "Continuous Service" shall mean the absence of any
interruption or termination of service as an Employee or
Director of the Company or an Affiliate. Continuous Service
shall not be considered interrupted in the case of sick leave,
military leave or any other leave of absence approved by the
Company, in the case of transfers between payroll locations of
the Company or between the Company, an Affiliate or a successor,
or in the case of a Director's performance of services in an
emeritus or advisory capacity.
(k) "Director" shall mean any member of the Board, and
any member of the board of directors of any Affiliate that the
Board has by resolution designated as being eligible for
participation in this Plan.
(l) "Disability" shall mean a physical or mental
condition, which in the sole and absolute discretion of the
Committee, is reasonably expected to be of indefinite duration
and to substantially prevent a Participant from fulfilling his
or her duties or responsibilities to the Company or an
Affiliate.
(m) "Effective Date" shall mean the date specified in
Paragraph 13 hereof.
(n) "Employee" shall mean any person employed by the
Company, the Bank, or an Affiliate.
(o) "Exercise Price" shall mean the price per Optioned
Share at which an Option may be exercised.
(p) "ISO" means an option to purchase Common Stock which
meets the requirements set forth in the Plan, and which is
intended to be and is identified as an "incentive stock option"
within the meaning of Section 422 of the Code.
(q) "Market Value" shall mean the fair market value of
the Common Stock, as determined under Paragraph 7(b) hereof.
(r) "Non-Employee Director" shall have the meaning
provided in Rule 16b-3.
(s) "Non-ISO" means an option to purchase Common Stock
which meets the requirements set forth in the Plan but which is
not intended to be and is not identified as an ISO.
(t) "Option" means an ISO and/or a Non-ISO.
(u) "Optioned Shares" shall mean Shares subject to an
Option granted pursuant to this Plan.
(v) "Participant" shall mean any person who receives an
Option pursuant to the Plan.
(w) "Plan" shall mean this NewSouth Bancorp, Inc. 1997
Stock Option Plan.
(x) "Rule 16b-3" shall mean Rule 16b-3 of the General
Rules and Regulations under the Securities Exchange Act of 1934,
as amended.
(y) "Share" shall mean one share of Common Stock.
(z) "Year of Service" shall mean a full twelve-month
period, measured from the date of an Option and each annual
anniversary of that date, during which a Participant has not
terminated Continuous Service for any reason.
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3. TERM OF THE PLAN AND OPTIONS.
(a) Term of the Plan. The Plan shall continue in effect
for a term of ten years from the Effective Date, unless sooner
terminated pursuant to Paragraph 15 hereof. No Option shall be
granted under the Plan after ten years from the Effective Date.
(b) Term of Options. The term of each Option granted
under the Plan shall be established by the Committee, but shall
not exceed 10 years; provided, however, that in the case of an
Employee who owns Shares representing more than 10% of the
outstanding Common Stock at the time an ISO is granted, the term
of such ISO shall not exceed five years.
4. SHARES SUBJECT TO THE PLAN.
Except as otherwise required under Paragraph 10, the
aggregate number of Shares deliverable pursuant to Options shall
not exceed 787,348 (which equals the 436,425 shares originally
reserved under the Plan, as adjusted for a 50% stock dividend
paid on August 19, 1998, plus an additional 10% of the Company's
outstanding shares as of December 29, 1999). Such Shares may
either be authorized but unissued Shares, Shares held in
treasury, or Shares held in a grantor trust created by the
Company. If any Options should expire, become unexercisable, or
be forfeited for any reason without having been exercised, the
Optioned Shares shall, unless the Plan shall have been
terminated, be available for the grant of additional Options
under the Plan.
5. ADMINISTRATION OF THE PLAN.
(a) Composition of the Committee. The Plan shall be
administered by the Committee, which shall consist of at least
two Directors appointed by the Board. Members of the Committee
shall serve at the pleasure of the Board. In the absence at any
time of a duly appointed Committee, the Plan shall be
administered by those members of the Board who are Non-Employee
Directors.
(b) Powers of the Committee. Except as limited by the
express provisions of the Plan or by resolutions adopted by the
Board, the Committee shall have sole and complete authority and
discretion (i) to select Participants and grant Options, (ii) to
determine the form and content of Options to be issued in the
form of Agreements under the Plan, (iii) to interpret the Plan,
(iv) to prescribe, amend and rescind rules and regulations
relating to the Plan, and (v) to make other determinations
necessary or advisable for the administration of the Plan. The
Committee shall have and may exercise such other power and
authority as may be delegated to it by the Board from time to
time. A majority of the entire Committee shall constitute a
quorum and the action of a majority of the members present at
any meeting at which a quorum is present, or acts approved in
writing by a majority of the Committee without a meeting, shall
be deemed the action of the Committee.
(c) Agreement. Each Option shall be evidenced by a
written agreement containing such provisions as may be approved
by the Committee. Each such Agreement shall constitute a
binding contract between the Company and the Participant, and
every Participant, upon acceptance of such Agreement, shall be
bound by the terms and restrictions of the Plan and of such
Agreement. The terms of each such Agreement shall be in
accordance with the Plan, but each Agreement may include such
additional provisions and restrictions determined by the
Committee, in its discretion, provided that such additional
provisions and restrictions are not inconsistent with the terms
of the Plan. In particular, the Committee shall set forth in
each Agreement (i) the Exercise Price of an Option, (ii) the
number of Shares subject to, and the expiration date of, the
Option, (iii) the manner, time and rate (cumulative or
otherwise) of exercise or vesting of such Option, and (iv) the
restrictions, if any, to be placed upon such Option, or upon
Shares which may be issued upon exercise of such Option.
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The Chairman of the Committee and such other Directors and
officers as shall be designated by the Committee are hereby
authorized to execute Agreements on behalf of the Company and to
cause them to be delivered to the recipients of Options.
(d) Effect of the Committee's Decisions. All decisions,
determinations and interpretations of the Committee shall be
final and conclusive on all persons affected thereby.
(e) Indemnification. In addition to such other rights
of indemnification as they may have, the members of the
Committee shall be indemnified by the Company in connection with
any claim, action, suit or proceeding relating to any action
taken or failure to act under or in connection with the Plan or
any Option, granted hereunder to the full extent provided for
under the Company's governing instruments with respect to the
indemnification of Directors.
6. GRANT OF OPTIONS.
(a) General Rule. The Committee shall have the
discretion to make discretionary grants of Options to Employees
and Directors (including members of the Committee). In
addition, the Committee shall automatically make the awards
specified in Paragraphs 6(b) and 9 hereof.
(b) Automatic Grants to Employees. On the Effective
Date, each of the following Employees shall receive an Option to
purchase the number of Shares listed below, at an Exercise Price
per Share equal to the Market Value of a Share on the Effective
Date; provided that such grant shall not be made to an Employee
whose Continuous Service terminates on or before the Effective
Date:
Percentage of Shares
Participant Reserved under Paragraph 4(a)
----------- -----------------------------
Thomas A. Vann 25%
With respect to each of the above-named Participants, the
Option granted to the Participant hereunder (i) shall vest in
accordance with the general rule set forth in Paragraph 8(a) of
the Plan, (ii) shall have a term of ten years from the Effective
Date, and (iii) shall be subject to the general rule set forth
in Paragraph 8(c) with respect to the effect of a Participant's
termination of Continuous Service on the Participant's right to
exercise his Options.
(c) Special Rules for ISOs. The aggregate Market Value,
as of the date the Option is granted, of the Shares with respect
to which ISOs are exercisable for the first time by an Employee
during any calendar year (under all incentive stock option
plans, as defined in Section 422 of the Code, of the Company or
any present or future Affiliate of the Company) shall not exceed
$100,000. Notwithstanding the foregoing, the Committee may
grant Options in excess of the foregoing limitations, in which
case such Options granted in excess of such limitation shall be
Options which are Non-ISOs.
7. EXERCISE PRICE FOR OPTIONS.
(a) Limits on Committee Discretion. The Exercise Price
as to any particular Option shall not be less than 100% of the
Market Value of the Optioned Shares on the date of grant. In
the case of an Employee who owns Shares representing more than
10% of the Company's outstanding Shares of Common Stock at the
time an ISO is granted, the Exercise Price shall not be less
than 110% of the Market Value of the Optioned Shares at the time
the ISO is granted.
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(b) Standards for Determining Exercise Price. If the
Common Stock is listed on a national securities exchange
(including the NASDAQ National Market System) on the date in
question, then the Market Value per Share shall be the average
of the highest and lowest selling price on such exchange on such
date, or if there were no sales on such date, then the Exercise
Price shall be the mean between the bid and asked price on such
date. If the Common Stock is traded otherwise than on a
national securities exchange on the date in question, then the
Market Value per Share shall be the mean between the bid and
asked price on such date, or, if there is no bid and asked price
on such date, then on the next prior business day on which there
was a bid and asked price. If no such bid and asked price is
available, then the Market Value per Share shall be its fair
market value as determined by the Committee, in its sole and
absolute discretion.
8. EXERCISE OF OPTIONS.
(a) Generally. Unless the Committee specifically
imposes a vesting schedule in an Agreement granting an Option,
each Option shall be fully vested and exercisable at all times,
subject to Paragraph 13 hereof. An Option may not be exercised
for a fractional Share.
(b) Procedure for Exercise. A Participant may exercise
Options, subject to provisions relative to its termination and
limitations on its exercise, only by (1) written notice of
intent to exercise the Option with respect to a specified number
of Shares, and (2) payment to the Company (contemporaneously
with delivery of such notice) in cash, in Common Stock owned for
more than six months, or a combination of cash and Common Stock
owned for more than six months, of the amount of the Exercise
Price for the number of Shares with respect to which the Option
is then being exercised. Each such notice (and payment where
required) shall be delivered, or mailed by prepaid registered or
certified mail, addressed to the Treasurer of the Company at its
executive offices. Common Stock owned for more than six months
utilized in full or partial payment of the Exercise Price for
Options shall be valued at its Market Value at the date of
exercise. Upon a Participant's exercise of an Option, the
Company may, in the discretion of the Committee, pay to the
Participant a cash amount up to but not exceeding the amount of
dividends, if any, declared on the underlying Shares between the
date of grant and the date of exercise of the Option.
(c) Period of Exercisability. Except to the extent
otherwise provided in the terms of an Agreement, an Option may
be exercised by a Participant only while he is an Employee and
has maintained Continuous Service from the date of the grant of
the Option, or within one year after termination of such
Continuous Service (but not later than the date on which the
Option would otherwise expire), except if the Employee's
Continuous Service terminates by reason of -
(1) "Just Cause" which for purposes hereof shall
have the meaning set forth in any unexpired employment or
severance agreement between the Participant and the Bank
and/or the Company (and, in the absence of any such
agreement, shall mean termination because of the
Employee's personal dishonesty, incompetence, willful
misconduct, breach of fiduciary duty involving personal
profit, intentional failure to perform stated duties,
willful violation of any law, rule or regulation (other
than traffic violations or similar offenses) or final
cease-and-desist order), then the Participant's rights to
exercise such Option shall expire on the date of such
termination;
(2) death, then to the extent that the Participant
would have been entitled to exercise the Option
immediately prior to his death, such Option of the
deceased Participant may be exercised within two years
from the date of his death (but not later than the date on
which the Option would otherwise expire) by the personal
representatives of his estate or person or persons to whom
his rights under such Option shall have passed by will or
by laws of descent and distribution.
(d) Effect of the Committee's Decisions. The
Committee's determination whether a Participant's Continuous
Service has ceased, and the effective date thereof, shall be
final and conclusive on all persons affected thereby.
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<PAGE>
(e) Mandatory Six-Month Holding Period. Notwithstanding
any other provision of this Plan to the contrary, Common Stock
that is purchased upon exercise of an Option may not be sold
within the six-month period following the grant date of that
Option, except in the event of the Participant's death or
disability, or such other event as the Board may specifically
deem appropriate.
9. AUTOMATIC GRANTS TO NON-EMPLOYEE DIRECTORS
(a) Automatic Grants. Notwithstanding any other
provisions of this Plan, each Director who is not an Employee
but is a Director on the Effective Date shall receive, on said
date, Non-ISOs to purchase a number of Shares equal to the
lesser of five percent (5%) of the number of Shares reserved
under Paragraph 4(a) hereof, and the quotient obtained by
dividing -
(i) 30 percent (30%) of the number of Shares reserved
under Paragraph 4(a) hereof, by
(ii) the number of Directors entitled to receive an
Option on the Effective Date, pursuant to this
Paragraph 9(a).
Such Non-ISOs shall have an Exercise Price per Share equal
to the Market Value of a Share on the date of grant, and be
subject to the terms of Paragraph 9(b) hereof.
(b) Terms of Exercise. Options received under the
provisions of Paragraph 9(a) shall be fully exercisable at all
times subject to Paragraph 13 hereof and shall be exercisable in
accordance with the terms of Paragraph 8(b) hereof.
Options granted under this Paragraph shall have a term of
ten years; provided that Options granted under this Paragraph
shall expire one year after the date on which a Director
terminates Continuous Service on the Board for a reason other
than death, but in no event later than the date on which such
Options would otherwise expire. In the event of such Director's
death during the term of his directorship, Options granted under
this Paragraph shall become immediately exercisable, and may be
exercised within two years from the date of his death by the
personal representatives of his estate or person or persons to
whom his rights under such Option shall have passed by will or
by laws of descent and distribution, but in no event later than
the date on which such Options would otherwise expire. In the
event of such Director's Disability during his or her
directorship, the Director's Option shall become immediately
exercisable, and such Option may be exercised within two years
of the termination of directorship due to Disability, but not
later than the date that the Option would otherwise expire.
Unless otherwise inapplicable or inconsistent with the
provisions of this Paragraph, the Options to be granted to
Directors hereunder shall be subject to all other provisions of
this Plan.
10. CHANGE IN CONTROL; EFFECT OF CHANGES IN COMMON STOCK
SUBJECT TO THE PLAN.
(a) Change in Control. Upon a Change in Control, all
Options shall become fully exercisable, notwithstanding any
other provision of the Plan or any Agreement.
(b) Recapitalizations; Stock Splits, Etc. The number
and kind of shares reserved for issuance under the Plan, and the
number and kind of shares subject to outstanding Options, and
the Exercise Price thereof, shall be proportionately adjusted
for any increase, decrease, change or exchange of Shares for a
different number or kind of shares or other securities of the
Company which results from a merger, consolidation, recapita-
lization, reorganization, reclassification, stock dividend,
split-up, combination of shares, or similar event in which the
number or kind of shares is changed without the receipt or
payment of consideration by the Company.
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<PAGE>
(c) Transactions in which the Company is Not the
Surviving Entity. In the event of (i) the liquidation or
dissolution of the Company, (ii) a merger or consolidation in
which the Company is not the surviving entity, or (iii) the sale
or disposition of all or substantially all of the Company's
assets (any of the foregoing to be referred to herein as a
"Transaction"), all outstanding Options, together with the
Exercise Prices thereof, shall be equitably adjusted for any
change or exchange of Shares for a different number or kind of
shares or other securities which results from the Transaction.
(d) Special Rule for ISOs. Any adjustment made pursuant
to subparagraphs (a) or (b)(1) hereof shall be made in such a
manner as not to constitute a modification, within the meaning
of Section 424(h) of the Code, of outstanding ISOs.
(e) Conditions and Restrictions on New, Additional, or
Different Shares or Securities. If, by reason of any adjustment
made pursuant to this Paragraph, a Participant becomes entitled
to new, additional, or different shares of stock or securities,
such new, additional, or different shares of stock or securities
shall thereupon be subject to all of the conditions and
restrictions which were applicable to the Shares pursuant to the
Option before the adjustment was made.
(f) Other Issuances. Except as expressly provided in
this Paragraph, the issuance by the Company or an Affiliate of
shares of stock of any class, or of securities convertible into
Shares or stock of another class, for cash or property or for
labor or services either upon direct sale or upon the exercise
of rights or warrants to subscribe therefor, shall not affect,
and no adjustment shall be made with respect to, the number,
class, or Exercise Price of Shares then subject to Options or
reserved for issuance under the Plan.
(g) Certain Special Dividends. The Exercise Price of
shares subject to outstanding Options shall be proportionately
adjusted upon the payment of a special large and nonrecurring
dividend that has the effect of a return of capital to the
stockholders, except that this subparagraph (g) shall not apply
to any dividend which is paid to the Participant pursuant to
Paragraph 8(b) or 9(b) hereof.
11. NON-TRANSFERABILITY OF OPTIONS.
Options may not be sold, pledged, assigned, hypothecated,
transferred or disposed of in any manner other than by will or
by the laws of descent and distribution. Notwithstanding the
foregoing, or any other provision of this Plan, a Participant
who holds Options may transfer such Options (but not ISOs) to
his or her spouse, lineal ascendants, lineal descendants, or to
a duly established trust for the benefit of one or more of these
individuals. Options so transferred may thereafter be
transferred only to the Participant who originally received the
grant or to an individual or trust to whom the Participant could
have initially transferred the Options pursuant to this
Paragraph 11. Options which are transferred pursuant to this
Paragraph 11 shall be exercisable by the transferee according to
the same terms and conditions as applied to the Participant.
12. TIME OF GRANTING OPTIONS.
The date of grant of an Option shall, for all purposes, be
the later of the date on which the Committee makes the deter-
mination of granting such Option, and the Effective Date.
Notice of the determination shall be given to each Participant
to whom an Option is so granted within a reasonable time after
the date of such grant.
13. EFFECTIVE DATE.
The Plan shall become effective immediately upon its
approval by a favorable vote of stockholders owning at least a
majority of the total votes cast at a duly called meeting of the
Company's stockholders held in accordance with applicable laws.
No Options may be granted within one year of the closing date of
the Bank's mutual-to-stock conversion, or become exercisable
prior to approval of the Plan by the stockholders of the
Company.
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14. MODIFICATION OF OPTIONS.
At any time, and from time to time, the Board may
authorize the Committee to direct execution of an instrument
providing for the modification of any outstanding Option,
provided no such modification shall confer on the holder of said
Option any right or benefit which could not be conferred on him
by the grant of a new Option at such time, or impair the Option
without the consent of the holder of the Option.
15. AMENDMENT AND TERMINATION OF THE PLAN.
The Board may from time to time amend the terms of the
Plan and, with respect to any Shares at the time not subject to
Options, suspend or terminate the Plan. No amendment,
suspension or termination of the Plan shall, without the consent
of any affected holders of an Option, alter or impair any rights
or obligations under any Option theretofore granted.
16. CONDITIONS UPON ISSUANCE OF SHARES.
(a) Compliance with Securities Laws. Shares of Common
Stock shall not be issued with respect to any Option unless the
issuance and delivery of such Shares shall comply with all
relevant provisions of law, including, without limitation, the
Securities Act of 1933, as amended, the rules and regulations
promulgated thereunder, any applicable state securities law, and
the requirements of any stock exchange upon which the Shares may
then be listed.
(b) Special Circumstances. The inability of the Company
to obtain approval from any regulatory body or authority deemed
by the Company's counsel to be necessary to the lawful issuance
and sale of any Shares hereunder shall relieve the Company of
any liability in respect of the non-issuance or sale of such
Shares. As a condition to the exercise of an Option, the
Company may require the person exercising the Option to make
such representations and warranties as may be necessary to
assure the availability of an exemption from the registration
requirements of federal or state securities law.
(c) Committee Discretion. The Committee shall have the
discretionary authority to impose in Agreements such
restrictions on Shares as it may deem appropriate or desirable,
including but not limited to the authority to impose a right of
first refusal, or to establish repurchase rights, or to pay an
Optionee the in-the-money value of his Option in consideration
for its cancellation, or all of these restrictions.
17. RESERVATION OF SHARES.
The Company, during the term of the Plan, will reserve and
keep available a number of Shares sufficient to satisfy the
requirements of the Plan.
18. WITHHOLDING TAX.
The Company's obligation to deliver Shares upon exercise
of Options shall be subject to the Participant's satisfaction of
all applicable federal, state and local income and employment
tax withholding obligations. The Committee, in its discretion,
may permit the Participant to satisfy the obligation, in whole
or in part, by irrevocably electing to have the Company withhold
Shares, or to deliver to the Company Shares that he already
owns, having a value equal to the amount required to be
withheld. The value of the Shares to be withheld, or delivered
to the Company, shall be based on the Market Value of the Shares
on the date the amount of tax to be withheld is to be
determined. The amount of the withholding requirement shall be
the applicable statutory minimum federal, state or local income
tax with respect to the award on the date that the amount of tax
is to be withheld. As an alternative, the Company may retain,
or sell without notice, a number of such Shares sufficient to
cover the amount required to be withheld.
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19. NO EMPLOYMENT OR OTHER RIGHTS.
In no event shall an Employee's or Director's eligibility
to participate or participation in the Plan create or be deemed
to create any legal or equitable right of the Employee,
Director, or any other party to continue service with the
Company, the Bank, or any Affiliate of such corporations.
Except to the extent provided in Paragraphs 6(b) and 9(a), no
Employee or Director shall have a right to be granted an Option
or, having received an Option, the right to again be granted an
Option. However, an Employee or Director who has been granted
an Option may, if otherwise eligible, be granted an additional
Option or Options.
20. GOVERNING LAW.
The Plan shall be governed by and construed in accordance
with the laws of the State of North Carolina, except to the
extent that federal law shall be deemed to apply.
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REVOCABLE PROXY
________________________________________________________________
NEWSOUTH BANCORP, INC.
WASHINGTON, NORTH CAROLINA
________________________________________________________________
ANNUAL MEETING OF STOCKHOLDERS
FEBRUARY 17, 2000
The undersigned hereby appoints Linley H. Gibbs, Jr.,
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 NewSouth
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 17, 2000, 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). [ ] [ ]
To serve for terms of three years:
Edmund T. Buckman, Jr.
Fred N. Holscher
Frederick H. Howdy
To serve for a two-year term:
H.D. Reaves, Jr.
INSTRUCTION: TO WITHHOLD YOUR VOTE
FOR EITHER OF THE INDIVIDUALS NOMINATED, INSERT
THAT NOMINEE'S NAME ON THE LINE PROVIDED BELOW.
__________________________
<TABLE>
<CAPTION>
FOR AGAINST ABSTAIN
<S> <C> <C> <C>
2. The amendment of the Company's Articles
of Incorporation to change its corporate
name from NewSouth Bancorp, Inc. to
First South Bancorp, Inc. [ ] [ ] [ ]
3. The amendment of the NewSouth Bancorp,
Inc. 1997 Stock Option Plan to increase
the number of shares available for
option grants from 436,425 to 787,348 [ ] [ ] [ ]
4. The transaction of such other business
as may properly come before the Annual
Meeting or any adjournment thereof.
</TABLE>
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" THE NOMINEES
LISTED ABOVE AND "FOR" THE OTHER PROPOSITIONS STATED.
________________________________________________________________
THIS PROXY WILL BE VOTED AS DIRECTED, BUT IF NO INSTRUCTIONS ARE
SPECIFIED, THIS PROXY WILL BE VOTED FOR THE ELECTION OF
DIRECTORS AND FOR THE OTHER PROPOSITIONS STATED. 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.
________________________________________________________________
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<PAGE>
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 decision to terminate his 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 10, 2000 and an Annual Report to
Stockholders.
Dated: ______________, 2000
______________________________ ______________________________
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.
