SCHEDULE 14A INFORMATION
(RULE 14a-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(A) OF THE SECURITIES
EXCHANGE ACT OF 1934 (AMENDMENT NO. ___)
Filed by the Registrant [x]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[ ]Preliminary Proxy Statement [ ]Confidential, for Use of the
[x]Definitive Proxy Statement Commission Only (as permitted
[ ]Definitive Additional Materials by Rule 14a-6(e)(2))
[ ]Soliciting Material Under Rule 14a-12
1st STATE BANCORP, INC.
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(Name of Registrant as Specified in Its Charger)
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(Name of Person(s) Filing Proxy Statement, if Other Than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[x] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
1. Title of each class of securities to which transaction applies:
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2. Aggregate number of securities to which transaction applies:
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3. Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the
filing fee is calculated and state how it was determined):
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4. Proposed maximum aggregate value of transaction:
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5. Total fee paid:
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[ ] Fee paid previously with preliminary materials:_____________________________
[ ] Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee was
paid previously. Identify the previous filing by registration statement
number, or the Form or Schedule and the date of its filing.
1. Amount Previously Paid:
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2. Form, Schedule or Registration Statement No.:
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3. Filing Party:
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4. Date Filed:
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<PAGE>
[LOGO]
[1st State Bancorp, Inc. Letterhead]
December 27, 2000
Dear Stockholder:
We invite you to attend the Annual Meeting of Stockholders (the "Annual
Meeting") of 1st State Bancorp, Inc. (the "Company") to be held at the main
office of 1st State Bank (the "Bank") located at 445 S. Main Street, Burlington,
North Carolina, on Tuesday, January 30, 2001, at 5:30 p.m., eastern time.
The attached Notice of Annual Meeting and Proxy Statement describe the
formal business to be transacted at the meeting. During the meeting, we will
also report on the operations of 1st State Bank, the Company's wholly owned
subsidiary. Directors and officers of the Company and the Bank will be present
to respond to any questions the stockholders may have.
ON BEHALF OF THE BOARD OF DIRECTORS, WE URGE YOU TO SIGN, DATE AND
RETURN THE ACCOMPANYING FORM OF PROXY AS SOON AS POSSIBLE EVEN IF YOU CURRENTLY
PLAN TO ATTEND THE ANNUAL MEETING. Your vote is important, regardless of the
number of shares you own. This will not prevent you from voting in person but
will assure that your vote is counted if you are unable to attend the meeting.
On behalf of the Board of Directors and all the employees of the
Company and the Bank, I wish to thank you for your continued support.
Sincerely,
/s/ James C. McGill
James C. McGill
President
<PAGE>
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1ST STATE BANCORP, INC.
445 S. MAIN STREET
BURLINGTON, NORTH CAROLINA 27215
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NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON JANUARY 30, 2001
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NOTICE IS HEREBY GIVEN that the Annual Meeting of Stockholders (the "Annual
Meeting") of 1st State Bancorp, Inc. (the "Company") will be held at the main
office of 1st State Bank (the "Bank"), located at 445 S. Main Street,
Burlington, North Carolina, on Tuesday, January 30, 2001, at 5:30 p.m., eastern
time.
A Proxy Statement and Proxy Card for the Annual Meeting are enclosed.
The Annual Meeting is for the purpose of considering and acting upon the
following matters:
1. The election of three directors of the Company for three-year terms
and one director of the Company for a one-year term; and
2. The transaction of such other business as may properly come before the
Annual Meeting or any adjournment thereof.
The Board of Directors is not aware of any other business to come before
the Annual Meeting.
Any action may be taken on any one of the foregoing proposals at the Annual
Meeting on the date specified above or on any date or dates to which, by
original or later adjournment, the Annual Meeting may be adjourned. Stockholders
of record at the close of business on December 14, 2000, are the stockholders
entitled to notice of and to vote at the Annual Meeting and any adjournment
thereof.
You are requested to fill in and sign the enclosed proxy card which is
solicited by the Board of Directors and to mail it promptly in the enclosed
envelope. The proxy will not be used if you attend and vote at the Annual
Meeting in person.
BY ORDER OF THE BOARD OF DIRECTORS
/s/ A. Christine Baker
A. Christine Baker
Secretary
Burlington, North Carolina
December 27, 2000
IMPORTANT: THE PROMPT RETURN OF PROXIES WILL SAVE THE COMPANY THE EXPENSE
OF FURTHER REQUESTS FOR PROXIES IN ORDER TO INSURE A QUORUM. A SELF-ADDRESSED
ENVELOPE IS ENCLOSED FOR YOUR CONVENIENCE. NO POSTAGE IS REQUIRED IF MAILED IN
THE UNITED STATES.
<PAGE>
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PROXY STATEMENT
OF
1ST STATE BANCORP, INC.
445 S. MAIN STREET
BURLINGTON, NORTH CAROLINA 27215
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ANNUAL MEETING OF STOCKHOLDERS
JANUARY 30, 2001
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GENERAL
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This Proxy Statement is furnished to stockholders of 1st State Bancorp,
Inc. (the "Company") in connection with the solicitation by the Board of
Directors of the Company of proxies to be used at the Annual Meeting of
Stockholders (the "Annual Meeting") which will be held at the main office of 1st
State Bank (the "Bank"), located at 445 S. Main Street, Burlington, North
Carolina, on Tuesday, January 30, 2001, at 5:30 p.m., eastern time, and at any
adjournment thereof. The accompanying Notice of Annual Meeting and proxy card
and this Proxy Statement are being first mailed to stockholders on or about
December 27, 2000.
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VOTING AND REVOCABILITY OF PROXIES
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Stockholders who execute proxies retain the right to revoke them at any
time. Unless so revoked, the shares represented by properly executed proxies
will be voted at the Annual Meeting and all adjournments thereof. Proxies may be
revoked by written notice to A. Christine Baker, Secretary of the Company, at
the address shown above, by filing a later dated proxy prior to a vote being
taken on a particular proposal at the Annual Meeting or by attending the Annual
Meeting and voting in person. The presence of a stockholder at the Annual
Meeting will not in itself revoke such stockholder's proxy.
Proxies solicited by the Board of Directors of the Company will be
voted in accordance with the directions given therein. WHERE NO INSTRUCTIONS ARE
INDICATED, PROXIES WILL BE VOTED FOR THE NOMINEES FOR DIRECTOR SET FORTH BELOW.
The proxy confers discretionary authority on the persons named therein to vote
with respect to the election of any person as a director where the nominee is
unable to serve or for good cause will not serve, and matters incident to the
conduct of the Annual Meeting. If any other business is presented at the Annual
Meeting, proxies will be voted by those named therein in accordance with the
determination of a majority of the Board of Directors. Proxies marked as
abstentions will not be counted as votes cast. Shares held in street name which
have been designated by brokers on proxies as not voted will not be counted as
votes cast. Proxies marked as abstentions or as broker non-votes, however, will
be treated as shares present for purposes of determining whether a quorum is
present.
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VOTING SECURITIES AND SECURITY OWNERSHIP
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The securities entitled to vote at the Annual Meeting consist of the
Company's common stock, par value $.01 per share (the "Common Stock").
Stockholders of record as of the close of business on December 14, 2000 (the
"Record Date") are entitled to one vote for each share of Common Stock then
held. As of the Record Date, there were 3,289,607 shares of Common Stock issued
and outstanding. The presence, in person or by proxy, of at least one-third of
the total number of shares of Common Stock outstanding and entitled to vote will
be necessary to constitute a quorum at the Annual Meeting.
<PAGE>
Persons and groups beneficially owning more than 5% of the Common Stock
are required to file certain reports with respect to such ownership pursuant to
the Securities Exchange Act of 1934, as amended (the "Exchange Act"). The
following table sets forth information regarding the shares of Common Stock
beneficially owned as of the Record Date by persons who beneficially own more
than 5% of the Common Stock, each of the Company's directors, the executive
officers of the Company named in the Summary Compensation Table set forth under
"Proposal I -- Election of Directors -- Executive Compensation -- Summary
Compensation Table," and all of the Company's directors and executive officers
as a group.
<TABLE>
<CAPTION>
SHARES OF COMMON STOCK
BENEFICIALLY OWNED PERCENT OF
AS OF THE RECORD DATE (1) CLASS (2)
------------------------- ----------
5% Stockholder:
--------------
<S> <C> <C>
1st State Bancorp, Inc. 253,050 (3) 7.69%
Employee Stock Ownership Plan ("ESOP")
445 S. Main Street
Burlington, North Carolina 27215
1st State Bank Foundation, Inc. 182,000 5.53
445 S. Main Street
Burlington, North Carolina 27215
1st State Bank Deferred Compensation Plan ("DCP") 174,526 (4) 5.31
445 S. Main Street
Burlington, North Carolina 27215
Maurice J. Koury 232,000 (5) 7.05
P.O. Drawer 850
Burlington, North Carolina 27216
Directors
---------
Bernie C. Bean 31,675 0.96
James C. McGill 131,730 (6)(7) 3.91
Virgil L. Stadler 71,540 (8)(9) 2.16
James A. Barnwell, Jr. 61,675 (6) 1.87
James G. McClure 59,754 (9)(10) 1.81
T. Scott Quakenbush 72,986 (11) 2.21
Richard C. Keziah 75,640 (6) (12) 2.29
Richard H. Shirley 47,219 (9) 1.43
Ernest A. Koury, Jr. 1,000 0.03
Executive Officers
------------------
A. Christine Baker 84,536 (13) 2.54
Fairfax C. Reynolds 77,874 (14) 2.34
Frank Gavigan 27,057 (15) 0.82
John D. Hansell 10,889 0.33
All directors and executive 753,575 21.00
officers of the Company
as a group (13 persons)
(footnotes on following page)
2
<PAGE>
<FN>
(footnotes for table on previous page)
___________
(1) In accordance with Rule 13d-3 under the Securities Exchange Act of 1934, as
amended (the "Exchange Act"), a person is deemed to be the beneficial
owner, for purposes of this table, of any shares of Common Stock if he or
she has or shares voting or investment power with respect to such Common
Stock or has a right to acquire beneficial ownership at any time within 60
days from the Record Date. As used herein, "voting power" is the power to
vote or direct the voting of shares and "investment power" is the power to
dispose or direct the disposition of shares. The listed amounts include
15,816, 79,078, 15,816, 15,816, 15,816, 15,816, 15,816, 15,816, 0, 45,000,
45,000, 11,250 and 7,500 shares that Directors Bean, McGill, Stadler,
Barnwell, McClure, Quakenbush, Keziah, Shirley and Koury, Executive
Officers Baker, Reynolds, Gavigan and Hansell, and all directors and
executive officers of the Company as a group, respectively, have the right
to acquire upon the exercise of options exercisable within 60 days of the
Record Date.
(2) Based on a total of 3,289,607 shares of Common Stock outstanding as of the
Record Date.
(3) These shares are currently held in a suspense account for future allocation
and distribution among participants as the loan used to purchase the shares
is repaid. At the Record Date, 51,231 shares had been allocated or
committed to be allocated. See footnote 1 above for information on how
these shares are voted.
(4) The shares held by the DCP trust are held for the benefit of directors and
executive officers of the Company in the following amounts: Mr. Bean 6,266;
Mr. McGill 64,338; Mr. Stadler 10,301; Mr. Barnwell 7,019; Mr. McClure
8,158; Mr. Quakenbush 10,418; Mr. Keziah 11,228; Mr. Shirley 7,019; Ms.
Baker 24,962; and Mr. Reynolds 24,817. Such individuals do not have voting
or investment power over such shares.
(5) Based on a Schedule 13G filed by Mr. Koury on May 15, 2000. Includes 12,500
shares held by the Maurice J. Koury Foundation, Inc. (the "Koury
Foundation"), 49,500 shares held by Carolina Hosiery Mills, Inc. ("Carolina
Hosiery"); and 15,000 shares held by the Carolina Hosiery Mills, Inc.
Employee Profit Sharing Trust ("Trust"). Mr. Koury is (a) one of four
directors and president of the Koury Foundation; (b) a director, president
and 23.6% shareholder of Carolina Hosiery; and (c) a trustee of the Trust.
In all such cases, Mr. Koury may have imput into decisions concerning the
voting power over the shares held by the Koury Foundation, Carolina Hosiery
and the Trust in certain limited circumstances.
(6) The listed amounts do not include shares with respect to which Directors
Barnwell, Kesiah and McGill share voting power by virtue of their positions
as directors of 1st State Bank Foundation, Inc. (the "Foundation"), which
holds 182,000 shares of Common Stock. The shares held by the Foundation are
voted in the same ratio as all other shares of Common Stock are voted on
any given proposal submitted to stockholders.
(7) Includes 288 shares held by Mr. McGill's spouse.
(8) Includes 7,760 shares owned by Mr. Stadler's spouse.
(9) The listed amounts do not include shares with respect to which Directors
Shirley, McClure and Stadler have voting power by virtue of their positions
as trustees of the trusts holding 235,050 shares under the ESOP, 174,526
shares under the DCP and 84,319 shares under the Management Recognition
Plan ("MRP") trust. Shares held by the ESOP trust and allocated to the
accounts of participants are voted in accordance with the participants'
instructions, and unallocated shares are voted in the same ratio as ESOP
participants direct the voting of allocated shares or, in the absence of
such direction, in the ESOP trustees' best judgment. The shares held by the
DCP trust are voted in the same proportion as the ESOP trustees vote the
shares held in the ESOP trust.
(10) Includes 15,185 shares owned by Mr. McClure's spouse, 2,551 shares owned by
Mr. McClure's daughter, and 2,551 shares owned by Mr. McClure's son.
(11) Includes 7,430 shares owned by Mr. Quakenbush's spouse.
(12) Includes 2,223 shares owned by Mr. Keziah's spouse.
(13) Includes 625 shares held as custodian for Ms. Baker's minor child.
(14) Includes 200 shares held by Mr. Reynolds' spouse as custodian for minor
children.
(15) Includes 356 shares held by Mr. Gavigan's spouse and 100 shares held by Mr.
Gavigan's spouse as custodian for minor child.
</FN>
</TABLE>
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PROPOSAL I -- ELECTION OF DIRECTORS
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GENERAL
The Company's Board of Directors consists of nine members. The
Company's Articles of Incorporation require that directors be divided into three
classes, as nearly equal in number as possible, with approximately one-third of
the directors elected each year. At the Annual Meeting, three directors will be
elected for a term expiring at the 2004 Annual Meeting and one director will be
elected for a term expiring at the 2002 Annual Meeting. The Board of Directors
has nominated James A. Barnwell, Jr., James G. McClure and T. Scott Quakenbush
to serve as
3
<PAGE>
directors for a three-year period and Ernest A. Koury, Jr. to serve as a
director for the remainder of the term expiring at the 2002 Annual Meeting. All
nominees are currently members of the Board. Under Virginia law and the
Company's Bylaws, directors are elected by a plurality of the votes present in
person or by proxy at a meeting at which a quorum is present.
It is intended that the persons named in the proxies solicited by the
Board of Directors will vote for the election of the named nominees. If either
nominee is unable to serve, the shares represented by all valid proxies will be
voted for the election of such substitute as the Board of Directors may
recommend or the size of the Board may be reduced to eliminate the vacancy. At
this time, the Board knows of no reason why any nominee might be unavailable to
serve.
The following table sets forth, for each nominee for director and
continuing director of the Company, his age, the year he first became a director
of the Bank, which is the Company's principal operating subsidiary, and the
expiration of his term as a director. All such persons except Mr. Koury were
appointed as directors of the Company in 1998 in connection with the
incorporation and organization of the Company. Each director of the Company also
is a member of the Board of Directors of the Bank.
<TABLE>
<CAPTION>
YEAR FIRST
AGE AT ELECTED AS CURRENT
SEPTEMBER 30, DIRECTOR OF TERM
NAME 2000 THE BANK TO EXPIRE
---- -------- ---------- ---------
BOARD NOMINEES FOR TERMS TO EXPIRE IN 2004
<S> <C> <C> <C>
James A. Barnwell, Jr. 60 1988 2001
James G. McClure 55 1989 2001
T. Scott Quakenbush 69 1978 2001
BOARD NOMINEE FOR A TERM TO EXPIRE IN 2002
Ernest A. Koury, Jr. 46 2000 2002
DIRECTORS CONTINUING IN OFFICE
Richard C. Keziah 68 1983 2002
Richard H. Shirley 53 1987 2002
Bernie C. Bean 70 1978 2003
James C. McGill 59 1988 2003
Virgil L. Stadler 64 1982 2003
</TABLE>
Set forth below is information concerning the Company's directors.
Unless otherwise stated, all directors have held the positions indicated for at
least the past five years.
JAMES A. BARNWELL, JR. is President of Huffman Oil Co., Inc., a petroleum
marketer in Burlington, North Carolina. He has served on the advisory board of
the Salvation Army Boys & Girls Club and the YMCA board. He serves as a director
of the Foundation. He also serves on the Board of Directors of the Alamance
Regional Medical Center.
JAMES G. MCCLURE is President of Green & McClure, a retail furniture
store in Graham, North Carolina. He has served as President of the Graham Area
Business Association, on the zoning board for the city of Graham and is an Elder
at the Graham Presbyterian Church.
4
<PAGE>
T. SCOTT QUAKENBUSH retired in April 1997 from his position as Vice
President and sales manager with Carolina Paper Box Company in Burlington, North
Carolina.
ERNEST A. KOURY, JR. is Vice President of Carolina Hosiery Mills, Inc., a
hosiery mill in Burlington, North Carolina. He serves as Vice Chairman of the
Alamance County Planning and Zoning Board and Chairman of the Elon College Board
of Visitors.
RICHARD C. KEZIAH, the Chairman of the Board of Directors of the Company,
is President of Monarch Hosiery Mills, Inc. in Burlington, North Carolina. He
also serves on the Board of Directors of Elon Homes for Children. He also serves
as a director of the Foundation.
RICHARD H. SHIRLEY is President of Dick Shirley Chevrolet, Inc., an
automobile dealership located in Burlington, North Carolina. He has served as
the President of the Alamance County YMCA and as a member and chairman of the
Economic Development Committee of the Burlington area Chamber of Commerce.
BERNIE C. BEAN is retired. From 1988 to 1995 he was the President and
General Manager of Craftique, Inc., a furniture manufacturer located in Mebane,
North Carolina.
JAMES C. MCGILL is the President and Chief Executive Officer of the Company
and has been the President and Chief Executive Officer of the Bank since
December 1988. He serves on the Boards of Hospice of Alamance and Alamance
Community College and in 1997 served as the chairman of the North Carolina
Bankers Association. He also serves as a director of the Foundation, a
charitable foundation dedicated to charitable and community service causes
within the Bank's community.
VIRGIL L. STADLER is the Vice President of Stadler Country Hams, Inc. in
Elon College, North Carolina. He is active with the Alamance Community College
Foundation, Elon Homes for Children and the Burlington area Chamber of Commerce.
EXECUTIVE OFFICERS WHO ARE NOT DIRECTORS
The following sets forth information with respect to executive officers who
do not serve on the Board of Directors.
<TABLE>
<CAPTION>
AGE AT
SEPTEMBER 30,
NAME 2000 TITLE
---- -------------- -----
<S> <C> <C>
A. Christine Baker 47 Treasurer and Secretary of the Company and the Bank
and Executive Vice President- Chief Financial
Officer of the Bank
Fairfax C. Reynolds 47 Vice President and Assistant Secretary of the
Company and Executive Vice President -Commercial
and Retail Banking of the Bank
Frank Gavigan 42 Senior Vice President - Senior Credit Officer of
the Bank
John D. Hansell 63 Manager - First Capital Services, LLC
</TABLE>
5
<PAGE>
A. CHRISTINE BAKER is the Treasurer and Secretary of the Company and
served as the Executive Vice President, Secretary and Treasurer of the Bank
since April 1985. She has served as President and director of the Burlington
Rotary Club, director and treasurer of the local chapter of the American Red
Cross and director and Vice President of the Childcare Resource and Referral
Service.
FAIRFAX C. REYNOLDS is the Vice President and Assistant Secretary of
the Company and has served as the Bank's Executive Vice President in charge of
Retail and Commercial Banking since 1989. He serves on the Boards of Directors
of YMCA of Alamance County, the Alamance County Arts Council and the United Way
of Alamance County.
FRANK GAVIGAN has served as the Bank's Senior Vice President - Senior
Credit Officer since 1990. He serves on the Boards of Directors of the Alamance
County Meals on Wheels, Hospice of Alamance County and Alamance Eldercare.
JOHN D. HANSELL has served since May 1987 as Manager of 1st Capital
Services Company, LLC and its predecessor, First Capital Services, Inc.,
entities the Company owns that sell annuities, mutual funds and insurance
products on an agency basis. He has served on the small business council of the
Alamance Chamber of Commerce and on the Board of Directors of the Financial
Planning Association.
COMMITTEES OF THE BOARD OF DIRECTORS
The Board of Directors of the Company meets monthly and may have
additional special meetings. During the year ended September 30, 2000, the Board
of Directors of the Company met 13 times and the Board of Directors of the Bank
met 12 times. No director attended fewer than 75% in the aggregate of the total
number of Company Board of Directors meetings held during the year ended
September 30, 2000 and the total number of meetings held by committees on which
he served during such fiscal year. The Company's Board of Directors has standing
Audit and Executive Committees.
The Board of Directors' Audit Committee consists of Directors Keziah,
Quakenbush and Stadler, who serves as Chairperson. The members of the Audit
Committee are "independent," as "independent" is defined in Rule 4200(a)(15) of
the National Association of Securities Dealers listing standards. The function
of the Audit Committee is to examine and approve the audit report prepared by
the independent auditors, to review and recommend the independent auditors to be
engaged by the Company, to review the internal audit function and internal
accounting controls, and to review and approve audit policies. The Company's
Board of Directors has adopted a written charter for the Audit Committee. A copy
of the Audit Committee's charter is attached to this Proxy Statement as Exhibit
A. The Audit Committee met two times during the year ended September 30, 2000.
The Board of Directors' Executive Committee consists of Directors
McGill, Barnwell, Shirley and Keziah and one additional director who serves on a
rotating basis for a three-month period. The Executive Committee, among other
things, evaluates the compensation and benefits of the directors, officers and
employees, recommends changes, and monitors and evaluates employee performance.
The Executive Committee reports its evaluations and findings to the full Board
of Directors and all compensation decisions are ratified by the full Board of
Directors. Directors of the Company who also are officers of the Company abstain
from discussion and voting on matters affecting their compensation. The
Executive Committee also monitors the performance of the Company's investment
portfolio and reviews loans. The Executive Committee is empowered to exercise
all of the authority of the Board when the Board is not in session. The
Executive Committee met 12 times during the fiscal year ended September 30,
2000.
The Company's full Board of Directors acts as a nominating committee.
The Board of Directors met once during the year ended September 30, 2000 for the
purpose of considering potential nominees to the Board of Directors. In its
deliberations, the Board, functioning as a nominating committee, considers the
candidate's knowledge of the banking business and involvement in community,
business and civic affairs, and also considers whether the candidate would
provide for adequate representation of its market area. The Company's Articles
of
6
<PAGE>
Incorporation set forth procedures that must be followed by stockholders seeking
to make nominations for director. In order for a stockholder of the Company to
make any nominations, he or she must give written notice thereof to the
Secretary of the Company not less than thirty days nor more than sixty days
prior to the date of any such meeting; provided, however, that if less than
forty days' notice of the meeting is given to stockholders, such written notice
shall be delivered or mailed, as prescribed, to the Secretary of the Company not
later than the close of business on the tenth day following the day on which
notice of the meeting was mailed to stockholders. Each such notice given by a
stockholder with respect to nominations for the election of directors must set
forth (i) the name, age, business address and, if known, residence address of
each nominee proposed in such notice; (ii) the principal occupation or
employment of each such nominee; and (iii) the number of shares of stock of the
Company which are beneficially owned by each such nominee. In addition, the
stockholder making such nomination must promptly provide any other information
reasonably requested by the Company.
COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION
Overview and Philosophy
The Company's executive compensation policies are established by the
Executive Committee of the Board of Directors (the "Committee"). The Committee
is responsible for developing the Company's executive compensation policies. The
Company's President, James C. McGill, under the direction of the Committee,
implements the Company's executive compensation policies. Mr. McGill abstains
from voting on and discussions of matters affecting his compensation. The
Committee's objectives in designing and administering the specific elements of
the Company's executive compensation program are as follows:
o To link executive compensation rewards to increases in
shareholder value, as measured by favorable long-term
operating results and continued strengthening of the Company's
financial condition.
o To provide incentives for executive officers to work towards
achieving successful annual results as a step in achieving the
Company's long-term operating results and strategic
objectives.
o To correlate, as closely as possible, executive officers'
receipt of compensation with the attainment of specified
performance objectives.
o To maintain a competitive mix of total executive compensation,
with particular emphasis on awards related to increases in
long-term shareholder value.
o To attract and retain top performing executive officers for
the long-term success of the Company.
In furtherance of these objectives, the Committee has determined that
there should be three specific components of executive compensation: base
salary, a cash bonus and stock benefit plans.
Base Salary. The Committee makes recommendations to the Board
concerning executive compensation on the basis of surveys of salaries paid to
executive officers of other bank holding companies, non-diversified banks and
other financial institutions similar in size, market capitalization and other
characteristics. The Committee's objective is to provide for base salaries that
are competitive with the average salary paid by the Company's peers.
Bonus. The Company pays a discretionary bonus on an annual basis based
on satisfaction of a combination of individual and Company performance
objectives. Whether bonuses are paid each year and the amount of such bonuses
are determined by the Committee, subject to ratification by the Board of
Directors, at year end based on the
7
<PAGE>
Company's ability to achieve performance goals established by the Board in each
year's Business Plan. Discretionary bonuses for achieving specific performance
goals during the year are paid during the next fiscal year.
Stock Benefit Plans. In addition, the Committee believes that stock
related award plans are an important element of compensation since they provide
executives with incentives linked to the performance of the Common Stock.
Accordingly, the Board of Directors has adopted a stock option plan and a
management recognition plan. Stockholders approved these plans at a special
meeting held on June 6, 2000.
Under the stock option plan, the Company reserved for issuance a number
of shares equal to 10% of the originally issued Common Stock. The Committee
believes that stock options are an important element of compensation because
they provide executives with incentives linked to the performance of the Common
Stock. The Company awards stock options as a means of providing employees the
opportunity to acquire a proprietary interest in the Company and to link their
interests with those of the Company's stockholders. Options are granted with an
exercise price equal to the market value of the Common Stock on the date of
grant, and thus acquire value only if the Company's stock price increases.
Although there is no specific formula, in determining the level of option
awards, the Committee takes into consideration individual and corporate
performance.
Under the management recognition plan, officers and directors were
granted awards of restricted Common Stock, subject to vesting and forfeiture as
determined by the Committee. Under this plan, the Company reserved for issuance
a number of shares equal to 4% of the originally issued Common Stock. The
purpose of a management recognition plan is to reward and retain personnel of
experience and ability in key positions of responsibility by providing such
employees with a proprietary interest in the Company as compensation for their
past contributions to the Company and the Bank and as an incentive to make
further contributions in the future.
Compensation of the President
Mr. McGill's base salary is established in accordance with the terms of
the employment agreement entered into between the Bank and Mr. McGill. See " --
Executive Compensation -- Employment Agreements." The Committee determines the
President's compensation on the basis of several factors. In determining Mr.
McGill's base salary, the Committee reviewed compensation paid to chief
executive officers of similarly situated banks and non-diversified banks and
other financial institutions of similar asset size. The Committee believes that
Mr. McGill's base salary is generally competitive with the average salary paid
to executives of similar rank and expertise at banking institutions which the
Committee considered to be comparable and taking into account the Bank's
superior performance and complex operations relative to comparable institutions.
Mr. McGill received bonus compensation for fiscal year 2000 pursuant to
the same basic factors as described above under " -- Bonus." In establishing Mr.
McGill's bonus, the Committee considered the Company's overall performance,
record of increase in shareholder value and success in meeting strategic
objectives and his personal leadership and accomplishments. These factors were
considered in conjunction with the Company's financial results for fiscal 2000
in relation to the established Business Plan and achieving certain annual
performance goals, including but not limited to return on assets and return on
equity and satisfactory results of regulatory examinations and independent
audits.
Upon approval of an option plan and a restricted stock plan by the
stockholders, the Company granted options for 79,078 shares of Common Stock and
awarded 31,500 shares of restricted Common Stock to Mr. McGill, as was disclosed
in the Company's proxy materials distributed in connection with the special
meeting of stockholders at which the option plan and the restricted stock plan
were considered by stockholders. In determining to grant those awards, the
Committee considered the levels of awards made to executive officers of similar
rank and expertise at banking institutions that the Committee considered to be
comparable. The Committee also took into consideration the fact that it expected
not to make additional awards to Mr. McGill without giving stockholders the
opportunity to vote on a plan or plans that would permit future awards. The
Committee also believed that the awards made were consistent with the Company's
previous disclosures in its securities filings going back to the Prospectus
prepared in connection with the Company's initial public offering.
8
<PAGE>
The Committee believes that the Company's executive compensation
program serves the Company and its shareholders by providing a direct link
between the interests of executive officers and those of shareholders generally
and by helping to attract and retain qualified executive officers who are
dedicated to the long-term success of the Company.
Members of the Executive Committee
James A. Barnwell
Richard C. Keziah
James C. McGill
Richard H. Shirley
COMPARATIVE STOCK PERFORMANCE GRAPH
The graph and table which follow show the cumulative total return on
the Common Stock for the period from April 26, 1999 (the day trading began in
the Common Stock following completion of the Company's initial public offering)
through the fiscal year ended September 30, 2000 with (1) the total cumulative
return of all companies whose equity securities are traded on the Nasdaq Stock
Market and (2) the total cumulative return of banks and bank holding companies
traded on the Nasdaq Stock market. The comparison assumes $100 was invested on
April 26, 1999 in the Company's Common Stock and in each of the foregoing
indices and assumes reinvestment of dividends. The stockholder returns shown on
the performance graph are not necessarily indicative of the future performance
of the Common Stock or of any particular index.
CUMULATIVE TOTAL STOCKHOLDER RETURN
COMPARED WITH PERFORMANCE OF SELECTED INDEXES
APRIL 26, 1999 THROUGH SEPTEMBER 30, 2000
[Line graph appears here depicting the cumulative total shareholder return
of $100 invested in the Common Stock as compared to $100 invested in all
companies whose equity securities are traded on the Nasdaq market and $100
invested in banks and bank holding companies traded on the Nasdaq market. Line
graph plots the cumulative total return from April 26, 1999 to September 30,
2000. Plot points are provided below.]
04/26/99 09/30/99 09/30/00
-------- -------- --------
COMPANY $100 $103.1 $119.4
NASDAQ 100 104.1 138.1
NASDAQ BANKS 100 92.3 99.0
AND BANK HOLDING
COMPANIES
9
<PAGE>
EXECUTIVE COMPENSATION
Summary Compensation Table. The following table sets forth the cash and
noncash compensation for the fiscal years ended September 30, 2000, 1999 and
1998 awarded to or earned by the President and the four other executive officers
who earned salary and bonus in fiscal 2000, 1999 and 1998 exceeding $100,000 for
services rendered in all capacities to the Company and the Bank .
<TABLE>
<CAPTION>
LONG-TERM COMPENSATION
-----------------------------
AWARDS
ANNUAL COMPENSATION -----------------------------
-------------------------------------- RESTRICTED SECURITIES
FISCAL OTHER ANNUAL STOCK UNDERLYING ALL OTHER
NAME YEAR SALARY BONUS COMPENSATION(1) AWARD(S) (2) OPTIONS COMPENSATION
---- ---- ------ ----- --------------- ------------ ------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
James C. McGill 2000 $ 175,000 $ 433,000 $ -- $ 582,750 79,078 $ 202,710 (3)
President and Chief 1999 175,000 365,000 -- -- -- 155,383
Executive Officer of 1998 175,000 257,000 -- -- -- 107,352
the Company and the
Bank
A. Christine Baker 2000 100,000 216,500 -- 333,000 45,000 97,693 (3)
Treasurer and 1999 95,000 182,500 -- -- -- 69,135
Secretary of the 1998 95,000 128,500 -- -- -- 44,469
Company and the
Bank and Executive
Vice President-
Chief Financial
Officer
of the Bank
Fairfax C. Reynolds 2000 100,000 216,500 -- 333,000 45,000 100,670 (3)
Vice President 1999 95,000 182,500 -- -- -- 72,112
Assistant Secretary 1998 95,000 128,500 -- -- -- 47,476
the Company and
Executive Vice
President of the
Bank
Frank Gavigan 2000 80,000 35,000 -- 83,250 11,250 30,000 (3)
Senior Vice 1999 76,000 35,000 -- -- -- 22,165
President-Senior 1998 76,000 30,000 -- -- -- 10,260
Credit Officer
of the Bank
John D. Hansell 2000 50,000 100,503 (4) -- 55,500 7,500 30,000 (3)
Manager-First 1999 42,000 72,607 (4) -- -- -- 22,616
Capital Services, 1998 42,000 68,220 (4) -- -- -- 5,460
LLC
<FN>
____________
(1) Executive officers receive indirect compensation in the form of certain
perquisites and other personal benefits. The amount of such benefits
received by the named executive officer in fiscal 2000 did not exceed
10% of the executive officer's salary and bonus.
(2) Amount shown in the table is based on the closing price of the Common
Stock of $18.50 as quoted on the Nasdaq National Market on the date of
grant, June 6, 2000. The restricted Common Stock awarded vests at the
rate of 33 1/3% per year following the date of grant, with the first 33
1/3% having vested on the date of grant, June 6, 2000. As of September
30, 2000, based on the closing sale price of the Common Stock of
$22.00, as reported on the Nasdaq National Market, the aggregate value
of the 21,000, 12,000, 12,000, 3,000 and 2,000 shares of unvested
restricted Common Stock held by executive officers McGill, Baker,
Reynolds, Gavigan and Hansell was $462,000, $264,000, $264,000, $66,000
and $44,000, respectively. In the event the Company pays dividends with
respect to its Common
</FN>
</TABLE>
10
<PAGE>
Stock, when shares of restricted stock vest and/or are distributed, the
holder will be entitled to receive any cash dividends and a number of
shares of Common Stock equal to any stock dividends, declared and paid with
respect to a share of restricted Common Stock between the date the
restricted stock was awarded and the date the restricted stock is
distributed, plus interest on cash dividends, provided that dividends paid
with respect to unvested restricted stock must be repaid to the Company in
the event the restricted stock is forfeited prior to vesting.
(3) Includes $172,710, $67,693 and $70,670 accrued under the Company's Deferred
Compensation Plan for the benefit of executive officers McGill, Baker and
Reynolds, respectively, for service as an employee during the year ended
September 30, 2000. Also includes $30,000, $30,000, $30,000, $30,000 and
$30,000 in shares of Common Stock committed to be allocated during the year
ended September 30, 2000 under the ESOP to the accounts of executive
officers McGill, Baker, Reynolds, Gavigan and Hansell, respectively.
(4) Consists of commissions.
Option Grants in Fiscal Year 2000. The following table contains information
concerning the grant of stock options during the year ended September 30, 2000
to the executive officers named in the Summary Compensation Table set forth
above.
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
-------------------------------------------------------------- POTENTIAL REALIZABLE
VALUE AT ASSUMED
NUMBER OF % OF TOTAL ANNUAL RATES OF STOCK
SECURITIES OPTIONS PRICE APPRECIATION
UNDERLYING GRANTED TO EXERCISE FOR OPTION TERM(3)
OPTIONS EMPLOYEES IN OR BASE EXPIRATION --------------------
NAME GRANTED (1) FISCAL YEAR PRICE(2) DATE 5% 10%
---- ----------- --------------- ---------- -------------- ------- --------
<S> <C> <C> <C> <C> <C> <C>
James C. McGill 79,078 38.5% $18.4375 6/6/2010 $924,979 $2,336,497
A. Christine Baker 45,000 21.9 18.4375 6/6/2010 526,367 1,329,603
Fairfax C. Reynolds 45,000 21.9 18.4375 6/6/2010 526,367 1,329,603
Frank Gavigan 11,250 5.5 18.4375 6/6/2010 131,592 332,401
John D. Hansell 7,500 3.6 18.4375 6/6/2010 87,728 221,608
<FN>
__________
(1) All options were immediately exercisable upon grant and have terms of ten
years.
(2) Option exercise prices subsequently were adjusted to $14.71 per share to
reflect the payment by the Company on October 2, 2000 of a $5.17 per share
return of capital distribution.
(3) Represents the difference between the aggregate exercise price of the
options and the aggregate value of the underlying Common Stock at the
expiration date assuming the indicated annual rate of appreciation in the
value of the Common Stock as of the date of grant, June 6, 2000, based on
the closing sale price of the Common Stock of $22.00 per share on September
30, 2000 as quoted on the Nasdaq National Market. No adjustment has been
made to the fair market value of the Common Stock on September 30, 2000 or
to the exercise price to reflect the return of capital distribution paid on
October 2, 2000.
</FN>
</TABLE>
Fiscal Year-End Option Values. The following table sets forth
information concerning the value as of September 30, 2000 of options held by the
executive officers named in the Summary Compensation Table set forth above.
<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-MONEY OPTIONS
OPTIONS AT FISCAL YEAR-END AT FISCAL YEAR-END (1)
--------------------------- --------------------------
NAME EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- ----------- -------------- ----------- -------------
<S> <C> <C> <C> <C>
James C. McGill 79,078 -- $281,715 --
A. Christine Baker 45,000 -- 160,312 --
Fairfax C. Reynolds 45,000 -- 160,312 --
Frank Gavigan 11,250 -- 40,078 --
John D. Hansell 7,500 -- 26,719 --
<FN>
-----------
(1) Based on the difference between the fair market value of the underlying
Common Stock as quoted on the Nasdaq National Market System on
September 30, 2000 of $22.00 per share, and the exercise price of
$18.4375 per share. No
11
<PAGE>
adjustment has been made to the fair market value of the Common Stock
on September 30, 2000 or to the exercise price to reflect the return
of capital distribution paid on October 2, 2000.
</FN>
</TABLE>
No options were exercised during fiscal year 2000, and no options held
by any executive officer of the Company repriced during the past ten full fiscal
years.
Employment Agreements and Guaranty Agreements. The Bank has entered
into employment agreements with James C. McGill, A. Christine Baker and Fairfax
C. Reynolds (each individual is referred to herein as an "Employee" and the
three individuals are referred to collectively as the "Employees"). The Board
believes that the employment agreements assure fair treatment of the Employees
in their careers with the Company by assuring them of some financial security.
The employment agreements became effective on April 23, 1999 and
provide for a term of three years, with an annual base salary equal to the
Employee's existing base salary rate in effect on the date of conversion. On
each anniversary date of the commencement of the employment agreements, the term
of the Employee's employment will be extended for an additional one-year period
beyond the then effective expiration date upon a determination by the Bank's
Board of Directors that the performance of the Employee has met the required
performance standards and that such employment agreements should be extended.
The employment agreements provide the Employee with a salary review by the Board
of Directors not less often than annually, as well as with inclusion in any
discretionary bonus plans, retirement and medical plans, vacation and sick leave
and any fringe benefits that become available to senior management, including
for example, any stock option or incentive compensation plans and any other
benefits commensurate with their responsibilities. If the Board decides not to
renew an employment agreement for any reason, and if the Employee remains an
employee of the Bank until the Agreement expires, the Bank must pay the Employee
an amount equal to two times total compensation if the Employee is later
terminated.
The employment agreements terminate upon the Employee's death, may
terminate upon the Employee's disability and are terminable for just cause, no
severance benefits are available. If the Bank terminates the Employee without
just cause, the Employee is entitled to receive three times total compensation
as well as continued medical and dental insurance under any group plan chosen by
the Employee from the plans the Bank maintains, unless that coverage is not
permitted by the terms of such plan, in which case the Bank will remit to the
Employee, not less frequently than monthly, the actual cost to the Employee of
equivalent insurance. These provisions are in addition to, and not in lieu of,
any other rights that the Employee has under the employment agreement and will
continue until the Employee first becomes eligible for participation in
Medicare. If the employment agreements are terminated due to the Employee's
"disability" as defined in the employment agreements, the Employee will be
entitled to a continuation of his or her salary and benefits through the date of
termination, including any period prior to the establishment of the Employee's
disability. In the event of the Employee's death during the term of the
employment agreements, his or her estate will be entitled to receive three times
total compensation determined as of the date of death. Each Employee is able to
voluntarily terminate his or her employment agreement by providing 90 days'
written notice to the Board of Directors, in which case the Employee is entitled
to receive only his or her compensation, vested rights, and benefits up to the
date of termination.
The Bank will pay a severance benefit equal to the difference between
the product of 2.99 and the Employee's "base amount" as defined in the Internal
Revenue Code Section 280G(b)(3) and the sum of any other "parachute payments" as
defined under Code Section 280G(b)(2) that the Employee receives on account of
the change in control, and (ii) provide long-term disability and medical
insurance for 18 months if any of the following occur:
o the Employee's involuntary termination of employment other
than for "just cause" during the period beginning six months
before a change in control and ending on the later of the
first anniversary of the change in control or the expiration
date of the employment agreements (the "Protected Period");
o the Employee's voluntary termination within 90 days of the
occurrence of certain specified events occurring during the
Protected Period which have not been consented to by the
Employee; or
12
<PAGE>
o the Employee's voluntary termination of employment for any
reason within the 30-day period beginning on the date of the
change in control.
The Employee will be paid either in one lump sum within ten days of the
later of the date of the change in control and the Employee's last day of
employment or if prior to the date which is 90 days before the date on which a
change in control occurs, the Employee filed a duly executed irrevocable written
election, payment of such amount shall be made according to the elected
schedule. "Change in control" generally refers to the acquisition, by any person
or entity, of the ownership or power to vote more than 25% of the Company's or
the Bank's voting stock, the control of the election of a majority of the
Company's or the Bank's directors, or the exercise of a controlling influence
over the Company's or the Bank's management or policies. In addition, under the
employment agreements, a change in control occurs when, during any consecutive
two-year period, directors of the Company or the Bank at the beginning of such
period cease to constitute two-thirds of the Board of Directors of the Company
or the Bank, unless the election of replacement directors was approved by a
two-thirds vote of the initial directors then in office. The employment
agreements provide that within 10 business days of a change in control, the
Company must deposit in a trust an amount equal to the Internal Revenue Code
Section 280G maximum. The payments that would be made to Mr. McGill, Ms. Baker
and Mr. Reynolds assuming termination of employment under the foregoing
circumstances at September 30, 2000 would have been approximately $1.4 million,
$712,000 and $712,000, respectively. These provisions may have an anti-takeover
effect by making it more expensive for a potential acquiror to obtain control of
the Company. In the event that the Employee prevails over the Bank, or obtains a
written settlement, in a legal dispute as to the employment agreement, he or she
will be reimbursed for legal and other expenses.
In addition to the employment agreements, the Company has entered into
guaranty agreements with each of the Employees. The guaranty agreements provide
that the Company will perform all covenants and honor all obligations required
to be performed or to which the Bank is subject pursuant to the employment
agreements in the event that such covenants are not performed or obligations are
not honored by the Bank, and that to the extent permitted by law, the Company
will be jointly and severally liable with the Bank for the payment of all
amounts due under the employment agreements. The guarantee agreements provide
the Employee with a salary review by the Board of Directors not less often than
annually, as well as with inclusion in any discretionary bonus plans, retirement
and medical plans, customary fringe benefits, vacation and sick leave.
DIRECTOR COMPENSATION
Fees. Each non-employee member of the Bank's Board of Directors receives a
monthly retainer fee based on the following schedule:
o the Chairman of the Board - $2,000;
o members of the Executive Committee - $1,750; and
o other directors - $1,500.
In addition, non-employee members of the Company's Board of Directors receive a
monthly retainer fee of $250. Officers who are directors are not compensated for
their service as directors.
Deferred Compensation Plan. The Bank adopted the DCP for the Bank's
directors and select executive officers. Under the DCP, before each fiscal year
begins, each non-employee director may elect to defer receipt of all or part of
his future fees and any other participant may elect to defer receipt of up to
25% of his or her salary or 100% of his or her bonus compensation for the year.
Deferred amounts are credited at the end of the calendar year to bookkeeping
accounts in the name of each participant.
On each September 30, the Company credits the accounts of directors
Barnwell, Bean, Keziah, McClure, Quakenbush, Shirley, and Stadler with $8,795,
$7,852, $10,051, $7,852, $7,852, $8,795 and $7,852, respectively, provided that
such annual credits shall not be made for the benefit of non-employee directors
after 12 years of service credits. Similarly, the plan provides supplemental
executive retirement benefits for executive officers McGill, Baker and Reynolds
through initial credits and through annual credits on each September 30th of
$81,972, $30,789 and $33,766, respectively. Each participant is fully vested in
his or her account balance under the DCP.
13
<PAGE>
Until distributed in accordance with the terms of the DCP, each
participant's account will be credited with a rate of return equal to the Bank's
highest rate of interest paid on the Bank's one-year certificates of deposit or
the total return on the Company's Common Stock, as elected by each participant.
Account balances will normally be distributed in five substantially equal annual
installments beginning during the first quarter of the calendar year following
the calendar year in which the participant ceases to be a director or employee,
with any subsequent payments being made by the last day of the first quarter of
each subsequent calendar year until the participant has received the entire
amount of his or her account. Participants may, however, elect to receive their
distributions in a lump sum or in installments paid over a period of up to 10
years. In the event of a participant's death, the balance of his plan account
will be paid in a lump sum (unless the participant elects to continue the
previously designated distribution method) to his designated beneficiary, or if
none, his estate. The Bank has established a trust in order to hold assets with
which to pay plan benefits to participants. Trust assets are subject to claims
of general creditors. In the event a participant prevails over the Bank in a
legal dispute as to the terms or interpretation of the DCP, he or she would be
reimbursed for his legal and other expenses.
TRANSACTIONS WITH MANAGEMENT
The Bank offers loans to its directors and executive officers. These
loans were made in the ordinary course of business on substantially the same
terms, including interest rates and collateral, as those prevailing at the time
for comparable transactions with other persons and did not involve more than the
normal risk of collectibility or present other unfavorable features. Under
current law, the Bank's loans to directors and executive officers are required
to be made on substantially the same terms, including interest rates, as those
prevailing for comparable transactions with other persons and must not involve
more than the normal risk of repayment or present other unfavorable features.
Furthermore, all loans to such persons must be approved in advance by a
disinterested majority of the Company's Board of Directors. At September 30,
2000, loans to directors and executive officers and their affiliates totaled
$10.1 million, or 17.0% of the Company's stockholders' equity, at that date.
--------------------------------------------------------------------------------
RELATIONSHIP WITH INDEPENDENT PUBLIC ACCOUNTANTS
--------------------------------------------------------------------------------
KPMG LLP was the Company's independent auditors for the 2000 fiscal
year. KPMG LLP has been retained by the Board of Directors to be the Company's
auditors for the 2001 fiscal year. A representative of KPMG LLP is expected to
be present at the Annual Meeting and will have the opportunity to make a
statement if he or she so desires. The representative will also be available to
answer appropriate questions.
--------------------------------------------------------------------------------
REPORT OF THE AUDIT COMMITTEE
--------------------------------------------------------------------------------
The Audit Committee of the Board of Directors (the "Audit Committee") has:
1. Reviewed and discussed the audited financial statements for the fiscal
year ended September 30, 2000 with the management of the Company.
2. Discussed with the Company's independent auditors the matters required
to be discussed by Statement of Accounting Standards No. 61, as the
same was in effect on the date of the Company's financial statements;
and
3. Received the written disclosures and the letter from the Company's
independent auditors required by Independence Standards Board Standard
No. 1 (Independence Discussions with Audit Committees), as the same
was in effect on the date of the Company's financial statements.
14
<PAGE>
Based on the foregoing materials and discussions, the Audit Committee
recommended to the Board of Directors that the audited financial statements for
the fiscal year ended September 30, 2000 be included in the Company's Annual
Report on Form 10-K for the year ended September 30, 2000.
Members of the Audit Committee
Virgil L. Stadler, Chairman
Richard C. Keziah
T. Scott Quakenbush
--------------------------------------------------------------------------------
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
--------------------------------------------------------------------------------
Pursuant to regulations promulgated under the Exchange Act, the
Company's officers and directors and all persons who own more than ten percent
of the Common Stock ("Reporting Persons") are required to file reports detailing
their ownership and changes of ownership in the Common Stock and to furnish the
Company with copies of all such ownership reports that are filed. Based solely
on the Company's review of the copies of such ownership reports which it has
received in the past fiscal year or with respect to the past fiscal year, or
written representations that no annual report of changes in beneficial ownership
were required, the Company believes that during fiscal year 2000 all Reporting
Persons have complied with these reporting requirements.
--------------------------------------------------------------------------------
OTHER MATTERS
--------------------------------------------------------------------------------
The Board of Directors is not aware of any business to come before the
Annual Meeting other than those matters described above in this proxy statement
and matters incident to the conduct of the Annual Meeting. However, if any other
matters should properly come before the Annual Meeting, it is intended that
proxies in the accompanying form will be voted in respect thereof in accordance
with the determination of a majority of the Board of Directors.
--------------------------------------------------------------------------------
MISCELLANEOUS
--------------------------------------------------------------------------------
The cost of soliciting proxies will be borne by the Company. The
Company will reimburse brokerage firms and other custodians, nominees and
fiduciaries for reasonable expenses incurred by them in sending proxy materials
to the beneficial owners of Common Stock. In addition to solicitations by mail,
directors, officers and regular employees of the Company may solicit proxies
personally or by telegraph or telephone without additional compensation.
The Company's 2000 Annual Report to Stockholders, including financial
statements, is being mailed to all stockholders of record as of the close of
business on the Record Date. Any stockholder who has not received a copy of such
Annual Report may obtain a copy by writing to the Secretary of the Company. The
Annual Report is not to be treated as a part of the proxy solicitation material
or as having been incorporated herein by reference.
15
<PAGE>
--------------------------------------------------------------------------------
STOCKHOLDER PROPOSALS
--------------------------------------------------------------------------------
For consideration at the Annual Meeting, a stockholder proposal must
be delivered or mailed to the Company's Secretary no later than January 8, 2001.
In order to be eligible for inclusion in the proxy materials of the Company for
the Annual Meeting of Stockholders for the year ending September 30, 2001, any
stockholder proposal to take action at such meeting must be received at the
Company's executive offices at 445 S. Main Street, Burlington, North Carolina
27215 by no later than August 29, 2001. Any such proposals shall be subject to
the requirements of the proxy rules adopted under the Securities Exchange Act of
1934, as amended.
BY ORDER OF THE BOARD OF DIRECTORS
/s/ A. Christine Baker
A. Christine Baker
Secretary
December 27, 2000
Burlington, North Carolina
--------------------------------------------------------------------------------
ANNUAL REPORT ON FORM 10-K
--------------------------------------------------------------------------------
A COPY OF THE COMPANY'S ANNUAL REPORT ON FORM 10-K FOR THE FISCAL YEAR
ENDED SEPTEMBER 30, 2000 AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION
WILL BE FURNISHED WITHOUT CHARGE TO EACH STOCKHOLDER AS OF THE RECORD DATE UPON
WRITTEN REQUEST TO THE CORPORATE SECRETARY, 1st STATE BANCORP, INC., 445 S. MAIN
STREET, BURLINGTON, NORTH CAROLINA 27215.
16
<PAGE>
EXHIBIT A
1ST STATE BANCORP, INC. AND 1ST STATE BANK
CHARTER OF THE AUDIT COMMITTEE OF THE BOARD OF DIRECTORS
AUDIT COMMITTEE PURPOSE
The Audit Committee is appointed by the Board of Directors to assist the Board
in fulfilling its oversight responsibilities. The Audit Committee's primary
duties and responsibilities are to:
Monitor the integrity of the Company's financial reporting process and systems
of internal controls regarding finance, accounting, and legal compliance.
Monitor the independence and performance of the Company's independent auditors
and internal auditing department.
Provide an avenue of communication among the independent auditors, management,
the internal auditing department, and the Board of Directors.
The Audit Committee has the authority to conduct any investigation appropriate
to fulfilling its responsibilities, and it has direct access to the independent
auditors as well as anyone in the organization. The Audit Committee has the
ability to retain, at the Company's expense, special legal, accounting, or other
consultants or experts it deems necessary in the performance of its duties.
AUDIT COMMITTEE COMPOSITION AND MEETINGS
Audit Committee members shall meet the requirements of the NASDAQ Exchange. The
Audit Committee shall be comprised of three or more directors as determined by
the Board, each of whom shall be independent directors, free from any
relationship that would interfere with the exercise of his or her independent
judgment. All members of the Committee shall have a basic understanding of
finance and accounting and be able to read and understand fundamental financial
statements, and at least one member of the Committee shall have accounting or
related financial management expertise.
Audit Committee members shall be appointed by the Board of Directors. If an
audit committee Chair is not designated or present, the members of the Committee
may designate a Chair by majority vote of the Committee membership.
The Committee shall meet at least two times annually, or more frequently as
circumstances dictate. The Audit Committee shall prepare and/or approve an
agenda in advance of each meeting. The Committee should meet privately in
executive session at least annually with management, the director of the
internal auditing department, the independent auditors, and as a committee to
discuss any matters that the Committee or each of these groups believe should be
discussed.
AUDIT COMMITTEE RESPONSIBILITIES AND DUTIES
REVIEW PROCEDURES
Review and reassess the adequacy of this Charter at least annually. Submit the
charter to the Board of Directors for approval and have the document published
at least every three years in accordance with SEC regulations.
A-1
<PAGE>
Review the Company's annual audited financial statements prior to filing or
distribution. Review should include discussion with management and independent
auditors of significant issues regarding accounting principles, practices, and
judgments.
In consultation with the management, the independent auditors, and the internal
auditors, consider the integrity of the Company's financial reporting processes
and controls. Discuss significant financial risk exposures and the steps
management has taken to monitor, control, and report such exposures. Review
significant findings prepared by the independent auditors and the internal
auditing department together with management's responses.
INDEPENDENT AUDITORS
The independent auditors are ultimately accountable to the Audit Committee and
the Board of Directors. The Audit Committee shall review the independence and
performance of the auditors and annually recommend to the Board of Directors the
appointment of the independent auditors or approve any discharge of auditors
when circumstances warrant.
The Audit Committee shall approve the fees and other significant compensation to
be paid to the independent auditors.
On an annual basis, the Committee should review and discuss with the independent
auditors all significant relationships they have with the Company that could
impair the auditors' independence.
Review the independent auditors audit plan - discuss scope, staffing, locations,
reliance upon management, and internal audit and general audit approach.
Prior to filing the Annual 10-K, discuss the results of the audit with the
independent auditors. Discuss certain matters required to be communicated to
audit committees in accordance with AICPA SAS 61.
Perform timely quarterly reviews of the Company. At their discretion, auditor
will communicate findings to the Audit Committee.
Consider the independent auditors' judgments about the quality and
appropriateness of the Company's accounting principles as applied in its
financial reporting.
INTERNAL AUDIT DEPARTMENT AND LEGAL COMPLIANCE
Review the budget, plan, changes in plan, activities, organizational structure,
and qualifications of the internal audit department, as needed.
Review the appointment, performance, and replacement of the senior internal
audit executive.
Review significant reports prepared by the internal audit department together
with management's response and follow-up to these reports.
On at least an annual basis, review the responses from legal counsel obtained
during the audit for any legal matters that could have a significant impact on
the organization's financial statements, the Company's compliance with
applicable laws and regulations, and inquiries received from regulators or
governmental agencies.
OTHER AUDIT COMMITTEE RESPONSIBILITIES
Annually prepare a report to shareholders as required by the Securities and
Exchange Commission. The report should be included in the Company's annual proxy
statement.
Perform any other activities consistent with this Charter, the Company's
by-laws, and governing law, as the Committee or the Board deems necessary or
appropriate.
A-2
<PAGE>
Maintain minutes of meetings and periodically report to the Board of Directors
on significant results of the foregoing activities.
OTHER OPTIONAL CHARTER DISCLOSURES
Periodically perform self-assessment of audit committee performance. Review
financial and accounting personnel succession planning within the company.
A-3
<PAGE>
REVOCABLE PROXY
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1ST STATE BANCORP, INC.
BURLINGTON, NORTH CAROLINA
--------------------------------------------------------------------------------
ANNUAL MEETING OF STOCKHOLDERS
JANUARY 30, 2001
The undersigned hereby appoints Richard H. Shirley, Virgil L. Stadler
and Bernie C. Bean with full powers of substitution, to act as attorneys and
proxies for the undersigned, to vote all shares of the common stock of 1st State
Bancorp, Inc. which the undersigned is entitled to vote at the Annual Meeting of
Stockholders, to be held at the main office of 1st State Bank (the "Bank")
located at 445 S. Main Street, Burlington, North Carolina, on Tuesday, January
30, 2001, at 5:30 p.m. (the "Annual Meeting"), and at any and all adjournments
thereof, as follows:
<TABLE>
<CAPTION>
VOTE
FOR WITHHELD
--- --------
<S> <C> <C>
1. The election as directors of all
nominees listed below (except as
marked to the contrary below). [ ] [ ]
For a term expiring a the 2004 Annual Meeting:
---------------------------------------------
James A. Barnwell, Jr.
James G. McClure
T. Scott Quakenbush
For a term expiring a the 2002 Annual Meeting:
---------------------------------------------
Ernest A. Koury, Jr.
INSTRUCTION: TO WITHHOLD YOUR VOTE
FOR ANY OF THE INDIVIDUALS NOMINATED, INSERT
THAT NOMINEE'S NAME ON THE LINE PROVIDED BELOW.
__________________________
2. The transaction of such other business as may
properly come before the Annual Meeting or any
adjournment thereof.
</TABLE>
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" THE NOMINEES LISTED
ABOVE.
--------------------------------------------------------------------------------
THIS PROXY WILL BE VOTED AS DIRECTED, BUT IF NO INSTRUCTIONS ARE SPECIFIED, THIS
PROXY WILL BE VOTED FOR THE ELECTION OF DIRECTORS. IF ANY OTHER BUSINESS IS
PRESENTED AT THE ANNUAL MEETING, INCLUDING MATTERS RELATING TO THE CONDUCT OF
THE ANNUAL MEETING, THIS PROXY WILL BE VOTED BY THOSE NAMED IN THIS PROXY IN
ACCORDANCE WITH THE DETERMINATION OF A MAJORITY OF THE BOARD OF DIRECTORS. AT
THE PRESENT TIME, THE BOARD OF DIRECTORS KNOWS OF NO OTHER BUSINESS TO BE
PRESENTED AT THE ANNUAL MEETING.
--------------------------------------------------------------------------------
<PAGE>
THIS PROXY IS SOLICITED BY THE BOARD OF DIRECTORS
Should the undersigned be present and elect to vote at the Annual
Meeting or at any adjournment thereof, then the power of said attorneys and
prior proxies shall be deemed terminated and of no further force and effect. The
undersigned may also revoke his proxy by filing a subsequent proxy or notifying
the Secretary of his decision to terminate his proxy.
The undersigned acknowledges receipt from the Company prior to the
execution of this proxy of a Notice of Annual Meeting and a Proxy Statement
dated December 27, 2000.
Dated: ______________________________, 200_
--------------------------------------- ------------------------------------
PRINT NAME OF STOCKHOLDER PRINT NAME OF STOCKHOLDER
--------------------------------------- ------------------------------------
SIGNATURES OF STOCKHOLDER SIGNATURE OF STOCKHOLDER
Please sign exactly as your name appears on the enclosed card. When
signing as attorney, executor, administrator, trustee or guardian, please give
your full title. Corporation proxies should be signed in corporate name by an
authorized officer. If shares are held jointly, each holder should sign.
PLEASE COMPLETE, DATE, SIGN AND MAIL THIS PROXY PROMPTLY IN THE
ENCLOSED POSTAGE-PAID ENVELOPE.
