SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K12G3
CURRENT REPORT PURSUANT TO SECTION 13 OF THE
SECURITIES EXCHANGE ACT OF 1934
Date of Report (Date of earliest event reported): July 1, 1997
FOUR OAKS FINCORP, INC.
(Exact name of registrant as specified in its charter)
North Carolina 56-2028446
(State or other jurisdiction of (Commission File (IRS Employer Identification
incorporation or organization Number Number)
6144 US 301 South
Four Oaks, North Carolina
(Address of principal executive offices)
27524
(ZIP Code)
Registrant's telephone number, including area code: (919) 963-2177
Page 1 of 7
Exhibit Index appears on Page 7
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INFORMATION TO BE INCLUDED IN THE REPORT
Item 5. Other Events
Reorganization
On February 5, 1997, Four Oaks Bank & Trust Company (the "Bank"), a
Section 12(i) reporting company, formed the Registrant for the purpose of
serving as a holding company for the Bank. Thereafter, the Bank caused the
Registrant to form a wholly-owned subsidiary interim North Carolina banking
corporation, New Four Oaks Bank (the "Interim Bank"), to facilitate the
reorganization.
On July 1, 1997, the Interim Bank merged with and into the Bank (the
"Merger"). The Bank is the survivor of the Merger and, as of the date of the
Merger, the Interim Bank no longer exists. After the Merger, the Registrant
is the sole shareholder of the Bank.
The effect of the Merger is that the Registrant is a holding company
for the Bank. The Registrant has no significant assets other than the capital
stock of the Bank.
Pursuant to the Merger, the Bank's Common Stock has been converted on a
share-for-share basis into Common Stock of the Registrant that have rights,
privileges and preferences identical to those of the Bank. The Common Stock
of the Registrant is registered under Section 12(g) of the Securities Exchange
Act of 1934, as amended (the "1934 Act") pursuant to Rule 12g-3 promulgated
under the 1934 Act.
Effective July 1, 1997, the Bank will no longer file reports with the
Federal Deposit Insurance Corporation pursuant to Section 12(i) of the 1934
Act. Effective such date, the Registrant will file reports with the Securities
and Exchange Commission (the "Commission") pursuant to the 1934 Act.
Description of Common Stock
General. The authorized capital stock of the Registrant consists of
5,000,000 shares of Common Stock, $1.00 par value per share, of which 843,158
shares were issued and outstanding on July 1, 1997. All shares, when issued
and fully paid, are nonassessable and are not subject to redemption or
conversion and have no preemptive rights. Each share of Common Stock is
entitled to participate equally, after the satisfaction of all corporate
liabilities, in the distribution of assets in the event of liquidation.
Voting Rights. Except as otherwise provided by law, each holder of the
Common Stock has one vote per share upon all matters voted upon by
shareholders. With respect to the election of directors, cumulative voting
is not available to shareholders of the Registrant.
Page 2 of 7
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Dividends. Each share of the Common Stock is entitled to participate
equally in dividends as and when declared by the Board of Directors out of
funds legally available for the payment of such dividends.
Supermajority Vote and Fair Price Provisions. The Registrant has certain
provisions in its Articles of Incorporation which are designed to provide
certain protections from takeovers not deemed to be in the best interests of
the Registrant and its shareholders. Specifically, the Registrant has adopted
a provision in its Articles of Incorporation which would provide for
supermajority vote and fair price protections in certain business combinations
and a provision which would require a supermajority vote to amend the Articles
of Incorporation. The goal and policy of the Board of Directors is not to
prevent any takeover attempts; but rather, to implement procedures which will
promote cooperation with the Board of Directors by any party desiring to obtain
control of the Registrant and to maximize shareholder value.
Under the supermajority vote provision in the Registrant's Articles of
Incorporation, certain plans of merger or consolidation of the Registrant with
or into any other corporation, or the sale, lease or exchange or other
disposition of all or substantially all of the assets of the Registrant to or
with any other corporation, person or entity, must be approved as follows:
(a) at a special or annual meeting of shareholders by an affirmative vote of
the shareholders holding at least a majority of the shares of the Registrant
issued and outstanding and entitled to vote thereon, provided that such plan
has received the prior approval by a resolution adopted by an affirmative vote
of at least 80% of the full Board of Directors before such plan is submitted
for approval to the shareholders; or (b) at a special or annual meeting of
shareholders by an affirmative vote of the shareholders holding at least 80%
of the shares of the Registrant issued and outstanding and entitled to vote
thereon provided that such plan has not received the prior approval by a
resolution adopted by an affirmative vote of at least 80% of the full Board
of Directors, but has received the prior approval by resolution adopted by an
affirmative vote of a majority of a quorum of the Board of Directors.
The fair price provision of the Articles of Incorporation applies to
business combinations which includes mergers, consolidations, sales of assets
or securities, recapitalizations and similar transactions involving the
Registrant which have not received the approval of 80% of the full Board
of Directors and only to shareholders who vote against such business
combinations and who then elect to sell their shares to the Registrant for
cash at the minimum or fair price. This fair price provision requires that
the consideration for such shares be paid in cash by the Registrant and that
the price per share be at least equal to the greater of the following:
(1) The highest price per share paid for the Registrant's Common Stock
during the four years immediately preceding the vote by any shareholder who
beneficially owned five percent or more of the Registrant's Common Stock and
who votes in favor of the business combination;
(2) The cash value of the highest price per share previously offered
pursuant to a tender offer to the shareholders of the Registrant within four
years immediately preceding the vote;
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(3) The aggregate earnings per share of the Registrant's Common Stock
during the four fiscal quarters immediately preceding the vote multiplied
by the highest price/earnings ratio of the Registrant's Common Stock at any
time during the four fiscal quarters or up to the day the vote occurs;
(4) The highest price per share, including commissions and fees paid
by a control person in acquiring any of its holdings of the Registrant's
Common Stock; or
(5) The fair value per share of the Registrant's Common Stock of the
minority shareholders as determined by an investment banking or appraisal
firm chosen by a majority of the members of the Board of Directors voting
against the business combination, such fair value not taking into consideration
that the shares are held by a minority of the shareholders.
In addition to the above supermajority vote provision, amendments to the
Articles of Incorporation of the Registrant shall be adopted only upon the
approval of the holders of at least 80% of the Registrant's capital stock or
by the vote of the holders of at least a majority of all shares of the
Registrant's capital stock where the proposed amendment was approved by an
affirmative vote of a majority of disinterested members of the Board of
Directors.
Anti-Takeover Considerations. The supermajority of shareholders and the
fair price provisions of the Articles of Incorporation may have certain
anti-takeover effects, including that of making the Registrant a less
attractive target for a "hostile" takeover bid or rendering more
difficult or discouraging a merger proposal or the assumption of control
through the acquisition of a large block of the Registrant's Common Stock.
The Board of Directors believes that the fair price provision may encourage
companies interested in acquiring the Registrant to negotiate in advance
with the Board of Directors since, if 80% of the full Board of Directors
approves certain business combinations, the minimum price and higher
voting requirements of the fair price provision would be avoided. The
requirement of a supermajority of shareholders to amend the Articles of
Incorporation of the Registrant and approve certain business transactions
may have anti-takeover effects by allowing a minority of the Registrant's
shareholders to prevent a transaction favored by the majority of shareholders.
Also, in some circumstances, the Board of Directors could cause an 80% vote
to be required to approve a transaction, thereby enabling management to
retain control over the affairs of the Registrant and their positions with
the Registrant. The primary purpose of the supermajority vote requirements,
however, is to encourage negotiations with the Registrant's management by
groups or corporations interested in acquiring control of the Registrant
and to reduce the danger of a forced merger or sale of assets.
The Registrant is not aware of any pending or threatened effort to acquire
control of the Registrant or to change its management. In addition, there
have been no proposals to the Registrant's management or its Board of Directors
for merger or the purchase of Registrant securities or assets. The Board
of Directors does not presently intend to propose any additional anti-takeover
provisions.
Transfer Agent. Branch Banking and Trust Company is the transfer agent
for the Registrant's Common Stock.
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Item 7. Financial Statements and Exhibits
Exhibit Description
2 Agreement and Plan of Reorganization and Merger by and between
Four Oaks Bank & Trust Company and the Registrant dated
February 24, 1997
3.1 Articles of Incorporation of Registrant, as filed February 5, 1997
3.2 Bylaws of the Registrant
4 Specimen of Certificate for Four Oaks Fincorp, Inc. Common Stock
10.1 Employee Stock Purchase and Bonus Plan
10.2 Non-Qualified Stock Option Plan
10.3 Dividend Reinvestment and Stock Purchase Plan
27 Financial Data Schedule
99.1 Annual Report of the Bank on Form F-2 for the Fiscal Year
Ended December 31, 1996, as amended
99.2 Quarterly Report of the Bank on Form F-4 for the Quarter Ended
March 31, 1997
99.3 Articles of Merger of New Four Oaks Bank into Four Oaks Bank &
Trust Company dated June 18, 1997 and effective July 1, 1997
Page 5 of 7
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
FOUR OAKS FINCORP, INC.
By: /s/ Ayden R. Lee, Jr.
Name: Ayden R. Lee, Jr.
Title: President, Chief
Executive Officer
and Director
Date: July 1, 1997
Page 6 of 7
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INDEX TO EXHIBITS
Exhibit Description
2 Agreement and Plan of Reorganization and Merger by and
between Four Oaks Bank & Trust Company and the Registrant
dated February 24, 1997
3.1 Articles of Incorporation of Registrant, as filed
February 5, 1997
3.2 Bylaws of the Registrant
4 Specimen of Certificate for Four Oaks Fincorp, Inc. Common
Stock
10.1 Employee Stock Purchase and Bonus Plan
10.2 Non-Qualified Stock Option Plan
10.3 Dividend Reinvestment and Stock Purchase Plan
27 Financial Data Schedule
99.1 Annual Report of the Bank on Form F-2 for the Fiscal Year
Ended December 31, 1996, as amended
99.2 Quarterly Report of the Bank on Form F-4 for the Quarter
Ended March 31, 1997
99.3 Articles of Merger of New Four Oaks Bank into Four Oaks Bank
& Trust Company dated June 18, 1997 and effective July 1,1997
Page 7 of 7
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Exhibit 2
AGREEMENT AND PLAN OF REORGANIZATION AND MERGER
THIS AGREEMENT AND PLAN OF REORGANIZATION AND MERGER (this
"Agreement"), made and entered into as of February 24, 1997, by and between FOUR
OAKS BANK & TRUST COMPANY, a banking corporation organized under the laws of the
State of North Carolina and having its principal place of business in the City
of Four Oaks, North Carolina (the "Bank"), and FOUR OAKS FINCORP, INC., a North
Carolina business corporation (the "Holding Company"), on its own behalf and on
behalf of NEW FOUR OAKS BANK (Proposed), a banking corporation to be chartered
under the laws of the State of North Carolina (the "New Bank") as a wholly-owned
subsidiary of the Holding Company.
W I T N E S S E T H:
WHEREAS, as of December 31, 1996, the Bank had a common stock account
of $837,949 consisting of 5,000,000 authorized shares of common stock, par value
$1.00 per share, of which 837,949 shares were outstanding, and surplus of
$4,871,623 and undivided profits of $8,604,138; and
WHEREAS, as of the effective date of this reorganization, the Holding
Company shall be authorized to issue 5,000,000 shares of common stock, par value
$1.00 per share, of which no shares will be outstanding, with the exception of
5,000 shares of common stock to be issued for $1.00 per share to directors of
the New Bank as qualifying shares; and
WHEREAS, as of the effective date of this reorganization, the New Bank
shall be authorized to issue 10,000 shares of common stock, par value $1.00 per
share, of which 5,000 shares will be outstanding, all of which shares will be
owned by the Holding Company; and
WHEREAS, the Board of Directors of the Bank and the Holding Company
believe that it is in the best interests of their respective shareholders that
the Bank be reorganized into a one-bank holding company structure through a
merger of the New Bank with and into the Bank pursuant to which the shareholders
of the Bank will receive shares of the common stock of the Holding Company in
exchange for their shares of the common stock of the Bank.
NOW, THEREFORE, in consideration of the mutual promises and conditions
herein contained, the Bank and the Holding Company hereby mutually agree to the
merger of the New Bank with and into the Bank on the terms and conditions and in
the manner and on the basis hereinafter provided:
1. The Merger. Pursuant to the provisions of Sections 53-12 and 53-13
of the General Statutes of North Carolina, the New Bank shall be merged with and
into the Bank (the "Merger") upon receipt of all necessary governmental
approvals, both state and federal, the passage of any required waiting period
and upon the filing of Articles of Merger with the Secretary of State of North
Carolina (the "Effective Time"), as hereinafter set forth. The Bank
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and the New Bank shall be referred to collectively herein as the "Merging
Banks." The terms and conditions of the Merger shall be as follows:
(a) The name of the surviving bank (the "Surviving Bank")
shall be "Four Oaks Bank & Trust Company."
(b) The business of the Surviving Bank shall be that of a
banking corporation and shall be conducted at the Surviving Bank's main office
located in Four Oaks, North Carolina and at its legally established branches.
(c) The Articles of Incorporation (Charter) of the Bank, as in
effect at the Effective Time, shall be the Articles of Incorporation (Charter)
of the Surviving Bank until changed as provided by law.
(d) The Bylaws of the Bank, as in effect at the Effective
Time, shall be the Bylaws of the Surviving Bank until altered, amended, or
repealed as therein provided.
(e) At the Effective Time, the corporate existence of the
Merging Banks shall be merged into the Surviving Bank, and the Surviving Bank
shall be deemed to be the same corporation as the Merging Banks. All rights,
franchises, and interests of the Merging Banks, in and to all property, tangible
and intangible, and all choses in action shall automatically and by operation of
law be transferred to and vested in the Surviving Bank by reason of the Merger.
The Surviving Bank shall, from and after the Effective Time, hold and enjoy all
property rights, franchises, and interests, including appointments, powers,
designations and nominations, and all other rights and interests as trustee,
executor, administrator, agent, transfer agent and registrar of stocks and
bonds, administrator of estates, assignee and receiver, and in every other
fiduciary capacity and every agency capacity, in the same manner and to the same
extent as such rights, franchises, and interests were held and enjoyed by the
respective Merging Banks immediately prior to the Effective Time.
(f) From and after the Effective Time, the Surviving Bank
shall be responsible and liable for all obligations of the Merging Banks, and
all deposits, debts, liabilities, obligations, and contracts of the Merging
Banks, matured or unmatured, whether accrued, absolute, contingent, or
otherwise, and whether or not reflected or reserved against the balance sheets,
books of account or records of the Merging Banks, shall be those of, and are
hereby expressly assumed by, the Surviving Bank and shall not be released or
impaired by the Merger.
(g) The directors and officers of the Bank as of the Effective
Time shall be the directors and officers, respectively, of the Surviving Bank
from and after the Effective Time. The committees of the Surviving Bank shall be
the same as, and shall be composed of the same persons who were serving on
committees created and appointed by the Board of Directors of the Bank as of the
Effective Time.
2. Conversion of Shares. As of the Effective Time, the manner
and basis of converting the shares of capital stock of the parties hereto shall
be as follows:
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(a) Each share of common stock of the Bank outstanding as of
the Effective Time shall automatically and without further action of the holder
thereof be converted into one (1) share of common stock of the Holding Company
(with any outstanding fractional shares of the Bank being converted into an
identical number of fractional shares of the Holding Company).
(b) The shares of common stock of the New Bank outstanding as
of the Effective Time shall automatically and without further action of the
holder thereof be converted into such number of shares of common stock of the
Surviving Bank, such that the number of shares of common stock of the Surviving
Bank outstanding upon completion of the Merger shall be equal to the aggregate
number of outstanding shares of common stock of the Bank and the New Bank
combined immediately before the Merger.
(c) All shares of common stock of the Holding Company
outstanding immediately prior to the Effective Time shall be redeemed from the
holders thereof for the sum of $1.00 per share.
3. Redemption of Shares. Subject to the approval of the Commissioner of
Banks of the State of North Carolina, immediately following the Merger, the
Surviving Bank shall redeem 5,000 shares of its common stock from the Holding
Company for the sum of $1.00 per share, with the effect that immediately after
the Effective Time, the number of outstanding shares of common stock of the
Surviving Bank shall be the same as the number of outstanding shares of common
stock of the Bank immediately before the Effective Time.
4. Exchange of Shares. Each shareholder of record of the Bank as of the
Effective Time shall be entitled, upon surrender by him or her to the Holding
Company of all certificates evidencing the ownership of shares of common stock
of the Bank held by him or her of record immediately prior to the Effective
Time, to receive in exchange therefor a certificate or certificates representing
the number of shares of common stock of the Holding Company which he or she is
entitled, and, as soon as possible after the Effective Time, the Holding Company
shall furnish to each such shareholder transmittal forms and written
instructions with respect to such exchange. Until so surrendered, each
outstanding certificate which, prior to the Effective Time, represented shares
of common stock of the Bank, shall be deemed for all purposes to evidence the
ownership of the shares of common stock of the Holding Company into which such
shares shall have been converted by reason of the Merger; provided that the
Holding Company may in its discretion elect not to treat any such unsurrendered
shares as shares of common stock of the Holding Company for purposes of the
payment of dividends. If the Holding Company in its discretion so elects, then
unless and until any outstanding certificate evidencing common stock of the Bank
shall be so surrendered, no dividends payable to the owner of common stock of
the Holding Company represented by the unsurrendered certificate shall be paid;
provided, however, that upon surrender and exchange of each outstanding
certificate evidencing common stock of the Bank for a certificate evidencing
outstanding common stock of the Holding Company, there shall be paid to the
holder thereof the amount, without interest, of all dividends and other
distributions, if any, which therefore were declared and became payable, but
were not paid, with respect to said shares. Shares of the Bank's common stock
that are owned by a
3
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shareholder of record as of the Effective Time through the Bank's Dividend
Reinvestment and Stock Purchase Plan ("DRSPP") are held by or through the agent
under the DRSPP shall automatically and without further action on the part of
such shareholder be converted, as of the Effective Time, into shares of common
stock of the Holding Company pursuant to Paragraph 2(a) of this Agreement. Such
conversion shall be reflected in and under the DRSPP and in the account of such
shareholder under the DRSPP. All such converted shares shall continue to be held
by or through the agent under the DRSPP. The provisions of this Paragraph 4
shall not apply to any share of common stock of the Bank as to which the holder
thereof shall have pursued his or her right to dissent from the Merger pursuant
to Article 13 of the North Carolina Business Corporation Act.
5. Stock Option and Other Plans.
(a) At the Effective Time, all outstanding options under the
Bank's Nonqualified Stock Option Plan ("NSOP") shall be converted into options
to acquire the number of shares of common stock of the Holding Company that the
holders of such options were entitled to acquire of common stock of the Bank
immediately prior to the Merger on the same terms and conditions as set forth in
the NSOP.
(b) At the Effective Time, all rights to acquire common stock
of the Bank under the Bank's Employee Stock Purchase and Bonus Plan ("ESPBP")
shall be converted into rights to acquire common stock of the Holding Company,
on the same terms and conditions as set forth in the ESPBP.
(c) At the Effective Time, all rights to acquire common stock
of the Bank under the DRSPP shall be converted into rights to acquire common
stock of the Holding Company, on the same terms and conditions as set forth in
the DRSPP.
6. Rights of Dissenting Shareholders. Any shareholder of the Bank who
has not voted for the Merger at the meeting of shareholders for consideration of
the Merger, and who has given notice in writing at or prior to such meeting that
he or she dissents from the Merger, and who complies with the provisions of Part
2 of Article 13 of the North Carolina Business Corporation Act, shall be
entitled to receive the fair value of the shares held by him or her.
7. Lost, Destroyed, or Stolen Certificates. Shareholders of the Bank
whose certificates evidencing shares of common stock of the Bank have been lost,
destroyed or stolen shall be entitled to receive certificates evidencing the
shares of common stock of the Bank into which such shares were converted in
compliance with the provisions of the Bylaws of the Surviving Bank.
8. Obligations of the Parties Pending the Effective Time of the
Merger. The Bank and the Holding Company shall, as soon as practicable take the
following action:
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(a) The Holding Company shall cause the New Bank to complete
its organization and to issue and sell to the Holding Company 5,000 shares of
common stock of the New Bank, par value $1.00 per share, at a purchase price of
$1.00 per share;
(b) The Holding Company shall cause five (5) persons to be
elected to the Board of Directors of the New Bank, which persons shall each own
common stock of the Holding Company with a book value of at least $1,000;
(c) This Agreement shall be duly submitted to the shareholders
of the Bank and the New Bank for the purpose of considering and acting upon the
Merger in the manner required by law and their respective articles of
incorporation and bylaws. The Bank and the New Bank shall use their best efforts
to obtain the requisite approval of their shareholders of the Merger and the
transactions contemplated thereby, and the Bank, the New Bank and the Holding
Company shall, through their respective officers, execute and file with the
appropriate regulatory authorities, including the Federal Deposit Insurance
Corporation, the Board of Governors of the Federal Reserve System and the North
Carolina Commission of Banks, such applications, exhibits, documents and papers
as shall be necessary or appropriate to secure approval of the Agreement, the
Merger and the transactions contemplated thereby, as required by applicable
statutes, rules and regulations;
(d) The Holding Company use its best efforts to cause the
issuance of common stock of the Holding Company made pursuant to this Agreement
and the Merger to be qualified or exempted under the Securities Act of 1933 and
the Blue Sky Laws of each state in which it deems such qualification or
exemption to be required;
(e) Until the Effective Time, neither the Bank nor the New
Bank shall dispose of its assets except in the ordinary and normal course of
business.
9. Conditions Precedent to the Merger. The Merger shall be subject to
the satisfaction of the following conditions:
(a) Ratification and confirmation of this Agreement by
approval of holders of at least two-thirds of the outstanding shares of common
stock of the Bank and by approval of the sole shareholder of the New Bank as
required by law;
(b) Approval of the North Carolina Commissioner of Banks;
(c) No objection by the Board of Governors of the Federal
Reserve System to the Merger and the transactions related thereto within 30 days
of a notice filing made pursuant to Section 225.15 of Regulation Y promulgated
pursuant to the Bank Holding Company Act of 1956, as amended;
(d) Approval of the Federal Deposit Insurance Corporation
pursuant to Section 18(c) of the Federal Deposit Insurance Act;
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(e) Receipt of a favorable opinion with respect to the tax
consequences of the proposed Merger from legal counsel to the Bank; and
(f) Expiration of any waiting period required by any
supervisory authority.
10. Effective Date. The Merger shall become effective at the time
specified in the Articles of Merger to be filed with the Secretary of State of
North Carolina.
11. Termination. This Agreement may be terminated prior to the
Effective Time for any of the following reasons by written notice by either
Merging Bank to the other upon authorization by resolution adopted by either
Board of Directors:
(a) Any condition precedent contained in Paragraph 9 has not
been fulfilled or waived;
(b) Any action, suit, proceeding, or claim has been
instituted, made or threatened, relating to the proposed Merger that makes
consummation of the Merger inadvisable in the opinion of the Board of Directors
of either Merging Bank;
(c) The Board of Directors of the Bank determines that the
holders of a sufficient number of shares of common stock of the Bank have
dissented from the Merger so that consummation of the Merger is not in the best
interests of the Bank; and
(d) A determination by the Board of Directors of either
Merging Bank that consummation of the Merger is inadvisable in the opinion of
such Board of Directors.
12. Entire Agreement. This Agreement contains the entire agreement of
the parties with respect to the transactions contemplated hereby.
13. Effect of Agreement. The terms and conditions of this Agreement
shall be binding upon and inure to the benefit of the parties hereto and their
respective successors and assigns.
14. Expenses. Each of the parties will pay its own fees and expenses
incurred in connection with the transaction contemplated by this Agreement.
15. Governing Law. This Agreement shall be governed by and construed in
accordance with the laws of the State of North Carolina.
[remainder of page intentionally left blank; signatures appear on next page]
6
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IN WITNESS WHEREOF, the Bank and the Holding Company have caused this
Agreement to be executed by their duly authorized officers and their corporate
seals to be affixed hereto as of the date first above written.
FOUR OAKS BANK & TRUST COMPANY
By: /s/ Ayden R. Lee, Jr.
Ayden R. Lee, Jr., President
and Chief Executive Officer
ATTEST:
By: /s/ Wanda C. Jones
Wanda C. Jones, Secretary
[CORPORATE SEAL]
FOUR OAKS FINCORP, INC.
By: /s/ Ayden R. Lee, Jr.
----------------------------
Ayden R. Lee, Jr., President
and Chief Executive Officer
ATTEST:
By: /s/ Wanda C. Jones
------------------------
Wanda C. Jones, Secretary
[CORPORATE SEAL]
7
Exhibit 3.1
ARTICLES OF INCORPORATION
OF
FOUR OAKS FINCORP, INC.
The undersigned, being of the age of eighteen years or more, does
hereby make and acknowledge these Articles of Incorporation for the purpose of
forming a business corporation under and by virtue of the laws of the State of
North Carolina:
1. The name of the corporation is Four Oaks Fincorp, Inc.
2. The address of the registered office of this corporation in the
State of North Carolina is 6144 US 301 South, Four Oaks, Johnston County, North
Carolina 27524; and the name of its registered agent at such address is Ayden R.
Lee, Jr.
3. The corporation shall have the authority to issue five million
(5,000,000) shares of capital stock with a par value of One Dollar ($1.00) per
share.
4. The name and address of the incorporator is D. Scott Coward, 2500
First Union Capitol Center, Raleigh, Wake County, North Carolina 27601.
5. The number of directors constituting the initial board of directors
shall be seven (7), and the names and addresses of the persons who are to serve
as directors until the first meeting of shareholders, or until their successors
are elected and qualified, are:
NAME ADDRESS
Paula Canaday Bowman 6144 US 301 South
Four Oaks, North Carolina 27524
M.S. Canaday 6144 US 301 South
Four Oaks, North Carolina 27524
William J. Edwards 6144 US 301 South
Four Oaks, North Carolina 27524
Warren L. Grimes 6144 US 301 South
Four Oaks, North Carolina 27524
Ayden R. Lee, Jr. 6144 US 301 South
Four Oaks, North Carolina 27524
Percy Y. Lee 6144 US 301 South
Four Oaks, North Carolina 27524
<PAGE>
Harold J. Sturdivant 6144 US 301 South
Four Oaks, North Carolina 27524
6. A director of the corporation shall not be personally liable to the
corporation or otherwise for monetary damages for breach of any duty as a
director, except for liability with respect to (i) acts or omissions that the
director at the time of such breach knew or believed were clearly in conflict
with the best interests of the corporation; (ii) any liability under
N.C.Gen.Stat. Section 55-8-33; or (iii) any transaction from which the director
derived an improper personal benefit. If the North Carolina Business Corporation
Act is amended to authorize corporate action for further eliminating or limiting
personal liability of directors, then the liability of a director of the
corporation shall be eliminated or limited to the fullest extent permitted by
the North Carolina Business Corporation Act, as so amended.
Any repeal or modification of the foregoing paragraph shall
not adversely affect any right or protection of a director of the corporation
existing at the time of such repeal or modification.
7. Certain transactions of this corporation are limited as follows:
(a) With regard to any Business Combination (as hereinafter
defined) between this corporation and any other corporation, person, or other
entity, such Business Combination must be approved only as follows unless
otherwise more restrictively required by applicable North Carolina law:
(i) At a special or annual meeting of shareholders
by an affirmative vote of the shareholders holding at least a majority of the
shares of this corporation issued and outstanding and entitled to vote thereon
provided that such Business Combination has received the prior approval by
resolution adopted by an affirmative vote of at least eighty percent (80%) of
the full board of directors before such Business Combination is submitted for
approval to the shareholders; or
(ii) At a special or annual meeting of shareholders
by affirmative vote of the shareholders' holding at least eighty percent (80%)
of the shares of this corporation issued and outstanding and entitled to vote
thereon provided that such Business Combination has not received the prior
approval by resolution adopted by an affirmative vote of at least eighty percent
(80%) of the full board of directors, but has received the prior approval by
resolution adopted by an affirmative vote of a majority of a quorum of the board
of directors, and further provided that such Business Combination as approved
grants to shareholders not voting to approve the Business Combination the rights
set forth in Article 7(b).
(b) When any Business Combination referred to in Article 7(a)
above is approved pursuant to Article 7(a)(ii), any shareholder not voting to
approve the Business Combination may elect to sell his shares for cash to this
corporation at their "fair price" (as hereinafter defined), upon so notifying
this corporation in writing within twenty (20) days after receiving written
notification of his rights hereunder and that the Business Combination was
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<PAGE>
approved by shareholders. This corporation shall have ten (10) days after
receipt of the shareholder's tender of shares to make payment in cash. Tender of
shares may be made simultaneously with, or after, the shareholder's written
notification that he is electing to be paid the "fair price" of his shares. The
Business Combination shall not be consummated until all shareholders electing to
sell their shares for cash to this corporation at their "fair price" pursuant to
this Article 7 have been paid in full by this corporation.
(c) Notwithstanding any other provision of this Article 7,
prior to the consummation of any Business Combination between this corporation
and a control person:
(i) such control person shall not have received the
benefit, directly or indirectly (except proportionately as a shareholder), of
any loans, advances, guarantees, pledges or other financial assistance or tax
credits provided by this corporation unless such benefit has been approved by a
majority of Disinterested Directors (as hereinafter defined); and
(ii) there shall have been no increase or reduction
in the annual rate of dividends paid on this corporation's common stock after
the control person became such (except as necessary to reflect any subdivision
of the common stock), unless such increase or reduction has been approved by a
majority of Disinterested Directors (as hereinafter defined).
(d) Definitions
(i) "Affiliate" as used in defining "control person"
shall mean a corporation, person, group, or other entity that directly or
indirectly controls, is controlled by, or is under common control with the
"control person."
(ii) "Business Combination" as used in this Article
7 shall mean (a) any merger or consolidation of this corporation into any other
corporation, person, group or other entity where this corporation is not the
surviving or resulting entity; (b) any merger or consolidation of this
corporation with or into any control person (as hereinafter defined) or with any
corporation, person, group or other entity where the merger or consolidation is
proposed by or on behalf of a control person; (c) any sale, lease, exchange,
transfer, hypothecation or other disposition of all or substantially all of the
assets of this corporation; (d) any sale, lease, exchange, transfer,
hypothecation or other disposition of a substantial part (as hereinafter
defined) of the assets of this corporation to a control person, whether in a
single transaction or in related transactions; (e) the issuance of any
securities of this corporation to a control person; (f) the acquisition by this
corporation of any securities of a control person unless such acquisition
commences prior to the person becoming a control person or is an attempt to
prevent the control person from obtaining greater control of this corporation;
(g) the acquisition by this corporation of all or substantially all of the
assets of any control person or any corporation, person, group or other entity
where the acquisition is proposed by or on behalf of a control person; (h) the
adoption of any plan or proposal for the liquidation or dissolution of this
corporation which is proposed by or on behalf of a control person; (i) any
reclassification of securities (including any reverse stock split), or
recapitalization of this corporation which has the effect, directly or
indirectly, of increasing the proportionate share of the outstanding shares of
any class of equity or convertible securities of this corporation which is
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beneficially owned or controlled by a control person; (j) any agreement, plan,
contract or other arrangement providing for any of the transactions described in
this definition of Business Combination.
(iii) "Control person" as used in this Article 7
shall mean and include any corporation, person, group or other entity which,
together with their affiliates, prior to a Business Combination beneficially
owns (as the term is defined by federal securities law) twenty-five percent
(25%) or more of the shares of any class of equity or convertible securities of
this corporation, and any affiliate of any such corporation, person, group or
other entity.
(iv) "Disinterested Director" as used in this
Article 7 shall mean any member of the board of directors of this corporation
who is unaffiliated with, and not a nominee of, a control person and was a
member of the board of directors prior to the time a control person became such,
and any successor of a Disinterested Director who is unaffiliated with, and not
a nominee of, a control person and who is recommended to succeed a Disinterested
Director by a majority of Disinterested Directors then on the board of
directors.
(v) "Fair price" as used in this Article 7 shall
mean the highest of the following: (a) the highest price per share paid for this
corporation's shares during the four years immediately preceding the Article
7(a)(ii) vote of shareholders by any shareholder who, at the time of the Article
7(a)(ii) shareholder vote, beneficially owned five percent (5%) or more of this
corporation's common stock and who, in whole or in part, votes in favor of the
Business Combination; (b) the cash value of the highest price per share
previously offered pursuant to a tender offer to the shareholders of this
corporation within the four years immediately preceding the Article 7(a)(ii)
shareholder vote; (c) the aggregate earnings per share of this corporation's
common stock during the four fiscal quarters immediately preceding the Article
7(a)(ii) shareholder vote, multiplied by the highest price/earnings ratio of the
corporation's common stock at any time during the four fiscal quarters or up to
the day the Article 7(a)(ii) shareholder vote occurs; (d) the highest price per
share (including brokerage commissions, soliciting dealers' fees and
dealer-management compensation) paid by a control person in acquiring any of its
holdings of this corporation's common stock; (e) the fair value per share of the
minority's shares as determined by an in investment banking or appraisal firm
chosen by a majority of the members of the board of directors voting against the
Business Combination, if any such firm is chosen by such minority of the board
of directors acting in their discretion. Such firm, if chosen, shall be entitled
to be paid by this corporation a reasonable fee for its services upon its
rendering a determination of the fair value of the minority's shares; or (f) the
fair value per share of the minority's shares as determined by the firm selected
in (e) herein, if any, and such firm shall not take into consideration that the
shares are held by a minority of this corporation's shareholders.
(vi) "Substantial part" as used in this Article 7
shall mean more than ten percent (10%) of the total assets of this corporation,
as of the end of this corporation's most recent fiscal year prior to the time
the determination is being made.
8. Amendments to the Articles of Incorporation shall be adopted only
upon receiving the affirmative vote of the holders of at least eighty percent
(80%) of all the shares of capital stock
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of the corporation issued and outstanding and entitled to vote thereon;
provided, however, that if such amendment shall have received prior approval by
resolution adopted by an affirmative vote of a majority of Disinterested
Directors (as defined in Article 7), then the affirmative vote of the holders
of at least a majority of all the shares of capital stock of the corporation
issued and outstanding and entitled to vote, or such greater percentage
approval as required by North Carolina law, shall be sufficient to amend the
Articles of Incorporation.
9. The provisions of Article 9 and Article 9A of the
North Carolina Business Corporation Act, entitled "The North Carolina
Shareholder Protection Act" and "The North Carolina Control Share Acquisition
Act," respectively, shall not be applicable to the corporation.
IN WITNESS WHEREOF, I have hereunto set my hand this 5th day of
February, 1997.
/s/ D. Scott Coward
D. Scott Coward, Incorporator
5
Exhibit 3.2
BYLAWS OF
FOUR OAKS FINCORP, INC.
ARTICLE I
DEFINITIONS
In these bylaws, unless otherwise provided, the following terms shall
have the following meanings:
(1) "Act" shall mean the North Carolina Business Corporation
Act as codified in Chapter 55 of the North Carolina General Statutes effective
July 1, 1990, and as amended from time to time;
(2) "Articles of incorporation" shall mean the Corporation's
articles of incorporation, including amended and restated articles of
incorporation and articles of merger;
(3) "Corporation" shall mean Four Oaks Fincorp, Inc.;
(4) "Distribution" shall mean a direct or indirect transfer
of money or other property (except the Corporation's own shares) or incurrence
of indebtedness by the Corporation to or for the benefit of its shareholders in
respect of any of its shares. A distribution may be in the form of a declaration
or payment of a dividend, a purchase, redemption, or other acquisition of
shares, a distribution of indebtedness, or otherwise;
(5) "Emergency" shall mean a catastrophic event which
prevents a quorum of the board of directors from being readily assembled;
(6) "Shares" shall mean the units into which the proprietary
interests in the Corporation are divided; and
(7) "Voting group" shall mean all shares of one or more
classes or series that under the articles of incorporation or the Act are
entitled to vote and be counted together collectively on a matter at a meeting
of shareholders. All shares entitled by the articles of incorporation or the Act
to vote generally on a matter are for that purpose a single voting group.
ARTICLE II
OFFICES
SECTION 1. Principal Office: The principal office of the Corporation
shall be located at 6144 US 301 South, Four Oaks, Johnston County, North
Carolina 27524, or at such other place as may be determined from time to time by
the directors.
<PAGE>
SECTION 2. Registered Office: The registered office of the Corporation
shall be located at 6144 US 301 South, Four Oaks, Johnston County, North
Carolina 27524.
SECTION 3. Other Offices: The Corporation may have offices at such
other places, either within or without the State of North Carolina, as the board
of directors may from time to time determine, or as the affairs of the
Corporation may require.
ARTICLE III
MEETINGS OF SHAREHOLDERS
SECTION 1. Place of Meetings: All meetings of shareholders shall be
held at the principal office of the Corporation, or at such other place, either
within or without the State of North Carolina, as shall be designated in the
notice of the meeting or as may be agreed upon by a majority of the shareholders
entitled to vote at the meeting.
SECTION 2. Annual Meeting: The annual meeting of shareholders for the
election of directors and the transaction of other business shall be held
annually, on any day (except Saturday, Sunday or a legal holiday) not later than
the thirtieth (30th) day of June in each year as fixed by the board of
directors.
SECTION 3. Substitute Annual Meeting: If the annual meeting shall not
be held on the day designated by these bylaws, a substitute annual meeting may
be called in accordance with the provisions of Section 4 of this Article. A
meeting so called shall be designated and treated for all purposes as the annual
meeting.
SECTION 4. Special Meetings: Special meetings of the shareholders may
be called at any time by the chief executive officer, president, secretary, or
board of directors. In addition, special meetings may be called at any time by
the shareholders if the holders of at least ten percent (10%) of all the votes
entitled to be cast on any issue proposed to be considered at the proposed
special meeting sign, date, and deliver to the secretary a written demand for
the meeting describing the purpose or purposes for which it is to be held.
Provided, however, the call of a special meeting pursuant to such written demand
of the holders of at least ten percent (10%) of all such votes shall not exist
and the holders of at least twenty-five percent (25%) of all such votes shall
have the right to call a special meeting by such written demand if the
Corporation has a class of shares registered under Section 12 of the Securities
Exchange Act of 1934, as amended. Only business within the purpose or purposes
described in the meeting notice specified in Section 5 of this Article may be
conducted at a special meeting of shareholders.
SECTION 5. Notice of Meeting: Written or printed notice stating the
time and place of the meeting shall be delivered not less than ten (10) nor more
than sixty (60) days before the date of any shareholders' meeting, either
personally, by mail, by telegraph, by teletype, or by facsimile transmission, by
or at the direction of the chief executive officer, the president, the
secretary, or other person calling the meeting to each shareholder of record
entitled to vote at such meeting. If
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mailed, such notice shall be deemed to be delivered when deposited in the
United States mail, addressed to the shareholder at his address as it appears on
the record of the shareholders of the Corporation, with postage thereon prepaid.
In the case of a special meeting, the notice of meeting shall
specifically state the purpose or purposes for which the meeting is called. In
the case of an annual or substitute annual meeting, the notice of meeting need
not specifically state the business to be transacted unless such a statement is
required by the Act.
When an annual or special meeting is adjourned to a different date,
time, and place, it is not necessary to give any notice of the adjourned meeting
other than by announcement at the meeting at which the adjournment is taken;
provided, however, that if a new record date for the adjourned meeting is or
must be set, notice of the adjourned meeting must be given to persons who are
shareholders as of the new record date.
The record date for determining the shareholders entitled to notice of
and to vote at an annual or special meeting shall be fixed as provided in
Section 3 of Article VIII.
SECTION 6. Waiver of Notice: A shareholder may waive notice of any
meeting either before or after such meeting. Such waiver shall be in writing,
signed by the shareholder, and filed with the minutes or corporate records. A
shareholder's attendance at a meeting (i) waives objection to lack of notice or
defective notice of the meeting, unless the shareholder at the beginning of the
meeting objects to holding the meeting or transacting business at the meeting;
and (ii) waives objection to consideration of a particular matter at the meeting
that is not within the purpose or purposes described in the meeting notice,
unless the shareholder objects to considering the matter before it is voted
upon.
SECTION 7. Shareholder List: Commencing two (2) business days after
notice of a meeting of shareholders is given and continuing through such
meeting, the secretary of the Corporation shall maintain at the principal office
of the Corporation an alphabetical list of the shareholders entitled to vote at
such meeting, arranged by voting group, with the address of and number of shares
held by each. This list shall be subject to inspection by any shareholder or his
agent or attorney at any time during usual business hours and may be copied at
the shareholder's expense.
SECTION 8. Quorum: A majority of the votes entitled to be cast on a
matter by any voting group, represented in person or by proxy, shall constitute
a quorum of that voting group for action on that matter. The shareholders
present at a duly organized meeting may continue to transact business until
adjournment, notwithstanding the withdrawal of enough shareholders to leave less
than a quorum.
In the absence of a quorum at the opening of any meeting of
shareholders, such meeting may be adjourned from time to time by a majority of
the votes voting on the motion to adjourn; and at any adjourned meeting at which
a quorum is present, any business may be transacted which might have been
transacted at the original meeting.
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SECTION 9. Proxies: Shares may be voted either in person or by one or
more agents authorized by a written proxy executed by the shareholder or by his
duly authorized attorney in fact. A proxy may take the form of a telegram,
telex, facsimile or other form of wire or wireless communication which appears
to have been transmitted by a shareholder. A proxy is effective when received by
the secretary or other officer or agent authorized to tabulate votes. A proxy is
not valid after the expiration of eleven (11) months from the date of its
execution, unless the person executing it specifies therein the length of time
for which it is to continue in force or limits its use to a particular meeting.
SECTION 10. Voting of Shares: Subject to the provisions of the articles
of incorporation and the Act, each outstanding voting share, regardless of
class, shall be entitled to one vote on each matter submitted to a vote at a
meeting of shareholders.
Except for the election of directors, which is governed by the
provisions of Section 3 of Article IV, if a quorum is present, action on a
matter by a voting group is approved if the votes cast within the voting group
favoring the action exceed the votes cast against the action, unless the vote of
a greater number is required by the Act, the articles of incorporation, or these
bylaws.
Shares of the Corporation are not entitled to vote if: (i) they are
owned, directly or indirectly, by the Corporation, unless they are held by it in
a fiduciary capacity; (ii) they are owned, directly or indirectly, by a second
corporation in which the Corporation owns a majority of the shares entitled to
vote for directors of the second corporation; or (iii) they are redeemable
shares and (x) notice of redemption has been given and (y) a sum sufficient to
redeem the shares has been deposited with a bank, trust company, or other
financial institution under an irrevocable obligation to pay the holders the
redemption price upon surrender of the shares.
SECTION 11. Informal Action by Shareholders: Any action which may be
taken at a meeting of the shareholders may be taken without a meeting if a
consent in writing, setting forth the action so taken, is signed by all of the
persons who would be entitled to vote upon such action at a meeting and is
delivered to the Corporation to be included in the minutes or to be kept as part
of the corporate records.
SECTION 12. Corporation's Acceptance of Votes: If the name signed on a
vote, consent, waiver, or proxy appointment corresponds to the name of a
shareholder, the Corporation is entitled to accept the vote, consent, waiver, or
proxy appointment and to give it effect as the act of the shareholder.
If the name signed on a vote, consent, waiver, or proxy appointment
does not correspond to the name of its shareholder, the Corporation is
nevertheless entitled to accept the vote, consent, waiver, or proxy appointment
and to give it effect as the act of the shareholder if: (i) the shareholder is
an entity and the name signed purports to be that of an officer or agent of the
entity; (ii) the name signed purports to be that of an administrator, executor,
guardian, or conservator representing the shareholder and, if the Corporation
requests, evidence of fiduciary status acceptable to the Corporation has been
presented with respect to the vote, consent, waiver, or proxy
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appointment; (iii) the name signed purports to be that of a receiver or trustee
in bankruptcy of the shareholder and, if the Corporation requests, evidence of
its status acceptable to the Corporation has been presented with respect to the
vote, consent, waiver, or proxy appointment; (iv) the name signed purports to be
that of a beneficial owner or attorney-in-fact of the shareholder and, if the
Corporation requests, evidence acceptable to the Corporation of the signatory's
authority to sign for the shareholder has been presented with respect to the
vote, consent, waiver, or proxy appointment; or (v) two or more persons are the
shareholder as co-tenants or fiduciaries and the name signed purports to be the
name of at least one of the co-owners and the person signing appears to be
acting on behalf of all the co-owners.
The Corporation is entitled to reject a vote, consent, waiver, or proxy
appointment if the secretary or other officer or agent authorized to tabulate
votes has a reasonable basis for doubt about the validity of the signature on it
or about the signatory's authority to sign for the shareholder.
SECTION 13. Number of Shareholders: The following persons or entities
identified as a shareholder in the Corporation's current record of shareholders
constitute one shareholder for purposes of these bylaws: (i) all co-owners of
the same shares; (ii) a corporation, partnership, trust, estate, or other
entity; (iii) the trustees, guardians, custodians, or other fiduciaries of a
single trust, estate, or account. Shareholdings registered in substantially
similar names constitute one shareholder if it is reasonable to believe that the
names represent the same person.
ARTICLE IV
BOARD OF DIRECTORS
SECTION 1. General Powers: All corporate powers shall be exercised by
or under the authority of, and the business and affairs of the Corporation shall
be managed under the direction of, its board of directors. The board of
directors may delegate powers as provided in these bylaws.
SECTION 2. Number, Term and Qualifications: The number constituting the
board of directors shall be not less than five (5) nor more than twenty-one
(21). The number of directors within this variable range may be fixed or changed
from time to time by the shareholders or the board of directors. If such number
is to be fixed or changed by the shareholders, such number shall be the number
of directors elected by the shareholders at a special or annual meeting. In
addition to such number of directors elected by the shareholders at a special or
annual meeting, the shareholders may authorize not more than two (2) additional
directorships which may be left unfilled and to be filled in the discretion of
the board of directors during the interval between such shareholders' meetings;
provided, that the total number of directorships, filled or unfilled, shall not
exceed twenty-one (21). Each director shall hold office until his death,
resignation, retirement, removal, disqualification, or until his successor is
elected and qualified.
SECTION 3. Election of Directors: Except as provided in Section 6 of
this Article, the directors shall be elected at the annual meeting of
shareholders; and those persons who receive the highest number of votes shall be
deemed to have been elected. If any shareholder so demands, the election of
directors shall be by ballot.
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SECTION 4. No Cumulative Voting: The shareholders of the Corporation
shall have no right to cumulate their votes for the election of directors.
SECTION 5. Removal: Any director, or the entire board of directors, may
be removed from office at any time, with or without cause, but only if the
number of vote cast to remove him exceeds the number of votes cast not to remove
him. If a director is elected by a voting group of shareholders, only members of
that voting group may participate in the vote to remove him. A director may not
be removed by the shareholders at a meeting unless the notice of the meeting
specifies such removal as one of its purposes. If any directors are removed, new
directors may be elected at the same meeting.
SECTION 6. Vacancies: Any vacancy occurring in the board of directors,
including, without limitation, a vacancy resulting from an increase in the
number of directors or from the failure by the shareholders to elect the full
authorized number of directors, shall be filled by the shareholders or the board
of directors. If such vacancy is to be filled by the board of directors, and if
the directors remaining in office constitute fewer than a quorum of the board,
such vacancy may be filled by the affirmative vote of a majority of the
remaining directors or by the sole remaining director. If the vacant office was
held by a director elected by a voting group of shareholders, only the remaining
director or directors elected by that voting group or the holders of shares of
that voting group are entitled to fill the vacancy. The term of a director
elected to fill a vacancy shall expire at the next shareholders' meeting at
which directors are elected.
SECTION 7. Chairman of the Board: There may be a chairman of the board
of directors elected by the directors from their number at any meeting of the
board. The chairman shall preside at all meetings of the board of directors and
perform such other duties as may be directed by the board.
SECTION 8. Compensation: The board of directors may compensate
directors for their services as such and may provide for the payment of all
expenses incurred by directors in attending regular and special meetings of the
board.
SECTION 9. Committees: The board of directors may create an executive
committee and other committees of the board, each of which shall have at least
two (2) members, all of whom shall be directors. The creation of a committee and
the appointment of members to it must be approved by a majority of all the
directors in office when the action is taken. Each committee may, as specified
by the board of directors, exercise some or all of the authority of the board
except that a committee may not: (i) authorize distributions; (ii) approve or
propose to shareholders action that the Act requires be approved by
shareholders; (iii) fill vacancies on the board of directors or on any of its
committees; (iv) amend the articles of incorporation pursuant to N.C. Gen. Stat.
Section 55-10-02 or its successor; (v) adopt, amend, or repeal bylaws; (vi)
approve a plan of merger not requiring shareholder approval; (vii) authorize or
approve a reacquisition of shares, except according to a formula or method
prescribed by the board of directors; or (viii) authorize or approve the
issuance or sale or contract for sale of shares, or determine the designation
and relative rights, preferences, and limitations of a class or series of
shares, except that the board of directors may
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authorize a committee to do so within limits specifically prescribed by
the board of directors. The provisions of Article V, which govern meetings of
the board of directors, shall likewise apply to meetings of any committee of the
board.
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ARTICLE V
MEETINGS OF DIRECTORS
SECTION 1. Regular Meetings: A regular meeting of the board of
directors shall be held after, and at the same place as, the annual meeting of
the shareholders. In addition, the board of directors may provide, by
resolution, the time and place, either within or without the State of North
Carolina, for the holding of additional regular meetings.
In addition, meetings of the board of directors shall be held at least
quarterly at a time and place as determined by the board of directors.
SECTION 2. Special Meetings: Special meetings of the board of directors
may be called by or at the request of the chief executive officer or any two (2)
directors. Such meetings may be held either within or without the State of North
Carolina, as fixed by the person or persons calling the meeting.
SECTION 3. Notice of Meetings: Regular meetings of the board of
directors may be held without notice. The person or persons calling a special
meeting of the board of directors shall, at least two (2) days before the
meeting, give notice of the meeting by any usual means of communication,
including by telephone, telegraph, teletype, mail, private carrier, facsimile
transmission, or other form of wire or wireless communication. Such notice may
be oral and need not specify the purpose for which the meeting is called.
SECTION 4. Waiver of Notice: Any director may waive notice of any
meeting either before or after such meeting. Such waiver shall be in writing,
signed by the director, and filed with the minutes or corporate records;
provided, however, that a director's attendance at or participation in a meeting
waives any required notice to him unless the director at the beginning of the
meeting (or promptly upon his arrival) objects to holding the meeting or
transacting business at the meeting and does not thereafter vote for or assent
to action taken at the meeting.
SECTION 5. Quorum: A majority of the directors fixed by these bylaws
shall constitute a quorum for the transaction of business at any meeting of the
board of directors.
SECTION 6. Manner of Acting: The act of a majority of the directors
present at a meeting at which a quorum is present shall be the act of the board
of directors, unless a greater number is required by the articles of
incorporation or these bylaws.
SECTION 7. Presumption of Assent: A director of the Corporation who is
present at a meeting of the board of directors or a committee of the board of
directors when corporate action is taken is deemed to have assented to the
action taken unless: (i) he objects at the beginning of the meeting (or promptly
upon his arrival) to holding it or transacting business at the meeting; (ii) his
dissent or abstention from the action taken is entered in the minutes of the
meeting; or (iii) he files written notice of his dissent or abstention with the
presiding officer of the meeting before its
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adjournment or with the Corporation immediately after adjournment of the
meeting. This right of dissent or abstention is not available to a director who
votes in favor of the action taken.
SECTION 8. Participation in Meetings: Any or all of the directors may
participate in a regular or special meeting by, or conduct the meeting through
the use of, any means of communication by which all directors participating may
simultaneously hear each other during the meeting.
SECTION 9. Action Without Meeting: Action which may be taken at a board
of directors meeting may be taken without a meeting if the action is taken by
all members of the board and is evidenced by one or more written consents signed
by each director before or after such action, which describes the action taken
and is included in the minutes or filed with the corporate records. Such action
is effective when the last director signs the consent, unless the consent
specifies a different effective date.
ARTICLE VI
OFFICERS
SECTION 1. Officers of the Corporation: The officers of the Corporation
may consist of a chief executive officer, president, secretary, treasurer, and
such vice presidents, assistant secretaries, assistant treasurers, and other
officers as the board of directors may from time to time appoint. Any two or
more offices may be held by the same person, but no officer may act in more than
one capacity where action of two or more officers is required.
SECTION 2. Appointment and Term: The officers of the Corporation shall
be appointed by the board of directors. A duly appointed officer may appoint one
or more officers or assistant officers if authorized by the board of directors.
Each officer shall hold office until his death, resignation, retirement,
removal, disqualification or until his successor is appointed and qualifies. The
appointment of an officer does not itself create contract rights for either the
officer or the Corporation.
SECTION 3. Compensation of Officers: The compensation of officers of
the Corporation shall be fixed by the board of directors. No officer shall
receive compensation for serving the Corporation in any other capacity unless
such additional compensation be authorized by the board of directors.
SECTION 4. Resignation and Removal: An officer may resign at any time
by communicating his resignation to the Corporation. A resignation is effective
when it is communicated unless it specifies in writing a later date. If a
resignation is made effective as of a later date and the Corporation accepts the
future effective date, the board of directors may fill the pending vacancy
before the effective date if the board provides that the successor does not take
office until the effective date. An officer's resignation does not affect the
Corporation's contract rights, if any, with the officer. Any officer or agent
appointed by the board of directors may be
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removed by the board at any time, with or without cause, but such removal shall
be without prejudice to the contract rights, if any, of the person so removed.
SECTION 5. Bonds: The board of directors may by resolution require any
officer, agent, or employee of the Corporation to give bond to the Corporation,
with sufficient sureties, conditioned on the faithful performance of the duties
of his respective office or position, and to comply with such other conditions
as may from time to time be required by the board of directors.
SECTION 6. Chief Executive Officer: The chief executive officer shall
be the chief executive officer of the Corporation and, subject to the control of
the board of directors, shall supervise and control the management of the
Corporation in accordance with the bylaws.
He shall sign, with any other proper officer, certificates for shares
of the Corporation and any deeds, mortgages, bonds, contracts, or other
instruments which may be lawfully executed on behalf of the Corporation, except
where required or permitted by law to be otherwise signed and executed and
except where the signing and execution thereof shall be delegated by the board
of directors to some other officer or agent; and, in general shall perform all
duties incident to the office of chief executive officer and such other duties
as may be prescribed by the board of directors from time to time. In addition,
the chief executive officer may perform all of the duties of treasurer if at the
time of performance, the Corporation does not have a treasurer.
SECTION 7. President: The authority and powers of the president in
respect to the execution of contracts or instruments pertaining to assets of the
Corporation shall be the same as the authority and powers of the chief executive
officer except as otherwise provided by statute or limited by the board of
directors or by the chief executive officer. He shall have such other authority
and shall perform such other duties as may from time to time be conferred upon
him by the board of directors or by the chief executive officer.
SECTION 8. Vice President: Vice Presidents shall be designated as
senior executive vice president, executive vice presidents, senior vice
presidents and vice presidents, or otherwise as specified by the board of
directors. In the absence of the president or in the event of his death,
inability, or refusal to act, the senior executive vice president or in the
event of his death, inability, or refusal to act, the vice presidents in the
order determined by the board of directors, or in the absence thereof, in the
order of seniority of executive vice presidents, senior vice presidents, and
vice presidents, respectively, shall perform the duties of the president, and
when so acting shall have all the power of and be subject to all the
restrictions upon the president. Any vice president may sign, with the secretary
or an assistant secretary, certificates for shares of the Corporation; and shall
perform such other duties as from time to time may be assigned to him by the
chief executive officer or board of directors.
SECTION 9. Secretary: The secretary shall: (i) keep the minutes of the
meetings of shareholders, of the board of directors, and of all committees of
the board in one or more books provided for that purpose; (ii) see that all
notices are duly given in accordance with the provisions of these bylaws or as
required by law; (iii) be custodian of the seal of the Corporation and see that
the seal of the Corporation is affixed to all documents the execution of which
on behalf of the
10
<PAGE>
Corporation under its seal is duly authorized; (iv) keep a register of the
mailing address of each shareholder which shall be furnished to the secretary by
such shareholder; (v) sign, with the chief executive officer, the president, or
a vice president, certificates for shares, the issuance of which shall have been
authorized by resolution of the board of directors; (vi) have general charge of
the stock transfer books of the Corporation; (vii) keep or cause to be kept in
the State of North Carolina at the Corporation's principal office a record of
the Corporation's shareholders, giving the names and addresses of all
shareholders and the number and class of shares held by each, and prepare or
cause to be prepared a shareholder list prior to each meeting of shareholders as
required by the Act; (viii) maintain and authenticate the books and records of
the Corporation; (ix) with the assistance of the treasurer and other officers,
prepare and deliver to the Corporation's shareholders such financial statements,
notices, and reports as may be required by N.C. Gen. Stat. Sections 55-16-20 and
55-16-21 (or their successors); (x) prepare and file with the North Carolina
Secretary of State the annual report required by N.C. Gen. Stat. Section
55-16-22 (or its successor); and (xi) in general perform all duties incident to
the office of secretary and such other duties as from time to time may be
assigned to him by the president or the board of directors.
SECTION 10. Assistant Secretaries: In the absence of the secretary or
in the event of his death, inability, or refusal to act, the assistant
secretaries in the order of their length of service as assistant secretary,
unless otherwise determined by the board of directors, shall perform the duties
of the secretary, and when so acting shall have all the powers of and be subject
to all the restrictions upon the secretary. They shall perform such other duties
as may be assigned to them by the secretary, the chief executive officer, or the
board of directors. Any assistant secretary may sign, with the chief executive
officer, president, or a vice president, certificates for shares.
SECTION 11. Treasurer: The treasurer shall: (i) have charge and custody
of and be responsible for all funds and securities of the Corporation; (ii)
receive and give receipts for monies due and payable to the Corporation from any
source whatsoever, and deposit all such monies in accordance with the provisions
of Section 3 of Article VII; (iii) prepare, or cause to be prepared, an annual
financial statement in accordance with Section 3 of Article IX; and (iv) in
general, perform all of the duties incident to the office of treasurer and such
other duties as from time to time may be assigned to him by the chief executive
officer or the board of directors, or by these bylaws. The treasurer may sign,
with the chief executive officer, president, or vice president, certificates for
shares.
SECTION 12. Assistant Treasurers: In the absence of the treasurer or in
the event of his death, inability, or refusal to act, the assistant treasurers,
in the order of their length of service as assistant treasurer, unless otherwise
determined by the board of directors, shall perform the duties of the treasurer,
and when so acting shall have the powers of and be subject to all the
restrictions upon the treasurer. They shall perform such other duties as may be
assigned to them by the treasurer, the chief executive officer, or the board of
directors. Any assistant treasurer may sign, with the chief executive officer,
president, or a vice president, certificates for shares.
ARTICLE VII
CONTRACTS, CHECKS, AND DEPOSITS
11
<PAGE>
SECTION 1. Contracts: The board of directors may authorize any officer
or agent to enter into any contract or to execute and deliver any instrument on
behalf of the Corporation, and such authority may be general or confined to
specific instances.
SECTION 2. Checks and Drafts: All checks, drafts, or other orders for
payment of money issued in the name of the Corporation shall be signed by such
officers or agents of the Corporation and in such manner as shall from time to
time be determined by resolution of the board of directors.
SECTION 3. Deposits: All funds of the Corporation not otherwise
employed shall be deposited from time to time to the credit of the Corporation
in such depositories as the board of directors shall direct.
ARTICLE VIII
CERTIFICATES FOR SHARES AND THEIR TRANSFER
SECTION 1. Certificates for Shares: Shares may, but need not, be
represented by certificates. If certificates are issued, they shall be in such
form as the board of directors shall determine; provided that, at a minimum,
each certificate shall state on its face: (i) the name of the Corporation and
that it is organized under the laws of North Carolina; (ii) the name of the
person to whom issued; and (iii) the number and class of shares and the
designation of the series, if any, the certificate represents. If the
Corporation issues certificates for shares of preferred stock, the designations,
relative rights, preferences, and limitations applicable to that class, and the
variations in rights, preferences, and limitations for each series within that
class (and the authority of the board of directors to determine variations for
future series) must be summarized on the front or back of each certificate;
alternatively, each certificate may state conspicuously on its front or back
that the Corporation will furnish the shareholder this information in writing
and without charge. These certificates shall be signed, either manually or in
facsimile, by the chief executive officer, president, or any vice president, and
the secretary or any assistant secretary, the treasurer or any assistant
treasurer. They shall be consecutively numbered or otherwise identified and the
name and address of the persons to whom they are issued, with the number of
shares and date of issue, shall be entered on the stock transfer books of the
Corporation.
SECTION 2. Transfer of Shares: Transfer of shares of the Corporation
shall be made only on the stock transfer books of the Corporation by the holder
of record, by his legal representative (who shall furnish proper evidence of
authority to transfer), or by his attorney (whose authority shall be evidenced
by power of attorney duly executed and filed with the secretary), and only upon
surrender for cancellation of the certificates for such shares.
SECTION 3. Fixing Record Date: For the purpose of determining
shareholders entitled to receive notice of a meeting of shareholders, to demand
a special meeting, to vote, to take any other action, or to receive payment, or
for any other purpose, the board of directors may fix in advance a date as the
record date for any such determination of shareholders, such record date in any
case to be not more than seventy (70) days, and, in case of a meeting of
shareholders, not less than ten (10)
12
<PAGE>
days, before the date on which the particular action requiring such
determination of shareholders is to be taken.
When a determination of shareholders entitled to notice of or to vote
at any meeting of shareholders has been made as provided in this section, such
determination shall apply to any adjournment of such meeting unless the board of
directors fixes a new record date, which it must do if the meeting is adjourned
to a date more than 120 days after the date fixed for the original meeting.
SECTION 4. Lost Certificates: The board of directors may authorize the
issuance of a new share certificate in place of a certificate claimed to have
been lost or destroyed, upon receipt of an affidavit of such fact from the
person claiming the loss or destruction. When authorizing the issuance of a new
certificate, the board of directors may require the claimant to give the
Corporation a bond in such sum as it may direct to indemnify the Corporation
against loss from any claim with respect to the certificate claimed to have been
lost or destroyed; or the board of directors may, by resolution reciting that
the circumstances justify such action, authorize the issuance of the new
certificate without requiring such a bond.
SECTION 5. Reacquired Shares: The Corporation may acquire its own
shares and shares so acquired constitute authorized but unissued shares.
ARTICLE IX
GENERAL PROVISIONS
SECTION 1. Distributions: The board of directors may from time to time
declare, and the Corporation may make, distributions on its outstanding shares
in the manner and subject to the terms and conditions provided by the Act and by
the articles of incorporation.
SECTION 2. Seal: The corporate seal of the Corporation shall consist of
two concentric circles between which is the name of the Corporation and in the
center of which is inscribed "CORPORATE SEAL" or "SEAL," and which shall have
such other characteristics as the board of directors may determine.
SECTION 3. Records and Reports: All of the Corporation's records shall
be maintained in written form or in another form capable of conversion into
written form within a reasonable time.
The Corporation shall keep as permanent records minutes of all meetings
of its incorporators, shareholders, and board of directors, a record of all
actions taken by the shareholders or board of directors without a meeting, and a
record of all actions taken by a committee of the board of directors in place of
the board of directors.
The Corporation shall keep a copy of the following records at its
principal office: (i) the articles of incorporation and all amendments to them
currently in effect; (ii) these bylaws and all amendments to them currently in
effect; (iii) resolutions adopted by its board of directors creating
13
<PAGE>
one or more classes or series of shares and fixing their relative rights,
preferences, and limitations (if shares issued pursuant to those resolutions are
outstanding); (iv) the minutes of all meetings of shareholders and records of
all actions taken by shareholders without a meeting during the past three (3)
years; (v) all written communications to shareholders generally within the past
three (3) years; (vi) the annual financial statements described below, prepared
during the past three (3) years; (vii) a list of the names and business
addresses of its current directors and officers; and (viii) its most recent
annual report delivered to the North Carolina Secretary of State.
The Corporation shall prepare and make available to its shareholders
annual financial statements for the Corporation and its subsidiaries that: (i)
include a balance sheet as of the end of the fiscal year, an income statement
for that year, and a statement of cash flows for the year; and (ii) is
accompanied by either (x) a report of a public accountant on the annul financial
statements, or (y) a statement by the treasurer stating his reasonable belief
whether the annual financial statements were prepared on the basis of generally
accepted accounting principles (and, if not, describing the basis of
preparation) and describing any respects in which the statements were not
prepared on a basis of accounting consistent with the statements prepared for
the preceding year. These annual financial statements, or a written notice of
their availability, shall be mailed to each shareholder within 120 days after
the close of each fiscal year of the Corporation. On written request from a
shareholder who was not mailed the annual financial statements, the Corporation
shall mail to him the latest such statements.
The Corporation shall also prepare and file with the North Carolina
Secretary of State an annual report in such form as required by N.C. Gen. Stat.
Section 55-16-22, or its successor.
SECTION 4. Indemnification: Any person who at any time serves or has
served as a director or officer of the Corporation, or at the request of the
Corporation is or was serving as an officer, director, agent, partner, trustee,
administrator, or employee for any other foreign or domestic corporation,
partnership, joint venture, trust, employee benefit plan, or other enterprise,
shall be indemnified by the Corporation to the fullest extent from time to time
permitted by law in the event he is made, or is threatened to be made, a party
to any threatened, pending or completed civil, criminal, administrative,
investigative or arbitrative action, suit or proceeding and any appeal therein
(and any inquiry or investigation that could lead to such action, suit or
proceeding), whether or not brought by or on behalf of the Corporation, seeking
to hold him liable by reason of the fact that he is or was acting in such
capacity. In addition, the board may provide such indemnification for the
employees and agents of the Corporation as it deems appropriate.
The rights of those receiving indemnification hereunder shall, to the
fullest extent from time to time permitted by law, cover (i) reasonable
expenses, including without limitation all attorneys' fees actually and
necessarily incurred by him in connection with any such action, suit or
proceeding, (ii) all reasonable payments made by him in satisfaction of any
judgment, money decree, fine (including an excise tax assessed with respect to
an employee benefit plan), penalty, or settlement for which he may have become
liable in such action, suit, or proceeding; and (iii) all reasonable expenses
incurred in enforcing the indemnification rights provided herein.
14
<PAGE>
Expenses incurred by anyone entitled to receive indemnification under
this section in defending a proceeding may be paid by the Corporation in advance
of the final disposition of such proceeding as authorized by the board of
directors in the specific case or as authorized or required under any provisions
in the bylaws or by any applicable resolution or contract upon receipt of an
undertaking by or on behalf of the director to repay such amount unless it shall
ultimately be determined that he is entitled to be indemnified by the
Corporation against such expenses.
The board of directors of the Corporation shall take all such action as
may be necessary and appropriate to authorize the Corporation to pay the
indemnification required by this bylaw, including without limitation, to the
extent needed, making a good faith evaluation of the manner in which the
claimant for indemnity acted and of the reasonable amount of indemnity due him.
Any person who at any time serves or has served in any of the aforesaid
capacities for or on behalf of the Corporation shall be deemed to be doing or to
have done so in reliance upon, and as consideration for, the right of
indemnification provided herein. Any repeal or modification of these
indemnification provisions shall not affect any rights or obligations existing
at the time of such repeal or modification. The rights provided for herein shall
inure to the benefit of the legal representatives of any such person and shall
not be exclusive of any other rights to which such person may be entitled apart
from the provisions of this bylaw.
The rights granted herein shall not be limited by the provisions
contained in N.C. Gen. Stat. Section 55-8-51 (or its successor).
SECTION 5. Fiscal Year: The fiscal year of the Corporation shall be
fixed by the board of directors.
SECTION 6. Amendments: (a) The board of directors may amend or repeal
these bylaws, except to the extent otherwise provided in the articles of
incorporation, a bylaw adopted by the shareholders, or the Act, and except that
a bylaw adopted, amended, or repealed by the shareholders may not be readopted,
amended, or repealed by the board of directors if neither of the articles of
incorporation nor a bylaw adopted by the shareholders authorizes the board of
directors to adopt, amend, or repeal that particular bylaw or the bylaws
generally.
(b) The Corporation's shareholders may adopt, amend, alter,
change, or repeal any of these bylaws consistent with the provisions of Section
10 of Article III.
(c) A bylaw that fixes a greater quorum or voting requirement
for the board of directors may be amended or repealed: (i) if originally adopted
by the shareholders, only by the shareholders, unless the bylaw permits
amendment or repeal by the board of directors; or (ii) if originally adopted by
the board of directors, either by the shareholders or by the board of directors.
(d) A bylaw referred to in Subsection (c) above: (i) may not
be adopted by the board of directors by a vote of less than a majority of the
directors then in office; and (ii) may not itself be amended by a quorum or vote
of the directors less than the quorum or vote therein prescribed or prescribed
by a bylaw adopted or amended by the shareholders.
15
<PAGE>
(e) A bylaw adopted or amended by the shareholders that fixes
a greater voting or quorum requirement for the board of directors may provide
that it may be amended or repealed only by a specified vote of either the
shareholders or the board of directors.
SECTION 7. Emergencies: In anticipation of or during an emergency, the
board of directors may: (i) modify lines of succession to accommodate the
incapacity of any director, officer, employee, or agent; and (ii) relocate the
principal office or designate alternative principal or regional offices, or
authorize the officers to do so.
During an emergency: (i) notice of a meeting of the board of directors
need be given only to those directors whom it is practicable to reach and may be
given in any practicable manner, including by publication and radio; and (ii)
one or more officers present at a meeting of the board of directors may be
deemed to be directors for the meeting, in order of rank and within the same
rank in order of seniority, as necessary to achieve a quorum.
SECTION 8. Severability: Should any provision of these bylaws become
ineffective or be declared to be invalid for any reason, such provision shall be
severable from the remainder of these bylaws and all other provisions of these
bylaws shall continue to be in full force and effect.
ATTESTED:
/s/ Wanda C. Jones Date: February 24, 1997
- - ---------------------------------------
Wanda C. Jones
Secretary
16
NUMBER SHARES
FOUR OAKS FINCORP, INC.
F (logo appears here)
SEE REVERSE FOR
CERTAIN DEFINITIONS
INCORPORATED UNDER THE LAWS OF THE STATE OF NORTH CAROLINA
CAPITAL STOCK
THIS CERTIFIES THAT
is the owner of
FULLY PAID AND NON-ASSESSABLE SHARES OF CAPITAL STOCK OF THE PAR VALUE OF
$1.00 EACH OF
FOUR OAKS FINCORP, INC.
transferable on the books of the Corporation in person or by duly authorized
attorney upon surrender of this certificates properly endorsed.
CERTIFICATE OF STOCK
(imprinted below)
This certificate is not valid unless countersigned by the Transfer Agent.
WITNESS the facsimile seal of the Corporation and the facsimile signatures of
its duly authorized officers.
Dated:
COUNTERSIGNED:
<TABLE>
<CAPTION>
<S> <C> <C>
BRANCH BANKING AND TRUST COMPANY FOUR OAKS FINCORP, INC. (Signature of Wanda C. Jones) (Signature of Ayden R. Lee, Jr.)
(WILSON, NORTH CAROLINA) TRANSFER AGENT CORPORATE SEAL SECRETARY PRESIDENT
BY:
AUTHORIZED SIGNATURE
</TABLE>
<PAGE>
The following abbreviations, when used in the inscription on the face of this
certificate, shall be construed as though they were written out in full
according to applicable laws or regulations:
<TABLE>
<CAPTION>
<S> <C>
TEN COM - as tenants in common UNIF GIFT MIN ACT - __________CUSTODIAN _____________
(Cust) (Minor)
TEN ENT - as tenants by the entireties
JT TEN - as joint tenants with right under Uniform Gifts to Minors
of survivorship and not Act _______________
as tenants in common (State)
</TABLE>
Additional abbreviations may also be used though not in the above list.
For Value Received, __________ hereby sell, assign and transfer unto
PLEASE INSERT SOCIAL SECURITY OR OTHER
IDENTIFYING NUMBER OF ASSIGNEE
[ ]
____________________________________________________________________________
(PLEASE PRINT OR TYPEWRITE NAME AND ADDRESS, INCLUDING ZIP CODE, OF ASSIGNEE)
____________________________________________________________________________
____________________________________________________________________________
_____________________________________________________________________ Shares
of the capital stock represented by this Certificate, and do hereby irrevocably
constitute and appoint_________________________________________________________
Attorney to transfer the said shares on the books of the name Corporation with
full power of substitution in the premises.
Dated ________________________________
_____________________________________________________________
NOTICE: THE SIGNATURE TO THIS ASSIGNMENT MUST CORRESPOND WITH
THE NAME AS WRITTEN UPON THE FACE OF THE CERTIFICATE IN EVERY
PARTICULAR WITHOUT ALTERATION OR ENLARGEMENT OR ANY CHANGE
WHATEVER.
SIGNATURE(S) GUARANTEED: ______________________________________________________
THE SIGNATURES(S) SHOULD BE GUARANTEED BY AN ELIGIBLE
GUARANTOR INSTITUTION (BANKS, STOCKBROKERS, SAVINGS
AND LOAN ASSOCIATIONS AND CREDIT UNIONS WITH
MEMBERSHIP IN AN APPROVED SIGNATURE GUARANTEE
MEDALLION PROGRAM), PURSUANT TO S.E.C. RULE 17Ad-15.
<PAGE>
FOUR OAKS FINCORP, INC.
Exhibit 10.1
EMPLOYEE STOCK PURCHASE AND BONUS PLAN
(Assumed, Amended and Restated as of July 1, 1997)
In connection with the reorganization of Four Oaks Bank & Trust Company
into a wholly-owned subsidiary of Four Oaks Fincorp, Inc., a North Carolina
business corporation (the "Holding Company"), the Holding Company has assumed,
amended and restated the Four Oaks Bank & Trust Company Employee Stock Purchase
and Bonus Plan (Amended and Restated as of July 21, 1992). The resulting plan is
this Four Oaks Fincorp, Inc. Employee Stock Purchase and Bonus Plan (the
"Plan").
1. Purpose of Plan. The purpose of the Plan is to further the success
of the Holding Company, by making shares of the Holding Company's common stock
available for purchase by the employees of the Holding Company and its
subsidiaries in order to provide an additional incentive to such employees to
continue their employment and in order to give such employees a greater interest
in the Holding Company's success. The Plan is not intended to be an "Employee
Stock Purchase Plan" as defined in Section 423(b) of the Internal Revenue Code
of 1986, as amended.
2. Stock Subject to Plan. Subject to the provisions of Paragraph 20 of
the Plan, the Holding Company's Board (the "Board") shall reserve initially for
issuance under the Plan an aggregate of Twenty-five Thousand (25,000) shares of
the Holding Company's common stock, par value one dollar ($1.00) per share (the
"Common Stock"), which shares shall be authorized but unissued shares of Common
Stock. The Board may also from time to time reserve additional shares of
authorized and unissued Common Stock for issuance pursuant to the Plan.
3. Eligibility. All regular full-time employees of the Holding Company
and its subsidiaries who are employed on December 31 of a calendar year are
eligible to participate in the Plan the following year. For purposes of the
Plan, "regular full-time employee" means an individual who works a minimum of
twenty (20) hours per week on a regular basis.
<PAGE>
4. Participation. Participation in the Plan is entirely voluntary and
employees may decide whether or not to participate on a year-to-year basis.
5. Employee Option. Subject to Paragraph 7, each eligible employee
shall have the option to purchase Common Stock, at fair market value, in an
amount equal to five percent (5%) of the employee's compensation for the year
during which his eligibility is determined, up to one thousand dollars
($1,000.00).
6. Bonus from Holding Company. If an employee elects to purchase Common
Stock pursuant to the option in Paragraph 5, the Holding Company will award the
employee a bonus in a dollar amount equal to fifty percent (50%) of the price of
the Common Stock purchased by the employee, up to five hundred dollars ($500.00)
subject to Paragraph 7, with the requirement that the bonus (after satisfaction
of applicable tax withholding requirements) be used to purchase additional
Common Stock at the same price per share as the shares covered by the option in
Paragraph 5.
7. Full Shares of Common Stock. The dollar limitations in Paragraphs 5
and 6 on the amount of Common Stock which the employee may purchase and the
bonus from the Holding Company shall be decreased to the dollar amount which
would allow for the purchase of the maximum number of full shares of Common
Stock without exceeding such dollar limitations. The purpose of this adjustment
is to avoid the necessity of issuing partial shares of Common Stock when such
dollar limitations are not exact multiples of the fair market value of a full
share of Common Stock.
8. Initiation of Participation in the Plan. By March 15 of each
calendar year following the year during which an employee's eligibility is
determined, the Holding Company shall notify each eligible employee of the
number of shares of Common Stock which the employee has the option to purchase
and the purchase price of such shares. Upon receipt of such notice, the employee
shall have ten (10) days to deliver a check to the Holding Company for the
number of shares which the employee wishes to purchase and an authorization for
the Holding Company to apply the employee's bonus (determined pursuant to
Paragraph 5) to the purchase of additional shares of Common Stock at the same
price per share. Within ten (10) days after receiving such check and
authorization from the
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<PAGE>
employee, the Holding Company shall issue to the employee a stock certificate
for the purchased shares of Common Stock including the shares of Common Stock
purchased by application of the bonus (after satisfaction of withholding
liabilities). Employees who are participants in the Plan shall not have any of
the rights of a shareholder with respect to the shares of Common Stock purchased
under the Plan until such shares shall be issued to them by the Holding Company,
and the Holding Company shall make no adjustments for dividends or other rights
for which the record date is before the date the Holding Company issues the
certificates representing such shares.
9. Administration. The Board shall appoint a committee of at least two
"Nonemployee Directors" as defined in Rule 16b-3(b)(3) promulgated under Section
16 of the Securities Exchange Act of 1934 (the "Committee") to administer the
Plan. The Committee shall report all of its actions to the Board. The Board may
from time to time remove members from the Committee and appoint their
successors. The Board shall fill all vacancies on the Committee however caused.
Except as otherwise expressly provided in the Plan, the Committee shall
have absolute discretionary authority (a) to determine (i) the fair market value
purchase price of the shares of Common Stock, (ii) the employee who may purchase
shares of the Common Stock, (iii) the time or times at which Common Stock may be
purchased, and (iv) the number of shares of Common Stock that may be purchased
by an employee without exceeding the limits in Paragraphs 5, 6 and 7; (b) to
interpret the Plan; (c) to prescribe, amend and rescind rules and regulations
relating to the Plan; (d) to determine the terms and provisions (and amendments
of the terms and provisions) of the Plan, including such terms and provisions
and (amendments of terms and provisions) as shall be required in the Committee's
judgment to conform to any change in any applicable law or regulation; and (e)
to make all other determinations the Committee shall deem necessary or advisable
for the Plan's administration.
The Committee shall select one of its members as its chairman and shall
hold its meetings at such times and places as it may determine. The Committee
shall make all decisions and determinations by not less than a majority vote of
its members. Any decisions or determination which the Committee
-3-
<PAGE>
reduces to a writing signed by all its members shall be fully as effective as
if such decision or determination had been made by a majority vote of the
Committee at a meeting which shall have been duly called and held. The
Committee shall appoint a secretary who shall keep minutes of its meetings. The
Committee shall make such rules and regulations for the conduct of its business
as it shall deem advisable. No member of the Committee or the Board shall be
liable to any person for any action or determination which he or she makes in
good faith.
10. Purchase Price. The Committee shall determine the purchase price of
the shares of Common Stock purchased under the Plan; however, the purchase price
for any share shall not be less than the fair market value of such share on the
date of the annual offer by the Holding Company.
11. Retirement, Death or Termination of Employment. Subject to
Paragraphs 12 and 13, as long as an eligible employee is employed by the Holding
Company or one of its subsidiaries on December 31, such employee, or his legal
representative, shall (a) have the option to purchase Common Stock under the
Plan and (b) receive a bonus under the Plan in the following year even if the
employee retires, dies or terminates his or her employment before March 15 of
the following year.
12. Termination of Plans on Merger or Sale of Assets. A liquidation of
the Holding Company, a merger or consolidation in which the Holding Company is
not the surviving or resulting corporation or a sale of all or substantially all
of the Holding Company's assets shall cause the Plan to terminate on the
effective date of such action.
13. Amendment and Termination. Unless terminated earlier as provided
for in the Plan, the Plan shall terminate when all shares of Common Stock
reserved for issuance under the Plan have been issued. In addition, the Board
may terminate the Plan at any time for any reason or make such modifications or
amendments to the Plan as the Board shall deem advisable in order to conform to
any change in any applicable law or regulation or for any other reason.
14. Effectiveness of Plan. The Plan shall become effective on such date
as the Board shall determine. All purchases of Common Stock under the Plan shall
be subject to the condition that if at any time the Holding Company shall
determine in its discretion that (a) the satisfaction of withholding
-4-
<PAGE>
tax or other withholding liabilities, (b) the listing upon any securities
exchange or the registration or qualification under any state or federal law of
any shares of Common Stock otherwise deliverable or (c) the consent or approval
of any regulatory body is necessary or desirable as a condition of, or in
connection with, the delivery or purchase of shares of Common Stock, then in any
such event, such purchase shall not be effective unless such withholding,
listing, registration, qualification, consent or approval shall have been
effected or obtained free of any conditions not acceptable to the Holding
Company.
15. Use of Proceeds. The Holding Company shall add the proceeds it
receives from the sale of Common Stock pursuant to the Plan to the Holding
Company's general funds and use such proceeds for general
corporate purposes.
16. Expenses of Plan. The Holding Company shall bear all costs and
expenses in connection with the administration of the Plan.
17. Risk of Common Stock Ownership. An employee who participates in the
Plan assumes all risks inherent in any Common Stock purchase with respect to any
Common Stock purchased under the Plan, whether or not the actual Common Stock
certificate has been issued to the employee. An employee has no guarantee
against a decline in the price or value of the Common Stock, and the Holding
Company assumes no obligation for repurchase of the participating employee's
Common Stock purchased under the Plan. An employee who purchases Common Stock
has all the rights of any other shareholder of the Common Stock with respect to
the shares of Common Stock issued to him or her under the Plan.
18. Tax Consequences. Any bonus awarded an employee pursuant to
Paragraph 5 will be included in the employee's gross income for income tax
purposes and subject to applicable withholding taxes. Sums paid by an employee
to purchase shares of Common Stock under the Plan are not deductible
contributions to an employee benefit plan for income tax purposes. Each employee
who participates in the Plan retains all responsibility for all reports and
payments required of him by any applicable tax laws.
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<PAGE>
19. Liability of Holding Company. The Holding Company shall not be
liable for any act done in good faith or for any omission to act, including,
without limitation, any claims of liability (a) with respect to the prices at
which shares of Common Stock are sold to an employee and the times when such
sales are made or (b) for any fluctuation in the value of the Common Stock after
the purchase.
20. Adjustments Upon Changes in Capitalization. In the event of any
change in the outstanding Common Stock by reason of any stock dividend,
split-up, recapitalization, combination or exchange of shares, merger,
consolidation, acquisition of property or stock, separation, reorganization or
liquidation or similar action, the Committee shall adjust the aggregate number
and class of shares of Common Stock reserved and subject to purchase under the
Plan appropriately, and the Committee's determination on the adjustment shall be
conclusive.
21. Nontransferability. Except as expressly provided in the Plan, an
employee shall have no right to sell, assign, encumber or otherwise dispose of
his rights to participate in the Plan, and no options granted under the Plan
shall be transferable otherwise than by will or the laws of descent and
distribution, and during the lifetime of the option holder only he (or his duly
appointed legal representative) may exercise the option.
IN WITNESS WHEREOF, the Holding Company causes the Plan to be adopted
by the action of its duly authorized officers effective as of July 1, 1997.
FOUR OAKS FINCORP, INC.
By: /s/ Ayden R. Lee, Jr.
Ayden R. Lee, Jr.
Chief Executive Officer
ATTEST:
/s/ Wanda C. Jones
Secretary
(CORPORATE SEAL)
-6-
Exhibit 10.2
FOUR OAKS FINCORP, INC.
NON-QUALIFIED STOCK OPTION PLAN
(Assumed, Amended and Restated as of July 1, 1997)
In connection with the reorganization of Four Oaks Bank & Trust Company
into a wholly-owned subsidiary of Four Oaks Fincorp, Inc., a North Carolina
business corporation (the "Holding Company"), the Holding Company has assumed,
amended and restated the Four Oaks Bank & Trust Company Non-Qualified Stock
Option Plan (Amended and Restated as of June 21, 1992). The resulting plan is
this Four Oaks Fincorp, Inc. Non-Qualified Stock Option Plan (the "Plan").
1. Purpose of Plan. The purpose of the Plan is to further the success
of the Holding Company by making shares of the Holding Company's common stock
available for purchase by the eligible employees of the Holding Company or its
subsidiaries in order to provide an additional incentive to such employees to
continue their employment and in order to give such employees a greater interest
in the Holding Company's success. This purpose will be carried out through the
granting of options which do not meet the statutory requirements of Sections 422
or 423 of the Internal Revenue Code of 1986, as amended.
2. Stock Subject to Plan. Subject to the provisions of Paragraph 10 of
the Plan, the Holding Company's Board of Directors (the "Board") shall reserve
initially for issuance upon the exercise of options to be granted under the Plan
from time to time an aggregate of One Hundred Thousand (100,000) shares of the
Holding Company's common stock, par value one dollar ($1.00) per share ("Common
Stock"), which shares shall be authorized and unissued shares of Common Stock.
The Board may also from time to time reserve additional shares of authorized and
unissued Common Stock for issuance upon the exercise of options to be granted
under the Plan. If any option granted under the Plan shall expire or terminate
for any reason without having been exercised in full, the unpurchased shares of
Common Stock subject to the expired or terminated option shall again be
available for the purposes of the Plan.
<PAGE>
3. Administration. The Board shall appoint a committee of at least two
"Nonemployee Directors" as defined in Rule 16b-3(b)(3) promulgated under Section
16 of the Securities Exchange Act of 1934 (the "Committee") to administer the
Plan. The Committee shall report all of its actions to the Board. The Board may
from time to time remove members from the Committee and appoint their
successors. The Board shall fill all vacancies on the Committee however caused.
Except as otherwise expressly provided in the Plan, the Committee shall
have absolute discretionary authority (a) to determine (i) the purchase price of
the shares of Common Stock covered by each option, (ii) the employees to whom
and the time or times at which options shall be granted and (iii) the number of
shares of Common Stock to be subject to each option; (b) to determine when an
option can be exercised and whether in whole or in installments; (c) to
interpret the Plan; (d) to prescribe, amend and rescind rules and regulations
relating to the Plan; and (e) to determine the terms and provisions (and
amendments of the terms and provisions) of the option agreements (which need not
be identical), including such terms and provisions (and amendments of terms and
provisions) as shall be required in the Committee's judgment to conform to any
change in any applicable law or regulation; and (f) to make all other
determinations the Committee shall deem necessary or advisable for the Plan's
administration.
The Committee shall select one of its members as its chairman and shall
hold its meetings at such times and places as it may determine. The Committee
shall make all decisions and determinations by not less than a majority vote of
its members. Any decision or determination which the Committee reduces to a
writing signed by all its members shall be fully as effective as if such
decision or determination had been made by a majority vote of the Committee at a
meeting which shall have been duly called and held. The Committee shall appoint
a secretary who shall keep minutes of its meetings. The Committee shall make
such rules and regulations for the conduct of its business as it shall deem
advisable. No member of the Committee or the Board shall be liable to any person
for any action or determination which he or she makes in good faith.
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<PAGE>
4. Eligibility. The persons who shall be eligible to receive options
shall be executive employees of the Holding Company or its subsidiaries whom the
Committee may select from time to time. The term "executive employees" includes,
but is not limited to, the Holding Company's and any of its subsidiaries' chief
executive officer and employees who are city executives of subsidiaries of the
Holding Company. In determining the employees to whom options shall be granted
and the number of shares of Common Stock to be covered by each option, the
Committee may take into account the nature of the services rendered by each
eligible employee, his or her present and potential contributions to the Holding
Company's success and such other factors as the Committee in its discretion
shall deem relevant. An employee who has been granted an option under the Plan
may be granted an additional option or options under the Plan if the Committee
shall so determine. There shall be no limit on the aggregate fair market value
(determined as of the time an option is granted) of the Common Stock for which
any employee may be granted options under the Plan in any calendar year.
5. Option Price. The Committee shall determine the purchase price of
the shares of Common Stock under each option; provided, however, the purchase
price for any share shall not be less than the par value of such share. Except
as determined by the Committee, there shall be no annual limit on the total
value of options granted pursuant to the Plan.
6. Exercise of Options. Each option shall be exercisable from time to
time over a period commencing no earlier than one year from the date of the
option's grant and ending upon the option's expiration or termination; provided,
however, the Committee may by the provisions of any option agreement limit the
number of shares of Common Stock purchasable under the option in any period or
periods of time during which the option is exercisable. No option may be
exercised for a fractional share of Common Stock. The purchase price of the
shares of Common Stock subject to the option shall be paid in full in cash upon
the exercise of the option, and the Holding Company shall not be required to
deliver certificates for such shares until such payment shall have been made.
The term of each option shall be for such period as the Committee shall
determine, but such term shall not extend
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<PAGE>
for more than twelve years from the date of the option's grant or such shorter
period as is prescribed in Paragraphs 8, 9 and 11 of the Plan. Except as
provided in Paragraphs 8, and 9, an option may not be exercised at any time
unless the option holder shall have been in the continuous employ of the Holding
Company or its subsidiaries from the date of the option's grant to the date of
the option's exercise. The holder of an option shall not have any of the rights
of a shareholder with respect to the shares of Common Stock subject to the
option until such shares shall be issued to him or her upon the exercise of the
option and payment of the purchase price, and the Holding Company shall make no
adjustments for dividends or other rights for which the record date is before
the date the Holding Company issues the certificate representing such shares.
7. Nontransferability of Options. No options granted under the Plan shall
be transferable otherwise than by will or the laws of descent and distribution,
and during the lifetime of the option's holder only he (or his duly appointed
legal representative) may exercise the option.
8. Termination of Employment. In the event of termination of the
employment of an employee to whom an option has been granted under the Plan,
other than (a) a termination that is either (i) for cause or (ii) voluntary on
the part of the employee and without the written consent of the Holding Company
or one of its subsidiaries or (b) a termination by reason of death, the employee
may (unless otherwise provided in his or her option agreement) exercise his or
her option at any time within fifteen months after such termination of
employment, or within such other time as the Committee shall authorize, but in
no event after twelve years from the date of the option's grant; provided,
however, such option may not be exercised if it was previously terminated
pursuant to the provisions of Paragraph 11 of the Plan. In the event of the
termination of the employment of an employee to whom an option has been granted
under the Plan that is either (i) for cause or (ii) voluntary on the part of the
employee and without the written consent of the Holding Company or one of its
subsidiaries, any option under the Plan which the employee shall hold shall
(except to the extent exercised before termination of the employee's employment)
immediately terminate. The term "cause" means (a)
-4-
<PAGE>
criminal conviction for fraud, embezzlement, misappropriation or the like, (b)
misconduct involving moral turpitude or (c) a failure to perform the employee's
duties faithfully, diligently, competently and to the best of his or her ability
for reasons other than serious physical disability or other incapacity, as
determined in the Committee's sole discretion. Retirement in accordance with the
normal retirement policies of the Holding Company or its subsidiary or
termination of employment in the event of disability, as determined in the
Committee's sole discretion, shall not be deemed to be voluntary on the part of
the employee for purposes of the Plan. Options granted under the Plan shall not
be affected by any change in the holder's position of employment so long as the
holder continues to be an employee of the Holding Company or one of its
subsidiaries. The option agreement may contain such provisions as the Committee
shall approve regarding the effect of approved leaves of absence. Nothing in the
Plan or in any option granted pursuant to the Plan shall (a) confer on any
individual any right to continue in the employ of the Holding Company or its
subsidiaries or (b) interfere in any way with the right of the Holding Company
or its subsidiaries to terminate his or her employment at any time.
9. Death of Holder of Option. If an employee to whom an option has been
granted under the Plan shall die while he or she is employed by the Holding
Company or one of its subsidiaries or shall die within fifteen months after the
termination of his or her employment, the option held by the employee may be
exercised by any legatee of such option under the employee's will, by the
employee's personal representative or by any distributee of such option at any
time within a period of fifteen months after his death but not after twelve
years from the date of the option's grant; provided, however, such option may
not be exercised if it was previously terminated pursuant to the provisions of
Paragraph 8 or 11 of the Plan or if such exercise is barred by the provisions of
the option agreement.
10. Adjustment Upon Changes in Capitalization. Subject to the
provisions of Paragraph 11 of the Plan, each option agreement may contain such
provisions as the Committee shall determine to be appropriate for the adjustment
of (a) the number and class of shares of Common Stock subject to such option and
(b) the option price in the event of changes in the outstanding Common Stock by
reason of
-5-
<PAGE>
any stock dividend, split-up, recapitalization, combination or exchange of
shares, merger, consolidation, acquisition of property or stock, separation,
reorganization or liquidation or similar action. In the event of any such change
in the outstanding Common Stock, the Committee shall adjust the aggregate number
and class of shares of Common Stock reserved and available under the Plan
appropriately, and the Committee's determination on adjustment shall be
conclusive.
11. Termination of Options on Merger or Sale of Assets. A liquidation
of the Holding Company, a merger or consolidation in which the Holding Company
is not the surviving or resulting corporation or a sale of all or substantially
all of the Holding Company's assets shall cause every option outstanding under
the Plan to terminate on the effective date of such action. Notwithstanding the
preceding sentence, upon a liquidation of the Holding Company, a merger or
consolidation in which the Holding Company is not the surviving or resulting
corporation or a sale of all or substantially all of the Holding Company's
assets, each option holder shall have the right, within his sole discretion and
without regard to whether the period of one year shall have passed since the
option's grant, to exercise before the effective date of such action any or all
of the options he may hold. Any options not so exercised shall terminate on the
effective date of such action.
12. Amendment and Termination. Unless terminated earlier as provided
for in this Paragraph, the Plan shall terminate when all shares of Common Stock
reserved for issuance under the Plan have been issued. The Board may terminate
the Plan at any time for any reason or make such modifications or amendments to
the Plan as the Board shall deem advisable in order to conform to any change in
any applicable law or regulation or for any other reason. No termination,
modification, or amendment of the Plan without the consent of the employee to
whom any option shall previously have been granted shall adversely affect such
employee's rights under such option.
13. Effectiveness of Plan. The Plan shall become effective on such date
as the Board shall determine. The exercise of each option shall be subject to
the condition that if at any time the Holding Company shall determine in its
discretion that (a) the satisfaction of withholding tax or other
-6-
<PAGE>
withholding liabilities, (b) the listing upon any securities exchange or the
registration or qualification under any state or federal law of any shares of
Common Stock otherwise deliverable upon such exercise or (c) the consent or
approval of any regulatory body is necessary or desirable as a condition of, or
in connection with, such exercise or the delivery or purchase of shares of
Common Stock pursuant to such exercise, then in any such event, such exercise
shall not be effective unless such withholding, listing, registration,
qualification, consent or approval shall have been effected or obtained free of
any conditions not acceptable to the Holding Company.
14. Time of Granting Options. Nothing contained in the Plan or in any
resolution adopted or to be adopted by the Committee, the Board, or the Holding
Company's stockholders shall constitute the granting of any option under the
Plan. The granting of an option under the Plan shall take place only when a
written option agreement shall have been duly executed and delivered by or on
behalf of the Holding Company and the employee to whom such option is to be
granted. Each option agreement shall state the total number of shares of Common
Stock subject to the option and the purchase price for such shares.
15. Use of Proceeds. The Holding Company shall add the proceeds it
shall receive from the sale of Common Stock pursuant to the exercise of options
granted under the Plan to the Holding Company's general funds and use such
proceeds for general corporate purposes.
16. Expenses of Plan. The Holding Company shall bear all costs and
expenses in connection with the administration of the Plan.
-7-
<PAGE>
IN WITNESS WHEREOF, the Holding Company causes the Plan to be adopted
by the action of its duly authorized officers effective as of July 1, 1997.
FOUR OAKS FINCORP, INC.
By: /s/ Ayden R. Lee, Jr.
Ayden R. Lee, Jr.
Chief Executive Officer
ATTEST:
/s/ Wanda C. Jones
Secretary
(CORPORATE SEAL)
-8-
<PAGE>
Exhibit 10.3
FOUR OAKS FINCORP, INC.
DIVIDEND REINVESTMENT AND
STOCK PURCHASE PLAN
1. PURPOSE
The purpose of the Plan is to provide the shareholders of record of the
Company's Common Stock with a simple and convenient method of investing cash
dividends and optional cash payment in shares of Common Stock. To the extent
that new shares of Common Stock will be purchased from the Company, the Company
will receive additional funds to finance the continuing operations of the
Company.
2. FEATURES
Participants in the Plan:
(bullet) Will have cash dividends on their shares of Common Stock
automatically reinvested in additional shares of Common Stock;
(bullet) May elect to make optional cash payments from $20.00 to $500.00 per
quarter for additional Common Stock purchases;
(bullet) Will receive full investment use of funds because the Plan provides
for crediting of fractional shares (calculated to three decimal
places) and reinvestment in additional shares;
(bullet) Will pay no accountant fees for the reinvestment of dividends or
optional cash payments;
(bullet) Will receive quarterly statements from the Agent reflecting total
dividends and optional cash payments, the price paid for shares
purchased, and the total shares held in the participant's account;
and
(bullet) Will enjoy safekeeping of shares purchased pursuant to the Plan,
including protection against loss, theft, or inadvertent
destruction of certificates.
3. ADMINISTRATION
United Carolina Bank will administer the Plan and serve as agent (the
"Agent") for Plan participants. The Agent keeps records, sends statements of
account to each participant, and performs other duties related to the Plan.
Shares purchased under the Plan are registered in the name of the Agent or in
the name of its nominee, and credited to the accounts of the participants in the
Plan. Questions and communications regarding the Plan should include your
account number and should be directed to:
<PAGE>
United Carolina Bank
Stock Transfer Department
Post Office Drawer 632
Whiteville, North Carolina 28472
Telephone: 910-642-1196
4. PARTICIPATION
A. ELIGIBILITY
Any holder of record of the Company's Common Stock is eligible
to participate in the Plan at any time. Beneficial owners of shares of Common
Stock whose shares are registered in names other than their own (for example, in
the name of a broker, bank, or other nominee) and who wish to participate in the
Plan must become owners of record by having the number of shares they wish to
enroll in the Plan transferred into their names. Tentatively, they must make
arrangements for the nominees or other holders of record to participate in the
Plan on behalf of such beneficial owners.
B. ENROLLMENT IN THE PLAN
An eligible shareholder may join the Plan at any time by
completing an Authorization Card and returning it to the Agent at the above
address. Authorization Cards may be obtained at any time by contacting the
Agent.
For new enrollees, participation will commence with the next dividend
payable after receipt of authorization provided it is received by the Agent by
the fifth business day prior to the record date for the dividend. If an
Authorization Card is received after the fifth business day prior to the record
date established for a particular dividend, the reinvestment of dividends under
the Plan will begin with the next succeeding dividend. The Company expects to
set quarterly dividend and record payment dates for Common Stock on or about the
following dates:
Approximate Record Date Approximate Payment Date
February 28 March 8
May 3 June 8
August 31 September 8
November 30 December 8
To participate in the optional cash payment feature, a check or money
order payable to United Carolina Bank should be sent together with the payment
form which is attached to the quarterly statement participants receive after
their initial dividend has been invested. Cash payments can only be made for
participants who have had at least one dividend reinvested pursuant to the Plan.
Shareholders enrolled in the Plan will remain enrolled unless they
terminate their participation by giving written notice to the Agent as described
below.
2
<PAGE>
5. NUMBER OF SHARES SUBJECT TO THE PLAN
Shareholders of record may participate in the Plan with respect to all
or any portion of the shares of Common Stock registered in their name. If a
shareholder wishes to participate in the Plan with less than all of such
shareholder's shares, the shareholder must notify the Agent in writing to that
effect. Otherwise, it will be assumed that the shareholder intends to
participate in the Plan with respect to all shares owned. Also, if a participant
wishes to change the number of shares of Common Stock subject to the Plan, the
participant must notify the Agent in writing to that effect. Any such
notification received by the Agent after the fifth business day prior to a
dividend payment date will not be effective until the next quarter.
6. COSTS
The Agent will provide the service of reinvesting a participant's
dividends paid on the Company's Common Stock or optional cash payments at no
cost to the shareholder. No administrative costs of the Plan will be paid by the
Company. No brokerage cornmissions or fees will be charged for purchases of
shares made under the Plan by the Agent directly from the Company, out of
authorized but issued shares of the Company. The Company presently intends to
bear the costs of brokerage commissions or fees incurred as a result of any
purchases made under the Plan on the open market. The Company may change or
eliminate this policy entirely upon written notice to participants. The
reinvestment of dividends does not relieve the participant of any income tax
that may be payable on the dividends or on any brokerage commissions or fees
paid by the Company.
7. PURCHASES UNDER THE PLAN
A. METHOD OF PURCHASE
The Agent automatically will receive the full amount of
dividends paid on both the shares held by participants and any additional full
or fractional shares acquired under the Plan, as well as any optional cash
payments made by participants. The Agent will use these funds to purchase shares
of the Company's Common Stock for Plan participants from the Company's
authorized but unissued shares. Purchases also may be made on any securities
exchange where such shares are traded, in the over-the-counter market, or in
negotiated transactions.
B. NUMBER OF SHARES PURCHASED
The number of shares purchased under the Plan for each
participant will depend on the amount of dividends reinvested and optional cash
payments made to the participant's account, and the purchase price of the Common
Stock. Therefore, each participant's account will be credited with the number of
shares, including a fractional share computed to three decimal places, equal to
the total amount invested under the Plan by the participant (dividends and
optional cash payment), divided by the applicable purchase price per share of
the Common Stock.
C. TIMING OF PURCHASES
The Agent will purchase shares as soon as practicable after
cash dividends are paid in the quarters when such payments are made. In other
quarters, the Agent generally will purchase shares on the first business day of
the quarter. Purchases will include dividends to be reinvested and optional cash
payments as of the date of purchase, as applicable. The Agent will use every
reasonable effort to reinvest all dividends promptly after receipt and in no
event later than 30 days after receipt unless such investments are restricted by
any applicable state or federal securities laws.
3
<PAGE>
No interest will be paid on dividends or optional cash payments pending
reinvestment for any reason the Agent is precluded from acquiring shares for 90
consecutive days, the Agent will promptly remit all cash dividends and optional
cash payments held in the participant's Plan account to the participant after
such 90th day.
D. PURCHASE PRICE
The purchase price of original issue shares of Common Stock
purchased directly from the Company will be determined once each quarter by the
Board of Directors of the Company based on an annual appraisal and trading
activity. The appraisal will be conducted by an independent appraisal firm
selected by the Board of Directors. The purchase price for the first quarter
shall be based on the first such appraisal. Each quarter thereafter, the Board
of Directors of the Company shall set the purchase price based on a review of
the most recent annual appraisal and trading activity during the preceding
quarter. No brokerage commissions or fees will be charged for purchases made
through the Plan directly from the Company. Shares purchased on the open market
under the Plan will be purchased at the price per share payable to the
broker-dealer(s) involved. The Company presently intends to bear any brokerage
commission or fees incurred in connection with open market purchases.
8. OPTIONAL CASH PAYMENTS
A. METHOD OF PAYMENTS
Once a participant has received the first Dividend
Reinvestment Statement (described below) for dividends reinvested the
participant may elect to make optional cash payments to his account for
additional Common Stock purchases. Each optional cash payment must be
accompanied by a payment form, which is furnished by the Agent with each
Dividend Reinvestment Statement. The Agent will commingle all optional cash
payments credited to a participant's account with cash dividends and optional
cash payment credited to all accounts under the Plan and all such funds will be
applied to the purchase of Common Stock as provided above. Optional cash
payments received by the fifth business day before a dividend payment date will
be combined with and invested by the Agent at the time cash dividends are
reinvested and in any event will be invested with funds received by the fifth
business day before purchases are made in other quarters, as provided above. Any
optional cash payment received by the Agent after the fifth day prior to a
dividend payment date will be invested in the next quarter.
The Agent will hold the participant's optional cash payments
in non-interest bearing accounts. No interest will be paid on any optional cash
payment for the period following receipt by the Agent but prior to investment.
Participants are encouraged to transmit optional cash payments so as to be
received by the Agent as close as possible to the fifth day prior to a dividend
payment date to avoid unnecessary accumulations of funds.
A participant may obtain a refund of his or her uninvested
optional cash payment upon written request to the Agent received not less than
two business days prior to the investment of such payment.
A participant is under no obligation to make an optional cash
payment in any quarter, and the same amount of money does not need to be sent
each quarter.
4
<PAGE>
B. LIMITATIONS
Any optional cash payment must not be less than $20, and
payments may not exceed $500 per quarter in the aggregate for any participant or
for each beneficial owner on whose behalf a participant may be investing.
Optional cash payments may be made at any time; however, only one optional cash
payment may be made in each calendar month by any participant, or by each
beneficial owner on whose behalf a participant may be investing, and optional
cash payments are only invested quarterly, as provided above. The Company may
change the minimum and maximum allowable optional cash payment amount or
eliminate cash payments entirely upon written notice to participants.
Participants may not draw checks or drafts against their Plan
accounts in respect of any shares or cash held therein and may not sell, assign,
or transfer their account.
9. CERTIFICATES FOR SHARES
Normally, certificates for shares of Common Stock purchased under the
Plan will not be issued directly to participants. Shares will be held by or
through the Agent, providing protection against loss, theft, or inadvertent
destruction. The number of shares credited to a participant's account will be
shown on the next statement of account sent to the participant. The participant,
however, may obtain from the Agent certificates for full shares upon receipt by
the Agent of a written request from the participant. Any request for issuance of
a certificate received by the Agent less than five days prior to the record date
for a dividend payment shall become effective only after dividends paid for such
record date have been reinvested. Also, the Agent generally processes requests
for certificates only once each month on or about the l5th day of each month. No
certificate will be issued for a fractional share, although dividends on a
fractional interest in a share will be credited to the participant's account.
10. REPORTS TO PARTICIPANTS
As soon as practicable after the end of each quarterly period, the
Agent will send a statement of account (the "Dividend Reinvestment Statement")
to the participant. The Dividend Reinvestment Statement will include information
regarding each purchase and other information regarding the status of the
participant's account as of the date of such statement. The Dividend
Reinvestment Statements will provide a record of the cost basis of shares
purchased under the Plan and should be retained for tax purposes.
11. WITHDRAWALS OF SHARES PURCHASED UNDER THE PLAN
A participant may withdraw all or any portion of the full shares of
Common Stock held in the participant's account under the Plan by notifying the
Agent in writing to that effect. A certificate for the full shares withdravn
will be issued in the name of the participant and mailed to him. No certificate
will be issued for a fractional share interest.
Withdrawals of some or all of the full shares in a participant's
account will not terminate the participant's enrollment in the Plan.
5
<PAGE>
12. TERMINATION OF PARTICIPATION
A participant may terminate his account by notifying the Agent in
writing to that effect. Any notice of termination received by the Agent less
than five days prior to the record date for a dividend payment shall become
effective only after dividends paid for such record date have been reinvested.
Upon termination, the Agent will issue to the participant a certificate for the
number of full shares of Common Stock and a check for any fractional share in
the participant's account. The Agent generally issues such certificates and
checks only once each month, on or about the 15th day of each month.
13. OTHER FEATURES
A. STOCK SPLITS, STOCK DIVIDENDS, AND RIGHTS OFFERINGS
Stock splits or stock dividends on shares held in a participant's
account will be credited to the account based on the number of shares (including
fractional share interests) held in the account on the record date for such
dividend or split. The Agent will report the amount of dividends received on
shares or fractional shares held in each account.
In the event the Company offers rights or warrants to purchase
additional shares of Common Stock or other securities to the holders of Common
Stock, such rights or warrants will be made available to participants based on
the number of shares, including fractional share interests to the Common Stock
entitled to such rights or warrants.
B. VOTING OF SHARES PURCHASED UNDER THE PLAN
All full and fractional shares credited to a participant's
account under the Plan will be added to the shares registered in the
participant's name on the shareholder records of the Company. The participant
will receive one proxy covering the total of such shares, which proxy shall be
voted as the participant directs; or, if the participant so elects, the
participant may vote all of such shares in person at the shareholders' meeting.
14. FEDERAL INCOME TAX CONSEQUENCES
Dividends and other distributions by the Company to shareholders
generally will be taxed as ordinary dividend income. Participants who acquire
additional shares of Common Stock through the Plan directly from the Company
with reinvested cash dividends will be treated for federal income tax purposes
as having received a taxable stock distribution. As a result, an amount equal
to the fair market value on the investment date of the shares acquired directly
from the Company with reinvested cash dividends will be treated as a dividend
paid to participants. The tax basis of the shares acquired directly from the
Company with such reinvested dividends also will equal the fair market value of
the shares on the investment date.
Participants who acquire additional shares of Common Stock through the
Plan through open market purchases made with reinvested cash dividends will be
deemed to have received a taxable dividend equal to the amount of the cash
dividend reinvested plus the amount of any brokerage fees paid by the Company
with respect to such additional shares. The participant's tax basis in these
shares acquired on the open market will equal the purchase price of the shares
plus any brokerage fees paid with respect to the shares.
6
<PAGE>
Participants in the Plan will not realize any taxable income at the
time of investment of optional cash payments in additional shares of Common
Stock acquired directly from the Company. The tax basis of shares purchased
directly from the Company with an optional cash payment will be the fair market
value of the shares on the investment date.
Participants who acquire additional shares of Common Stock through open
market purchases made with optional cash payments will be treated as receiving a
cash dividend equal to the amount of any brokerage fees paid by the Company with
respect to such shares. The tax basis of shares purchased on the open market
with an optional cash payment will equal the purchase price of the shares, plus
any brokerage fees paid by the Company with respect to such shares.
The holding period of shares of Common Stock acquired through the Plan,
whether purchased with reinvested dividends or optional cash payments, will
begin on the day following the investment date.
Participants in the Plan will not realize any taxable income when they
receive certificates for full shares credited to their accounts, whether upon
their written requests for such certificates, upon full shares credited to their
account, or upon withdrawal from or termination of participation in the Plan.
Participants, however, will realize taxable gain or loss (which for most
participants, will be capital gain or loss) when full shares acquired under the
Plan are sold or exchanged by the participant and when participants receive a
cash payment for a fractional share credited to their account. The amount of
such gain or loss will be the difference between the amount that the participant
receives for his shares or fractional share (net of brokerage commissions and
other costs of sale) and the tax basis thereof.
For foreign participants who elect to have their cash dividends
reinvested and whose dividends are subject to United States income tax
withholding, and any other participant for whom federal income tax withholding
on dividends is required, an amount equal to the cash dividends payable to such
participants, less the amount of tax required to be withheld, will be applied to
the purchase of Common Stock through the Plan.
The foregoing is intended only as a general discussion of the current
federal income tax consequences of participation in the Plan. It does not
include a discussion of state and local income tax consequences of participation
in the Plan. For specific information on the tax consequences of participation
in the Plan, including any future changes in applicable law or interpretation
thereof, participants should consult their own tax advisors.
15. CHANGE AND TERMINATION OF THE PLAN; INTERPRETATION OF THE PLAN
The Company reserves the right to change, suspend, or terminate the
Plan at any time. Participants shall be notified of any such change, suspension,
or termination. Any question of interpretation arising under the Plan will be
determined by the Company. The Plan and all transactions in connection with the
Plan will be governed by and construed in accordance with the laws of the State
of North Carolina.
This Plan was adopted by the Board of Directors of Four Oaks Fincorp,
Inc. effective as of July 1, 1997.
/s/ Wanda C. Jones
-------------------
Secretary
7
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 9
<S> <C> <C>
<PERIOD-TYPE> YEAR 3-MOS
<FISCAL-YEAR-END> DEC-31-1996 DEC-31-1997
<PERIOD-START> JAN-01-1996 JAN-01-1997
<PERIOD-END> DEC-31-1996 MAR-31-1997
<CASH> 5,046,000 5,314,000
<INT-BEARING-DEPOSITS> 1,562,000 1,983,000
<FED-FUNDS-SOLD> 0 0
<TRADING-ASSETS> 0 0
<INVESTMENTS-HELD-FOR-SALE> 37,092,000 32,693,000
<INVESTMENTS-CARRYING> 0 0
<INVESTMENTS-MARKET> 0 0
<LOANS> 109,575,000 121,561,000
<ALLOWANCE> 1,440,000 1,520,000
<TOTAL-ASSETS> 159,113,000 167,635,000
<DEPOSITS> 142,843,000 149,183,000
<SHORT-TERM> 0 2,000,000
<LIABILITIES-OTHER> 1,907,000 1,818,000
<LONG-TERM> 0 0
0 0
0 0
<COMMON> 838,000 840,000
<OTHER-SE> 13,525,000 13,794,000
<TOTAL-LIABILITIES-AND-EQUITY> 159,118,000 167,635,000
<INTEREST-LOAN> 10,208,000 2,755,000
<INTEREST-INVEST> 1,887,000 527,000
<INTEREST-OTHER> 153,000 9,000
<INTEREST-TOTAL> 12,249,000 3,291,000
<INTEREST-DEPOSIT> 5,585,000 1,535,000
<INTEREST-EXPENSE> 5,694,000 1,566,000
<INTEREST-INCOME-NET> 6,555,000 1,725,000
<LOAN-LOSSES> 393,000 63,000
<SECURITIES-GAINS> (66,000) (2,000)
<EXPENSE-OTHER> 4,375,000 1,247,000
<INCOME-PRETAX> 2,664,000 713,000
<INCOME-PRE-EXTRAORDINARY> 2,664,000 713,000
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 1,821,000 507,000
<EPS-PRIMARY> 2.19 0.60
<EPS-DILUTED> 2.19 0.60
<YIELD-ACTUAL> 4.79 4.66
<LOANS-NON> 209,000 19,000
<LOANS-PAST> 186,000 395,000
<LOANS-TROUBLED> 0 0
<LOANS-PROBLEM> 0 0
<ALLOWANCE-OPEN> 1,220,000 1,440,000
<CHARGE-OFFS> 201,000 3,000
<RECOVERIES> 24,000 20,000
<ALLOWANCE-CLOSE> 1,440,000 1,520,000
<ALLOWANCE-DOMESTIC> 0 0
<ALLOWANCE-FOREIGN> 0 0
<ALLOWANCE-UNALLOCATED> 1,440,000 1,520,000
<PAGE>
</TABLE>
FEDERAL DEPOSIT INSURANCE CORPORATION
Washington, D.C. 20429
FORM F-2, as amended
ANNUAL REPORT UNDER SECTION 13 OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1996 FDIC Certificate No. 11506
FOUR OAKS BANK & TRUST COMPANY
(Exact name of bank as specified in its charter)
North Carolina 56-0132010
(State or other jurisdiction of (IRS Employer Identification
incorporation or organization) Number)
6144 U S 301 South
Four Oaks, North Carolina
(Address of principal office)
27524
(ZIP Code)
Bank's telephone number, including area code: (919) 963-2177
Securities registered under Section 12(b) of the Act: NONE
Securities registered under Section 12(g) of the Act:
Common Stock, par value $1.00 per share
(Title of Class)
Check if the Bank, as a "small business issuer" as defined under 17 C.F.R.
240.12b-2, is providing alternative disclosures as permitted for small business
issuers in this Form F-2. X
Check if disclosure of delinquent filers pursuant to Item 10 is not contained
herein, and will not be contained, to the best of the Bank's knowledge, in
definitive proxy or information statements incorporated by reference in Part III
of this Form F-2 or any amendment of this Form F-2.
The Bank has filed all reports required by Section 13 of the Securities Exchange
Act of 1934 during the preceding 12 months and has been subject to such filing
requirements for the past 90 days: X YES NO
$18,041,650
(Aggregate market value of voting stock held by nonaffiliates of the Bank)
837,949
(Number of shares outstanding as of 12/31/96)
Documents Incorporated by Reference Where Incorporated
(1) Annual Report to Shareholders for Part II
Fiscal Year Ended December 31, 1996
(2) Proxy Statement for the Annual Part I and III
Meeting of Shareholders to be held
April 28, 1997.
<PAGE>
PART I
Item 1 - Business.
Four Oaks Bank & Trust Company (the "Bank") was incorporated under the
laws of the State of North Carolina in 1912. The Bank is not a member of the
Federal Reserve System. The Bank's corporate offices are located at 6144 U S 301
South, Four Oaks, North Carolina 27524. In addition to the main office, the Bank
has a branch office in Four Oaks located at 111 North Main Street, one in
Clayton, North Carolina at 102 East Main Street, two in Smithfield, North
Carolina at 128 North Second Street, and 403 South Bright Leaf Boulevard and one
in Garner, North Carolina at 200 Glen Road.
The Bank is a community bank engaged in the general commercial banking
business in Johnston County, North Carolina which is located in Eastern North
Carolina. Johnston County is contiguous to Wake, Wayne, Wilson, Harnett, Sampson
and Nash counties.
As of December 31, 1996, the Bank had assets of $159,112,558, net loans
outstanding of $108,036,023 and deposits of $142,842,975. The Bank has enjoyed
considerable growth over the past five years as evidenced by the 88% increase in
assets, the 81% increase in net loans outstanding, and the 93% increase in
deposits since December 31, 1991.
The Bank provides a full range of banking services, including such
services as checking accounts, savings accounts, NOW accounts, money market
accounts, certificates of deposit, a student checking and savings program; loans
for businesses, agriculture, real estate, personal uses, home improvement,
automobiles; equity lines of credit; credit cards; individual retirement
accounts; discount brokerage services; safe deposit boxes; bank money orders;
electronic funds transfer services, including wire transfers; traveler's checks;
and free notary services to all Bank customers. In addition, the Bank provides
automated teller machine access to its customers for cash withdrawals through
the services of the HONOR and CIRRUS networks which offer customers access to
automated teller machines nationwide. At present the Bank does not provide the
services of a trust department.
The majority of the Bank's customers are individuals and small to
medium-size businesses located in Johnston County and surrounding areas. The
deposits and loans are well diversified with no material concentration in a
single industry or group of related industries. There are no seasonal factors
that would have any material adverse effect on the Bank's business, and the Bank
does not rely on foreign sources of funds or income.
From its headquarters located in Four Oaks and its five offices located
in Four Oaks, Clayton, Smithfield, and Garner, the Bank serves a major portion
of Johnston County. Johnston County has a diverse economy and is not dependent
on any one particular industry. The leading industries in the area include
electronics, pharmaceutical, textile, agriculture, livestock, and poultry
industries.
Commercial banking in North Carolina is extremely competitive which is
attributable in large part to statewide branching. The Bank competes in its
market area with some of the largest banking organizations in the state and
other financial institutions such as federally and state-chartered savings and
loan institutions and credit unions as well as consumer finance companies,
mortgage companies and other lenders engaged in the business of extending
credit. Many of the Bank's competitors have broader geographic markets and
higher lending limits than the Bank and are also able to provide more services
and make greater use of media advertising.
The enactment of legislation authorizing interstate banking in North
Carolina and other Southeastern states has greatly increased the size and
financial resources of some of the Bank's competitors. In addition, as a result
of interstate banking, out-of-state commercial banks may compete in North
Carolina by acquiring North Carolina banks and thus increase the prospects for
additional competition in North Carolina.
2
<PAGE>
Despite the competition in its market area, the Bank believes that it
has certain competitive advantages which distinguish it from its competition.
The Bank believes that its primary competitive advantages are its strong local
identity and affiliation with the community and its emphasis on providing the
very best service possible at reasonable and competitive prices. The Bank
believes that it offers customers modern, high-tech banking services without
forsaking community values such as prompt, personal service and friendliness.
Amounts spent on research activities relating to the development or improvement
of services have been immaterial over the past five years. At December 31, 1996,
the Bank employed 69 full time equivalent employees.
The following table sets forth certain financial data and ratios with
respect to the Bank for the years ended December 31, 1996, 1995, and 1994. This
information should be read in conjunction with and is qualified in its entirety
by reference to the more detailed audited financial statements and notes thereto
which accompany this report:
<TABLE>
<CAPTION>
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Net Income $1,820,850 $1,524,357 1,256,841
Average equity capital accounts $13,579,832 $12,132,667 10,932,274
Ratio of net income to average equity
capital accounts 13.41% 12.56% 11.50%
Average daily total deposits $129,774,718 $110,394,574 94,956,525
Ratio of net income to average daily
total deposits 1.40% 1.38% 1.32%
Average daily loans $103,558,655 $85,222,596 72,888,674
Ratio of average daily loans to average
daily total deposits 79.80% 77.20% 76.76%
</TABLE>
At the Annual Meeting of Shareholders to be held April 28, 1997, the
Shareholders of the Bank will consider and vote on a proposed reorganization
whereby the Bank will become a wholly-owned subsidiary of a newly-formed holding
company know as "Four Oaks Fincorp, Inc." and each outstanding share of the
Bank's Common Stock will be converted into one share of the holding company's
Common Stock. The reorganization is subject to shareholder approval and
necessary bank regulatory approvals. A summary of the proposed reorganization is
contained in the Bank's Proxy Statement for the Annual Meeting of Shareholders
to be held April 28, 1997.
Item 2 - Properties.
The Bank owns its main office which is located at 6144 U S 301 South,
Four Oaks, North Carolina. The main office which was constructed by the Bank in
1985 is a 12,000 square foot facility on 1.64 acres of land. The Bank leases an
additional branch office in downtown Four Oaks located at 111 North Main Street
from M.S. Canaday, a director of the Bank. Under the terms of the lease, which
the Bank believes to be arms-length, the Bank paid $755 per month in rent in
1996. The term of the lease is currently five years beginning January 1, 1994
with annual increases based on the Consumer Price Index. The Bank owns a 5,000
square foot facility renovated in 1992 on 1.15 acres of land located at 5987 U S
301 South, Four Oaks, North Carolina which served as the Operations Center until
October 1996 when the Bank outsourced item processing and all data processing
functions to Central Service Corporation in Greensboro, North Carolina.
Presently this facility houses the training center and the Bank's wide area
network central link. In addition, the Bank owns a 4,200 square foot branch
office which was constructed by the Bank in 1986 at 102 East Main Street,
Clayton, North Carolina. The Bank owns a 3,400 square foot branch office, which
was built in 1991, located at 128 North Second Street, Smithfield, North
Carolina. The Bank owns a 1,202 square foot building on .29 acres of land
located at 6365 U.S. 301 South in Four Oaks which it closed in 1995. The Bank
owns a 720 square foot building remodeled in 1995 which serves as a
limited-service facility on .27 acres located at 403 S. Bright Leaf Boulevard,
Smithfield, North Carolina. The Bank owns a 3,600 square foot branch office
constructed in 1996 located at 200 Glen Road, Garner, North Carolina.
Item 3 - Legal Proceedings.
3
<PAGE>
The Bank is not involved in any material legal proceedings at the
present time.
Item 4 - Security Ownership of Certain Beneficial Owners and Management.
This information is incorporated by reference from Pages 5 - 6,
"Security Ownership of Management and Certain Beneficial Owners", in the Bank's
Proxy Statement for the Annual Meeting of Shareholders to be held April 28,
1997.
PART II
Item 5 - Market for the Bank's Common Stock and Related Security Holder Matters.
This information is incorporated by reference from Page 31, "Investor
Information" in the 1996 Annual Report to Shareholders included as Exhibit 6.
Item 6 - Selected Financial Data.
This information is incorporated by reference from Page 15, "Selected
Financial Data" of the Bank's 1996 Annual Report to Shareholders included as
Exhibit 6.
Item 7 - Management's Discussion and Analysis of Financial Condition and Results
of Operations.
This information is incorporated by reference from Pages 5, 7, 8, 9,
11, 13 & 14, "Management's Discussion" of the Bank's 1996 Annual Report to
Shareholders included as Exhibit 6.
Item 8 - Financial Statements and Supplementary Data.
This information is incorporated by reference from Pages 16 - 30 of the
Bank's 1996 Annual Report to Shareholders included as Exhibit 6.
PART III
Item 9 - Directors and Principal Officers of the Bank.
(a) Director information is incorporated by reference from Pages 7 - 8,
"Proposal 1: Election of Directors" in the Bank's Proxy Statement for the Annual
Meeting of Shareholders to be held April 28, 1997.
(b) Principal Officers.
The following table sets forth the information with respect to the
executive officers of the Bank:
<TABLE>
<CAPTION>
Position with Bank
Year first and business experience
Name Age employed for the past five years
<S> <C> <C> <C>
Ayden R. Lee, Jr. 48 1980 Chief Executive Officer, President and
Director
J. Horace Keene 62 1986 Senior Executive Vice President, City
Executive
Clifton L. Painter 47 1986 Senior Executive Vice President, Chief
Operating Officer, City Executive
Nancy S. Wise 41 1991 Senior Vice President, Chief Financial
Officer
4
<PAGE>
Position with Bank
Year first and business experience
Name Age employed for the past five years
W. Leon Hiatt, III 29 1994 Senior Vice President, Loan Administrator.
From March 1990 until joining the Bank, Mr.
Hiatt served as a Financial Institutions
Examiner for the Federal Deposit Insurance
Corporation
</TABLE>
Item 10 - Management Compensation and Transactions.
This information is incorporated by reference from Pages 9 - 11,
"Executive Compensation" in the Bank's Proxy Statement for the Annual Meeting of
Shareholders to be held April 28, 1997.
PART IV
Item 11 - Exhibits, Financial Statements, Schedules and Reports on Form F-3.
(a) Financial Statements and Schedules.
1. The following financial statements are included in the Bank's
1996 Annual Report to Shareholders included as Exhibit 6 to
this Form F-2.
<TABLE>
<CAPTION>
1996 Annual
Report Page
<S> <C>
(i) Independent Auditors' Report. 16
(ii) Balance Sheets, December 31, 1996 and 1995. 17
(iii) Statements of Operations for the years ended December 31, 18
1996, 1995 and 1994.
(iv) Changes in Shareholders' Equity for the years ended December 19
31, 1996, 1995 and 1994.
(v) Statements of Cash Flows for the years ended December 31, 20
1996, 1995 and 1994.
(vi) Notes to Financial Statements. 21-30
</TABLE>
2. Report of predecessor accountant, Daniel G. Matthews &
Associates, Inc. concerning financial statements for 1994 and
1995 presented in the 1996 Annual Report to Shareholders is
filed as Exhibit 6.1 to this report.
(b) Reports on Form F-3. No reports on Form F-3 were filed during the
quarter ending December 31, 1996.
(c) Exhibits. The following exhibits are filed as part of this annual
report. Management contracts or compensatory plans or arrangements are
listed in Exhibits 3.2, 3.3, 3.4, and 3.6 below:
1. Articles of Incorporation and Bylaws as amended filed as an
exhibit to the Form F-2 filed with the FDIC on March 28, 1991
and incorporated herein by reference.
5
<PAGE>
2. Specimen of certificate for Bank's Common Stock filed as an
exhibit to the Form F-2 filed with the FDIC on March 28, 1991
and incorporated herein by reference.
3.1 Four Oaks Bank & Trust Company Master Corporate Profit Sharing
Retirement Plan and Trust filed as Exhibit 4(a) to the
Registration Statement on Form F-1 filed with the FDIC on
April 30, 1990 and incorporated herein by reference.
3.2 Employment agreement with Ayden R. Lee, Jr., filed as Exhibit
4(b) to the Registration Statement on Form F-1 filed with the
FDIC on April 30, 1990 and incorporated herein by reference.
3.3 Severance compensation agreement with Ayden R. Lee, Jr., filed
as Exhibit 4(c) to the Registration Statement on Form F-1
filed with the FDIC on April 30, 1990 and incorporated herein
by reference.
3.4 Nonqualified Stock Option Plan as amended filed as Exhibit 3.4
to the Form F-2 filed with the FDIC on March 28, 1993 and
incorporated herein by reference.
3.5 Employee Stock Purchase and Bonus Plan as amended filed as
Exhibit 3.5 to the Form F-2 filed with the FDIC on March 28,
1993 and incorporated herein by reference.
3.6 Option agreement with Ayden R. Lee, Jr., filed as Exhibit 5(b)
to the Registration Statement on Form F-1 filed with the FDIC
on April 30, 1990 and incorporated herein by reference.
3.7 Four Oaks Bank & Trust Company Dividend Reinvestment and Stock
Purchase Plan filed as Exhibit 3.7 to the Form F-2 filed with
the FDIC on March 28, 1996 and incorporated herein by
reference.
3.8 Master Service Agreement between Central Service Corporation
and Four Oaks Bank & Trust Company dated April 16, 1996
6 1996 Annual Report to Shareholders for the fiscal year ended
December 31, 1996. With the exception of the information
incorporated by reference into Items 5, 6, 7, 8, and 11 of
this Form F-2, the 1996 Annual Report to Shareholders is not
deemed filed as part of this report or any amendment thereto.
6.1 Report of Daniel G. Matthews & Associates, Inc. concerning
financial statements for 1994 and 1995 presented in the 1996
Annual Report to Shareholders
6
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 of the Securities Exchange
Act of 1934, the Bank has duly caused this report to be signed on its behalf by
the undersigned, thereunto duly authorized.
FOUR OAKS BANK & TRUST COMPANY
Date: March 27, 1997 By: /s/ Ayden R. Lee, Jr.
---------------------
Ayden R. Lee, Jr.
President and Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
<S> <C>
Date: March 27, 1997 /s/ Ayden R. Lee, Jr.
---------------------
Ayden R. Lee, Jr.
President, Chief Executive Officer and Director
Date: March 27, 1997 /s/ Nancy S. Wise
-----------------
Nancy S. Wise
Senior Vice President and Chief Financial
Officer
Date: March 27, 1997 /s/ William J. Edwards
----------------------
William J. Edwards
Director
Date: March 27, 1997 /s/ Warren L. Grimes
--------------------
Warren L. Grimes
Director
Date: March 27, 1997 /s/ Harold J. Sturdivant
------------------------
Harold J. Sturdivant
Director
Date: March 27, 1997 /s/ Percy Y. Lee
----------------
Percy Y. Lee
Director
Date: March 27, 1997 /s/ Merwin S. Canaday
---------------------
Merwin S. Canaday
Director
<PAGE>
Date: March 27, 1997 /s/ Paula C. Bowman
-------------------
Paula C. Bowman
Director
</TABLE>
<PAGE>
Exhibit 3.8 to Form F-2
Master Service Agreement between Central Service Corporation
and Four Oaks Bank & Trust Company dated April 16, 1996
<PAGE>
NORTH CAROLINA
MASTER SERVICE AGREEMENT
GUILFORD COUNTY
THIS MASTER SERVICE AGREEMENT, made and entered into this 16th day of
April, 1996 by and between CENTRAL SERVICE CORPORATION, a North Carolina
corporation, hereinafter referred to as "CSC", and Four Oaks Bank & Trust
Company, with its principal office in Four Oaks, North Carolina, hereinafter
referred to as "Customer".
1. SERVICES SCHEDULE. Subject to the other provisions of this
Agreement, CSC shall provide to the Customer, and the Customer shall obtain from
CSC, the services referred to in the Schedule of Services made by the parties
contemporaneously herewith, as such Schedule of Services may be amended from
time to time, and any services required or contemplated by other Sections of
this Agreement (collectively, the "Services"). The Schedule of Services,
including all Addenda thereto, as it may be so amended (the "Services Schedule")
is hereby incorporated into, and shall be deemed a part of, this Agreement for
all purposes. Subject to any more specific descriptions provided in the Schedule
of Services, CSC shall render as each Service substantially all of the services
customarily associated within the industry with the name, designations and
descriptions for such Service in the Schedule of Services.
2. TERM.
(a) General Term. The initial term of this Agreement shall be for 5
years commencing on September 9, 1996, subject to successive extensions as
provided in this Section 2(a). The term of this Agreement shall automatically
extend for another 1 year at the end of the then current term, unless at least
ninety (90) days prior to the end of the then current term either party gives
written notice to the other party that there shall be no extension.
Notwithstanding the foregoing, the term of this Agreement shall be subject to
early termination as provided herein. The term of this Agreement, as it may be
extended from time to time as provided in this Section 2(a) or terminated as
provided in Section 7(e), is hereinafter referred to as the "General Term".
(b) Service Term. The "Service Term" for a Service shall mean the
term for which the Service is to be provided, as it may be extended from time to
time by agreement of the parties. A Service Term may be shorter than, but not
exceed, the General Term. If no particular Service Term is provided for a
Service in the Services Schedule, the Service Term for the Service shall be
coextensive with the General Term. Notwithstanding the foregoing, a Service Term
shall be subject to early termination as provided herein.
3. CHANGES IN SERVICES. The Customer acknowledges that CSC provides to
other customers services the same as or similar to the Services, and that
updating and modifying its services (including the Services) from time to time
is an appropriate part of CSC's business. Accordingly, the Customer agrees that
the format and nature of any Service may be changed by
<PAGE>
CSC upon sixty (60) days' advance written notice to the Customer. In addition,
the parties acknowledge that CSC may not be able to provide Services in a manner
to accommodate the particular practices, designs or formats of the Customer, and
therefore agree that before the Customer adopts or changes any of the Customer's
practices, designs or formats (including without limitation to the extent
relevant for the Services or those relating to calculating or reporting interest
rates, fees, charges, loan terms, and account terms), the Customer shall
determine that such adoption or change will be consistent with the manner in
which CSC provides the Services.
4. CSC PROPERTY. Except as the parties may hereafter agree in writing,
all programs, specifications tapes and other materials provided by CSC used in
connection with the Services (exclusive of any data thereon or other materials
provided by the Customer, which are and shall remain the sole and absolute
confidential property of the Customer) are and remain the sole and absolute
property of CSC. The Customer shall not use, cause to be used, sell, rent, loan
or otherwise disclose, any such material to any other person or entity other
than its professional advisors or at the request of regulatory authorities or
otherwise as required by applicable law, rule or regulation. Because there would
be no adequate remedy at law for a breach of the foregoing, CSC shall have the
right to obtain an injunction to prevent such breach and shall have such further
rights as are available at law or in equity.
5. CUSTOMER'S DATA RESPONSIBILITIES.
(a) Customer Information. The Customer shall furnish to CSC all
records, data and other information necessary to enable CSC to perform its
obligations under this Agreement, all of which shall be provided in the manner,
in the form, and at the times, reasonably required by CSC, and all of which is
and shall remain the sole and absolute confidential property of the Customer.
The Customer shall ensure that all records, data and other information provided
to CSC are complete and accurate, and CSC shall have no responsibility for
errors resulting from incomplete or incorrect records, data (whether electronic
or paper items) or other information provided by the Customer.
(b) Remote Transmission Facility. Without limiting its obligations
under Section 5(a), the Customer shall comply with all reasonable security
procedures which CSC may prescribe from time to time to protect the data
transmitted through the Remote Transmission Facility. Customer shall indemnify,
defend, and hold harmless CSC and CSC's directors, officers, shareholders,
employees, and agents for, from and against, any and all liability, loss, cost,
damage or expense, including without limitation reasonable attorneys' fees,
arising out of the unauthorized use or handling of data resulting from
transmission of any data through the Remote Transmission Facility.
(c) Customer Review. The Customer shall promptly review all reports,
data and other information provided or returned to it by CSC, and shall in any
event notify CSC in writing of any errors or omissions in such reports, data or
other information within fifteen (15) business days of receipt from CSC.
Notwithstanding the provisions of Section 8, CSC shall not be liable to the
Customer for damages or corrections resulting from the Customer's failure to
give such timely written notification.
2
<PAGE>
(d) Compliance With Applicable Laws. The Customer shall be solely
responsible for ensuring that this Agreement and all Services, reports and forms
provided pursuant to this Agreement comply with all applicable laws and
regulations and the terms of the Customer's contracts with its customers,
including without limitation all applicable laws, regulations and contractual
provisions concerning the Customer's operations, consumers, or adjustable rate
loans and related instruments. The Customer shall indemnify, defend, and hold
harmless CSC and CSC's directors, officers, shareholders, employees, and agents
for, from, and against any and all liability, loss, cost, damage or expense,
including without limitation reasonable attorneys' fees, arising out of any
violation of applicable laws or regulations or the Customer's contractual
obligations.
6. CONFIDENTIALITY & PRESERVATION OF CUSTOMER DATA.
(a) Confidentiality. CSC shall use reasonable care to maintain the
confidentiality of all information provided to CSC by the Customer, and, except
as specifically permitted by this Agreement, required by applicable law or with
the Customer's prior written consent, shall not disclose any such information to
any person or entity or use any such information other than for purposes of
rendering the Services. For purposes of the foregoing, CSC's delivery of
materials to the Customer by means of the United States Postal Service or
insured or bonded carriers shall be deemed to constitute reasonable care. CSC's
obligations pursuant to this Section 6(a) shall survive any expiration or
termination of this Agreement and shall continue indefinitely thereafter;
provided, however, that if such duration is determined by a court of competent
jurisdiction to be unenforceable, such obligations shall continue for a period
of ten (10) years after the expiration or termination of this Agreement.
(b) Preservation. Subject to Section 8, CSC shall use reasonable
care (i) to protect Customer's records in CSC's possession from loss or damage
through fire, power failure, and other accidental causes, and (ii) to provide
the equipment and/or procedures necessary to maintain the integrity of such
records while in CSC's possession.
7. CHARGES FOR SERVICES.
(a) Charges. The Customer shall pay CSC its charges for the Services
and for reasonable out of pocket expenses incurred in rendering Services, in
accordance with the Services Schedule and the other terms of this Agreement.
Upon at least ninety (90) days written notice, CSC may change any or all of the
terms of this Agreement relating to such charges including without limitation
the amounts thereof; provided (i) that any increase in charges for a Service set
forth in the Services Schedule shall become effective on the date specified in
the notice, but in any event no earlier than the later of the beginning of the
next extension of the Service Term for the Service or 90 days after the notice
is given, and (ii) that any decrease in charges for a Service set forth in the
Services Schedule shall be effective on the date specified in the notice.
(b) Billing. Following the end of each calendar month during the
General Term CSC shall submit its statement charges for each Service rendered
and expenses incurred in connection therewith during that month. Additional
charges pursuant to Section 11 may be reflected
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<PAGE>
in the monthly invoices. Invoices are due and payable on or before the last day
of the calendar month of the date of invoice. Any portion of the invoice not
paid, or disputed in good faith by the Customer, by such last day of the
calendar month day shall bear interest, payable on demand, after such day at a
per diem rate equal to the lesser of (i) .06575% or (ii) the maximum rate
allowed to be charged by controlling law. If the Customer determines in good
faith that an invoice contains an error, the Customer shall give written
notification of the same to CSC prior to the payment due date of the invoice.
Notwithstanding any such notification, the undisputed portion of the invoice
shall be paid as provided above. After any error is resolved, any remaining
amounts determined to be due shall be payable on demand, with interest as
provided above.
(c) Sales, etc. Taxes. Except to the extent expressly otherwise
provided therein, the charges contained in the Services Schedule do not include
any sales, use, gross receipt or other taxes (other than any based on CSC's
income), and the Customer agrees to pay such taxes if any apply.
(d) Telephone Services. Any private long-line telephone services
provided by CSC pursuant to this Agreement will remain under the control of CSC.
If the Customer requires special telephone line configurations due to its
terminal requirements, CSC reserves the right to charge for this service.
(e) Termination for Customer Breach. If the Customer breaches this
Agreement by failing to timely pay any charge or other amount due to CSC, or
otherwise is in breach of this Agreement, and the breach continues uncured for
thirty (30) days following CSC's delivery of written notice to the Customer
noting the breach and demanding its cure, CSC may discontinue any or all of the
Services to the Customer until the breach is cured. If such breach continues for
thirty (30) days following delivery of such notice, CSC may terminate the
Service Term of any one or more of the Services and/or terminate the General
Term.
8. CSC LIABILITY FOR ERRORS OR DELAYS; LIMITATION OF REMEDIES.
(a) Errors or Omissions by CSC.
(1) In the event any error or omission in CSC's performance of
Services ("Errors") results from the negligence or willful
misconduct of CSC's employees following the timely, accurate,
and complete submission of the relevant records, data, and other
information by Customer to CSC, and the Customer notifies CSC of
the Error in accordance with Section 5, as soon as practicable
following receipt of such notice given CSC's obligations to
others at that time, CSC shall correct such Error by
reprocessing the data without any additional charge to the
Customer for such correction. Any other Errors shall be
corrected by CSC reprocessing the data at the Customer's expense
based on CSC's then prevailing rates, as soon as practicable
following receipt of such written notice of such Error from the
Customer given CSC's obligations to others at that time,
provided that CSC shall in no event have any obligation with
respect to any Error if Customer does not provide CSC
4
<PAGE>
with such written notice within one year of the Customer's
receipt of the material containing the Error.
(2) Notwithstanding Section 8(a)(1), CSC shall not be liable to
the Customer for Errors resulting from defects in, or
malfunctions of, the mechanical or electronic equipment used by
CSC in performing Services. If the Customer desires to obtain
insurance protection against any such Errors, or desires
coverage of fidelity losses through an endorsement to its own
blanket bond coverage, CSC agrees to cooperate with the Customer
in obtaining such insurance or endorsement. It is understood
that all costs and expenses of such insurance or endorsement
shall be paid by the Customer.
(b) Delays. CSC shall not be responsible for delays in processing or
in the delivery of reports, data, or other information, that are caused by
strikes, lockouts, riots, epidemics, war, government regulations not in effect
as of the date hereof, fire, acts of God, failure of transmission or power
supply, mechanical difficulties with equipment, or other causes beyond CSC's
reasonable control.
(c) LIABILITY AND REMEDIES LIMITATIONS; INDEMNIFICATION. THE
PROVISIONS OF SECTION 8(A) ARE IN LIEU OF ALL EXPRESS OR IMPLIED WARRANTIES OF
ANY KIND WHATSOEVER, INCLUDING WITHOUT LIMITATION ANY IMPLIED WARRANTIES OF
MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE. THE REMEDIES SPECIFIED IN
SECTION 8(A) FOR ERRORS ARE EXCLUSIVE, AND THE CUSTOMER HEREBY WAIVES ALL OTHER
REMEDIES. CSC SHALL IN NO EVENT BE LIABLE TO THE CUSTOMER OR ANY OTHER PERSON OR
ENTITY FOR LOST PROFITS OR OTHER SPECIAL, INDIRECT, INCIDENTAL, OR CONSEQUENTIAL
DAMAGES WITH RESPECT TO THIS AGREEMENT (REGARDLESS OF WHETHER CSC HAS NOTICE OF
THE POSSIBILITY OF SUCH DAMAGES), ANY ERROR, OR ANY OTHER ACTION OR OMISSION IN
CONNECTION WITH THIS AGREEMENT, AND CUSTOMER SHALL INDEMNIFY, DEFEND AND HOLD
HARMLESS CSC AND CSC'S DIRECTORS, OFFICERS, SHAREHOLDERS, EMPLOYEES AND AGENTS
FOR, FROM AND AGAINST ANY AND ALL LIABILITY, LOSS, COST, DAMAGE OR EXPENSE,
INCLUDING WITHOUT LIMITATION REASONABLE ATTORNEYS' FEES, ARISING OUT OF ANY
CLAIM BY ANY PERSON OR ENTITY RELATING TO THIS AGREEMENT, ANY ERROR OR ANY SUCH
OTHER ACTION OR OMISSION.
9. REGULATORY AGENCY REQUIREMENTS.
(a) Examinations. The records produced, maintained, and
magnetically stored on premise at CSC and at other off-site locations by CSC for
the Customer in the performance of this Agreement shall be subject to
examination by such Federal and State regulatory agencies as may
5
<PAGE>
have jurisdiction over the Customer's business, including without limitation,
the Federal Deposit Insurance Corporation ("FDIC"), to the same extent as such
records would be subject if they were maintained and produced by the Customer
itself on its own premises. By entering into this Agreement CSC agrees that the
Office of Thrift Supervision ("OTS") will have the authority and responsibility
provided to the other regulatory agencies pursuant to the Bank Service
Corporation Act, 12 U.S.C. ss.1867(C) relating to services performed by contract
or otherwise.
(b) Notices. CSC agrees to provide adequate notice to any
appropriate regulatory agency of any termination of this Agreement, if such
termination is initiated by CSC. The Customer, however, is responsible for all
other notices and communications with regulatory agencies relative to this
Agreement, other than any required by applicable law, rule or regulation to be
provided by CSC in its capacity as a contract service provider to the Customer.
(c) CSC Financial Statements. A copy of CSC's current audited
financial statements and service auditor's report will be sent annually to the
FDIC, the office of the North Carolina Commissioner of Banks, and to the
managing officer of the Customer.
(d) Disaster Contingency Plans. CSC shall remain in compliance
with the existing guidelines of OTS, FDIC, and the Office of the Controller of
the Currency ("OCC") regarding disaster coverage. CSC will recompense the
Customer for disruptions and delays caused by activation of the CSC Disaster
Recovery Plan, if said activation fails to restore reasonably normal service to
the Customer within forty eight (48) hours of Plan activation. Said recompense
will not exceed $1,600.00 per day, and will cease when reasonably normal service
is restored. CSC shall release all information reasonably requested to permit
the Customer to develop a disaster contingency plan that will work in concert
with CSC's plan.
10. DECONVERSION.
(a) Deconversion Services. Upon termination of any Service
(whether or not such termination is in connection with termination of this
Agreement) ("Deconversion"), CSC shall provide information available within the
on-line computer record relating to the terminated Service, in magnetic tape or
in printout form, for the Customer's use under some other system and shall
provide all other reasonable assistance for the Customer's conversion to such
other system, provided that CSC reserves the right to charge in accordance with
its then prevailing rates for programming, personnel time and/or computer time
used in the Deconversion (unless such Deconversion occurs as a result of a
termination of the affected Service(s) by the Customer based on any failure by
CSC to perform fully its duties and obligations hereunder, in which case CSC
shall bear all such expenses). In any event, such Deconversion charges shall not
exceed the sum of fifteen thousand dollars ($15,000.00) plus reasonable out of
pocket expenses incurred by CSC. If the Customer desires CSC to continue
providing a Service temporarily following the end of the Service Term for the
Service, CSC on a temporary basis shall provide such Service at its then
prevailing rates for providing such Service on a temporary basis. After one
hundred eighty (180) days following termination of a Service, and following
written notice to the Customer, the records, data and
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<PAGE>
information files maintained for the Customer by CSC for the Service may be
destroyed by CSC unless other satisfactory written arrangements are made by the
parties prior to that time.
7
<PAGE>
(b) Payment of Deconversion Charges. All amounts payable to
CSC pursuant to Section 9(a) shall be paid, on demand by CSC, by the Customer in
the form of a certified or official check; CSC may require payment in advance of
the Service or action for which it is to be paid pursuant to Section 10(a).
11. MINIMUM SERVICES AND LIQUIDATED DAMAGES.
(a) In General. The parties agree that at the time of
execution of this Agreement, it is difficult or impossible to accurately assess
the damages that would be sustained by CSC as a result of a significant
reduction in the volume of any Service prior to the end of the full Service
Term. Among other things, CSC amortizes the cost of programs, equipment, and
personnel training for a Service over the Service Term and plans its future
commitments based on the expectation that each Service will continue at a
consistent volume throughout its full Service Term. The Customer acknowledges
and agrees that CSC would suffer great financial harm if the volume of a Service
were significantly reduced prior to the end of the full Service Term, because
CSC would not be able to recover its start-up costs or realize its anticipated
future revenues with respect to the Service. CSC agrees and acknowledges that
the remedies described in this Section 11 constitute CSC's sole, exclusive and
entire remedies with respect to the Customer's partial use or non-use of the
Services.
(b) Minimum Service Requirements. With respect to each Service
shown on the Services Schedule (as it may be amended from time to time), the
Customer shall utilize the Service throughout the full Service Term (as it may
be extended from time to time) such that the charges due to CSC pursuant to
Section 7 for the Service rendered for each calendar month (an "Applicable
Month") beginning with the fifth full month following the month in which the
Service is initiated, shall equal or exceed the greater of (i) fifty percent
(50%) of the average monthly charges for the Service for the four calendar
months immediately preceding the Applicable Month or (ii) fifty percent (50%) of
the average monthly charges for the Service for the first full four calendar
months following the initiation of the Service (the greater of (i) or (ii)
determined with respect to an Applicable Month shall be the "Monthly Minimum"
for the Applicable Month). In the event that the charges for a Service for an
Applicable Month, determined before application of this Section 11(b), are less
than the Monthly Minimum for such Applicable Month, the charges for the Service
for such Applicable Month shall be increased to the Monthly Minimum for such
Applicable Month, regardless of the actual amount of the Service rendered or
expenses incurred by CSC during such Applicable Month.
In determining the Monthly Minimum for an Applicable Month, that
portion of the charges in the relevant four-month periods that is attributable
to the Service rendered for a portion of the Customer's operations that the
Customer has discontinued as a result of a Qualified Reduction in the Customer's
Operations occurring prior to the Applicable Month, shall not be counted. For
purposes of the foregoing, (i) a "Qualified Reduction in the Customer's
Operations" shall mean and be limited to a reduction in the Customer's
operations or business directly resulting from an arms' length sale or other
arms' length disposition of Customer assets that is not motivated in whole or in
part by a desire to reduce the volume of Service, all as determined
by CSC in the good faith exercise of its sole discretion, and (ii) the portion
of the charges that is attributable to the Service rendered for any
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<PAGE>
portion of the Customer's operations shall be determined by CSC in the good
faith exercise of its sole discretion.
The operation of this Section 11(b) may be illustrated by the following
examples.
Example 1. Assume that the Applicable Month is the seventh full
calendar month following the initiation of the Service, and that the charges for
the Service for such Applicable Month, determined before application of this
Section 10(b), are $700. Assume further (i) that the average monthly charges for
the Service for the immediately preceding four calendar months are $700 and (ii)
that the average monthly charges for the first full four calendar months
following the initiation of the Service are $1,000. The Monthly Minimum would be
$500, which is the greater of (i) 50% of $700 or (ii) 50% of $1,000. Since the
Monthly Minimum exceeds the charges for the Applicable Month (determined before
application of this Section 11(b)), the charges for the Applicable Month would
be the Monthly Minimum of $500.
Example 2. Assume that the charges for the first Applicable Month for a
Service (i.e., the fifth full calendar month following the initiation of the
Service), determined before application of this Section 11(b), are $700.00.
Assume further that the average monthly charges for the Service for the
immediately preceding four calendar months are $1,000.00. The Monthly Minimum
would be 50% of $1,000, or $500. Since the Monthly Minimum exceeds the charges
for the Applicable Month (determined before application of this Section 11(b)),
the charge for the Applicable Month would be the Monthly Minimum of $500.
Example 3. Assume the same facts as in Example 2, and (i) that the
Customer sold a branch office in one of the four months preceding the Applicable
Month in an arms' length transaction not motivated in whole or in part by a
desire to reduce the volume of the Service, (ii) that the sale of the branch
office is determined by CSC in the good faith exercise of its sole discretion,
to be a Qualified Reduction in the Customer's Operations, and (iii) that the
average monthly charges for such four months, excluding the charges for the
Service attributable to the branch office as determined by CSC in the good faith
exercise of its sole discretion, are $900. The Monthly Minimum would be 50% of
$900, or $450. Since the Monthly Minimum exceeds the charges for the Applicable
Month (determined before application of this Section 11(b)), the charges for the
Applicable Month would be the Monthly Minimum of $450.
(c) Liquidated Damages for Termination. In the event (i) the Customer
in breach of this Agreement terminates a Service shown on the Services Schedule
prior to the expiration of the full Service Term of the Service as provided in
Section 2 (whether before or after commencement of the Service Term) or (ii)
pursuant to Section 7(e), CSC terminates a Service prior to the expiration of
the full Service Term of the Service as provided in Section 2 (whether before or
after commencement of the Service Term) because of the Customer's breach of this
Agreement, the Customer shall pay CSC liquidated damages calculated by first
determining the average monthly charges, before discounts, for the Service for
the twelve (12) full calendar months preceding the calendar month in which such
early termination ("Early Termination") occurs. If the Service has not been
provided by CSC to the Customer for at least twelve (12) full calendar months
prior to the
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month of termination, the average monthly charges shall be determined by CSC
using the actual monthly charges, before discounts, for the full calendar
months, if any, in which the Service was provided and CSC's good faith estimate
of the charges for the number of month(s) less than twelve in which the Service
was not provided, based on CSC's good faith projection of the volume of the
Service the Customer would have required during such month(s) but for the Early
Termination.
The average monthly charge as so determined pursuant to the preceding
paragraph shall be reduced by fifty percent (50%). The resulting product shall
then be multiplied by the number of calendar months in the Service Term
(determined without regard to the Early Termination) for the Service following
the month of the Early Termination, with any fractional months counted as full
months for this purpose. The result of the preceding sentence shall be the
amount of liquidated damages; such amount shall be paid in full by the Customer
to CSC prior to any Deconversion with respect to the Service.
12. NOTICES. All notices contemplated by this Agreement shall be deemed
sufficiently given and effective if sent by means of certified or registered
mail; and if intended for CSC, the notice shall be sent to Central Service
Corporation, P. O. Box 10305, Greensboro, North Carolina 27404; if intended for
the Customer, the notice shall be sent to the Customer's business address
recorded at CSC. Either party may change the address to which it wants notice
sent by means of a notice of the change given to the other party.
13. ASSIGNMENT/MERGER.
(a) Assignment. No right or obligation of either party may be
assigned or delegated to, or otherwise vested in, another person or entity,
whether by operation of law or otherwise, without the express written consent of
the other party, which consent shall not be unreasonably withheld. Subject to
the foregoing, all of the terms of this Agreement shall be binding upon and
inure to the benefit of the parties hereto, and their respective successors and
assigns.
(b) Merger, Etc. In the event the Customer merges with another
entity, or all or a portion of the Customer's assets are otherwise in any way
combined with the assets of another entity, and in either case such other entity
has already in place an agreement pursuant to which CSC renders any service to
such other entity, this Agreement and such other agreement shall each continue
in effect subject, if CSC so elects, to any such amendments as CSC in good faith
may determine to be appropriate to eliminate duplication or conflicting terms.
14. MISCELLANEOUS.
(a) Entire Agreement; Amendments; Nonwaiver. This Agreement,
including the Services Schedule and all Addenda thereto, contains the entire
agreements between the parties with respect to the subject matter hereof, in
which all prior agreements, understandings, or negotiations are merged. Any
additions to or other amendments of this Agreement must be in a writing signed
by both parties. The failure of either party at any time or times to require
strict performance of any
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term of this Agreement shall not waive, affect or diminish the right to demand
strict performance of such term at any time or times thereafter.
(b) Governing Law; Severability. The laws of the State of
North Carolina shall govern the validity, interpretation, performance and
enforcement of this Agreement. If any of the terms of this Agreement or the
application thereof to any entity or circumstance shall, to any extent, be
invalid or unenforceable, the remainder of this Agreement or the application of
such terms to any entity or circumstance other than those to which it is held
invalid and unenforceable, shall not be affected thereby, and each term of this
Agreement shall be valid and enforceable to the fullest extent permitted by law.
IN WITNESS WHEREOF, the parties have caused this Agreement to be
executed by their duly authorized officers under seal effective as of the date
first above written.
CUSTOMER: CENTRAL SERVICE CORPORATION
Four Oaks Bank & Trust Company
By: /s/ Nancy S. Wise By: /s/ Michael Chapman
Its Senior VP of Finance Its Senior Vice President
Attest: /s/ Wanda C. Jones Attest: /s/ Thomas Brown
Its Corporate Secretary Its Secretary
[Corporate Seal] [Corporate Seal]
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SCHEDULE OF SERVICES
FOR
MASTER SERVICE AGREEMENT
Pursuant to the Master Service Agreement (the "Agreement") between
Central Service Corporation ("CSC") and Four Oaks Bank & Trust Company (the
"Customer"), the Services selected below shall be provided by CSC to the
Customer pursuant to the terms of the Agreement and the terms of the applicable
Addendum(s).
This Schedule of Services including all such Addenda as they may be
amended from time to time ("Services Schedule") constitutes a part of the
Agreement for all purposes. Capitalized terms used but not otherwise defined in
this Services Schedule shall have the meanings given in the main text of the
Agreement.
The terms of this Schedule of Services, including its Addenda, shall be
interpreted in a manner consistent with, and so as to avoid conflict with, the
terms in the main body of the Agreement.
Selection of Services
The Service(s) to be provided are indicated below by initialling by
both the Customer and CSC. If no expiration is specified below for the Service
Term for a Service, the Service Term for the Service shall be the General Term
provided in the Agreement.
<TABLE>
<S> <C> <C>
Customer ______ A. Dollar System Data Processing Service. If this Service
CSC ______ is selected, the Service shall be subject to the additional terms
provided in the Addendum entitled "Data
Processing Service", as it may be amended
from time to time.
Service Term begins ______________ and expires __________________ .
Customer ______ B. Item Processing Service. If this Service is selected, the
CSC ______ Service shall be subject to the additional terms provided in the
Addendum entitled "Item Processing Service",
as it may be amended from time to time.
Service Term begins 9/9/96 and expires 9/8/2001.
------------------.
<PAGE>
Customer ______ C. Locbox Service. If this Service is selected, the Service
CSC ______ shall be subject to the additional terms provided in the Addendum
entitled "Locbox Service", as it may be amended from time to
time.
Service Term begins ______________ and expires ________________.
Customer ______ D. Premier Banking System Service. If this Service
CSC ______ is selected, the Service shall be subject to the additional terms
provided in the Addendum entitled "Premier Service", as it may be
amended from time to time.
Service Term begins 9/9/96 and expires 9/8/2001.
Customer ______ E. Automated Teller Machine Service. If this Service is
CSC ______ selected, the Service shall be subject to the additional terms
provided in the Addendum entitled "ATM Service", as it may be
amended from time to time.
Service Term begins ______________ and expires _____________.
</TABLE>
Dated: 4-16-96
CUSTOMER: CENTRAL SERVICE CORPORATION
Four Oaks Bank & Trust Company
By: /s/ Nancy S. Wise By: /s/ Michael Chapman
Its Senior VP of Finance Its Senior Vice President
Attest: /s/ Wanda C. Jones Attest: /s/ Thomas Brown
Its Corporate Secretary Its Secretary
[Corporate Seal] [Corporate Seal]
13
<PAGE>
Addendum A
a. All initial fees for Premier, Item Processing, ATM, and TELEBANC are
waived.
b. A Discount of 30% (thirty percent) will be applied against all
Premier, Item Processing, ATM, and TELEBANC prices in this agreement, with the
exception of pass-through TELEBANC charges, identified in attached Schedule N as
"Telephone Company Charges" and "Custom Recording".
c. CSC agrees to purchase from Customer one UNISYS DP500 reader/sorter
for the amount equal to the depreciated value of the device as carried on the
books of the Customer as of the effective date of this agreement.
d. CSC acknowledges that the Customer, by converting to CSC, is placing
a substantial portion of its operations in the hands of CSC, its systems, and
its services. Consequently, CSC agrees to render null and void Section 11
("Minimum Services and Liquidated Damages") of the Master Service Agreement if a
decision is made by CSC or its successors to either 1) cease offering the
Premier System, or 2) cease offering Items Processing services in a location
that is within 200 miles of the Customer's main office.
e. In the event that the Customer's accounts are not converted to the
CSC Premier System on or before 9/9/96, if such delay does not result from
causes outside CSC's control, including acts or omissions of the Customer or its
representatives, CSC agrees to pay any excess or extraordinary expenses incurred
by the Customer resulting from said delay.
f. CSC agrees to maintain the following minimum service levels:
1. Customer response times averaging four (4) seconds during
any period of sixty (60) minutes. The Customer agrees to notify CSC immediately
upon encountering instances of slow response time, and CSC will be granted a
reasonable time to correct the situation. The standard of four seconds average
response time does not apply to transmissions related to Remote Printing,
PRINTSCAN, SMART Reports, Check Image research, or data file transfers, nor to
instances resulting from causes outside CSC's control. This standard does not
apply when CSC has activated its Disaster Recovery plan.
2. Statement rendering errors not to exceed one tenth of one
percent (0.10%) of statements mailed during any given calendar month. This
standard will change to one twentieth of one percent (0.05%) when the Customer's
checking accounts are on CSC's Image Statement system.
3. Checking statements to be mailed no later than the second
business day following the statement drop date, except in cases of "crippled"
statements, or if CSC has implemented its Disaster Recovery plan, or for causes
outside CSC's control.
If the Customer feels that CSC has unreasonably failed to meet these performance
standards in any given month, the Customer will so notify CSC in writing within
ten days following the end of the month in question, said notification to
contain reasonable documented evidence of the failure. The Customer will be
entitled to an additional five percent (5%) discount on all Premier and Item
Processing charges for the month identified.
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g. CSC agrees to provide the required data extract file(s) for the
Customer's PROFITSTAR analysis system in the form and manner prescribed by
PROFITSTAR, within sixty (60) days following the Customer's conversion to CSC.
Should CSC fail to make said file available within the aforementioned timeframe,
the Customer will be entitled to an additional five percent (5%) per month
discount on Premier charges for each additional month said extract file(s) is
not made available.
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<PAGE>
PREMIER SERVICE
ADDENDUM
TO
SCHEDULE OF SERVICES
FOR
MASTER SERVICE AGREEMENT
1. Service Description. CSC shall provide the services referred to in
the attached Exhibit A, subject to Section 3 and the other provisions of the
Master Service Agreement.
2. Hours of Service. The Premier on-line system will be in operation
for access in the time zone of the Customer from 7:30 a.m. to 7:30 p.m., Monday
through Friday, and 7:45 a.m. to 1:30 p.m. on Saturday. Said hours may be
modified by mutual written agreement between CSC and the Customer. Any
additional hours of on-line processing requested by the Customer may be charged
at CSC's then prevailing rate. CSC will observe New Year's Day, President's Day,
Memorial Day, Independence Day, Labor Day, Thanksgiving, and Christmas as
holidays, and the Premier on-line system therefore will not be available to the
Customer on those days.
3 Charges for Service. The charges for the Service and CSC's expenses
incurred in the performance thereof shall be as provided in the attached Exhibit
B, subject to Section 7 and the other provisions of the Master Service
Agreement.
<PAGE>
EXHIBIT A
TO
PREMIER SERVICE ADDENDUM
List of Services
Central Information System
Demand Deposit Accounting
Savings Accounting
Certificate of Deposit Accounting
Loan Accounting
Financial Management System
Item Entry System
Express Exceptions
Retirement Accounting
Credit Reporting
Check Reconciliation System
Federal Call Reporting
Bond Accounting
Accounts Payable
Asset/Liability Management
On-Line Loan Collection
Premier Reference System
Paperless Item Module (PIM)
Fixed Assets Module
Currency Transaction Reporting Module
Sharp 6500 Mainframe Module
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EXHIBIT B
TO
PREMIER SERVICE ADDENDUM
CATEGORY PRICE
- - -------- -----
Central Information System
Demand Deposit Accounting
Savings Accounting
Certificate of Deposit Accounting
Loan Accounting
Financial Management System
Item Entry System
Express Exceptions
Premier Reference System
Paperless Item Module (PIM)
Initial System Fee $ 10,000.00
- - ------------------
Monthly Fees:
Accounts
First 5,000 $0.270
Next 5,000 $0.250
Over 10,000 $0.200
Transaction Account Supplement
First 5,000 $0.250
Next 5,000 $0.200
Over 10,000 $0.150
Loan and G.L. Account Supplement
First 5,000 $0.270
Next 5,000 $0.250
Over 10,000 $0.200
Closed Accounts $0.040
DataComm Site Charge $250.00
Additional Modules (monthly)
Retirement Accounting $0.00
Credit Reporting $0.00
Check Reconciliation System $0.00
Federal Call Reporting $0.00
Bond Accounting $0.00
Accounts Payable $0.00
Asset/Liability Management $0.00
On-Line Loan Collection $0.00
Currency Transaction Reporting $0.00
Sharp 6500 Mainframe Module $0.00
18
<PAGE>
ITEM PROCESSING SERVICE
ADDENDUM
TO
SCHEDULE OF SERVICES
FOR
MASTER SERVICE AGREEMENT
1. Service Description. CSC shall process the items of the Customer and
the Customer's customers, including performing items processing, data
transmissions, daily service functions and bookkeeping, as more particularly
described in the attached Exhibit A, subject to Section 3 and the other
provisions of the Master Service Agreement.
2. Charges for Service. The charges for the Service and CSC's expenses
incurred in the performance thereof shall be as provided in the attached Exhibit
B, subject to Section 7, Addendum A, and the other provisions of the Master
Service Agreement.
<PAGE>
EXHIBIT A
TO
ITEM PROCESSING ADDENDUM
1. CHECK PROCESSING OPERATIONS
(a) GENERAL DESCRIPTION. CSC will receive the Customer's
inclearing checks and teller work (items) from the Customer and the
Federal Reserve Bank. CSC will read and sort the items, transcribing
the data onto magnetic media for subsequent processing. Items will be
balanced to the Federal Reserve cash letters for the Customer. After
posting, the institution will notify CSC of items to be returned to
Federal Reserve. Settlement with the Federal Reserve will be made by
the Client. Periodic statements will be prepared by CSC for matching
with items and mailing.
(b) RECEIVING ITEMS FROM THE FEDERAL RESERVE BANK. CSC will
designate a point to which inclearing checks of the Customer are to be
delivered. The Customer will notify the Federal Reserve of this
delivery point. Each business day, beginning at approximately 6:00
a.m., the Federal Reserve will deliver to the designated delivery point
all Customer items, together with all other items being sent to that
delivery point and covering cash letter(s).
(c) CAPTURE AND BALANCE. Upon receipt of all debit items from
the Federal Reserve, CSC will read and sort ("capture") inclearing
items and transcribe the item data onto magnetic media, including
transit/routing number, account number, dollar amount, and check serial
number. Any MICR reject items will be manually processed. Each
inclearing item will be endorsed with a "paid" endorsement, which will
be canceled if the item is returned. Paid items will be bulk filed at
the CSC facility in Greensboro.
CSC will balance the tape total of captured items to the
total(s) furnished by the cash letter(s) from the Federal Reserve.
During this process, CSC will identify missing items (listed but not
included), free items (included but not listed), listing errors
(discrepancies between MICR line and cash letter line for a given
item), and other conditions contributing to an imbalance between the
cash letter total and the tape total. Once all imbalance conditions
have been accounted for, CSC will adjust the tape as required and
prepare adjustment entries for return to the Federal Reserve.
(d) RECEIVING ITEMS FROM CUSTOMER. CSC will designate a point
to which Customer shall deliver transactions generated at Customer
offices. These items will be inscribed by CSC to insure that full MICR
data is encoded on each item, and that all transactions are in balance.
CSC will establish dollar control totals for subsequent balancing after
the capture and reject reentry process. Imbalances detected will be
resolved according to Customers instructions. Capture and balance
functions will occur as (in "c") above.
20
<PAGE>
(e) RETURN ITEMS. CSC will process overnight the transactions
received from CSC and make the results of that processing available to
the Customer. The Customer will identify items to be returned to the
Federal Reserve (for insufficient funds, stop payment, etc.). According
to a schedule established by CSC, and in no event later that 2:00 p.m.
of the business day following posting of the transaction, the Customer
will advise CSC of all items to be returned to the Federal Reserve
according to Federal Reserve operating rules.
(f) EXCEPTION ITEMS. All decisions to pay or return exception
items, including, but not limited to, stop pay suspects, drafts on
uncollected or insufficient funds, drafts on closed, blocked, or
dormant accounts, will be made by the Customer, and CSC will have no
right, duty or obligation to make any decision with regard to whether
any items should be honored by the Customer.
(g) STATEMENTS. CSC will match retained items or images with
statements, count and compare the items with the number of items shown
on the statement, and prepare statement for mailing. The cycle dates
for the preparation of statement will be as mutually agreed upon. CSC
will have a minimum of two (2) business days after printing of
statement to complete the processing of a statement of accounts in each
cycle.
(h) SETTLEMENT. The Customer will select and notify CSC and
the Federal Reserve of the financial institution and the account number
at that institution to be used for settlement of the Customer's items.
The Federal Reserve will charge that account for the total of checks
presented each day and make adjustments for return items and cash
letter discrepancies. CSC will assume no responsibility for accuracy of
settlement.
2. CHECK MICR REQUIREMENTS. CSC will employ specialized equipment to
read the check MICR characters for the purpose of physically sorting
the items, capturing the data on magnetic media for computer processing
and listing the checks. The Customer will ensure that the MICR line
specifications are compatible with CSC processing requirements.
Customer will provide CSC with a description of account number
structure, a list of valid account number ranges, check digit formulas,
and sample checks to facilitate validation of account number formats by
CSC.
The Customer will provide to its customers only checks
compatible with CSC processing equipment meeting reasonable quality
standards. Upon request, CSC will provide the Customer with a list of
check vendors who furnish checks with formats compatible with CSC
equipment.
3. SIGNATURE CARDS. The Customer will retain on file a signature
verification card for each account. CSC will assist with signature
verification but assumes no responsibility for the accuracy of any
signature verification as requested by the Customer.
21
<PAGE>
4. RECORD RETENTION. During the read/sort process, all inclearing items
of the Customer will be recorded and will be retained in retrievable
form by CSC for a period as required by law. During this period, CSC
will provide the Customer with copies of such items upon request with a
corresponding service charge to the Customer under the fee schedule in
effect at the time of the request. CSC will maintain an indexed history
of return items and paid items in account number sequence to assist the
institution when it requests copies of checks.
22
<PAGE>
EXHIBIT B
TO
ITEM PROCESSING ADDENDUM
PROOF ENCODING (PER DOCUMENT)
First 50,000 $0.040
Next 50,000 $0.035
Over 100,000 $0.030
Teller/Customer Corrections $1.000
PER ITEM, PRIME ENTRY
First 50,000 $0.025
Next 50,000 $0.020
Over 100,000 $0.015
IMAGING IMPLEMENTATION FEE $2,500.00
IMAGING SUPPLEMENT (PER ITEM)
Negative-Only Implementation $0.010
Positive Implementation $0.015
CUSTOMER SERVICE OPTIONS
Returns (each) $2.00
Large Dollar Returns (each) $4.00
Returns Qualification (each) $0.35
Federal Reserve Adjustments (each) $1.00
Null/Account Number Rejects (each) $1.00
Large Dollar Item Notification (each) $0.50
Item Search (per item) $1.00
Photocopy (each) $1.00
STATEMENT SERVICE OPTIONS
DDA Statement Rendering-Personal (per statement) $0.20
DDA Statement Rendering-Commercial (per statement) $0.40
DDA Statement Rendering-Image (per statement) $0.10
Savings/CD Statement Rendering (per statement) $0.05
Inserts (per stmt) $0.020
Enclosure Photocopies $10.00 / hour + $1.00 per copy
Serial Sort (per check) 0.020
(Commercial or special accounts only)
MAILING (other than checking accounts) 0.040
(per envelope)
23
<PAGE>
MINIMUM FEES
Minimum monthly fee for Check Processing Services is $75.00 per institution.
Minimum monthly fee for LocBox Service is $75.00 per institution.
SERVICE EXPLANATIONS/NOTES
Postage and any item delivery expenses will be charged to the institution.
24
<PAGE>
ATM SERVICE
ADDENDUM
TO
SCHEDULE OF SERVICES
FOR
MASTER SERVICE AGREEMENT
1. Service Description. CSC shall process data supplied by the
Customer to CSC through telecommunication from automated teller machines
("ATM"). The following standard terms shall apply, subject to the Master Service
Agreement and any contrary agreement made in writing from time to time by the
Customer and CSC:
(a) CSC's ATM system will be in operation 24 hours per day,
every day of the year, except for those times during which maintenance must be
performed.
(b) CSC shall make available to the Customer at the office of
CSC daily reports on the morning of the working day following the day on which
the reported transaction occurred.
(c) The Customer shall pay the cost of transportation for any
reports delivered to the Customer, whether via ground transportation, electronic
data transmission or otherwise. Additional copies, special pre-printed forms
including but not limited to PIN mailers and audit confirmations, and any
mailing and handling service, shall be provided under the terms set forth in the
attached Exhibit A. The design and format of any such forms to be used on the
CSC computer system must be approved by CSC.
2. Charges for Service. The charges for the Service and CSC's expenses
incurred in the performance thereof, shall be as provided in the attached
Exhibit A.
<PAGE>
EXHIBIT A
TO ATM SERVICE ADDENDUM
ATM SYSTEM PRICING
Initial Charges:
Client Admission Fee $ 5,000.00
Each ATM $ 1,500.00
Monthly Charges:
Transaction Fee $ 0.080
ATM Charge per ATM $ 250.00
COMMUNICATION INSTALLATION COSTS
Any cost incurred for installation of new or alteration of existing
communication lines from the telephone company will be billed at the rate from
the telephone company plus twelve percent (12%).
COMPUTER OUTPUT MICROFICHE (COM) CHARGES
Original $ 1.375
Copies $ 0.275
SPECIAL PROGRAMMING AND CONSULTING
If any special or custom programming becomes necessary for the Customer for
reports, transactions, services, or additional applications, the programming
charges shall be borne by the Customer and billed based upon CSC's then
prevailing rates. If additional processing time is required due to such
programming, the Customer shall be required to pay for such additional time at
CSC's then prevailing rates. CSC reserves the right to decline Customer requests
for special programming if the changes would adversely affect the overall system
or if the resources are not available to accomplish the request. Charges for CSC
consulting services will be based upon CSC's then prevailing rates plus
out-of-pocket expenses.
COSTS INCURRED BY CSC
Costs incurred by CSC for any special pre-printed forms, mailing service, or
special handling will be charged to the Customer on a time and materials basis
and will be included in the monthly invoice.
26
<PAGE>
Note 1 CSC can presently provide files to the following
plastic card vendors in their requested format:
1. First Data Resources (FDR)
2. Deluxe
3. EFT Source
4. Faraday
5. Specialty Network Services
A charge shall be assessed for the conversion of any data files to any
other format not listed above. In addition, a conversion fee shall be
assessed for the conversion of other types of data files, account
balances, etc., as necessary for CSC to provide such services.
27
<PAGE>
SCHEDULE N
CENTRAL SERVICE CORPORATION
TELEBANC VOICE RESPONSE SYSTEM
CLIENT CHARGES:
PRICE
1. INITIAL LICENSE FEE $ 12,000.00
(Includes custom greeting,
closing, and 800 number)
2. MONTHLY FEES
MONTHLY BASE FEE $ 250.00
PER CALL $ 0.12
3. TELEPHONE COMPANY CHARGES actual
4. CUSTOM RECORDING $ 600.00 per hour
28
<PAGE>
SCHEDULE O
CENTRAL SERVICE CORPORATION
VISA CHECK CARD SERVICE
BY SPECIAL ARRANGEMENT WITH
SPECIALTY NETWORK SERVICES, INC.
MAITLAND, FLORIDA
CLIENT CHARGES:
1. ONE TIME SET-UP FEE $ 2,500.00
2. MONTHLY FEES
MONTHLY BASE FEE $ 100.00
AUTHORIZATION FEES $ 0.10 per authorization
SETTLEMENT FEES $ 0.10 per settlement
MONTHLY FILE RESIDENCY $ 0.15 per card
LOST/STOLEN CARDS $ 12.00 each
NEGATIVE FILE UPDATES $ 1.25 each
CHARGEBACKS/DISPUTES $ 2.00 each
3. VISA FEES, DUES, ASSESSMENTS variable
(assessed directly by VISA)
29
<PAGE>
Exhibit 6 to Form F-2
1996 Annual Report to Shareholders
for the Fiscal Year Ended December 31, 1996
<PAGE>
FOUR OAKS
BANK & TRUST
1996
ANNUAL
REPORT
<PAGE>
PROFILE
Four Oaks Bank & Trust Company is a state-chartered bank headquartered in Four
Oaks, North Carolina. With over $159 million in assets and nearly $143 million
in deposits, the Bank holds 18% of Johnston County's deposit market share. We
are a full service financial institution committed to providing our customers
with modern banking products and services without sacrificing the quality,
personalized service our customers expect and deserve. We are presently
operating from six locations in Four Oaks, Clayton, Smithfield and Garner. The
Bank was chartered in 1912 and its deposits are insured by the FDIC.
CONTENTS
Financial Highlights 1
Letter to Shareholders 2
Management's Discussion 4
Selected Financial Data 14
Independent Auditor's Report 16
Balance Sheets 17
Statements of Operations 18
Changes in Shareholders' Equity 19
Statements of Cash Flows 20
Notes to Financial Statements 21
Corporate Information 31
Board Of Directors 32
Officers And Advisory Boards 34
Staff And Locations 35
Mission Statement 36
<PAGE>
FINANCIAL HIGHLIGHTS
5 Year
Compound
Annual
1996 1995 Growth Rate
Net Income $1,820,850 1,524,357 22.1%
Per Common Share:
Net Income 2.19 1.85 21.7%
Dividends .51 .47 6.1%
Book Value 17.14 15.60 8.9%
At Year End (Thousands):
Assets $159,113 133,421 13.5%
Investments(1) 38,654 33,844 17.1%
Net Loans 108,036 88,668 12.6%
Deposits 142,843 118,965 14.1%
Shareholders' Equity 14,363 12,919 9.4%
Ratios:
Profitability:
Return on Average Assets 1.24% 1.22%
Return on Average Equity 13.4% 12.6%
Capital Adequacy (Year End):
Equity to Assets 9.0% 9.7%
Primary Capital to Assets 9.8% 10.5%
Operating Efficiency:
Noninterest Income/Average Assets .60% .58%
Noninterest Expense/Average Assets 2.98% 3.06%
Assets Per Employee (Millions) $ 2.31 2.26
(1) Includes interest bearing bank balances
(A graph appears here with the following plot points:)
1991 1992 1993 1994 1995 1996
Net Loans 59,751 60,238 66,370 73,814 88,668 108,036
Total Deposits 73,989 80,772 90,265 101,978 118,965 142,843
Total Assets 84,452 91,653 103,609 116,674 133,421 159,113
-1-
<PAGE>
Letter To Shareholders
Dear Shareholders,
1996 proved to be a most profitable year for Four Oaks Bank & Trust
Company. It was a year of tremendous growth in many aspects. The Bank grew 19%
in assets, 22% in loans and 20% in deposits. Net income surpassed our
expectations, reaching $1,820,850, a 19% increase over 1995. Book value per
share at December 31,1996 of $17.14 increased from $15.60 in 1995. Return on
average assets and average equity for 1996 of 1.24% and 13.41% compare to 1995
levels of 1.22% and 12.56%. Our last stock trade in 1996 was at $26.50 per
share. We are pleased with the Bank's performance and are grateful to each
shareholder, customer, director and employee for your role in this growth and
success.
As you study the facts and figures which summarize the activities of the
Bank during 1996 you will see that our growth was the result of careful
strategic planning and execution by our Board of Directors and employees. This
growth was facilitited primarily through the avenues of market expansion, cost
containment, technological advancements, and new avenues of income.
Market expansion in 1996 was spearheaded by the opening of our new office
in the Old Drug Store community, reaching the populace of the fastest growing
section of Johnston County, but it also included the addition of new products
and services. We intensified our efforts to increase non- interest sources of
income during 1996. Accounts receivable financing is now available to eligible
businesses. This product improves their cash flows while reducing staffing cost.
Our leasing program offers attractive terms for equipment and furnishings. We
are also in the process of enhancing our credit card program for both
cardholders and merchants.
Technology has played a major role in our growth in 1996. Our switch to
outsourcing item processing and the introduction of image statements greatly
reduced recurring cost. These changes also freed up space enabling us to house
our Training Center and our planned Centralized Loan Processing Department
without additional space. Centralized loan processing will increase loan
origination processing efficiency and document imaging will greatly increase
access efficiency, while dramatically reducing the need for storage space.
Realizing the need to increase awareness within our market place, our Bank
engaged the services of an experienced advertising and marketing firm in 1996,
thus taking a more aggressive and effective approach to marketing our products
and services.
(A graphic appears here with the following caption:)
Sound agribusiness practices helped our Bank and customers avoid what The
Wall Street Journal saw as disastrous potential in the aftermath of Hurricane
Fran.
Strategic plans set goals for growth and plot the course for achieving
them, but equally important is careful planning and strategy for avoiding losses
and off-setting unforeseen setbacks. This was a year which emphasized that fact
like no other in recent years. In September this Bank and its customers sat dead
center of the devastating path of Hurricane Fran.
2
<PAGE>
Letter To Shareholders
(photo appears here with the following caption:)
Friends Of Scouting President Bucky Grady, Four Oaks City Exec. Horace Keene and
Civitan Club President Jim Best check renovation progress on building donated
by FOB&T for a Scout Hut.
The Wall Street Journal published an article noting that Four Oaks Bank has
the largest portion of its loans in agricultural lending of all banks in the
counties declared disaster areas. The article predicted that in the wake of the
storm "the surge in bad loans...could hurt profits". However, as a result of our
loan policies, customer determination, and tremendous amounts of recovery effort
exerted by neighbors and friends, past due loans and loans in nonaccrual status
at year end were at record lows. Our charge offs were down, both in dollars and
as a percentage of loans from our 1995 levels. Both farmers and the Bank
weathered the storm very well. We came through the ordeal prouder than ever of
the communities we serve and even more committed to that service.
This commitment was evidenced in our involvement in community reinvestment.
During 1996, we helped Four Oaks Friends of Scouting get a new Scout Hut by
donating a house and a part of the moving cost to the Four Oaks Civitan Club.
Our sponsorship of the Neal Lancaster / Four Oaks Bank & Trust Charity Classic
Golf Tournament, resulted in the generation of over $31,000 to help fund
scholarships through Johnston Community College. It is through investments such
as these that we expect to realize our greatest future returns.
(photo appears here with the following caption:)
The 1996 Neal Lancaster/FOB&T Charity Classic generated
over $31,000 in scholarship endowments for Johnston
Community College.
All of this, plus a unique combination of talented, dedicated employees and
hard working grass roots citizens who enjoy the personable services of a true
community bank, has resulted in our market share of deposits in Johnston County
having grown continuously over the past five years - going from 12.45% at June
30, 1991 to 18.00% at June 30, 1996. Over this same period total deposits grew
from $68,725,000 to $125,913,000. We have the second largest share of Johnston
County's deposits of all banks, savings & loans, credit unions and savings banks
in the county.
We appreciate your support and encourage you to remember us to your friends
and associates.
(photo of Ayden R. Lee, Jr. appears here)
Sincerely,
/s/ Ayden R. Lee, Jr.
Ayden R. Lee, Jr.
President & Chief Executive Officer
3
<PAGE>
(photo appears here)
Growth Through Market Expansion
While we continue to grow within our existing market area, the bank is
constantly exploring new locations and is poised to act as opportunities arise
either by purchasing existing branches or by de novo branching. In 1996 we
opened our new office in the Old Drug Store community.
(graphic appears here with the following caption:)
1996 Saw The Completion Of Our Old Drug Store
Office At The Intersection Of I-40 & Hwy 42-
Establishing Us In One Of The Fastest Growing
Communities In The Region.
This beautiful facility and a very capable and experienced staff gives our
Bank a strong, vital presence in western Johnston County. Ideally situated at
the intersection of Highway 42 and Interstate 40, this location places us
directly in the path of the phenomenal growth which is pouring out of Wake
County along Interstate 40. Extended drive through hours and opening on Saturday
mornings make this location even more accessible to commuters as well as those
whose jobs take them out of reach during normal banking hours.
Marketing this new location kicked off a more aggressive and effective,
approach to marketing our entire bank and its services. Beginning in May of 1996
we contracted the services of an experienced advertising firm to help us expand
our visibility and to better position the Bank and its products.
(graphic apears here with the following caption:)
Ron Sloan of Sloan Communications reviews proposed advertising and
marketing materials with C.O.O. Cliff Painter and C.E.O. Ayden Lee.
4
<PAGE>
(photo appears here)
Management's Discussion
Discussion and Analysis of Financial Condition and Results of Operations
General
Four Oaks Bank & Trust Company has experienced significant sustained growth in
assets and deposits over the last five years and under the present management.
Assets increased from $84,452,000 at December 31, 1991 to $159,113,000 at
December 31, 1996, while total deposits increased from $73,989,000 to
$142,843,000. In addition, for 61 consecutive years the Bank has paid dividends
which over the last five years have averaged 28% of the average net income of
$1,330,000.
Interest rates on deposits and loans are set at competitive rates while
maintaining spreads of 3.87% and 3.94% in 1996 and 1995, respectively, between
interest earned on average loans and investments and interest paid on average
interest bearing deposits and short-term borrowing. Gross loans have increased
from $60,416,000 at December 31, 1991 to $109,476,000 at December 31, 1996,
while average net annual chargeoffs over the last five years were $141,248. The
sustained growth provided by operations resulted in increases in total assets of
19.3%, 14.4%, and 12.6% for 1996, 1995, and 1994.
Gross loans grew 21.8% in 1996 and 20.2% in 1995. Total investments (including
federal funds sold and interest bearing bank balances) increased 14.2% in 1996
and 3.0% in 1995. The Bank closely monitors changes in the financial markets in
order to maximize the yield on its assets. The growth in loans and investments
is funded by the growth in total deposits of 20.1% in 1996 and 16.7% in 1995
and net income of $1,820,850 in 1996 and $1,524,357 in 1995. Net income for 1996
and 1995 increased 19.5% and 21.3% due to favorable interest margins and
effective cost containment measures.
Management historically has monitored and controlled increases in overhead
expenses while being committed to developing the skills and enhancing the
professionalism of the Bank's employees. Employee turnover has been minimal,
while the number of full-time equivalent employees has increased from 52 at
December 31, 1991 to 69 at December 31, 1996.
Results of Operations
Interest income increased by 16.7% in 1996, 29.7% in 1995, and 13.6% in 1994. In
1996 and 1995, loan volumes were at record levels all year with much less
seasonal fluctuation than we have had historically.
NET INCOME
(A graph appears here with the following plot points:)
<TABLE>
<CAPTION>
In Thousands: 1991 1992 1993 1994 1995 1996
<S> <C> <C> <C> <C> <C> <C>
$2,000
$1,821
$1,800
$1,600
$1,524
$1,400
$1,257
$1,200
$1,088
$1,000
$958
$800
$672
$600
$400
$200
$0
</TABLE>
5
<PAGE>
Growth Through Technological Advancements
Strategic plans set goals and plot the course for achieving them, however
this would be in vain if not for the excellent individual efforts and
adaptability to new technology which has been evidenced by our employees.
Technological advancements put in place during 1996 required adjustments to
schedules and duties, but enabled us to offer superior products.
(graphic appears here with the following caption:)
Vice President Jean Blackmon finds that Othal Minshew
of Four Oaks, and other customers,
appreciates the simplified merits of our new
CheckImaging statements.
Image statements are a highly desired product in today's banking industry.
We introduced this product to our customers with great acceptance in December
1996.
Our new computer network sets the stage for easier communications between
departments and branches. It will eventually ease research, and provide the
foundation for optical storage and retrieval of various bank records.
Tellers at our newest branch, located in the Old Drug Store Community, are
enjoying our first installation of PC based E-Z TELLER software. Plans are to
install this systemwide and to add document imaging for loan records in 1997.
(photo appears here with the following caption:)
The E-Z Teller System now in place at our Old Drug Store
location, helps by simplifying teller functions and streamlining
information processing.
-6-
<PAGE>
Management's Discussion
This steady loan growth results from increased loan demand in our Clayton and
Smithfield markets and from our expanded market area served by our newest branch
near Garner. Average gross loans were approximately $103,559,000 in 1996,
$85,223,000 in 1995, and $72,889,000 in 1994. Average investments were
approximately $30,748,000 in 1996, $27,569,000 in 1995, and $25,147,000 in 1994.
Market rates fluctuated as average prime rates were 8% in 1996, 9% in 1995, and
7% in 1994. However growth in 1996, 1995 and 1994 interest income is primarily
due to higher volumes. Interest expense increased 19% in 1996, 53% in 1995, 7%
in 1994. Deposit rates peaked in 1995, then began a slow descent, after rising
during 1994 from the low levels prevailing for all of 1993. Noninterest income
increased 21% and 87% primarily due to fees generated on new products in 1996
and fewer securities losses being taken in 1995. While the Bank's stated service
charges and fees have not significantly increased, the related income has risen
due to higher account volumes and increased collection efforts. Noninterest
expenses have increased from $3,310,825 in 1994 to $3,818,514 in 1995 and
$4,375,359 in 1996. These increases are the result of increased operating
expenses caused by the growth of the Bank. The Bank's growth has resulted in
more employees, increased facilities and equipment costs, and an increase in the
volume of transactions.
Liquidity and Capital Resources
The Banks liquidity position is primarily dependent upon its need to respond to
loan demand and short-term demand for funds caused by withdrawals from deposit
accounts (other than time deposits) and upon the liquidity of its assets. The
Banks primary liquidity sources include cash and amounts due from other banks,
federal funds sold, and U.S., Agency, and other short-term investment
securities. In addition, the Bank has the ability to borrow funds from the
Federal Reserve Bank and the Federal Home Loan Bank of Atlanta and to purchase
federal funds from other financial institutions. The Bank's management believes
its liquidity sources are adequate to meet its operating needs.
Total shareholders' equity was $14,362,652 or 9.0% of total assets, and
$12,919,208 or 9.7% of total assets at December 31, 1996 and 1995, respectively.
Inflation
The effect of inflation on financial institutions differs somewhat from the
impact on other businesses. The performances of banks, with assets and
liabilities that are primarily monetary in nature, are affected more by changes
in interest rates than by inflation. Interest rates generally increase as the
rate of inflation increases, but the magnitude of the change in rates may not be
the same. During periods of high inflation, there are normally corresponding
increases in the money supply, and banks will normally experience above average
growth in assets, loans and deposits. Also, general increases in the price of
goods and services will result in increased operating expenses.
Income Taxes
Income taxes, as a percentage of income before income taxes, for 1996, 1995 and
1994 were 31.6%, 30.9%, and 29.9%. These changes are the result of management's
redirection of funds between loans and different types of taxable and tax exempt
interest-bearing assets in response to economic conditions and the Bank's
liquidity requirements.
DISTRIBUTION OF ASSETS, LIABILITIES AND SHAREHOLDERS' EQUITY; INTEREST RATES AND
INTEREST DIFFERENTIAL
The following schedule presents average balance sheet information for the years
1996 and 1995, along with related interest earned and average yields for
interest-earning assets and the interest paid and average rates for
interest-bearing liabilities.
-7-
<PAGE>
Management's Discussion
Average Balances, Interest Income/Expense, Average Yield/Rate
<TABLE>
<CAPTION>
1996 1995
average interest average average interest average
(Dollars in thousands) daily income/ yield/ daily income/ yield/
balance expense rate balance expense rate
<S> <C> <C> <C> <C> <C> <C>
Assets
Cash and due from banks $4,410 $3,550
Interest bearing bank balances 2,644 $153 5.79% 3,709 $ 221 5.97%
Investments:
U.S. Treasuries and Agencies 24,527 1,549 6.32% 21,993 1,441 6.55%
Tax exempt(1) 5,251 274 5.22% 4,776 259 5.42%
Other investments 970 64 6.60% 800 58 7.22%
Total investments(3) 30,748 1,887 6.14% 27,569 1,758 6.38%
Commercial loans 25,877 2,451 9.47% 22,759 2,218 9.74%
Installment loans 18,026 1,799 9.98% 14,740 1,469 9.97%
Real estate loans 54,038 5,406 10.00% 42,912 4,297 10.01%
Equity lines 4,703 424 9.02% 4,175 399 9.56%
Overdraft lines and credit cards 915 129 14.10% 637 103 16.12%
Gross loans(2) 103,559 10,209 9.86% 85,223 8,486 9.96%
Loan loss reserve (1,321) (1,106)
Net loans 102,238 10,209 9.99% 84,117 8,486 10.09%
Total fixed assets 4,055 3,156
Other assets 2,934 2,583
Total assets $147,029 $12,249 8.33% $124,684 $10,465 8.39%
Total interest earning assets $136,951 $12,249 8.94% $116,501 $10,465 8.98%
Liabilities and Shareholders' Equity
Deposits:
Demand $19,433 $ 16,302
NOW accounts 13,063 $271 2.07% 11,746 $ 242 2.06%
Money markets 4,898 181 3.70% 4,491 153 3.41%
Savings 9,501 287 3.02% 9,073 274 3.02%
Time 82,880 4,846 5.85% 68,783 4,065 5.91%
Total deposits 129,775 5,585 4.30% 110,395 4,734 4.29%
Short term borrowing 1,958 109 5.57% 819 52 6.35%
Other liabilities 1,716 1,338
Total liabilities 133,449 5,694 4.27% 112,552 4,786 4.25%
Common stock 833 824
Surplus 4,755 4,682
Undivided profits 8,006 6,631
Unrealized loss on securities (14) (5)
Total equity 13,580 12,132
Total liabilities and equity $147,029 $5,694 3.87% $124,684 $ 4,786 3.84%
Total interest bearing $112,300 $5,694 5.07% $ 94,912 $ 4,786 5.04%
liabilities
Net interest margin:
Total assets to total liabilities
and equity 4.46% 4.55%
Interest earning assets to interest
bearing liabilities 3.87% 3.94%
Net yield on interest earning assets $6,555 4.79% $5,679 4.87%
</TABLE>
(1) Not computed on a tax equivalent basis.
(2) Includes non-accrual loans.
(3) Does not give effect to changes in fair value reflected in equity.
-8-
<PAGE>
Management's Discussion
Changes in interest income and expense by category and rate/volume variances for
the years ended December 31, 1996 and 1995. The changes due to rate and volume
were allocated based on their absolute values.
1996 versus 1995 1995 versus 1994
total amount due to total amount due to
(in thousands) increase change in: increase change in:
(decrease) volume rate (decrease) volume rate
Income:
Loans $1,723 $1,808 $ (85) $1,875 $1,119 $ 756
Investments (1) 61 130 (69) 520 172 348
Total interest income 1,784 1,938 (154) 2,395 1,291 1,104
Expense:
NOW accounts 29 27 2 30 31 (1)
Money market 28 14 14 41 (1) 42
Savings 13 13 - 104 55 49
Time 781 820 (39) 1,490 356 1,134
Total paid on deposits 851 874 (23) 1,665 441 1,224
Short term borrowings 57 63 (6) (8) (23) 15
Total interest expense 908 937 (29) 1,657 418 1,239
Net interest income $ 876 $1,001 $(125) $ 738 $ 873 $(135)
(1) Includes federal funds sold and interest bearing bank balances.
Investment Portfolio
The valuations of investment securities at December 31, 1996 and 1995, were (in
thousands):
<TABLE>
<CAPTION>
Available for sale: Available for sale:
1996 1995
amortized estimated amortized estimated
cost fair value cost fair value
<S> <C> <C> <C> <C>
U.S. Treasury securities $ 9,992 $10,057 $11,009 $11,186
U.S. Government agency obligations:
All other 20,181 20,151 15,458 15,533
Securities issued by states and political
subdivisions in the U.S.:
Tax exempt securities 5,841 5,991 4,978 5,162
Equity securities:
Marketable equity securities:
Investments in mutual funds 500 438 500 453
Other equity securities 455 455 405 405
Total securities $36,969 $37,092 $32,350 $32,739
Pledged securities $ 6,970 $ 4,116
</TABLE>
<TABLE>
<CAPTION>
1996 1995
Maturity and repricing data for debt securities: Weighted Weighted
Fixed rate debt securities with a remaining maturity of: 1996 1995 Average Yield Average Yield
<S> <C> <C> <C> <C>
Three months or less $ 790 $ 2,141 5.86% 7.17%
Over three months through twelve months 4,322 7,244 6.18% 7.18%
Over one year through five years 27,179 20,022 6.13% 6.76%
Over five years 3,908 2,474 7.49% 7.02%
Total fixed rate debt securities 36,199 31,881 6.32% 6.90%
Total debt securities $36,199 $31,881 6.32% 6.90%
</TABLE>
-9-
<PAGE>
Growth Through New Avenues of Income
In an ever changing and more competitive marketplace we must continually
seek new products and services and alternative sources of financing which keep
us more competitive while generating increased sources of non-interest income.
While service charges are a major part of this income category we have
purposefully steered our efforts away from simply increasing fees and have
intensified our efforts to establish alternative sources of non-interest income.
(A graphic appears here with the following caption:)
(A graphic appears here with the following caption:)
ABOVE: Smithfield City Exec. Jeff Pope and Accounts
Receivable Financing Coordinator Ann Fowler meet with
Accounts Receivable Financing customer
James "Bo" Barefoot of Golf Course Supplies.
In 1996 we began an Accounts Receivable Financing Program which allows
eligible businesses to receive cash immediately for their outstanding
receivables. We handle the billing and collecting, thus simplifying the office
functions of our customers and reducing their staffing expenses.
(A graphic appears here with the following caption:)
IBAA Equifax Credit Cards allow us
to offer our customers a much more
competitive product.
Presently, the bank is in the process of enhancing our Credit Card Program
with incentives for both cardholders and merchants.
( A graphic appears here with the following caption:)
Leasing customer Dr. Frank Lowry, Jr. of Smithfield
demonstrates leased equipment to Cliff Painter and
Clifford Massengill of FOB&T.
Another new avenue of income established in 1996 is our Leasing Program.
This new service offers very attractive lease terms for a variety of equipment
and furnishings.
-10-
<PAGE>
Management's Discussion
Loan Portfolio
Loans consisted of the following, in thousands, as extracted from the Call
Reports of December 31, 1996 and 1995:
<TABLE>
<CAPTION>
1996 1995
<S> <C> <C>
Loans Receivable
Loans secured by real estate:
Construction and land development $ 15,118 $ 10,083
Secured by farmland 6,914 5,496
Secured by 1-4 family residential properties:
Revolving, open-end loans and lines of credit 6,775 5,464
All other 22,844 17,389
Secured by multifamily residential properties 1,636 1,598
Secured by nonfarm nonresidential properties 10,781 10,116
Loans to finance agricultural production and other loans to farmers 5,980 7,601
Commercial and industrial loans 19,956 16,269
Loans to individuals for household, family and other personal expenditures:
Credit cards and related plans 926 819
Other 17,772 14,437
Obligations of states and political subdivisions in the U.S.:
Tax exempt obligations 109 140
All other loans 764 581
Less: Unearned income on loans (99) (105)
Total loans $ 109,476 $ 89,888
Loans restructured None None
Maturity and repricing data for loans (excluding those in nonaccrual status):
Fixed rate loans and leases with a remaining maturity of:
Three months or less $ 8,726 $ 6,824
Over three months through twelve months 8,317 6,940
Over one year through five years 46,401 33,915
Over five years 1,178 1,220
Total fixed rate loans 64,622 48,899
Floating rate loans with repricing frequency of:
Quarterly or more frequently 44,744 40,637
Annually or more frequently, but less frequently than quarterly -- --
Total floating rate loans 44,744 40,637
Total loans except those in nonaccrual status $ 109,366 $ 89,536
Commitments and contingencies
Commitments to make loans $ 17,824 $ 13,335
Standby letters of credit $ 704 $ 615
</TABLE>
<PAGE>
-11-
Growth Through Cost Containment
Technological advancements put in place in 1996 also factored greatly in
cost containment. In October we outsourced our data processing to a company in
Greensboro. They also handle our item processing service. This move, along with
the introduction of Image Statements, has reduced recurring cost by over $10,000
per month. This move also freed up existing space allowing us to make needed
moves without having to buy or build additional space.
(A graphic appears here with the following caption:)
ABOVE: Judy Shaw, Vice President--Training And
Compliance, works with teller JoEllen Weeks in the
new training area at our former processing center.
The newly available space is now being used to house our training center,
fulfilling an on-going need with our growth and changing technology. Also, this
space will soon become home to our Centralized Loan Processing Department. This
new department, which is presently being organized, will increase loan
processing efficiency tremendously. Document Imaging, which will be a part of
this department, will greatly increase accessibility of information to any
branch office, while dramatically reducing the need for storage space. This,
along with our new computer network, sets the stage for more efficient
communications between departments and branches, and eventually will provide a
foundation for streamlined optical storage and retrieval of various bank
documents.
(A graphic appears here with the following caption:)
Senior Vice President Leon Hiatt and Assistant
Vice President Wanda Ray review specifications for
the new CLP which will be implemented this fall.
-12-
<PAGE>
Management's Discussion
RISK ELEMENTS
Past due and nonaccrual loans, in thousands, as extracted from the Call Reports
of December 31, 1996 and 1995 were as follows:
<TABLE>
<CAPTION>
past due 30 past due 90
through 89 days days or more
and still accruing and still accruing nonaccrual
1996 1995 1996 1995 1996 1995
<S> <C> <C> <C> <C> <C> <C>
Real estate loans $ 627 $ 418 $ 43 177 $158 $274
Installment loans 303 467 65 30 47 52
Credit cards and related plans 55 25 21 9 - -
Commercial and all other loans 165 326 57 88 4 131
Total $1,150 $1,236 $186 $304 $209 $457
Agricultural loans included above $168 $ 258 $ 51 $140 - $ 1
</TABLE>
ALLOWANCE FOR LOAN LOSSES AND SUMMARY OF LOAN LOSS EXPERIENCE
As a matter of policy, the Bank maintains an allowance for loan losses. The
allowance for loan losses is created by direct charges to income, and losses on
loans are charged against the allowance when realized. The amount of the
allowance is based upon an evaluation of the portfolio, current economic
conditions, historical loan loss experience, and other factors management deems
appropriate. The Bank's management believes its allowance for loan losses is
adequate under existing economic conditions.
The following table summarizes the Bank's loan loss experience for the years
ending December 31, 1996 and 1995:
1996 1995
Balance at beginning of period $1,220,000 $ 955,000
Chargeoffs:
Commercial, financial and agricultural 43,353 124,010
Real estate 23,089 -
Installment loans to individuals 106,664 70,112
Credit cards and related plans 27,546 11,928
200,652 206,050
Recoveries:
Commercial, financial and agricultural 2,161 1,019
Real estate - 67,866
Installment loans to individuals 21,607 16,138
Credit cards and related plans 112 860
23,880 85,883
Net chargeoffs 176,772 120,167
Additions charged to operations 396,772 385,167
Balance at end of period $1,440,000 $1,220,000
Ratio of net chargeoffs during the
period to average gross loans
outstanding during the period 0.171% 0.141%
-13-
<PAGE>
Management's Discussion
DEPOSITS
For each category of total deposits which has an average for the year in excess
of 10 percent of average total deposits, the average balance and the average
rates as of December 31, 1996 and 1995 are as follows:
average average
(in thousands) amount rate
1996 1995 1996 1995
Demand $19,433 $16,302 - -
NOW accounts $13,063 $11,746 2.07% 2.06%
Time $82,880 $68,783 5.85% 5.91%
Time certificates in amounts of $100,000 or more outstanding at December 31,
1996 by maturity are as follows: (in thousands)
Three months or less $17,920
Over three months through twelve months 8,011
Over twelve months through five years 1,303
Over five years 105
Total $27,339
KEY RATIOS
The following schedule of key ratios is presented for the years ended December
31, 1996 and 1995:
1996 1995
Return on assets 1.24% 1.22%
Return on equity 13.41% 12.56%
Dividend payout ratio 23.29% 25.95%
Equity to assets (averages) 9.24% 9.73%
Ending equity to ending assets 9.03% 9.68%
Average interest earning assets
to average total assets 93.15% 93.44%
Average net loans to average total deposits 78.78% 76.20%
Average interest bearing liabilities to
average interest earning assets 82.00% 80.77%
BOOK VALUE PER SHARE
(A graph appears here with the following plot points)
BOOK VALUE PER SHARE
<TABLE>
<CAPTION>
1992 1993 1994 1995 1996
<S> <C> <C> <C> <C> <C>
$18.00
$17.14
$16.00
$15.60
$14.00
$13.51
$12.85
$12.00
$11.94
$10.00
$8.00
$6.00
$4.00
$2.00
$0.00
</TABLE>
-14-
<PAGE>
Selected Financial Data
The following table sets forth certain selected financial data concerning the
Bank for the years ended December 31, 1996, 1995, 1994, 1993 and 1992. This
information should be read in conjunction with and is qualified in its entirety
by reference to the detailed audited financial statements and notes thereto
which are included in this Annual Report.
1996 1995 1994 1993 1992
Income Statement Data
(in thousands):
Interest income $12,249 10,465 8,070 7,105 6,984
Interest expense 5,694 4,785 3,132 2,933 3,232
Net interest income 6,555 5,680 4,938 4,172 3,752
Provision for loan loss 397 385 224 239 237
Net interest income after
provision for loan loss 6,158 5,295 4,714 3,933 3,515
Other noninterest income 881 729 390 696 629
Other noninterest expenses 4,375 3,819 3,310 3,050 2,782
Income taxes 843 681 537 491 404
Net income $ 1,821 1,524 1,257 1,088 958
Per Share Data
Net income $ 2.19 1.85 1.53 1.33 1.17
Year end book value 17.14 15.60 13.51 12.85 11.94
Dividends declared .51 .47 .44 .42 .40
Balance Sheet Data
(in thousands):
Loans, net $108,036 88,668 73,814 66,370 60,238
Investments(1) 38,654 33,844 32,872 29,715 22,953
Total assets 159,113 133,421 116,674 103,609 91,653
Deposits 142,843 118,965 101,978 90,265 80,772
Shareholders' equity 14,363 12,919 11,122 10,559 9,802
(1) Includes federal funds sold and interest bearing bank balances.
-15-
<PAGE>
Report of Independent Accountants
The Board of Directors
Four Oaks Bank & Trust Company
Four Oaks, North Carolina
We have audited the accompanying balance sheet of Four Oaks Bank & Trust Company
as of December 31, 1996, and the related statements of operations, changes in
shareholders' equity and cash flows for the year then ended. These financial
statements are the responsibility of the Bank's management. Our responsibility
is to express an opinion on these financial statements based on our audit. The
financial statements for 1995 and 1994, included herein, were audited by other
accountants whose report, dated February 20, 1996, expressed an unqualified
opinion on those financial statements.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Four Oaks Bank & Trust Company
as of December 31, 1996, and the results of its operations and its cash flows
for the year then ended in conformity with generally accepted accounting
principles.
/s/ Coopers & Lybrand L.L.P.
Coopers & Lybrand L.L.P.
Raleigh, North Carolina
February 28, 1997
-16-
<PAGE>
Balance Sheets
December 31,
1996 1995
ASSETS
Cash and due from banks $ 5,046,441 4,940,373
Interest bearing bank balances 1,561,868 1,104,874
Securities available for sale 37,092,216 32,739,186
Loans, net 108,036,023 88,667,950
Bank premises and equipment, net 4,450,294 3,228,402
Other assets 2,925,716 2,740,156
Total assets $159,112,558 133,420,941
LIABILITIES AND SHAREHOLDERS' EQUITY
Deposits:
Noninterest-bearing $ 21,212,139 17,732,283
Interest-bearing 121,630,836 101,233,080
Total deposits 142,842,975 118,965,363
Other liabilities 1,906,931 1,536,370
Total liabilities 144,749,906 120,501,733
Shareholders' equity:
Capital stock:
Common stock, $1.00 par value, 5,000,000
shares authorized; 837,949 and 828,279
issued and outstanding at December 31,1996
and 1995, respectively 837,949 828,279
Capital surplus 4,871,623 4,668,286
Retained earnings 8,604,138 7,208,025
Net unrealized gain on securities 48,942 214,618
Total shareholders' equity 14,362,652 12,919,208
Total liabilities and shareholders' equity $159,112,558 133,420,941
The accompanying notes are an integral part of the financial statements.
-17-
<PAGE>
Statements of Operations
<TABLE>
<CAPTION>
For the Years Ended December 31,
1996 1995 1994
<S> <C> <C> <C>
Interest income:
Loans $10,208,256 8,486,005 6,610,710
Securities:
Taxable U.S. Government and agency obligations 1,549,431 1,440,890 1,014,659
Tax-exempt obligations of states and
political subdivisions 273,560 258,951 263,608
Other taxable securities 64,231 57,717 54,117
Overnight investments 153,238 221,388 126,669
Total interest income 12,248,716 10,464,951 8,069,763
Interest expense:
Deposits 5,585,340 4,733,509 3,077,114
Short-term borrowings 108,634 52,051 54,600
Total interest expense 5,693,974 4,785,560 3,131,714
Net interest income 6,554,742 5,679,391 4,938,049
Provision for loan losses 396,772 385,167 223,656
Net interest income after provision
for loan losses 6,157,970 5,294,224 4,714,393
Noninterest income:
Service charges on deposit accounts 619,834 535,450 485,878
Other service charges, commissions & fees 327,777 236,100 190,481
Securities net losses (66,372) (42,403) (286,086)
Total noninterest income 881,239 729,147 390,273
Noninterest expense:
Salaries 1,981,158 1,681,610 1,351,091
Employee benefits 331,269 299,716 265,092
Occupancy expenses 179,764 188,831 172,989
Equipment expenses 261,675 255,555 242,739
Other operating expenses 1,621,493 1,392,802 1,278,914
Total noninterest expense 4,375,359 3,818,514 3,310,825
Income before income taxes 2,663,850 2,204,857 1,793,841
Provision for income taxes 843,000 680,500 537,000
Net income $ 1,820,850 1,524,357 1,256,841
Net income per average common share $ 2.19 1.85 1.53
Dividends declared per common share $ 0.51 0.47 0.44
Weighted average shares outstanding 832,621 824,405 822,466
</TABLE>
The accompanying notes are an integral part of the financial statements.
-18-
<PAGE>
Changes in Shareholders' Equity
For the Years Ended December 31,
1996, 1995 and 1994
<TABLE>
<CAPTION>
Net
Unrealized
Common Stock Capital Retained Gain (Loss)
Shares Amount Surplus Earnings on Securities
<S> <C> <C> <C> <C> <C>
Balance, January 1, 1994 821,794 $821,794 4,571,928 5,190,903 (25,743)
Cash dividends of $.44
per share - - - (366,412) -
Paid for fractional shares
created by 5 for 4 stock split (285) (285) 285 (4,504) -
Net change in net unrealized
gain (loss) on securities
available for sale - - - - (337,496)
Sale of common stock 1,181 1,181 13,708 - -
Net income - - - 1,256,841 -
Balance, December 31,1994 822,690 $822,690 4,585,921 6,076,828 (363,239)
Cash dividends of $.47
per share - - - (389,513) -
Paid for fractional shares
created by 4 for 3 stock split (221) (221) 221 (3,647) -
Net change in net unrealized
gain (loss) on securities
available for sale - - - - 577,857
Sale of common stock 5,810 5,810 82,144 - -
Net income - - - 1,524,357 -
Balance, December 31, 1995 828,279 $828,279 4,668,286 7,208,025 214,618
Cash dividends of $.51
per share - - - (424,737) -
Net change in unrealized
gain (loss) on securities
available for sale - - - - (165,676)
Sale of common stock 9,670 9,670 203,337 - -
Net income - - - 1,820,850 -
Balance, December 31, 1996 837,949 $837,949 4,871,623 8,604,138 48,942
</TABLE>
The accompanying notes are an integral part of the financial statements.
-19-
<PAGE>
Statements of Cash Flows
<TABLE>
<CAPTION>
For the Years Ended December 31,
1996 1995 1994
<S> <C> <C> <C>
Operating activities:
Net income $ 1,820,850 1,524,357 1,256,841
Adjustments to reconcile net income to net cash
provided by operations:
Provision for loan losses 396,772 385,167 223,656
Provision for depreciation 220,978 207,935 199,306
Loans originated for sale (1,930,989) (1,388,981) (2,683,120)
Proceeds from loan sales 1,930,989 1,534,881 2,838,200
Deferred income tax benefit (62,000) (89,000) (41,000)
Net amortization of bond premiums and discounts 3,459 49,975 59,262
Loss on sale of securities 66,372 42,403 286,086
Loss on sale of repossessed assets 79,010 6,456 35,002
Gain on sale of fixed assets (5,124) -- (6,140)
Changes in assets and liabilities:
Prepaid and other assets 74,674 (293,571) (295,090)
Interest receivable (128,592) (448,974) (314,233)
Income taxes and other liabilities 183,075 50,045 107,645
Interest payable 187,486 413,414 180,623
Net cash provided by operating
activities 2,836,960 1,994,107 1,847,038
Cash flows from investing activities:
Proceeds from sales of investment
securities - available for sale 12,749,693 6,283,834 8,839,287
Proceeds from maturities of investment
securities - available for sale 3,415,000 6,001,125 5,516,846
Purchase of securities available for sale (20,854,230) (16,331,313) (16,511,584)
Net increase in loans (20,214,870) (15,288,064) (8,131,862)
Capital expenditures (1,443,746) (773,805) (250,137)
Proceeds from sale of fixed assets 6,000 -- 7,100
Proceeds from sale of real estate acquired in
settlement of loans 85,529 98,796 460,398
Proceeds from sale of other assets acquired in
settlement of loans 316,844 62,206 93,907
Net cash used in investing activities (25,939,780) (19,947,221) (9,976,045)
Cash flows from financing activities:
Net increase (decrease) in short-term borrowings -- (2,500,000) 500,000
Net increase in deposit accounts 23,877,612 16,987,086 11,713,090
Proceeds from issuance of common stock 213,007 87,954 14,889
Cash dividends paid (424,737) (393,160) (370,916)
Net cash provided by financing activities 23,665,882 14,181,880 11,857,063
Net increase (decrease) in cash
and cash equivalents 563,062 (3,771,234) 3,728,056
Cash and cash equivalents at beginning of year 6,045,247 9,816,481 6,088,425
Cash and cash equivalents at end of year $ 6,608,309 6,045,247 9,816,481
Supplemental disclosures of cash flow information:
Cash paid during the year for interest $ 5,506,488 4,372,146 2,950,714
Cash paid during the year for income taxes $ 886,264 761,518 547,551
</TABLE>
The accompanying notes are an integral part of the financial statements.
-20-
<PAGE>
Notes to Financial Statements
December 31, 1996
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Nature of Operations
Four Oaks Bank & Trust Company (the Bank) operates six offices in eastern and
central North Carolina. The Bank's primary source of revenue is derived from
loans to customers and from its securities portfolio. The loan portfolio is
comprised mainly of real estate, commercial, consumer, and equity line of credit
loans. These loans are primarily secured by residential and commercial
properties, commercial equipment, and personal property.
Use of Estimates in the Preparation of Financial Statements
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at December 31, 1996 and 1995 and the reported
amounts of revenues and expenses during the years ended December 31, 1996, 1995
and 1994. Actual results could differ from those estimates.
Significant Accounting Policies
The accounting and reporting policies of the Bank follow generally accepted
accounting principles and general practices within the financial services
industry. Following is a summary of the more significant policies.
Securities
Securities are classified into three categories:
(1) Securities Held to Maturity - Debt securities that the Bank has the positive
intent and the ability to hold to maturity are classified as held-to-maturity
and reported at amortized cost;
(2) Trading Securities - Debt and equity securities that are bought and held
principally for the purpose of selling in the near term are classified as
trading securities and are reported at fair value, with unrealized gains and
losses included in earnings; and
(3) Securities Available for Sale - Debt and equity securities not classified as
either securities held to maturity or trading securities are reported at fair
value, with unrealized gains and losses excluded from earnings and reported as a
separate component of shareholders' equity.
The Bank classifies all owned securities as available for sale and unless
otherwise noted all securities purchased by the Bank will be classified
available for sale. Gains and losses on sales of securities, computed based on
specific identification of adjusted cost of each security, are included in other
income at the time of the sale. Premiums and discounts are amortized into
interest income using the level yield method.
Loans and Allowance for Loan Losses
Loans are stated at the amount of unpaid principal, reduced by an allowance for
loan losses. Interest on loans is calculated by using the simple interest method
on daily balances of the principal amount outstanding.
The Bank adopted Statement of Financial Accounting Standards No. 114 ("SFAS
114"), "Accounting by Creditors for Impairment of a Loan", as amended by
Statement of Financial Accounting Standards No. 118 ("SFAS 118"), "Accounting by
Creditors for Impairment of a Loan - Income Recognition and Disclosure", on
January 1, 1995. Under the new standards, a loan is considered impaired, based
on current information and events, if it is probable that the Bank will be
unable to collect the scheduled payments of principal and interest when due
according to the contractual terms of the loan agreement. Uncollateralized loans
are measured for impairment based on the present value of expected future cash
flows discounted at the historical effective interest rate, while all
collateral-dependent loans are measured for impairment based on the fair value
of the collateral. The adoption of SFAS 114 and 118 did not result in any
additional provision for credit losses at January 1, 1995.
-21-
<PAGE>
Notes to Financial Statements
December 31, 1996
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Loans and Allowances for Loan Losses (Continued)
At December 31, 1996, there were no loans material to the financial
statements that were impaired under the provisions of SFAS 114.
The Bank uses several factors in determining if a loan is impaired under
SFAS 114. The internal asset classification procedures include a through
review of significant loans and lending relationships and the accumulation
of related data. This data includes loan payment status, borrowers'
financial data and borrowers' operating factors such as cash flows,
operating income or loss, etc.
The allowance for loan losses is established through a provision for loan
losses charged to expense. Loans are charged against the allowance for loan
losses when management believes that the collection of the principal is
unlikely. The allowance is an amount that management believes will be
adequate to absorb possible losses on existing loans that may become
uncollectible, based on evaluations of the collectibility of loans and
prior loan loss experience. The evaluations take into consideration such
factors as changes in the nature and volume of the loan portfolio, overall
portfolio quality, review of specific problem loans, and current economic
conditions and trends that may affect the borrowers' ability to pay.
Income Recognition on Impaired and Nonaccrual Loans
Loans, including impaired loans, are generally classified as nonaccrual if
they are past due as to maturity or payment of principal or interest for a
period of more than 90 days, unless such loans are well-secured and in the
process of collection. If a loan or a portion of a loan is classified as
doubtful or is partially charged off, the loan is generally classified as
nonaccrual. Loans that are on a current payment status or past due less
than 90 days may also be classified as nonaccrual if repayment in full of
principal and/or interest is in doubt.
Loans may be returned to accrual status when all principal and interest
amounts contractually due (including arrearages) are reasonably assured of
repayment within an acceptable period of time, and there is a sustained
period of repayment performance (generally a minimum of six months) by the
borrower, in accordance with the contractual terms.
While a loan is classified a nonaccrual and the future collectibility of
the recorded loan balance is doubtful, collections of interest and
principal are generally applied as a reduction to the principal
outstanding, except in the case of loans with scheduled amortizations where
the payment is generally applied to the oldest payment due.
When the future collectibility of the recorded loan balance is expected,
interest income may be recognized on a cash basis. In the case where a
nonaccrual loan had been partially charged-off, recognition of interest on
a cash basis is limited to that which would have been recognized on the
recorded loan balance at the contractual interest rate. Receipts in excess
of that amount are recorded as recoveries to the allowance for loan losses
until prior charge-offs have been fully recovered.
Foreclosed Assets
Assets acquired as a result of foreclosure are valued at the lower of the
recorded investment in the loan or fair value less estimated costs to sell.
The recorded investment is the sum of the outstanding principal loan
balance and foreclosure costs associated with the loan. Losses from the
acquisition of property in full or partial satisfaction of debt are treated
as credit losses. Routine holding costs, subsequent declines in value and
gains or losses on disposition are included in other expense.
Bank Premises and Equipment
Bank premises and equipment are stated at cost less accumulated
depreciation. Depreciation is computed using the straight-line method based
on the estimated useful lives of assets. Useful lives range from 5 to 10
years for furniture and equipment and is 35 years for premises.
Expenditures for repairs and maintenance are charged to expense as
incurred.
-22-
<PAGE>
Notes to Financial Statements
December 31, 1996
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Intangible Assets
On October 17, 1994, the Bank purchased certain assets of Centura Bank's
Four Oaks branch. Total tangible assets purchased of $156,321 included
building and equipment, loan balances, cash and other assets. The deposit
premium paid of $215,794 is the core deposit intangible and is being
amortized over 15 years on a straight-line basis. Costs incurred in
connection with the purchase were charged to expense in 1995 when the
branch was closed. The remaining core deposit intangible included in other
assets at December 31, 1996 and 1995 is $183,424 and $197,812,
respectively. Amortization included in the Bank's operating expense for
1996, 1995 and 1994 is $14,388, $37,779 and $4,827, respectively.
Income Taxes
Provisions for income taxes include amounts currently payable and deferred
taxes on temporary differences in the recognition of income and expense for
tax and financial statement purposes. Deferred tax assets and liabilities
are included in the financial statements at currently enacted income tax
rates applicable to the period in which the deferred tax asset and
liabilities are expected to be realized or settled. As changes in tax laws
or rates are enacted, deferred tax assets and liabilities are adjusted
through the provision of income taxes in the year of change.
Statement of Cash Flows
For purposes of reporting cash flows, cash and cash equivalents include
cash on hand, amounts due from banks, and overnight interest bearing bank
balances.
New Accounting Pronouncement
Effective January 1, 1996, the Bank has adopted Statement of Financial
Accounting Standards No. 122 (SFAS 122), "Mortgage Servicing Rights, an
amendment of Statement of Financial Accounting Standards No. 65." The
impact of adopting this statement is not expect to be material to the
Bank's consolidated financial statements.
2. SECURITIES
The amortized cost, gross unrealized gains, gross unrealized losses and
estimated market values of securities available for sale as of December 31,
1996 and 1995 are as follows:
<TABLE>
<CAPTION>
Gross Gross Estimated
Amortized Unrealized Unrealized Market
Cost Gains Losses Value
<S> <C> <C> <C> <C>
1996
U.S. Government and agency
securities $30,173,017 $ 81,914 $ 46,809 $30,208,122
State and municipal securities 5,841,404 153,230 3,309 5,991,325
Other securities 954,853 -- 62,084 892,769
$36,969,274 $ 235,144 $ 112,202 $37,092,216
1995
U.S. Government and agency
securities $26,467,032 $ 268,265 $ 15,798 $26,719,499
State and municipal securities 4,977,883 188,117 3,722 5,162,278
Other securities 904,653 -- 47,244 857,409
$32,349,568 $ 456,382 $ 66,764 $32,739,186
</TABLE>
-23-
<PAGE>
Notes to Financial Statements
December 31, 1996
2. SECURITIES (CONTINUED)
The amortized cost and estimated market value of debt securities at
December 31, 1996 by contractual maturities are shown below (in thousands).
Expected maturities will differ from contractual maturities because
borrowers may have the right to call or prepay obligations with or without
call or prepayment penalties.
Estimated
Amortized Market
Cost Value
Due in one year or less $ 5,082 $ 5,112
Due after one year through five years 27,066 27,179
Due after five years through ten years 2,824 2,859
Due after ten years 1,042 1,049
$36,014 $36,199
Assets, principally securities, carried at approximately $6,970,000 and
$4,116,000 at December 31, 1996 and 1995, respectively, were pledged to
secure public deposits and for other purposes required or permitted by law.
Included in other securities is one marketable equity security with an
original cost of $500,005 and market values of $437,921 and $452,761 at
December 31, 1996 and 1995, respectively.
Sales of investment securities available for sale during 1996 and 1995
generated gross realized gains of $44,456 and $2,647 and realized losses of
$110,828 and $45,050, respectively. Gross gains of $0 and gross losses of
$286,086 were realized in 1994.
3. LOANS AND ALLOWANCE FOR LOAN LOSSES
Major classifications of loans as of December 31, 1996 and 1995, are
summarized as follows (in thousands):
1996 1995
Real estate - residential and other $ 57,154 $ 44,650
Real estate - agricultural 6,914 5,496
Other agricultural 5,980 7,601
Consumer loans 18,698 15,256
Business loans 19,956 16,269
Other loans 873 721
109,575 89,993
Less:
Unearned income (99) (105)
Allowance for loan losses (1,440) (1,220)
$ 108,036 $ 88,668
-24-
<PAGE>
Notes to Financial Statements
December 31, 1996
3. LOANS AND ALLOWANCE FOR LOAN LOSSES (CONTINUED)
Loan maturities and the amounts of loans carrying fixed and variable
interest rates as of December 31, 1996 are summarized as follows (in
thousands):
Within One to After
One Year Five Years Five Years Total
Fixed rate loans $ 17,211 $ 46,401 $ 1,219 $ 64,831
Variable rate loans 25,388 13,352 6,004 44,744
$ 42,599 $ 59,753 $ 7,223 $109,575
Nonperforming loans are those which are accounted for on a nonaccrual
basis. Such loans had outstanding balances of approximately $468,000 and
$457,000 at December 31, 1996 and 1995, respectively.
A summary of the allowance for loan losses for the years ended December 31,
1996, 1995 and 1994 is as follows:
<TABLE>
<CAPTION>
1996 1995 1994
<S> <C> <C> <C>
Balance, beginning $ 1,220,000 $ 955,000 $ 845,000
Provision charged against income 396,772 385,167 223,656
Recoveries of amounts charged-off 23,880 85,883 38,328
Amounts charged-off (200,652) (206,050) (151,984)
Balance, ending $1,440,000 $1,220,000 $955,000
</TABLE>
4. BANK PREMISES AND EQUIPMENT
Bank premises and equipment at December 31, 1996 and 1995 are as follows:
1996 1995
Land $ 1,001,961 753,782
Building 2,738,651 1,961,604
Furniture and equipment 2,277,066 1,781,338
Construction in process -- 120,615
6,017,678 4,617,339
Less accumulated depreciation (1,567,384) (1,388,937)
$ 4,450,294 3,228,402
5. SHORT-TERM BORROWINGS
The Bank has an established line of credit with the Federal Home Loan Bank
of Atlanta in the amount of $16,000,000. This line is secured by a blanket
floating lien covering the Bank's loan portfolio of qualifying residential
(1-4 units) first mortgage loans. At December 31, 1996 the Bank's borrowing
capacity based on collateral levels was approximately $15,259,000 and there
were no borrowings outstanding on the line.
-25-
<PAGE>
Notes to Financial Statements
December 31, 1996
6. INCOME TAXES
The components of income tax expense (benefit) for the years ended December
31, 1996, 1995 and 1994 are as follows:
1996 1995 1994
Current:
Federal $ 840,000 $ 729,500 $ 538,000
State 65,000 40,000 40,000
905,000 769,500 578,000
Deferred (62,000) (89,000) (41,000)
Total $ 843,000 $ 680,500 $ 537,000
The reconciliation of expected income tax at the statutory Federal rate
with income tax expense for the years ended December 31, 1996, 1995 and
1994 is as follows:
1996 1995 1994
Expected income tax expense at
statutory rate (34%) $906,000 $750,000 $610,000
Increase (decrease) in income tax
expense resulting from:
State taxes (net of federal benefit) 35,000 13,000 13,000
Tax exempt income (93,000) (88,000) (90,000)
Other, net (5,000) 5,500 4,000
Income tax expense $843,000 $680,500 $537,000
A summary of the deferred tax assets (liabilities) at December 31, 1996 and
1995 is as follows:
1996 1995
Allowance for loan losses $ 518,000 $ 430,000
Depreciation (230,000) (215,000)
Bond accretion (20,000) (11,000)
Unamortized loan costs and fees 40,000 42,000
308,000 246,000
Unrealized gains on available for sale securities (74,000) (175,000)
Net deferred tax asset $ 234,000 $ 71,000
-26-
<PAGE>
Notes to Financial Statements
December 31, 1996
7. EMPLOYEE BENEFIT PLAN
The Bank has a defined contribution pension plan in effect for
substantially all full-time employees. Employee benefits expense includes
$83,082, $76,124 and $67,035 in 1996, 1995 and 1994, respectively, for this
plan. Contributions under the plan are made at the discretion of the Board
of Directors, but have amounted to 5% of eligible employees' gross salary
for the past three years.
8. REGULATORY RESTRICTIONS
The Bank, as a North Carolina banking corporation, may pay dividends only
out of undivided profits as determined pursuant to North Carolina General
Statutes Section 53-87. However, regulatory authorities may limit payment
of dividends by any bank when it is determined that such a limitation is in
the public interest and is necessary to ensure the financial soundness of
the bank.
Current Federal regulations require that the Bank maintain a minimum ratio
of total capital to risk weighted assets of 8%, with at least 4% being in
the form of Tier 1 capital, as defined in the regulations. In addition, the
Bank must maintain a leverage ratio of 4%. As of December 31, 1996, the
Bank's capital exceeded the current capital requirements. The Bank
currently expects to continue to exceed these minimums without altering
current operations or strategy.
The Bank is subject to various regulatory capital requirements administered
by the federal and state banking agencies. Failure to meet minimum capital
requirements can initiate certain mandatory, and possibly additional
discretionary, actions by regulators that, if undertaken, could have a
direct material effect on the Bank's financial statements. Quantitative
measures established by regulation to ensure capital adequacy require the
Bank to maintain minimum amounts and ratios, as set forth in the table
below. Management believes, as of December 31, 1996, that the Bank meets
all capital adequacy requirements to which it is subject.
As of December 31, 1996, the most recent notification from the FDIC
categorized the Bank as well capitalized under the regulatory framework for
prompt corrective action. To be categorized as well capitalized the Bank
must maintain minimum amounts and ratios, as set forth in the table below.
There are no conditions or events since that notification that management
believes have changed the Bank's category.
The Bank's actual capital amounts and ratios are also presented in the
table below (dollars in thousands).
<TABLE>
<CAPTION>
To Be Well
For Capital Capitalized Under
Adequacy Prompt Corrective
Actual Purposes Action Provisions
Amount Ratio Amount Ratio Amount Ratio
As of December 31, 1996:
<S> <C> <C> <C> <C> <C> <C>
Total Capital (to Risk Weighted Assets) $15,509 12.7% $ 9,738 8.0% $12,172 10.0%
Tier I Capital (to Risk Weighted Assets) 14,069 11.6 4,869 4.0 7,303 6.0
Tier I Capital (to Average Assets) 14,069 8.9 6,347 4.0 7,933 5.0
As of December 31, 1995:
Total Capital (to Risk Weighted Assets) $13,901 14.2% $ 7,821 8.0% $ 9,776 10.0%
Tier I Capital (to Risk Weighted Assets) 12,681 13.0 3,910 4.0 5,866 6.0
Tier I Capital (to Average Assets) 12,681 9.5 5,356 4.0 6,695 5.0
</TABLE>
-27-
<PAGE>
Notes to Financial Statements
December 31, 1996
9. COMMITMENTS AND CONTINGENCIES
The Bank is a party to financial instruments with off-balance sheet risk in
the normal course of business to meet the financing needs of its customers.
These financial instruments include commitments to extend credit, lines of
credit and standby letters of credit. These instruments involve elements of
credit risk in excess of amounts recognized in the accompanying financial
statements.
The Bank's risk of loss in the event of nonperformance by the other party
to the commitment to extend credit, line of credit or standby letter of
credit is represented by the contractual amount of these instruments. The
Bank uses the same credit policies on the borrower in making commitments
under such instruments as it does for on-balance sheet instruments. The
amount of collateral obtained, if any, is based on management's credit
evaluation of the borrower. Collateral held varies, but may include
accounts receivable, inventory, real estate and time deposits with
financial institutions. Since many of the commitments are expected to
expire without being drawn upon, the total commitment amounts do not
necessarily represent future cash requirements.
As of December 31, 1996 and 1995, outstanding financial instruments whose
contract amounts represent credit risk were as follows:
1996 1995
Outstanding commitments to lend,
unfunded loans and lines of credit $17,824,000 $13,335,000
Standby and commercial letters of credit $ 704,000 $ 615,000
The Bank's lending is concentrated primarily in eastern and central North
Carolina and the surrounding communities in which it operates. Credit has
been extended to certain of the Bank's customers through multiple lending
transactions.
10. RELATED PARTY TRANSACTIONs
Certain parties (principally directors and executive officers of the Bank,
including their affiliates, families, and companies in which they hold ten
percent or more ownership) were customers of, and had loans and other
transactions with, the Bank in the ordinary course of business. An analysis
of activity with respect to such loans for the years ended December 31,
1996 and 1995 is as follows:
<TABLE>
<CAPTION>
Balance at Balance at
Beginning Amount End of
of Year Additions Collected Year
<S> <C> <C> <C> <C>
Aggregate of certain related party loans:
1996 $356,000 $188,000 $133,000 $411,000
1995 $260,000 $297,000 $201,000 $356,000
</TABLE>
The Bank leased a building from one of its directors for $755, $736, and
$717 per month in 1996, 1995 and 1994, respectively. The term of the lease
has historically been on a year to year basis, but was changed to a five
year lease as of January 1, 1994 with annual increases based on the
Consumer Price Index.
-28-
<PAGE>
Notes to Financial Statements
December 31, 1996
11. STOCK OPTION PURCHASE PLAN
On February 13, 1989, a ten year option was granted to key employees on
40,000 shares of stock at $12 per share and exercisable 20% at the end of
each year thereafter for a period of five years. On March 16, 1992, a ten
year option was granted to key employees on 4,167 shares of stock at $10.80
per share and exercisable 20% at the end of each year thereafter for a
period of five years. Options not exercised at the end of ten years will
expire.
On January 1, 1996 the Bank adopted Statement of Financial Accounting
Standards No. 123, "Accounting for Stock Based Compensation" (SFAS 123). As
permitted by SFAS 123, the Company has chosen to apply APB Opinion No. 25,
"Accounting for Stock Issued to Employees" (APB 25) and related
interpretations in accounting for its Plans. Accordingly, no compensation
cost will be recognized for future options granted under any Plan, as long
as grants are made at amounts equal to the then current market value.
A summary of the status of the Bank's stock options as of December 31,
1996, 1995 and 1994, and changes during the years ending on those dates is
presented below:
Options Option Price
Outstanding per Share
Balance, January 1, 1994 44,167 $10.80 to $12.00
Exercised 1,500 $10.80
Balance, December 31, 1995 42,667 $10.80 to $12.00
Exercised 2,333 $10.80
Balance, December 31, 1996 40,334 $10.80 to $12.00
At December 31, 1996, there were 40,000 shares exercisable at $12.00 per
share and 334 shares exercisable at $10.80.
12. FAIR VALUE OF FINANCIAL INSTRUMENTS
Statement of Financial Accounting Standards No. 107, "Disclosures about
Fair Value of Financial Instruments" (SFAS No. 107), requires the
disclosure of estimated fair values for financial instruments. Quoted
market prices, if available, are utilized as an estimate of the fair value
of financial instruments. Because no quoted market prices exist for a
significant part of the Bank's financial instruments, the fair value of
such instruments has been derived based on management's assumptions with
respect to future economic conditions, the amount and timing of future cash
flows and estimated discount rates. Different assumptions could
significantly affect these estimates. Accordingly, the net realizable value
could be materially different from the estimates presented below. In
addition, the estimates are only indicative of individual financial
instruments' values and should not be considered an indication of the fair
value of the Bank taken as a whole. The following methods and assumptions
were used to estimate the fair value of each class of financial instrument:
Cash and Due from Banks
Cash and due from banks are equal to the fair value due to the liquid
nature of the financial instruments.
Securities
Fair values of securities are based on quoted market prices. If a quoted
market price is not available, fair value is estimated using quoted market
prices for similar securities.
-29-
<PAGE>
Notes to Financial Statements
December 31, 1996
12. FAIR VALUE OF FINANCIAL INSTRUMENTS (Continued)
Loans Receivable
Fair values have been estimated by type of loan: residential real estate loans,
consumer loans, and commercial and other loans. For variable-rate loans that
reprice frequently and with no significant credit risk, fair values are based on
carrying values. The fair values of fixed rate loans are estimated by
discounting the future cash flows using the current rates at which loans with
similar terms would be made to borrowers with similar credit ratings and for the
same remaining maturities. The Bank has assigned no fair value to off-balance
sheet financial instruments since they are either short term in nature or
subject to immediate repricing.
Deposits
The fair value of demand deposits, savings accounts and money market deposits is
the amount payable on demand at year end. Fair value of certificates of deposit
is estimated by discounting the future cash flows using the current rate offered
for similar deposits with the same maturities.
Accrued Interest Receivable and Payable
The carrying amount of accrued interest approximates market.
The following table presents information for financial assets and liabilities as
of December 31, 1996 and 1995 (in thousands):
1996 1995
Carrying Estimated Carrying Estimated
Value Fair Value Value Fair Value
Financial Assets:
Cash and due from banks $ 6,608 $ 6,608 $ 6,045 $ 6,045
Securities available for sale 37,092 37,092 32,739 32,739
Residential real estate loans 46,270 46,718 34,469 34,217
Consumer loans 19,036 19,064 15,256 15,082
Commercial and other loans 44,269 44,328 40,268 40,061
Accrued interest receivable 2,052 2,052 1,923 1,923
Total financial assets $155,327 $155,862 $130,700 $130,067
Financial Liabilities:
Deposits:
Certificates of deposit $ 91,336 $ 91,336 $ 75,180 $ 75,316
Other 51,507 51,507 43,785 43,785
Accrued interest payable 1,497 1,497 1,310 1,310
Total Financial liabilities $144,340 $144,338 $120,275 $120,411
-30-
<PAGE>
Corporate Information
Investor Information
Four Oaks Bank & Trust Company's Common Stock is currently traded through the
market makers listed below:
Morgan, Keegan & Company, Inc. Legg Mason Wood Walker, Inc.
4300 Six Forks Road, Suite 400 3201 Glenwood Avenue
Raleigh, NC 27609 P.O. Box 31048
Phone: 800-688-2137 Raleigh, NC 27622-1048
919-781-8187 Phone: 800-752-7834
919-783-0040
Attention: Harold Lee Snipes, Jr.
First Vice President Attention: J. David Stubbs
Assoc. Vice Pres.
Trades involving the stock are negotiated on a best efforts basis. As of
December 31, 1996, the approximate number of holders of record of the Common
Stock of the Bank was 900. The Bank has no other class of equity securities.
State banking laws require that surplus of at least 50% of capital stock be
maintained in order for a dividend to be declared. The Bank's required surplus
as of December 31, 1996 was $418,975 and our actual surplus was $4,871,623. Cash
dividends paid in 1996 and 1995 averaged $ .51 and $ .47 per share after
restating for the 4 for 3 stock split paid in November 1995.
Corporate Information
Annual Meeting
The Annual Meeting of Shareholders of Four Oaks Bank & Trust Company will be
held at 6144 US 301 South, Four Oaks, North Carolina on April 28, 1997 at 8:00
PM. We encourage all shareholders to attend.
Transfer Agent
Shareholders desiring to transfer shares or who have questions regarding their
stock certificates should contact the Bank's transfer agent:
United Carolina Bank
Stock Transfer Department
P.O. Box 632
Whiteville, NC 28472
910-642-1140
1-800 682-8107 ext. 1140
Additional Information
For additional information, contact Wanda C. Jones, Vice President, at
919-963-2177.
This statement has not been reviewed or confirmed for accuracy or relevance by
the Federal Deposit Insurance Corporation.
-31-
<PAGE>
Board of Directors
M.S. Canaday
Chairman
Ayden R. Lee, Jr.
Harold J. Sturdivant
(photo of each director
accompanies name)
Paula Canaday Bowman
William J. Edwards
Percy Y. Lee
Warren L. Grimes
-32-
<PAGE>
Board of Directors
<TABLE>
<CAPTION>
Name Year Position With Bank & Principal Occupation During Past Five Years
First
Elected
<S> <C> <C>
M.S. Canaday 1969 Chairman of the Board; Owner of Four Oaks Drug Company
Ayden R. Lee, Jr. 1983 Chief Executive Officer, President and Director
Harold J. Sturdivant 1989 Director; Chairman of the Compensation Committee, Former
Director & Treasurer of Sturdivant Supply Company, Inc.
Paula Canaday Bowman 1989 Director
William J. Edwards 1990 Director; Chief Executive Officer and Chairman of the Board of
Four Oaks IGA Foodliner, Inc. and Secretary of Edwards IGA
Percy Y. Lee 1992 Director; Clayton Area Advisory Board of Four Oaks Bank & Trust
Co.; President of T.R. Lee Oil Company; Senior Partner of Lee
Brothers'Rental; Partner in Lee & Dupree, a rental real estate
partnership.
Warren L. Grimes 1992 Director; General Partner in Reedy Creek Direct Marketing
Association; Solid Waste Division Manager for Johnston County;
Former Vice President of Finance for Davis Communications
Group, Inc. dba Broadcast Services; and former President of
Trash Collection Service, Inc.
</TABLE>
-33-
<PAGE>
Officers and Advisory Boards
Officers
<TABLE>
<CAPTION>
<S> <C>
Ayden R. L. Lee, Jr. President and Chief Executive Officer
Clifton L. Painter Senior Executive Vice President, Executive Officer, Chief Operating Officer
J. Horace Keene Senior Executive Vice President, Executive Officer, City Executive
Nancy S. Wise Senior Vice President, Executive Officer, Chief Financial Officer
James F. Langley Senior Vice President, Senior Real Estate Lending Specialist
Jeff D. Pope Senior Vice President, Area Executive
W. Leon Hiatt, III Senior Vice President, Executive Officer, Loan Administrator
Terry P. Sasser Senior Vice President, Area Executive
Irving K. Pittman Vice President, Branch Manager
Michael L. Winfree Vice President, Branch Manager
Judy E. West Vice President, Teller Coordinator
Jean T. Blackmon Vice President, Customer Service Representative
Elaine T. Ellis Vice President, Data Operations Manager
Judy C. Shaw Vice President, Compliance Officer, Training Officer
L.C. Pierce Vice President, Security Officer
Joyce W. Owen Vice President, Mortgage Loan Officer
Wanda C. Jones Vice President, Corporate Secretary, Personnel Officer
Jennifer L. Stamey Vice President, Internal Auditor
Derek U. Ezzell Vice President, Senior Real Estate Lending Specialist
Michael C. Wooten Vice President, Branch Manager
Marie J. Thompson Assistant Vice President, Loan Officer
Wanda S. Privette Assistant Vice President, Branch Manager
Greg G. Gower Assistant Vice President, Loan Officer
Wanda D. Ray Assistant Vice President, Loan Operations Manager
Leamon E. Canady, Jr. Loan Officer
</TABLE>
Advisory Boards
Clayton Area Garner Area Smithfield Area
Joyce V. Lipscomb Ted W. Massengill Lynda D. Creech
F. Norwood Thompson James F. Langley Irving J. Poliakoff
Dr. James H. Ellerbe Jesse H. Austin, Jr. Dorcas S. Taylor
Joseph W. Delaine Hazel H. Poole John R. Windley
Ronnie J. Hahn S. Barry Hales
Michael L. Marvel Thomas M. Moore
Allen L. Mims Dr. John M. Booker
Travis J. Hill Dr. Madan Lal
W. Ashley Turner Stacy G. Moore
-34-
<PAGE>
Four Oaks Bank & Trust Staff & Locations
Four Oaks
102 E. Main St.
553-2323
Rose Allen
Jean Blackmon
Gwen Brewer
Becky Cooke
Monroe Davis
Curtis Evans
Lee Ann Evans
Derek Ezzell
Susan Goodman
Linda Haley
Tina Horne
Horace Keene
Kimberly Langdon
James Langley
Edie Maiuro
Marie Thompson
Jo Ellen Weeks
Mike Winfree
Four Oaks
111 N. Main St,
963-2177
Deanna Allen
Blenda Johnson
Clayton
102 E. Main St.
553-2323
Lee Canady
Heather Gatewood
Florence Hockaday
Dawn Hayes
Joyce Owen
Tina Parker
Joanna Patram
Brenda Jones
Karen Joye
Irving Pittman
Wendy Reavis
Terry Sasser
GARNER
200 Glen Rd.
662-9005
Belinda Hatcher
Lynn Jackson
Wendy Parker
Wanda Privette
Toni Shaw
Smithfield
128 N. Second St
989-6700
Melissa Adams
Ann Fowler
Greg Gower
Crystal Holland
Rose House
Gwen Lassiter
Clifford Massengill
Jeff Pope
Lori Renfrow
Dawn Strickland
Barbara Whitehurst
Mike Wooten
Melinda Worley
Tracie Worley
Smithfield
403 S. Bright Leaf
Blvd. 989-6710
Lynn Davis
Patsy Ellis
ADMINISTRATIVE OFFICES
FOUR OAKS
6144 US 301 SOUTH / 5987 US 301 South
919-963-2177
Elaine Ellis
Leon Hiatt
Lou Ann Johnson
Wanda Jones
Ayden Lee, Jr.
Cindy Lee
Dale Montgomery
Cliff Painter
Rosa Pell
L.C. Pierce
Wanda Ray
Judy Shaw
Jennifer Stamey
Helen Stanley
Joyce Tyner
Judy West
Nancy Wise
-35-
<PAGE>
MISSION STATEMENT
OUR MISSION IS TO EXCEL AMONG OUR COMPETITORS IN PROVIDING THE BEST BANKING
PRODUCTS AND SERVICES TO OUR CUSTOMERS; TO MAXIMIZE OUR RETURN ON ASSETS WHILE
SAFEGUARDING THESE ASSETS WITH SOUND LENDING PROCEDURES AND CONSERVATIVE
INVESTING; TO MAINTAIN CAPITAL LEVELS WHICH WILL FACILITATE GROWTH AND ENSURE
OUR SAFETY; TO PROVIDE OUR SHAREHOLDERS WITH CONSISTENT AND COMPETITIVE RETURNS
ON THEIR INVESTMENT; AND TO MANAGE OUR BANK IN ACCORDANCE WITH THE HIGHEST
STANDARDS OF THE BANKING INDUSTRY.
We are committed to offering high quality products and services provided by
qualified employees in a friendly community bank environment. Since our
customers are the foundation of our success, we are dedicated to meeting their
banking needs through the development of new banking products and services.
We will achieve this by providing bank wide training and selective seminars that
keep our employees knowledgeable of changes in our bank and in the banking
industry. Our employees are important assets and we strive to provide an
atmosphere that encourages their growth and development as both productive
employees and active members of their communities.
The communities we serve are vitally important to our bank. Therefore, we are
committed to reinvesting our resources back into these communities.
Growth will come primarily from attracting and retaining customers in our
present market areas. New locations are being considered as we seek to better
serve the citizens in our market area. We are also interested in expanding the
borders of our present market areas as opportunities present themselves.
-36-
<PAGE>
Exhibit 6.1 to Form F-2
Report of Daniel G. Matthews & Associates, Inc.
concerning financial statements for 1994 and 1995
presented in the 1996 Annual Report to Shareholders
<PAGE>
DANIEL G. MATTHEWS & ASSOCIATES, INC.
CERTIFIED PUBLIC ACCOUNTANTS
210 EAST WELLONS STREET
SMITHFIELD, NORTH CAROLINA 27577
919-934-7116
INDEPENDENT AUDITOR'S REPORT
Board of Directors
Four Oaks Bank & Trust Company
Post Office Box 309
Four Oaks, North Carolina 27524
We have audited the accompanying balance sheet of the Four Oaks Bank & Trust
Company as of December 31, 1995, and the related statements of income, changes
in shareholders' equity, cash flows for each of the two years in the period
ended December 31, 1995. These financial statements are the responsibility of
the Bank's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of the Four Oaks Bank & Trust
Company at December 31, 1995, and the results of its operations and its cash
flows for each of the two years in the period ended December 31, 1995 in
conformity with generally accepted accounting principles.
/s/ Daniel G. Matthews & Associates, Inc.
___________________________________________
DANIEL G. MATTHEWS & ASSOCIATES, INC.
February 20, 1996
<PAGE>
Exhibit 99.2
FEDERAL DEPOSIT INSURANCE CORPORATION
Washington, D. C. 20429
FORM F-4
QUARTERLY REPORT
Under Section 13 of the Securities Exchange Act of 1934
for Quarter Ended March 31, 1997
FDIC Insurance Certificate Number 11506
FOUR OAKS BANK & TRUST COMPANY
(Exact name of bank as specified in its charter)
North Carolina
(State or other jurisdiction of incorporation or organization)
56-0132010
(IRS Employer Identification Number)
6144 U. S. 301 South
Four Oaks, N. C. 27524
(Address of principal office)
Telephone Number including area code 919-963-2177
The Bank has filed all reports required to be filed by section 13 of the
Securities Exchange Act of 1934 during the preceding 12 months: X Yes No
---
The Bank has been subject to such filing requirements for the past 90 days:
X Yes No
---
Common Stock, par value $1.00 per share
(Title of Class)
839,895
(Number of shares outstanding as of March 31, 1997)
<PAGE>
ITEM 1 - FINANCIAL STATEMENTS
<TABLE>
BALANCE SHEETS - UNAUDITED
(All amounts in thousands) MARCH 31, DECEMBER 31,
1997 1996
---- ----
<S> <C> <C>
ASSETS
Cash and due from banks $ 5,314 $ 5,047
Interest bearing bank balances 1,983 1,562
---------- -----------
Total cash and cash equivalents 7,297 6,609
Investment securities (approximate market value of
$32,693 and $37,092 respectively) 32,693 37,092
Loans, net 120,042 108,036
Accrued interest receivable 2,442 2,052
Bank premises and equipment, net 4,476 4,450
Other real estate owned 147 147
Intangible assets 180 183
Prepaid expenses and other assets 358 544
---------- ----------
TOTAL ASSETS $167,635 $159,113
========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities:
Deposits:
Demand - noninterest bearing $ 22,049 21,073
NOW accounts 14,144 14,707
Savings 15,861 15,727
Time $100,000 and over 31,531 27,339
Other time 65,598 63,997
---------- -----------
Total deposits 149,183 142,843
Accrued interest payable 1,443 1,509
Other borrowed money 2,000 --
Other liabilities 375 398
---------- -----------
TOTAL LIABILITIES 153,001 144,750
---------- -----------
Shareholders' equity:
Capital stock:
Common stock, $1.00 par value, 5,000,000 shares authorized,
839,895 and 837,949 issued and outstanding at March 31, 1997
and December 31, 1996 respectively 840 838
Surplus 4,920 4,872
Retained earnings 8,994 8,604
Net unrealized gain (loss) on marketable equity securities (120) 49
---------- ---------
TOTAL SHAREHOLDERS' EQUITY 14,634 14,363
---------- ---------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $167,635 159,113
========== ==========
</TABLE>
2
<PAGE>
STATEMENTS OF INCOME - UNAUDITED
<TABLE>
<CAPTION>
(In thousands except per share data) FOR THE THREE MONTHS ENDED:
MARCH 31 MARCH 31
1997 1996
---- ----
<S> <C> <C>
Interest income:
Interest and fees on loans $ 2,755 2,288
Interest on investment securities:
US Government and agencies 430 421
Municipalities 77 65
Other investment securities 20 16
Interest on overnight investments 9 22
----------- -----------
Total interest income 3,291 2,812
--------- ---------
Interest expense:
Interest on deposits 1,535 1,327
Interest on borrowed money 31 13
----------- ----------
Total interest expense 1,566 1,340
--------- ---------
Net interest income 1,725 1,472
Provision for loan losses 63 107
----------- ----------
Net interest income after provision for loan losses 1,662 1,365
--------- ---------
Other income:
Service charges 187 147
Credit life commissions 21 22
Other operating income 92 64
Securities gains (losses) (2) 6
------------ -----------
Total noninterest income 298 239
---------- --------
Other expenses:
Salaries 504 451
Employee benefits 88 84
Occupancy expenses 59 48
Equipment expenses 79 66
Other operating expenses 517 376
---------- --------
Total noninterest expense 1,247 1,025
--------- -------
Income before income taxes 713 579
Income taxes 206 161
---------- --------
NET INCOME $ 507 418
========== ========
NET INCOME PER SHARE $ 0.60 0.50
========== ========
CASH DIVIDEND PAID PER SHARE $ 0.14 0.12
========== ========
WEIGHTED AVERAGE SHARES OUTSTANDING 840 828
========== ========
</TABLE>
3
<PAGE>
STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY - UNAUDITED
<TABLE>
<CAPTION>
Common Stock Capital Retained Valuation
Shares Amount Surplus Earnings Allowance
<S> <C> <C> <C> <C>
December 31, 1995
Balance...................828,279 $828,279 $ 4,668,285 $ 7,208,025 $ 214,617
Cash dividends............... (99,393)
Decrease in net
unrealized loss on
marketable equity
securities................. (231,641)
Dividend Reinvestment
Plan....................... 1,499 1,499 31,457
Net income................... 418,134
------- -------- ------------ ------------- ------------
March 31, 1996
Balance...................829,778 $829,778 $ 4,699,742 $ 7,526,766 $ (17,024)
======= ========= ========== =========== ===========
December 31, 1996
Balance...................837,949 $837,949 $ 4,871,624 $ 8,604,139 $ 48,941
Cash dividends............... (117,313)
Decrease in net
unrealized loss on
marketable equity
securities................ (168,926)
Dividend Reinvestment
Plan...................... 1,946 1,946 48,650
Net income................... 506,735
------ ------- -------- ------------ ----------
March 31, 1997
Balance...................839,895 $839,895 $ 4,920,274 $ 8,993,561 $ (119,985)
======= ======== =========== =========== ==========
</TABLE>
4
<PAGE>
STATEMENTS OF CASH FLOWS - UNAUDITED
<TABLE>
<CAPTION>
FOR THE THREE MONTHS ENDED
MARCH 31, MARCH 31,
(All amounts in thousands) 1997 1996
---- ----
<S> <C> <C>
Operating activities
Net income $ 507 418
Adjustments to reconcile net income to cash
provided by operations:
Provision for loan losses 63 107
Provision for depreciation 71 51
(Gain) loss on sale of securities 2 (6)
Loss on sale of repossessed assets 21 6
Write off of loans, net of recoveries 17 (77)
(Increase) Decrease in prepaid & other assets (1) 56
(Increase) Decrease in interest receivable 10 (65)
Increase (Decrease) in other liabilities (89) 65
Increase (Decrease) in interest payable (68) 28
Net amortization of bond premiums & discounts 1 (7)
------------- ----------
Net cash provided from (used by) operating activities 534 576
---------- --------
Investing activities
Proceeds from sales of investment securities 5,276 7,633
Purchase of investment securities (1,152) (5,837)
Net increase in loans outstanding (12,100) (8,267)
Capital expenditures (97) (284)
Proceeds from sale of assets acquired in
settlement of loans 34 56
Acquisition of assets acquired in settlement of loans (29) (199)
--------- -------
Net cash used by investment activities (8,068) (6,898)
------- ------
Financing activities
Net increase (decrease) in short-term borrowings 2,000 1,500
Net increase in deposit accounts 6,340 5,736
Cash dividends (117) (99)
-------- -------
Net cash provided by financing activities 8,223 7,137
-------- ------
Increase (Decrease) in cash and cash equivalents 689 815
Cash and cash equivalents at beginning of period 6,608 6,045
------- ------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 7,297 6,860
======= ======
</TABLE>
5
<PAGE>
FOUR OAKS BANK & TRUST COMPANY
Notes to Financial Statements
1. Cash and Due From Banks. Cash and due from banks consists of non-interest
bearing balances due from other banks and cash. The Federal Reserve requires us
to maintain average reserve balances of $500,000.
2. Investment Securities. The book value and market value of securities at March
31, 1997 and December 31, 1996 are as follows:
<TABLE>
<CAPTION>
U. S. Treasuries
and Agencies State & Local Other
<S> <C> <C> <C>
March 31, 1997:
Book and Market value $25,997,397 $5,735,042 $960,784
Unrealized gains(losses) (189,729) 109,414 (71,170)
December 31, 1996:
Book and Market value $30,208,120 $5,991,326 $892,769
Unrealized gains(losses) 35,104 149,921 (62,084)
</TABLE>
Since we adopted FASB 115 as of January 1, 1994, the book value for March
31, 1997 is equal to the market value. All of our investments have been
categorized Available for Sale under the Mark-to-Market accounting rules and the
unrealized gains and losses are recorded in shareholders' equity.
3. Loans Receivable. Loans, net, consist of:
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1997 1996
<S> <C> <C>
Total Gross Loans $121,561,489 $109,476,023
Allowance for Possible Loan Losses 1,520,000 1,440,000
-------------- --------------
Loans, net $120,041,489 $108,036,023
============ ============
Loan balances by category are as follows:
(in thousands)
Loans secured by real estate:
Construction and land development $ 17,259 $ 15,118
Secured by farmland 6,524 6,914
Secured by 1-4 family residential properties 33,009 29,619
Secured by multifamily residential properties 1,986 1,636
Secured by nonfarm nonresidential properties 11,973 10,781
Agricultural loans 9,780 5,980
Commercial and industrial loans 20,155 19,956
Loans to individuals for household,
family and other personal expenses 20,162 18,698
Loans to State and Local government 88 109
All other loans 730 764
LESS: Any unearned income on loans 104 99
------------- ------------
Total loans $ 121,562 $ 109,476
=========== ============
</TABLE>
6
<PAGE>
4. Allowance for Possible Loan Losses are as follows:
(All amounts in thousands)
<TABLE>
<CAPTION>
March 31,
1997 1996
<S> <C> <C>
Balance, beginning $ 1,440 $ 955
Provision charged to operating expense 63 60
Recoveries of amounts charged off 20 21
------------ ------------
1,523 1,036
Amounts charged off 3 4
------------- ------------
Balance, ending $ 1,520 $ 1,032
========== =========
</TABLE>
5. Interest and dividend income on securities by source is as follows:
March 31,
1997 1996
U. S. Treasuries and Agencies $ 429,858 $360,656
States and Political Subdivisions $ 76,510 $ 67,070
Other $ 19,951 $ 14,137
6. Interest expense on time certificates of deposit of $100,000 or more was
$421,646 and $338,389 at March 31, 1997 and 1996, respectively. Interest expense
on all other deposits was $1,114,217 and $989,429 at March 31, 1997 and 1996
respectively.
7. Standby letters of credit were $1,166,000 and $417,000 at March 31, 1997 and
1996, respectively. Unfunded commitments were $17,556,000 and $18,089,000 at
March 31, 1997 and 1996, respectively.
8. The interim financial statements furnished reflect all adjustments which are,
in the opinion of management, necessary to a fair statement of the results for
the interim periods presented.
7
<PAGE>
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
FINANCIAL CONDITION. From December 31, 1996 to March 31, 1997, interest bearing
bank balances and investment securities, combined, decreased 10%. These funds
along with funds generated by the 4% increase in deposits and $2 million in
short term borrowings were used to fund net loan increases of 11%. Our loan
volumes are increasing due to seasonal funding of agricultural loans as well as
growth in real estate, commercial and consumer lending. Our local economy
remains healthy with unemployment rates low and construction of residential and
commercial properties continuing. Accrued interest receivable has increased due
to the increased volume of loans and the fact that the farm loans presently
being funded should pay both principal and interest in the fall after harvest.
Other real estate owned remains unchanged from December 31, 1996. We presently
have one property recorded at the adjusted loan value after reducing the value
for amounts previously recovered. The expected selling price is higher than the
recorded amount.
Total shareholder's equity increased only 1% due to net income being offset by
the increase in net unrealized loss on securities as our securities portfolio
repriced downward during March 1997.
RESULTS OF OPERATIONS. Net income increased 21% for the three months ended March
31, 1997, as compared to the same period in 1996. The increase results from
effectively managing the interest margin. The 20% increase in loan income is due
to loan growth and somewhat higher rates as fixed rate funds continue to reprice
upward upon maturity or pay out. Interest earned on our investments has
increased 2% due to higher portfolio yields. Interest expense, for the quarter
ended March 31, 1997, increased 17%, over the quarter ended March 31, 1996, due
to total deposit growth of 20%.
Other expenses have increased 22% for the three months ended March 31, 1997 over
the same period of 1996. This increase is primarily due to increases in salaries
and operating costs resulting from more accounts and transactions as we grow. We
opened our Garner office in July 1996 and we expect to open our new location in
Benson, North Carolina in July 1997.
Our delinquency rate of 1.29% is favorable compared to historical trends. At
March 31, 1997, our nonperforming loans were $586,000 or 0.48% of our total
gross loans as compared to $828,000 or 0.84% at March 31, 1996. Our reserve for
loan loss of $1,520,000 or 1.25% of total gross loans is considered adequate to
cover future credit losses in our present portfolio.
8
<PAGE>
SIGNATURES
Under the requirements of the Securities Exchange Act of 1934, the Bank has duly
caused this report to be signed on its behalf by the undersigned thereunto duly
authorized.
FOUR OAKS BANK & TRUST COMPANY
Date: May 13, 1997 By: /s/ Ayden R. Lee, Jr.
Ayden R. Lee, Jr
President and Chief Executive Officer
Date: May 13, 1997 By: /s/ Clifton L. Painter
Clifton L. Painter
Senior Executive Vice President and
Chief Operating Officer
9
<PAGE>
Exhibit 99.3
ARTICLES OF MERGER
OF
NEW FOUR OAKS BANK
INTO
FOUR OAKS BANK & TRUST COMPANY
Pursuant to Section 53-12 and Section 53-13 of the General Statutes of
North Carolina, Four Oaks Bank & Trust Company (the "Surviving Corporation"), a
banking corporation organized under the laws of the State of North Carolina,
hereby submits these Articles of Merger for the purpose of merging New Four Oaks
Bank, a banking corporation organized under the laws of the State of North
Carolina, into the Surviving Corporation:
I.
The Agreement and Plan of Reorganization and Merger, attached hereto as
Exhibit A, was duly approved in the manner prescribed by law by the shareholders
of each of the corporations participating in the merger.
II.
The effective time and date of these Articles of Merger shall be 12:01
A.M., July 1, 1997.
This the 18th day of June, 1997.
FOUR OAKS BANK & TRUST COMPANY
By: /s/ Ayden R. Lee, Jr.
--------------------------------
Ayden R. Lee, Jr.
President and Chief Executive Officer
<PAGE>
Exhibit A
AGREEMENT AND PLAN OF REORGANIZATION AND MERGER
THIS AGREEMENT AND PLAN OF REORGANIZATION AND MERGER (this
"Agreement"), made and entered into as of February 24, 1997, by and between FOUR
OAKS BANK & TRUST COMPANY, a banking corporation organized under the laws of the
State of North Carolina and having its principal place of business in the City
of Four Oaks, North Carolina (the "Bank"), and FOUR OAKS FINCORP, INC., a North
Carolina business corporation (the "Holding Company"), on its own behalf and on
behalf of NEW FOUR OAKS BANK (Proposed), a banking corporation to be chartered
under the laws of the State of North Carolina (the "New Bank") as a wholly-owned
subsidiary of the Holding Company.
W I T N E S S E T H:
WHEREAS, as of December 31, 1996, the Bank had a common stock account
of $837,949 consisting of 5,000,000 authorized shares of common stock, par value
$1.00 per share, of which 837,949 shares were outstanding, and surplus of
$4,871,623 and undivided profits of $8,604,138; and
WHEREAS, as of the effective date of this reorganization, the Holding
Company shall be authorized to issue 5,000,000 shares of common stock, par value
$1.00 per share, of which no shares will be outstanding, with the exception of
5,000 shares of common stock to be issued for $1.00 per share to directors of
the New Bank as qualifying shares; and
WHEREAS, as of the effective date of this reorganization, the New Bank
shall be authorized to issue 10,000 shares of common stock, par value $1.00 per
share, of which 5,000 shares will be outstanding, all of which shares will be
owned by the Holding Company; and
WHEREAS, the Board of Directors of the Bank and the Holding Company
believe that it is in the best interests of their respective shareholders that
the Bank be reorganized into a one-bank holding company structure through a
merger of the New Bank with and into the Bank pursuant to which the shareholders
of the Bank will receive shares of the common stock of the Holding Company in
exchange for their shares of the common stock of the Bank.
NOW, THEREFORE, in consideration of the mutual promises and conditions
herein contained, the Bank and the Holding Company hereby mutually agree to the
merger of the New Bank with and into the Bank on the terms and conditions and in
the manner and on the basis hereinafter provided:
1. The Merger. Pursuant to the provisions of Sections 53-12 and 53-13
of the General Statutes of North Carolina, the New Bank shall be merged with and
into the Bank (the "Merger") upon receipt of all necessary governmental
approvals, both state and federal, the passage of any required waiting period
and upon the filing of Articles of Merger with the
<PAGE>
Secretary of State of North Carolina (the "Effective Time"), as hereinafter set
forth. The Bank and the New Bank shall be referred to collectively herein as the
"Merging Banks." The terms and conditions of the Merger shall be as follows:
(a) The name of the surviving bank (the "Surviving Bank")shall
be "Four Oaks Bank & Trust Company."
(b) The business of the Surviving Bank shall be that of a
banking corporation and shall be conducted at the Surviving Bank's main office
located in Four Oaks, North Carolina and at its legally established branches.
(c) The Articles of Incorporation (Charter) of the Bank, as in
effect at the Effective Time, shall be the Articles of Incorporation (Charter)
of the Surviving Bank until changed as provided by law.
(d) The Bylaws of the Bank, as in effect at the Effective
Time, shall be the Bylaws of the Surviving Bank until altered, amended, or
repealed as therein provided.
(e) At the Effective Time, the corporate existence of the
Merging Banks shall be merged into the Surviving Bank, and the Surviving Bank
shall be deemed to be the same corporation as the Merging Banks. All rights,
franchises, and interests of the Merging Banks, in and to all property, tangible
and intangible, and all choses in action shall automatically and by operation of
law be transferred to and vested in the Surviving Bank by reason of the Merger.
The Surviving Bank shall, from and after the Effective Time, hold and enjoy all
property rights, franchises, and interests, including appointments, powers,
designations and nominations, and all other rights and interests as trustee,
executor, administrator, agent, transfer agent and registrar of stocks and
bonds, administrator of estates, assignee and receiver, and in every other
fiduciary capacity and every agency capacity, in the same manner and to the same
extent as such rights, franchises, and interests were held and enjoyed by the
respective Merging Banks immediately prior to the Effective Time.
(f) From and after the Effective Time, the Surviving Bank
shall be responsible and liable for all obligations of the Merging Banks, and
all deposits, debts, liabilities, obligations, and contracts of the Merging
Banks, matured or unmatured, whether accrued, absolute, contingent, or
otherwise, and whether or not reflected or reserved against the balance sheets,
books of account or records of the Merging Banks, shall be those of, and are
hereby expressly assumed by, the Surviving Bank and shall not be released or
impaired by the Merger.
(g) The directors and officers of the Bank as of the Effective
Time shall be the directors and officers, respectively, of the Surviving Bank
from and after the Effective Time. The committees of the Surviving Bank shall be
the same as, and shall be composed of the same persons who were serving on
committees created and appointed by the Board of Directors of the Bank as of the
Effective Time.
<PAGE>
2. Conversion of Shares. As of the Effective Time, the manner and basis
of converting the shares of capital stock of the parties hereto shall be as
follows:
(a) Each share of common stock of the Bank outstanding as of
the Effective Time shall automatically and without further action of the holder
thereof be converted into one (1) share of common stock of the Holding Company
(with any outstanding fractional shares of the Bank being converted into an
identical number of fractional shares of the Holding Company).
(b) The shares of common stock of the New Bank outstanding as
of the Effective Time shall automatically and without further action of the
holder thereof be converted into such number of shares of common stock of the
Surviving Bank, such that the number of shares of common stock of the Surviving
Bank outstanding upon completion of the Merger shall be equal to the aggregate
number of outstanding shares of common stock of the Bank and the New Bank
combined immediately before the Merger.
(c) All shares of common stock of the Holding Company
outstanding immediately prior to the Effective Time shall be redeemed from the
holders thereof for the sum of $1.00 per share.
3. Redemption of Shares. Subject to the approval of the Commissioner of
Banks of the State of North Carolina, immediately following the Merger, the
Surviving Bank shall redeem 5,000 shares of its common stock from the Holding
Company for the sum of $1.00 per share, with the effect that immediately after
the Effective Time, the number of outstanding shares of common stock of the
Surviving Bank shall be the same as the number of outstanding shares of common
stock of the Bank immediately before the Effective Time.
4. Exchange of Shares. Each shareholder of record of the Bank as of the
Effective Time shall be entitled, upon surrender by him or her to the Holding
Company of all certificates evidencing the ownership of shares of common stock
of the Bank held by him or her of record immediately prior to the Effective
Time, to receive in exchange therefor a certificate or certificates representing
the number of shares of common stock of the Holding Company which he or she is
entitled, and, as soon as possible after the Effective Time, the Holding Company
shall furnish to each such shareholder transmittal forms and written
instructions with respect to such exchange. Until so surrendered, each
outstanding certificate which, prior to the Effective Time, represented shares
of common stock of the Bank, shall be deemed for all purposes to evidence the
ownership of the shares of common stock of the Holding Company into which such
shares shall have been converted by reason of the Merger; provided that the
Holding Company may in its discretion elect not to treat any such unsurrendered
shares as shares of common stock of the Holding Company for purposes of the
payment of dividends. If the Holding Company in its discretion so elects, then
unless and until any outstanding certificate evidencing common stock of the Bank
shall be so surrendered, no dividends payable to the owner of common stock of
the Holding Company represented by the unsurrendered certificate shall be paid;
provided, however, that upon surrender and exchange of each outstanding
certificate evidencing common stock of the Bank for a certificate evidencing
outstanding common stock of the Holding Company, there shall be paid to the
holder thereof the amount, without interest, of all dividends and other
distributions, if any,
<PAGE>
which therefore were declared and became payable, but were not paid, with
respect to said shares. Shares of the Bank's common stock that are owned by a
shareholder of record as of the Effective Time through the Bank's Dividend
Reinvestment and Stock Purchase Plan ("DRSPP") are held by or through the agent
under the DRSPP shall automatically and without further action on the part of
such shareholder be converted, as of the Effective Time, into shares of common
stock of the Holding Company pursuant to Paragraph 2(a) of this Agreement. Such
conversion shall be reflected in and under the DRSPP and in the account of such
shareholder under the DRSPP. All such converted shares shall continue to be held
by or through the agent under the DRSPP. The provisions of this Paragraph 4
shall not apply to any share of common stock of the Bank as to which the holder
thereof shall have pursued his or her right to dissent from the Merger pursuant
to Article 13 of the North Carolina Business Corporation Act.
5. Stock Option and Other Plans.
(a) At the Effective Time, all outstanding options under the
Bank's Nonqualified Stock Option Plan ("NSOP") shall be converted into options
to acquire the number of shares of common stock of the Holding Company that the
holders of such options were entitled to acquire of common stock of the Bank
immediately prior to the Merger on the same terms and conditions as set forth in
the NSOP.
(b) At the Effective Time, all rights to acquire common stock
of the Bank under the Bank's Employee Stock Purchase and Bonus Plan ("ESPBP")
shall be converted into rights to acquire common stock of the Holding Company,
on the same terms and conditions as set forth in the ESPBP.
(c) At the Effective Time, all rights to acquire common stock
of the Bank under the DRSPP shall be converted into rights to acquire common
stock of the Holding Company, on the same terms and conditions as set forth in
the DRSPP.
6. Rights of Dissenting Shareholders. Any shareholder of the Bank who
has not voted for the Merger at the meeting of shareholders for consideration of
the Merger, and who has given notice in writing at or prior to such meeting that
he or she dissents from the Merger, and who complies with the provisions of Part
2 of Article 13 of the North Carolina Business Corporation Act, shall be
entitled to receive the fair value of the shares held by him or her.
7. Lost, Destroyed, or Stolen Certificates. Shareholders of the Bank
whose certificates evidencing shares of common stock of the Bank have been lost,
destroyed or stolen shall be entitled to receive certificates evidencing the
shares of common stock of the Bank into which such shares were converted in
compliance with the provisions of the Bylaws of the Surviving Bank.
8. Obligations of the Parties Pending the Effective Time of the Merger.
The Bank and the Holding Company shall, as soon as practicable take the
following action:
<PAGE>
(a) The Holding Company shall cause the New Bank to complete
its organization and to issue and sell to the Holding Company 5,000 shares of
common stock of the New Bank, par value $1.00 per share, at a purchase price of
$1.00 per share;
(b) The Holding Company shall cause five (5) persons to be
elected to the Board of Directors of the New Bank, which persons shall each own
common stock of the Holding Company with a book value of at least $1,000;
(c) This Agreement shall be duly submitted to the shareholders
of the Bank and the New Bank for the purpose of considering and acting upon the
Merger in the manner required by law and their respective articles of
incorporation and bylaws. The Bank and the New Bank shall use their best efforts
to obtain the requisite approval of their shareholders of the Merger and the
transactions contemplated thereby, and the Bank, the New Bank and the Holding
Company shall, through their respective officers, execute and file with the
appropriate regulatory authorities, including the Federal Deposit Insurance
Corporation, the Board of Governors of the Federal Reserve System and the North
Carolina Commission of Banks, such applications, exhibits, documents and papers
as shall be necessary or appropriate to secure approval of the Agreement, the
Merger and the transactions contemplated thereby, as required by applicable
statutes, rules and regulations;
(d) The Holding Company use its best efforts to cause the
issuance of common stock of the Holding Company made pursuant to this Agreement
and the Merger to be qualified or exempted under the Securities Act of 1933 and
the Blue Sky Laws of each state in which it deems such qualification or
exemption to be required;
(e) Until the Effective Time, neither the Bank nor the New
Bank shall dispose of its assets except in the ordinary and normal course of
business.
9. Conditions Precedent to the Merger. The Merger shall be subject to
the satisfaction of the following conditions:
(a) Ratification and confirmation of this Agreement by
approval of holders of at least two-thirds of the outstanding shares of common
stock of the Bank and by approval of the sole shareholder of the New Bank as
required by law;
(b) Approval of the North Carolina Commissioner of Banks;
(c) No objection by the Board of Governors of the Federal
Reserve System to the Merger and the transactions related thereto within 30 days
of a notice filing made pursuant to Section 225.15 of Regulation Y promulgated
pursuant to the Bank Holding Company Act of 1956, as amended;
(d) Approval of the Federal Deposit Insurance Corporation
pursuant to Section 18(c) of the Federal Deposit Insurance Act;
<PAGE>
(e) Receipt of a favorable opinion with respect to the tax
consequences of the proposed Merger from legal counsel to the Bank; and
(f) Expiration of any waiting period required by any
supervisory authority.
10. Effective Date. The Merger shall become effective at the time
specified in the Articles of Merger to be filed with the Secretary of State of
North Carolina.
11. Termination. This Agreement may be terminated prior to the
Effective Time for any of the following reasons by written notice by either
Merging Bank to the other upon authorization by resolution adopted by either
Board of Directors:
(a) Any condition precedent contained in Paragraph 9 has not
been fulfilled or waived;
(b) Any action, suit, proceeding, or claim has been
instituted, made or threatened, relating to the proposed Merger that makes
consummation of the Merger inadvisable in the opinion of the Board of Directors
of either Merging Bank;
(c) The Board of Directors of the Bank determines that the
holders of a sufficient number of shares of common stock of the Bank have
dissented from the Merger so that consummation of the Merger is not in the best
interests of the Bank; and
(d) A determination by the Board of Directors of either
Merging Bank that consummation of the Merger is inadvisable in the opinion of
such Board of Directors.
12. Entire Agreement. This Agreement contains the entire agreement
of the parties with respect to the transactions contemplated hereby.
13. Effect of Agreement. The terms and conditions of this Agreement
shall be binding upon and inure to the benefit of the parties hereto and their
respective successors and assigns.
14. Expenses. Each of the parties will pay its own fees and expenses
incurred in connection with the transaction contemplated by this Agreement.
15. Governing Law. This Agreement shall be governed by and construed
in accordance with the laws of the State of North Carolina.
[remainder of page intentionally left blank; signatures appear on next page]
<PAGE>
IN WITNESS WHEREOF, the Bank and the Holding Company have caused this
Agreement to be executed by their duly authorized officers and their corporate
seals to be affixed hereto as of the date first above written.
FOUR OAKS BANK & TRUST COMPANY
By: /s/ Ayden R. Lee, Jr.
-----------------------------
Ayden R. Lee, Jr., President
and Chief Executive Officer
ATTEST:
By: /s/ Wanda C. Jones
---------------------------
Wanda C. Jones, Secretary
[CORPORATE SEAL]
FOUR OAKS FINCORP, INC.
By: /s/ Ayden R. Lee, Jr.
------------------------------
Ayden R. Lee, Jr., President
and Chief Executive Officer
ATTEST:
By: /s/ Wanda C. Jones
---------------------------
Wanda C. Jones, Secretary
[CORPORATE SEAL]
