AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MARCH 25, 1999
REGISTRATION NO. 333-
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
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CATAWBA VALLEY BANCSHARES, INC.
(Exact Name of Registrant as Specified in its Charter)
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NORTH CAROLINA 6712 56-(APPLIED FOR)
<S> <C> <C>
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code Number) Identification No.)
</TABLE>
1039 SECOND STREET, N.E.
HICKORY, NORTH CAROLINA 28601
(828) 431-2300
(Address, including zip code, and telephone number, including
area code, of registrant's principal executive offices)
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R. STEVE AARON
PRESIDENT AND CHIEF EXECUTIVE OFFICER
CATAWBA VALLEY BANK
1039 SECOND STREET, N.E.
HICKORY, NORTH CAROLINA 28601
(828) 431-2300
(Name, address, including zip code, and telephone number, including
area code of agent for service)
WITH COPIES TO:
ANTHONY GAETA, JR., ESQ.
MOORE & VAN ALLEN, PLLC
ONE HANNOVER SQUARE, SUITE 1700
P. O. BOX 26507
RALEIGH, NORTH CAROLINA 27601
(919) 821-6223
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APPROXIMATE DATE OF COMMENCEMENT OF THE PROPOSED SALE TO THE PUBLIC:
The date of mailing of the enclosed Prospectus/Proxy Statement to the
shareholders of Catawba Valley Bank.
If the securities being registered on this Form are being offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, check the following box. [X]
CALCULATION OF REGISTRATION FEE
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<CAPTION>
TITLE OF EACH CLASS PROPOSED MAXIMUM PROPOSED
OF SECURITIES TO AMOUNT TO BE OFFERING PRICE MAXIMUM AGGREGATE AMOUNT OF
BE REGISTERED REGISTERED PER SHARE OFFERING PRICE REGISTRATION FEE
<S> <C> <C> <C> <C>
Common Stock
$5.00 Par Value........ 1,351,910 $ * $33,797,758 $9,395
</TABLE>
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* As provided in the Agreement and Plan of Reorganization and Share Exchange,
each outstanding share of common stock of Catawba Valley Bank will be
converted into and exchanged for one share of the common stock of the
Registrant. In accordance with Rule 457(f)(1), the registration fee for the
common stock is based upon the average of the bid and asked price of Catawba
Valley Bank Stock on March 22, 1999.
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<PAGE>
CATAWBA VALLEY BANK
1039 SECOND STREET, N.E.
HICKORY, NORTH CAROLINA 28601
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NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
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TO BE HELD ON MAY 25, 1999
Catawba Valley Bank will hold its annual meeting of shareholders at the
offices of J. C. Bradford & Co., 400 Second Avenue, N.W., Hickory, North
Carolina, at 2:00 p.m. local time on May 25, 1999, to vote on the following
proposals:
1. To approve the Agreement and Plan of Reorganization and Share Exchange,
dated as of February 16, 1999, between Catawba Valley Bank and Catawba
Valley Bancshares, Inc., and the transactions contemplated by the
Agreement, including the holding company reorganization of Catawba Valley
Bank by which its shareholders will exchange their shares of Catawba
Valley Bank common stock for shares of the common stock of Catawba Valley
Bancshares, Inc., on a one-for-one basis.
2. To elect three members of the Board of Directors for three year terms.
3. Any other matters that properly come before the annual meeting, or any
adjournments or postponements of the annual meeting.
Record holders of Catawba Valley Bank Common Stock at the close of
business on March 31, 1999, will receive notice of and may vote at the annual
meeting, including any adjournments or postponements. The Agreement for the
holding company reorganization requires approval by a majority of the shares of
Catawba Valley Bank Common Stock outstanding on March 31, 1999. Holders of
Catawba Valley Bank Common Stock may exercise dissenters' rights under Article
13 of the North Carolina Business Corporation Act. We have attached a copy of
that law as Appendix II to the accompanying Proxy Statement-Prospectus.
PLEASE MARK, SIGN, DATE AND RETURN YOUR PROXY PROMPTLY, WHETHER OR NOT YOU
PLAN TO ATTEND THE ANNUAL MEETING. YOUR BOARD OF DIRECTORS UNANIMOUSLY
RECOMMENDS THAT YOU VOTE FOR APPROVAL OF THE MATTERS THAT YOU WILL VOTE ON AT
THE ANNUAL MEETING.
BY ORDER OF THE BOARD OF DIRECTORS
CAROLE F. TEAGUE
SECRETARY
Hickory, North Carolina
April 16, 1999
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TABLE OF CONTENTS
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SUMMARY ....................................................................... 4
GENERAL INFORMATION ........................................................... 6
CATAWBA VALLEY BANK ANNUAL MEETING ............................................ 6
AUTHORIZATION TO VOTE ON ADJOURNMENT AND OTHER MATTERS ........................ 7
PROPOSAL 1:
REORGANIZATION OF CATAWBA VALLEY BANK INTO A HOLDING COMPANY .................. 7
GENERAL ....................................................................... 7
VOTE REQUIRED ................................................................. 7
DESCRIPTION OF THE AGREEMENT .................................................. 8
Catawba Valley Bank .......................................................... 8
Catawba Valley Bancshares, Inc. .............................................. 8
Reasons for the Reorganization ............................................... 8
Effective Date ............................................................... 8
Actions at the Effective Date ................................................ 8
Conditions to the Reorganization ............................................. 9
Termination .................................................................. 9
Exchange of Stock Certificates ............................................... 9
Effect of the Reorganization on Catawba Valley Bank's Stock Option Plans ..... 10
Federal Income Tax Consequences of Reorganization ............................ 10
Accounting Treatment of the Reorganization ................................... 11
DISSENTERS' RIGHTS ............................................................ 11
DESCRIPTION OF CATAWBA VALLEY BANCSHARES, INC.'S CAPITAL STOCK ................ 13
General ...................................................................... 13
Common Stock ................................................................. 14
Certain Provisions Having Anti-Takeover Effects .............................. 14
Transfer Agent and Registration .............................................. 15
COMPARISON OF THE RIGHTS OF SHAREHOLDERS ...................................... 15
PRO FORMA CONSOLIDATED CAPITALIZATION ......................................... 18
INFORMATION ABOUT CATAWBA VALLEY BANK AND CATAWBA VALLEY BANCSHARES, INC. ..... 18
Catawba Valley Bancshares, Inc. .............................................. 18
Catawba Valley Bank .......................................................... 19
Competition .................................................................. 19
Year 2000 Issues ............................................................. 20
Properties ................................................................... 21
Employees .................................................................... 21
Legal Proceedings ............................................................ 21
MANAGEMENT AND CERTAIN TRANSACTIONS ........................................... 21
Beneficial Ownership of Voting Securities .................................... 21
Required Reports of Beneficial Ownership ..................................... 22
PROPOSAL 2: ELECTION OF DIRECTORS
Nominees ..................................................................... 22
Incumbent Directors .......................................................... 22
Director Relationships ....................................................... 22
Meetings and Committees of the Board of Directors ............................ 23
Director Compensation ........................................................ 23
Executive Officers ........................................................... 24
Executive Compensation ....................................................... 24
Stock Options ................................................................ 25
Indebtedness and Transactions of Management .................................. 26
Other Matters ................................................................ 26
Proposals for 2000 Annual Meeting ............................................ 26
Additional Information ....................................................... 26
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2
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REGULATION AND SUPERVISION ............................ 27
Regulation of Catawba Valley Bank .................... 27
Reguation of Catawba Valley Bancshares, Inc. ......... 29
Branching ............................................ 30
Recent Legislative Developments ...................... 30
LEGAL MATTERS ......................................... 30
EXPERTS ............................................... 30
FORWARD LOOKING STATEMENTS ............................ 30
WHERE YOU CAN GET MORE INFORMATION .................... 31
INFORMATION INCORPORATED BY REFERENCE ................. 31
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Appendix I: Agreement and Plan of Reorganization and Share Exchange
Appendix II: Article 13 of North Carolina Business Corporation Act regarding Dissenters' Rights
</TABLE>
3
<PAGE>
SUMMARY
THIS SUMMARY HIGHLIGHTS THE MATERIAL TERMS OF THIS PROXY
STATEMENT-PROSPECTUS. TO UNDERSTAND THE CATAWBA VALLEY BANK HOLDING COMPANY
REORGANIZATION FULLY AND FOR A MORE COMPLETE DESCRIPTION OF THE LEGAL TERMS OF
THIS TRANSACTION, YOU SHOULD READ THIS ENTIRE DOCUMENT, AND THE DOCUMENTS WE
REFER YOU TO, CAREFULLY. SEE "WHERE YOU CAN GET MORE INFORMATION." (PAGE 31)
CATAWBA VALLEY BANK WILL REORGANIZE INTO A HOLDING COMPANY STRUCTURE (PAGE 7)
Under a holding company reorganization agreement between Catawba Valley
Bank and Catawba Valley Bancshares, Inc., all of the outstanding shares of
Catawba Valley Bank stock will be automatically converted into the right to
receive shares of Catawba Valley Bancshares, Inc. stock in a one-for-one
exchange. As a result, Catawba Valley Bank will be owned by Catawba Valley
Bancshares, Inc. and Catawba Valley Bank will continue its current business and
operations as a North Carolina bank using its current name. So, for example, if
you hold 100 shares of Catawba Valley Bank common stock, you would receive 100
shares of Catawba Valley Bancshares, Inc. common stock. The total cost of
forming the holding company is estimated to be $50,000. The cost will be borne
by Catawba Valley Bank.
FEDERAL INCOME TAX CONSEQUENCES (PAGE 10)
We have structured the transaction so that Catawba Valley Bank
shareholders would not recognize any gain or loss for federal income tax
purposes. Lawyers will furnish an opinion that Catawba Valley Bank shareholders
will not recognize any gain or loss for federal income tax purposes as a result
of the holding company reorganization. This opinion is not binding on the
Internal Revenue Service.
SINCE TAX MATTERS CAN BE COMPLICATED, AND TAX RESULTS MAY VARY AMONG
SHAREHOLDERS, WE URGE YOU TO CONTACT YOUR OWN TAX ADVISOR TO UNDERSTAND FULLY
HOW THE TRANSACTION WILL AFFECT YOU.
REASONS FOR THE REORGANIZATION (PAGE 8)
The Board of Directors of Catawba Valley Bank believes that the holding
company reorganization is in the best interests of shareholders and unanimously
recommends that the shareholders vote "FOR" its approval. The Board also
believes that a holding company structure will open up attractive opportunities
to increase growth and diversity in its lines of products, without sacrificing
its hometown philosophy and way of doing business.
ANNUAL MEETING (PAGE 6)
Catawba Valley Bank will hold its annual meeting of shareholders at 2:00
p.m. local time on May 25, 1999, at the offices of J.C. Bradford & Co., 400
Second Avenue, N.W., Hickory, North Carolina.
THE COMPANIES (PAGE 18)
Catawba Valley Bank
1039 Second Street, N.E.
Hickory, North Carolina 28601
(828) 431-2300
Catawba Valley Bank is a state-chartered commercial bank organized under
the laws of the State of North Carolina. Catawba Valley Bank's main office is
in Hickory, North Carolina at the address above. Catawba Valley Bank has two
branch offices, one in Hickory and one in Newton, North Carolina.
Catawba Valley Bancshares, Inc.
1039 Second Street, N.E.
Hickory, North Carolina 28601
(828) 431-2300
Catawba Valley Bancshares, Inc. is a North Carolina corporation formed to
be the owner of all of Catawba Valley Bank's issued and outstanding shares. If
Catawba Valley Bank shareholders approve the holding company reorganization
agreement, then Catawba Valley Bancshares, Inc. will own all of the shares of
Catawba Valley Bank and the former Catawba Valley Bank shareholders will become
the owners of all of Catawba Valley Bancshares, Inc.'s shares.
4
<PAGE>
AGREEMENT GOVERNING THE TRANSACTION IS ATTACHED
We have attached the holding company reorganization agreement as Appendix
I at the back of this Proxy Statement-Prospectus. We encourage you to read this
agreement as it is the legal document that governs the transaction.
MAJORITY VOTE REQUIRED TO APPROVE THE TRANSACTION (PAGE 7)
Approval of the holding company reorganization (Proposal 1) requires the
affirmative vote of the holders of at least a majority of the outstanding
shares of Catawba Valley Bank common stock. A shareholder's failure to vote
will have the effect of a vote against approval of the transaction. In Proposal
2, the three (3) individuals receiving the greatest number of votes will be
elected.
Directors and executive officers of Catawba Valley Bank own about 26.53%
of the shares that may be cast at the meeting, and we expect them to vote in
favor of the holding company reorganization and for each of the three (3)
nominees for director.
Brokers who hold shares as nominees, or in "street name," will not have
the authority to vote such shares in the holding company reorganization unless
they receive instructions from the shareholder whose account they hold.
If we receive shareholder approval, we currently expect to complete the
holding company reorganization in June 1999 assuming receipt of approvals from
all regulatory authorities.
RECORD DATE FOR THE MEETING IS MARCH 31, 1999.
If you owned shares of Catawba Valley Bank at the close of business on
March 31, 1999, you may vote on the matters to be considered at the meeting.
On March 31, 1999, there were 1,351,910 shares of Catawba Valley Bank
common stock outstanding. Each Catawba Valley Bank shareholder will have one
vote at the meeting for each share of stock they owned on such date.
OTHER MATTERS TO BE ACTED ON (PAGE 22)
Since this is the annual meeting of shareholders, the shareholders are
being asked to also take the following actions at the annual meeting:
1. Elect three members of the Board of Directors for three year terms.
2. To act on any other matters that may lawfully be brought before the
annual meeting.
DISSENTERS' RIGHTS (PAGE 11)
Shareholders who vote against or abstain from voting on the holding
company reorganization (Proposal 1) and properly exercise their dissenters'
rights prior to the annual shareholders' meeting have the right to receive a
cash payment for the fair value of their shares of Catawba Valley Bank common
stock. In order to exercise these rights, shareholders must comply with Article
13 of the North Carolina Business Corporation Act, which is attached as
Appendix II to this Proxy Statement-Prospectus. If you wish to dissent, please
read this information carefully as you must take affirmative steps to preserve
your rights.
LISTING OF CATAWBA VALLEY BANCSHARES, INC. COMMON STOCK
Catawba Valley Bancshares, Inc. will list its shares to be issued in
connection with the holding company reorganization on the Nasdaq SmallCap
Market under the symbol " ". Nasdaq will first have to approve our
application for this listing.
EXCHANGE OF SHARE CERTIFICATES (PAGE 9)
Certificates representing shares of Catawba Valley Bank stock will not
automatically represent shares of Catawba Valley Bancshares, Inc. stock.
Shareholders will need to exchange their Catawba Valley Bank stock certificates
for Catawba Valley Bancshares, Inc. stock certificates after the transaction is
completed. We will mail you information following the date on which we complete
the holding company reorganization.
5
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GENERAL INFORMATION
CATAWBA VALLEY BANK ANNUAL MEETING
GENERAL. This Proxy Statement-Prospectus is being furnished to the
shareholders of Catawba Valley Bank in connection with the solicitation by the
Board of Directors of Catawba Valley Bank of proxies for use at the Catawba
Valley Bank annual meeting of shareholders. The purposes of the Catawba Valley
Bank annual meeting are to consider and vote on (a) the adoption and approval
of the Agreement and Plan of Reorganization and Share Exchange, dated as of
February 16, 1999 (the "Agreement") pursuant to which Catawba Valley Bank will
become a wholly-owned subsidiary of Catawba Valley Bancshares, Inc.; and (b)
election of three directors for three year terms.
The principal executive offices of both Catawba Valley Bancshares, Inc.
and Catawba Valley Bank are located at 1039 Second Street, N.E., Hickory, North
Carolina 28601. Their telephone number is (828) 431-2300.
This Proxy Statement-Prospectus is first being mailed to shareholders on
or about April 16, 1999.
RECORD DATE; VOTING RIGHTS. Catawba Valley Bank shareholders of record at
the close of business on March 31, 1999 (the "Record Date") are entitled to
vote at the annual meeting, or at any adjournment or postponement. As of the
Record Date, there were 1,351,910 shares of Catawba Valley Bank Common Stock
outstanding and entitled to vote held of record by 1,585 persons. Each share of
Catawba Valley Bank Common Stock entitles the holder to one vote on each matter
submitted to a vote at the meeting. Pursuant to the Bylaws of Catawba Valley
Bank, a majority of the votes entitled to be cast by holders of Catawba Valley
Bank Common Stock, represented in person or by proxy, will constitute a quorum
for the transaction of business at the meeting. In accordance with North
Carolina law, shareholders will not be permitted to vote cumulatively in the
election of directors.
In the case of Proposal 1, the affirmative vote of the holders of a
majority of the issued and outstanding shares of Catawba Valley Bank Common
Stock is required by Article 11 of the North Carolina Business Corporation Act
(the "NCBCA") to approve the Agreement and the reorganization of Catawba Valley
Bank into a holding company. In the case of Proposal 2, the three directors
receiving the greatest number of votes shall be elected.
The executive officers and directors of Catawba Valley Bank, together with
their affiliates, beneficially owned, directly or indirectly, as of December
31, 1998, an aggregate of 390,853 shares of Catawba Valley Bank Common Stock
(including 120,790 shares subject to outstanding, vested stock options capable
of being exercised in the next 60 days). This number of shares constituted
26.53% of the total number of shares outstanding and entitled to vote on that
date plus the number of shares capable of being issued within 60 days upon the
exercise of stock options. Of that amount, non-employee directors own 289,311
shares of Catawba Valley Bank Common Stock (including 104,290 shares subject to
outstanding, vested stock options), or 19.86% of the total, and principal
officers of Catawba Valley Bank own 101,542 of such shares (including 16,500
shares subject to outstanding stock options), or 7.42% of the total.
R. Steve Aaron, currently the sole director and officer of Catawba Valley
Bancshares, Inc., owns one share of Catawba Valley Bancshares, Inc. Common
Stock, or 100% of the total, with nominal value. We expect that Catawba Valley
Bancshares, Inc. will cancel Mr. Aaron's share after consummation of the
holding company reorganization. The result will be that the same persons who
held Catawba Valley Bank Common Stock before the transaction (except if anyone
exercises dissenters' rights) will own Catawba Valley Bancshares, Inc. Common
Stock after the transaction without any change in the number of their shares.
SOLICITATION, REVOCATION AND USE OF PROXIES. A proxy card is enclosed for
your use. YOU ARE SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS OF CATAWBA
VALLEY BANK TO COMPLETE, DATE, SIGN, AND RETURN THE PROXY CARD IN THE
ACCOMPANYING ENVELOPE, which is postage-paid if mailed in the United States.
Since we need a majority of all outstanding Catawba Valley Bank shares to
vote FOR the Agreement, if you neither submit a proxy card or vote in person at
the annual meeting, you will, in effect, have voted AGAINST the Agreement and
the reorganization of Catawba Valley Bank into a holding company. In addition,
if you abstain, that will also be, in effect, a vote AGAINST the proposal,
although your shares would still be counted toward the required quorum for the
meeting.
You may revoke your proxy at any time before it is actually voted at the
annual meeting by delivering written notice of revocation to the Secretary of
Catawba Valley Bank, Carole F. Teague, 1039 Second Street, N.E., Hickory, NC
28601, by submitting a subsequently dated proxy, or by attending the annual
meeting and withdrawing the proxy. Each unrevoked proxy card properly executed
and received prior to the close of the annual meeting will be voted as
indicated. Where specific instructions are not indicated, the proxy will be
voted "FOR" each of the Proposals listed in the notice of the meeting.
6
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The expense of preparing, printing and mailing this Proxy
Statement-Prospectus will be paid by Catawba Valley Bank. In addition to the
use of the mails, proxies may be solicited personally or by telephone by
regular employees of Catawba Valley Bank without additional compensation.
Catawba Valley Bank will reimburse banks, brokers and other custodians,
nominees and fiduciaries for their costs in sending the proxy materials to the
beneficial owners of Catawba Valley Bank Common Stock.
AUTHORIZATION TO VOTE ON ADJOURNMENT AND OTHER MATTERS
By signing a proxy, Catawba Valley Bank shareholders will be authorizing
the proxyholder to vote in his discretion regarding any procedural motions
which may come before the annual meeting. For example, this authority could be
used to adjourn the annual meeting if Catawba Valley Bank believes it is
desirable to do so. Adjournment or other procedural matters could be used to
obtain more time before a vote is taken in order to solicit additional proxies
or to provide additional information to shareholders. However, proxies voted
against the proposals will not be used to adjourn the annual meeting. Catawba
Valley Bank does not have any plans to adjourn the meeting at this time, but
intends to do so, if needed, to promote shareholder interests.
PROPOSAL 1: REORGANIZATION OF CATAWBA VALLEY BANK INTO A HOLDING COMPANY
THE FOLLOWING INFORMATION DESCRIBES MATERIAL ASPECTS OF THE PROPOSED
REORGANIZATION OF CATAWBA VALLEY BANK INTO A HOLDING COMPANY NAMED CATAWBA
VALLEY BANCSHARES, INC. THE AGREEMENT IS ATTACHED AS APPENDIX I.
GENERAL
Catawba Valley Bancshares, Inc. and Catawba Valley Bank entered into the
Agreement pursuant to which Catawba Valley Bancshares, Inc. will become a bank
holding company with Catawba Valley Bank as its wholly-owned subsidiary (the
"Reorganization"). A copy of the Agreement is attached as Appendix I to this
Proxy Statement-Prospectus. Catawba Valley Bancshares, Inc. is a newly-formed
North Carolina corporation that was organized by Catawba Valley Bank for the
purpose of effecting the Reorganization and, therefore, has no operating
history. If the Reorganization is approved by the holders of Catawba Valley
Bank Common Stock, and subject to the satisfaction of all other conditions set
forth in the Agreement, including receipt of all required regulatory approvals,
all of the outstanding shares of Catawba Valley Bank Common Stock (other than
shares held by shareholders exercising dissenters' rights, if any) will be
converted into the right to receive an equal number of shares of Catawba Valley
Bancshares, Inc. Common Stock in a one-for-one exchange.
After the effective date of the Reorganization, Catawba Valley Bank will
continue its existing business and operations as a wholly-owned subsidiary of
Catawba Valley Bancshares, Inc.. The consolidated assets, liabilities,
shareholders' equity and income of Catawba Valley Bancshares, Inc. immediately
following the effective date will be the same as those of Catawba Valley Bank
immediately prior to the effective date. The Board of Directors of Catawba
Valley Bancshares, Inc. is, and upon the effective date will continue to be,
comprised of the current members of the Board of Directors of Catawba Valley
Bank. The executive officers of Catawba Valley Bancshares, Inc. are, and upon
the effective date will continue to be, substantially the same as the current
executive officers of Catawba Valley Bank. Catawba Valley Bank will continue to
operate under the name "Catawba Valley Bank" and its deposit accounts will
continue to be insured by the Bank Insurance Fund ("BIF") of the Federal
Deposit Insurance Corporation ("FDIC"). The corporate existence of Catawba
Valley Bank will continue unaffected and unimpaired by the Reorganization,
except that all of the outstanding shares of Catawba Valley Bank Common Stock
(other than shares held by shareholders exercising dissenters' rights, if any)
will be owned by Catawba Valley Bancshares, Inc. The current shareholders of
Catawba Valley Bank will own all of the outstanding shares of Catawba Valley
Bancshares, Inc. Common Stock after completion of the Reorganization.
VOTE REQUIRED
Approval of the Agreement requires the approval of a majority of the
issued and outstanding shares of Catawba Valley Bank. The required vote of
shareholders is based upon the number of outstanding shares of Catawba Valley
Bank Common Stock, and not the number of those shares that are actually voted.
Accordingly, as we explained on page 6, anything but a vote "FOR" Proposal 1
will have the effect of a vote "AGAINST" Proposal 1. That is why your vote is
very important. The failure to submit a proxy card or to vote in person at the
annual meeting or an abstention from voting will have the same effect as a "NO"
vote with respect to Proposal 1.
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THE CATAWBA VALLEY BANK BOARD OF DIRECTORS HAS UNANIMOUSLY APPROVED THE
PROPOSED REORGANIZATION AND UNANIMOUSLY RECOMMENDS A VOTE "FOR" APPROVAL AND
ADOPTION OF THE AGREEMENT.
DESCRIPTION OF THE AGREEMENT
CATAWBA VALLEY BANK
Catawba Valley Bank was incorporated under the laws of the State of North
Carolina on October 3, 1995, and commenced operations as a state-chartered
banking corporation on November 1, 1995. Catawba Valley Bank is not a member of
the Federal Reserve System and has one subsidiary, Valley Financial Services,
Inc. that has recently been organized to engage in agency services for various
financial products. As of December 31, 1998, Catawba Valley Bank had assets of
approximately $90 million, net loans outstanding of approximately $60 million,
deposits of approximately $75 million and stockholders' equity of approximately
$14 million.
CATAWBA VALLEY BANCSHARES, INC.
Catawba Valley Bancshares, Inc. was incorporated on March 8, 1999 at the
direction of the Board of Directors of Catawba Valley Bank to become a bank
holding company with Catawba Valley Bank as its wholly-owned subsidiary.
Catawba Valley Bancshares, Inc., upon the approval by the Board of Governors of
the Federal Reserve System ("Federal Reserve Board") of its application for
approval to become a bank holding company, will be subject to regulation by the
Federal Reserve Board. Upon consummation of the Reorganization, Catawba Valley
Bancshares, Inc. will have no significant assets other than the shares of
Catawba Valley Bank's capital stock acquired in the Reorganization, and will
have no significant liabilities. Initially, Catawba Valley Bancshares, Inc.
will neither own nor lease any property, but will instead use the premises,
equipment and furniture of Catawba Valley Bank. At the present time, Catawba
Valley Bancshares, Inc. does not intend to employ any persons other than
certain executive officers, but will utilize the support staff of Catawba
Valley Bank from time to time. Additional employees will be hired as
appropriate, to the extent Catawba Valley Bancshares, Inc. expands its business
in the future.
REASONS FOR THE REORGANIZATION
Catawba Valley Bank's Board of Directors believes that the formation of a
holding company creates a more flexible organizational structure that could
provide benefits such as more options for funding Catawba Valley Bank's growth,
the ability to accommodate distinct subsidiaries for additional lines of
business, increased efficiency with regard to acquisition activities, and more
corporate flexibility with regard to stock repurchases or redemptions. Catawba
Valley Bank has no current plans for additional lines of business, but might
consider such options in the future. Also, Catawba Valley Bank has no current
plans for funding additional growth, although it evaluates acquisition
opportunities on a regular basis. Effecting any such acquisition may
necessitate additional capital funding. A holding company structure would be
consistent with Catawba Valley Bank's stated strategy of positioning Catawba
Valley Bank to seize opportunities that it expects to result from the
consolidation of the financial services industry.
EFFECTIVE DATE
The date and time on which the Reorganization is effective will be the
first business day following the date on which Catawba Valley Bancshares, Inc.
files Articles of Share Exchange in accordance with the NCBCA. We refer to this
date and time as the "Effective Date."
ACTIONS AT THE EFFECTIVE DATE
The Reorganization will be accomplished through the following steps:
o Catawba Valley Bancshares, Inc. has been incorporated as a North Carolina
corporation. The primary purpose of Catawba Valley Bancshares, Inc. is to
become the bank holding company for Catawba Valley Bank.
o At the Effective Date, Catawba Valley Bancshares, Inc. will exchange
shares of its Common Stock for all the shares of Catawba Valley Bank
Common Stock issued and outstanding immediately prior to the Effective
Date on a one-for-one basis. As an example, if a Catawba Valley Bank
shareholder owned 100 shares of Catawba Valley Bank's stock before the
Effective Date, he or she would receive 100 shares of Catawba Valley
Bancshares, Inc. in the Reorganization.
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o Not more than 20 days following the Effective Date, Catawba Valley
Bancshares, Inc. will cause First-Citizens Bank and Trust Company, the
transfer agent for Catawba Valley Bank Common Stock (the "Exchange Agent"),
to mail to each former shareholder of Catawba Valley Bank of record
immediately prior to the Effective Date written instructions and
transmittal materials for use in surrendering shares of Catawba Valley Bank
Common Stock to the Exchange Agent.
o Upon the proper delivery to the Exchange Agent by a Catawba Valley Bank
shareholder of his or her Catawba Valley Bank share certificates, the
Exchange Agent will register in the name of such shareholder the shares of
Catawba Valley Bancshares, Inc. Common Stock and deliver new share
certificates to the Catawba Valley Bank shareholder.
o Catawba Valley Bank shareholders have the right to dissent from the
Reorganization if they follow the procedure in the NCBCA. We have explained
that procedure under "Dissenters' Rights" beginning on page and have also
included a copy of the statute itself in Appendix II to this Proxy
Statement-Prospectus.
CONDITIONS TO THE REORGANIZATION
The Agreement provides that the obligations of Catawba Valley Bank and
Catawba Valley Bancshares, Inc. to consummate the Reorganization are subject to
the satisfaction of the following conditions:
o the approval of the Agreement by the affirmative vote of the holders of a
majority of the issued and outstanding shares of Catawba Valley Bank Common
Stock;
o the approval by the Federal Reserve Board of Catawba Valley Bancshares,
Inc.'s application to become a holding company under the Bank Holding
Company Act of 1956 (the "BHC Act");
o the receipt of all other consents and approvals and the satisfaction of all
other requirements necessary to the consummation of the Reorganization;
o the receipt of a favorable opinion from Catawba Valley Bank's legal counsel
as to the federal income tax consequences of the Reorganization; and
o expiration of any waiting period required by any supervisory authority to
complete the transaction.
Although we have filed the appropriate application with the Federal Reserve
Board under the BHC Act, there are no assurances that all conditions will be
satisfied and that the Reorganization will be consummated.
TERMINATION
The Agreement may be terminated prior to the Effective Date if:
o any condition precedent to the Reorganization has not been fulfilled or
waived;
o any action, suit, proceeding or claim has been instituted, made or
threatened relating to the Agreement which makes consummation of the
transaction inadvisable in the opinion of the Board of Directors of Catawba
Valley Bank or Catawba Valley Bancshares, Inc.;
o the number of shares of Catawba Valley Bank Common Stock owned by
dissenting shareholders, if any, makes consummation inadvisable in the
opinion of Catawba Valley Bank or Catawba Valley Bancshares, Inc.; or
o for any other reason, consummation of the transaction is inadvisable in the
opinion of the Board of Directors of Catawba Valley Bank or Catawba Valley
Bancshares, Inc.
EXCHANGE OF STOCK CERTIFICATES
At the Effective Date, a certificate representing one share of Catawba
Valley Bank Common Stock will represent the right to be exchanged for one share
of Catawba Valley Bancshares, Inc. Common Stock, except for certificates
representing Catawba Valley Bank shares whose holders, if any, have exercised
dissenters' rights. After the Effective Date, shareholders will exchange their
present certificates for new certificates representing shares of Catawba Valley
Bancshares, Inc. Common Stock. Catawba Valley Bank shareholders will be
notified by Catawba Valley Bancshares, Inc. as to the procedure for the
exchange of Catawba Valley Bank Common Stock certificates for Catawba Valley
Bancshares, Inc. Common Stock certificates. Your present stock certificates
will for all purposes after the Effective Date, until exchanged with the
Exchange Agent, evidence only the exchange rights for which the Agreement
provides or, if applicable, the rights of a dissenting shareholder.
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EFFECT OF THE REORGANIZATION ON CATAWBA VALLEY BANK'S STOCK OPTION PLANS
GENERAL. On May 14, 1996, the Catawba Valley Bank shareholders approved,
the Catawba Valley Bank Incentive Stock Option Plan (the "ISO Plan") and on
April 22, 1997 the shareholders approved the Catawba Valley Bank 1997
Nonqualified Stock Option Plan for Directors (the "NQSO Plan") (individually, a
"Plan" or collectively, the "Plans"). On March 22, 1999 the Catawba Valley
Bancshares, Inc. Board of Directors and sole shareholder approved the following
actions:
o Catawba Valley Bancshares, Inc.'s assumption of the Plans; and
o amendments to the Plans to eliminate restrictions applicable to bank stock
plans, but not holding company stock option plans, under the North Carolina
banking laws (for example, restrictions on the number of shares allocable
to any single optionee, restrictions on the total number of shares that may
be issued under the Plans, restrictions relating to the cashless exercise
of options, and, in the case of the NQSO Plan, restrictions on the stock
purchase price).
PURPOSES. The purposes of the Plans are to advance the interests of
Catawba Valley Bancshares, Inc. by making shares of Catawba Valley Bancshares,
Inc.'s stock available for purchase by persons who are in a position to make
significant contributions to the success of Catawba Valley Bancshares, Inc.. An
effect of this arrangement is to further align the interests of these persons
with those of Catawba Valley Bancshares, Inc.'s shareholders.
NUMBER OF SHARES. In conjunction with the Reorganization, Catawba Valley
Bancshares, Inc. will reserve the same number of shares as previously reserved
by Catawba Valley Bank. If any option granted under a Plan expires or
terminates for any reason without having been exercised in full, the
unpurchased shares of Common Stock subject to the expired or terminated option
will be available for future options under that Plan.
ELIGIBLE RECIPIENTS. The ISO Plan permits grants of incentive stock
options to officers and employees designated by the committee administering the
Plan, while the NQSO Plan permits grants of nonqualified stock options to
directors. In determining the eligibility of an employee to receive options
under each Plan, the committee may take into account the position and
responsibilities of the employee, the nature of the services rendered by the
employee, the employee's present and potential contributions to the success of
the acquisition, and such other factors as the committee deems relevant.
ADMINISTRATION. Both Plans provide for administration by a Board-appointed
committee, consisting of two or more non-employee directors. The Compensation
Committee of Catawba Valley Bancshares, Inc.'s Board of Directors has assumed
all responsibilities with regard to administering the Plans. In general, the
Compensation Committee has broad discretionary authority regarding the Plans,
including the authority:
o to determine which persons shall be granted options and the amount of such
options,
o to determine and construe the terms and provisions of the agreements and
other documents by which options are granted and accepted, and
o to make all other determinations that the Compensation Committee deems
necessary or desirable for the administration of the Plans.
OPTIONS HELD BY CATAWBA VALLEY BANK DIRECTORS AND OFFICERS. As of the
Record Date, directors and executive officers of Catawba Valley Bank held an
aggregate of 121,535 shares of Catawba Valley Bank Common Stock subject to
presently exercisable stock options. An additional 35,750 shares of Catawba
Valley Bank Common Stock, subject to outstanding stock options that are not
presently exercisable, are held by executive officers of Catawba Valley Bank.
FEDERAL INCOME TAX CONSEQUENCES OF THE REORGANIZATION
Catawba Valley Bank expects to receive an opinion of Moore & Van Allen,
PLLC to the effect that, among other things:
o The proposed Reorganization will constitute a reorganization within the
meaning of Section 368(a)(1)(B) of the Internal Revenue Code of 1986, as
amended (the "Code").
o No gain or loss will be recognized by Catawba Valley Bank's shareholders on
the receipt of Catawba Valley Bancshares, Inc.'s Common Stock in exchange
for their Catawba Valley Bank Common Stock.
o The basis of each Catawba Valley Bank shareholder in Catawba Valley
Bancshares, Inc.'s Common Stock received by such shareholder will be the
same as the basis of Catawba Valley Bank Common Stock surrendered in
exchange therefor.
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o The holding period of Catawba Valley Bancshares, Inc.'s Common Stock
received by each Catawba Valley Bank shareholder will include the holding
period of the Catawba Valley Bank Common Stock surrendered in exchange
therefor, provided that the Catawba Valley Bank Common Stock is held as a
capital asset at the effective time of the Reorganization.
o If a Catawba Valley Bank shareholder dissents from the Reorganization and
receives cash in exchange for his Catawba Valley Bank Common Stock, the
receipt of such cash will be a taxable transaction and will be treated as a
distribution and redemption of his shares, subject to the provisions and
limitations of Sections 301 and 302 of the Code.
The opinion assumes, among other things, that the Reorganization will be
consummated as described in the Agreement, and that payment to dissenters will
not exceed the fair market value of the Catawba Valley Bancshares, Inc. Common
Stock issued in the Reorganization as of the Effective Time.
The tax opinion will not address state or local tax consequences, and
shareholders are advised to consult their own tax advisors for advice on these
matters.
The tax opinion is not binding on the Internal Revenue Service.
ACCOUNTING TREATMENT OF THE REORGANIZATION
The Reorganization is expected to be characterized as, and treated
similarly to, a "pooling of interests" (rather than a "purchase") for financial
reporting and related purposes, with the result that the accounts of Catawba
Valley Bank and Catawba Valley Bancshares, Inc. will be combined.
DISSENTERS' RIGHTS
Article 13 (entitled "Dissenters' Rights") of the NCBCA sets forth the
rights of the Catawba Valley Bank shareholders who object to the
Reorganization. The following is a summary of the material terms of the
statutory procedures to be followed by a holder of Catawba Valley Bank Common
Stock in order to dissent from the Reorganization and perfect dissenters'
rights under the NCBCA. A copy of Article 13 of the NCBCA is attached as
Appendix II hereto.
If a Catawba Valley Bank shareholder elects to exercise such a right to
dissent and demand appraisal, such shareholder must satisfy each of the
following conditions:
(a) such shareholder must give to Catawba Valley Bank and Catawba Valley
Bank must actually receive, before the vote on approval or disapproval of
the Reorganization is taken, written notice (the "Notice") of such
shareholder's intent to demand payment for such shareholder's shares if
the Reorganization is effectuated (this Notice must be in addition to and
separate from any proxy or vote against the Reorganization; neither voting
against, abstaining from voting, nor failing to vote on the Reorganization
will constitute a Notice within the meaning of the NCBCA); and
(b) such shareholder must not vote in favor of the Reorganization (a
failure to vote will satisfy this requirement, but a vote in favor of the
Reorganization, by proxy or in person, or the return of a signed proxy
which does not specify a vote against approval of the Reorganization or
direction to abstain, will constitute a waiver of such shareholder's
Dissenters' Rights).
If the requirements of (a) and (b) above are not satisfied and the
Reorganization becomes effective, a shareholder will not be entitled to payment
for such shareholder's shares under the provisions of Article 13 of the NCBCA.
Any Notices should be addressed to Catawba Valley Bank, 1039 Second
Street, N.E., Hickory, North Carolina 28601, attention: R. Steve Aaron. The
Notice must be executed by the holder of record of shares of Catawba Valley
Bank Common Stock. A beneficial owner may assert Dissenters' Rights only if he
dissents with respect to all Catawba Valley Bank Common Stock of which he is
the beneficial owner. With respect to shares of Catawba Valley Bank Common
Stock which are owned of record by a voting trust or by a nominee, the
beneficial owner of such shares may exercise Dissenters' Rights if such
beneficial holder also submits to Catawba Valley Bank the record holder's
written consent to such exercise not later than the time such beneficial holder
asserts the Dissenters' Rights. A record owner, such as a broker, who holds
shares of Catawba Valley Bank Common Stock as a nominee for others, may
exercise Dissenters' Rights with respect to the shares held for all or less
than all beneficial owners of shares as to which such person is the record
owner, provided such record owner dissents with respect to all Catawba Valley
Bank Common Stock beneficially owned by any one person. In such case, the
Notice submitted by such broker as record owner must set forth the name and
address of the shareholder who is objecting to the Reorganization and demanding
payment for such person's shares.
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If the Reorganization is approved, Catawba Valley Bank will be required to
mail by registered or certified mail, return receipt requested, a written
notice (the "Dissenters' Notice") to all shareholders who have satisfied the
requirements of (a) and (b) above. The Dissenters' Notice must be sent no later
than ten days after shareholder approval of the Reorganization, and must:
o state where the payment demand must be sent and where and when certificates
for shares of Company Common Stock must be deposited;
o supply a form for demanding payment;
o set a date by which Catawba Valley Bank must receive the payment demand
(not fewer than 30 days nor more than 60 days after the Dissenters' Notice
is mailed); and
o include a copy of Article 13 of the NCBCA.
A shareholder who receives a Dissenters' Notice must demand payment and
deposit such shareholder's share certificates in accordance with the terms of
the Dissenters' Notice. A shareholder who demands payment and deposits such
shareholder's share certificates retains all other rights of a shareholder
until these rights are canceled or modified by the Reorganization. A
shareholder who does not demand payment or deposit such shareholder's share
certificates where required, each by the date set in the Dissenters' Notice, is
not entitled to payment for their shares under the NCBCA.
Within 30 days after receipt of a demand for payment, Catawba Valley Bank
is required to pay each dissenting shareholder the amount Catawba Valley Bank
estimates to be the fair value of such shareholder's shares, plus interest
accrued from the effective date of the Reorganization to the date of payment.
The payment must be accompanied by:
o Catawba Valley Bank's most recent available balance sheet, income statement
and statement of cash flows as of the end of or for the fiscal year ending
not more than 16 months before the date of payment, and the latest
available interim financial statements, if any;
o an explanation of how Catawba Valley Bank estimated the fair value of the
shares;
o an explanation of the interest calculation;
o a statement of the dissenters' right to demand payment (as described
below); and
o a copy of Article 13 of the NCBCA.
If the Reorganization is not consummated within 60 days after the date set
for demanding payment and depositing share certificates, Catawba Valley Bank
must, pursuant to the NCBCA, return the deposited certificates. If after
returning the deposited certificates the Reorganization is consummated, Catawba
Valley Bank must send a new Dissenters' Notice and repeat the payment demand
procedure.
A shareholder may, however, notify Catawba Valley Bank in writing of such
shareholder's own estimate of the fair value of his shares and amount of
interest due, and demand payment of the excess of such shareholder's estimate
of the fair value of such shareholder's shares over the amount previously paid
by Catawba Valley Bank if: (a) the shareholder believes that the amount paid is
less than the fair value of Catawba Valley Bank Common Stock or that the
interest is incorrectly calculated; (b) Catawba Valley Bank fails to make
payment of its estimate of fair value to a shareholder within 30 days after
receipt of a demand for payment; or (c) the Reorganization not having been
consummated, Catawba Valley Bank does not return the deposited certificates
within 60 days after the date set for demanding payment. A shareholder waives
the right to demand payment unless such shareholder notifies Catawba Valley
Bank of such shareholder's demand in writing within 30 days of Catawba Valley
Bank's payment of its estimate of fair value (with respect to clause (a) above)
or Catawba Valley Bank's failure to perform (with respect to clauses (b) and
(c) in this paragraph). A shareholder who fails to notify Catawba Valley Bank
of his demand within such 30-day period shall be deemed to have withdrawn such
shareholder's dissent and demand of payment.
If a demand for payment remains unsettled, the dissenting shareholder may
commence a proceeding within 60 days after the earlier of (a) the date of his
payment demand or (b) the date payment is made, by filing a complaint with the
Superior Court Division of the North Carolina General Court of Justice to
determine the fair value of the shares and accrued interest. If the dissenting
shareholder does not commence the proceeding within such 60-day period, the
dissenting shareholder shall be deemed to have withdrawn the dissent and demand
for payment.
The court in such an appraisal proceeding will determine all costs of the
proceeding and assess the costs as it finds equitable. The proceeding is to be
tried as in other civil actions; however, the dissenting shareholder will not
have the right
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to a trial by jury. The court may also assess the fees and expenses of counsel
and expenses for the respective parties, in the amounts the court finds
equitable: (a) against Catawba Valley Bank if the court finds that it did not
comply with the statutes; or (b) against Catawba Valley Bank or the dissenting
shareholder, if the court finds that the party against whom the fees and
expenses are assessed acted arbitrarily, vexatiously or not in good faith. If
the court finds that the services of counsel for any dissenting shareholder
were of substantial benefit to other dissenting shareholders, and that the fees
for those services should not be assessed against Catawba Valley Bank, the
court may award to these counsel reasonable fees to be paid out of the amounts
awarded the dissenting shareholders who were benefited.
THE SUMMARY SET FORTH ABOVE DOES NOT PURPORT TO BE A COMPLETE STATEMENT OF
THE PROVISIONS OF THE NCBCA RELATING TO THE RIGHTS OF DISSENTING SHAREHOLDERS
AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO THE APPLICABLE SECTIONS OF THE
NCBCA, WHICH ARE INCLUDED AS APPENDIX II TO THIS PROXY STATEMENT-PROSPECTUS.
SHAREHOLDERS INTENDING TO EXERCISE THEIR DISSENTERS' RIGHTS ARE URGED TO REVIEW
CAREFULLY APPENDIX II AND TO CONSULT WITH LEGAL COUNSEL SO AS TO BE IN STRICT
COMPLIANCE THEREWITH.
The Agreement provides that if the Board of Directors of Catawba Valley
Bank determines that the holders of a sufficient number of shares of Catawba
Valley Bank Common Stock have dissented from the Reorganization so that
consummation of the Reorganization is inadvisable, the Board of Directors of
Catawba Valley Bank may terminate the Agreement. In that regard, Catawba Valley
Bank currently anticipates that it would terminate the Agreement if more than
135,190 shares of Catawba Valley Bank Common Stock dissent from the
Reorganization. To comply with the requirements for a reorganization under
Section 368(a)(1)(B) of the Code, the Agreement provides that Catawba Valley
Bank will establish an escrow fund from which all payments to dissenting
Catawba Valley Bank shareholders (if any) will be made. Catawba Valley
Bancshares, Inc. will not contribute any funds to the escrow fund. Section
368(a)(1)(B) applies to the acquisition by one corporation, in exchange solely
for all or a part of its voting stock, of stock of another corporation, and no
cash consideration may be paid by the acquiror. Accordingly, it is necessary
that all cash payments to dissenters of the acquired corporation be paid from
funds of the acquired corporation, and not from funds of the acquiring
corporation. The escrow fund mechanism described above was included in the
Agreement to ensure that any and all Catawba Valley Bank dissenters would be
paid from Catawba Valley Bank's funds and that the Reorganization would remain
eligible for treatment as a reorganization under Section 368(a)(1)(B) of the
Code.
DESCRIPTION OF CATAWBA VALLEY BANCSHARES, INC.'S CAPITAL STOCK
The following is a summary of the material provisions of Catawba Valley
Bancshares, Inc.'s Articles of Incorporation and Bylaws.
GENERAL
The Articles of Incorporation of Catawba Valley Bancshares, Inc. authorize
the issuance of 10,000,000 shares of capital stock, consisting of 9,000,000
shares of common stock, par value $1.00 per share, and 1,000,000 shares of
preferred stock at no par value. There is one share of Catawba Valley
Bancshares, Inc. Common Stock currently issued and outstanding, which is owned
by R. Steve Aaron. There is currently no established public trading market for
Catawba Valley Bancshares, Inc. Common Stock.
On the Effective Date, the currently outstanding share of Catawba Valley
Bancshares, Inc. Common Stock will be redeemed and canceled, and there will be,
subject to the exercise of Dissenters' Rights, 1,351,910 shares outstanding as
a result of the exchange of shares of Catawba Valley Bancshares, Inc. Common
Stock for shares of Catawba Valley Bank Common Stock.
In the future, the authorized but unissued and unreserved shares of
Catawba Valley Bancshares, Inc. Common Stock will be available for issuance for
general purposes, including, but not limited to, possible issuance as stock
dividends or stock splits, future mergers or acquisitions, or future private
placements or public offerings. Except as otherwise may be required to approve
a merger or other transaction in which the additional authorized shares of
Catawba Valley Bancshares, Inc. Common Stock would be issued, no shareholder
approval will be required for the issuance of those shares. See pages 15-18 for
a discussion of the rights of the holders of Catawba Valley Bancshares, Inc.
Common Stock as compared to the holders of Catawba Valley Bank Common Stock.
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COMMON STOCK
GENERAL. Each share of Catawba Valley Bancshares, Inc. Common Stock has
the same relative rights as, and is identical in all respects to, each other
share of Catawba Valley Bancshares, Inc. Common Stock.
DIVIDEND RIGHTS. As a North Carolina corporation, Catawba Valley
Bancshares, Inc. will not be directly subject to the restrictions on the
payment of dividends applicable to Catawba Valley Bank. Holders of shares of
Catawba Valley Bancshares, Inc.'s Common Stock will be entitled to receive such
cash dividends as the Board of Directors of Catawba Valley Bancshares, Inc. may
declare out of funds legally available therefor. However, the payment of
dividends by Catawba Valley Bancshares, Inc. will be subject to the
restrictions of North Carolina law applicable to the declaration of dividends
by a business corporation. Under such provisions, cash dividends may not be
paid if a corporation will not be able to pay its debts as they become due in
the usual course of business after making such cash dividend distribution or
the corporation's total assets would be less than the sum of its total
liabilities plus the amount that would be needed to satisfy certain liquidation
preferential rights. After the Reorganization is consummated, the ability of
Catawba Valley Bancshares, Inc. to pay dividends to the holders of shares of
Catawba Valley Bancshares, Inc. Common Stock will, at least initially, be
completely dependent upon the amount of dividends Catawba Valley Bank pays to
Catawba Valley Bancshares, Inc. See "Comparison of the Rights of Shareholders
- - -- Comparison of the Rights of Holders of Catawba Valley Bank Common Stock and
Catawba Valley Bancshares, Inc. Common Stock -- Payment of Dividends".
VOTING RIGHTS. Each share of Catawba Valley Bancshares, Inc. Common Stock
will entitle the holder thereof to one vote on all matters upon which
shareholders have the right to vote. In addition, the Board of Directors of
Catawba Valley Bancshares, Inc. is classified so that approximately one-third
of the directors will be elected each year. Shareholders of Catawba Valley
Bancshares, Inc. are not entitled to cumulate their votes for the election of
directors. See "Comparison of the Rights of Shareholders -- Comparison of the
Rights of Holders of Catawba Valley Bank Common Stock and Catawba Valley
Bancshares, Inc. Common Stock -- Voting Rights".
LIQUIDATION RIGHTS. In the event of any liquidation, dissolution or
winding up of Catawba Valley Bancshares, Inc., the holders of shares of Catawba
Valley Bancshares, Inc. Common Stock will be entitled to receive, after payment
of all debts and liabilities of Catawba Valley Bancshares, Inc., all remaining
assets of Catawba Valley Bancshares, Inc. available for distribution in cash or
in kind. In the event of any liquidation, dissolution or winding up of Catawba
Valley Bank, Catawba Valley Bancshares, Inc., as the holder of all shares of
Catawba Valley Bank Common Stock upon completion of the Reorganization would be
entitled to receive payment of all debts and liabilities of Catawba Valley Bank
(including all deposits and accrued interest thereon) and all remaining assets
of Catawba Valley Bank available for distribution in cash or in kind.
PREEMPTIVE RIGHTS; REDEMPTION. Holders of shares of Catawba Valley
Bancshares, Inc. Common Stock will not be entitled to preemptive rights with
respect to any shares that may be issued. Catawba Valley Bancshares, Inc.
Common Stock is not subject to call or redemption.
CERTAIN PROVISIONS HAVING POTENTIAL ANTI-TAKEOVER EFFECTS
GENERAL. The following is a summary of the material provisions of Catawba
Valley Bancshares, Inc.'s Articles of Incorporation and Bylaws which address
matters of corporate governance and the rights of shareholders. Certain of
these provisions may delay or prevent takeover attempts not first approved by
the Board of Directors of Catawba Valley Bancshares, Inc. (including takeovers
which certain shareholders may deem to be in their best interests). These
provisions also could delay or frustrate the removal of incumbent directors or
the assumption of control by shareholders. All references to the Articles of
Incorporation and Bylaws are to the Catawba Valley Bancshares, Inc.'s Articles
of Incorporation and Bylaws in effect as of the date of this Proxy
Statement-Prospectus.
CLASSIFICATION OF THE BOARD OF DIRECTORS. The Bylaws provide that if the
number of directors is nine or more (the number of directors is currently 9),
the Board of Directors of Catawba Valley Bancshares, Inc. shall be divided into
three classes, Class I, Class II and Class III, which shall be as nearly equal
in number as possible. Each director shall serve for a term ending on the date
of the third annual meeting of shareholders following the annual meeting at
which the director was elected (except for the initial directors of Catawba
Valley Bancshares, Inc., whose terms may be shorter than three years as
necessary to effect the classification process). A director elected to fill a
vacancy shall serve for the remainder of the term of the present term of office
of the class to which he or she was elected. As a result of the classification
of the Board of Directors of Catawba Valley Bancshares, Inc., approximately
one-third of the members of the Board of Directors of Catawba Valley
Bancshares, Inc. will be elected each year, and two annual meetings will be
required for Catawba Valley Bancshares, Inc.'s shareholders to change a
majority of the members constituting the Board of Directors of Catawba Valley
Bancshares, Inc.
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REMOVAL OF DIRECTORS; FILLING VACANIES. Catawba Valley Bancshares, Inc.'s
Bylaws provide that (a) shareholders may remove one or more of the directors
with or without cause; (b) a director may be removed by the shareholders only
if the number of votes cast for the removal exceeds the number of votes cast
against the removal; and (c) a director may not be removed by the shareholders
at a meeting unless the notice of the meeting states that the purpose, or one
of the purposes, of the meeting is removal of the director. Vacancies occurring
in the Board of Directors of Catawba Valley Bancshares, Inc. may be filled by
the shareholders or a majority of the remaining directors, even though less
than a quorum, or by the sole remaining director.
AMENDMENT OF BYLAWS. Subject to certain restrictions described below,
either a majority of the Board of Directors or the shareholders of Catawba
Valley Bancshares, Inc. may amend or repeal the Bylaws. A bylaw adopted,
amended or repealed by the shareholders may not be readopted, amended or
repealed by the Board of Directors of Catawba Valley Bancshares, Inc.
Generally, the shareholders of Catawba Valley Bancshares, Inc. may adopt,
amend, or repeal the Bylaws in accordance with the NCBCA.
SPECIAL MEETINGS OF SHAREHOLDERS. Catawba Valley Bancshares, Inc.'s Bylaws
provide that special meetings of shareholders may be called only by the Chief
Executive Officer, President, Secretary or Board of Directors of Catawba Valley
Bancshares, Inc. As a result, this provision would prevent shareholders from
compelling shareholder consideration of any proposal (such as a proposal for a
merger or business combination) over the opposition of Catawba Valley
Bancshares, Inc.'s Board of Directors.
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for the Catawba Valley Bancshares, Inc.
Common Stock is expected to be First-Citizens Bank & Trust Company.
COMPARISON OF THE RIGHTS OF SHAREHOLDERS
GENERAL. Upon consummation of the Reorganization, shareholders of Catawba
Valley Bank, other than those shareholders who properly exercise Dissenters'
Rights, will become shareholders of Catawba Valley Bancshares, Inc. Certain
legal distinctions exist between owning Catawba Valley Bancshares, Inc. Common
Stock and Catawba Valley Bank Common Stock. The shareholders of Catawba Valley
Bancshares, Inc. will be governed by and subject to the Articles of
Incorporation and Bylaws of Catawba Valley Bancshares, Inc. rather than the
Articles of Incorporation and Bylaws of Catawba Valley Bank. Catawba Valley
Bancshares, Inc. is a corporation governed by the laws of the State of North
Carolina applicable to business corporations, while Catawba Valley Bank is a
commercial bank governed by the banking laws of North Carolina, which
incorporate the corporate laws of North Carolina only to the extent they do not
conflict with the banking laws. NEITHER THE CATAWBA VALLEY BANK COMMON STOCK
NOR THE CATAWBA VALLEY BANCSHARES, INC. COMMON STOCK ARE INSURED BY THE FDIC OR
GUARANTEED BY THE ISSUER AND ARE BOTH SUBJECT TO INVESTMENT RISK, INCLUDING THE
POSSIBLE LOSS OF VALUE.
The following is a summary of the material differences in the rights of
holders of Catawba Valley Bancshares, Inc. Common Stock and of holders of
Catawba Valley Bank Common Stock. Shareholders should consult with their own
legal counsel with respect to specific differences and changes in their rights
as shareholders which will result from the proposed Reorganization.
CAPITAL STRUCTURE. Catawba Valley Bank's Articles of Incorporation
authorize the issuance of up to 20,000,000 shares of common stock, par value
$5.00 per share, and there are currently 1,351,910 shares issued and
outstanding.
Catawba Valley Bancshares, Inc.'s Articles of Incorporation authorize the
issuance of up to 9,000,000 shares of $1.00 par value common stock. Because the
exchange of shares by virtue of the Reorganization is to be one-for-one (and
Catawba Valley Bancshares, Inc. will redeem and cancel the single share
previously issued by it for nominal consideration), Catawba Valley Bancshares,
Inc. will have the same number of shares issued and outstanding immediately
after consummation of the Reorganization as Catawba Valley Bank did before,
except to the extent that any shareholders of Catawba Valley Bank perfect their
appraisal rights of dissent and receive cash rather than Catawba Valley
Bancshares, Inc. Common Stock.
VOTING RIGHTS. In general, each holder of Catawba Valley Bank Common Stock
and Catawba Valley Bancshares, Inc. Common Stock is entitled to one vote per
share on all matters submitted to a vote of shareholders. In the election of
directors, each holder of Catawba Valley Bank Common Stock and of Catawba
Valley Bancshares, Inc. Common Stock has the right to vote the number of shares
owned by him or her on the record date for as many persons as there are
directors to be
15
<PAGE>
elected. Cumulative voting is not available with respect to the election of
directors of Catawba Valley Bank or Catawba Valley Bancshares, Inc.
Under North Carolina banking law, Catawba Valley Bank may effect a merger
with or transfer of all of its assets and liabilities to another bank, or may
dissolve, only upon the affirmative vote of the holders of at least two-thirds
of Catawba Valley Bank's outstanding shares of Common Stock. Under North
Carolina corporate law (the effect of which is not altered by Catawba Valley
Bancshares, Inc.'s Articles of Incorporation or Bylaws), Catawba Valley
Bancshares, Inc. may effect a merger with or transfer of all of its assets and
liabilities to another corporation, or may dissolve upon the affirmative vote
of the holders of at least a majority of Catawba Valley Bancshares, Inc.'s
outstanding shares of Common Stock.
DIRECTORS. The Bylaws of both Catawba Valley Bank and Catawba Valley
Bancshares, Inc. provide that the Board of Directors shall have from 9 to 18
members. The Boards of Directors of both Catawba Valley Bank and Catawba Valley
Bancshares, Inc. are currently comprised of the same 9 members. The Boards of
Directors of both Catawba Valley Bank and Catawba Valley Bancshares, Inc. may
fill vacancies arising in their directorships.
The Articles of Incorporation of both Catawba Valley Bank and Catawba
Valley Bancshares, Inc. provide that if the number of directors is at least
nine, the terms of the directors shall be staggered. Catawba Valley Bank and
Catawba Valley Bancshares, Inc. both currently have staggered Boards of
Directors. Pursuant to the Articles of Incorporation, the directors are divided
into three classes, each consisting of approximately one-third of the total
directors. Each year, one class of the directors comes up for election,
resulting in director terms of three years.
ASSESSMENT. Section 53-42 of the General Statutes of North Carolina
provides for the pro rata assessment of holders of capital stock of a state
bank in the event that its capital becomes impaired. Such assessment is to be
enforced by the sale, to the extent necessary, of the bank stock of any
shareholder who fails to pay his or her assessment. Accordingly, the shares of
Catawba Valley Bank Common Stock are subject to assessment as provided by such
statute.
All shares of Catawba Valley Bancshares, Inc.'s Common Stock will, upon
consummation of the Reorganization, be fully paid and non-assessable.
RIGHTS TO REPURCHASE STOCK. Under North Carolina banking law, Catawba
Valley Bank may repurchase its stock only after approval by holders of
two-thirds of its outstanding Common Stock and by the North Carolina Banking
Commission. Under the BHC Act, no prior approval is required and, therefore,
Catawba Valley Bancshares, Inc. will be allowed to purchase its own stock in
the open market subject to applicable law and the availability of funds
therefor. Under certain circumstances, stock repurchases by Catawba Valley
Bancshares, Inc. will require the prior approval of the Federal Reserve Bank of
Richmond. Catawba Valley Bancshares, Inc. may consider repurchases of its stock
in the future, but there can be no assurance that Catawba Valley Bancshares,
Inc. will conduct such repurchases.
PAYMENT OF DIVIDENDS. The ability of Catawba Valley Bank to pay dividends
on its Common Stock is restricted by North Carolina banking law and by tax
considerations related to state-chartered banks. North Carolina law imposes
restrictions on the ability of all banks chartered under North Carolina law to
pay dividends. Catawba Valley Bank may only pay dividends out of undivided
profits as determined pursuant to North Carolina General Statutes Section
53-87. In addition, 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. Although
Catawba Valley Bancshares, Inc.'s ability to pay dividends will not be subject
to these restrictions, such restrictions will indirectly affect Catawba Valley
Bancshares, Inc. because dividends from Catawba Valley Bank will be a source of
funds of Catawba Valley Bancshares, Inc. for the payment of dividends to
shareholders of Catawba Valley Bancshares, Inc.
Catawba Valley Bancshares, Inc. will be limited by certain restrictions
imposed generally on North Carolina corporations. Subject to certain
limitations and exceptions, cash dividends may not be paid if a corporation
will not be able to pay its debts as they become due in the usual course of
business after making such cash dividend distribution or the corporation's
total assets would be less than the sum of its total liabilities plus the
amount that would be needed to satisfy certain liquidation preferential rights.
LIMITATION OF LIABILITY AND INDEMNIFICATION OF DIRECTORS, OFFICERS AND
EMPLOYEES. The Articles of Incorporation of both Catawba Valley Bank and
Catawba Valley Bancshares, Inc. eliminate a director's personal liability for
breach of duty as a director to the fullest extent permitted by law. As
required by North Carolina banking law, the Articles of Incorporation of
Catawba Valley Bank qualify the elimination of liability for acts or omissions
as to which the elimination of liability would be inconsistent with the
provisions of North Carolina banking law or the business of banking.
16
<PAGE>
The Bylaws of both Catawba Valley Bank and Catawba Valley Bancshares, Inc.
provide for indemnification to the fullest extent permitted by law. Under the
Federal Deposit Insurance Act, as amended ("FDIA"), both Catawba Valley Bank
and Catawba Valley Bancshares, Inc. would be prohibited from paying any
indemnification with respect to any liability or legal expense incurred by a
director, officer, or employee as a result of an action or proceeding by a
federal banking agency resulting in a civil money penalty or certain other
remedies against such person.
Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to directors, officers or persons controlling Catawba
Valley Bancshares, Inc. pursuant to the forgoing provisions, Catawba Valley
Bancshares, Inc. has been informed that in the opinion of the Securities and
Exchange Commission ("SEC"), such indemnification is against public policy as
expressed in the Securities Act and is, therefore, unenforceable.
CHANGE IN CONTROL REGULATION. Both Catawba Valley Bank and Catawba Valley
Bancshares, Inc. have opted out of the North Carolina Shareholder Protection
Act and the North Carolina Control Share Acquisition Act, each of which, if
applicable, would hinder the ability of a third party to acquire control of
either company.
The acquisition of more than ten percent (10%) of either the outstanding
Catawba Valley Bancshares, Inc. Common Stock or the outstanding Catawba Valley
Bank Common Stock may, in certain circumstances, be subject to the provisions
of the Change in Bank Control Act of 1978 (the "Change in Bank Control Act").
The FDIC has also adopted a regulation pursuant to the Change in Bank Control
Act which generally requires persons who at any time intend to acquire control
of an FDIC-insured state-chartered non-member bank, either directly or
indirectly through an acquisition of control of its holding company, to provide
60 days' prior written notice and certain financial and other information to
the FDIC. Control for the purpose of this Act exists in situations in which the
acquiring party has voting control of at least twenty-five percent (25%) of any
class of voting stock or the power to direct the management or policies of the
bank or the holding company. However, under FDIC regulations, control is
presumed to exist where the acquiring party has voting control of at least ten
percent (10%) of any class of voting securities if (a) the bank or holding
company has a class of voting securities which is registered under Section 12
of the Securities Exchange Act of 1934 (the "Exchange Act"), or (b) the
acquiring party would be the largest holder of a class of voting shares of the
bank or the holding company. The statute and underlying regulations authorize
the FDIC to disapprove a proposed acquisition on certain specified grounds.
Prior approval of the Federal Reserve Board would be required for any
acquisition of control of Catawba Valley Bank or Catawba Valley Bancshares,
Inc. by any bank holding company under the BHC Act. Control for purposes of the
BHC Act would be based on, among other things, a twenty-five percent (25%)
voting stock test or on the ability of the holding company otherwise to control
the election of a majority of the Board of Directors of Catawba Valley Bank or
Catawba Valley Bancshares, Inc. As part of such acquisition, the acquiring
company (unless already so registered) would be required to register as a bank
holding company under the BHC Act.
The Exchange Act requires that a purchaser of any class of a corporation's
securities registered under the Exchange Act notify the SEC and such
corporation within ten days after its purchases exceed five percent of the
outstanding shares of that class of securities. This notice must disclose the
background and identity of the purchaser, the source and amount of funds used
for the purchase, the number of shares owned and, if the purpose of the
transaction is to acquire control of the corporation, any plans to alter
materially the corporation's business or corporate structure. In addition, any
tender offer to acquire a corporation's securities is subject to the
limitations and disclosure requirements of the Exchange Act.
BYLAW CHANGES. The Bylaws of Catawba Valley Bancshares, Inc. are
substantially the same as the Bylaws of Catawba Valley Bank. Certain
differences exist because a few provisions of Catawba Valley Bank's Bylaws are
required of banks by Chapter 53 of the North Carolina General Statutes and are
not required of holding companies formed under the NCBCA. Therefore, although
these provisions remain in Catawba Valley Bank's Bylaws, they were not
incorporated into the Bylaws of Catawba Valley Bancshares, Inc.. The provisions
of Catawba Valley Bank's Bylaws which were not incorporated into the Bylaws of
Catawba Valley Bancshares, Inc. are that:
o not less than three-fourths of the directors shall be residents of the
State of North Carolina;
o all directors are required to own stock of Catawba Valley Bank;
o the Board of Directors has an option to establish and elect local boards of
directors for branch offices to serve in an advisory capacity;
o every director be required to take an oath; and
o active officers and employees give bond.
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<PAGE>
In addition, Catawba Valley Bancshares, Inc.'s Bylaws do not include
certain bank-specific committees that are included in Catawba Valley Bank's
Bylaws and do not permit shareholders to call a special meeting.
Upon request, Catawba Valley Bank will provide its shareholders with
copies of the Bylaws of both Catawba Valley Bank and Catawba Valley Bancshares,
Inc. free of charge. Requests should be made to Carole F. Teague, at (828)
431-2300 or mailed to Catawba Valley Bank, 1039 Second Street, N.E., Hickory,
North Carolina 28601, Attention: Carole F. Teague.
PRO FORMA CONSOLIDATED CAPITALIZATION
The following table presents the pro forma consolidated capitalization of
Catawba Valley Bancshares, Inc. and Catawba Valley Bank, as its subsidiary, at
March 1, 1999, adjusted to give effect to the Reorganization as described in
this Proxy Statement-Prospectus. The authorized number of shares of Common
Stock of Catawba Valley Bancshares, Inc. is 9,000,000.
<TABLE>
<CAPTION>
CATAWBA CATAWBA VALLEY PRO FORMA
VALLEY BANK BANCSHARES, INC. CAPITALIZATION
------------- ------------------ CONSOLIDATED
<S> <C> <C> <C>
SHAREHOLDERS EQUITY:
Common Stock ................................................ $ 6,759,550 $10 $ 6,759,560
Additional Paid-In Capital .................................. 6,979,408 -- 6,979,408
Retained Earnings ........................................... 573,868 -- 573,868
Unrealized Gains on Securities Available for Sale Net of Tax 4,598 -- 4,598
----------- --- -----------
Total Shareholders' Equity .................................. $14,317,424 $10 $14,317,434
=========== === ===========
</TABLE>
FINANCIAL STATEMENTS
A copy of Catawba Valley Bank's 1998 Annual Report to Shareholders, which
includes audited statements of condition as of December 31, 1998 and 1997 and
the related audited statements of operations, statements of changes in
shareholders' equity and statements of cash flows for the years ended December
31, 1998, 1997 and 1996, prepared in conformity with generally accepted
accounting principles, accompanies this Prospectus/Proxy Statement. However,
the 1998 Annual Report is not considered to be a part of or incorporated into
this Prospectus/Proxy Statement.
INFORMATION ABOUT CATAWBA VALLEY BANK AND
CATAWBA VALLEY BANCSHARES, INC.
CATAWBA VALLEY BANCSHARES, INC.
GENERAL. Catawba Valley Bancshares, Inc. is a business corporation
incorporated under the laws of the State of North Carolina on March 8, 1999.
The only office of Catawba Valley Bancshares, Inc., and its principal place of
business, is located at the administrative office of Catawba Valley Bank at
1039 Second Street, N.E., Hickory, North Carolina 28601. Catawba Valley
Bancshares, Inc.'s telephone number is (828) 431-2300.
Catawba Valley Bancshares, Inc. was organized for the purpose of becoming
the holding company of Catawba Valley Bank. Pursuant to the Reorganization,
Catawba Valley Bank will become a wholly-owned subsidiary of Catawba Valley
Bancshares, Inc., Catawba Valley Bancshares, Inc. will become a bank holding
company, and each shareholder of Catawba Valley Bank will, subject to the
exercise of Dissenters' Rights, become a shareholder of Catawba Valley
Bancshares, Inc. without any change in the number of shares owned or percentage
ownership.
Catawba Valley Bancshares, Inc. has not yet undertaken any operating
business activities and does not currently propose to do so. In the future,
Catawba Valley Bancshares, Inc. may become an operating company or acquire
other commercial banks or bank holding companies, or engage in or acquire such
other activities or businesses as may be permitted by applicable law, although
there are no present plans or intentions to do so.
PROPERTY. Initially, Catawba Valley Bancshares, Inc. will neither own nor
lease any real or personal property but will utilize the premises and property
of Catawba Valley Bank without the payment of any rental fees to Catawba Valley
Bank.
COMPETITION. It is expected that for the near future the primary business
of Catawba Valley Bancshares, Inc. will be the ongoing business of Catawba
Valley Bank. Therefore, the competitive conditions to be faced by Catawba
Valley Bancshares, Inc. will be the same as those faced by Catawba Valley Bank.
In addition, many banks and financial institutions have formed, or are in the
process of forming, holding companies. It is likely that these holding
companies will attempt to acquire banks,
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<PAGE>
thrift institutions or companies engaged in bank-related activities. Thus,
Catawba Valley Bancshares, Inc. will face competition in undertaking any such
acquisitions and in operating subsequent to any such acquisitions.
EMPLOYEES. At the present time, Catawba Valley Bancshares, Inc. does not
intend to have any employees other than its management. See "Management of
Catawba Valley Bancshares, Inc.." It will utilize the support staff of Catawba
Valley Bank from time to time without the payment of any fees to Catawba Valley
Bank. If Catawba Valley Bancshares, Inc. acquires other financial institutions
or pursues other lines of business, it may at such time hire additional
employees.
CATAWBA VALLEY BANK
GENERAL. Catawba Valley Bank was incorporated under the laws of the State
of North Carolina on October 3, 1995, and commenced operations as a
state-chartered banking corporation on November 1, 1995. Catawba Valley Bank is
not a member of the Federal Reserve System and has one subsidiary, Valley
Financial Services, Inc. As of December 31, 1998, Catawba Valley Bank had
assets of approximately $90 million, net loans outstanding of approximately $60
million and deposits of approximately $75 million. Catawba Valley Bank's
corporate and main office is located at 1039 Second Street, N.E., Hickory,
North Carolina 28601, and its telephone number is (828) 431-2300. In addition
to the main office, Catawba Valley Bank has one branch office in Hickory, North
Carolina and one branch office in Newton, North Carolina.
Catawba Valley Bank is a community bank currently engaged in the general
commercial banking business in Catawba County, North Carolina. The Bank's
market area consists of the area within a 10-mile radius of the City of
Hickory, North Carolina, and includes parts of Catawba County, Burke County,
Caldwell County and Alexander County, North Carolina. The market area is
located in a region known as the Unifour Area of North Carolina. The total
population of the Unifour Area is approximately 375,000. Hickory is the
industrial center of Catawba County and the Unifour Area and, also serves as
the commercial hub for several prosperous towns surrounding the area. The
Unifour Area is a very strong and diversified economic area.
Catawba Valley Bank offers a full range of banking services, including
checking accounts, savings accounts, NOW accounts, money market accounts and
certificates of deposit; loans for real estate, businesses, agriculture,
personal uses, home improvement and automobiles; equity lines of credit; credit
cards; individual retirement accounts; safe deposit boxes; bank money orders;
electronic funds transfer services including wire transfers; traveler's checks;
and free notary services to all Catawba Valley Bank customers. In addition,
Catawba Valley Bank provides automated teller machine access to its customers
for cash withdrawals through nationwide ATM networks. At present, Catawba
Valley Bank does not provide the services of a trust department.
LENDING ACTIVITIES AND DEPOSITS. Catawba Valley Bank makes a variety of
loans, including loans secured by real estate, loans for commercial purposes
and loans to individuals for personal and household purposes. There are no
large concentrations of credit to any particular industry. The economic trends
of the area served by Catawba Valley Bank are influenced by the significant
industries within the region. Virtually all Catawba Valley Bank's business
activity is with customers located in the Unifour Area. The ultimate
collectibility of Catawba Valley Bank's loan portfolio is susceptible to
changes in the market conditions of this geographic region.
COMPETITION
Commercial banking in North Carolina is extremely competitive in large
part due to statewide branching. Catawba Valley Bank competes in its market
areas with some of the largest banking organizations in the state and the
country 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 Catawba Valley Bank's competitors have broader
geographic markets and higher lending limits than Catawba Valley Bank and are
also able to provide more services and make greater use of media advertising.
The enactment of legislation authorizing interstate banking has caused
great increases in the size and financial resources of some of Catawba Valley
Bank's competitors. In addition, as a result of interstate banking,
out-of-state commercial banks may acquire North Carolina banks and heighten the
competition among banks in North Carolina.
Despite the competition in its market areas, Catawba Valley Bank believes
that it has certain competitive advantages that distinguish it from its
competition. Catawba Valley Bank believes that its primary competitive
advantages are its strong local identity and affiliation with the community and
its emphasis on providing specialized services to small and medium-sized
business enterprises, as well as professional and upper-income individuals.
Catawba Valley Bank offers customers modern, high-tech banking without
forsaking community values such as prompt, personal service and friendliness.
Catawba
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Valley Bank offers many personalized services and intends to attract customers
by being responsive and sensitive to their individualized needs. Catawba Valley
Bank also relies on goodwill and referrals from shareholders and satisfied
customers, as well as traditional media to attract new customers. To enhance a
positive image in the community, Catawba Valley Bank supports and participates
in local events and its officers and directors serve on boards of local civic
and charitable organizations.
YEAR 2000 ISSUES
As the Year 2000 approaches, an important business issue has emerged
regarding whether or not existing computer systems and other operating systems
can process this date value properly. The problem is the result of computer
programs and related logic which use a two digit value to define a particular
calendar year (i.e. 99 for 1999). When this logic is used, computer systems
cannot recognize the two digit code "00"associated with the Year 2000 as coming
after 99. The issue is significant because many computer systems deployed
throughout the business world, not just in banks, use software which contain
the two digit date logic.
Before it opened on November 1, 1995, Catawba Valley Bank's management
made the strategic decision to use an outside data processing company (service
bureau) to provide computer processing systems for its primary banking products
including loans, deposits, ATM's, check processing and general ledger. The
computer software used by the service bureau was developed and is maintained by
a third party vendor. This same software is used by many banks throughout the
country and uses a five-digit date logic designed to avoid the problems
associated with the two digit logic discussed above.
In addition to the service bureau, Catawba Valley Bank utilizes personal
computers configured into five local area networks (LANS) which are, in turn,
connected to each other through a wide area network (WAN). All equipment was
purchased new in 1997 and has subsequently been tested for Year 2000 readiness
by an independent consultant. The test results indicate that all equipment will
function properly into the Year 2000.
In addition to the service bureau applications, Catawba Valley Bank uses
software distributed through the LAN/WAN network for functions such as word
processing, E-mail, spreadsheet, teller transactions, document preparation and
new account setup. All of these software products are purchased or licensed
from third party vendors. It should be noted that Catawba Valley Bank does not
write or develop any of its own computer applications and all third party
vendors have provided Catawba Valley Bank with written certification that their
software is Year 2000 compliant.
In addition to receiving these assurances from third party vendors,
Catawba Valley Bank has instituted a Year 2000 compliance program whereby it is
reviewing the Year 2000 issue on a comprehensive, company-wide basis. This
program is administered by a project team consisting of executive and senior
management as well as a representative from the Board of Directors.
As of December 31, 1998, Catawba Valley Bank had completed its assessment
of existing computer systems and applications and had identified mission
critical applications. Where possible, Catawba Valley Bank is developing plans
to test these systems and is in the process of reviewing third party test
results. However, the Year 2000 is a global issue which extends beyond the
control of Catawba Valley Bank and may effect the providers of services such as
power and telecommunications. These services are critical to the ongoing
operations of Catawba Valley Bank and in the unlikely event of an interruption
in these services, it is management's opinion that such a failure will be
quickly resolved.
As testing of Catawba Valley Bank's mission critical systems is completed,
Catawba Valley Bank will develop detailed contingency plans as necessary for
each system. Catawba Valley Bank has developed a general business resumption
contingency plan which provides for the implementation of manual processes on a
temporary basis should any computer application malfunction on or after January
1, 2000.
Catawba Valley Bank has budgeted $25,000 for the Year 2000 program and has
spent approximately $5,000 to date.
As a lending institution, Catawba Valley Bank is exposed to potential risk
if borrowers suffer Year 2000 related difficulties and are unable to repay
their loans. In 1998, Catawba Valley Bank sent informational material and a
Year 2000 questionnaire to all large borrowers which focused on their Year 2000
readiness. During the fourth quarter 1998, Catawba Valley Bank's loan officers
and account managers met with these customers to personally review the answers
to these questionnaires and to discuss the impact of the Year 2000 on their
operations. Catawba Valley Bank has evaluated the information obtained from
these meetings in order to determine what impact, if any, the Year 2000 will
have on their financial performance and their ability to make loan payments.
Thus far none of Catawba Valley Bank's borrowers have reported the expectation
of material adverse impacts as a result of the Year 2000 issue.
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<PAGE>
Based on the information now available, Catawba Valley Bank anticipates
that the systems it uses will properly process dates in the Year 2000 and
beyond and that the costs incurred in achieving full Year 2000 compliance will
not be material to Catawba Valley Bank's business, financial condition or
results of operation.
PROPERTIES
The following table sets forth the location and other related information
regarding Catawba Valley Bank's offices and other properties occupied as of
December 31, 1998.
<TABLE>
<CAPTION>
OFFICES LOCATION STATUS
- - ------------------ ------------------------- -------
<S> <C> <C>
Main Office 1039 Second Street, N.E. Owned
Hickory, North Carolina
Hickory Branch 1445 Second Avenue, N.W. Leased
Hickory, North Carolina
Newton Branch 2675 Northwest Boulevard Owned
Newton, North Carolina
</TABLE>
EMPLOYEES
At December 31, 1998, Catawba Valley Bank had 30 full-time equivalent
employees. None of its employees is represented by any collective bargaining
unit. Catawba Valley Bank considers relations with its employees to be good.
LEGAL PROCEEDINGS
In the normal course of its operations, Catawba Valley Bank from time to
time is party to various legal proceedings. Based upon information currently
available, and after consultation with its counsel, management believes that
such legal proceedings, in the aggregate, will not have a material adverse
effect on Catawba Valley Bank's business, financial position or results of
operations.
MANAGEMENT AND CERTAIN TRANSACTIONS
BENEFICIAL OWNERSHIP OF VOTING SECURITIES
As of December 31, 1998, no shareholder owned more than 5% of Catawba
Valley Bank's common stock.
As of December 31, 1998, the beneficial ownership of Catawba Valley Bank's
common stock by directors individually, and by directors and executive officers
as a group, was as follows:
<TABLE>
<CAPTION>
AMOUNT AND NATURE
NAME OF BENEFICIAL OWNER OF BENEFICIAL OWNERSHIP (1) PERCENT OF CLASS (2)
- - ------------------------------------------------------------- ----------------------------- ---------------------
<S> <C> <C>
R. Steve Aaron .............................................. 55,650 4.09%
Hal F. Huffman, Jr. ......................................... 32,214 2.35%
Robert P. Huntley ........................................... 35,075 2.56%
W. Steve Ikerd .............................................. 65,779 4.81%
Robert T. King .............................................. 29,080 2.13%
Pat M. Moss ................................................. 20,806 1.52%
Cloyd Hugh Propst, Jr. ...................................... 41,347 3.02%
Howard L. Pruitt ............................................ 32,230 2.36%
William R. Sigmon, Jr. ...................................... 32,780 2.40%
All Directors and Executive Officers as a group (11 persons) 390,853 26.53%
</TABLE>
- - ---------
(1) Except as otherwise noted, to the best knowledge of Catawba Valley Bank's
management, the above individuals and group exercise sole voting and
investment power with respect to all shares shown as beneficially owned
other than the following shares as to which such powers are shared: Mr.
Ikerd 11,345 shares; Mrs. Moss -- 3,000 shares; and Mr. Propst -- 10,755
shares.
(2) The calculation of the percentage of class beneficially owned by each
individual and the group is based on a total of 1,351,910 outstanding
shares of common stock which equal the shares currently outstanding as of
December 31, 1998, plus the number of shares capable of being issued to
that individual and to the group as a whole within 60 days upon the
exercise of stock options held by that individual and by the group,
respectively.
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<PAGE>
(3) Includes 13,650 shares held by Mr. Aaron's spouse.
(4) Includes 6,489 shares held by Mr. Huntley's spouse.
REQUIRED REPORTS OF BENEFICIAL OWNERSHIP
Catawba Valley Bank's directors and executive officers are required to
file certain reports with the FDIC regarding the amount of and changes in their
beneficial ownership of Catawba Valley Bank's common stock (including, without
limitation, an initial report following the person's election as an officer or
director of Catawba Valley Bank and a report following the end of each month
during which there has been a change in a reporting person's beneficial
ownership). To the knowledge of Catawba Valley Bank, and based upon a review of
such reports filed by directors and the executive officers, all such reports
have been timely filed. After the Reorganization, identical beneficial
ownership reports will be required to be filed with the SEC.
PROPOSAL 2: ELECTION OF DIRECTORS
NOMINEES
Catawba Valley Bank's Bylaws provide that its Board of Directors shall
consist of between nine and 18 members, as determined by the Board of Directors
or the shareholders, and that the Board shall be divided into three classes
approximately equal in number. The Board has set the number of directors at
nine. The three directors whose terms expire at the Annual Meeting have been
renominated to the Board for three-year terms.
<TABLE>
<CAPTION>
PRINCIPAL OCCUPATION AND
NAME AND AGE POSITION(S) HELD DIRECTOR SINCE BUSINESS EXPERIENCE DURING PAST 5 YEARS
- - --------------------- ------------------------------ ---------------- -----------------------------------------------
<S> <C> <C> <C>
R. Steve Aaron (52) Director, President and Chief 1995 President and Chief Executive Officer, Catawba
Executive Officer Valley Bank since January 1995; prior to that,
Regional Senior Vice President, Southern
National Bank since 1994; prior to that,
President, First Savings Bank
W. Steve Ikerd (59) Chairman of the Board 1995 President and Owner, Ikerd Enterprises (real
estate developers)
Pat M. Moss (58) Director 1995 Alderwoman, City of Hickory; Private Investor;
President, Trehan Corp.(farming operation)
</TABLE>
THE BOARD OF DIRECTORS RECOMMENDS THAT SHAREHOLDERS VOTE "FOR" EACH OF THE
THREE NOMINEES FOR DIRECTOR OF THE BANK AS SET FORTH ABOVE.
INCUMBENT DIRECTORS
Catawba Valley Bank's current Board of Directors includes the following
directors whose terms will continue after the Annual Meeting. Certain
information regarding those directors is set forth in the following table:
<TABLE>
<CAPTION>
NAME AND AGE DIRECTOR SINCE BUSINESS EXPERIENCE DURING PAST 5 YEARS TERM EXPIRES
- - ----------------------------- ---------------- ---------------------------------------------------------- -------------
<S> <C> <C> <C>
Hal F. Huffman, Jr. (44) 1995 Owner and President, ACE Hardware, Inc. 2001
Robert P. Huntley (61) 1995 Private Investor; Executive Vice President, Newton 2000
Transportation Company, Inc. (trucking company) until
March 1996
Robert T. King (71) 1995 Private Investor 2001
Cloyd Hugh Propst, Jr. (49) 1995 Co-owner, Hickory Sand Co., Inc. (utility contractor) 2000
Howard L. Pruitt (62) 1995 Retired; former Vice President Pruitt Machinery, Inc., 2000
1994-1998; prior to that, President and Owner, Pruitt
Machinery, Inc. (woodworking machinery sales)
William R. Sigmon, Jr. (38) 1995 Physician and President, Sigmon Radiation Oncology, P.A. 2001
</TABLE>
DIRECTOR RELATIONSHIPS
With the exception of Mr. Robert P. Huntley who serves as a director of
Burke Mills, Inc., a company with a class of securities registered pursuant to
Section 12 of the Exchange Act, no director is a director of any company with a
class of
22
<PAGE>
securities registered pursuant to Section 12 of the Exchange Act or subject to
the requirements of Section 15(d) of the Exchange Act, or any company
registered as an investment company under the Investment Company Act of 1940.
MEETINGS AND COMMITTEES OF THE BOARD OF DIRECTORS
Catawba Valley Bank's Board of Directors held 12 regular meetings during
1998. Each director attended 75% or more of the aggregate number of meetings of
the Board of Directors and any committees on which he or she served.
Catawba Valley Bank's Board of Directors has several standing committees,
including an Audit Committee, a Compensation Committee and a Nominating
Committee.
The current members of the Audit Committee are Robert P. Huntley --
Chairman, Pat M. Moss, Cloyd H. Propst, Jr. and Hal F. Huffman, Jr. The Audit
Committee receives and reviews the annual audit report of Catawba Valley Bank's
independent accountants and the reports of examinations by bank regulatory
agencies, and helps to formulate, implement and review Catawba Valley Bank's
internal audit program. The Audit Committee also meets as needed with Catawba
Valley Bank's internal auditor. The committee met nine times in 1998.
The current members of the Compensation Committee are Hal F. Huffman, Jr.
- - -- Chairman, Cloyd H. Propst, Inc. and William R. Sigmon, Jr. The Compensation
committee reviews and approves all salaries and benefits of Bank personnel,
recommends officer salaries for Board of Director approval, and reviews and
makes recommendations to the Board of Directors regarding matters involving
Catawba Valley Bank's personnel policies. The Compensation Committee met once
in 1998.
The current members of the Nominating Committee are Howard L. Pruitt --
Chairman, Cloyd H. Propst, Jr. and Robert P. Huntley. The Nominating Committee
recommends nominees to the full Board of Directors for election as directors.
The committee met once during 1998. In making its recommendations to the Board
of Directors, the committee will consider candidates recommended by
shareholders. Catawba Valley Bank's Bylaws provide that nominations for
director of Catawba Valley Bank, other than those made by the Nominating
Committee, shall be in writing and delivered or mailed to the Secretary of
Catawba Valley Bank not less than 120 days prior to any meeting of shareholders
called for the election of directors.
DIRECTOR COMPENSATION
BOARD FEES. As of January 1999, each director (other than directors who
also are salaried employees of Catawba Valley Bank ) received $200 for each
Board meeting attended and $50 for each committee meeting attended.
1997 NONQUALIFIED STOCK OPTION PLAN FOR DIRECTORS. The shareholders of
Catawba Valley Bank at the 1997 Annual Meeting approved the 1997 Nonqualified
Stock Option Plan for Directors (the "Nonqualified Option Plan") pursuant to
which options covering 105,035 shares of Catawba Valley Bank's common stock are
available for issuance to members of Catawba Valley Bank's Board of Directors
and the board of any subsidiary of Catawba Valley Bank. In April 1997, each of
the eight non-employee directors was granted 8,753 options to purchase shares
of Catawba Valley Bank's common stock at an exercise price of $14.50, the fair
market value of the common stock on the date of grant. As a result of the
declaration and payment of a 20% stock dividend in November 1997, and a 25%
stock dividend in August 1998, the number of options and exercise price have
been adjusted pursuant to the terms of the Nonqualified Option Plan.
Accordingly, each director, unless he or she has made a disposition, currently
holds options to purchase 13,130 shares at an exercise price of $9.66. Based on
information known to management of Catawba Valley Bank, the current market
price of the Common Stock is $23.50 per share. All options are immediately
exercisable for a ten year period from the date of grant and terminate upon
such director's resignation or completion of his term without reelection.
However, upon retirement from the Board of Directors or upon a director's
death, the options granted such director may be exercised within 12 months of
such event.
23
<PAGE>
EXECUTIVE OFFICERS
Set forth below is certain information regarding Catawba Valley Bank's
executive officers.
<TABLE>
<CAPTION>
NAME AGE POSITION WITH REGISTRANT BUSINESS EXPERIENCE
- - ------------------ ----- -------------------------------- -------------------------------------------------------------
<S> <C> <C> <C>
R. Steve Aaron 51 Director, President and Chief President and Chief Executive Officer, Catawba Valley Bank
Executive Officer since January 1995; prior to that, Regional Senior Vice
President, Southern National Bank since 1994; prior to that,
President, First Savings Bank
Joe S. Tripp 52 Vice President/Lending Vice President/Lending, Catawba Valley Bank since January
1995; prior to that, Senior Retail Banking Officer, First
Savings Bank
Carole F. Teague 40 Vice President/Retail Services Vice President/Retail Services, Catawba Valley Bank since
January 1995; prior to that, Senior Vice President of Retail
Services, First Savings Bank
</TABLE>
EXECUTIVE COMPENSATION
No current executive officer of Catawba Valley Bank received compensation
for 1996, 1997, or 1998 which exceeded $100,000. The compensation information
for Mr. Aaron is disclosed below:
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
ANNUAL COMPENSATION (1) LONG TERM COMPENSATION
--------------------------------------------- ----------------------------------------------------
AWARDS PAYOUTS
------------------------- --------------------------
NAME AND RESTRICTED UNDERLYING
PRINCIPAL OTHER ANNUAL STOCK OPTIONS/ES LTIP ALL OTHER
POSITION YEAR SALARY ($) BONUS ($) COMPENSATION($)(1) AWARD(S)($) SARS(#) PAYOUTS($) COMPENSATION
- - ------------------ ------ ------------ ----------- -------------------- ------------- ----------- ------------ -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
R. Steve Aaron, 1998 90,000 10,080 -0- -0- 5,000 -0- 7,800(2)
President and 1997 75,000 -0- -0- -0- -0- -0- 6,900(2)
Chief Executive 1996 60,000 -0- -0- -0- 15,000 -0- 4,800(2)
Officer
</TABLE>
- - ---------
(1) Perquisites and personal benefits awarded to Mr. Aaron did not exceed 10%
of the total annual salary and bonus in any year reported.
(2) The amounts disclosed represent annual contributions in 1998, 1997, and
1996, of $5,400, $4,500 and $3,600, respectively, made by Catawba Valley
Bank on behalf of Mr. Aaron to match pre-tax elective deferral
contributions (included under salary) made by Mr. Aaron under Section
401(k) of the Internal Revenue Code of 1986, as amended, and directors
fees paid in 1998, 1997, and 1996 of $2,400, $2,400, and $1,200,
respectively.
Catawba Valley Bank has entered into an employment and change of control
agreement with R. Steve Aaron (dated January 1, 1999) as its President and
Chief Executive Officer to establish his duties and compensation and to provide
for his continued employment with Catawba Valley Bank. The employment agreement
provides for an initial term of three years with an automatic renewal at the
end of the initial term and on each anniversary thereafter for an additional
one year term unless notified prior thereto in accordance with the employment
agreement. The employment agreement provides for an annual base salary of
$125,000, and for discretionary bonuses and participation in other pension and
profit-sharing retirement plans maintained by Catawba Valley Bank on behalf of
its employees, as well as fringe benefits normally associated with Mr. Aaron's
position or made available to all other employees. The employment agreement
provides that Mr. Aaron may be terminated for "cause" as defined in the
employment agreement, and that the employment agreement may otherwise be
terminated, in some cases with certain financial consequences incurred, by
Catawba Valley Bank or by Mr. Aaron. The employment agreement provides that
should Catawba Valley Bank terminate the employment agreement other than for
cause or disability within 12 months after a "change in control", or should Mr.
Aaron terminate the agreement within such 12 months during which his
compensation or responsibilities have been reduced, or his workplace location
has been moved more than 35 miles from Hickory, North Carolina, then he shall
receive a lump sum equal to 299% of his average annual salary and cash bonus,
and be covered by Catawba Valley Bank's medical and disability programs
throughout the remaining term of the agreement. A "Change of Control" shall be
deemed to have occurred upon any person becoming the beneficial owner or
otherwise acquiring control, directly or indirectly, of securities of Catawba
Valley Bank representing twenty-five percent (25%) or more of the voting power
of Catawba Valley Bank's then outstanding securities; (ii) the acquisition by
any person in any manner of the ability to elect, or to control the election,
of a majority of the directors of Catawba
24
<PAGE>
Valley Bank; (iii) the merger of Catawba Valley Bank into another entity, the
merger of any entity into Catawba Valley Bank or the acquisition of assets by
Catawba Valley Bank, in any such case with the result that the beneficial
owners of Catawba Valley Bank's outstanding securities immediately prior to
such transaction do not beneficially own more than sixty percent (60%) of
Catawba Valley Bank's outstanding securities after the consummation of such
transaction; (iv) the sale or other transfer of more than fifty percent (50%)
of the assets of Catawba Valley Bank to any entity not controlled by Catawba
Valley Bank; (v) the consummation of any transaction by Catawba Valley Bank
that results (A) in the majority of the Board after the consummation of such
transaction not being composed of Incumbent Directors, or (B) the beneficial
owners of Catawba Valley Bank's outstanding securities immediately prior to the
consummation of such transaction not beneficially owning more than sixty
percent (60%) of Catawba Valley Bank's outstanding securities after such
transaction; or (vi) the occurrence of any other event or circumstance which
the Board determines affects control of Catawba Valley Bank. The term
"Incumbent Director" means any director who as of the execution of the
employment agreement was a member of the Board, or any individual becoming a
member of the Board subsequent to such execution whose election by Catawba
Valley Bank shareholders was recommended by at least two-thirds (2/3) of the
then Incumbent Directors on the Board. The employment agreement also contains a
covenant not to compete for one year after termination which prohibits Mr.
Aaron, without the consent of Catawba Valley Bank, from being connected with
any business located in any county where Catawba Valley Bank or its
subsidiaries have offices and which competes with Catawba Valley Bank or its
subsidiaries. Such covenant shall not apply in the event that Mr. Aaron is
terminated by Catawba Valley Bank without cause.
STOCK OPTIONS
The following table sets forth information with regard to grants of stock
options during the fiscal year ended December 31, 1998, to Mr. Aaron, the
President and Chief Executive Officer of Catawba Valley Bank. The stock options
were granted under Catawba Valley Bank's 1996 Incentive Stock Option Plan. None
of the options below granted to Mr. Aaron are exercisable until at least May
27, 1999.
STOCK OPTION GRANTS IN 1998
INDIVIDUAL GRANTS
<TABLE>
<CAPTION>
NUMBER OF
SECURITIES
UNDERLYING FISCAL YEAR
OPTIONS % OF TOTAL PRICE ($) PER SHARE
NAME GRANTED(#)(1) OPTIONS GRANTED --------------------- EXPIRATION DATE
- - ------------------------ --------------- TO EMPLOYEES IN EXERCISE OR BASE ----------------
<S> <C> <C> <C> <C>
R. Steve Aaron ......... 5,000 27% 21.00 5/27/08
</TABLE>
- - ---------
(1) One-fifth of the options vest and become exercisable on May 27 of each year
beginning in 1999, assuming Mr. Aaron remains employed by Catawba Valley
Bank. If Mr. Aaron's employment terminates before the end of the vesting
period, Mr. Aaron may exercise vested options for varying periods after
termination (depending on the manner of termination) in accordance with
the 1996 Incentive Stock Option Plan.
The following table sets forth information with regard to the 1998 fiscal
year-end value of all unexercised options held by him.
AGGREGATED OPTION EXERCISES IN FISCAL 1998
AND FISCAL YEAR END OPTION VALUES
<TABLE>
<CAPTION>
SHARES VALUE OF UNEXERCISED
ACQUIRED ON VALUE NUMBER OF UNEXERCISED IN-THE-MONEY OPTIONS AT
EXERCISE(#) REALIZED($) OPTIONS AT FISCAL YEAR END(#) FISCAL YEAR END ($)
------------- ------------- ----------------------------- ----------------------------
NAME EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- - ------------------------ ------------- --------------- ------------- --------------
<S> <C> <C> <C> <C> <C> <C>
R. Steve Aaron ......... -0- -0- 7,500 -- -- --
</TABLE>
401(K) SAVINGS PLAN. Catawba Valley Bank has adopted a tax-qualified
savings plan (the "Savings Plan") which covers all current full-time employees
and any new full-time employees who have been employed by Catawba Valley Bank
for six months. Under the Savings Plan, a participating employee may contribute
up to 16% of his or her base salary on a tax-deferred basis through salary
reduction as permitted under Section 401(k) of the Internal Revenue Code of
1986, as amended (the "Code"). Catawba Valley Bank contributes an amount equal
to 100% of the first 6% of pre-tax salary contributed by each participant and
may make additional discretionary profit sharing contributions to the Savings
Plan on behalf of all participants. Such discretionary profit sharing
contributions may not exceed 6% of the aggregate of the pre-tax base salaries
of
25
<PAGE>
all participants in the Savings Plan and are allocated among all participants
on the basis of the participant's age and level of compensation. Amounts
deferred above the first 6% of salary are not matched by Catawba Valley Bank. A
participant's contributions and Catawba Valley Bank's matching and profit
sharing contributions under the Savings Plan will be held in trust accounts for
the benefit of participants. A participant is at all times 100% vested with
respect to his or her own contributions under the Savings Plan, and becomes
100% vested in the account for Catawba Valley Bank's matching and profit
sharing contributions after completing five years of service with Catawba
Valley Bank. The value of a participant's accounts under the Savings Plan
becomes payable to him or her in full upon retirement, total or permanent
disability or termination of employment for any other reason, or becomes
payable to a designated beneficiary upon a participant's death. The Savings
Plan also will contain provisions for withdrawals in the event of certain
hardships. A participant's contributions, vested matching and profit sharing
contributions of Catawba Valley Bank, and any income accrued on such
contributions, are not subject to federal or state taxes until such time as
they are withdrawn by the participant.
INDEBTEDNESS AND TRANSACTIONS OF MANAGEMENT
Catawba Valley Bank has had, and expects to have in the future, banking
transactions in the ordinary course of business with certain of its current
directors, nominees for director, executive officers and their associates. All
loans included in such transactions were made on substantially the same terms,
including interest rates, repayment terms and collateral, as those prevailing
at the time such loans were made for comparable transactions with other
persons, and do not involve more than the normal risk of collectibility or
present other unfavorable features.
The highest aggregate outstanding balance of loans to current directors,
nominees for director, executive officers and their associates, as a group,
since January 1, 1998, was $2.1 million, which represented approximately 15% of
Catawba Valley Bank's then current equity capital accounts.
OTHER MATTERS
The Board of Directors knows of no other business that will be brought
before the Annual Meeting. Should other matters properly come before the Annual
Meeting, the proxies will be authorized to vote shares represented by each
appointment of proxy in accordance with their best judgment on such matters.
PROPOSALS FOR 2000 ANNUAL MEETING
It is anticipated that the 2000 Annual Meeting will be held on a date
during April 2000. Any proposal of a shareholder which is intended to be
presented at the 2000 Annual Meeting must be received in writing by Catawba
Valley Bank at its main office in Hickory, North Carolina no later than
November 15, 1999 in order that any such proposal be timely received for
inclusion in the proxy statement and appointment of proxy to be issued in
connection with that meeting.
Any other proposal not intended to be included in the proxy statement and
appointment of proxy for the 2000 annual meeting but intended to be presented
at the meeting must be received in writing by Catawba Valley Bank at its main
office in Hickory, North Carolina no later than March 3, 2000.
ADDITIONAL INFORMATION
CATAWBA VALLEY BANK'S 1998 ANNUAL REPORT ON FORM 10-KSB WAS FILED WITH THE
FEDERAL DEPOSIT INSURANCE CORPORATION ON OR BEFORE MARCH 31, 1999. A COPY OF
THAT REPORT WILL BE PROVIDED WITHOUT CHARGE UPON THE WRITTEN REQUEST OF ANY
SHAREHOLDER ENTITLED TO VOTE AT THE ANNUAL MEETING. REQUESTS FOR COPIES SHOULD
BE DIRECTED TO CAROLE F. TEAGUE, SECRETARY, CATAWBA VALLEY BANK, POST OFFICE
BOX 2328, HICKORY, NORTH CAROLINA 28603.
IN ACCORDANCE WITH REGULATIONS OF THE FEDERAL DEPOSIT INSURANCE
CORPORATION, CATAWBA VALLEY BANK'S 1998 ANNUAL DISCLOSURE STATEMENT WILL BE
MADE AVAILABLE TO THE PUBLIC NO LATER THAN MARCH 31, 1999. A COPY WILL BE
PROVIDED TO ANY SHAREHOLDER UPON REQUEST. REQUESTS FOR COPIES SHOULD BE
DIRECTED TO CAROLE F. TEAGUE, SECRETARY, CATAWBA VALLEY BANK, POST OFFICE BOX
2328, HICKORY, NORTH CAROLINA 28603, TELEPHONE (828) 431-2300.
26
<PAGE>
REGULATION AND SUPERVISION
REGULATION OF CATAWBA VALLEY BANK
Catawba Valley Bank is extensively regulated under both federal and state
law. Generally, these laws and regulations are intended to protect depositors
and borrowers, not shareholders. To the extent that the following information
describes statutory and regulatory provisions, it is qualified in its entirety
by reference to the particular statutory and regulatory provisions. Any change
in applicable law or regulation may have a material effect on the business of
Catawba Valley Bancshares, Inc. and Catawba Valley Bank.
STATE LAW. Catawba Valley Bank is subject to extensive supervision and
regulation by the North Carolina Commissioner of Banks (the "Commissioner").
The Commissioner oversees state laws that set specific requirements for bank
capital and regulate deposits in, and loans and investments by, banks,
including the amounts, types, and in some cases, rates. The Commissioner
supervises and performs periodic examinations of North Carolina-chartered banks
to assure compliance with state banking statutes and regulations, and Catawba
Valley Bank is required to make regular reports to the Commissioner describing
in detail the resources, assets, liabilities and financial condition of Catawba
Valley Bank. Among other things, the Commissioner regulates mergers and
consolidations of state-chartered banks, the payment of dividends, loans to
officers and directors, record keeping, types and amounts of loans and
investments, and the establishment of branches.
DEPOSIT INSURANCE. As a member institution of the FDIC, Catawba Valley
Bank's deposits are insured up to a maximum of $100,000 per depositor through
the BIF, administered by the FDIC, and each member institution is required to
pay semi-annual deposit insurance premium assessments to the FDIC. The BIF
assessment rates have a range of 0 cents to 27 cents for every $100 in
assessable deposits. Banks with no premium charges are subject to an annual
statutory minimum assessment.
CAPITAL REQUIREMENTS. The federal banking regulators have adopted certain
risk-based capital guidelines to assist in the assessment of the capital
adequacy of a banking organization's operations for both transactions reported
on the balance sheet as assets and transactions, such as letters of credit, and
recourse arrangements, which are recorded as off balance sheet items. Under
these guidelines, nominal dollar amounts of assets and credit equivalent
amounts of off balance sheet items are multiplied by one of several risk
adjustment percentages which range from 0% for assets with low credit risk,
such as certain U.S. Treasury securities, to 100% for assets with relatively
high credit risk, such as business loans.
A banking organization's risk-based capital ratios are obtained by
dividing its qualifying capital by its total risk adjusted assets. The
regulators measure risk-adjusted assets, which include off balance sheet items,
against both total qualifying capital (the sum of Tier 1 capital and limited
amounts of Tier 2 capital) and Tier 1 capital. "Tier 1," or core capital,
includes common equity, qualifying noncumulative perpetual preferred stock and
minority interests in equity accounts of consolidated subsidiaries, less
goodwill and other intangibles, subject to certain exceptions. "Tier 2," or
supplementary capital, includes among other things, limited-life preferred
stock, hybrid capital instruments, mandatory convertible securities, qualifying
subordinated debt, and the allowance for loan and lease losses, subject to
certain limitations and less required deductions. The inclusion of elements of
Tier 2 capital is subject to certain other requirements and limitations of the
federal banking agencies. Banks and bank holding companies subject to the
risk-based capital guidelines are required to maintain a ratio of Tier 1
capital to risk-weighted assets of at least 4% and a ratio of total capital to
risk-weighted assets of at least 8%. The appropriate regulatory authority may
set higher capital requirements when particular circumstances warrant. As of
December 31, 1998, Catawba Valley Bank was classified as "well-capitalized"
with Tier 1 and Total Risk -- Based Capital of 23.24% and 23.28% respectively.
The federal banking agencies have adopted regulations specifying that they
will include, in their evaluations of a bank's capital adequacy, an assessment
of the bank's interest rate risk ("IRR") exposure. The standards for measuring
the adequacy and effectiveness of a banking organization's IRR management
include a measurement of board of director and senior management oversight, and
a determination of whether a banking organization's procedures for
comprehensive risk management are appropriate for the circumstances of the
specific banking organization.
Failure to meet applicable capital guidelines could subject a banking
organization to a variety of enforcement actions, including limitations on its
ability to pay dividends, the issuance by the applicable regulatory authority
of a capital directive to increase capital and, in the case of depository
institutions, the termination of deposit insurance by the FDIC, as well as the
measures described under the "Federal Deposit Insurance Corporation Improvement
Act of 1991" below, as applicable to undercapitalized institutions. In
addition, future changes in regulations or practices could further reduce the
amount of capital recognized for purposes of capital adequacy. Such a change
could affect the ability of Catawba Valley Bank to grow and could restrict the
amount of profits, if any, available for the payment of dividends to the
shareholders.
27
<PAGE>
FEDERAL DEPOSIT INSURANCE CORPORATION IMPROVEMENT ACT OF 1991. In
December, 1991, Congress enacted the Federal Deposit Insurance Corporation
Improvement Act of 1991 ("FDICIA"), which substantially revised the bank
regulatory and funding provisions of the FDIA and made significant revisions to
several other federal banking statutes. FDICIA provides for, among other
things:
o publicly available annual financial condition and management reports for
certain financial institutions, including audits by independent
accountants,
o the establishment of uniform accounting standards by federal banking
agencies,
o the establishment of a "prompt corrective action" system of regulatory
supervision and intervention, based on capitalization levels, with greater
scrutiny and restrictions placed on depository institutions with lower
levels of capital,
o additional grounds for the appointment of a conservator or receiver, and
o restrictions or prohibitions on accepting brokered deposits, except for
institutions which significantly exceed minimum capital requirements.
FDICIA also provides for increased funding of the FDIC insurance funds and
the implementation of risk-based premiums.
A central feature of FDICIA is the requirement that the federal banking
agencies take "prompt corrective action" with respect to depository
institutions that do not meet minimum capital requirements. Pursuant to FDICIA,
the federal bank regulatory authorities have adopted regulations setting forth
a five-tiered system for measuring the capital adequacy of the depository
institutions that they supervise. Under these regulations, a depository
institution is classified in one of the following capital categories: "well
capitalized," "adequately capitalized," "undercapitalized," "significantly
undercapitalized" and "critically undercapitalized." An institution may be
deemed by the regulators to be in a capitalization category that is lower than
is indicated by its actual capital position if, among other things, it receives
an unsatisfactory examination rating with respect to asset quality, management,
earnings or liquidity.
FDICIA provides the federal banking agencies with significantly expanded
powers to take enforcement action against institutions which fail to comply
with capital or other standards. Such action may include the termination of
deposit insurance by the FDIC or the appointment of a receiver or conservator
for the institution. FDICIA also limits the circumstances under which the FDIC
is permitted to provide financial assistance to an insured institution before
appointment of a conservator or receiver.
MISCELLANEOUS. The dividends that may be paid by Catawba Valley Bank are
subject to legal limitations. In accordance with North Carolina banking law,
dividends may not be paid unless Catawba Valley Bank's capital surplus is at
least 50% of its paid-in capital. See "Comparison of the Rights of Shareholders
- - -- Comparison of the Rights of Holders of Catawba Valley Bank Common Stock and
Catawba Valley Bancshares, Inc. Common Stock -- Payment of Dividends."
Shareholders of banks may be compelled by the Commissioner pursuant to
North Carolina law to invest additional capital in the event their bank's
capital shall have become impaired by losses or otherwise. Failure to pay such
an assessment could result in a forced sale of a shareholder's bank stock.
The earnings of Catawba Valley Bank will be affected significantly by the
policies of the Federal Reserve Board, which is responsible for regulating the
United States money supply in order to mitigate recessionary and inflationary
pressures. Among the techniques used to implement these objectives are open
market transactions in United States government securities, changes in the rate
paid by banks on bank borrowings, and changes in reserve requirements against
bank deposits. These techniques are used in varying combinations to influence
overall growth and distribution of bank loans, investments, and deposits, and
their use may also affect interest rates charged on loans or paid for deposits.
The monetary policies of the Federal Reserve Board have had a significant
effect on the operating results of commercial banks in the past and are
expected to continue to do so in the future. In view of changing conditions in
the national economy and money markets, as well as the effect of actions by
monetary and fiscal authorities, no prediction can be made as to possible
future changes in interest rates, deposit levels, loan demand or the business
and earnings of Catawba Valley Bank.
Catawba Valley Bank cannot predict what legislation might be enacted or
what regulations might be adopted, or if enacted or adopted, the effect thereof
on Catawba Valley Bank's operations.
28
<PAGE>
REGULATION OF CATAWBA VALLEY BANCSHARES, INC.
FEDERAL REGULATION. Following consummation of the Reorganization, Catawba
Valley Bancshares, Inc. will be subject to examination, regulation and periodic
reporting under the BHC Act, as administered by the Federal Reserve Board. The
Federal Reserve Board has adopted capital adequacy guidelines for bank holding
companies on a consolidated basis.
Catawba Valley Bancshares, Inc. will be required to obtain the prior
approval of the Federal Reserve Board to acquire all, or substantially all, of
the assets of any bank or bank holding company. Prior Federal Reserve Board
approval will be required for Catawba Valley Bancshares, Inc. to acquire direct
or indirect ownership or control of any voting securities of any bank or bank
holding company if, after giving effect to such acquisition, it would, directly
or indirectly, own or control more than five percent of any class of voting
shares of such bank or bank holding company.
Catawba Valley Bancshares, Inc. will be required to give the Federal
Reserve Board prior written notice of any purchase or redemption of its
outstanding equity securities if the gross consideration for the purchase or
redemption, when combined with the net consideration paid for all such
purchases or redemptions during the preceding 12 months, is equal to 10% or
more of Catawba Valley Bancshares, Inc.'s consolidated net worth. The Federal
Reserve Board may disapprove such a purchase or redemption if it determines
that the proposal would constitute an unsafe and unsound practice, or would
violate any law, regulation, Federal Reserve Board order or directive, or any
condition imposed by, or written agreement with, the Federal Reserve Board.
Such notice and approval is not required for a bank holding company that would
be treated as "well capitalized" under applicable regulations of the Federal
Reserve Board, that has received a composite "1" or "2" rating at its most
recent bank holding company inspection by the Federal Reserve Board, and that
is not the subject of any unresolved supervisory issues.
The status of Catawba Valley Bancshares, Inc. as a registered bank holding
company under the BHC Act will not exempt it from certain federal and state
laws and regulations applicable to corporations generally, including, without
limitation, certain provisions of the federal securities laws.
In addition, a bank holding company is prohibited generally from engaging
in, or acquiring five percent or more of any class of voting securities of any
company engaged in, non-banking activities. One of the principal exceptions to
this prohibition is for activities found by the Federal Reserve Board to be so
closely related to banking or managing or controlling banks as to be a proper
incident thereto. Some of the principal activities that the Federal Reserve
Board has determined by regulation to be so closely related to banking as to be
a proper incident thereto are:
o making or servicing loans;
o performing certain data processing services;
o providing discount brokerage services;
o acting as fiduciary, investment or financial advisor;
o leasing personal or real property;
o making investments in corporations or projects designed primarily to
promote community welfare; and
o acquiring a savings and loan association.
Under the Financial Institutions Reform, Recovery, and Enforcement Act of
1989 ("FIRREA"), depository institutions are liable to the FDIC for losses
suffered or anticipated by the FDIC in connection with the default of a
commonly controlled depository institution or any assistance provided by the
FDIC to such an institution in danger of default. This law would be applicable
to the extent that Catawba Valley Bancshares, Inc. maintains as a separate
subsidiary a depository institution in addition to Catawba Valley Bank.
Subsidiary banks of a bank holding company are subject to certain
quantitative and qualitative restrictions imposed by the Federal Reserve Act on
any extension of credit to, or purchase of assets from, or letter of credit on
behalf of, the bank holding company or its subsidiaries, and on the investment
in or acceptance of stocks or securities of such holding company or its
subsidiaries as collateral for loans. In addition, provisions of the Federal
Reserve Act and Federal Reserve Board regulations limit the amounts of, and
establish required procedures and credit standards with respect to, loans and
other extensions of credit to officers, directors and principal stockholders of
Catawba Valley Bank, Catawba Valley Bancshares, Inc., any subsidiary of Catawba
Valley Bancshares, Inc. and related interests of such persons. Moreover,
subsidiaries of bank holding companies are prohibited from engaging in certain
tie-in arrangements (with the holding company or any of its subsidiaries) in
connection with any extension of credit, lease or sale of property or
furnishing of services.
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BRANCHING
Under the Riegle-Neal Interstate Banking and Branching Efficiency Act of
1994 (the "Riegle Act"), the Federal Reserve Board may approve bank holding
company acquisitions of banks in other states, subject to certain aging and
deposit concentration limits. As of June 1, 1997, banks in one state may merge
with banks in another state, unless the other state has chosen not to implement
this section of the Riegle Act. These mergers are also subject to similar aging
and deposit concentration limits.
North Carolina "opted-in" to the provisions of the Riegle Act. Since July
1, 1995, an out-of-state bank that did not already maintain a branch in North
Carolina was permitted to establish and maintain a de novo branch in North
Carolina, or acquire a branch in North Carolina, if the laws of the home state
of the out-of-state bank permit North Carolina banks to engage in the same
activities in that state under substantially the same terms as permitted by
North Carolina. Also, North Carolina banks may merge with out-of-state banks,
and an out-of-state bank resulting from such an interstate merger transaction
may maintain and operate the branches in North Carolina of a merged North
Carolina bank, if the laws of the home state of the out-of-state bank involved
in the interstate merger transaction permit interstate merger.
RECENT LEGISLATIVE DEVELOPMENTS
On September 30, 1996, the Economic Growth and Regulatory Paperwork
Reduction Act of 1996 (the "Growth Act"), was enacted which contained a
comprehensive approach to recapitalize the FDIC's Savings Association Insurance
Fund (the "SAIF") and to assure payment of the Financing Corporation (the
"FICO") obligations. All of Catawba Valley Bank's deposits are insured by the
FDIC's BIF. Under the Growth Act, banks with deposits that are insured under
the BIF are required to pay a portion of the interest due on bonds that were
issued by FICO to help shore up the ailing Federal Savings and Loan Insurance
Corporation in 1987. The Growth Act stipulates that the BIF assessment rate to
contribute toward the FICO obligations must be equal to one-fifth the SAIF
assessment rate through year-end 1999, or until the insurance funds are merged,
whichever occurs first. The amount of FICO debt service to be paid by all
BIF-insured institutions is approximately $0.0126 per $100 of BIF-insured
deposits for each year from 1997 through 1999 when the obligation of
BIF-insured institutions increases to approximately $0.0240 per $100 of
BIF-insured deposits per year through the year 2019, subject in all cases to
adjustments by the FDIC on a quarterly basis. The Growth Act also contained
provisions protecting banks from liability for environmental clean-up costs;
prohibiting credit unions sponsored by Farm Credit System banks; easing
application requirements for most bank holding companies when they acquire a
thrift or a permissible non-bank operation; easing Fair Credit Reporting Act
restrictions between bank holding company affiliates; and reducing the
regulatory burden under the Real Estate Settlement Procedures Act, the
Truth-in-Savings Act, the Truth-in-Lending Act and the Home Savings Mortgage
Disclosure Act.
LEGAL MATTERS
The validity of the shares of Catawba Valley Bancshares, Inc.'s Common
Stock offered hereby has been passed upon for Catawba Valley Bancshares, Inc.
by Moore & Van Allen, PLLC, Raleigh, North Carolina.
EXPERTS
The financial statements of Catawba Valley Bank as of December 31, 1998
and 1997 and for the periods then ended have been included herein and in the
Registration Statement in reliance on the report of PricewaterhouseCoopers LLP,
independent accountants, given on the authority of that firm as experts in
accounting and auditing.
FORWARD LOOKING STATEMENTS
We have made forward looking statements in this Proxy Statement-Prospectus
about the financial condition, results of operations, and business of Catawba
Valley Bancshares, Inc. following the consummation of the Reorganization that
are subject to risks and uncertainties. Factors that may cause actual results
to differ materially from those contemplated by such forward looking statements
include, among other things, the following possibilities:
o competitive pressure in the banking industry increases significantly;
o changes in the interest rate environment reduce margins;
o general economic conditions, either nationally or regionally, are less
favorable than expected, resulting in, among other things, a
deterioration in credit quality;
30
<PAGE>
o no changes occur in the regulatory environment; and
o changes occur in business conditions and the rate of inflation.
When used in this Proxy Statement-Prospectus, the words "believes,"
"estimates," "plans," "expects," "should," "may," "might," "outlook," and
"anticipates," and similar expressions as they relate to Catawba Valley
Bancshares, Inc., or its management are intended to identify forward looking
statements.
WHERE YOU CAN GET MORE INFORMATION
Catawba Valley Bank files reports under the Exchange Act with the FDIC.
These reports include Annual Reports on Form 10-KSB, Quarterly Reports on Form
10-QSB and Current Reports on Form 8-K. These reports, as well as annual proxy
statements mailed to shareholders and other information are available for you
to inspect and copy, after paying a prescribed fee, at the FDIC's public
reference facilities at the Registration, Disclosure and Securities Operations
Unit, 550 17th Street, N.W., Room 6043, Washington, DC 20429. The Registration,
Disclosure and Securities Operations Unit telephone number is (202) 898-8908
and their fax number is (202) 898-3909. After the Reorganization is completed,
Catawba Valley Bank will no longer file these reports with the FDIC. Instead,
Catawba Valley Bancshares, Inc. will begin filing such reports with the SEC.
Catawba Valley Bancshares, Inc. has filed with the SEC a Registration
Statement under the Securities Act regarding the shares of Catawba Valley
Bancshares, Inc.'s Common Stock to be issued in the Reorganization. This Proxy
Statement-Prospectus is part of that registration statement and does not
contain all of the information contained in the Registration Statement since
certain portions have been omitted as the SEC permits. If you would like more
information about Catawba Valley Bancshares, Inc. and the Catawba Valley
Bancshares, Inc. stock being issued, please refer to the Registration Statement
and its exhibits which you may read, without charge, at the SEC's public
reference facility at Room 1024, Judiciary Plaza, 450 Fifth Street, N.W.,
Washington, D.C. 20549. You can make copies of all or any part of the
Registration Statement at the SEC's office in Washington, D.C. upon payment of
prescribed SEC fees. In addition, copies of the exhibits to the Registration
Statement may be obtained from Carole F. Teague, Secretary of Catawba Valley
Bank, Post Office Box 2328, Hickory, North Carolina 28603 (828) 431-2300.
We expect Catawba Valley Bancshares, Inc. to be subject to the
informational requirements of the Exchange Act and to file reports, proxy
statements and other information with the SEC. You can inspect and copy these
materials, after they have been filed, at the SEC's Public Reference Section,
Room 1204, 450 Fifth Street, N.W., Washington, DC 20549, and at the following
Regional Offices of the SEC: New York Regional Office, Room 1028, Federal
Building, 26 Federal Plaza, New York, New York 10006; and Chicago Regional
Office, Room 1204, Everett McKinley Dirksen Building, 219 South Dearborn
Street, Chicago, Illinois 60604. You may also copy this material at the Public
Reference Section of the SEC, 450 Fifth Street, N.W. Washington, DC 20549 at
prescribed rates. The SEC maintains a Web site that contains reports, proxy and
information statements and other information regarding registrants, such as
Catawba Valley Bancshares, Inc., that file electronically with the SEC. The
address of the SEC's Web site is (http://www.sec.gov).
INFORMATION INCORPORATED BY REFERENCE
The SEC allows us to incorporate by reference information into this Proxy
Statement-Prospectus, which means that we can disclose important information to
you by referring you to another document filed separately with the SEC or FDIC.
The information incorporated by reference is deemed to be part of this Proxy
Statement-Prospectus, except for any information superseded by information in
this Proxy Statement-Prospectus. This Proxy Statement-Prospectus incorporates
by reference: Catawba Valley Bank's Annual Report on Form 10-KSB for the year
ended December 31, 1998 which has been filed with the FDIC and is included as
an exhibit to the Registration Statement of which this Proxy
Statement-Prospectus is a part.
Documents incorporated by reference are available from Catawba Valley Bank
without charge, excluding all exhibits, unless we have specifically
incorporated by reference such an exhibit in this Proxy Statement-Prospectus.
Catawba Valley Bank shareholders may obtain documents incorporated by reference
in this Proxy Statement-Prospectus by requesting them in writing or by
telephone from R. Steve Aaron, Catawba Valley Bank, 1039 Second Street, N.E.,
Hickory, North Carolina 28601.
WHEN DECIDING HOW TO CAST YOUR VOTE, YOU SHOULD RELY ONLY ON THE
INFORMATION CONTAINED OR INCORPORATED BY REFERENCE IN THIS PROXY
STATEMENT-PROSPECTUS. WE HAVE NOT AUTHORIZED ANYONE TO PROVIDE YOU WITH
INFORMATION THAT IS DIFFERENT FROM WHAT
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IS CONTAINED IN THIS PROXY STATEMENT-PROSPECTUS. THIS PROXY
STATEMENT-PROSPECTUS IS DATED APRIL 16, 1999. YOU SHOULD NOT ASSUME THAT THE
INFORMATION CONTAINED IN THIS PROXY STATEMENT-PROSPECTUS IS ACCURATE AS OF ANY
DATE OTHER THAN SUCH DATE, AND NEITHER THE MAILING OF THE PROXY
STATEMENT-PROSPECTUS TO SHAREHOLDERS NOR THE ISSUANCE OF CATAWBA VALLEY
BANCSHARES, INC. COMMON STOCK SHALL CREATE ANY IMPLICATION TO THE CONTRARY.
32
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APPENDIX I
AGREEMENT AND PLAN OF REORGANIZATION AND SHARE EXCHANGE
<PAGE>
AGREEMENT AND PLAN OF REORGANIZATION AND SHARE EXCHANGE
THIS AGREEMENT AND PLAN OF REORGANIZATION AND SHARE EXCHANGE (this
"Agreement"), made and entered into as of February 16, 1999, by and between
Catawba Valley Bank, a banking corporation organized under the laws of the
State of North Carolina and having its principal place of business in the City
of Hickory, Catawba County, North Carolina (the "Bank"), and Catawba Valley
Bancshares, Inc., a North Carolina business corporation (the "Holding
Company").
WITNESSETH:
WHEREAS, the Boards 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 bank holding company structure pursuant to which
the shareholders of the Bank (collectively, the "Shareholders" and
individually, a "Shareholder") would receive shares of the common stock of the
Holding Company in exchange for their shares of Bank common stock.
NOW, THEREFORE, in consideration of the mutual promises and conditions
herein contained, the Bank and the Holding Company hereby mutually agree to an
exchange of shares on the terms and conditions and in the manner and on the
basis hereinafter provided:
1. THE EXCHANGE.
(a) The name of the corporation whose shares will be acquired is "Catawba
Valley Bank" and the name of the acquiring corporation is "Catawba Valley
Bancshares, Inc."
(b) At the Effective Time (as defined in Section 2 below), upon the terms
and subject to the conditions set forth in this Agreement, and in accordance
with Article 11 of the North Carolina Business Corporation Act, as amended (the
"NCBCA"), each share of the $5 par value common stock of Bank ("Bank Stock")
shall be exchanged (the "Exchange") for one (1) share of the $1.00 par value
common stock of the Holding Company (all such shares of Holding Company common
stock issued to the Shareholders, collectively, the "Shares").
(c) As soon as possible after the Effective Time, the Holding Company
shall furnish to each Shareholder transmittal forms and written instructions
with respect to the Exchange. Until shares of the Bank Stock are surrendered
for exchange in accordance with this Agreement, each outstanding certificate
which, prior to the Effective Time, represented shares of Bank Stock, shall for
all purposes evidence only the exchange rights established pursuant to this
Agreement or, if applicable, the rights described in Paragraph 3 of this
Agreement. 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 or other distributions. If the Holding
Company in its discretion so elects, then unless and until any outstanding
certificate evidencing Bank Stock shall be so surrendered, no dividends payable
to the holders of common stock of the Holding Company shall be paid to the
holder of the unsurrendered Bank Stock certificate; provided, however, upon
surrender and exchange of each outstanding certificate evidencing Bank Stock
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 theretofore were declared and
became payable, but were not paid, with respect to said shares.
(d) At the Effective Time, all shares of common stock of the Holding
Company outstanding immediately prior to the Effective Time shall be redeemed
from the holder(s) thereof for the sum of $ 1.00 per share.
2. CLOSING; EFFECTIVE TIME. Consummation of the Exchange and the other
transactions contemplated by this Agreement shall take place at 10:00 a.m. at
the offices of Catawba Valley Bank, 1039 2nd Street NE, Catawba County,
Hickory, North Carolina 28601-3843 on June 30, 1999, or at such other time and
date as the Holding Company and the Bank shall determine (such specified or
other time and date, the "Closing"). The Exchange shall become effective at the
time specified in Articles of Share Exchange to be filed with the Secretary of
State of North Carolina (the "Effective Time").
3. RIGHTS OF DISSENTING SHAREHOLDERS. Any Shareholder who has not voted
for the Exchange at the meeting of Shareholders called to consider the
Exchange, and who has given notice in writing at or prior to such meeting that
he or she dissents from the Exchange, and who complies with the provisions of
Part 2 of Article 13 of the North Carolina Business Corporation Act ("NCBCA"),
shall be entitled to receive the fair value of the shares held by him or her.
Upon the receipt of any notice of a Shareholder's intent to assert dissenters'
rights pursuant to the NCBCA, the Bank shall establish an escrow fund (the
"Escrow Fund") from which all payments, whether before or after the Effective
Time, necessary with respect to the exercise of such dissenters' rights shall
be made. The Holding Company shall not directly or indirectly contribute any
funds to the Escrow Fund. The Bank shall deposit in the Escrow Fund an amount
that it reasonably believes is sufficient to
<PAGE>
pay fully the claims of all Shareholders asserting dissenters' rights, and
shall make additional deposits to the Escrow Fund as it may reasonably
determine to be necessary to satisfy such claims. In the event funds remain in
the Escrow Fund after all claims for payment pursuant to dissenters' rights
have finally expired, terminated, or have been finally satisfied or settled,
then any balance remaining in the Escrow Fund shall be returned to the Bank.
4. LOST, DESTROYED, OR STOLEN CERTIFICATES. Shareholders whose
certificates evidencing shares of Bank Stock have been lost, destroyed or
stolen shall be entitled to receive certificates evidencing Shares for which
such shares of Bank Stock were exchanged pursuant to this Agreement in
compliance with the provisions of the Holding Company's bylaws.
5. STOCK OPTION AND OTHER PLANS. At the Effective Time, all outstanding
options under the Bank's existing stock option plans ("Plans") 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
Bank Stock immediately prior to the Exchange on the same terms and conditions
as set forth in the Plans.
6. OBLIGATIONS OF THE PARTIES PENDING THE EFFECTIVE TIME. The Bank and the
Holding Company shall, as soon as practicable take the following action:
(a) This Agreement shall be duly submitted to the Shareholders of the Bank
and the sole shareholder of the Holding Company for the purpose of considering
and acting upon the Exchange in the manner required by law and their respective
articles of incorporation and bylaws. The Bank and the Holding Company shall
use their best efforts to obtain the requisite approval of their shareholders
for the Exchange and the transactions contemplated by this Agreement, and the
Bank and the Holding Company shall, through their respective officers, execute
and file with the appropriate regulatory authorities, including the Board of
Governors of the Federal Reserve System and the North Carolina Banking
Commission, such applications, exhibits, documents and papers as shall be
necessary or appropriate to secure approval of this Agreement, the Exchange and
the other transactions contemplated hereby, as required by applicable statutes,
rules and regulations;
(b) The Holding Company shall use its best efforts to cause the issuance
of common stock of the Holding Company made pursuant to this Agreement and the
Exchange to be qualified or exempted under the Securities Act of 1933, as
amended, and the Blue Sky Laws of each state in which it deems such
qualification or exemption to be required;
(c) Until the Effective Time, neither the Bank nor the Holding Company
shall dispose of its assets except in the ordinary and normal course of
business.
7. CONDITIONS PRECEDENT TO THE EXCHANGE. The Exchange shall be subject to
the satisfaction of the following conditions:
(a) Ratification and confirmation of this Agreement by approval of a
majority of the Shareholders and by approval of the sole shareholder of the
Holding Company as required by law;
(b) Approvals by the Board of Governors of the Federal Reserve System and
the North Carolina Banking Commission to the Exchange and the transactions
related thereto;
(c) Approval, to the extent required, of any other governmental or
regulatory authority;
(d) Receipt of a favorable opinion with respect to the tax consequences of
the proposed Exchange from the Bank's counsel; and
(e) Expiration of any waiting period required by any supervisory
authority.
8. TERMINATION. This Agreement may be terminated prior to the Effective
Time for any of the following reasons by written notice by either the Bank or
the Holding Company to the other upon authorization by resolution adopted by
either Board of Directors:
(a) Any condition precedent contained in Paragraph 7 has not been
fulfilled or waived;
(b) Any action, suit, proceeding, or claim has been instituted, made or
threatened, relating to the proposed Exchange that makes consummation of the
Exchange inadvisable in the opinion of the Board of Directors of either the
Bank or the Holding Company;
(c) The Board of Directors of the Bank determines that the holders of a
sufficient number of shares of Bank Stock have dissented from the Exchange so
that consummation of the Exchange is not in the best interests of the Bank;
(d) A determination by the Board of Directors of either the Bank or the
Holding Company that consummation of the Exchange is inadvisable in the opinion
of such Board of Directors.
<PAGE>
9. ENTIRE AGREEMENT. This Agreement contains the entire agreement of the
parties with respect to the transactions contemplated hereby.
10. 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.
11. 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]
<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.
CATAWBA VALLEY BANCSHARES, INC.
By: /s/ R. STEVE AARON
---------------------------
R. Steve Aaron, President
ATTEST:
/s/ CAROLE F. TEAGUE
- - --------------------------
Secretary
[corporate seal]
CATAWBA VALLEY BANK
By: /s/ R. STEVE AARON
---------------------------
R. Steve Aaron, President
ATTEST:
/s/ CAROLE F. TEAGUE
- - --------------------------
Secretary
[corporate seal]
<PAGE>
APPENDIX II
NORTH CAROLINA STATUTE REGARDING RIGHTS OF DISSENTING SHAREHOLDERS
<PAGE>
DISSENTERS' RIGHTS
N.C. GEN. STAT. CHAPTER 55, ARTICLE 13 WITH 1997 AMENDMENTS
GENERAL STATUTES OF NORTH CAROLINA
CHAPTER 55. NORTH CAROLINA BUSINESS CORPORATION ACT
ARTICLE 13. DISSENTERS' RIGHTS
PART 1. RIGHT TO DISSENT AND OBTAIN PAYMENT FOR SHARES
N.C. GEN. STAT. ss.55-13-01 (1996)
ss.55-13-01. DEFINITIONS
In this Article:
(1) "Corporation" means the issuer of the shares held by a dissenter
before the corporate action, or the surviving or acquiring corporation by
merger or share exchange of that issuer.
(2) "Dissenter" means a shareholder who is entitled to dissent from
corporate action under G.S. 55-13-02 and who exercises that right when and in
the manner required by G.S. 55-13-20 through 55-13-28.
(3) "Fair value", with respect to a dissenter's shares, means the value of
the shares immediately before the effectuation of the corporate action to which
the dissenter objects excluding any appreciation or depreciation in
anticipation of the corporate action unless exclusion would be inequitable.
(4) "Interest" means interest from the effective date of the corporate
action until the date of payment, at a rate that is fair and equitable under
all the circumstances, giving due consideration to the rate currently paid by
the corporation on its principal bank loans, if any, but not less than the rate
provided in G.S. 24-1.
(5) "Record shareholder" means the person in whose name shares are
registered in the records of a corporation or the beneficial owner of shares to
the extent of the rights granted by a nominee certificate on file with a
corporation.
(6) "Beneficial shareholder" means the person who is a beneficial owner of
shares held in a voting trust or by a nominee as the record shareholder.
(7) "Shareholder" means the record shareholder or the beneficial
shareholder.
N.C. GEN. STAT. ss.55-13-02 (1996)
ss.55-13-02. RIGHT TO DISSENT
(a) In addition to any rights granted under Article 9, a shareholder is
entitled to dissent from, and obtain payment of the fair value of his shares in
the event of, any of the following corporate actions:
(1) Consummation of a plan of merger to which the corporation (other than
a parent corporation in a merger under G.S. 55-11-04) is a party unless (i)
approval by the shareholders of that corporation is not required under G.S.
55-11-03(g) or (ii) such shares are then redeemable by the corporation at a
price not greater than the cash to be received in exchange for such shares;
(2) Consummation of a plan of share exchange to which the corporation is
a party as the corporation whose shares will be acquired, unless such
shares are then redeemable by the corporation at a price not greater than
the cash to be received in exchange for such shares;
(3) Consummation of a sale or exchange of all, or substantially all, of
the property of the corporation other than as permitted by G.S. 55-12-01,
including a sale in dissolution, but not including a sale pursuant to court
order or a sale pursuant to a plan by which all or substantially all of the
net proceeds of the sale will be distributed in cash to the shareholders
within one year after the date of sale;
(4) An amendment of the articles of incorporation that materially and
adversely affects rights in respect of a dissenter's shares because it (i)
alters or abolishes a preferential right of the shares; (ii) creates,
alters, or abolishes a right in respect of redemption, including a
provision respecting a sinking fund for the redemption or repurchase, of
the shares; (iii) alters or abolishes a preemptive right of the holder of
the shares to acquire shares or other securities; (iv) excludes or limits
the right of the shares to vote on any matter, or to cumulate votes; (v)
reduces the number of shares owned by the shareholder to a fraction of a
share if the fractional share so created is to be acquired for cash under
G.S. 55-6-04; or (vi) changes the corporation into a nonprofit corporation
or cooperative organization;
<PAGE>
(5) Any corporate action taken pursuant to a shareholder vote to the
extent the articles of incorporation, bylaws, or a resolution of the board
of directors provides that voting or nonvoting shareholders are entitled to
dissent and obtain payment for their shares.
(b) A shareholder entitled to dissent and obtain payment for his shares
under this Article may not challenge the corporate action creating his
entitlement, including without limitation a merger solely or partly in exchange
for cash or other property, unless the action is unlawful or fraudulent with
respect to the shareholder or the corporation.
(c) Notwithstanding any other provision of this Article, there shall be no
right of dissent in favor of holders of shares of any class or series which, at
the record date fixed to determine the shareholders entitled to receive notice
of and to vote at the meeting at which the plan of merger or share exchange or
the sale or exchange of property is to be acted on, were (i) listed on a
national securities exchange or (ii) held by at least 2,000 record
shareholders, unless in either case:
(1) The articles of incorporation of the corporation issuing the shares
provide otherwise;
(2) In the case of a plan of merger or share exchange, the holders of the
class or series are required under the plan of merger or share exchange to
accept for the shares anything except:
a. Cash;
b. Shares, or shares and cash in lieu of fractional shares of the
surviving or acquiring corporation, or of any other corporation which,
at the record date fixed to determine the shareholders entitled to
receive notice of and vote at the meeting at which the plan of merger or
share exchange is to be acted on, were either listed subject to notice
of issuance on a national securities exchange or held of record by at
least 2,000 record shareholders; or
c. A combination of cash and shares as set forth in sub-subdivisions
a. and b. of this subdivision.
N.C. GEN. STAT. ss.55-13-03 (1996)
ss.55-13-03. DISSENT BY NOMINEES AND BENEFICIAL OWNERS
(a) A record shareholder may assert dissenters' rights as to fewer than
all the shares registered in his name only if he dissents with respect to all
shares beneficially owned by any one person and notifies the corporation in
writing of the name and address of each person on whose behalf he asserts
dissenters' rights. The rights of a partial dissenter under this subsection are
determined as if the shares as to which he dissents and his other shares were
registered in the names of different shareholders.
(b) A beneficial shareholder may assert dissenters' rights as to shares
held on his behalf only if:
(1) He submits to the corporation the record shareholder's written
consent to the dissent not later than the time the beneficial shareholder
asserts dissenters' rights; and
(2) He does so with respect to all shares of which he is the beneficial
shareholder.
N.C. GEN. STAT. ss.55-13-04 (1996)
ss.55-13-04 THROUGH 55-13-19
Reserved for future codification purposes.
PART 2. PROCEDURE FOR EXERCISE OF DISSENTERS' RIGHTS
N.C. GEN. STAT. ss.55-13-20 (1996)
ss.55-13-20. NOTICE OF DISSENTERS' RIGHTS
(a) If proposed corporate action creating dissenters' rights under G.S.
55-13-02 is submitted to a vote at a shareholders' meeting, the meeting notice
must state that shareholders are or may be entitled to assert dissenters'
rights under this Article and be accompanied by a copy of this Article.
(b) If corporate action creating dissenters' rights under G.S. 55-13-02 is
taken without a vote of shareholders, the corporation shall no longer than 10
days thereafter notify in writing all shareholders entitled to assert
dissenters' rights that the action was taken and send them the dissenters'
notice described in G.S. 55-13-22.
<PAGE>
(c) If a corporation fails to comply with the requirements of this
section, such failure shall not invalidate any corporate action taken; but any
shareholder may recover from the corporation any damage which he suffered from
such failure in a civil action brought in his own name within three years after
the taking of the corporate action creating dissenters' rights under G.S.
55-13-02 unless he voted for such corporate action.
ss.55-13-21. NOTICE OF INTENT TO DEMAND PAYMENT
(a) If proposed corporate action creating dissenters' rights under G.S.
55-13-02 is submitted to a vote at a shareholders' meeting, a shareholder who
wishes to assert dissenters' rights:
(1) Must give to the corporation, and the corporation must actually
receive, before the vote is taken written notice of his intent to demand
payment for his shares if the proposed action is effectuated; and
(2) Must not vote his shares in favor of the proposed action.
(b) A shareholder who does not satisfy the requirements of subsection (a)
is not entitled to payment for his shares under this Article.
N.C. GEN. STAT. ss.55-13-22 (1996)
ss.55-13-22. DISSENTERS' NOTICE
(a) If proposed corporate action creating dissenters' rights under G.S.
55-13-02 is authorized at a shareholders' meeting, the corporation shall mail
by registered or certified mail, return receipt requested, a written
dissenters' notice to all shareholders who satisfied the requirements of G.S.
55-13-21.
(b) The dissenters' notice must be sent no later than 10 days after
shareholder approval, or if no shareholder approval is required, after the
approval of the board of directors, of the corporate action creating
dissenters' rights under G.S. 55-13-02, and must:
(1) State where the payment demand must be sent and where and when
certificates for certificated shares must be deposited;
(2) Inform holders of uncertificated shares to what extent transfer of
the shares will be restricted after the payment demand is received;
(3) Supply a form for demanding payment;
(4) Set a date by which the corporation must receive the payment demand,
which date may not be fewer than 30 nor more than 60 days after the date
the subsection (a) notice is mailed; and
(5) Be accompanied by a copy of this Article.
N.C. GEN. STAT. ss.55-13-23 (1996)
ss.55-13-23. DUTY TO DEMAND PAYMENT
(a) A shareholder sent a dissenters' notice described in G.S. 55-13-22
must demand payment and deposit his share certificates in accordance with the
terms of the notice.
(b) The shareholder who demands payment and deposits his share
certificates under subsection (a) retains all other rights of a shareholder
until these rights are cancelled or modified by the taking of the proposed
corporate action.
(c) A shareholder who does not demand payment or deposit his share
certificates where required, each by the date set in the dissenters' notice, is
not entitled to payment for his shares under this Article.
N.C. GEN. STAT. ss.55-13-24 (1996)
ss.55-13-24. SHARE RESTRICTIONS
(a) The corporation may restrict the transfer of uncertificated shares
from the date the demand for their payment is received until the proposed
corporate action is taken or the restrictions released under G.S. 55-13-26.
(b) The person for whom dissenters' rights are asserted as to
uncertificated shares retains all other rights of a shareholder until these
rights are cancelled or modified by the taking of the proposed corporate
action.
<PAGE>
N.C. GEN. STAT. ss.55-13-25 (1996)
ss.55-13-25. PAYMENT
(a) As soon as the proposed corporate action is taken, or within 30 days
after receipt of a payment demand, the corporation shall pay each dissenter who
complied with G.S. 55-13-23 the amount the corporation estimates to be the fair
value of his shares, plus interest accrued to the date of payment.
(b) The payment shall be accompanied by:
(1) The corporation's most recent available balance sheet as of the end
of a fiscal year ending not more than 16 months before the date of payment,
an income statement for that year, a statement of cash flows for that year,
and the latest available interim financial statements, if any;
(2) An explanation of how the corporation estimated the fair value of the
shares;
(3) An explanation of how the interest was calculated;
(4) A statement of the dissenters' right to demand payment under G.S.
55-13-28; and
(5) A copy of this Article.
N.C. GEN. STAT. ss.55-13-26 (1996)
ss.55-13-26. FAILURE TO TAKE ACTION
(a) If the corporation does not take the proposed action within 60 days
after the date for demanding payment and depositing share certificates, the
corporation shall return the deposited certificates and release the transfer
restrictions imposed on uncertificated shares.
(b) If after returning deposited certificates and releasing transfer
restrictions, the corporation takes the proposed action, it must send a new
dissenters' notice under G.S. 55-13-22 and repeat the payment demand procedure.
N.C. GEN. STAT. ss.55-13-27 (1996)
ss.55-13-27 RESERVED FOR FUTURE CODIFICATION PURPOSES.
N.C. GEN. STAT. ss.55-13-28 (1996)
ss.55-13-28. PROCEDURE IF SHAREHOLDER DISSATISFIED WITH CORPORATION'S
PAYMENT OR FAILURE TO PERFORM
(a) A dissenter may notify the corporation in writing of his own estimate
of the fair value of his shares and amount of interest due, and demand payment
of the amount in excess of the payment by the corporation under G.S. 55-13-25
for the fair value of his shares and interest due, if:
(1) The dissenter believes that the amount paid under G.S. 55-13-25 is
less than the fair value of his shares or that the interest due is
incorrectly calculated;
(2) The corporation fails to make payment under G.S. 55-13-25; or
(3) The corporation, having failed to take the proposed action, does not
return the deposited certificates or release the transfer restrictions
imposed on uncertificated shares within 60 days after the date set for
demanding payment.
(b) A dissenter waives his right to demand payment under this section
unless he notifies the corporation of his demand in writing (i) under
subdivision (a)(1) within 30 days after the corporation made payment for his
shares or (ii) under subdivisions (a)(2) and (a)(3) within 30 days after the
corporation has failed to perform timely. A dissenter who fails to notify the
corporation of his demand under subsection (a) within such 30-day period shall
be deemed to have withdrawn his dissent and demand for payment.
N.C. GEN. STAT. ss.55-13-29 (1996)
ss.55-13-29
Reserved for future codification purposes.
<PAGE>
PART 3. JUDICIAL APPRAISAL OF SHARES
N.C. GEN. STAT. ss.55-13-30 (1996)
ss.55-13-30. COURT ACTION
(a) If a demand for payment under G.S. 55-13-28 remains unsettled, the
dissenter may commence a proceeding within 60 days after the earlier of (i) the
date payment is made under G.S. 55-13-25, or (ii) the date of the dissenter's
payment demand under G.S. 55-13-28 by filing a complaint with the Superior
Court Division of the General Court of Justice to determine the fair value of
the shares and accrued interest. A dissenter who takes no action within the
60-day period shall be deemed to have withdrawn his dissent and demand for
payment.
(a1) Repealed by Session Laws 1997-202, s.4, effective October 1, 1997.
(b) [Reserved for future codification purposes.]
(c) The court shall have the discretion to make all dissenters (whether or
not residents of this State) whose demands remain unsettled parties to the
proceeding as in an action against their shares and all parties must be served
with a copy of the complaint. Nonresidents may be served by registered or
certified mail or by publication as provided by law.
(d) The jurisdiction of the superior court in which the proceeding is
commenced under subsection (a) is plenary and exclusive. The court may appoint
one or more persons as appraisers to receive evidence and recommend decision on
the question of fair value. The appraisers have the powers described in the
order appointing them, or in any amendment to it. The parties are entitled to
the same discovery rights as parties in other civil proceedings. The proceeding
shall be tried as in other civil actions. However, in a proceeding by a
dissenter in a corporation that was a public corporation immediately prior to
consummation of the corporate action giving rise to the right of dissent under
G.S. 55-13-02, there is no right to a trial by jury.
(e) Each dissenter made a party to the proceeding is entitled to judgment
for the amount, if any, by which the court finds the fair value of his shares,
plus interest, exceeds the amount paid by the corporation.
ss.55-13-31. COURT ACTION
(a) The court in an appraisal proceeding commenced under G.S. 55-13-30
shall determine all costs of the proceeding, including the reasonable
compensation and expenses of appraisers appointed by the court, and shall
assess the costs as it finds equitable.
(b) The court may also assess the fees and expenses of counsel and experts
for the respective parties, in amounts the court finds equitable.
(1) Against the corporation and in favor of any or all dissenters if the
court finds the corporation did not substantially comply with the
requirements of G.S. 55-13-20 through 55-13-28; or
(2) Against either the corporation or a dissenter, in favor of either or
any other party, if the court finds that the party against whom the fees
and expenses are assessed acted arbitrarily, vexatiously, or not in good
faith with respect to the rights provided by this Article.
(c) If the court finds that the services of counsel for any dissenter were
of substantial benefit to other dissenters similarly situated, and that the
fees for those services should not be assessed against the corporation, the
court may award to these counsel reasonable fees to be paid out of the amounts
awarded the dissenters who were benefited.
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Sections 55-8-50 through 55-8-58 of the North Carolina General Statutes
permit a corporation to indemnify its directors, officers, employees or agents
under either or both a statutory or nonstatutory scheme of indemnification.
Under the statutory scheme, a corporation may, with certain exceptions,
indemnify a director, officer, employee or agent of the corporation who was,
is, or is threatened to be made, a party to any threatened, pending or
completed legal action, suit or proceeding, whether civil, criminal,
administrative, or investigative, because of the fact that such person was a
director, officer, agent or employee of the corporation, or is or was serving
at the request of such corporation as a director, officer, employee or agent of
another corporation or enterprise. This indemnity may include the obligation to
pay any judgment, settlement, penalty, fine (including an excise tax assessed
with respect to an employee benefit plan) and reasonable expenses incurred in
connection with a proceeding (including counsel fees), but no such
indemnification may be granted unless such director, officer, agent or employee
(i) conducted himself in good faith, (ii) reasonably believed (a) that any
action taken in his official capacity with the corporation was in the best
interest of the corporation or (b) that in all other cases his conduct at least
was not opposed to the corporation's best interest, and (iii) in the case of
any criminal proceeding, had no reasonable cause to believe his conduct was
unlawful. Whether a director has met the requisite standard of conduct for the
type of indemnification set forth above is determined by the board of
directors, a committee of directors, special legal counsel or the shareholders
in accordance with Section 55-8-55. A corporation may not indemnify a director
under the statutory scheme in connection with a proceeding by or in the right
of the corporation in which the director was adjudged liable to the corporation
or in connection with a proceeding in which a director was adjudged liable on
the basis of having received an improper personal benefit.
In addition to, and separate and apart from the indemnification described
above under the statutory scheme, Section 55-8-57 of the North Carolina General
Statutes permits a corporation to indemnify or agree to indemnify any of its
directors, officers, employees or agents against liability and expenses
(including attorney's fees) in any proceeding (including proceedings brought by
or on behalf of the corporation) arising out of their status as such or their
activities in such capacities, except for any liabilities or expenses incurred
on account of activities that were, at the time taken, known or believed by the
person to be clearly in conflict with the best interests of the corporation.
The Bylaws of Catawba Valley Bancshares, Inc. provide for indemnification to
the fullest extent permitted under North Carolina law for persons who serve as
directors or officers of Catawba Valley Bancshares, Inc., or at the request of
Catawba Valley Bancshares, Inc. serve as an officer, director, agent, partner,
trustee, administrator or employee for any other foreign or domestic entity,
except to the extent such activities were at the time taken known or believed
by the potential indemnities to be clearly in conflict with the best interests
of Catawba Valley Bancshares, Inc. Accordingly, Catawba Valley Bancshares, Inc.
may indemnify its directors, officers or employees in accordance with either
the statutory or non-statutory standards.
Sections 55-8-52 and 55-8-56 of the North Carolina General Statutes
require a corporation, unless its articles of incorporation provide otherwise,
to indemnify a director or officer who has been wholly successful, on the
merits or otherwise, in the defense of any proceeding to which such director or
officer was a party. Unless prohibited by the articles of incorporation, a
director or officer also may make application and obtain court-ordered
indemnification if the court determines that such director or officer is fairly
and reasonably entitled to such indemnification as provided in Sections 55-8-54
and 55-8-56.
Finally, Section 55-8-57 of the North Carolina General Statutes provides
that a corporation may purchase and maintain insurance on behalf of an
individual who is or was a director, officer, employee or agent of the
corporation against certain liabilities incurred by such persons, whether or
not the corporation is otherwise authorized by the NCBCA to indemnify such
party. Catawba Valley Bank has purchased a standard directors' and officers
liability policy which will, subject to certain limitations, indemnify Catawba
Valley Bank and its officers and directors for damages they become legally
obligated to pay as a result of any negligent act, error, or omission committed
by directors or officers while acting in their capacity as such. Catawba Valley
Bancshares, Inc. may also purchase such a policy.
As permitted by North Carolina law, Article 5 of Catawba Valley
Bancshares, Inc.'s Articles limits the personal liability of directors for
monetary damages for breaches of duty as a director arising out of any legal
action whether by or in the right of Catawba Valley Bancshares, Inc. or
otherwise, provided that such limitation will not apply to (i) acts or
omissions
II-1
<PAGE>
that the director at the time of such breach knew or believed were clearly in
conflict with the best interests of Catawba Valley Bancshares, Inc., (ii) any
liability under Section 55-8-33 of the General Statutes of North Carolina, or
(iii) any transaction from which the director derived an improper personal
benefit (which does not include a director's reasonable compensation or other
reasonable incidental benefit for or on account of his service as a director,
officer, employee, independent contractor, attorney, or consultant of Catawba
Valley Bancshares, Inc.).
ITEM 21. EXHIBITS
The following documents are filed herewith and made a part of this
Registration Statement.
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
- - -------- ----------------------------------------------------------------------------------------------
<S> <C>
2.1 Agreement and Plan of Reorganization and Share Exchange dated as of February 16, 1999, by and
between Catawba Valley Bank and Catawba Valley Bancshares, Inc. included as Appendix I hereto
3.1 Articles of Incorporation of Catawba Valley Bancshares, Inc.
3.2 Bylaws of Catawba Valley Bancshares, Inc.
4.1 Specimen Common Stock Certificate of Catawba Valley Bancshares, Inc.
5.1 Opinion of Moore & Van Allen, PLLC regarding the legality of securities being registered
8.1 Opinion of Moore & Van Allen, PLLC regarding certain federal income tax consequences of the
Reorganization
10.1 Employment Agreement, dated January 1, 1999, between Catawba Valley Bank and R. Steve Aaron
10.2 Catawba Valley Bancshares, Inc. 1996 Incentive Stock Option Plan
10.3 Catawba Valley Bancshares, Inc. 1997 Non-Qualified Stock Option Plan for Directors
23.1 Consent of PricewaterhouseCoopers LLP (Catawba Valley Bank Financial Statements)
23.3 Consent of Moore & Van Allen, PLLC (included with Exhibit 5.1 hereto)
99.1 Form of Proxy Card (Catawba Valley Bank)
99.3 Annual Report on Form 10-KSB of Catawba Valley Bank
</TABLE>
ITEM 22. UNDERTAKINGS
The undersigned registrant hereby undertakes:
(1) To file, during any period in which offers and sales are being made, a
post-effective amendment to this registration statement:
(i) To include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising after the
effective date of the registration statement (or the most recent
post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information set forth
in the registration statement. Notwithstanding the foregoing, any
increase or decrease in volume of securities offered (if the total
dollar value of securities offered would not exceed that which was
registered) and any deviation from the low or high end of the
estimated maximum offering range may be reflected in the form of the
prospectus filed with the Commission pursuant to Rule 424(b) if, in
the aggregate, the changes in volume and price represent no more than
a 20% change in the maximum aggregate offering price set forth in the
"Calculation of Registration Fee" table in the effective registration
statement;
(iii) To include any material information with respect to the plan of
distribution not previously disclosed in the registration statement or
any material change to such information in the registration statement.
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be deemed to
be a new registration statement relating to the securities offered therein, and
the offering of such securities at that time shall be deemed to be the initial
bona fide offering thereof.
(3) To remove from registration by means of a post-effective amendment any
of the securities being registered which remain unsold at the termination of
the offering.
The undersigned registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, each filing of the
registrant's annual report pursuant to Section 13(a) or Section 15(d) of the
Securities and Exchange Act of 1934 (and, where applicable, each filing of an
employee benefit plan's annual report pursuant to Section 15(d) of the
Securities Exchange Act of 1934) that is incorporated by reference in the
registration statement shall be deemed to be a new
II-2
<PAGE>
registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof.
Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling persons of
the registrant pursuant to the foregoing provisions, or otherwise, the
registrant has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the
Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
registrant of expenses incurred or paid by a director, officer or controlling
person of the registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the registrant will, unless in
the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the Act and
will be governed by the final adjudication of such issue.
The undersigned hereby undertakes as follows: that prior to any public
reoffering of the securities registered hereunder through use of a prospectus
which is a part of this Registration Statement, by any person or party who is
deemed to be an underwriter within the meaning of Rule 145(c), such reoffering
prospectus will contain the information called for by the applicable
registration form with respect to reofferings by persons who may be deemed
underwriters, in addition to the information called for by the other items of
the applicable form and that every prospectus (i) that is filed pursuant to the
paragraph immediately preceding, or (ii) that purports to meet the requirements
of Section 10(a)(3) of the Securities Act and is used in connection with an
offering of securities subject to Rule 415, will be filed as a part of an
amendment to the Registration Statement and will not be used until such
amendment is effective, and that, for purposes of determining any liability
under the Securities Act, each such post-effective amendment shall be deemed to
be a new registration statement relating to the securities offered therein, and
the offering of such securities at that time shall be deemed to be the initial
bona fide offering thereof. The undersigned registrant hereby undertakes to
respond to requests for information that are incorporated by reference into the
prospectus pursuant to Items 4, 10(b), 11, or 13 of this Form, within one
business day of receipt of such request, and to send the incorporated documents
by first class mail or other equally prompt means. This includes information
contained in documents filed subsequent to the effective date of the
registration statement through the date of responding to the request. The
undersigned registrant hereby undertakes to supply by means of a post-effective
amendment all information concerning a transaction, and Catawba Valley Bank
being acquired involved therein, that was not the subject of and included in
the Registration Statement when it became effective.
II-3
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
certifies that it has reasonable grounds to believe that it meets all of the
requirements for filing on Form S-4 and has duly caused this registration
statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Hickory, State of North Carolina, on March 25, 1999.
CATAWBA VALLEY BANCSHARES, INC.
By: /s/ R. STEVE AARON
-------------------------------------
R. STEVE AARON
PRESIDENT AND CHIEF EXECUTIVE
OFFICER
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons on March 25,
1999 in the capacities indicated.
<TABLE>
<CAPTION>
SIGNATURE CAPACITY
- - ---------------------------------------- --------------------------------------
<S> <C>
/s/ R. STEVE AARON President and Chief Executive Officer
----------------------------------
R. STEVE AARON
/s/ MARTY LOWDER* Chief Financial Officer
----------------------------------
MARTY LOWDER
/s/ HAL F. HUFFMAN, JR.* Director
----------------------------------
HAL F. HUFFMAN, JR.
/s/ ROBERT P. HUNTLEY* Director
----------------------------------
ROBERT P. HUNTLEY
/s/ W. STEVE IKERD* Chairman of its Board of Directors
----------------------------------
W. STEVE IKERD
/s/ ROBERT T. KING* Director
----------------------------------
ROBERT T. KING
/s/ PAT M. MOSS* Director
----------------------------------
PAT M. MOSS
/s/ CLOYD HUGH PROPST, JR.* Director
----------------------------------
CLOYD HUGH PROPST, JR.
/s/ HOWARD L. PRUITT* Director
----------------------------------
HOWARD L. PRUITT
/s/ WILLIAM R. SIGMON, JR.* Director
----------------------------------
WILLIAM R. SIGMON, JR.
</TABLE>
*By: /s/ R. STEVE AARON
--------------------------------
ATTORNEY-IN-FACT
II-4
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
- - -------- ----------------------------------------------------------------------------------------------
<S> <C>
2.1 Agreement and Plan of Reorganization and Share Exchange dated as of February 16, 1999, by and
between Catawba Valley Bank and Catawba Valley Bancshares, Inc. included as Appendix I hereto
3.1 Articles of Incorporation of Catawba Valley Bancshares, Inc.
3.2 Bylaws of Catawba Valley Bancshares, Inc.
4.1 Specimen Common Stock Certificate of Catawba Valley Bancshares, Inc.
5.1 Opinion of Moore & Van Allen, PLLC regarding the legality of securities being registered
8.1 Opinion of Moore & Van Allen, PLLC regarding certain federal income tax consequences of the
Reorganization
10.1 Employment Agreement, dated January 1, 1999, between Catawba Valley Bank and R. Steve Aaron
10.2 Catawba Valley Bancshares, Inc. 1996 Incentive Stock Option Plan
10.3 Catawba Valley Bancshares, Inc. 1997 Non-Qualified Stock Option Plan for Directors
23.1 Consent of PricewaterhouseCoopers LLP (Catawba Valley Bank Financial Statements)
23.3 Consent of Moore & Van Allen, PLLC (included with Exhibit 5.1 hereto)
99.1 Form of Proxy Card (Catawba Valley Bank)
99.3 Annual Report on Form 10-KSB of Catawba Valley Bank
</TABLE>
ARTICLES OF INCORPORATION
OF
CATAWBA VALLEY BANCSHARES, INC.
The undersigned entity hereby makes and acknowledges 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 as contained in Chapter 55 of
the General Statutes of North Carolina, entitled "North Carolina Business
Corporation Act," and the several amendments thereto, and to that end hereby
sets forth the following:
ARTICLE I
The name of the corporation is Catawba Valley Bancshares, Inc. (herein referred
to as the "Corporation").
ARTICLE II
The Corporation shall have authority to issue a total of 10,000,000 shares of
capital stock. The capital stock shall consist of 9,000,000 shares of Common
Stock, $1.00 par value per share, each with one vote per share, and 1,000,000
shares of Preferred Stock, no par value. The preferences, limitations and
relative rights of the shares of Preferred Stock shall be as designated by the
Board of Directors and may be issued in one or more series.
ARTICLE III
The street address of the initial registered office of the Corporation is 1039
2nd Street NE, Catawba County, Hickory, North Carolina 28601-3843; the mailing
address of the initial registered office of the Corporation is Post Office Box
2328, Catawba County, Hickory, North Carolina 28603-2328; and, the name of the
initial registered agent at such address is R. Steve Aaron.
ARTICLE IV
The name of the incorporator is R. Steve Aaron, and the address of the
incorporator is 1039 2nd Street NE, Catawba County, Hickory, North Carolina
28601-3843.
ARTICLE V
To the fullest extent permitted by the North Carolina Business Corporation Act
as it exists or may hereafter be amended, no person who is serving or who has
served as a director of the Corporation shall be personally liable to the
Corporation or any of its shareholders or otherwise for monetary damages for
breach of any duty as a director. No amendment or repeal of this article, nor
the adoption of any provision to these Articles of Incorporation inconsistent
with this article, shall eliminate or reduce the protection granted herein with
respect to any matter that occurred prior to such amendment, repeal, or
adoption.
<PAGE>
ARTICLE VI
In connection with the exercise of its or their judgment in determining what is
in the best interests of the Corporation and its shareholders, the Board of
Directors of the Corporation, any committee of the Board of Directors, or any
individual directors may, but shall not be required to, in addition to
considering the long-term and short-term interests of the shareholders, consider
any of the following factors and any other factors which it or they deem
relevant: (a) the social and economic effects of the matter to be considered on
the Corporation and its subsidiaries, its and their employees, depositors,
customers, and creditors, and the communities in which the Corporation and its
subsidiaries operate or are located; and (b) when evaluating a business
combination or a proposal by another Person or Persons to make a business
combination or a tender or exchange offer or any other proposal relating to a
potential change of control of the Corporation (i) the business and financial
condition and earnings prospects of the acquiring Person or Persons, including,
but not limited to, debt service and other existing financial obligations,
financial obligations to be incurred in connection with the acquisition, and
other likely financial obligations of the acquiring Person or Persons, and the
possible effect of such conditions upon the Corporation and its subsidiaries and
the communities in which the Corporation and its subsidiaries operate or are
located, (ii) the competence, experience, and integrity of the acquiring Person
or Persons and its or their management, and (iii) the prospects for successful
conclusion of the business combination, offer or proposal. The provisions of
this Article VI shall be deemed solely to grant discretionary authority to the
directors and shall not be deemed to provide to any constituency the right that
any factors, including but not limited to those detailed herein, be considered.
As used in this Article VI, the term "Person" means any individual, partnership,
firm, corporation, association, trust, unincorporated organization or other
entity; and, when two or more Persons act as a partnership, limited partnership,
syndicate, or other group acting in concert for the purpose of acquiring,
holding, voting or disposing of securities of the Corporation, such partnership,
limited partnership, syndicate or group shall also be deemed "Person" for
purposes of this Article VI.
ARTICLE VII
Any agreement, plan or arrangement providing for the merger, consolidation or
exchange of shares of the Corporation with any other corporation, foreign or
domestic, or the sale, lease or exchange of all or substantially all of the
assets of the Corporation which require prior shareholder approval under North
Carolina law shall only be effected after the prior approval of the holders of
at least three-fourths of the outstanding shares of all classes of capital stock
of the Corporation, voting together as a single class, unless class voting
rights are specifically permitted for any class of capital stock of the
Corporation. Notwithstanding the foregoing, the requirement of approval of at
least three-fourths of the outstanding shares as set forth above shall not be
applicable and only such affirmative vote as is required by North Carolina law
shall be required, if any such transaction shall have been approved by a
majority of the members of the Board of Directors unaffiliated with any other
party to the proposed transaction.
This _________ day of February, 1999.
-----------------------------------
R. Steve Aaron, Incorporator
2
BYLAWS
OF
CATAWBA VALLEY BANCSHARES, INC.
Index
ARTICLE I
Offices
Section 1. Principal Office
Section 2. Registered Office
Section 3. Other Offices
ARTICLE II
Meetings of Shareholders
Section 1. Place of Meetings
Section 2. Annual Meetings
Section 3. Substitute Annual Meeting
Section 4. Special Meetings
Section 5. Notice of Meetings
Section 6. Waiver of Notice
Section 7. Voting Lists
Section 8. Voting Group
Section 9. Quorum
Section 10. Proxies
Section 11. Voting of Shares
Section 12. Fixing Record Date
ARTICLE III
Directors
Section 1. General Powers
Section 2. Number, Term and Qualifications
Section 3. Nominations
Section 4. Election of Directors
Section 5. Removal
Section 6. Vacancies
Section 7. Chairman of the Board
Section 8. Compensation
Section 9. Appointment of Committees
<PAGE>
ARTICLE IV
Meetings of Directors
Section 1. Regular Meetings
Section 2. Special Meetings
Section 3. Notice of Meetings
Section 4. Waiver of Notice
Section 5. Quorum
Section 6. Manner of Acting
Section 7. Presumption of Assent
Section 8. Informal Action by Directors
ARTICLE V
Officers
Section 1. Number
Section 2. Election and Term
Section 3. Removal and Resignation
Section 4. Compensation
Section 5. President
Section 6. Vice Presidents
Section 7. Assistant Vice Presidents
Section 8. Secretary
Section 9. Assistant Secretaries
Section 10. Treasurer
Section 11. Assistant Treasurers
ARTICLE VI
Contracts, Loans, Checks and Deposits
Section 1. Contracts
Section 2. Loans
Section 3. Checks and Drafts
Section 4. Deposits
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ARTICLE VII
Certificates for Shares and Their Transfer
Section 1. Certificates for Shares
Section 2. Transfer of Shares
Section 3. Lost Certificates
Section 4. Holder of Record
Section 5. Reacquired Shares
ARTICLE VIII
General Provisions
Section 1. Distributions
Section 2. Seal
Section 3. Amendments
Section 4. Fiscal Year
Section 5. Indemnification
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BYLAWS
OF
CATAWBA VALLEY BANCSHARES, INC.
ARTICLE I
Offices
Section 1. Principal Office: The principal office of the Corporation shall
be located in Hickory, North Carolina.
Section 2. Registered Office: The registered office of the Corporation
required by law to be maintained in the State of North Carolina may be, but need
not be, identical with the principal office.
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 from time to time may determine, or as the affairs of the Corporation
from time to time may require.
ARTICLE II
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 agreed upon by a majority of the shareholders entitled to vote
thereat.
Section 2. Annual Meetings: The annual meeting of shareholders of the
Corporation, for the purpose of electing directors of the Corporation and for
the transaction of such other business as properly may be brought before the
meeting, shall be held within 120 days of the end of the fiscal year on any day,
except Saturday, Sunday or a legal or banking holiday, as may be determined by
the Board of Directors.
Section 3. Substitute Annual Meeting: If the annual meeting shall not be
held as provided in Section 2 of this Article, 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 (a) the Chairman of the Board, (b) the President of the
Corporation or by a majority vote of the Board of Directors.
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Section 5. Notice of Meetings: Written or printed notice stating the time,
place and date of the meeting shall be delivered not less than ten (10) nor more
than sixty (60) days before the date thereof, either in person or by mail, by or
at the direction of the President or other qualified person calling the meeting
to each shareholder of record entitled to vote at such meeting unless applicable
law or the Corporation's articles of incorporation require that such notice
shall be given to all shareholders with respect to such meeting. If mailed, such
notice shall be deemed to be effective when deposited in the United States mail,
correctly addressed to the shareholder at the shareholder's address as it
appears on the current record of shareholders of the Corporation, with postage
thereon prepaid.
In the case of an annual or substitute annual meeting, the notice of
meeting need not specifically state the business to be transacted thereat unless
such a statement expressly is required by the provisions of the North Carolina
Business Corporation Act. In the case of a special meeting, the notice of
meeting specifically shall state the purpose or purposes for which the meeting
is called.
If any meeting of shareholders is adjourned to a different date, time, or
place, notice need not be given of the new date, time, or place if the new date,
time, or place is announced at the meeting before adjournment and if a new
record date is not fixed for the adjourned meeting. If a new record date for the
adjourned meeting is or must be fixed pursuant to North Carolina law, notice of
the adjourned meeting must be given as provided in this Section to persons who
are shareholders as of the new record date.
Section 6. Waiver of Notice: Any shareholder may waive notice of any
meeting before or after the meeting. The waiver must be in writing, signed by
the shareholder, and delivered to the Corporation for inclusion in the minutes
or filing with the corporate records. A shareholder's attendance, in person or
by proxy, at a meeting (a) waives objection to lack of notice or defective
notice of the meeting, unless the shareholder or the shareholder's proxy at the
beginning of the meeting objects to holding the meeting or transacting business
thereat, and (b) 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 or the shareholder's proxy objects to considering
the matter before it is voted upon.
Section 7. Voting Lists: Before each meeting of shareholders, an
alphabetical list of the shareholders entitled to notice of such meeting shall
be prepared by the Secretary of the Corporation. The list shall be arranged by
voting group and within each voting group by class or series of shares and show
the address of and the number of shares held by each shareholder. The list shall
be kept on file at the principal office of the Corporation for the period
beginning two (2) business days after notice of the meeting is given and
continuing through the meeting, and shall be available for inspection by any
shareholder or the agent or attorney of any shareholder at any time prior to the
meeting during regular business hours and at any time during the meeting or any
adjournment thereof. The list shall be prima facie evidence as to who are the
shareholders entitled to examine the list and the shareholders of record
entitled to vote at any meeting of the shareholders.
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Section 8. Voting Group: All shares of one or more classes or series that
under the Corporation's articles of incorporation or the North Carolina Business
Corporation Act are entitled to vote and be counted together collectively on a
matter at a meeting of shareholders constitute a voting group. All shares
entitled by the Corporation's articles of incorporation or the North Carolina
Business Corporation Act to vote generally on a matter are for that purpose a
single voting group. Classes or series of shares shall not be entitled to vote
separately by voting group unless expressly authorized by the Corporation's
articles of incorporation or specifically required by law.
Section 9. Quorum: Shares entitled to vote as a separate voting group may
take action on a matter at a meeting of shareholders only if a quorum of those
shares is present at the meeting. A majority of the votes entitled to be cast on
the matter by the voting group shall constitute a quorum of that voting group
for action on that matter.
Once a share is represented for any purpose at a meeting, it is deemed
present for quorum purposes for the remainder of the meeting and for any
adjournment of that meeting unless a new record date is or must be set for that
adjourned meeting.
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 vote of the majority of the
votes cast on the motion to adjourn; and at any adjourned meeting any business
may be transacted which might have been transacted at the original meeting if a
quorum exists with respect to the matter proposed.
Section 10. 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 the
shareholder's duly authorized attorney-in-fact. 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 11. Voting of Shares: Subject to the provisions of the
Corporation's articles of incorporation, each outstanding share shall be
entitled to one vote on each matter submitted to a vote at a meeting of
shareholders.
Except in the election of directors as provided in Section 4 of Article
III, if a quorum exists, action on a matter by a voting group at a meeting of
shareholders is approved if the votes cast within the voting group favoring the
action exceed the votes cast opposing the action, unless a greater vote is
required by law or by the Corporation's articles of incorporation or these
Bylaws.
Absent special circumstances, shares of the Corporation are not entitled to
vote if they are owned, directly or indirectly, by another corporation in which
the Corporation owns, directly or indirectly, a majority of the shares entitled
to vote for directors of the second corporation; provided that this provision
does not limit the power of the Corporation to vote its own shares held by it in
a fiduciary capacity.
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Section 12. Fixing Record Date: The Board of Directors of the Corporation
may fix a future date as the record date for one or more voting groups in order
to determine (a) the shareholders entitled to notice of a meeting of
shareholders, (b) the shareholders entitled to vote, or (d) the shareholders
entitled to take any other action. A record date fixed under this Section may
not be more than seventy (70) days before the meeting or action requiring a
determination of shareholders.
A determination of shareholders entitled to notice of or to vote at a
meeting of shareholders is effective for any adjournment of the meeting unless
the Board of Directors fixes a new record date for the adjourned meeting, which
it must do if the meeting is adjourned to a date more than one hundred twenty
(120) days after the date fixed for the original meeting.
If no record date is fixed by the Board of Directors for the determination
of shareholders entitled to notice of or to vote at a meeting of shareholders,
the close of business on the day before the first notice of the meeting is
delivered to shareholders shall be the record date for such determination of
shareholders.
ARTICLE III
Directors
Section 1. General Powers: The business and affairs of the Corporation
shall be directed by the Board of Directors or by such Executive Committee or
other committees as the Board may establish pursuant to these Bylaws.
Section 2. Number, Term and Qualifications: The number of directors
constituting the Board of Directors of the Corporation shall be not less than
nine (9) nor more than eighteen (18) as from time to time may be fixed or
changed within said minimum and maximum by the shareholders or by a majority of
the full Board of Directors. The directors shall be divided into three classes,
as nearly equal in number as possible, with the term of office of the first
class to expire at the first annual meeting of shareholders after their
election, the term of office of the second class to expire at the second annual
meeting of shareholders after their election, and the term of office of the
third class to expire at the third annual meeting of shareholders after their
election. At each annual meeting of shareholders following such initial
classification and election, directors elected to succeed those directors whose
terms expire shall be elected for a term of three years or until their
successors are elected and shall qualify. In the event of any increase or
decrease in the number of directors, the additional or eliminated directorships
shall be so classified or chosen so that all classes of directors shall remain
and become equal in number, as nearly as possible. In the event of the death,
resignation, retirement, removal or disqualification of a director, a successor
shall be elected to serve only until the next meeting of shareholders at which
directors are elected.
No person shall be elected, re-elected or appointed as a director after
attaining seventy (70) years of age except for members of the initial Board of
Directors of the Corporation. In the
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event a director attains the age of seventy (70) years during his term, such
director shall serve until the next annual meeting, at which time his successor
shall be elected by the shareholders for the remainder of the unexpired term.
Section 3. Nominations: Nominations for election to the Board of Directors
may be made by the Board of Directors or a committee thereof, and, subject to
the conditions described below, any shareholder of common stock entitled to vote
at that meeting for the election of directors. To be eligible for consideration
at the meeting of shareholders, all nominations for election to the Board of
Directors, other than those made by the Board of Directors or its committee,
shall be in writing and must be delivered to the Secretary of the Corporation
not less than one hundred and twenty (120) days prior to the meeting of
shareholders.
Section 4. Election of Directors: Except as provided in Section 5 of this
Article, the directors shall be elected at the annual meeting of the
shareholders; and those persons who receive the highest number of votes at a
meeting at which a quorum is present shall be deemed to have been elected.
Section 5. Removal: Any director may be removed from office at any time
with or without cause by a vote of shareholders whenever the number of votes
cast in favor of removal of the director exceeds the number of votes cast
against such removal. If a director is elected by a voting group of
shareholders, only the shareholders of that voting group may participate in the
vote to remove such director. A director may not be removed by the shareholders
at a meeting unless the notice of the meeting states that the purpose, or one of
the purposes, of the meeting is removal of the director. If any directors are so
removed, new directors may be elected at the same meeting.
Section 6. Vacancies: If a vacancy occurs 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, the shareholders may fill the vacancy or the
Board of Directors may fill the vacancy. If the directors remaining in office do
not constitute a quorum of the Board, the directors may fill the vacancy by the
affirmative vote of a majority of the remaining directors, or by the sole
remaining director, as the case may be. If the vacant directorship was held by a
director elected by a voting group, only the remaining directors or director
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
expires at the next meeting of shareholders at which directors are elected.
Section 7. Chairman of the Board: There shall 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 or reimbursement of
all expenses incurred by directors in attending regular and special meetings of
the Board.
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Section 9. Appointment of Committees: The Board of Directors, by resolution
of a majority of the number of directors in office, shall designate three or
more directors to constitute an Executive Committee and may designate such other
committees as the Board shall deem advisable, each of which, to the extent
authorized by law and provided in such resolution, shall have and may exercise
such authority of the Board of Directors in the management of the Corporation as
the Board shall determine. The designation of any committee and the delegation
thereto of authority shall not operate to relieve the Board of Directors, or any
member thereof, of any responsibility or liability imposed upon the Board of
Directors, or any member thereof, by law.
ARTICLE IV
Meetings of Directors
Section 1. Regular Meetings: A regular meeting of the Board of Directors
shall be held immediately after, and at the same place as, the annual meeting of
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, provided that at least one meeting
shall be held each quarter.
Section 2. Special Meetings: Special meetings of the Board of Directors may
be called by or at the request of the Chairman of the Board, the President or a
majority of the directors. Such meetings may be held either within or without
the State of North Carolina.
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, at least twenty-four (24) hours before the meeting,
shall give notice thereof by any usual means of communication. Such notice need
not specify the purpose for which the meeting is called. Any duly convened
regular or special meeting may be adjourned by the directors to a later time
without further notice.
Section 4. Waiver of Notice: Any director may waive notice of any meeting
before or after the meeting. The waiver must be in writing, signed by the
director entitled to the notice, and delivered to the Corporation for inclusion
in the minutes or filing with the corporate records. The attendance by a
director at, or the participation of a director in, a meeting shall constitute a
waiver of any required notice of such meeting, unless the director, at the
beginning of the meeting (or promptly upon the director's arrival thereat),
objects to holding the meeting or to transacting any business at the meeting and
does not thereafter vote for or assent to action taken at the meeting.
Section 5. Quorum: Unless the Corporation's articles of incorporation
provide otherwise, a majority of the number of directors fixed by or pursuant to
these Bylaws shall constitute a quorum for the transaction of business at any
meeting of the Board of Directors.
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Section 6. Manner of Acting: Except as otherwise provided in the
Corporation's articles of incorporation or these Bylaws or by applicable law,
the act of the majority of the directors present at a meeting at which a quorum
is present shall be the act of the Board of Directors. A director may not vote
at a directors' meeting by proxy or otherwise act by proxy at a meeting of the
Board of Directors.
Section 7. Presumption of Assent: A director of the Corporation who is
present at a meeting of the Board of Directors or at a meeting of any committee
of the Board of Directors at which action on any corporate matter is taken shall
be presumed to have assented to the action taken unless (a) such director
objects at the beginning of the meeting (or promptly upon the director's arrival
thereat) to holding the meeting or to transacting any business at the meeting,
or (b) such director's contrary vote is recorded or such director's dissent or
abstention from the action taken otherwise is entered in the minutes of the
meeting, or (c) such director files written notice of dissent or abstention to
such action with the person presiding at the meeting before the adjournment
thereof or forwards such notice by registered mail to the Secretary of the
Corporation immediately after the adjournment of the meeting. Such right of
dissent or abstention is not available to a director who voted in favor of the
action taken.
Section 8. Informal Action by Directors: Action required or permitted to be
taken at a meeting of the Board of Directors may be taken without a meeting if
the action is taken by all members of the Board and evidenced by one or more
written consents signed by each director before or after such action, describing
the action taken, and delivered to the Secretary of the Corporation for
inclusion in the minutes or filing with the corporate records.
ARTICLE V
Officers
Section 1. Number: The officers of the Corporation shall consist of a
President, one or more Vice Presidents, a Secretary, a Treasurer and such
Assistant Vice Presidents, Secretaries, Treasurers and other officers as the
Board of Directors from time to time may elect. Any two (2) or more offices may
be held by the same person, except that no officer may act in more than one
capacity where action of two (2) or more officers is required.
Section 2. Election and Term: The President of the Corporation shall be
elected by the Board of Directors. The remaining officers of the Corporation
shall be elected upon the recommendation of the President and approval of the
Board of Directors. Such elections may be held at any regular or special meeting
of the Board. Each officer shall hold office until such officer's death,
resignation, retirement, removal or disqualification, or until the election and
qualification of such officer's successor. Each officer and employee of the
Corporation shall give bond of suitable amount with security to be approved by
the Board of Directors. Each bond shall be issued upon such form as may be
approved by the Commissioner of Banks of North Carolina by a bonding company
authorized to do business in North Carolina with the premium to be paid by the
Corporation.
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Section 3. Removal and Resignation: Any officer or agent elected or
appointed by the Board of Directors may be removed by the Board with or without
cause; but such removal shall be without prejudice to the contract rights, if
any, of the person so removed.
An officer may resign at any time by notifying the Corporation, orally or
in writing, of such resignation. A resignation shall be effective upon receipt
by the Corporation unless it specifies in writing a later effective date. In the
event a resignation so specifies a later effective date, the Board of Directors
may fill the pending vacancy prior to such date; however, the successor to the
resigning officer may not take office until the effective date. An officer's
resignation does not affect the Corporation's contract rights, if any, with such
officer.
Section 4. Compensation: The compensation of all officers of the
Corporation shall be fixed by the Board of Directors. The election of an officer
does not of itself create any contract rights.
Section 5. President: The President 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 these
Bylaws.
The President, when present, shall preside at all meetings of shareholders.
The President, with any other proper officer, may sign certificates for shares
of the Corporation and any deeds, leases, mortgages, bonds, contracts or other
instruments which lawfully may be executed on behalf of the Corporation, except
where required or permitted by law otherwise to be 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. In general, the President shall
perform all duties incident to the office of President and such other duties as
from time to time may be assigned by the Board of Directors.
Section 6. Vice Presidents: In the absence of the President or in the event
of the President's death, inability or refusal to act, the Vice President
designated by the President and the Chairman of the Board, unless otherwise
determined by the Board of Directors, shall perform the duties of the President,
and when so acting shall have all the powers of and be subject to all the
restrictions upon the President. Any Vice President, with any other proper
officer, may sign certificates for shares of the Corporation and shall perform
such other duties as from time to time may be assigned by the President or by
the Board of Directors.
Section 7. Assistant Vice President: The Assistant Vice President shall, in
the absence or disability of their superior officers, perform the duties and
exercise the powers of those offices, and they shall, in general, perform such
other duties as shall be assigned to them by the President or their superior
officers.
Section 8. Secretary: The Secretary shall keep accurate records of the acts
and proceedings of all meetings of shareholders and directors. The Secretary
shall give all notices required by law and by these Bylaws. The Secretary shall
have general charge of the corporate
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books and records and of the corporate seal, and shall affix the corporate seal
to any lawfully executed instrument requiring it. The Secretary shall keep all
records required by law at the principal office of the Corporation. The
Secretary shall have general charge of the stock transfer books of the
Corporation and shall keep, at the registered or principal office of the
Corporation, a record of shareholders showing the name and address of each
shareholder and the number and class of the shares held by each. The Secretary,
with any other proper officer, may sign certificates for shares of the
Corporation and shall sign such instruments as may require the Secretary's
signature. In general, the Secretary shall perform all duties incident to the
office of Secretary and such other duties as from time to time may be assigned
by the President or by the Board of Directors.
Section 9. Assistant Secretaries: In the absence of the Secretary or in the
event of the Secretary's death, inability or refusal to act, the Assistant
Secretaries in the order of their length of service as Assistant Secretaries,
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 from time to time may be assigned by the Secretary, by the President, or by
the Board of Directors. Any Assistant Secretary, with any other proper officer,
may sign certificates for shares of the Corporation.
Section 10. Treasurer: The Treasurer shall have custody of all funds and
securities belonging to the Corporation and shall receive, deposit or disburse
the same under the direction of the Board of Directors. The Treasurer shall
maintain appropriate accounting records as required by law and shall prepare, or
cause to be prepared, annual financial statements of the Corporation that
include a balance sheet as of the end of the fiscal year and an income and cash
flow statement for that year, which statements, or a written notice of their
availability, shall be mailed to each shareholder within one hundred twenty
(120) days after the end of such fiscal year. The Treasurer, with any other
proper officer, may sign certificates for shares of the Corporation. In general,
the Treasurer shall perform all duties incident to the office of Treasurer and
such other duties as from time to time may be assigned by the President or by
the Board of Directors.
Section 11. Assistant Treasurers: In the absence of the Treasurer or in the
event of the Treasurer's death, inability or refusal to act, the Assistant
Treasurers in the order of their length of service as Assistant Treasurers,
unless otherwise determined by the Board of Directors, shall perform the duties
of the Treasurer, and when so acting shall have all the powers of and be subject
to all the restrictions upon the Treasurer. Any Assistant Treasurer, with any
other proper officer, may sign certificates for shares of the Corporation. They
shall perform such other duties as from time to time may be assigned by the
Treasurer, by the President, or by the Board of Directors.
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ARTICLE VI
Contracts, Loans, Checks and Deposits
Section 1. Contracts: The Board of Directors may authorize any officer or
officers or any agent or agents, to enter into any contract or to execute and
deliver any instrument in the name of and on behalf of the Corporation, and such
authority may be general or confined to specific instances. The Board of
Directors may enter into employment contracts for any length of time it deems
wise.
Section 2. Loans: No loans shall be contracted on behalf of the Corporation
and no evidences of indebtedness shall be issued in its name unless authorized
by a resolution adopted by the Board of Directors. Such authority may be general
or specific in nature and scope.
Section 3. Checks and Drafts: All checks, drafts or other orders for the
payment of money issued in the name of the Corporation shall be signed by such
officer or officers or such agent or agents of the Corporation and in such
manner as from time to time shall be determined by resolution of the Board of
Directors.
Section 4. Deposits: All funds of the Corporation not otherwise employed
from time to time shall be deposited to the credit of the Corporation in such
depositories as the Board of Directors shall direct.
ARTICLE VII
Certificates for Shares and Their Transfer
Section 1. Certificates for Shares: Certificates representing shares of the
Corporation may be issued in such form as the Board of Directors shall determine
to every shareholder for the fully paid shares owned thereby and shall indicate
thereon or reference any and all restrictive conditions of said shares. The
certificates shall be in such form as required by law and as determined by the
Board of Directors and shall be signed by the President or any Vice President
and either the Secretary or an Assistant Secretary or the Treasurer or an
Assistant Treasurer. All certificates for shares shall be numbered consecutively
or otherwise identified; and the name and address of the persons to whom they
are issued, with the number of shares and the date of issue, shall be entered on
the stock transfer books of the Corporation.
Section 2. Transfer of Shares: Transfer of shares shall be made on the
stock transfer books of the Corporation only upon surrender of the certificates
for the shares sought to be transferred by the record holder thereof or by such
shareholder's duly authorized agent, transferee or legal representative. All
certificates surrendered for transfer shall be canceled before new certificates
for the transferred shares shall be issued. Transfer of shares may be restricted
by an agreement of the shareholder(s).
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Section 3. Lost Certificates: The Board of Directors may authorize the
issuance of a new share certificate in place of a certificate theretofore issued
by the Corporation claimed to have been lost or destroyed, upon receipt of an
affidavit to such fact from the person claiming the loss or destruction. When
authorizing such issuance of a new certificate, the Board shall require the
claimant to give the Corporation a bond in such sum as the Board may direct to
indemnify the Corporation against loss from any claim with respect to the
certificate claimed to have been lost or destroyed; provided, however, that the
Board, by resolution reciting the circumstances justifying such action, may
authorize the issuance of the new certificate without requiring such a bond.
Section 4. Holder of Record: Except as otherwise required by law, the
Corporation may treat as absolute owner of shares and as the person exclusively
entitled to receive notification and distributions, to vote and otherwise to
exercise the rights, powers and privileges of ownership of such shares, the
person in whose name the shares stand of record on its books.
Section 5. Reacquired Shares: Shares of the Corporation that have been
issued and thereafter reacquired by the Corporation shall constitute authorized
but unissued shares.
ARTICLE VIII
General Provisions
Section 1. Distributions: The Board of Directors from time to time may
authorize, and the Corporation may pay, distributions and share dividends on the
Corporation's outstanding shares in the manner and upon the terms and conditions
provided by law and by the Corporation's 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 SEAL; and such seal, in the form approved and
adopted by the Board of Directors, shall be the corporate seal of the
Corporation.
Section 3. Amendments: Except to the extent otherwise provided in the
Corporation's articles of incorporation or by law, these Bylaws may be amended
or repealed and new bylaws may be adopted by a vote of the Board of Directors.
No bylaw adopted, amended or repealed by the shareholders shall be readopted,
amended or repealed by the Board of Directors unless the Corporation's articles
of incorporation or a bylaw adopted by the shareholders authorizes the Board of
Directors to adopt, amend or repeal that particular bylaw or the Bylaws
generally.
The shareholders may amend or repeal these Bylaws even though these Bylaws
also may be amended or repealed by the Board of Directors.
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Section 4. Fiscal Year: The fiscal year of the Corporation shall be the
calendar year ending December 31 of each year.
Section 5. Indemnification: The Corporation shall indemnify any person who
is or was a party or is threatened to be made a party to any threatened, pending
or completed action, suit or proceeding (and any appeal therein), whether civil,
criminal, administrative, arbitrative or investigative and whether or not
brought by or on behalf of the Corporation, by reason of the fact that such
party is or was a director, officer, employee or agent of the Corporation, or is
or was serving at the request of the Corporation as a director, officer,
partner, trustee, employee or agent of another corporation, partnership, joint
venture, trust or other enterprise or as a trustee or administrator under an
employee benefit plan, or arising out of such party's activities in any of the
foregoing capacities, against all liability and litigation expense, including
reasonable attorneys' fees; PROVIDED, however, that the Corporation shall not
indemnify any such person against liability or expense incurred on account of
such person's activities which were at the time taken known or believed by such
person to be clearly in conflict with the best interests of the Corporation. The
Corporation likewise shall indemnify any such person for all reasonable costs
and expenses (including attorneys' fees) incurred by such person in connection
with the enforcement of such person's right to indemnification granted herein.
The Corporation shall pay all expenses incurred by any director, officer,
employee or agent in defending a civil or criminal action, suit or proceeding in
advance of the final disposition of such action, suit or proceeding upon receipt
of an undertaking by or on behalf of such director, officer, employee or agent
to repay such amount unless it ultimately shall be determined that such party 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 a
determination by a majority vote of disinterested directors that the activities
giving rise to the liability or expense for which indemnification is requested
were not, at the time taken, known or believed by the person requesting
indemnification to be clearly in conflict with the best interests of the
Corporation.
Any person who at any time after the adoption of this bylaw 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. Such right
shall inure to the benefit of the legal representatives of any such person and
shall not be exclusive of, but shall be in addition to, any rights to which such
person may be entitled apart from the provision of this bylaw.
15
[specimen common stock certificate]
Incorporated Under the Laws of the State of North Carolina.
Number of Shares of Common Stock: ___________ of Catawba Valley Bancshares, Inc.
$1.00 par value per share.
This Capital Stock of Catawba Valley Bancshares, Inc. transferable only on the
books of the Corporation by the holder hereof in person or by Attorney upon
surrender of this Certificate properly endorsed.
IN WITNESS WHEREOF, the said Corporation has caused this Certificate to be
signed by its duly authorized officers and its Corporate Seal to be hereunto
affixed this _____ day of _______, 1999.
___________________________ ___________________________
President Secretary
- - --------------------------------------------------------------------------------
Certificate Number: ______________ for ___________ Shares of Capital Stock
For Value Received, __________ hereby sell, assign, and transfer unto
___________ Shares of the Capital Stock represented by the within Certificate,
and do hereby irrevocably constitute and appoint _______________ to transfer the
said Stock on the books of the within named Corporation with full power of
substitution in the premises.
Dated: ______________________1999.
In the presence of __________________________.
MOORE & VAN ALLEN, PLLC
Attorneys At Law
One Hannover Square, Suite 1700
Raleigh, North Carolina 27601
(919) 828-4481
(919) 828-4254 fax
March 25, 1999
Catawba Valley Bancshares, Inc.
1039 2nd Street NE
Hickory, North Carolina 28601-3843
RE: Registration Statement
Gentlemen:
We have acted as counsel to Catawba Valley Bancshares, Inc. (the "Company"), in
connection with the preparation of a Registration Statement on Form S-4 (the
"Registration Statement") to be filed by the Company with the Securities and
Exchange Commission under the Securities Act of 1933, as amended (the "Act"),
relating to the registration of up to 1,351,910 shares (the "Shares") of the
Company's common stock, $1.00 par value per share ("Common Stock"). This opinion
is furnished pursuant to the requirement of Item 601(b) (5) of the Regulation
S-K under the Act.
We have examined the Articles of Incorporation filed by the Company with the
North Carolina Secretary of State, the Bylaws of the Company, minutes of
meetings of its Board of Directors, and such other corporate records of the
Company and other documents and have made such examinations of law as we have
deemed necessary for purposes of this opinion.
Based on and subject to the foregoing and to the additional qualifications set
forth below, it is our opinion that the Shares that are being offered and sold
by the Company pursuant to the Registration Statement, when issued by the
Company as contemplated by the Registration Statement, will be legally issued,
fully paid and nonassessable.
We hereby consent to the reference to our firm in the Registration Statement
under the heading "Legal Matters" and to the filing of this opinion as an
exhibit to the Registration Statement. Such consent shall not be deemed to be an
admission that this firm is within the category of persons whose consent is
required under Section 7 of the Act or the regulations promulgated pursuant to
the Act.
<PAGE>
This opinion is limited to the laws of the State of North Carolina and no
opinion is expressed as to the laws of any other jurisdiction.
This opinion expressed herein does not extend to compliance with federal and
state securities law relating to the sale of the Shares.
This opinion is rendered solely for your benefit in connection with the
transaction described above and may not be used or relied upon by any other
person without prior written consent in each instance.
Very truly yours,
MOORE & VAN ALLEN, PLLC
Anthony Gaeta, Jr.
2
[Form of Opinion]
___________, 1999
Board of Directors
Catawba Valley Bank
1039 2nd Street NE
Hickory, NC 28601-3843
RE: Agreement and Plan of Reorganization and Share Exchange Dated as of
February 16, 1999 By and Between Catawba Valley Bank and Catawba
Valley Bancshares, Inc.
Gentlemen:
You have asked for our opinion in connection with the proposed exchange (the
"Exchange") of shares of the $1.00 par value common stock of Catawba Valley
Bancshares, Inc., a North Carolina corporation, for the shares of $5 par value
common stock of Catawba Valley Bank, a North Carolina-chartered bank, pursuant
to the terms of the Agreement and Plan of Reorganization and Share Exchange
dated as of February 16, 1999 by and between Catawba Valley Bank and the Catawba
Valley Bancshares, Inc. (the "Exchange Agreement"). All capitalized terms,
unless otherwise specified, have the meaning assigned to them in the Exchange
Agreement.
In connection with this opinion, we have examined and are familiar with
originals or copies, certified or otherwise identified to our satisfaction, of
the Exchange Agreement, the Registration Statement filed with the Securities and
Exchange Commission on March 25, 1999 and such other documents as we have deemed
necessary or appropriate in order to enable us to render the opinion expressed
below. In our examination, we have assumed the genuineness of all signatures,
the legal capacity of all natural persons, the authenticity of all documents
submitted to us as originals, the conformity to original documents of all
documents submitted to us as certified, conformed or photostatic copies and the
authenticity of the originals of such copies.
In rendering the opinions set forth below, we have relied, with your permission,
upon certain written factual representations of Catawba Valley Bank and Catawba
Valley Bancshares, Inc. dated as of the date of this letter. We have assumed
that any representation or statement made in connection with such
representations that is made "to the best of knowledge" or similarly qualified
is correct without such qualification. We have also assumed that when a person
or entity making a representation has represented that such person or entity
either is not a party to or does not have, or is not aware of, any plan or
intention, understanding or agreement as to a particular matter, there is in
fact no such plan, intention, understanding or agreement. We also
<PAGE>
have assumed that all such written representations will be true as of the
Effective Time of the Exchange.
In rendering our opinion, we have considered the applicable provisions of the
Code, the Treasury Regulations, pertinent judicial authorities, interpretive
rulings of the Internal Revenue Service and such other authorities as we have
considered relevant, all as of the date hereof. All of such authorities are
subject to change, possibly with retroactive effect. Any such change could
affect the opinions rendered below. Our opinion does not address the federal
income tax consequences of the Exchange to Catawba Valley Bank shareholders in
special circumstances, including insurance companies, tax-exempt organizations,
financial institutions and broker-dealers, persons who do not hold Catawba
Valley Bank Common Stock as capital assets, individuals who received Catawba
Valley Bank Common Stock pursuant to the exercise of employee stock options or
otherwise as compensation, and non-U.S. persons.
Based upon and subject to the foregoing, and subject to the discussions of the
continuity of interest requirement and the applicability of Section 351 which
follow, we are of the opinion that:
(i) The Exchange will constitute a tax-free reorganization under Section
368(a)(1)(B) of the Code, and Catawba Valley Bank and Catawba Valley
Bancshares, Inc. will each be a party to the reorganization within the
meaning of Section 368(b) of the Code.
(ii) Catawba Valley Bank's shareholders will not recognize any gain or loss on
the receipt of the Catawba Valley Bancshares, Inc. Common Stock in
exchange for their Catawba Valley Bank Common Stock.
(iii) The basis of each Catawba Valley Bank shareholder in Catawba Valley
Bancshares, Inc.'s Common Stock received by such shareholder will be the
same as the basis of such shareholder in the Catawba Valley Bank Common
Stock surrendered in exchange therefor.
(iv) The holding period of Catawba Valley Bancshares, Inc.'s Common Stock
received by each Catawba Valley Bank shareholder in the Exchange will
include the holding period of the Catawba Valley Bank Common Stock
surrendered in exchange therefor, provided that the Catawba Valley Bank
Common Stock is held as a capital asset at the Effective Time of the
Exchange.
(v) If a Catawba Valley Bank shareholder dissents from the Exchange and
receives cash for his Catawba Valley Bank Common Stock, the receipt of
such cash will be a taxable transaction and will be treated as a
distribution and redemption of his shares, subject to the provisions and
limitations of Sections 301 and 302 of the Code.
2
<PAGE>
Continuity of Interest Requirement
In order for the Exchange to qualify as a reorganization, among other
requirements, the Catawba Valley Bank shareholders must exchange a substantial
portion of the proprietary interests in Catawba Valley Bank for a proprietary
interest in Catawba Valley Bancshares, Inc.. The IRS takes the position for
advance ruling purposes that this "continuity of interest" requirement is
satisfied in a potential reorganization if the value of the acquiring
corporation's stock received in the reorganization by the acquired corporation's
shareholders equals or exceeds 50% of the total consideration paid for the stock
of the acquired corporation in the potential reorganization.
Based on the foregoing, the continuity of interest requirement will be satisfied
in the Exchange if, at the Effective Time of the Exchange, the value of the
Catawba Valley Bancshares, Inc. Common Stock issued in the Exchange equals or
exceeds the amount of any cash and the fair market value of any other property
received by dissenting Catawba Valley Bank shareholders in exchange for their
Catawba Valley Bank Common Stock. For purposes of this opinion, we have
therefore assumed that the cash and the fair market value of any property paid
to dissenting Catawba Valley Bank shareholders will not exceed the fair market
value at the Effective Time of the Exchange of the Catawba Valley Bancshares,
Inc. Common Stock issued in the Exchange.
Our opinion expressed in this letter is based on current law and upon facts and
assumptions as of the date of this letter. Our opinion is subject to change in
the event of a change in the applicable law, a change in the interpretation of
the applicable law by the courts or by the Internal Revenue Service or a change
in any of the facts or assumptions upon which the opinion is based. There is no
assurance that legislative, regulatory, administrative or judicial developments
may not be forthcoming which would significantly modify the statements or
opinion expressed in this letter. Any such developments may or may not be
retroactive. This opinion represents our best legal judgment but has no binding
effect or official status of any kind. As a result, no assurance can be given
that the opinion expressed in this letter will be sustained by a court if
contested. No ruling will be obtained from the Internal Revenue Service with
respect to the Exchange.
Except as set forth above, we express no opinion as to the tax consequences to
any party, whether Federal, state, local or foreign, of the Exchange or of any
transactions related to the Exchange or contemplated by the Exchange Agreement.
This opinion is being furnished only to you in connection with the Exchange and
solely for your benefit in connection therewith and may not be used or relied
upon for any other purpose and may not be circulated, quoted or otherwise
referred to for any other purpose without or express written consent. We hereby
consent to the filing of this opinion as an exhibit to the Registration
Statement with the Securities and Exchange Commission.
Very truly yours,
MOORE & VAN ALLEN, PLLC
Anthony Gaeta, Jr.
3
EMPLOYMENT AND CHANGE OF
CONTROL AGREEMENT
THIS EMPLOYMENT AND CHANGE OF CONTROL AGREEMENT ("Agreement") is made and
entered into this 1st day of January 1999, by and among Catawba Valley Bank,
Hickory, North Carolina ("CVB"), and R. Steve Aaron ("Executive").
WHEREAS, Executive is the President and Chief Executive Officer of CVB and
has held such positions since the organization of CVB; and
WHEREAS, the expertise and experience of Executive, his knowledge of the
affairs of CVB and his relationships and reputation in the financial
institutions industry are extremely valuable to CVB; and
WHEREAS, it is in the best interests of CVB and its shareholders to
maintain an experienced and sound executive management team to manage CVB and to
further CVB's overall strategies to protect and enhance the value of its
shareholders' investments; and
WHEREAS, CVB and Executive desire to enter into this Agreement to establish
the scope, terms and conditions of Executive's employment by CVB; and
WHEREAS, CVB and Executive desire to enter into this Agreement also to
provide Executive with security in the event of a Change of Control of CVB and
to insure the continued loyalty of Executive during any such Change of Control
in order to maximize shareholder value as well as the continued safe and sound
operation of CVB.
NOW, THEREFORE, in consideration of the foregoing and of the mutual
covenants and agreements set forth herein, and other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged, the
parties hereto agree as follows:
1. Effective Date. The effective time and date of this Agreement shall be
deemed to be 12:00:01 o'clock, a.m., on the date of its making set forth above
(the "Effective Date").
2. Definitions. The following defined terms are defined in the referenced
Sections of this Agreement.
TERM SECTION
---- -------
Accounting Firm Section 9(b)
Additional Payment Section 9(a)
Base Salary Section 6(a)
Benefits Plans Section 6(c)
Cause Section 7(b)
Board Section 3
Change of Control Section 8(b)
Commissioner Section 14(d)
<PAGE>
TERM SECTION
---- -------
Date of Termination Section 7(f)
Disability Section 7(a)
Disability Effective Date Section 7(a)
Effective Date Section 1
Excise Tax Section 9(a)
FDIC Section 14(d)
Group Section 8(b)
Incumbent Directors Section 8(b)
Initial Termination Date Section 4
IRS Section 9(a)
1934 Act Section 8(b)
Notice of Termination Section 7(e)
Payment Section 9(a)
Person Section 8(b)
Term Section 4
3. Employment. Executive will be employed as the President and Chief
Executive Officer of CVB. Executive's responsibilities, duties, prerogatives and
authority in such executive offices, and the clerical, administrative and other
support staff and office facilities provided to him, shall be those customary
for persons situated in a similar executive capacity. In his executive
capacities Executive shall report to the Board of Directors of CVB (the
"Board").
4. Term. The initial term of employment under this Agreement will commence
on the Effective Date and will terminate at the beginning of the business day on
the third (3rd) anniversary of the Effective Date (the "Initial Termination
Date"). This Agreement will automatically renew on the Initial Termination Date,
and on each subsequent anniversary of the Initial Termination Date, for a term
of one year, provided, however, that within 90 days of any such renewal, the
Board of Directors shall review the Executive's performance and shall make a
specific determination pursuant to such review to permit the term to renew for
an additional year.
5. Extent of Service. During the term of this Agreement, and excluding any
periods of vacation, sick or other leave to which Executive is entitled under
this Agreement, Executive agrees to devote such attention and time during normal
business hours to the business and affairs of CVB, and, to the extent necessary
to discharge the responsibilities assigned to Executive hereunder, to use
Executive's best efforts to perform faithfully and efficiently his
responsibilities and duties under this Agreement. During the term of this
Agreement it shall not be a violation of this Agreement for Executive to (i)
devote reasonable periods of time to charitable, trade association, community
and similar activities, and/or (ii) manage personal business interest and
investments, so long as such activities do not interfere with the performance of
Executive's responsibilities and duties under this Agreement.
6. Compensation and Benefits.
(a) Base Salary. CVB will pay the Executive during the term of this
Agreement, as compensation for all services rendered by him to CVB, a Base
Salary in such
2
<PAGE>
amounts and at such intervals as continue to be commensurate with his
duties and responsibilities as President and Chief Executive Officer. The
Executive's initial Base Salary will be $125,000.00 per annum ("Base
Salary"). The Executive's Base Salary may be increased from time to time to
reflect the duties of the Executive. In reviewing the Executive's Base
Salary, the Board will consider the overall performance of the Executive
and the service of the Executive rendered to CVB and its subsidiaries, as
well as increases in the cost of living and may also provide for
performance or merit increases. Participation in CVB's cash incentive,
deferred compensation, stock option, stock purchase, discretionary bonus,
pension, life insurance and other employee benefit plans and participation
in any fringe benefits will not cause a reduction of the Base Salary.
(b) Management Incentives and Discretionary Bonuses. During the term
of this Agreement, the Executive shall be entitled, in an equitable manner
based on the terms of any bonus and incentive plans that have been
approved, or may from time to time be approved, by the Board, with all
other key management personnel of CVB, to such incentives and discretionary
bonuses as may be authorized, declared and paid by the Board to CVB's key
management employees. No other compensation provided for in this Agreement
shall be deemed a substitute for the Executive's right to such incentives
and discretionary bonuses when and as declared by the Board.
(c) Participation in Retirement and Employee Benefit Plans; Fringe
Benefits. The Executive shall be entitled to participate in any plan
relating to incentive and deferred compensation, stock options, stock
purchase, pension, thrift, profit-sharing, group life insurance, medical
coverage, disability coverage, education, or other retirement or employee
benefit plans (hereafter, collectively referred to as the "Benefit Plans"),
that CVB has adopted, or may from time to time adopt, for the benefit of
its executive employees and for employees generally, subject to the
eligibility rules of such plans. The Executive shall also be entitled to
participate in any fringe benefits which are now, or may be, or may become
applicable to CVB's executive employees. Executive will be entitled to such
customary fringe benefits, vacation and sick leave as are consistent with
the normal practices and established policies of CVB, except that the Board
may, in its discretion, provide for more vacation and/or sick leave than
normal practice and policy of CVB.
(d) Automobile. CVB shall provide Executive, for his personal and
business use, with an automobile mutually satisfactory to the Executive and
the Board. CVB shall assume the costs associated with ownership of such
automobile, provided, however, that Executive shall be responsible for
expenses incurred with his personal use of the automobile.
(e) Reimbursement of Business Expenses. CVB shall reimburse the
Executive for all out-of-pocket reasonable and necessary business expenses
which the Executive may incur in connection with his service on behalf of
CVB, including the payment of reasonable expenses for attending annual and
periodic meetings of trade associations, and any other activities which are
commensurate with the duties and responsibilities to be performed by the
Executive under this Agreement. In estimating base salaries and cash
incentives or bonuses, the Board will consider personal cash contributions
and non-tax deductible expenses that are
3
<PAGE>
normally expected of executive employees in the financial institutions
industry in a position commensurate with that of Executive.
7. Termination of Employment (Other Than In Connection With A Change of
Control).
(a) Death or Disability. Executive's employment with CVB shall
terminate automatically upon Executive's death during the term of this
Agreement, and in which event the Executive's estate shall be entitled to
receive the compensation due the Executive through the last day of the
calendar month in which the Executive's death shall have occurred. If the
Board determines in good faith that the Disability of Executive has
occurred during the term of this Agreement (pursuant to the definition of
Disability set forth below) it may give to Executive written notice in
accordance with Section 7(e) and 15(g) of this Agreement of its intention
to terminate Executive's employment. In such event, Executive's employment
with CVB shall terminate effective on the 60th day after receipt of such
written notice by Executive (the "Disability Effective Date"), provided
that, within such time, Executive shall not have returned to full-time
performance of his duties as Executive. For purposes of this Agreement,
"Disability" shall mean the absence of Executive from his duties with CVB
on a full-time basis for 180 consecutive business days as a result of
incapacity due to mental or physical illness or injury which is determined
to be total and permanent by a physician selected by the Board, or the
insurers of CVB and acceptable to Executive or his legal representative,
which acceptance shall not be unreasonably withheld, subject to (i) CVB's
obligations, and Executive's rights, under (A) the Americans With
Disabilities Act, 42 U.S.C. ss.ss.1210 et seq., and (B) the Family and
Medical Leave Act, 29 U.S.C. ss.ss.2601 et seq. (and the regulations
promulgated under the foregoing Acts), and (ii) the exclusion from such 180
business day calculation of any business days constituting vacation days
and any business days which an employee is permitted to be absent under the
disability, sick or other leave policies of CVB.
(b) Cause. CVB may terminate Executive's employment with CVB for Cause
in which event the Executive shall have no right to receive compensation or
other benefits hereunder for any period after such termination for Cause.
For purposes of this Agreement, "Cause" shall mean termination of
employment because of the Executive's personal dishonesty, incompetence,
willful material misconduct, breach of fiduciary duty involving personal
profit, intentional failure to perform stated duties, willful material
violation of any law, rule, or regulation (other than traffic violations or
other similar misdemeanor offenses) or final cease-and-desist order, or a
material breach of any provision of this Agreement. For purposes of this
provision, no act or failure to act on the part of Executive shall be
considered "willful" unless it is done, or omitted to be done, by Executive
in bad faith or without reasonable belief that Executive's action or
omission was in the best interests of CVB. Any act, or failure to act,
based upon authority given pursuant to resolutions duly adopted by the
Board or based upon the advice of counsel for CVB shall be conclusively
presumed to be done, or omitted to be done, by Executive in good faith and
in the interest of CVB.
(c) Termination by CVB Other Than For Cause, Death or Disability.
Notwithstanding the foregoing, CVB may terminate the employment of the
Executive at any time during the term of this Agreement upon ninety (90)
days prior written notice to the
4
<PAGE>
Executive provided, however, that in the event of involuntary termination
of the Executive's employment under this Agreement, the Executive shall be
entitled to receive a lump sum equal to any accrued and awarded, but unpaid
bonuses or incentives earned in previous performance periods plus the
present value of any remaining Base Salary due throughout the remaining
term of this Agreement discounted at a rate of 7% per annum. CVB shall also
carry the Executive's medical and disability insurance, as well as any
other benefits in which the Executive participates, for a like period.
(d) By Executive. The Executive's employment under this Agreement may
be terminated at any time by the Executive upon ninety (90) days prior
written notice to CVB. Upon such termination, the Executive shall be
entitled to receive the compensation and benefits payable to the Executive
under this Agreement through the Date of Termination.
(e) Notice of Termination. Any termination by CVB for Disability or
Cause or by Executive shall be communicated by Notice of Termination to the
other party thereto given in accordance with Section 15(g) of this
Agreement. For purposes of this Agreement, a "Notice of Termination" means
a written notice which (i) indicates the specific termination provision in
this Agreement relied upon, (ii) to the extent applicable, sets forth in
reasonable detail the facts and circumstances claimed to provide a basis
for termination of Executive's employment under the provision so indicated,
and (iii) if the Date of Termination (as defined below) is other than the
date of receipt of such notice, specifies the termination date (which date
shall be not more than 90 days after the giving of such notice except as
otherwise provided in Section 7(a)). The failure by Executive or CVB to set
forth in the Notice of Termination any fact or circumstance which
contributes to a showing of Disability or Cause, or by Executive of any
fact or circumstance supporting his claim for payments following a Change
of Control Termination as set forth in Section 8(a) below, shall not waive
any right of Executive or CVB hereunder or preclude Executive or CVB from
asserting such fact or circumstance in enforcing Executive's or CVB's
rights hereunder.
(f) Date of Termination. "Date of Termination" means (i) if
Executive's employment is terminated by CVB for Cause, the date of receipt
of the Notice of Termination or any later date specified therein, as the
case may be, (ii) if Executive's employment is terminated by CVB other than
for Cause, Disability, death, or by Executive, ninety (90) days after the
date of receipt of the Notice of Termination, and (iii) if Executive's
employment is terminated by reason of death or Disability, the Date of
Termination shall be the date of death of Executive or the Disability
Effective Date, as the case may be.
8. Termination In Connection With a Change of Control.
(a) Change of Control Termination. In the event that CVB terminates
the Executive's employment, other than for Cause or Disability in
connection with, or within twelve (12) months after, any Change of Control
of CVB, or, in the event of a voluntary termination of the Officer's
employment in connection with, or within twelve (12) months after any
Change of Control of CVB under which the Executive shall have incurred a
reduction of compensation or a reduction of responsibilities (irrespective
of title) or shall have been required to change his workplace location
greater than 35 miles from Hickory, North Carolina, from any full service
5
<PAGE>
banking office of CVB or any of its subsidiaries ("Change of Control
Termination"), then the Executive shall be entitled to receive the greater
of (i) the severance payment offered by CVB in such Notice of Termination,
and (ii) the following amounts:
(i) a lump sum amount equal to 2.99 times the average annual
salary paid to the Executive over the previous three 12 month periods,
plus
(ii) a lump sum equal to 2.99 times the average annual cash
bonuses and incentives paid to the Executive over the previous three
12 month periods, plus
(iii) the Executive shall be carried on the medical and
disability programs of CVB for the remaining period of this Agreement
from the Date of Termination; provided, however, that if Executive
becomes re-employed with another employer and is eligible to receive
substantially the same benefits under the other employer's medical and
disability programs as Executive would receive under CVB's medical and
disability programs, then the benefits hereunder shall be secondary to
those provided under such other employer's programs during such
applicable period of eligibility.
(b) Definition of Change of Control. A Change of Control shall be
deemed to have occurred upon: (i) any "Person" or "Group" (as defined in or
pursuant to Sections 13(d) and 14(d) of the Securities Exchange Act of
1934, as amended (the "1934 Act"), but not including CVB, or any "employee
benefit plan" (as defined in or pursuant to the Employee Retirement Income
Security Act of 1974, 29 U.S.C. ss.1002(3), and as used herein "Person" or
"Group") becoming the "beneficial owner" (as defined in Rule 13d-3 under
the 1934 Act) or otherwise acquiring control, directly or indirectly, of
securities of CVB representing twenty-five percent (25%) or more of the
voting power of CVB's then outstanding securities; (ii) the acquisition by
any Person or Group in any manner of the ability to elect, or to control
the election, of a majority of the directors of CVB; (iii) the merger of
CVB into another entity, the merger of any entity into CVB or the
acquisition of assets by CVB, in any such case with the result that the
beneficial owners of CVB's outstanding securities immediately prior to such
transaction do not beneficially own more than sixty percent (60%) of CVB's
outstanding securities after the consummation of such transaction; (iv) the
sale or other transfer of more than fifty percent (50%) of the assets of
CVB to any entity not controlled by CVB; (v) the consummation of any
transaction by CVB that results (A) in the majority of the Board after the
consummation of such transaction not being composed of Incumbent Directors,
or (B) the beneficial owners of CVB's outstanding securities immediately
prior to the consummation of such transaction not beneficially owning more
than sixty percent (60%) of CVB's outstanding securities after such
transaction; or (vi) the occurrence of any other event or circumstance
which is not described in the foregoing provisions of this Section 8(b) but
which the Board determines affects control of CVB and constitutes a Change
of Control for purposes of this Agreement. The term "Incumbent Director"
shall mean any director who as of the Effective Date was a member of the
Board, or any individual becoming a member of the Board subsequent to the
Effective Date whose election by CVB shareholders was recommended by at
least two-thirds (2/3) of the then Incumbent Directors on the Board.
Notwithstanding the foregoing, a Change of Control shall not include any
transaction to which Executive consents in a writing specifically noting this
provision of this Agreement.
6
<PAGE>
9. Additional Payments.
(a) Amount of Additional Payments. Anything in this Agreement
seemingly to the contrary notwithstanding, in the event it shall be
determined that any or the aggregate of all payments, distributions,
accelerations of vesting, awards and provisions of benefits of CVB to or
for the benefit of the Executive (whether paid or payable, distributed or
distributable, accelerated, awarded or provided pursuant to the terms of
this Agreement or otherwise) (a "Payment") would constitute an "excess
parachute payment" within the meaning of Section 280G of the Code and
subject to the excise tax imposed by Section 4999 of the Code (the "Excise
Tax"), then prior to the making of any Payment to the Executive, a
calculation shall be made of the amount of the Excise Tax and an additional
cash payment (the "Additional Payment") shall be promptly made to the
Executive in the sum of (i) the Excise Tax and (ii) the total of any Excise
Tax payable on the amounts specified in item (i) and this item (ii). In
addition, if it shall be determined at any time by reference to Internal
Revenue Service ("IRS") regulations or rulings, as a consequence of IRS
audits or assessments of Executive (or in settlement thereof), by reference
to the terms of the final judgment of a court or other judicial body of
competent jurisdiction or as a result of other similar events requiring
Executive to pay an Excise Tax or any income or other excise tax on the
amounts specified in this Section 9(a), that an Additional Payment made was
less than the sums specified in items (i) and (ii) above, CVB promptly
shall make a further cash payment to Executive in the sum of (x) such
deficit and (y) any Excise Tax on such further cash payment.
(b) Determination of Excise Tax and Other Amounts. The determination
of whether an Excise Tax would be imposed, the amount of such Excise Tax,
and the calculation of the amounts referred to in Section 9(a) shall be
made by CVB's regular independent accounting firm or, at the election of
Executive, another nationally recognized independent accounting firm
(either, the "Accounting Firm") which shall provide detailed supporting
analyses and calculations. All fees and expenses of the Accounting Firm
shall be borne solely by CVB. Any determination by the Accounting Firm
shall be binding upon CVB and Executive.
10. Non-Exclusivity of Rights. Nothing in this Agreement shall prevent or
limit Executive's continuing or future participation in any plan, program,
policy or practice provided by CVB and for which Executive may qualify, nor,
subject to Section 15(e), shall anything herein limit or otherwise affect such
rights as Executive may have under any contract or other agreement with CVB.
Amounts which are vested benefits or which Executive is otherwise entitled to
receive under any plan, policy, practice or program of or any contract or other
agreement with CVB at or subsequent to a Date of Termination shall be payable in
accordance with such plan, policy, practice or program or such contract or
agreement except as explicitly modified by this Agreement.
11. Full Settlement. CVB's obligation to make the payments provided for in
this Agreement and otherwise to perform its obligations hereunder shall not be
affected by any set-off, counterclaim, recoupment, defense or other claim, right
or action which CVB may have against Executive or others. In no event shall
Executive be obligated to seek other employment
7
<PAGE>
or take any other action by way of mitigation of the amounts payable to
Executive under any of the provisions of this Agreement; provided, however, that
Executive's right to receive benefits under the Bank's medical and disability
programs to the extent that Executive obtains other employment shall be limited
as provided in Section 8(a)(iii).
12. Covenants.
(a) Covenant of Loyalty. During the term of this Agreement, the
Executive shall devote his full efforts and entire business time to the
performance of his duties and responsibilities under this Agreement.
(b) Covenant Not to Compete. In consideration of employment of the
Executive by CVB during the term of this Agreement, and for a period of one
(1) year after termination, the Executive agrees that he will not, within
any county in which CVB, any financial institution subsidiary of CVB, or
any subsidiary of any such financial institution subsidiary, maintains
offices, directly or indirectly own, manage, operate, join, control or
participate in the management, operation or control of or be employed by or
connected in any manner with any business which competes with CVB or any of
the other subsidiaries of CVB, without the prior written consent of CVB;
provided, however, that the provisions of this section shall not apply in
the event that the Executive's employment is involuntarily terminated by
CVB without Cause and no additional noncompetition agreement is made as
part of a separate severance agreement. Notwithstanding the foregoing, the
Executive shall be free, without such consent, to purchase or hold as an
investment or otherwise up to three percent (3%) of the outstanding stock
or other securities of any bank which has its securities publicly traded on
any national securities exchange or through an over-the-counter market.
(c) Covenant Not to Disclose. The Executive will hold in strict
confidence, during the term of this Agreement and at all times thereafter,
all knowledge or information, of a confidential nature with respect to the
business of CVB and all subsidiaries of CVB received by the Executive
during the term of this Agreement and will not disclose or make use of such
information without the prior written consent of CVB.
(d) Reasonableness of Scope and Duration. The parties hereto agree
that the covenants and agreements contained in this Section 12 are
reasonable in their time, territory and scope, and they intend that they be
enforced, and no party shall raise any issue of the reasonableness of time,
territory or scope of any such covenants in any proceeding to enforce any
such covenants.
(e) Enforceability. Executive agrees that monetary damages would not
be a sufficient remedy for any breach or threatened breach of the
provisions of this Section 12, and that in addition to all other rights and
remedies available to CVB, CVB shall be entitled to specific performance
and injunctive or other equitable relief as a remedy for any such breach or
threatened breach.
(f) Separate Covenants and Severability. The covenants and agreements
contained in this Section 12 shall be construed as separate and independent
covenants. Should
8
<PAGE>
any part or provision of any such covenant or agreement be held invalid,
void or unenforceable in any court of competent jurisdiction, no other part
or provision of this Agreement shall be rendered invalid, void or
unenforceable by a court of competent jurisdiction as a result. If any
portion of the foregoing provisions is found to be invalid or unenforceable
by a court of competent jurisdiction unless modified, it is the intent of
the parties that the otherwise invalid or unreasonable term shall be
reformed, or a new enforceable term provided, so as to most closely
effectuate the provisions as is validly possible.
13. Assignment and Successors.
(a) Executive. This Agreement is personal to Executive and without the
prior written consent of CVB shall not be assignable by Executive otherwise
than by will or the laws of descent and distribution. This Agreement shall
inure to the benefit of and be enforceable by Executive's legal
representatives.
(b) CVB. This Agreement shall inure to the benefit of and be binding
upon CVB and its respective successors and assigns. CVB will require any
successor to it (whether direct or indirect, by stock or asset purchase,
merger, consolidation or otherwise) to all or substantially all of its
business or more than fifty percent (50%) of its assets to assume expressly
and agree to perform this Agreement in the same manner and to the same
extent it would be required to perform it if no such succession had taken
place. As used in this Agreement, "CVB" shall mean CVB as hereinbefore
defined and any successor to its respective business and/or assets as
aforesaid which assumes and agrees to perform this Agreement by operation
of law, or otherwise.
14. Regulatory Intervention. Notwithstanding anything in this Agreement to
the contrary, the obligations of CVB under this Agreement are subject to the
following terms and conditions:
(a) If the Executive is suspended and/or temporarily prohibited from
participating in the conduct of CVB's affairs by a notice served under
Section 8(e)(3) or (g)(1) of the Federal Deposit Insurance Act (12 U.S.C.
ss.1818(e)(3) and (g)(1)), CVB's obligations hereunder, as applicable,
shall be suspended as of the date of service unless stayed by appropriate
proceedings. If the changes in the notice are dismissed, all of CVB's
obligations, as applicable, which were suspended, shall be reinstated.
(b) If Executive is removed and/or permanently prohibited from
participating in the conduct of CVB's affairs by an order issued under
Section 8(e)(4) or (g)(1) of the Federal Deposit Insurance Act (12 U.S.C.
ss.1818(e)(4) and (g)(1)), all obligations of CVB, as applicable, under
this Agreement shall terminate as of the effective date of the order, but
vested rights of the parties shall not be affected.
(c) If CVB is in default (as defined in Section 3(x)(1) of the Federal
Deposit Insurance Act (12 U.S.C. ss.1813(x)(1)), all obligations of CVB
under this Agreement shall terminate as of the date of default, but any
vested rights of Executive shall not be affected.
9
<PAGE>
(d) All obligations of CVB under this Agreement shall be terminated,
except to the extent determined that continuation of the Agreement is
necessary for the continued operation of CVB, if so ordered by the North
Carolina Commissioner of Banks (the "Commissioner") at the time the Federal
Deposit Insurance Corporation ("FDIC") enters into an agreement to provide
assistance to or on behalf of CVB under the authority contained in Section
13(c) of the Federal Deposit Insurance Act (12 U.S.C ss.1823(c)), or if so
ordered by the Commissioner at the time the FDIC approves a supervisory
merger to resolve problems related to operation of CVB or when CVB is
determined by the Commissioner to be in an unsafe or unsound condition. Any
rights of Executive that shall have vested under this Agreement shall not
be affected by such action.
(e) With regard to the provisions of this Section 14(a) through (d):
(i) CVB agrees to use its best efforts to oppose any such
notice of charges as to which there are reasonable
defenses;
(ii) In the event the notice of charges is dismissed or
otherwise resolved in a manner that will permit CVB to
resume their obligations to pay compensation hereunder, CVB
will promptly make such payment hereunder; and
(iii) During any period of suspension under Section 14(a), the
vested rights of Executive shall not be affected except to
the extent precluded by such notice.
(f) CVB's obligations to provide compensation or other benefits to
Executive under this Agreement shall be terminated or limited to the extent
required by the provisions of any final regulation or order of the FDIC
promulgated under Section 18(k) of the Federal Deposit Insurance Act (12
U.S.C. ss.1828(k)) limiting or prohibiting any "golden parachute payment"
as defined therein, but only to the extent that the compensation or
payments to be provided by CVB under this Agreement are so prohibited or
limited.
15. Miscellaneous.
(a) No Mitigation. Executive shall not be required to mitigate the
amount of any payment provided for in this Agreement by seeking other
employment or otherwise and except as provided in Sections 8(a)(iii), no
such payment shall be offset or reduced by the amount of any compensation
or benefits provided to Executive in any subsequent employment.
(b) Waiver. Failure of either party to insist, in one or more
instances, on performance by the other in strict accordance with the terms
and conditions of this Agreement shall not be deemed a waiver or
relinquishment of any right granted in this Agreement or of the future
performance of any such term or condition or of any other term or condition
of this Agreement, unless such waiver is contained in a writing signed by
the party making the waiver.
10
<PAGE>
(c) Severability. If any provision or covenant, of any part thereof,
of this Agreement should be held by any court to be invalid, illegal or
unenforceable, either in whole or in part, such invalidity, illegality or
unenforceability shall not affect the validity, legality or enforceability
of the remaining provisions or covenants, or any part thereof, of this
Agreement, all of which shall remain in full force and effect.
(d) Other Agents. Nothing in this Agreement is to be interpreted as
limiting CVB from employing other personnel on such terms and conditions as
may be satisfactory to it.
(e) Entire Agreement. Except as provided herein, this Agreement
contains the entire agreement between CVB and Executive, with respect to
the subject matter hereof and supersedes and invalidates any previous
employment and severance agreements or contracts with Executive. No
representatives, inducements, promises or agreements, oral or otherwise,
which are not embodied herein, shall be of any force and effect.
(f) Governing Law. Except to the extent preempted by federal law, the
laws of the State of North Carolina shall govern this Agreement in all
respects, whether as to its validity, construction, capacity, performance
or otherwise.
(g) Notices. All notices, requests, demands and other communications
required or permitted hereunder shall be in writing and shall be deemed to
have been duly given on delivery, if delivered, or three (3) days after
mailing, if mailed first class, certified mail, postage prepaid:
To CVB:
Catawba Valley Bank
1039 Second Street, N.E.
Hickory, North Carolina 28601
Attn: Chairman of the Board
To Executive:
R. Steve Aaron
1740 10th Street Court N.W.
Hickory, North Carolina 28601-1734
Any party may change the address to which notices, requests, demands and
other communications shall be delivered or mailed by giving notice thereof
to the other party in the same manner provided herein.
(h) Amendment and Modifications. This Agreement may be amended or
modified only by a writing signed by all parties hereto, which makes
specific reference to this Agreement.
11
<PAGE>
IN WITNESS WHEREOF, the parties hereto have duly executed and delivered
this Employment and Change of Control Agreement as of the date first above
written.
CATAWBA VALLEY BANK
By:
-------------------------------------
Steve Ikerd, Chairman of the Board
EXECUTIVE:
-------------------------------------
R. Steve Aaron, President and
Chief Executive Officer
12
CATAWBA VALLEY BANCSHARES, INC.
1996 INCENTIVE STOCK OPTION PLAN
Catawba Valley Bancshares, Inc., a North Carolina corporation (hereinafter
referred to as the "Corporation"), does herein set forth the terms of the
Catawba Valley Bancshares, Inc. 1996 Incentive Stock Option Plan (hereinafter
referred to as the "Plan") as adopted by the Corporation's Board of Directors
(the "Board") on March 24, 1999, and which was originally the Catawba Valley
Bank 1996 Incentive Stock Option Plan adopted by the Board of Catawba Valley
Bank and its shareholders prior to the creation of the Corporation and
reorganization of Catawba Valley Bank as the wholly-owned subsidiary of the
Corporation.
1. Purpose of the Plan. The purpose of this Plan is to provide for the
grant of Incentive Stock Options (hereinafter referred to as "Option" or
"Options") qualifying for the tax treatment afforded by Section 422 of the
Internal Revenue Code of 1986, as amended, to eligible officers and employees of
the Corporation (hereinafter referred to as "Eligible Employees") who wish to
invest in the Corporation's common stock (hereinafter referred to as "Common
Stock"). The Corporation believes that participation in the ownership of the
Corporation by Eligible Employees will be to the mutual benefit of the
Corporation and Eligible Employees. The existence of this Plan will make it
possible for the Corporation and its subsidiaries, if any, to attract capable
individuals to employment in key employee positions.
2. Administration of the Plan.
(a) This Plan shall be administered by the Executive Committee of the
Board (hereinafter referred to as the "Committee"). The Committee shall
consist of three (3) members of the Board all of whom shall qualify as
disinterested persons as provided in Section 16(b) and the rules and
regulations thereunder of the Securities Exchange Act of 1934, as amended.
The members of the Committee shall be appointed by the Board and shall
serve at the pleasure of the Board, which may remove members from, add
members to, or fill vacancies in the Committee.
(b) The Committee shall decide to whom Options shall be granted under
this Plan, the number of shares as to which Options shall be granted, the
Option Price (as hereinafter defined) for such shares and such additional
terms and conditions for such Options as the Committee deems appropriate.
(c) A majority of the Committee shall constitute a quorum and the acts
of a majority of the members present at any meeting at which a quorum is
present, or acts approved unanimously in writing by the Committee, shall be
considered as valid actions by the Committee.
(d) The Board may designate any officers or employees of the
Corporation to assist in the administration of this Plan. The Board may
authorize such individuals to execute documents on its behalf and may
delegate to them such other ministerial and limited discretionary duties as
the Board may deem fit.
<PAGE>
3. Shares of Common Stock Subject to the Plan. The number of shares of
Common Stock that shall be available initially for Options under this Plan is
__________ (_____) shares, subject to adjustment as provided in Paragraph 14
hereof. Shares subject to Options which expire or terminate prior to the
issuance of the shares of Common Stock shall again be available for future
grants of Options under this Plan.
4. Eligibility. Options under this Plan may be granted to any Eligible
Employee as determined by the Committee. An individual may hold more than one
Option under this or other plans adopted by the Corporation.
5. Vesting of Options. Except as otherwise expressly provided for herein,
Options granted under this Plan shall become exercisable as they vest in
accordance with the following schedule:
<TABLE>
<CAPTION>
YEARS OF
CONTINUOUS PERCENTAGE OF
EMPLOYMENT OPTIONS VESTED
---------- --------------
<S> <C>
One 20%
Two 40%
Three 60%
Four 80%
Five 100%
</TABLE>
6. Option Price.
(a) The price per share of each Option granted under this Plan
(hereinafter called the "Option Price") shall be determined by the
Committee as of the effective date of grant of such Option, but in no event
shall the Option Price be less than 100% of the fair market value of Common
Stock on the date of grant. If an Optionee (as hereinafter defined) at the
time that an Option is granted owns stock possessing more than ten (10%)
percent of the total combined voting power of all classes of stock of the
Corporation, then the Option Price per share of each Option granted under
this Plan shall be no less than 110% of the fair market value of Common
Stock on the date of grant and such Option shall not be exercisable more
than five (5) years from the date of grant. An Option shall be considered
as granted on the date that the Committee acts to grant such Option or such
later date as the Committee shall specify in an Option Agreement (as
hereinafter defined).
(b) The fair market value of a share of Common Stock shall be
determined as follows: (i) if on the date as of which such determination is
being made, Common Stock being valued is admitted to trading on a
securities exchange or exchanges for which actual sale prices are regularly
reported, or actual sale prices are otherwise regularly published, the fair
<PAGE>
market value of a share of Common Stock shall be deemed to be equal to the
mean of the closing sale price as reported on each of the five (5) trading
days immediately preceding the date as of which such determination is made;
provided, however, that, if a closing sale price is not reported for each
of the five (5) trading days immediately preceding the date as of which
such determination is made, then the fair market value shall be equal to
the mean of the closing sale prices on those trading days for which such
price is available, or (ii) if on the date as of which such determination
is made, no such closing sale prices are reported, but quotations for
Common Stock being valued are regularly listed on the National Association
of Securities Dealers Automated Quotation System ("NASDAQ") or another
comparable system, the fair market value of a share of Common Stock shall
be deemed to be equal to the mean of the average of the closing bid and
asked prices for such Common Stock quoted on such system on each of the
five (5) trading days preceding the date as of which such determination is
made, but if a closing bid and asked price is not available for each of the
five (5) trading days, then the fair market value shall be equal to the
mean of the average of the closing bid and asked prices on those trading
days during the five-day period for which such prices are available, or
(iii) if no such quotations are available, the fair market value of a share
of Common Stock shall be deemed to be the average of the closing bid and
asked prices furnished by a professional securities dealer making a market
in such shares, as selected by the Committee, for the trading date first
preceding the date as of which such determination is made. If the Committee
determines that the price as determined above does not represent the fair
market value of a share of Common Stock, the Committee may then consider
such other factors as it deems appropriate and then fix the fair market
value for the purposes of this Plan.
7. Payment of Option Price. Payment for shares subject to an Option may be
made either in cash or, with the approval of the Committee, in other stock of
the Corporation owned by the person to whom such Option was granted or such
other person as may be entitled to exercise such Option. Any shares of the
Corporation's stock that are delivered in payment of the aggregate Option Price
shall be valued at their fair market value, as determined by the Committee, on
the date of the exercise of such Option.
8. Terms and Conditions of Grant of Options. Each Option granted pursuant
to this Plan shall be evidenced by a written Incentive Stock Option Agreement
(hereinafter referred to as "Option Agreement") with each Eligible Employee
(hereinafter referred to as "Optionee") to whom an Option is granted; such
agreement shall be substantially in the form attached hereto as "Exhibit A,"
unless the Committee shall adopt a different form and, in each case, may contain
such other, different, or additional terms and conditions as the Committee may
determine.
9. Option Period. Each Option Agreement shall set forth a period during
which such Option may be exercised (hereinafter referred to as the "Option
Period"); provided, however, that the Option Period shall not exceed ten (10)
years after the date of grant of such Option as specified in an Option
Agreement.
10. Limitation on Grant of Incentive Stock Options. Notwithstanding any
other provision of this Plan, no person shall be granted an Option under this
Plan which would cause such person's "annual vesting amount" to exceed
$100,000.00. With respect to any calendar
<PAGE>
year, a person's "annual vesting amount" is the aggregate fair market value of
stock subject to incentive stock options with respect to which such options are
first exercisable during such calendar year. For purposes of the foregoing, the
aggregate fair market value of stock with respect to which incentive stock
options are first exercisable during any calendar year shall be determined by
taking into account all such options granted to such person under all incentive
stock option plans of the Corporation or of any of its parent or subsidiary
corporations.
11. Exercise of Incentive Stock Options. An Option shall be exercised by
written notice to the Committee signed by an Optionee or by such other person as
may be entitled to exercise such Option. The aggregate Option Price for the
shares being purchased must be paid in cash. The written notice shall state the
number of shares with respect to which an Option is being exercised and shall
either be accompanied by the payment of the aggregate Option Price for such
shares or shall fix a date (not more than ten (10) business days from the date
of such notice) by which the payment of the aggregate Option Price will be made.
An Optionee shall not exercise an Option to purchase less than one hundred (100)
shares, unless the Committee otherwise approves or unless the partial exercise
is for the remaining shares available under such Option. A certificate or
certificates for the shares of Common Stock purchased by the exercise of an
Option shall be issued in the regular course of business subsequent to the
exercise of such Option and the payment therefor. During the Option Period, no
person entitled to exercise any Option granted under this Plan shall have any of
the rights or privileges of a shareholder with respect to any shares of Common
Stock issuable upon exercise of such Option, until certificates representing
such shares shall have been issued and delivered and the individual's name
entered as a shareholder of record on the books of the Corporation for such
shares.
12. Effect of Termination of Employment, Retirement, Disability or Death.
(a) In the event of the termination of employment of an Optionee by
reason of being discharged for cause, any Option or Options granted to the
Optionee under this Plan, to the extent not previously exercised by the
Optionee or expired, shall immediately terminate. The phrase "discharged
for cause" shall include termination at the sole discretion of the Board
because of such Optionee's personal dishonesty, incompetence, willful
misconduct, breach of fiduciary duty involving personal profit, intentional
failure to perform stated duties, willful violation of any law, rule or
regulation (other than traffic violations or similar offenses), a final
cease and desist order, or material breach of any provision of any
employment agreement that such Optionee may have with the Corporation.
(b) In the event of the termination of employment of an Optionee
either by reason of (i) being discharged for any reason other than cause or
(ii) voluntary separation on the part of such Optionee for a reason other
than retirement or disability, such Optionee shall have the right to
exercise any Option or Options granted to the Optionee under this Plan, to
the extent that they have vested and have not previously been exercised by
the Optionee or expired, for a period of three (3) months after the date of
such termination, but in no event may any Option be exercised
<PAGE>
later than the end of the Option Period provided in such Option Agreement
in accordance with Paragraph 9 hereof.
(c) In the event of the termination of employment of an Optionee as a
result of such Optionee's retirement, such Optionee shall have the right to
exercise any Option or Options granted to the Optionee under this Plan, to
the extent that they have not previously been exercised by the Optionee or
expired, for a period of three (3) months after the date of retirement, but
in no event may any Option be exercised later than the end of the Option
Period provided in such Option Agreement in accordance with Paragraph 9
hereof. Notwithstanding any other provision contained herein, or in any
Option Agreement, upon retirement, any Option then held by an Optionee
shall be exercisable immediately in full. For purposes of this Plan, the
term "retirement" shall mean (i) termination of an Optionee's employment
under conditions which would constitute retirement under any tax qualified
retirement plan maintained by the Corporation or any of its subsidiaries or
(ii) attaining age 65.
(d) In the event of the termination of employment of an Optionee by
reason of such Optionee's disability, such Optionee shall have the right to
exercise any Option or Options held by the Optionee, to the extent that
they previously have not been exercised by the Optionee or expired,
notwithstanding any limitations placed on the exercise of such Options by
this Plan or an Option Agreement, immediately in full and at any time
within twelve (12) months after the last date on which such Optionee
provided services as an officer or an employee of the Corporation before
being disabled, but in no event may any Option be exercised later than the
end of the Option Period provided in such Option Agreement in accordance
with Paragraph 9 hereof. For purposes of this Plan, the term "disability"
shall be defined in the same manner as such term is defined in Section
22(e)(3) of the Internal Revenue Code of 1986, as amended.
(e) In the event that an Optionee should die while employed by the
Corporation or any of its subsidiaries, or within three (3) months after
retirement, any Option or Options granted to the Optionee under this Plan
and not previously exercised by the Optionee or expired shall vest and
shall be exercisable, according to their respective terms, by the personal
representative of such Optionee or by any person or persons who acquired
such Options by bequest or inheritance from such Optionee, notwithstanding
any limitations placed on the exercise of such Options by this Plan or an
Option Agreement, immediately in full and at any time within twelve (12)
months after the date of death of such Optionee, but in no event may any
Option be exercised later than the end of the Option Period provided in
such Option Agreement in accordance with Paragraph 9 hereof. Any references
herein to an Optionee shall be deemed to include any person entitled to
exercise an Option under the terms of this Plan after the death of such
Optionee under the terms of this Plan.
13. Effect of Plan on Employment Status. The fact that the Committee has
granted an Option to an Optionee under this Plan shall not confer on such
Optionee any right to employment with the Corporation or to a position as an
officer or an employee of the Corporation, nor shall it limit the right of the
Corporation to remove such Optionee from any position held by the Optionee or to
terminate the Optionee's employment at any time.
<PAGE>
14. Adjustment Upon Changes in Capitalization; Dissolution or Liquidation.
(a) In the event of a change in the number of shares of Common Stock
outstanding by reason of a stock dividend, stock split, recapitalization,
reorganization, merger, exchange of shares, or other similar capital
adjustment, prior to the termination of an Optionee's rights under this
Plan, equitable proportionate adjustments shall be made by the Committee in
(i) the number and kind of shares which remain available under this Plan
and (ii) the number, kind, and the Option Price of shares subject to
unexercised Options under this Plan. The adjustments to be made shall be
determined by the Committee and shall be consistent with such change or
changes in the Corporation's total number of outstanding shares; provided,
however, that no adjustment shall change the aggregate Option Price for the
exercise of Options granted under this Plan.
(b) The grant of Options under this Plan shall not affect in any way
the right or power of the Corporation or its shareholders to make or
authorize any adjustment, recapitalization, reorganization, or other change
in the Corporation's capital structure or its business, or any merger or
consolidation of the Corporation, or to issue bonds, debentures, preferred
or other preference stock ahead of or affecting Common Stock or the rights
thereof, or the dissolution or liquidation of the Corporation, or any sale
or transfer of all or any part of the Corporation's assets or business.
(c) Upon the effective date of the dissolution or liquidation of the
Corporation, or of a reorganization, merger, or consolidation of the
Corporation with one or more other corporations in which the Corporation is
not the surviving corporation, or the transfer of all or substantially all
of the assets or shares of the Corporation to another person or entity (any
such transaction being hereinafter referred to as a "Terminating Event"),
this Plan and any Options granted hereunder shall terminate unless
provision is made in writing in connection with such Terminating Event for
the continuance of this Plan and for the assumption of Options granted
hereunder, or the substitution for such Options of new options for the
shares of the successor corporation, or a parent or a subsidiary thereof,
with such appropriate adjustments, as may be determined or approved by the
Committee or the successor to the Corporation, to the number and kind of
shares subject to such substituted options in which event this Plan and
Options granted hereunder, or the new options substituted therefor, shall
continue in the manner and under the terms so provided. Upon the occurrence
of any Terminating Event, all Options granted hereunder to an Optionee
shall immediately vest in full.
15. Non-Transferability. Any Option granted under this Plan shall not be
assignable or transferable except, in the case of the death of an Optionee, by
will or by the laws of descent and distribution. In the event of the death of an
Optionee, the personal representative, the executor or the administrator of such
Optionee's estate, or the person or persons who acquired by bequest or
inheritance the rights to exercise such Option, may exercise any Option or
portion thereof to the extent not previously exercised by an Optionee or
expired, in accordance with its terms, prior to the expiration of the exercise
period as specified in Subparagraph 12(e) hereof.
<PAGE>
16. Tax Withholding. The employer of a person granted an Option under this
Plan shall have the right to deduct or otherwise effect a withholding of any
amount required by federal or state laws to be withheld with respect to the
grant or exercise of any Option or the sale of stock acquired upon the exercise
of an Option in order for the employer to obtain a tax deduction otherwise
available as a consequence of such grant, exercise, or sale, as the case may be.
17. Listing and Registration of Option Shares. Any Option granted under the
Plan shall be subject to the requirement that if at any time the Committee shall
determine, in its discretion, that the listing, registration, or qualification
of the shares covered thereby upon any securities exchange or under any state or
federal law or the consent or approval of any governmental regulatory body is
necessary or desirable as a condition of, or in connection with, the granting of
such Option or the issuance or purchase of shares thereunder, such Option may
not be exercised in whole or in part unless and until such listing,
registration, qualification, consent, or approval shall have been effected or
obtained free of any conditions not acceptable to the Committee.
18. Exculpation and Indemnification. In connection with this Plan, no
member of the Committee shall be personally liable for any act or omission to
act in such person's capacity as a member of the Committee, nor for any mistake
in judgment made in good faith, unless arising out of, or resulting from, such
person's own bad faith, gross negligence, willful misconduct, or criminal acts.
To the extent permitted by applicable law and regulation, the Corporation shall
indemnify and hold harmless the members of the Committee, and each other officer
or employee of the Corporation or of any subsidiary thereof to whom any duty or
power relating to the administration or interpretation of this Plan may be
assigned or delegated, from and against any and all liabilities (including any
amount paid in settlement of a claim with the approval of the Board) and any
costs or expenses (including counsel fees) incurred by such persons arising out
of, or as a result of, any act or omission to act in connection with the
performance of such person's duties, responsibilities, and obligations under
this Plan, other than such liabilities, costs, and expenses as may arise out of,
or result from, the bad faith, gross negligence, willful misconduct, or criminal
acts of such persons.
19. Amendment and Modification of the Plan. The Board may at any time and
from time to time amend or modify this Plan (including the form of Option
Agreement) in any respect; provided, however, that no amendment or modification
shall be made that increases the total number of shares covered by this Plan or
effects any change in the categories of persons who may receive Options under
this Plan or materially increases the benefits accruing to Optionees under this
Plan unless such change is approved by the holders of a majority of shares of
Common Stock present or represented at a shareholders' meeting at which a quorum
is present. Any amendment or modification of this Plan shall not materially
reduce the benefits under any Option theretofore granted to an Optionee under
this Plan without the consent of such Optionee or the transferee thereof in the
event of the death of such Optionee.
<PAGE>
20. Termination and Expiration of the Plan. This Plan was effective upon
its approval as the Catawba Valley Bank 1996 Incentive Stock Option Plan by the
requisite number of shareholders of Catawba Valley Bank on May 14, 1996.
21. Effective Date; Shareholder Approval. This Plan was effective upon its
approval as the Catawba Valley Bank 1996 Incentive Stock Option Plan by the
requisite number of shareholders of Catawba Valley Bank on May 14, 1996.
22. Captions and Headings; Gender and Number. Captions and paragraph
headings used herein are for convenience only, do not modify or affect the
meaning of any provision herein, are not a part hereof, and shall not serve as a
basis for interpretation or in construction of this Plan. As used herein, the
masculine gender shall include the feminine and neuter, the singular number the
plural, and vice versa, whenever such meanings are appropriate.
23. Expenses of Administration of Plan. All costs and expenses incurred in
the operation and administration of this Plan shall be borne by the Corporation
or one or more of its subsidiaries.
24. Governing Law. Without regard to the principles of conflicts of laws,
the laws of the State of North Carolina shall govern and control the validity,
interpretation, performance, and enforcement of this Plan.
25. Inspection of Plan. A copy of this Plan, and any amendments thereto or
modification thereof, shall be maintained by the Secretary of the Corporation
and shall be shown to any proper person making inquiry about it.
26. Compliance with Section 16 of the Securities Exchange Act of 1934. It
is the intention of the Corporation that the Plan and Options hereunder satisfy
and be interpreted in a manner, that, in the case of Optionees, satisfies the
applicable requirements of Rule 16b-3 promulgated under Section 16(b) of the
Exchange Act, so that such persons will be entitled to the benefits of Rule
16b-3 or other exemptive rules under Section 16 of the Exchange Act and will not
be subjected to avoidable liability thereunder. If any provision of the Plan or
of any Option Agreement would otherwise frustrate or conflict with the intent
expressed in this Paragraph 26, that provision to the extent possible shall be
interpreted and deemed amended so as to avoid such conflict. To the extent of
any remaining irreconcilable conflict with such intent, the provision shall be
deemed void as applicable to any person who is subject to Section 16 of the
Exchange Act.
<PAGE>
STATE OF NORTH CAROLINA
EXHIBIT A
COUNTY OF CATAWBA
INCENTIVE STOCK OPTION AGREEMENT
THIS INCENTIVE STOCK OPTION AGREEMENT (hereinafter referred to as this
"Agreement") is made and entered into as of this the ____ day of ______, ____,
between CATAWBA VALLEY BANCSHARES, INC., a North Carolina corporation
(hereinafter referred to as the "Corporation"), and ______________________, a
resident of ______________ County, North Carolina (hereinafter referred to as
the "Optionee").
WHEREAS, the Board of Directors of the Corporation (hereinafter referred to
as the "Board") has adopted the Catawba Valley Bancshares, Inc. 1996 Incentive
Stock Option Plan (hereinafter referred to as the "Plan") which was originally
the Catawba Valley Bank 1996 Incentive Stock Option Plan adopted by Catawba
Valley Bank and its shareholders prior to the creation of the Corporation and
reorganization of Catawba Valley Bank as the wholly-owned subsidiary of the
Corporation; and
WHEREAS, the Plan provides that the Executive Committee (hereinafter
referred to as the "Committee") of the Board will make available to certain
officers and employees of the Corporation and its subsidiaries (any one of
which, as may be appropriate, is hereinafter referred to as the "Employer") the
right to purchase shares of the Corporation's common stock (hereinafter referred
to as "Common Stock"); and
WHEREAS, the Committee has determined that the Optionee should be granted
an option to purchase shares of Common Stock under the Plan;
NOW, THEREFORE, the Corporation and the Optionee agree as follow:
1. Date of Grant of Option. The date of grant of the option granted under
this Agreement is the ____ day of _________, ____.
2. Grant of Option. Pursuant to the Plan, the Corporation grants to the
Optionee the right (hereinafter referred to as the "Option") to purchase from
the Corporation all or any part of an aggregate of _____________________________
(______) shares of Common Stock (hereinafter referred to as the "Option Shares")
which shall be authorized but unissued shares.
3. Option Price. The price to be paid for the Option Shares shall be
_____________________ Dollars ($______) per share (hereinafter referred to as
the "Option Price") which is the fair market value of the Option Shares as
determined by the Committee as of the date of grant of this Option.
4. When and Extent to which Option may be Exercised. At such time as the
Option shall become exercisable in accordance with this Agreement, the Optionee,
in his discretion, may exercise all or any portion of the Option, subject to
paragraph 5 hereof. The Option
<PAGE>
shall terminate as provided in paragraph 6 hereof. Notwithstanding any other
provision of this Agreement, the Option shall not become exercisable for the
first time during the course of any calendar year to purchase Option Shares
having an aggregate fair market value on the date of grant of the Option in
excess of One Hundred Thousand and No/100 Dollars ($100,000.00) (the "Value
Limitation"). The Value Limitation shall be reduced, dollar for dollar, by the
value of any shares of Common Stock subject to "incentive stock options"
obtained by the Optionee by means other than this Agreement which also are
exercisable for the first time in such calendar year. for purposes of this
paragraph 4, the term "incentive stock options" means options qualifying for the
tax treatment afforded by Section 422 of the Internal Revenue Code of 1986, as
amended (the "Code").
Except as otherwise expressly provided for in the Plan and in this
Agreement, Options granted hereunder shall become exercisable as they vest in
accordance with the following schedule:
<TABLE>
<CAPTION>
YEARS OF
CONTINUOUS PERCENTAGE OF
EMPLOYMENT OPTIONS VESTED
---------- --------------
<S> <C>
One 20%
Two 40%
Three 60%
Four 80%
Five 100%
</TABLE>
5. Method of Exercise. The Option shall be exercised by written notice to
the Committee signed by the Optionee or by such other person as may be entitled
to exercise the Option. In the exercise of the Option, the aggregate Option
Price for the shares being purchased may be paid either in cash or, with the
approval of the Committee, in shares of the Corporation's stock (valued as
determined by the Committee as of the date of exercise) or any combination
thereof and the notice of exercise shall specify how payment will be made. The
written notice shall state the number of shares with respect to which the Option
is being exercised and, shall either be accompanied by the payment of the
aggregate Option Price for such shares or shall fix a date (not more than ten
(10) business days from the date of such notice) by which the payment of the
aggregate Option Price will be made. An example of such form of written notice
is attached hereto as Exhibit A. The Optionee shall not exercise the Option to
purchase less than one hundred (100) shares, unless the Committee otherwise
approves or unless the partial exercise is for the remaining shares available
under the Option. A certificate or certificates for the shares of Common Stock
purchased by the exercise of the Option shall be issued in the regular course of
business subsequent to the exercise of the Option and the payment therefor.
During the Option Period, no person entitled to exercise the Option granted
under this Agreement shall have any of the rights or privileges of a shareholder
with respect to any shares of Common Stock issuable upon exercise of the Option,
until certificates representing such shares shall have been issued and
<PAGE>
delivered and the individual's name entered as a shareholder of record on the
books of the Corporation for such shares.
6. Termination of Option. The Option shall terminate as follows:
(a) Except as provided in subparagraphs (b), (c), (d) and (e) below,
the Option granted under this Agreement, to the extent that it has not been
exercised or expired, shall terminate on (i) the date that the Optionee is
discharged for cause, or (ii) the date which is ten (10) years from the
date of grant of the Option set forth in paragraph 1 hereof. The phrase
"discharged for cause" shall include termination at the sole discretion of
the Board of Directors of the Employer of the Optionee because of the
Optionee's personal dishonesty, incompetence, willful misconduct, breach of
fiduciary duty involving personal profit, intentional failure to perform
stated duties, willful violation of any law, rule or regulation (other than
traffic violations or similar offenses) or final cease and desist order, or
material breach of any provision of any employment agreement that the
Optionee may have with the Employer.
(b) In the event the Optionee is involuntarily terminated for any
reason other than cause or voluntarily terminates employment for reasons
other than retirement or disability, and such termination is prior to the
date which is ten (10) years after the date of grant of the Option, the
Optionee shall have the right to exercise the Option, to the extent that it
has vested and has not been exercised by the Optionee or expired, at any
time within three (3) months after the date of such termination, but in no
event may the Option be exercised later than ten (10) years after the date
of grant of the Options set forth in (b) of paragraph 1 hereof.
(c) In the event the Optionee retires prior to the date which is ten
(10) years after the date of grant of the Option, the Optionee shall have
the right to exercise the Option, to the extent that it has not been
exercised by the Optionee or expired, notwithstanding any limitation placed
on the exercise of the Option by the Plan or by this Agreement, immediately
in full and at any time within three (3) months after the date of
retirement, but in no event may the Option be exercised later than ten (10)
years after the date of grant of the Option set forth in paragraph 1
hereof. For purposes of this Agreement, the term "retirement" shall mean
(i) termination of the Optionee's employment under conditions which would
constitute retirement under any tax qualified retirement plan maintained by
the Employer or (ii) attaining age 65.
(d) In the event the Optionee becomes disabled prior to the date which
is ten (10) years after the date of grant of the Option, the Optionee shall
have the right to exercise the Option, to the extent that it has not been
exercised by the Optionee or expired, notwithstanding any limitation placed
on the exercise of the Option by the Plan or by this Agreement, immediately
in full and at any time within twelve (12) months after the last date on
which the Optionee provided services as an officer or an employee of the
Employer before being disabled, but in no event may the Option be exercised
later than ten (10) years after the date of grant of the Option set forth
in paragraph 1 hereof. For purposes of this Agreement, the term
"disability" shall be defined in the same manner as such term is defined in
Section 22(e)(3) of the Internal Revenue Code of 1986, as amended.
<PAGE>
(e) In the event the Optionee should die while employed by the
Employer or within three (3) months after retirement but prior to the date
which is ten (10) years after the date of grant of the Option, the Option,
to the extent it has not been exercised by the Optionee or expired, shall
be exercisable, according to its terms, by the personal representative, the
executor or administrator of the Optionee's estate, or any person or
persons who acquired the Option by bequest or inheritance from the
Optionee, notwithstanding any limitation placed on the exercise of the
Option by the Plan or by this Agreement, immediately in full and at any
time within twelve (12) months after the date of death of the Optionee, but
in no event may the Option be exercised later than ten (10) years from the
date of grant of the Option as set forth in paragraph 1 hereof.
7. Effect of Agreement on Employment Status of Optionee. The fact that the
Committee has granted the Option to the Optionee under this Agreement shall not
confer on the Optionee any right to employment with the Employer or to a
position as an officer or an employee of the Employer, nor shall it limit the
right of the Employer to remove the Optionee from any position held by the
Optionee or to terminate his or her employment at any time.
8. Listing and Registration of Option Shares
(a) The Corporation's obligation to issue shares of Common Stock upon
exercise of the Option is expressly conditioned upon (i) the completion by
the Corporation of any registration or other qualification of such shares
under any state or federal law or regulations or rulings of any government
regulatory body or (ii) the making of such investment representations or
other representations and agreements by the Optionee or any person entitled
to exercise the Option in order to comply with the requirements of any
exemption from any such registration or other qualification of the Option
Shares which the Committee shall, in its sole discretion, deem necessary or
advisable. Notwithstanding the foregoing, the Corporation shall be under no
obligation to register or qualify the Option Shares under any state or
federal law. The required representations and agreements referenced above
may include representations and agreements that the Optionee, or any other
person entitled to exercise the Option, (i) is purchasing such shares on
his or her own behalf as an investment and not with a present intention of
distribution or re-sale and (ii) agrees to have placed upon any
certificates representing the Option Shares a legend setting forth any
representations and agreements which have been given to the Committee or a
reference thereto and stating that such shares may not be transferred
except in accordance with all applicable state and federal securities laws
and regulations, and further representing that, prior to making any sale or
other disposition of the Option Shares, the Optionee, or any other person
entitled to exercise the Option, will give the Corporation notice of the
intention to sell or dispose of such shares not less than five (5) days
prior to such sale or disposition.
9. Adjustment Upon Change in Capitalization; Dissolution or Liquidation
(a) In the event of a change in the number of shares of Common Stock
outstanding by reason of a stock dividend, stock split, recapitalization,
reorganization, merger,
<PAGE>
exchange of shares, or other similar capital adjustment, prior to the
termination of the Optionee's rights under this Agreement, equitable
proportionate adjustments shall be made by the Committee in the number,
kind, and the Option Price of shares subject to the unexercised portion of
the Option granted under this Agreement. The adjustments to be made shall
be determined by the Committee and shall be consistent with such change or
changes in the Corporation's total number of outstanding shares; provided,
however, that no adjustment shall change the aggregate Option Price for the
exercise of the Option granted under this Agreement.
(b) The grant of the Option under this Agreement shall not affect in
any way the right or power of the Corporation or its shareholders to make
or authorize any adjustment, recapitalization, reorganization, or other
change in the Corporation's capital structure or its business, or any
merger or consolidation of the Corporation, or to issue bonds, debentures,
preferred or other preference stock ahead of or affecting Common Stock or
the rights thereof, or the dissolution or liquidation of the Corporation,
or any sale or transfer of all or any part of the Corporation's assets or
business.
(c) Upon the effective date of the dissolution or liquidation of the
Corporation, or of a reorganization, merger, or consolidation of the
Corporation with one or more other corporations in which the Corporation is
not the surviving corporation, or the transfer of all or substantially all
of the assets or shares of the Corporation to another person or entity, the
Option granted under this Agreement shall terminate, except as may be
provided in the Plan.
10. Nontransferability. The Option granted under this Agreement shall not
be assignable or transferable except, in the event of the death of the Optionee,
by will or by the laws of descent and distribution. In the event of the death of
the Optionee, the personal representative, the executor or the administrator of
the Optionee's estate, or the person or persons who acquired by bequest or
inheritance the right to exercise the Option may exercise the unexercised Option
or a portion thereof, in accordance with the terms hereof, prior to the date
which is ten (10) years after the date of grant of Option as set forth in
paragraph 1 hereof.
11. Notices. Any notice or other communications required or permitted to be
given under this Agreement shall be in writing and shall be deemed to have been
sufficiently given when delivered personally or when deposited in the United
States mail as Certified Mail, return receipt requested, properly addressed with
postage prepaid, if to the Corporation at its principal office at 1039 Second
Street, N.E., Hickory, North Carolina 28601; and, if to the Optionee to his or
her last address appearing on the books of the Employer. The Employer and the
Optionee may change their address or addresses by giving written notice of such
change as provided herein. Any notice or other communication hereunder shall be
deemed to have been given on the date actually delivered or as of the third
(3rd) business day following the date mailed, as the case may be.
12. Construction Controlled by Plan. This Agreement shall be construed so
as to be consistent with the Plan; and the provisions of the Plan shall be
deemed to be controlling in the event that any provision hereof should appear to
be inconsistent therewith. The Optionee hereby acknowledges receipt of a copy of
the Plan from the Corporation.
<PAGE>
13. Severability. Whenever possible, each provision of this Agreement shall
be interpreted in such a manner as to be valid and enforceable under applicable
law, but if any provision of this Agreement is determined to be unenforceable,
invalid or illegal, the validity of any other provisions or part thereof, shall
not be affected thereby and this Agreement shall continue to be binding on the
parties hereto as if such unenforceable, invalid or illegal provision or part
thereof had not been included herein.
14. Modification of Agreement; Waiver. This Agreement may be modified,
amended, suspended, or terminated, and any terms, representations or conditions
may be waived, but only by written instrument signed by each of the parties
hereto. No waiver hereunder shall constitute a waiver with respect to any
subsequent occurrence or other transaction hereunder or of any other provision
hereof.
15. Captions and Headings; Gender and Number. Captions and paragraph
headings used herein are for convenience only, do not modify or affect the
meaning of any provision herein, are not a part hereof, and shall not serve as a
basis for interpretation or in construction of this Agreement. As used herein,
the masculine gender shall include the feminine and neuter, the singular number
the plural, and vice versa, whenever such meanings are appropriate.
16. Governing Law; Venue and Jurisdiction. Without regard to the principles
of conflicts of laws, the laws of the State of North Carolina shall govern and
control the validity, interpretation, performance, and enforcement of this
Agreement. The parties hereto agree that any suit or action relating to this
Agreement shall be instituted and prosecuted in the courts of the County of
Catawba, State of North Carolina, and each party hereby does waive any right or
defense relating to such jurisdiction and venue.
17. Binding Effect. This Agreement shall be binding upon and shall inure to
the benefit of the Corporation, its successors and assigns, and shall be binding
upon and inure to the benefit of the Optionee, his or her heirs, legatees,
personal representatives, executors, and administrators.
18. Entire Agreement. This Agreement constitutes and embodies the entire
understanding and agreement of the parties hereto and, except as otherwise
provided hereunder, there are no other agreements or understandings, written or
oral, in effect between the parties hereto relating to the matters addressed
herein.
19. Counterparts. This Agreement may be executed in any number of
counterparts, each of which when executed and delivered shall be deemed an
original, but all of which taken together shall constitute one and the same
instrument.
<PAGE>
IN WITNESS WHEREOF, the Corporation has caused this instrument to be
executed in its corporate name by its President or one of its Vice Presidents
and attested by its Secretary or one of its Assistant Secretaries and its
corporate seal to be hereto affixed, all by authority of its Board of Directors
first duly given, and the Optionee has hereunto set his or her hand and adopted
as his or her seal the typewritten word "SEAL" appearing beside his or her name,
all done this the day and year first above written.
CATAWBA VALLEY BANCSHARES, INC.
By: ________________________________________
R. Steve Aaron
President and Chief Executive Officer
ATTEST:
___________________________________
______________, Corporate Secretary
[CORPORATE SEAL]
________________________________________
_____________________________, Optionee
<PAGE>
EXHIBIT A
NOTICE OF EXERCISE OF
INCENTIVE STOCK OPTION
To: The Stock Option Committee of the Board of Directors of Catawba Valley
Bancshares, Inc..
The undersigned hereby elects to purchase ________ whole shares of Common
Stock of Catawba Valley Bancshares, Inc. (the "Corporation"), pursuant to the
Incentive Stock Option granted to the undersigned in that certain Incentive
Stock Option Agreement between the Corporation and the undersigned dated the
____ day of _______, ____. The aggregate purchase price for such Shares is
$____________, which amount is (i) being tendered herewith, (ii) will be
tendered on or before _________________, ____ (cross out provision which does
not apply) in cash and/or stock of the Corporation owned by me, and I request
that a value as of the date of exercise of this Option be placed on any stock
being tendered in payment of the purchase price. The effective date of this
election shall be ____________________, ____, or the date of receipt of this
Notice by the Corporation if later.
Executed this _____ day of _______________, ____, at ___________________.
---------------------------------------
---------------------------------------
---------------------------------------
(Social Security Number)
CATAWBA VALLEY BANCSHARES, INC.
1997 NONQUALIFIED STOCK OPTION PLAN FOR DIRECTORS
Catawba Valley Bancshares, Inc., a North Carolina corporation (hereinafter
referred to as the "Corporation"), does herein set forth the terms of the
Catawba Valley Bancshares, Inc. 1997 Nonqualified Stock Option Plan for
Directors (hereinafter referred to as the "Plan") as adopted by the Corporation
on March 24, 1999, and which originally was the Catawba Valley Bank 1996
Incentive Stock Option Plan adopted by the Board of Directors of Catawba Valley
Bank and its shareholders prior to the creation of the Corporation and
reorganization of Catawba Valley Bank as the wholly-owned subsidiary of the
Corporation.
1. Purpose of the Plan. The purpose of this Plan is to provide for the
grant of nonqualified stock options (hereinafter referred to as "Option" or
"Options"), to non-employee directors of the Corporation and its subsidiaries
(hereinafter referred to as "Directors") who wish to invest in the Corporation's
common stock (hereinafter referred to as "Common Stock"). The Corporation
believes that participation in the ownership of the Corporation by Directors
will be to the mutual benefit of the Corporation and Directors. The existence of
this Plan will make it possible for the Corporation and its subsidiaries, if
any, to attract capable individuals to serve on the Board of Directors of the
Corporation.
2. Administration of the Plan.
(a) This Plan shall be administered by a committee of the Board
(hereinafter referred to as the "Committee"). The Committee shall consist
of at least three (3) members of the Board all of whom must ratify Rule
16b-3 promulgated under the Securities Exchange Act of 1934, as amended
(the "Exchange Act"). The members of the Committee shall be appointed by
the Board and shall serve at the pleasure of the Board, which may remove
members from, add members to, or fill vacancies in the Committee.
(b) The Committee shall decide to whom Options shall be granted under
this Plan, the number of shares as to which Options shall be granted, the
Option Price (as hereinafter defined) for such shares and such additional
terms and conditions for such Options as the Committee deems appropriate.
(c) A majority of the Committee shall constitute a quorum and the acts
of a majority of the members present at any meeting at which a quorum is
present, or acts approved unanimously in writing by the Committee, shall be
considered as valid actions by the Committee.
(d) The Board may designate any officers or employees of the
Corporation to assist in the administration of this Plan. The Board may
authorize such individuals to execute documents on its behalf and may
delegate to them such other ministerial and limited discretionary duties as
the Board may deem fit.
<PAGE>
3. Shares of Common Stock Subject to the Plan. The number of shares of
Common Stock that shall be available initially for Options under this Plan is
______________ (______) shares, subject to adjustment as provided in Paragraph
14 hereof. Shares subject to Options which expire or terminate prior to the
issuance of the shares of Common Stock shall again be available for future
grants of Options under this Plan.
4. Eligibility. Options under this Plan may be granted to any Director of
the Corporation who is not an employee of the Corporation or any subsidiary. An
individual may hold more than one Option under this or other plans adopted by
the Corporation.
5. Vesting of Options. Options granted under this Plan shall be fully
vested upon the date of grant.
6. Option Price.
(a) The price per share of each Option granted under this Plan
(hereinafter called the "Option Price") shall be determined by the
Committee as of the effective date of grant of such Option, but in no event
shall the Option Price be less than 100% of the fair market value of Common
Stock on the date of grant. An Option shall be considered as granted on the
date that the Committee acts to grant such Option or such later date as the
Committee shall specify in an Option Agreement (as hereinafter defined).
(b) The fair market value of a share of Common Stock shall be
determined as follows: (i) if on the date as of which such determination is
being made, Common Stock being valued is admitted to trading on a
securities exchange or exchanges for which actual sale prices are regularly
reported, or actual sale prices are otherwise regularly published, the fair
market value of a share of Common Stock shall be deemed to be equal to the
mean of the closing sale price as reported on each of the five (5) trading
days immediately preceding the date as of which such determination is made;
provided, however, that, if a closing sale price is not reported for each
of the five (5) trading days immediately preceding the date as of which
such determination is made, then the fair market value shall be equal to
the mean of the closing sale prices on those trading days for which such
price is available, or (ii) if on the date as of which such determination
is made, no such closing sale prices are reported, but quotations for
Common Stock being valued are regularly listed on the National Association
of Securities Dealers Automated Quotation System ("NASDAQ") or another
comparable system, the fair market value of a share of Common Stock shall
be deemed to be equal to the mean of the average of the closing bid and
asked prices for such Common Stock quoted on such system on each of the
five (5) trading days preceding the date as of which such determination is
made, but if a closing bid and asked price is not available for each of the
five (5) trading days, then the fair market value shall be equal to the
mean of the average of the closing bid and asked prices on those trading
days during the five-day period for which such prices are available, or
(iii) if no such quotations are available, the fair market value of a share
of Common Stock shall be deemed to be the average of the closing bid and
asked prices furnished by a professional securities dealer making a market
in such shares, as selected by the Committee, for the trading date first
preceding the date as of which such determination is made. If the Committee
<PAGE>
determines that the price as determined above does not represent the fair
market value of a share of Common Stock, the Committee may then consider
such other factors as it deems appropriate and then fix the fair market
value for the purposes of this Plan.
7. Payment of Option Price. Payment for shares subject to an Option may be
made either in cash, or with the approval of the Committee, in other stock of
the Corporation owned by an Eligible Director or such other person as may be
entitled to exercise such Option. Any shares of the Corporation's stock that are
delivered in payment of the aggregate Option Price shall be valued at their fair
market value, as determined by the Committee, on the date of the exercise of
such Option.
8. Terms and Conditions of Grant of Options. Each Option granted pursuant
to this Plan shall be evidenced by a written Nonqualified Stock Option Agreement
(hereinafter referred to as "Option Agreement") with each Director (hereinafter
referred to as "Optionee") to whom an Option is granted; such agreement shall be
substantially in the form attached hereto as "Exhibit A," unless the Committee
shall adopt a different form and, in each case, may contain such other,
different, or additional terms and conditions as the Committee may determine.
9. Option Period. Each Option Agreement shall set forth a period during
which such Option may be exercised (hereinafter referred to as the "Option
Period"); provided, however, that the Option Period shall not exceed ten (10)
years after the date of grant of such Option as specified in an Option
Agreement.
10. Exercise of Nonqualified Stock Options. An Option shall be exercised by
written notice to the Committee signed by an Optionee or by such other person as
may be entitled to exercise such Option. The aggregate Option Price for the
shares being purchased must be paid in cash. The written notice shall state the
number of shares with respect to which an Option is being exercised and shall
either be accompanied by the payment of the aggregate Option Price for such
shares or shall fix a date (not more than ten (10) business days from the date
of such notice) by which the payment of the aggregate Option Price will be made.
An Optionee shall not exercise an Option to purchase less than one hundred (100)
shares, unless the Committee otherwise approves or unless the partial exercise
is for the remaining shares available under such Option. A certificate or
certificates for the shares of Common Stock purchased by the exercise of an
Option shall be issued in the regular course of business subsequent to the
exercise of such Option and the payment therefor. During the Option Period, no
person entitled to exercise any Option granted under this Plan shall have any of
the rights or privileges of a shareholder with respect to any shares of Common
Stock issuable upon exercise of such Option, until certificates representing
such shares shall have been issued and delivered and the individual's name
entered as a shareholder of record on the books of the Corporation for such
shares.
11. Effect of Termination of Service, Retirement, Disability or Death.
(a) In the event of the termination of service as a Director by an
Optionee for any reason other than death or retirement, such Optionee shall
have the right to
<PAGE>
exercise any Option or Options granted to the Optionee under this Plan, to
the extent that they are exercisable and have not previously been exercised
by the Optionee or expired, for a period of twelve (12) months after the
date of such termination, but in no event may any Option be exercised later
than the end of the Option Period provided in such Option Agreement in
accordance with Paragraph 9 hereof.
(b) In the event of the termination of service as a Director by an
Optionee as a result of such Optionee's retirement, such Optionee shall
have the right to exercise any Option or Options granted to the Optionee
under this Plan, to the extent that they have not previously been exercised
by the Optionee or expired, for a period of twelve (12) months after the
date of retirement, but in no event may any Option be exercised later than
the end of the Option Period provided in such Option Agreement in
accordance with Paragraph 9 hereof. Notwithstanding any other provision
contained herein, or in any Option Agreement, upon retirement, any Option
then held by an Optionee shall be exercisable immediately in full. For
purposes of this Plan, the term "retirement" shall mean termination of an
Optionee's service as a Director upon attaining age 70.
(c) In the event that an Optionee should die while serving as a
Director of the Corporation or any of its subsidiaries, or within three (3)
months after retirement, any Option or Options granted to the Optionee
under this Plan and not previously exercised by the Optionee or expired
shall be exercisable, according to their respective terms, by the personal
representative of such Optionee or by any person or persons who acquired
such Options by bequest or inheritance from such Optionee, notwithstanding
any limitations placed on the exercise of such Options by this Plan or an
Option Agreement, immediately in full and at any time within twelve (12)
months after the date of death of such Optionee, but in no event may any
Option be exercised later than the end of the Option Period provided in
such Option Agreement in accordance with Paragraph 9 hereof. Any references
herein to an Optionee shall be deemed to include any person entitled to
exercise an Option under the terms of this Plan after the death of such
Optionee under the terms of this Plan.
12. Effect of Plan on Director Status. The fact that the Committee has
granted an Option to an Optionee under this Plan shall not confer on such
Optionee any right to continued service with the Corporation.
13. Adjustment Upon Changes in Capitalization; Dissolution or Liquidation.
(a) In the event of a change in the number of shares of Common Stock
outstanding by reason of a stock dividend, stock split, recapitalization,
reorganization, merger, exchange of shares, or other similar capital
adjustment, prior to the termination of an Optionee's rights under this
Plan, equitable proportionate adjustments shall be made by the Committee in
(i) the number and kind of shares which remain available under this Plan
and (ii) the number, kind, and the Option Price of shares subject to
unexercised Options under this Plan. The adjustments to be made shall be
determined by the Committee and shall be consistent with such change or
changes in the Corporation's total number of outstanding shares; provided,
however, that no adjustment shall change the aggregate Option Price for the
exercise of Options granted under this Plan.
<PAGE>
(b) The grant of Options under this Plan shall not affect in any way
the right or power of the Corporation or its shareholders to make or
authorize any adjustment, recapitalization, reorganization, or other change
in the Corporation's capital structure or its business, or any merger or
consolidation of the Corporation, or to issue bonds, debentures, preferred
or other preference stock ahead of or affecting Common Stock or the rights
thereof, or the dissolution or liquidation of the Corporation, or any sale
or transfer of all or any part of the Corporation's assets or business.
(c) Upon the effective date of the dissolution or liquidation of the
Corporation, or of a reorganization, merger, or consolidation of the
Corporation with one or more other corporations in which the Corporation is
not the surviving corporation, or the transfer of all or substantially all
of the assets or shares of the Corporation to another person or entity (any
such transaction being hereinafter referred to as a "Terminating Event"),
this Plan and any Options granted hereunder, shall terminate unless
provision is made in writing in connection with such Terminating Event for
the continuance of this Plan and for the assumption of Options granted
hereunder, or the substitution for such Options of new options for the
shares of the successor corporation, or a parent or a subsidiary thereof,
with such appropriate adjustments, as may be determined or approved by the
Committee or the successor to the Corporation, to the number and kind of
shares subject to such substituted options in which event this Plan and
Options granted hereunder, or the new options substituted therefor, shall
continue in the manner and under the terms so provided. Upon the occurrence
of any Terminating Event, any Options granted hereunder to an Optionee
shall be exercisable immediately in full.
14. Non-Transferability. Any Option granted under this Plan shall not be
assignable or transferable except, in the case of the death of an Optionee, by
will or by the laws of descent and distribution. In the event of the death of an
Optionee, the personal representative, the executor or the administrator of such
Optionee's estate, or the person or persons who acquired by bequest or
inheritance the rights to exercise such Option, may exercise any Option or
portion thereof to the extent not previously exercised by an Optionee or
expired, in accordance with its terms, prior to the expiration of the exercise
period as specified in Subparagraph 12(c) hereof.
15. Listing and Registration of Option Shares. Any Option granted under the
Plan shall be subject to the requirement that if at any time the Committee shall
determine, in its discretion, that the listing, registration, or qualification
of the shares covered thereby upon any securities exchange or under any state or
federal law or the consent or approval of any governmental regulatory body is
necessary or desirable as a condition of, or in connection with, the granting of
such Option or the issuance or purchase of shares thereunder, such Option may
not be exercised in whole or in part unless and until such listing,
registration, qualification, consent, or approval shall have been effected or
obtained free of any conditions not acceptable to the Committee.
16. Exculpation and Indemnification. In connection with this Plan, no
member of the Committee shall be personally liable for any act or omission to
act in such person's capacity
<PAGE>
as a member of the Committee, nor for any mistake in judgment made in good
faith, unless arising out of, or resulting from, such person's own bad faith,
gross negligence, willful misconduct, or criminal acts. To the extent permitted
by applicable law and regulation, the Corporation shall indemnify and hold
harmless the members of the Committee, and each other officer or employee of the
Corporation or of any subsidiary thereof to whom any duty or power relating to
the administration or interpretation of this Plan may be assigned or delegated,
from and against any and all liabilities (including any amount paid in
settlement of a claim with the approval of the Board) and any costs or expenses
(including counsel fees) incurred by such persons arising out of, or as a result
of, any act or omission to act in connection with the performance of such
person's duties, responsibilities, and obligations under this Plan, other than
such liabilities, costs, and expenses as may arise out of, or result from, the
bad faith, gross negligence, willful misconduct, or criminal acts of such
persons.
17. Amendment and Modification of the Plan. The Board may at any time and
from time to time amend or modify this Plan (including the form of Option
Agreement) in any respect; provided, however, that no amendment or modification
shall be made that increases the total number of shares covered by this Plan or
effects any change in the categories of persons who may receive Options under
this Plan or materially increases the benefits accruing to Optionees under this
Plan unless such change is approved by the holders of a majority of shares of
Common Stock present or represented at a shareholders' meeting at which a quorum
is present. Any amendment or modification of this Plan shall not materially
reduce the benefits under any Option theretofore granted to an Optionee under
this Plan without the consent of such Optionee or the transferee thereof in the
event of the death of such Optionee. Notwithstanding the above, no amendment may
be effective, without the approval of the shareholders of the Corporation, if
approval of such amendment is required in order that transactions in the Common
Stock under the Plan be exempt from the operation of Section 16(b) of the
Exchange Act.
18. Termination and Expiration of the Plan. This Plan may be abandoned,
suspended, or terminated at any time by the Board; provided, however, that
abandonment, suspension, or termination of this Plan shall not affect any
Options then outstanding under this Plan. No Option shall be granted pursuant to
this Plan after ten (10) years from the effective date of this Plan as provided
in Paragraph 19 hereof.
19. Effective Date; Shareholder Approval. This Plan was effective upon its
approval as the Catawba Valley Bank 1997 Nonqualified Stock Option Plan by the
requisite number of shareholders of Catawba Valley Bank on April 22, 1997.
20. Captions and Headings; Gender and Number. Captions and paragraph
headings used herein are for convenience only, do not modify or affect the
meaning of any provision herein, are not a part hereof, and shall not serve as a
basis for interpretation or in construction of this Plan. As used herein, the
masculine gender shall include the feminine and neuter, the singular number the
plural, and vice versa, whenever such meanings are appropriate.
<PAGE>
21. Expenses of Administration of Plan. All costs and expenses incurred in
the operation and administration of this Plan shall be borne by the Corporation
or one or more of its subsidiaries.
22. Governing Law. Without regard to the principles of conflicts of laws,
the laws of the State of North Carolina shall govern and control the validity,
interpretation, performance, and enforcement of this Plan.
23. Inspection of Plan. A copy of this Plan, and any amendments thereto or
modification thereof, shall be maintained by the Secretary of the Corporation
and shall be shown to any proper person making inquiry about it.
24. Compliance with Section 16 of the Securities Exchange Act of 1934. It
is the intention of the Corporation that the Plan and Options hereunder satisfy
and be interpreted in a manner, that, in the case of Optionees, satisfies the
applicable requirements of Rule 16b-3 promulgated under Section 16(b) of the
Exchange Act, so that such persons will be entitled to the benefits of Rule
16b-3 or other exemptive rules under Section 16 of the Exchange Act and will not
be subjected to avoidable liability thereunder. If any provision of the Plan or
of any Option Agreement would otherwise frustrate or conflict with the intent
expressed in this Paragraph 24, that provision to the extent possible shall be
interpreted and deemed amended so as to avoid such conflict. To the extent of
any remaining irreconcilable conflict with such intent, the provision shall be
deemed void as applicable to any person who is subject to Section 16 of the
Exchange Act.
<PAGE>
STATE OF NORTH CAROLINA
EXHIBIT A
COUNTY OF CATAWBA
NONQUALIFIED STOCK OPTION AGREEMENT
THIS NONQUALIFIED STOCK OPTION AGREEMENT (hereinafter referred to as this
"Agreement") is made and entered into as of this the ____ day of ______, ____,
between CATAWBA VALLEY BANCSHARES, INC., a North Carolina corporation
(hereinafter referred to as the "Corporation"), and _________________, a
resident of ______________ County, North Carolina (hereinafter referred to as
the "Optionee").
WHEREAS, the Board of Directors of the Corporation (hereinafter referred to
as the "Board") adopted the Catawba Valley Bancshares, Inc. 1997 Nonqualified
Stock Option Plan for Directors (hereinafter referred to as the "Plan") which
originates from the Catawba Valley Bank 1997 Nonqualified Stock Option Plan
adopted by the Board of Directors of Catawba Valley Bank and its shareholders
prior to the creation of the Corporation and reorganization of Catawba Valley
Bank as the wholly-owned subsidiary of the Corporation; and
WHEREAS, the Plan provides that a Committee (hereinafter referred to as the
"Committee") of the Board will make available to directors of the Corporation
and its subsidiaries who do not serve as employees of the Corporation or any of
its subsidiaries the right to purchase shares of the Corporation's common stock
(hereinafter referred to as "Common Stock"); and
WHEREAS, the Committee has determined that the Optionee should be granted
an option to purchase shares of Common Stock under the Plan;
NOW, THEREFORE, the Corporation and the Optionee agree as follow:
1. Date of Grant of Option. The date of grant of the option granted under
this Agreement ____________________ is the ____ day of _________, ____.
2. Grant of Option. Pursuant to the Plan, the Corporation grants to the
Optionee the right (hereinafter referred to as the "Option") to purchase from
the Corporation all or any part of an aggregate of _____________________________
(______) shares of Common Stock (hereinafter referred to as the "Option Shares")
which shall be authorized but unissued shares.
3. Option Price. The price to be paid for the Option Shares shall be
_____________________ Dollars ($______) per share (hereinafter referred to as
the "Option Price") which is the fair market value of the Option Shares as
determined by the Committee as of the date of grant of this Option.
4. When and Extent to which Option may be Exercised. At such time as the
Option shall become exercisable in accordance with this Agreement, the Optionee,
in his discretion, may exercise all or any portion of the Option, subject to
paragraph 5 hereof. The Option shall terminate as provided in paragraph 6
hereof.
<PAGE>
Options granted hereunder shall be fully vested upon the date of grant.
5. Method of Exercise. The Option shall be exercised by written notice to
the Committee signed by the Optionee or by such other person as may be entitled
to exercise the Option. In the exercise of the Option, the aggregate Option
Price for the share being purchased may be paid either in cash or, with the
approval of the Committee, in shares of the Corporation's stock (valued as
determined by the Committee as of the date of exercise) or any combination
thereof and the notice of exercise shall specify how payment will be made. The
written notice shall state the number of shares with respect to which the Option
is being exercised and, shall either be accompanied by the payment of the
aggregate Option Price for such shares or shall fix a date (not more than ten
(10) days from the date of such notice) by which the payment of the aggregate
Option Price will be made. An example of such form of written notice is attached
hereto as Exhibit A. The Optionee shall not exercise the Option to purchase less
than one hundred (100) shares, unless the Committee otherwise approves or unless
the partial exercise is for the remaining shares available under the Option. A
certificate or certificates for the shares of Common Stock purchased by the
exercise of the Option shall be issued in the regular course of business
subsequent to the exercise of the Option and the payment therefor. During the
Option Period, no person entitled to exercise the Option granted under this
Agreement shall have any of the rights or privileges of a shareholder with
respect to any shares of Common Stock issuable upon exercise of the Option,
until certificates representing such shares shall have been issued and delivered
and the individual's name entered as a shareholder of record on the books of the
Corporation for such shares.
6. Termination of Option. The Option shall terminate as follows:
(a) In the event the Optionee ceases to serve as a Director of the
Corporation of any of its subsidiaries for any reason other than retirement
or death, and such termination is prior to the date which is ten (10) years
after the date of grant of the Option, the Optionee shall have the right to
exercise the Option, to the extent that it is exercisable and has not been
exercised by the Optionee or expired, at any time within twelve (12) months
after the date of such termination, but in no event may the Option be
exercised later than ten (10) years after the date of grant of the Options
set forth in (b) of paragraph 1 hereof.
(b) In the event the Optionee retires prior to the date which is ten
(10) years after the date of grant of the Option, the Optionee shall have
the right to exercise the Option, to the extent that it has not been
exercised by the Optionee or expired, notwithstanding any limitation placed
on the exercise of the Option by the Plan or by this Agreement, immediately
in full and at any time within twelve (12) months after the date of
retirement, but in no event may the Option be exercised later than ten (10)
years after the date of grant of the Option set forth in paragraph 1
hereof. Notwithstanding any other provision contained herein or in the
Plan, upon retirement any Option then held by an Optionee shall be
exercisable immediately in full. For purposes of this Agreement, the term
"retirement" shall mean cessation as service as a Director of the
Corporation or any of its subsidiaries upon attaining age 70.
(c) In the event the Optionee should die while serving as a Director
of the Corporation or any of its subsidiaries or within three (3) months
after retirement, the Option, to
2
<PAGE>
the extent it has not been exercised by the Optionee or expired, shall be
exercisable, according to its terms, by the personal representative, the
executor or administrator of the Optionee's estate, or any person or
persons who acquired the Option by bequest or inheritance from the
Optionee, notwithstanding any limitation placed on the exercise of the
Option by the Plan or by this Agreement, immediately in full and at any
time within twelve (12) months after the date of death of the Optionee, but
in no event may the Option be exercised later than ten (10) years from the
date of grant of the Option as set forth in paragraph 1 hereof.
7. Effect of Agreement on Director Status of Optionee. The fact that the
Committee has granted the Option to the Optionee under this Agreement shall not
confer on the Optionee any right to continued service with the Corporation or
any of its subsidiaries.
8. Listing and Registration of Option Shares
(a) The Corporation's obligation to issue shares of Common Stock upon
exercise of the Option is expressly conditioned upon (i) the completion by
the Corporation of any registration or other qualification of such shares
under any state or federal law or regulations or rulings of any government
regulatory body or (ii) the making of such investment representations or
other representations and agreements by the Optionee or any person entitled
to exercise the Option in order to comply with the requirements of any
exemption from any such registration or other qualification of the Option
Shares which the Committee shall, in its sole discretion, deem necessary or
advisable. Notwithstanding the foregoing, the Corporation shall be under no
obligation to register or qualify the Option Shares under any state or
federal law. The required representations and agreements referenced above
may include representations and agreements that the Optionee, or any other
person entitled to exercise the Option, (i) is purchasing such shares on
his or her own behalf as an investment and not with a present intention of
distribution or re-sale and (ii) agrees to have placed upon any
certificates representing the Option Shares a legend setting forth any
representations and agreements which have been given to the Committee or a
reference thereto and stating that such shares may not be transferred
except in accordance with all applicable state and federal securities laws
and regulations, and further representing that, prior to making any sale or
other disposition of the Option Shares, the Optionee, or any other person
entitled to exercise the Option, will give the Corporation notice of the
intention to sell or dispose of such shares not less than three (3)
business days prior to such sale or disposition.
9. Adjustment Upon Change in Capitalization; Dissolution or Liquidation
(a) In the event of a change in the number of shares of Common Stock
outstanding by reason of a stock dividend, stock split, recapitalization,
reorganization, merger, exchange of shares, or other similar capital
adjustment, prior to the termination of the Optionee's rights under this
Agreement, equitable proportionate adjustments shall be made by the
Committee in the number, kind, and the Option Price of shares subject to
the unexercised portion of the Option granted under this Agreement. The
adjustments to be made shall be determined by the Committee and shall be
consistent with such change or changes in the Corporation's total number of
outstanding shares; provided, however, that no adjustment shall change the
aggregate Option Price for the exercise of the Option granted under this
Agreement.
3
<PAGE>
(b) The grant of the Option under this Agreement shall not affect in
any way the right or power of the Corporation or its shareholders to make
or authorize any adjustment, recapitalization, reorganization, or other
change in the Corporation's capital structure or its business, or any
merger or consolidation of the Corporation, or to issue bonds, debentures,
preferred or other preference stock ahead of or affecting Common Stock or
the rights thereof, or the dissolution or liquidation of the Corporation,
or any sale or transfer of all or any part of the Corporation's assets or
business.
(c) Upon the effective date of the dissolution or liquidation of the
Corporation, or of a reorganization, merger, or consolidation of the
Corporation with one or more other corporations in which the Corporation is
not the surviving corporation, or the transfer of all or substantially all
of the assets or shares of the Corporation to another person or entity, the
Option granted under this Agreement shall terminate except as may be
provided in the Plan.
10. Nontransferability. The Option granted under this Agreement shall not
be assignable or transferable except, in the event of the death of the Optionee,
by will or by the laws of descent and distribution. In the event of the death of
the Optionee, the personal representative, the executor or the administrator of
the Optionee's estate, or the person or persons who acquired by bequest or
inheritance the right to exercise the Option may exercise the unexercised Option
or a portion thereof, in accordance with the terms hereof, prior to the date
which is ten (10) years after the date of grant of Option as set forth in
paragraph 1 hereof.
11. Notices. Any notice or other communications required or permitted to be
given under this Agreement shall be in writing and shall be deemed to have been
sufficiently given when delivered personally or when deposited in the United
States mail as Certified Mail, return receipt requested, properly addressed with
postage prepaid, if to the Corporation at its principal office at 1039 Second
Street, N.E., Hickory, North Carolina 28601; and, if to the Optionee to his or
her last address appearing on the books of the Corporation. The Corporation and
the Optionee may change their address or addresses by giving written notice of
such change as provided herein. Any notice or other communication hereunder
shall be deemed to have been given on the date actually delivered or as of the
third (3rd) business day following the date mailed, as the case may be.
12. Construction Controlled by Plan. This Agreement shall be construed so
as to be consistent with the Plan; and the provisions of the Plan shall be
deemed to be controlling in the event that any provision hereof should appear to
be inconsistent therewith. The Optionee hereby acknowledges receipt of a copy of
the Plan from the Corporation.
13. Severability. Whenever possible, each provision of this Agreement shall
be interpreted in such a manner as to be valid and enforceable under applicable
law, but if any provision of this Agreement is determined to be unenforceable,
invalid or illegal, the validity of any other provisions or part thereof, shall
not be affected thereby and this Agreement shall continue to be binding on the
parties hereto as if such unenforceable, invalid or illegal provision or part
thereof had not been included herein.
14. Modification of Agreement; Waiver. This Agreement may be modified,
amended, suspended, or terminated, and any terms, representations or conditions
may be waived,
4
<PAGE>
but only by written instrument signed by each of the parties hereto. No waiver
hereunder shall constitute a waiver with respect to any subsequent occurrence or
other transaction hereunder or of any other provision hereof.
15. Captions and Headings; Gender and Number. Captions and paragraph
headings used herein are for convenience only, do not modify or affect the
meaning of any provision herein, are not a part hereof, and shall not serve as a
basis for interpretation or in construction of this Agreement. As used herein,
the masculine gender shall include the feminine and neuter, the singular number
the plural, and vice versa, whenever such meanings are appropriate.
16. Governing Law; Venue and Jurisdiction. Without regard to the principles
of conflicts of laws, the laws of the State of North Carolina shall govern and
control the validity, interpretation, performance, and enforcement of this
Agreement. The parties hereto agree that any suit or action relating to this
Agreement shall be instituted and prosecuted in the courts of the County of
Catawba, State of North Carolina, and each party hereby does waive any right or
defense relating to such jurisdiction and venue.
17. Binding Effect. This Agreement shall be binding upon and shall inure to
the benefit of the Corporation, its successors and assigns, and shall be binding
upon and inure to the benefit of the Optionee, his or her heirs, legatees,
personal representatives, executors, and administrators.
18. Entire Agreement. This Agreement constitutes and embodies the entire
understanding and agreement of the parties hereto and, except as otherwise
provided hereunder, there are no other agreements or understandings, written or
oral, in effect between the parties hereto relating to the matters addressed
herein.
19. Counterparts. This Agreement may be executed in any number of
counterparts, each of which when executed and delivered shall be deemed an
original, but all of which taken together shall constitute one and the same
instrument.
5
<PAGE>
IN WITNESS WHEREOF, the Corporation has caused this instrument to be
executed in its corporate name by its President or one of its Vice Presidents
and attested by its Secretary or one of its Assistant Secretaries and its
corporate seal to be hereto affixed, all by authority of its Board of Directors
first duly given, and the Optionee has hereunto set his or her hand and adopted
as his or her seal the typewritten word "SEAL" appearing beside his or her name,
all done this the day and year first above written.
CATAWBA VALLEY BANCSHARES, INC.
By: ________________________________________
R. Steve Aaron
President and Chief Executive Officer
ATTEST:
___________________________________
______________, _________ Secretary
[CORPORATE SEAL]
_________________________________ (SEAL)
_____________________________, Optionee
6
<PAGE>
EXHIBIT A
NOTICE OF EXERCISE OF
NONQUALIFIED STOCK OPTION
To: The Stock Option Committee of the Board of Directors of Catawba Valley
Bancshares, Inc.
The undersigned hereby elects to purchase ________ whole shares of Common
Stock of Catawba Valley Bancshares, Inc. (the "Corporation") pursuant to the
Nonqualified Stock Option granted to the undersigned in that certain
Nonqualified Stock Option Agreement between the Corporation and the undersigned
dated the ____ day of _______, ____. The aggregate purchase price for such
Shares is $____________, which amount is (i) being tendered herewith, (ii) will
be tendered on or before _________________, ____ (cross out provision which does
not apply) in cash and/or stock of the Corporation owned by me, and I request
that a value as of the date of exercise of the Option be placed on any stock
being tendered in payment of the purchase price. The effective date of this
election shall be ____________________, ____, or the date of receipt of this
Notice by the Corporation if later. Executed this _____ day of _____________,
____, at ______________.
---------------------------------------
---------------------------------------
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(Social Security Number)
7
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the inclusion in this registration statement of Catawba Valley
Bancshares, Inc. on Form S-4 of our report dated January 22, 1999, on our audits
of the financial statements of Catawba Valley Bank as of December 31, 1998 and
1997, and for each of the three years in the period ended December 31, 1998. We
also consent to the references to our firm under the caption "Experts".
/s/ PricewaterhouseCoopers LLP
PRICEWATERHOUSECOOPERS LLP
Charlotte, North Carolina
March 24, 1999
CATAWBA VALLEY BANK
1039 Second Street, N.E.
Hickory, North Carolina 28601
APPOINTMENT OF PROXY
SOLICITED BY THE BOARD OF DIRECTORS
The undersigned hereby appoints R. Steve Aaron, Joe S. Tripp and Carole F.
Teague, or any of them, as attorneys and proxies, with full power of
substitution, to vote all shares of the common stock of Catawba Valley Bank (the
"Bank") held of record by the undersigned on __________, 1999, at the Annual
Meeting of Shareholders of the Bank to be held at the Conference Room, J. C.
Bradford & Co., 400 Second Avenue, N.W., Hickory, North Carolina, at 2:00 p.m.
on __________, 1999, and at any adjournments thereof. The undersigned hereby
directs that the shares represented by this appointment of proxy be voted as
follows on the proposals listed below:
1. REORGANIZATION INTO BANK HOLDING COMPANY: To approve the Agreement and Plan
of Reorganization and Share Exchange between Catawba Valley Bank and
Catawba Valley Bancshares, Inc. and the transactions contemplated thereby
including the holding company reorganization of Catawba Valley Bank by
which its shareholders will exchange their shares of common stock for
shares of the common stock of Catawba Valley Bancshares, Inc. on a
one-for-one basis.
|_| FOR |_| AGAINST |_| ABSTAIN
2. ELECTION OF DIRECTORS: Proposal to elect three directors of the Bank for
three-year terms indicated below or until their successors are duly elected
and qualified.
|_| FOR all nominees listed below |_| WITHHOLD AUTHORITY to vote for
(except as indicated otherwise all nominees listed below
below)
Nominees:
R. Steve Aaron
W. Steve Ikerd
Pat M. Moss
INSTRUCTION: To withhold authority to vote for any individual nominee,
write that nominee's name on the line below.
---------------------------------------------------------------------------
3. OTHER BUSINESS: On such other matters as may properly come before the
Annual Meeting, the proxies are authorized to vote the shares represented
by this appointment of proxy in accordance with their best judgment.
PLEASE DATE AND SIGN THIS APPOINTMENT OF PROXY
ON THE REVERSE SIDE AND RETURN TO CATAWBA VALLEY BANK
<PAGE>
THE SHARES REPRESENTED BY THIS APPOINTMENT OF PROXY WILL BE VOTED AS
DIRECTED ABOVE. IN THE ABSENCE OF ANY DIRECTION, SUCH SHARES WILL BE VOTED FOR
THE ELECTION OF EACH OF THE NOMINEES LISTED IN PROPOSAL 2 BY CASTING AN EQUAL
NUMBER OF VOTES FOR EACH SUCH NOMINEE, AND FOR PROPOSAL 1. IF, AT OR BEFORE THE
TIME OF THE MEETING, ANY NOMINEE LISTED IN PROPOSAL 2 HAS BECOME UNAVAILABLE FOR
ANY REASON, THE PROXIES ARE AUTHORIZED TO VOTE FOR A SUBSTITUTE NOMINEE. THIS
APPOINTMENT OF PROXY MAY BE REVOKED BY THE HOLDER OF THE SHARES TO WHICH IT
RELATES AT ANY TIME BEFORE IT IS EXERCISED BY FILING WITH THE SECRETARY OF THE
BANK A WRITTEN INSTRUMENT REVOKING IT OR A DULY EXECUTED APPOINTMENT OF PROXY
BEARING A LATER DATE OR BY ATTENDING THE ANNUAL MEETING AND ANNOUNCING HIS OR
HER INTENTION TO VOTE IN PERSON.
Dated: __________________________, 1999
----------------------------------------
Signature
----------------------------------------
Signature if held jointly
Instruction: Please sign above exactly
as your name appears on this appointment
of proxy. Joint owners of shares should
both sign. Fiduciaries or other persons
signing in a representative capacity
should indicate the capacity in which
they are signing.
IMPORTANT: TO INSURE THAT A QUORUM IS PRESENT, PLEASE SEND IN YOUR APPOINTMENT
OF PROXY WHETHER OR NOT YOU PLAN TO ATTEND THE ANNUAL MEETING. EVEN IF YOU SEND
IN YOUR APPOINTMENT OF PROXY, YOU WILL BE ABLE TO VOTE IN PERSON AT THE MEETING
IF YOU SO DESIRE.
FEDERAL DEPOSIT INSURANCE CORPORATION
Washington, D.C. 20429
FORM 10-KSB
ANNUAL REPORT UNDER SECTION 13 OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR FISCAL YEAR ENDED DECEMBER 31, 1998
FDIC Certificate No. 34083
CATAWBA VALLEY BANK
(Exact Name of Bank as specified in its charter)
NORTH CAROLINA
(State of Incorporation)
56-1934003
(I.R.S. Employer Identification No.)
Hickory, North Carolina 28601
(Address of Principal Office)
(704) 431-2300
(Bank's telephone number, including area code)
Securities registered pursuant to Section 12(g) of the Act:
COMMON STOCK, $5.00 PAR VALUE
Check whether the Bank (1) has filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter
period that the Bank was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. YES _X_ NO ___
Check if there is no disclosure of delinquent filers in response to Item 405 of
Regulation S-B not contained in this form, and no disclosure will 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 10-KSB or any
amendment to this Form 10-KSB. _X_
The Bank's revenues for the year ended December 31, 1998 were $6,763,413.
The aggregate market value of the voting stock held by non-affiliates of the
Bank at December 31, 1998 was approximately $25,982,208.
The number of shares of the Bank's Common Stock outstanding on December 31, 1998
was 1,351,910.
Documents Incorporated by Reference:
1. Portions of Annual Report to Shareholders for the Fiscal Year Ended
December 31, 1998 (Part II).
2. Proxy Statement-Prospectus for the 1999 Annual Meeting of Shareholders
(Parts I and III).
<PAGE>
Part I
Item 1 - Business
(a)-(b) Catawba Valley Bank (the "Bank") was incorporated under the laws of the
State of North Carolina on October 27, 1995, and opened for business on November
1, 1995. Deposits in the Bank are insured by the Federal Deposit Insurance
Corporation ("FDIC").
The Bank engages in a general banking business in the City of Hickory and
portions of the four counties called the Unifour area (Catawba, Burke, Caldwell
and Alexander). Its operations are primarily retail-oriented, and aimed at
individuals and small- to medium-sized businesses located in its market area.
The Bank provides most traditional commercial and consumer banking services,
including personal and commercial checking and savings accounts, money market
accounts, certificates of deposit, individual retirement accounts and related
business and individual banking services. The Bank's lending activities include
making commercial loans to individuals and small- to medium-sized businesses
located primarily in its market area for various business purposes and various
consumer-type loans to individuals, including installment loans, equity lines of
credit, overdraft checking credit and credit cards. Also, the Bank makes
residential mortgage loans to its customers, which the Bank then sells to
another mortgage lender. The Bank issues ATM cards which allow its customers to
access their deposit accounts at the automatic teller machines of other banks
who are linked to the Honor system. The Bank does not provide trust services and
leasing services, except through a correspondent bank.
The Bank operates three offices, each of which are full-service offices. The
Bank's main office is located at 1039 Second Street N. E., in Hickory and the
Bank's Hickory branch is located at 1445 Second Avenue, N.W. The Bank also has a
Newton branch office located at 2675 Northwest Boulevard, Newton, North
Carolina. The Bank recently created a subsidiary called Valley Financial
Services, Inc. that provides for various insurance and other financial products
through third party affiliations.
Commercial banking in Catawba County, and in North Carolina as a whole, is
extremely competitive with state laws permitting state-wide branching. The Bank
competes directly for deposits in its market area with other commercial banks,
credit unions, brokerage firms and all other organizations and institutions
engaged in money market transactions. In its lending activities, the Bank
competes with all other financial institutions, as well as consumer finance
companies, mortgage companies and other lenders engaged in the business of
extending credit. In the Bank's market area, seven commercial banks operate with
multiple offices. The Bank's predominant competitors are Branch Bank and Trust
Company and First Union National Bank. These two institutions control
approximately 75% of the market.
Interest rates, both on loans and deposits, and prices of services are
significant competitive factors among financial institutions. Office locations,
office hours, customer service, community reputation and continuity of personnel
are also important competitive factors. The Bank's predominant competitors have
greater resources, broader geographic markets and higher lending limits. They
can offer more products, and can better afford and make more effective use of
media advertising, support services and electronic technology than the Bank. The
Bank depends on its reputation as a community bank in its local market, direct
customer contact, its ability to make
2
<PAGE>
credit and other business decisions locally, and personalized service to counter
these competitive disadvantages.
As a state-chartered bank whose deposits are insured by the FDIC, the Bank is
subject to supervision, examination and regulation by the North Carolina State
Banking Commission and the FDIC. While the Bank is not a member of the Federal
Reserve System, the Bank is also subject to certain regulations of the Board of
Governors of the Federal Reserve System. The regulations of these agencies
govern most aspects of the Bank's business, including capital adequacy ratios,
reserves against deposits, restrictions on the rate of interest which may be
paid on some deposit instruments, limitations on the nature and amount of
borrowings, dividends, loans that may be made, the location of branch offices
and the nature and scope of the Bank's activities. Supervision, regulation and
examination of the Bank by the regulatory agencies are generally intended to
protect depositors and are not intended for the protection of the Bank's
shareholders.
The Bank is periodically assessed insurance premiums by the FDIC in connection
with the insurance of its deposits. The Bank is required under North Carolina
law to maintain deposit insurance with the FDIC. Because the FDIC insurance fund
is fully funded, the Bank's assessment in 1996 was only $1,000, its assessment
in 1997 was $4,333 and its assessment in 1998 was 6,852. This insurance
assessment may be increased within certain parameters established by the FDIC's
bank rating system.
As of December 31, 1998, the Bank employed 26 full-time employees and 4
part-time employees. The Bank is not a party to a collective bargaining
agreement, and considers its relations with employees to be good.
(c)-(e) Not applicable.
Item 2 - Properties
The Bank owns its main office located at 1039 Second Street N. E., Hickory,
North Carolina. The Bank leases the branch office building located at 1445
Second Avenue N. W. The property is leased for five years, which lease expires
in July, 2000, and the Bank has three five-year options. The lease payments are
$2,734.58 per month. The Newton branch office is owned by the Bank.
Item 3 - Legal Proceedings
There are no pending legal proceedings to which the Bank is a party, or of which
any of its property is the subject.
Item 4 - Submission of Matters to a Vote of Security Holders
Not applicable.
3
<PAGE>
Part II
Item 5 - Market for Common Equity and Related Stockholder Matters
The information contained in the section captioned "Market for the Common Stock,
Stock Prices and Dividends" in the 1998 Annual Report to Shareholders (the
"Annual Report") is incorporated herein by reference.
Item 6 - Management's Discussion and Analysis or Plan of Operation
The information contained in the section captioned "Management's Discussions and
Analysis of Financial Condition and Results of Operations" in the Annual Report
is incorporated herein by reference.
The following tables are provided pursuant to the disclosure requirements under
Guide 3 of the Guides for the Preparation and Filing of Reports and Registration
Statements under the Securities Exchange Act of 1934.
[TABLES BEGIN ON FOLLOWING PAGE]
4
<PAGE>
TABLE ONE
- - ---------
<TABLE>
<CAPTION>
INTEREST INCOME AND AVERAGE BALANCES
------------------------------------
(DOLLARS IN THOUSANDS)
1998 1997 1996
------------------------------- -------------------------- -------------------------
INTEREST INTEREST INTEREST
AVERAGE INCOME/ YIELD/ AVERAGE INCOME/ YIELD/ AVERAGE INCOME/ YIELD/
BALANCE EXPENSE COST BALANCE EXPENSE COST BALANCE EXPENSE COST
------- -------- ------- ------- -------- ------ ------- -------- ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
INTEREST-EARNING ASSETS:
DUE FROM BANKS $10,159 $ 504 4.96% $ 5,448 $ 244 4.48% $ 2,915 $ 172 5.90%
TAXABLE SECURITIES 8,965 500 5.58% 5,522 349 6.33% 4,882 293 6.00%
FEDERAL FUNDS SOLD 2,648 122 4.63% 2,449 125 5.10% 1,982 102 5.17%
LOANS 51,802 4,899 9.46% 34,406 3,379 9.82% 13,920 1,251 8.99%
------- ------- ----- ------- ------- ----- ------- ------ -----
TOTAL INTEREST EARNING ASSETS 73,574 6,025 47,825 4,097 23,699 1,818
------- ------- ------- ------- ------- ------
YIELD ON AVERAGE INTEREST-
EARNING ASSETS 8.19% 8.57% 7.67%
===== ===== =====
NONINTEREST -EARNING ASSETS:
CASH AND DUE FROM BANKS 919 667 264
ALLOWANCE FOR LOAN LOSSES (867) (551) (194)
PREMISES AND EQUIPMENT 1,684 1,367 814
OTHER 1,964 698 138
------- ------- -------
TOTAL NONINTEREST-EARNING ASSETS 3,701 2,181 1,022
------- ------- -------
TOTAL ASSETS $77,275 $50,006 $24,721
======= ======= =======
INTEREST-BEARING LIABILITIES:
NOW ACCOUNTS $ 5,070 141 2.78% $ 3,340 95 2.85% $ 1,548 46 2.97%
MONEY MARKET AND SAVINGS 15,156 653 4.31% 9,946 485 4.87% 3,466 168 4.85%
TIME CERTIFICATES AND IRAS 41,702 2,473 5.93% 26,673 1,574 5.90% 10,998 638 5.80%
------- ------- ----- ------- ------- ----- ------- ------ -----
TOTAL INTEREST-BEARING LIABILITIES: 61,928 3,267 39,959 2,154 16,012 852
------- ------- ------- ------- ------- ------
COST ON AVERAGE INTEREST-BEARING
LIABILITIES: 5.27% 5.39% 5.32%
===== ===== =====
NONINTEREST-BEARING LIABILITIES:
DEMAND DEPOSITS 4,036 2,392 1,171
OTHER LIABILITIES 292 200 329
------- ------- -------
TOTAL NONINTEREST-BEARING LIABILITIES 4,328 2,592 1,500
------- ------- -------
TOTAL LIABILITIES 66,256 42,550 17,512
SHAREHOLDERS' EQUITY 11,019 7,456 7,209
------- ------- -------
TOTAL LIABILITIES AND SHAREHOLDERS'
EQUITY $77,275 $50,006 $24,721
======= ======= =======
NET INTEREST INCOME $ 2,759 $ 1,943 $ 966
======= ======= =====
NET YIELD ON INTEREST-EARNING ASSETS 3.75% 4.06% 4.08%
===== ===== =====
</TABLE>
NONACCRUING LOANS ARE INCLUDED IN THE AVERAGE LOANS BALANCE. INCOME ON
NONACCRUING LOANS IS RECOGNIZED ON A CASH BASIS.
5
<PAGE>
TABLE TWO
- - ---------
<TABLE>
<CAPTION>
RATE/VOLUME VARIANCE ANALYSIS
-----------------------------------------------------------------------------------------------------------
(DOLLARS IN THOUSANDS)
1998 COMPARED TO 1997 1997 COMPARED TO 1996 1996 COMPARED TO 1995
----------------------------- ---------------------------- ----------------------------
INTEREST VARIANCE INTEREST VARIANCE INTEREST VARIANCE
INCOME/ ATTRIBUTED INCOME/ ATTRIBUTED INCOME/ ATTRIBUTED
EXPENSE TO EXPENSE TO EXPENSE TO
VARIANCE RATE VOLUME VARIANCE RATE VOLUME VARIANCE RATE VOLUME
-------- ------- ------- -------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
INTEREST-EARNING ASSETS:
DUE FROM BANKS $ 260 $ 31 $ 229 $ 72 $ (49) $ 121 $ 127 $ 98 $ 29
TAXABLE INVESTMENT
SECURITIES 151 (47) 198 56 17 39 289 13 276
FEDERAL FUNDS SOLD (3) (12) 9 23 (2) 25 83 (7) 90
LOANS 1,520 (137) 1,657 2,128 150 1,978 1,286 16 1,270
------- ------- ------- ------- ------- ------- ------- ------- -------
TOTAL 1,928 (165) 2,093 2,279 116 2,163 1,785 120 1,665
------- ------- ------- ------- ------- ------- ------- ------- -------
INTEREST-BEARINGS LIABILITIES:
NOW ACCOUNTS 46 (3) 49 49 (2) 51 43 (8) 51
MONEY MARKET AND SAVINGS ACCOUNTS 168 (62) 230 317 1 316 162 2 160
TIME CERTIFICATES AND IRAS 899 9 890 936 14 922 623 4 619
------- ------- ------- ------- ------- ------- ------- ------- -------
TOTAL 1,113 (56) 1,169 1,302 13 1,289 828 (2) 830
------- ------- ------- ------- ------- ------- ------- ------- -------
NET INTEREST INCOME $ 815 $ (109) $ 924 $ 977 $ 103 $ 874 $ 957 $ 122 $ 835
======= ======= ======= ======= ======= ======= ======= ======= =======
</TABLE>
THE TABLE ABOVE SETS FORTH CERTAIN INFORMATION REGARDING CHANGES IN INTEREST
INCOME AND INTEREST EXPENSE FOR THE PERIODS INDICATED. FOR EACH CATEGORY OF
INTEREST EARNING ASSETS AND INTEREST BEARING LIABILITIES, INFORMATION IS
PROVIDED ON CHANGES ATTRIBUTABLE TO (1) CHANGES IN VOLUME (CHANGES IN VOLUME
MULTIPLIED BY OLD RATE); (2) CHANGES IN RATE (CHANGES IN RATE MULTIPLIED BY OLD
VOLUME). CHANGES DUE TO A COMBINATION OF RATE AND VOLUME. VARIANCES CONSISTENTLY
ON A PROPORTIONATE BASIS.
6
<PAGE>
TABLE THREE
- - -----------
SUMMARY OF TOTAL NONINTEREST INCOME
-----------------------------------
<TABLE>
<CAPTION>
1998 1997 1996
---------- ---------- ----------
<S> <C> <C> <C>
SERVICE CHARGES ON DEPOSIT ACCOUNTS $ 229,029 $ 154,396 $ 46,427
MORTGAGE PLACEMENT FEES 316,659 193,778 83,367
OTHER 192,453 95,248 20,303
---------- ---------- ----------
$ 738,141 $ 443,422 $ 150,097
========== ========== ==========
<CAPTION>
TABLE FOUR
- - ----------
SUMMARY OF TOTAL NONINTEREST EXPENSE
------------------------------------
1998 1997 1996
---------- ---------- ----------
<S> <C> <C> <C>
SALARIES,WAGES AND EMPLOYEE BENEFITS $ 922,644 $ 647,470 $ 485,729
OCCUPANCY 141,642 138,792 75,420
EQUIPMENT 128,005 103,218 38,697
PROFESSIONAL FEES 102,292 49,268 43,075
STATIONARY, PRINTING & SUPPLIES 44,079 35,573 45,414
ADVERTISING AND BUSINESS PROMOTION 91,849 76,907 64,729
OTHER 399,146 377,465 88,680
---------- ---------- ----------
$1,829,657 $1,428,693 $ 841,744
========== ========== ==========
</TABLE>
TABLE FIVE
- - ----------
ANALYSIS OF LOANS
-----------------
<TABLE>
<CAPTION>
1998 1997 1996
AMOUNT PERCENT AMOUNT PERCENT AMOUNT PERCENT
----------- ------- ----------- ------- ----------- -------
<S> <C> <C> <C> <C> <C> <C>
MORTAGE $10,462,635 17.26% $ 5,380,741 12.51% $ 2,286,394 9.15%
CONSTRUCTION 7,211,169 11.90% 6,939,831 16.14% 2,949,699 11.80%
HOME EQUITY 5,507,323 9.09% 3,912,927 9.10% 2,111,537 8.45%
COMMERCIAL 28,065,769 46.31% 17,001,742 39.54% 11,394,421 45.59%
INSTALLMENT 8,544,178 14.10% 8,408,182 19.55% 6,154,628 24.63%
OTHER 815,966 1.35% 1,354,491 3.15% 94,368 0.38%
----------- ------ ----------- ------ ----------- ------
$60,607,040 100.00% $42,997,914 100.00% $24,991,047 100.00%
=========== ====== =========== ====== =========== ======
</TABLE>
7
<PAGE>
TABLE SIX
- - ---------
ANALYSIS OF CERTAIN LOAN MATURITIES AT DECEMBER 31, 1998
--------------------------------------------------------
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
COMMERCIAL REAL ESTATE MORTGAGES
AMOUNT PERCENT AMOUNT PERCENT
------- ------- ------- -------
<S> <C> <C> <C> <C>
DUE WITHIN ONE YEAR: $11,513 41.02% $ 5,563 53.17%
------- ------ ------- ------
DUE AFTER ONE YEAR
THROUGH FIVE YEARS:
FIXED RATE 16,390 58.40% 4,836 46.22%
VARIABLE RATE 87 0.31% 0 0.00%
------- ------ ------- ------
16,477 58.71% 4,836 46.22%
------- ------ ------- ------
DUE AFTER FIVE YEARS;
FIXED RATE 77 0.27% 64 0.61%
VARIABLE RATE 0 0.00% 0 0.00%
------- ------ ------- ------
77 0.27% 64 0.61%
------- ------ ------- ------
$28,066 100.00% $10,463 100.00%
======= ====== ======= ======
</TABLE>
TABLE SEVEN
- - -----------
<TABLE>
<CAPTION>
ANALYSIS OF ALLOWANCE FOR LOAN LOSSES
-------------------------------------
(DOLLARS IN THOUSANDS)
1998 1997 1996
------ ------ ------
<S> <C> <C> <C>
BEGINNING BALANCE $ 683 $ 408 $ 52
CHARGE-OFFS 106 80 6
PROVISION FOR LOAN LOSSES 471 349 362
RECOVERIES 2 6 0
------ ------ ------
ENDING BALANCE $1,050 $ 683 $ 408
====== ====== ======
</TABLE>
THE BALANCE IN ALLOWANCE FOR LOAN LOSSES IS UNALLOCATED.
8
<PAGE>
TABLE EIGHT
- - -----------
DISTRIBUTION OF INTEREST-EARNING ASSETS AND INTEREST-BEARING LIABILITIES
------------------------------------------------------------------------
1998 REPRICING SCHEDULE
-----------------------
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
ONE YEAR ONE TO FIVE TO OVER
OR LESS FIVE YEARS TEN YEARS TEN YEARS TOTAL
-------- ---------- --------- --------- -------
<S> <C> <C> <C> <C> <C>
INTEREST-EARNING ASSETS:
INTEREST-BEARING DEPOSITS WITH
OTHER FINANCIAL INSTITUTIONS $10,454 $ 198 $ $ $10,652
FEDERAL FUNDS SOLD 2,510 2,510
INVESTMENT SECURITIES 0 4,487 5,020 1,891 11,398
LOANS 39,053 17,997 3,416 141 60,607
------- ------- ------- ------- -------
TOTAL $52,017 $22,682 $ 8,436 $ 2,032 $85,167
======= ======= ======= ======= =======
INTEREST-BEARING LIABILITIES:
SAVINGS, NOW,
MONEY MARKET $24,084 $ $ $ $24,084
TIME CERTIFICATE OF DEPOSITS
OVER $100,000 11,427 1,723 13,150
TIME CERTIFICATE OF DEPOSITS
UNDER $100,000 13,654 19,664 33,318
------- ------- ------- ------- -------
TOTAL $49,165 $21,387 $ 0 $ 0 $70,552
======= ======= ======= ======= =======
INTEREST SENSITIVITY GAP $ 2,852 $ 1,295 $ 8,436 $ 2,032 $14,615
------- ------- ------- ------- -------
CUMULATIVE GAP $ 2,852 $ 4,147 $12,582 $14,614 $14,615
======= ======= ======= ======= =======
RATIO OF INTEREST-SENSITIVE ASSETS
TO INTEREST-SENSITIVE LIABILITIES 105.80% 106.05% N/A N/A 120.71%
CUMULATIVE RATIO OF INTEREST-
SENSITIVE ASSETS TO INTEREST-
SENSITIVE LIABILITIES 105.80% 105.87% 117.84% 120.71% 120.71%
</TABLE>
THE COMPANY OWNS 100 SHARES OF COMMON STOCK IN BANKERS BANK VALUED AT $62,725
AND 1,948 SHARES OF STOCK IN FEDERAL HOME LOAN BANK OF ATLANTA VALUED AT
$194,800. THESE TWO ITEMS WERE EXCLUDED FROM THE ABOVE TABLE.
9
<PAGE>
TABLE NINE
- - ----------
INVESTMENT SECURITIES
---------------------
INVESTMENTS HELD TO MATURITY
<TABLE>
<CAPTION>
DUE ONE ONE YEAR FIVE YEARS AVERAGE
YEAR OR THROUGH THROUGH DUE AFTER MARKET MATURITY
LESS FIVE YEARS TEN YEARS TEN YEARS TOTAL VALUE IN YEARS
-------- ---------- ---------- ---------- ---------- ---------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
INVESTMENT SECURITIES:
U.S. GOVT. CORPORATIONS
AND AGENCIES OBLIGATIONS $ $1,000,255 $ 153,272 $ 225,991 $1,379,518 $1,394,983 9.61
MORTGAGE-BACKED
SECURITIES 248,538 205,416 453,954 462,334 17.62
-------- ---------- ---------- ---------- ---------- ---------- -----
TOTAL $ 0 $1,248,793 $ 153,272 $ 431,407 $1,833,472 $1,857,317 27.23
WEIGHTED AVERAGE YIELDS:
U.S. GOVT. CORPORATIONS 6.41% 4.70% 4.70%
AND AGENCIES OBLIGATIONS
MORTGAGE-BACKED 6.00% 7.22%
SECURITIES
<CAPTION>
INVESTMENTS AVAILABLE FOR SALE
DUE ONE ONE YEAR FIVE YEARS AVERAGE
YEAR OR THROUGH THROUGH DUE AFTER MARKET MATURITY
LESS FIVE YEARS TEN YEARS TEN YEARS TOTAL VALUE IN YEARS
-------- ---------- ---------- ---------- ---------- ---------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
INVESTMENT SECURITIES:
U.S. GOVT. CORPORATIONS
AND AGENCIES OBLIGATIONS $ $4,756,315 $1,947,457 $ $6,703,772 $6,698,392 4.97
MORTGAGE-BACKED
SECURITIES 1,474,872 1,378,289 2,853,161 2,866,139 16.92
-------- ---------- ---------- ---------- ---------- ---------- -----
TOTAL $ 0 $4,756,315 $3,422,329 $1,378,289 $9,556,933 $9,564,531 21.89
WEIGHTED AVERAGE YIELDS:
U.S. GOVT. CORPORATIONS 5.87% 5.56%
AND AGENCIES OBLIGATIONS
MORTGAGE-BACKED 6.80% 6.43%
SECURITIES
</TABLE>
THE COMPANY OWNS 100 SHARES ON COMMON STOCK IN BANKERS BANK VALUED AT $62,725
AND 1,948 SHARES OF STOCK IN FEDERAL HOME LOAN OF ATLANTA VALUED AT $194,800.
THESE TWO ITEMS WERE EXCLUDED FROM THE ABOVE TABLE.
10
<PAGE>
TABLE TEN
- - ---------
<TABLE>
<CAPTION>
1998 1997 1996
----- ----- -----
<S> <C> <C> <C>
RETURN ON AVERAGE ASSETS 0.96% 1.01% (0.35%)
RETURN ON AVERAGE SHAREHOLDERS' EQUITY 6.72% 6.95% (1.21%)
AVERAGE SHAREHOLDERS' EQUITY AS A 14.25% 14.91% 29.16%
PERCENTAGE OF AVERAGE ASSETS
</TABLE>
11
<PAGE>
Item 7 - Financial Statements
The information contained in the sections captioned "Balance Sheets",
"Statements of Operations", "Statements of Cash Flows", "Statements of
Stockholders' Equity", "Notes to Financial Statements" and "Independent
Auditors' Report" in the Annual Report is incorporated herein by reference.
Item 8 - Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
Not applicable.
Part III
Item 9 - Directors, Executive Officers, Promoters and Control Persons;
Compliance with Section 16(a) of the Exchange Act
The information contained under the section captioned "PROPOSAL 2: ELECTION OF
DIRECTORS" in the Bank's definitive proxy statement-prospectus for the 1999
Annual Meeting of Shareholders (the "Proxy Statement-Prospectus") is
incorporated herein by reference.
Item 10 - Executive Compensation
The information contained under the section captioned "PROPOSAL 2: ELECTION OF
DIRECTORS - Director Compensation" and "-Executive Compensation" in the Proxy
Statement-Prospectus is incorporated herein by reference.
Item 11 - Security Ownership of Certain Beneficial Owners and Management
The information contained under the section captioned "Voting Securities and
Beneficial Ownership Thereof" in the Proxy Statement-Prospectus is incorporated
herein by reference.
Item 12 - Certain Relationships and Related Transactions
The information contained under the section captioned "Indebtedness and
Transactions of Management " in the Proxy Statement-Prospectus is incorporated
herein by reference.
Item 13 - Exhibits and Reports on Form 8-K
(a) Exhibits
3(i) Articles of Incorporation of Catawba Valley Bank (incorporated
by reference to the Bank's Annual Report on Form F-2 for the
year ended December 31, 1995, as filed with the FDIC)
12
<PAGE>
3(ii) Bylaws of Catawba Valley Bank (incorporated by reference to
the Bank's Annual Report on Form F-2 for the year ended
December 31, 1995, as filed with the FDIC)
10(i) 1996 Incentive Stock Option Plan, approved by shareholders on
May 14, 1996 (incorporated by reference to the Bank's Annual
Report on Form F-2 for the year ended December 31, 1996, as
filed with the FDIC)
10(ii) 1997 Nonqualified Stock Option Plan for Directors, approved by
shareholders on April 22, 1997 (incorporated by reference to
the Bank's Annual Report on Form 10-KSB for the year ended
December 31, 1997, as filed with the FDIC)
10(iii) Employment and Change of Control Agreement between the Bank
and R. Steve Aaron dated January 1, 1999
13 1998 Annual Report to Shareholders
(b) Reports Filed on Form 8-K
A report on Form 8-K was filed on October 8, 1998, to report a secondary
offering of the Bank's common stock.
13
<PAGE>
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 there-unto duly authorized.
CATAWBA VALLEY BANK
Registrant
Date: March __, 1999 By: /s/ R. Steve Aaron
-------------------------------------
R. Steve Aaron
President and Chief Executive Officer
Date: March __, 1999 By: /s/ G. Marvin Lowder
---------------------------------------
G. Marvin Lowder
Vice President/Accounting
14
<PAGE>
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 there-unto duly authorized.
CATAWBA VALLEY BANK
Registrant
Date: March __, 1999 By:
-------------------------------------
R. Steve Aaron
President and Chief Executive Officer
Date: March __, 1999 By:
---------------------------------------
G. Marvin Lowder
Vice President/Accounting
15
<PAGE>
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.
/s/ Robert P. Huntley March __, 1999
- - --------------------------------
Robert P. Huntley, Director
/s/ Cloyd Hugh Propst, Jr. March __, 1999
- - --------------------------------
Cloyd Hugh Propst, Jr., Director
March __, 1999
/s/ Howard L. Pruitt
- - --------------------------------
Howard L. Pruitt, Director
March __, 1999
/s/ Hal F. Huffman, Jr.
- - --------------------------------
Hal F. Huffman, Jr., Director
March __, 1999
/s/ Robert T. King
- - --------------------------------
Robert T. King, Director
March __, 1999
/s/ William R. Sigmon, Jr.
- - --------------------------------
William R. Sigmon, Jr., Director
March __, 1999
/s/ R. Steve Aaron
- - --------------------------------
R. Steve Aaron, Director
March __, 1999
/s/ W. Steve Ikerd
- - --------------------------------
W. Steve Ikerd, Director
March __, 1999
/s/ Pat M. Moss
- - --------------------------------
Pat M. Moss, Director
16
<PAGE>
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.
- - -------------------------------- March __, 1999
Robert P. Huntley, Director
- - -------------------------------- March __, 1999
Cloyd Hugh Propst, Jr., Director
- - -------------------------------- March __, 1999
Howard L. Pruitt, Director
- - -------------------------------- March __, 1999
Hal F. Huffman, Jr., Director
- - -------------------------------- March __, 1999
Robert T. King, Director
- - -------------------------------- March __, 1999
William R. Sigmon, Jr., Director
- - -------------------------------- March __, 1999
R. Steve Aaron, Director
- - -------------------------------- March __, 1999
W. Steve Ikerd, Director
- - -------------------------------- March __, 1999
Pat M. Moss, Director
17
<PAGE>
EXHIBIT INDEX
PAGE
NUMBER IN
SEQUENTIAL
EXHIBIT NUMBERING
NUMBER EXHIBIT SYSTEM
- - ------ ------- ------
10 Employment and Change of Control Agreement
between R. Steve Aaron and the Bank dated
January 1, 1999
13 1998 Annual Report to Shareholders
18
<PAGE>
CATAWBA VALLEY
BANK
1998
ANNUAL
REPORT
<PAGE>
CATAWBA VALLEY BANK
1998 ANNUAL REPORT
TABLE OF CONTENTS
Letter from The President..................................2
Selected Financial Data....................................3
Management's Discussion....................................4
Report of Independent Accountants.........................11
Financial Statements......................................12
Notes to Financial Statements.............................16
Shareholder Information...................................32
<PAGE>
The President's Letter to Shareholders -
Catawba Valley Bank completed three years and two months of operations as of
December 31, 1998, and the Bank had reached the end of its first three year
business plan. Looking back at our original projections versus what had actually
happened is very eye opening.
o The Bank's assets were 50% higher than originally projected.
o The Bank was well on the way toward having three offices rather than
two. (The Newton-Conover office opened March 15, 1999)
o The Bank's profits more than doubled original projection.
Catawba Valley Bank is now approaching its first $100 million of assets, it's
well established in its market area and the Bank is positioned to continue its
growth and expansion.
1998 was a very good year for the Bank. Total assets increased $24.8 million
from $64.9 million to $89.7 million or 38.2 percent. Strong loan demand during
the year allowed the Bank to aggressively attract deposits from our local
market.
Asset growth was assisted by a secondary stock offering that was conducted in
late September and early October, 1998. This offering generated $6 million
dollars in new capital for the Bank.
The Bank's capital position now stands at $14.3 million or 15.9% of assets. The
addition of new capital and the current capital position means that Catawba
Valley Bank can continue its aggressive growth of 20 to 30 percent per year and
still be in compliance with regulatory requirements. This growth will be in the
form of new offices and overall growth in existing branch offices.
Profits for the Bank in 1998 exceeded projections. The Bank earned $740,375 or a
.96 percent return on average assets. Earnings adjusted for the 25 percent stock
dividend paid on August 28, 1998 and the additional shares sold in the secondary
stock offering in October 1998 was $.67 per share. The Bank set aside an
additional $471,338 in loan loss provisions during the year. Tax provisions
increased from $90,000 in 1997 to $455,000 in 1998. By any measure, 1998 was a
very successful year for your Bank.
Profits are very important to any organization but a challenge that faces the
Bank is increasing profits while growing the franchise at the same time. As we
look forward to our next three years and beyond, Catawba Valley Bank will be
adding additional products and services and will continue to expand its branch
system on a very selective basis. New services being considered for 1999 are
debit cards, a voice response system and insurance and investment services.
The success of the Bank can be attributed to a great market, a strong economy
and good Directors, Management and Staff. But above all, the support from our
stockholders greatly contributed to our success.
We always welcome questions and suggestions from our stockholders about our
operation and service. Please feel free to contact us at anytime. Thank you for
your support.
R. Steve Aaron
President
2
<PAGE>
SELECTED FINANCIAL DATA
The following table sets forth the certain financial data for the years ended
December 31, 1998 and 1997 and 1996.
December 31,
1998 1997 1996
-----------------------------------------
INCOME STATEMENT
Net Interest Income $2,758,229 $1,942,918 $ 966,516
Provision for Loan Losses 471,338 349,175 362,158
Noninterest Income 738,141 443,422 150,097
Noninterest Expense 1,829,657 1,428,693 841,744
Net Income (Loss) 740,375 518,472 (87,289)
PER SHARE DATA
Basic Income (Loss) $ .67 .49 (.08)
Book Value 10.59 7.34 6.86
BALANCE SHEET
Total Assets $89,668,002 $64,883,493 $37,367,217
Total Deposits 74,821,049 57,107,496 29,824,980
Total Loans 60,607,040 42,997,914 24,991,047
Allowance for Loan Losses 1,050,360 683,397 407,723
Investment Securities 11,655,528 6,275,175 5,700,844
Total Earning Assets 87,916,453 63,616,473 36,200,101
Stockholders' Equity 14,317,424 7,721,290 7,197,094
3
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (MD&A)
OVERVIEW
Catawba Valley Bank ( the "Bank") is a state-chartered bank organized under the
laws of North Carolina in 1995 and headquartered in Hickory. The Bank provides a
full range of banking services from three locations, both located in Hickory.
The Bank's market area consists of the area within a 10-mile radius of the City
of Hickory, North Carolina, and includes parts of Catawba County, Burke County,
Caldwell County and Alexander County, North Carolina. The market area is located
in a region known as the Unifour Area of North Carolina. The Unifour Area,
serves as the commercial hub for several prosperous towns. The Unifour Area is a
very strong and diversified economic area. This local economic strength, along
with the market's quick acceptance of the Bank, accounts for the rapid growth
the Bank has enjoyed.
Catawba Valley Bank earned $740,375 or $.67 per share in 1998; compared to
$518,472 or $.49 per share reported in 1997. The earnings equate to a return on
average assets of .96 percent for 1998 compared to 1.01 percent for 1997 and a
return on average equity of 6.72 percent in 1998 versus 6.95 percent in 1997.
The Bank's improved earnings were primarily due to an increased loan portfolio,
improved non-interest income and operating efficiency.
Expanded discussion of the Bank's operating results and financial condition are
presented in the following narrative and tables. The objective of this
discussion is to provide the reader with a clear, concise and complete
understanding of the financial condition and results of operations of Catawba
Valley Bank for 1998. The discussion should be read in conjunction with the
Financial Statements and Notes to Financial Statements on pages 11 through 28.
[BAR CHART APPEARS BELOW WITH THE FOLLOWING PLOT POINTS:]
YEAR END BALANCES ($ MILLIONS)
1996 1997 1998
---- ---- ----
Net Loans 24.6 42.3 59.5
Deposits 29.8 57.1 74.8
Assets 37.4 64.9 89.7
4
<PAGE>
NET INTEREST INCOME
The major component of the Bank's revenue is net interest income. The amount of
net interest income is based on a number of factors including the volumes of
earning assets and interest-bearing liabilities and the interest rates earned
and paid. Net interest income equals the amount by which interest and fees
generated by earning assets exceed the interest costs of the funds used to carry
them.
For 1998, net interest income represents 79 percent of net revenues compared
with 81 percent in 1997. Net interest income rose $815 thousand or 42 percent in
1998 and totaled $2.76 million compared with $1.94 million in 1997. Strong
growth in earning assets, primarily loans and investments accounted for the
earnings gain. The Bank experienced a decrease in its average rate on earning
assets from 8.36 to 8.17 percent. The 19 basis point decrease can be attributed
to the Bank being asset sensitive and the rate cuts the Federal Reserve
implemented in the fall of 1998. Many of the Bank's loans use the prime rate as
an index. Loans will reprice quicker than the Bank's liabilities.
NONINTEREST INCOME
Noninterest income rose $295 thousand or 66 percent for the year. The increase
is attributed to gains in deposit account service charges (more accounts), other
fee income such as non-sufficient funds ( NSF) charges, loan origination fees,
and income earned on residential mortgage loans that the Bank brokered.
Service charges on deposit accounts increased $75 thousand or 48 percent as a
result of more deposit accounts. Higher revenues from NSF charges accounted for
a $34 thousand increase in 1998 noninterest income. During 1998, the Bank
brokered $26.4 million in residential mortgage loans and received $296 thousand,
for a 115 percent increase over 1997.
NONINTERST EXPENSE
Total noninterest expense increased $401 thousand for the year. This increase
can be attributed to growth and the need for more employees to handle that
growth. $275 thousand of the increase is related to salaries and benefits. The
balance of the increase is related to equipment cost, professional fees,
advertising and various other expenses. The Bank's Directors approved an
incentive plan for the employees that paid out $74 thousand dollars in bonuses
in 1998 based on the performance of the Bank. Catawba Valley Bank continues to
operate with an efficiency ratio that compares very favorably with its peer
banks.
INCOME TAXES
Having used all of its NOL (net operating losses) as credits against earnings in
1997, Catawba Valley Bank was fully taxed by State and Federal governments in
1998. The Bank's effective tax rate was 38 percent and the combined expense tax
expense was $455 thousand. Efforts will be made to reduce the effective tax rate
as much as possible. Most investments in securities will be in state tax exempt
5
<PAGE>
bonds or tax exempt municipal bonds. Investments into other bonds must have
yield spreads that compensate for the tax effect.
EARNING ASSETS
Average earning assets in 1998 were $73.8 million, a 50 percent increase over
1997. A 51 percent increase in average net loans, and a 92 percent increase in
average investment securities and average time deposits with other financial
institutions represented this change. Average earning assets represented 96
percent of average total assets during 1998, the same as 1997.
[BAR CHART APPEARS BELOW WITH THE FOLLOWING PLOT POINTS:]
AVERAGE ASSETS ($ MILLIONS)
1996 1997 1998
---- ---- ----
Average Assets 24.9 51.1 77.1
Average Earnings Assets 23.6 49.1 73.8
Average Loans, Gross 14.2 33.9 51.6
Net loan growth continued to be the strength of the Bank's rapid growth. Net
loans increased $17.24 million or 41 percent compared to an increase of $17.73
million or 72 percent in 1997. Both the commercial and consumer portfolios
increased, with commercial activity continuing to account for the majority of
the increase. Catawba Valley Bank's primary lending focus is to individuals and
small to medium size businesses. Residential construction lending is a
significant part of the Bank's lending activity. The gross loans to deposit
ratio were 81 percent as of December 31, 1998 and 75 percent as of December 31,
1997.
Investment securities and time deposits are the second largest earning asset.
The total at year end 1998 was $14.1 million, increasing $6.77 million from
1997.
Federal funds sold and interest bearing balances with other banks was $10.7
million at December 31, 1998 which represented a 6 percent decrease from $11.4
million in 1997. These funds represent the most liquid portion of assets and are
used to fund loan demand and other cash needs of the Bank.
6
<PAGE>
INTEREST BEARING LIABILITIES
Management has built the deposit base of the Bank for it's local customers
consumer and commercial deposits. The Bank does not solicit deposits from
outside its primary market area. Total deposits at December 31, 1998 were 74.8
million, an increase of 31 percent over year-end 1997. The category showing the
largest dollar growth was certificates of deposit, which increased $9.53 million
or 26 percent. Good growth also occurred in money market deposits, which
increased 32 percent during the year.
[PIE CHART APPEARS BELOW WITH THE FOLLOWING PLOT POINTS:]
1998 DEPOSIT MIX
Demand 6%
Now 9%
Money Market 21%
Savings 2%
Large CD's 18%
Small CD's 44%
Demand deposits, now accounts and savings increased 43 percent to $5.25 million
in 1998. Attracting demand deposit and savings account growth is a major goal of
management. Deposits in these accounts either earn no interest or earn at a
lower interest than do certificates of deposit. We are very pleased with the
progress the Bank has made in attracting these type accounts.
Catawba Valley Bank has never used borrowings to fund loan demand; therefore
there were no outstanding borrowings as of December 31, 1998.
7
<PAGE>
CAPITAL ADEQUACY
The Bank maintains a strong level of capital as a margin of safety for its
depositors and shareholders. The original stock offering raised $7.7 million in
capital. A secondary stock offering completed in October 1998 raised an
additional $6 million in capital. As of December 31, 1998, shareholders' equity
was $14.3 million. At year end 1998, the book value per share was $10.59.
The ratio of shareholders' equity to assets was 16 percent. In addition to an
overall equity to assets ratio, regulators subject Banks to risk-based capital
measures. The risk-based capital ratios measure the relationship of capital to a
combination of balance sheet and off-balance sheet credit risk. The values of
both balance sheet and off-balance sheet items are adjusted to reflect credit
risk.
Tier 1 Capital (consisting of shareholders' equity less ineligible intangible
assets) is required to be at least 8.0 percent of risk-weighted assets. The Tier
1 Capital Ratio for Catawba Valley Bank at the end of 1998 was 23.24 percent and
the total capital ratio was 23.28 percent. At the end of 1997, those ratios were
17.70 percent and 17.82 percent, respectively. These ratios will continue to
decrease as the Bank's capital is leveraged through asset growth.
The ability to grow is directly related to capital. The internal capital
generation rate of the Bank will be adequate to meet the growth needs for the
next several years. Management will look for every opportunity to grow the Bank
through branch acquisitions or establishing new branches when it is economically
feasible.
PROVISION AND ALLOWANCE FOR LOAN LOSSES
The provision for loan losses is the expense of providing an allowance or
reserve for anticipated losses on loans. The amount charged to expense each year
is dependent on many factors including loan growth, net charge-offs, changes in
the composition of the loan portfolio, delinquencies, management's assessment of
the loan portfolio, past loan loss experience, and economic factors.
The provision for loan loss expense was $471 thousand in 1998. The Bank
experienced $106 thousand in charge-off's during 1998. The allowance for loan
losses continues to build and totaled $1.1 million, representing 1.73 percent of
year-end loans. This reserve level is equal to the average reserve level for all
state banks in North Carolina.
8
<PAGE>
ASSET AND LIABILITY MANAGEMENT
INTEREST RATE RISK
One of the primary objectives of asset and liability management is to maximize
net interest income while minimizing the earnings risk associated with changes
in interest rates. Management seeks to manage its assets and liabilities in a
manner that will limit interest rate risk and thus stabilize long-term earnings.
Fluctuations in market interest rates do not necessarily have a significant
impact on net interest income, depending on the rate sensitivity position of the
Bank. A rate sensitive asset is a loan or investment that can be repriced within
a certain time interval. When a proper balance between rate sensitive assets and
rate sensitive liabilities exists, market interest rate fluctuations should not
have a significant impact on earnings.
Management uses an earnings simulation model to estimate the amount of earnings
at risk due to changes in interest rates. This model is updated quarterly and is
based on three different rate scenarios. The results of the December 31, 1998
model indicate the Bank's earnings would be impacted less than 6.5 percent if
interest rates went up or down 200 basis points. Management believes that any
change in interest rates, either rise or fall, will not materially affect
earnings.
YEAR 2000
The problems that the year 2000 change over could create can be significant. To
address this potential threat to the Bank's data processing systems, Catawba
Valley Bank is devoting significant time and resources to ensure that this
technology issue does not pose a financial and operational threat.
A year 2000 committee comprised of Board members and key management has been
organized to assess any exposure the Bank has and to ensure that all the systems
used by the Bank will function when the year 2000 starts. During 1998, the Board
of Directors engaged an outside firm specializing in assisting companies in
meeting the year 2000 challenge. This firm is Vitex, Inc.
Catawba Valley Bank has been testing its hardware and reviewing test results
provided by its core applications processor. These results will be further
tested during the second quarter of 1999. Initial review of the data indicates
that the Bank's software should be ready for the year 2000 change over.
To further prepare the Bank for any possible interruptions caused by the year
2000 change over, the year 2000 committee has been developing a contingency plan
that will allow the bank to provide its customers the banking services they need
even if there are some unforeseen or uncontrollable factors that occur.
9
<PAGE>
RECENT ACCOUNTING DEVELOPMENTS
In June of 1998, the Financial Accounting Standards Board issued SFAS No. 133,
"Accounting for Derivative Instruments and Hedging Activities". SFAS No. 133 is
effective for all fiscal quarters of all fiscal years beginning after June 15,
1999. This standard establishes accounting and reporting standards for
derivative instruments, including certain derivative instruments embedded in
other contracts, and for hedging activities. Based on its operations at December
31, 1998, management does not expect this standard to have material effect on
the Bank's financial statements upon adoption.
MARKET OF COMMON STOCK
MARKET PRICE (IN $)*
PERIOD 1998 1997
------ ---- ----
HIGH LOW HIGH LOW
---- --- ---- ---
First Quarter 14.50 14.00 10.00 9.88
Second Quarter 20.10 19.20 10.00 9.66
Third Quarter 21.60 20.50 10.83 10.00
Fourth Quarter 22.00 20.00 14.00 11.40
*The prices have been adjusted to reflect the impact of a 25% stock dividend
paid on August 28, 1998.
As of December 31, 1998, there were 1585 shareholders of record of the Bank's
stock. The Bank's stock is listed on the National Daily Quotation Service
"Bulletin Board". J. C. Bradford and Company is the market maker for the Bank's
common stock. The above table lists the price that the market maker quoted and
at which trades were completed during each quarter. Catawba Valley Bank's stock
is considered to be a thinly traded stock with only a few thousand shares traded
each quarter.
10
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
January 22, 1999
The Stockholders and the Board of Directors
of Catawba Valley Bank:
In our opinion, the accompanying balance sheets and the related statements of
operations and comprehensive income (loss), changes in stockholders' equity and
cash flows present fairly in all material respects, the financial position of
Catawba Valley Bank at December 31, 1998 and 1997, and the results of its
operations and its cash flows for each of the three years in the period ended
December 31, 1998, in conformity with generally accepted accounting principles.
These financial statements are the responsibility of the Company's management;
our responsibility is to express an opinion on these financial statements based
on our audits. We conducted our audits of these statements in accordance with
generally accepted auditing standards which 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,
assessing the accounting principles used and significant estimates made by
management, and evaluating the overall financial statement presentation. We
believe that our audits provide a reasonable basis for the opinion expressed
above.
/s/ PricewaterhouseCoopers LLP
Charlotte, North Carolina
11
<PAGE>
CATAWBA VALLEY BANK
<TABLE>
<CAPTION>
BALANCE SHEETS
DECEMBER 31, 1998 AND 1997
- - -----------------------------------------------------------------------------------------------
1998 1997
<S> <C> <C>
ASSETS
Cash and due from banks $ 911,275 $ 927,479
Interest bearing bank deposits 8,174,944 8,583,685
Federal funds sold 2,509,567 2,786,371
Time deposits with other financial institutions 2,476,956 1,082,976
Securities available for sale 9,564,531 2,894,868
Securities held to maturity, market value of $1,857,317 in
1998 and $3,227,269 in 1997 1,833,472 3,226,982
Federal Home Loan Bank and Bankers Bank Stock 257,525 153,325
Loans 60,607,040 42,997,914
Less allowance for loan losses 1,050,360 683,397
--------------- ----------------
Net loans 59,556,680 42,314,517
Premises and equipment, net 1,950,087 1,418,476
Other assets 2,432,965 1,494,814
--------------- ----------------
$ 89,668,002 $ 64,883,493
--------------- ----------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits:
Noninterest-bearing $ 4,269,142 $ 2,816,997
Money market and NOW accounts 22,880,065 16,642,655
Savings 1,203,456 712,191
Time, $100,000 and over 13,150,539 10,911,546
Other time 33,317,847 26,024,107
--------------- ----------------
Total deposits 74,821,049 57,107,496
Other liabilities 529,529 54,707
--------------- ----------------
Total liabilities 75,350,578 57,162,203
Stockholders' equity:
Common stock, $5 par value, 1,351,910 and 840,888
shares issued and outstanding in 1998 and 1997,
respectively 6,759,550 4,204,440
Additional paid-capital 6,979,408 3,210,119
Retained earnings 573,868 302,259
Accumulated other comprehensive income 4,598 4,472
--------------- ----------------
Total stockholders' equity 14,317,424 7,721,290
--------------- ----------------
Total liabilities and stockholders' equity $ 89,668,002 $ 64,883,493
--------------- ----------------
</TABLE>
The accompany notes are an integral part of the financial statements.
12
<PAGE>
CATAWBA VALLEY BANK
<TABLE>
<CAPTION>
STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS)
YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
- - -----------------------------------------------------------------------------------------------------------------
1998 1997 1996
<S> <C> <C> <C>
Interest income
Interest and fees on loans $ 4,898,829 $3,378,553 $ 1,250,875
Interest on securities, taxable 500,098 349,744 293,453
Interest on federal funds sold 122,191 124,545 130,551
Interest on interest bearing banks deposits 371,584 198,961 102,465
Interest on time deposits with other financial institutions 132,570 45,231 41,365
-------------- -------------- -------------
Total interest income 6,025,272 4,097,034 1,818,709
-------------- -------------- -------------
INTEREST EXPENSE
Time deposits, $100,000 and over 747,945 522,578 204,498
Other deposits 2,519,098 1,631,538 647,595
-------------- -------------- -------------
Total interest expense 3,267,043 2,154,116 852,093
-------------- -------------- -------------
Net interest income 2,758,229 1,942,918 966,516
Provision for loan losses 471,338 349,175 362,158
-------------- -------------- -------------
Net interest income after provision for loan losses 2,286,891 1,593,743 604,358
NONINTEREST INCOME
Service charges on deposit accounts 229,029 154,396 46,427
Other 509,112 289,026 103,670
-------------- -------------- -------------
Total noninterest income 738,141 443,422 150,097
NONINTEREST EXPENSE
Salaries, wages and employee benefits 922,644 647,470 485,729
Occupancy 141,642 138,792 75,420
Equipment 128,005 103,218 38,697
Professional fees 102,292 49,268 43,075
Stationary, printing and supplies 44,079 35,573 45,414
Advertising and business promotion 91,849 76,907 64,729
Other 399,146 377,465 88,680
-------------- -------------- -------------
Total noninterest expense 1,829,657 1,428,693 841,744
-------------- -------------- -------------
Net income (loss) before income taxes 1,195,375 608,472 (87,289)
Provision for income taxes 455,000 90,000 -
-------------- -------------- -------------
Net income (loss) 740,375 518,472 (87,289)
Other comprehensive income (loss) 126 (1,524) 7,962
-------------- -------------- -------------
Comprehensive income (loss) $ 740,501 $ 516,948 $ (79,327)
-------------- -------------- -------------
Basic income (loss) per share $ 0.67 $ 0.49 $ (0.08)
-------------- -------------- -------------
Diluted income (loss) per share $ 0.63 $ 0.49 $ (0.08)
-------------- -------------- -------------
</TABLE>
The accompany notes are an integral part of the financial statements.
13
<PAGE>
CATAWBA VALLEY BANK
<TABLE>
<CAPTION>
STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
- - ---------------------------------------------------------------------------------------------------------------------------
ADDITIONAL COMMON STOCK RETAINED
COMMON PAID-IN COMMON STOCK SUBSCRIPTIONS EARNINGS
STOCK CAPITAL SUBSCRIPTIONS RECEIVABLE (DEFICIT)
<S> <C> <C> <C> <C> <C>
BALANCE, JANUARY 1, 1996 $3,491,335 $3,892,073 $ 43,824 $ (42,724) $(128,924)
Issuance of common stock 9,865 9,865 (19,730) 18,630 -
Cancellations of common stock subscriptions - 4,173 (24,094) 24,094 -
Other comprehensive income (loss) - - - - -
Net loss - - - - (87,289)
------------- ------------- -------------- -------------- ------------
BALANCE DECEMBER 31, 1996 3,501,200 3,906,111 - - (216,213)
Stock split effected in the form of a dividend 700,240 (700,240) - - -
Stock options exercised 3,000 4,248 - - -
Other comprehensive income (loss) - - - - -
Net income - - - - 518,472
------------- ------------- -------------- -------------- ------------
BALANCE DECEMBER 31, 1997 4,204,440 3,210,119 - - 302,259
Stock split effected in the form of a dividend 1,051,110 (582,344) - - (468,766)
Issuance of common stock 1,504,000 4,351,633 - - -
Other comprehensive income (loss) - - - - -
Net income - - - - 740,375
------------- ------------- -------------- -------------- ------------
BALANCE DECEMBER 31, 1998 $6,759,550 $6,979,408 $ - $ - $573,868
------------- ------------- -------------- -------------- ------------
<CAPTION>
-----------------------------
ACCUMULATED
OTHER
COMPREHENSIVE
INCOME TOTAL
<S> <C> <C>
BALANCE, JANUARY 1, 1996 $ (1,966) $7,253,618
Issuance of common stock 18,630
Cancellations of common stock subscriptions 4,173
Other comprehensive income (loss) 7,962 7,962
Net loss - (87,289)
----------- ---------------
BALANCE DECEMBER 31, 1996 5,996 7,197,094
Stock split effected in the form of a dividend - -
Stock options exercised - 7,248
Other comprehensive income (loss) (1,524) (1,524)
Net income - 518,472
----------- ---------------
BALANCE DECEMBER 31, 1997 4,472 7,721,290
Stock split effected in the form of a dividend - -
Issuance of common stock - 5,855,633
Other comprehensive income (loss) 126 126
Net income - 740,375
----------- ---------------
BALANCE DECEMBER 31, 1998 $ 4,598 $ 14,317,424
----------- ---------------
</TABLE>
14
<PAGE>
CATAWBA VALLEY BANK
<TABLE>
<CAPTION>
STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
- - ------------------------------------------------------------------------------------------------------------------
1998 1997 1996
<S> <C> <C> <C>
Cash flows from operating activities
Net income (loss) $ 740,375 $ 518,472 $ (87,289)
Adjustments to reconcile net income (loss) to net
cash used in operating activities:
Depreciation and amortization 156,866 124,200 58,421
Deferred income taxes 39,646 (174,000) -
Provision for loan losses 471,338 349,175 362,158
Loss (gain) on sale of investments - 2,773 (10)
Increase in other assets (364,190) (115,361) (131,876)
Increase (decrease) in other liabilities 474,822 (290,436) 276,565
--------------- --------------- ---------------
Net cash provided by operating activities 1,518,857 414,823 477,969
CASH FLOWS FROM INVESTING ACTIVITIES
Increase in time deposits with other financial
institutions (1,393,980) (299,976) (196,000)
Purchase of securities available for sale (9,286,185) (2,725,289) (1,666,700)
Purchase of securities held to maturity (381,514) (2,303,985) (1,851,327)
Purchases of Federal Home Loan Bank and
Bankers Bank stock (104,200) (90,600) (62,725)
Collections and maturities of securities available
for sale 2,605,389 340,780 368,217
Collections and maturities of securities held to
maturity 1,762,085 2,821,380 1,313,539
Proceeds from sale of securities available for sale - 1,358,538 995,980
Increase in other assets (618,270) (962,873) -
Net increase in loans (17,713,501) (18,080,368) (21,525,710)
Purchases of premises and equipment (659,616) (189,569) (904,977)
--------------- --------------- ---------------
Net cash used in investing activities (25,789,792) (20,131,962) (23,529,703)
CASH FLOWS FROM FINANCING ACTIVITIES
Net increase in deposit accounts 17,713,553 27,282,516 24,746,197
Proceeds from issuance of common stock 5,855,633 7,248 23,903
--------------- --------------- ---------------
Net cash provided by financing activities 23,569,186 27,289,764 24,770,100
--------------- --------------- ---------------
Net increase (decrease) in cash and cash
equivalents (701,749) 7,572,625 1,718,366
Cash and cash equivalents, beginning of year 12,297,535 4,724,910 3,006,544
--------------- --------------- ---------------
Cash and cash equivalents, end of year $11,595,786 $12,297,535 $ 4,724,910
--------------- --------------- ---------------
Supplemental cash flow information:
Interest paid $ 3,268,233 $ 2,156,458 $ 829,968
--------------- --------------- ---------------
Income taxes paid $ 204,500 $ 268,000 $ -
--------------- --------------- ---------------
</TABLE>
The accompany notes are an integral part of the financial statements.
15
<PAGE>
CATAWBA VALLEY BANK
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1998 AND 1997
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION
Catawba Valley Bank (the "Bank") was organized and incorporated under the laws
of the State of North Carolina on October 3, 1995. The Bank commenced operations
on November 1, 1995 and operates two locations in Hickory, North Carolina. The
Bank's primary source of revenue is derived from securities and loans to
customers, who are predominately small and medium size businesses and middle
income individuals in Catawba County, North Carolina.
The accounting and reporting policies of the Bank conform to generally accepted
accounting principles and general practice within the banking industry. The
following is a summary of the more significant of these policies.
PERVASIVENESS OF ESTIMATES
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 the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
SECURITIES
Securities are classified into three categories and accounted for as follows:
(1) debt securities that the entity has the positive intent and the ability to
hold to maturity are classified as held to maturity and reported at amortized
cost; (2) debt and equity securities that are bought and held principally for
the purpose of selling them in the near term are classified as trading
securities and reported at fair value, with unrealized gains and losses included
in earnings; (3) debt and equity securities not classified as either held to
maturity securities or trading securities are classified as available for sale
securities and reported at fair value, with unrealized gains and losses, net of
taxes, reported as other comprehensive income. The classification of securities
is determined at the date of purchase.
Gains and losses on sales of securities, computed based on specific
identification of the adjusted cost of each security, are included in other
income. Premiums and discounts on debt securities are recognized in interest
income on the level yield method over the period to maturity.
LOANS AND ALLOWANCE FOR LOAN LOSSES
Loans are stated at the amount of unpaid principal, net of unamortized deferred
loan fees and costs on original loans, 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. Loan origination fees and costs
are deferred and included in income and expense using a method that approximates
the level yield method.
16
<PAGE>
CATAWBA VALLEY BANK
NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 1998 AND 1997
- - --------------------------------------------------------------------------------
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. 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.
Loans are considered impaired when it is probable that all amounts due under the
contractual terms of the loan will not be collected. The measurement of impaired
loans that are collateral dependent is based on the fair value of the
collateral. The measurement of other impaired loans is generally based on the
present value of expected future cash flows discounted at the historical
effective interest rate. If a recorded investment in the loan exceeds the
measure of fair value, a valuation allowance is established as a component of
the allowance for loan losses. The Bank had no impaired loans during the years
ended December 31, 1998 and 1997.
The Bank uses several factors in determining if a loan is impaired. The internal
asset classification procedures include a thorough review of significant loans
and lending relationships and include 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.
NONACCRUAL LOANS
Loans that are past due ninety (90) days or more as to principal or interest, or
where reasonable doubt exists as to timely collection, are generally classified
as nonaccrual loans unless they are well collateralized and in process of
collection. The Bank had approximately $2,000 and $43,000 of loans classified as
nonaccrual during the years ended December 31, 1998 and 1997, respectively.
PREMISES AND EQUIPMENT
Land is carried at cost. Premises and equipment are stated at cost less
accumulated depreciation and amortization. Depreciation and amortization is
computed by the straight-line method based on the estimated useful lives of the
related assets.
Expenditures for repairs and maintenance are charged to expense as incurred. The
costs of major renewals and betterments are capitalized and depreciated over
their estimated useful lives.
17
<PAGE>
CATAWBA VALLEY BANK
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1998 AND 1997
Upon disposition, the asset and related accumulated depreciation are relieved
and any resulting gain or loss is charged to income.
Income Taxes
Deferred tax assets and liabilities are recognized for the future tax
consequences attributable to temporary differences between the financial
statement carrying amounts of existing assets and liabilities and their
respective tax basis. Deferred tax assets and liabilities are measured using the
enacted tax rates expected to apply to taxable income in the years in which
those temporary differences are expected to be recovered or settled.
Cash and Cash Equivalents
For purposes of reporting cash flows, cash and cash equivalents include cash and
due from banks, interest bearing bank deposits, and federal funds sold.
Stockholders' Equity
The Bank has 20,000,000 shares authorized for issuance. During 1998, the board
of directors approved a five for four stock split to stockholders of record on
August 14, 1998. During 1997, the board of directors approved a six for five
stock split to stockholders of record on November 1, 1997. Both splits were
effected in the form of stock dividends. Earnings per share amounts and stock
option data in the financial statements and accompanying notes have been
restated to reflect the impact of the stock splits.
Segment Information
During the year ended December 31, 1998, the Bank adopted the provisions of
Statement of Financial Accounting Standards ("SFAS") No. 131, "Disclosures about
Segments of an Enterprise and Related Information." This statement requires that
public business enterprises report certain information about operating segments
in their annual financial statements and in condensed financial statements of
interim periods issued to stockholders. It also requires that public business
enterprises report related disclosures and descriptive information about
products and services provided by significant segments, geographic areas, and
major customers, differences between the measurements used in reporting segment
information and those used in the enterprise's general-purpose financial
statements, and changes in the measurement of segment amounts from period to
period.
Operating segments are components of an enterprise about which separate
financial information is available that is evaluated regularly by the chief
operating decision maker in deciding how to allocate resources and in assessing
performance. The Bank has determined that it has one significant operating
segment, the providing of general commercial financial services to customers
located in the single geographic area of Catawba County, North Carolina. The
various products are those generally offered by community banks, and the
allocation of resources is based on the overall performance of the institution,
versus the individual branches or products.
18
<PAGE>
CATAWBA VALLEY BANK
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1998 AND 1997
There are no differences between the measurements used in reporting segment
information and those used in the Bank's general-purpose financial statements,
and the measurement of segment amounts has not changed for 1998 from prior
years.
New Accounting Pronouncements
In June of 1998, the Financial Accounting Standards Board issued SFAS No. 133,
"Accounting for Derivative Instruments and Hedging Activities". SFAS No. 133 is
effective for all fiscal quarters of all fiscal years beginning after June 15,
1999. This standard establishes accounting and reporting standards for
derivative instruments, including certain derivative instruments embedded in
other contracts, and for hedging activities. Based on its operations at December
31, 1998, management does not expect this standard to have a material effect on
the Bank's financial statements upon adoption.
Reclassification
Certain 1997 and 1996 amounts have been reclassified to conform with the 1998
presentation.
2. Securities:
The amortized cost and estimated market values of securities available for sale
at December 31 are as follows:
<TABLE>
<CAPTION>
GROSS GROSS ESTIMATED
AMORTIZED UNREALIZED UNREALIZED FAIR
COST GAINS LOSSES VALUE
<S> <C> <C> <C> <C>
1998
U.S. Government Agencies $6,703,772 $14,995 $20,376 $ 6,698,391
Mortgage - backed securities 2,853,161 14,381 1,402 2,866,140
-------------- ------------ ----------- --------------
$9,556,933 $29,376 $21,778 $ 9,564,531
============== ============ =========== ==============
</TABLE>
<TABLE>
<CAPTION>
GROSS GROSS ESTIMATED
AMORTIZED UNREALIZED UNREALIZED FAIR
COST GAINS LOSSES VALUE
<S> <C> <C> <C> <C>
1997
U.S. Government Agencies $1,999,138 $ 1,586 $ 2,911 $ 1,997,813
Mortgage - backed securities 888,258 8,797 - 897,055
-------------- ------------ ----------- --------------
$2,887,396 $10,383 $ 2,911 $ 2,894,868
============== ============ =========== ==============
</TABLE>
19
<PAGE>
CATAWBA VALLEY BANK
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1998 AND 1997
The amortized cost and estimated market values of securities held to maturity at
December 31 are as follows:
<TABLE>
<CAPTION>
GROSS GROSS ESTIMATED
AMORTIZED UNREALIZED UNREALIZED FAIR
COST GAINS LOSSES VALUE
<S> <C> <C> <C> <C>
1998
U.S. Government Agencies $1,379,518 $15,465 $ - $ 1,394,983
Mortgage - backed securities 453,954 8,380 - 462,334
-------------- ------------ ----------- --------------
$1,833,472 $23,845 $ - $ 1,857,317
============== ============ =========== ==============
</TABLE>
<TABLE>
<CAPTION>
GROSS GROSS ESTIMATED
AMORTIZED UNREALIZED UNREALIZED FAIR
COST GAINS LOSSES VALUE
<S> <C> <C> <C> <C>
1997
U.S. Government Agencies $2,000,633 $ 1,087 $ 937 $ 2,000,783
Mortgage - backed securities 1,226,349 4,198 4,061 1,226,486
-------------- ------------ ----------- --------------
$3,226,982 $ 5,285 $ 4,998 $ 3,227,269
============== ============ =========== ==============
</TABLE>
The amortized cost and estimated market value of debt securities at December 31,
1998 by contractual maturities are shown below. 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.
<TABLE>
<CAPTION>
AVAILABLE FOR SALE HELD TO MATURITY
ESTIMATED ESTIMATED
AMORTIZED FAIR AMORTIZED FAIR
COST VALUE COST VALUE
<S> <C> <C> <C> <C>
Due in one year or less $ - $ - $ - $ -
Due after one year through five years 3,749,399 3,738,271 748,793 755,857
Due after five years through ten years 4,429,245 4,443,072 576,716 582,373
Due after ten years 1,378,289 1,383,188 507,963 519,087
------------- ------------- ------------- -------------
$9,556,933 $9,564,531 $1,833,472 $1,857,317
============== ============ =========== ==============
</TABLE>
20
<PAGE>
CATAWBA VALLEY BANK
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1998 AND 1997
3. LOANS AND ALLOWANCE FOR LOAN LOSSES:
Loans at December 31 are summarized as follows:
1998 1997
Commercial $ 28,065,769 $17,001,742
Real estate:
Construction and land development 7,211,169 6,939,831
Residential, 1-4 families 10,462,635 5,380,741
Residential, 1-4 families, home equity 5,507,323 3,912,927
Installment 8,544,178 8,408,182
Other 815,966 1,354,491
-------------- --------------
$ 60,607,040 $42,997,914
============== ==============
A summary of the activity in the allowance for loan losses for the years ended
December 31 is as follows:
<TABLE>
<CAPTION>
1998 1997 1996
<S> <C> <C> <C>
Balance, beginning of the year $ 683,397 $ 407,723 $ 51,549
Provision for loan losses 471,338 349,175 362,158
Charge offs (106,000) (79,521) (5,984)
Recoveries 1,625 6,020 -
-------------- ------------ ------------
Balance, end of year $ 1,050,360 $ 683,397 $ 407,723
============== ============ ============
</TABLE>
The Bank has granted loans to certain directors and executive officers of the
Bank and to their associates. During 1998 and 1997, $1,269,000 and $923,000,
respectively, in new loans were made and repayments were $1,028,000 and
$592,000, respectively, resulting in a balance of $1,759,000 and $1,518,000 at
December 31, 1998 and 1997, respectively.
21
<PAGE>
CATAWBA VALLEY BANK
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1998 AND 1997
4. Premises and Equipment:
Premises and equipment at December 31 are summarized as follows:
<TABLE>
<CAPTION>
1998 1997
<S> <C> <C>
Land $ 495,663 $ 297,069
Leasehold improvement 32,699 31,645
Equipment and fixtures 681,769 472,671
Building 766,220 765,398
-------------- --------------
1,976,351 1,566,783
Less acccumulated depreciation and amortization 276,312 148,307
-------------- --------------
1,700,039 1,418,476
Construction in progress 250,048 -
-------------- --------------
$ 1,950,087 $ 1,418,476
============== ==============
</TABLE>
5. Deposits:
The scheduled maturities of time deposits at December 31, 1998 are as follows:
1999 $ 25,080,655
2000 13,306,788
2001 8,080,943
----------------
$ 46,468,386
================
6. Comprehensive Income:
Effective January 1, 1998, the Bank adopted the provisions of SFAS No. 130,
"Reporting Comprehensive Income". SFAS No. 130 establishes requirements for the
disclosure of comprehensive income in the Bank's financial statements.
Comprehensive income is defined as net income, plus transactions and other
occurrences which are the result of nonowner changes in equity. As required SFAS
No. 130, prior period financial statements have been reclassified to reflect
application of the provisions of this statement.
22
<PAGE>
CATAWBA VALLEY BANK
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1998 AND 1997
Other comprehensive income is defined as comprehensive income exclusive of net
income. Unrealized gains (losses) on available for sale securities represent the
sole component of the Bank's other comprehensive income. Other comprehensive
income (loss) consists of the following:
<TABLE>
<CAPTION>
1998 1997 1996
<S> <C> <C> <C>
Unrealized holding gains (losses) arising
during the year $ 126 $ (1,297) $ 7,972
Reclassification adjustment for gains (losses)
included in net income - (2,773) 10
----------- ----------- ------------
Other comprehensive income (loss) before tax 126 1,476 7,962
Income tax expense related to other
comprehensive income - 3,000 -
----------- ----------- ------------
Other comprehensive income $ 126 $ (1,524) $ 7,962
=========== =========== ============
</TABLE>
7. Lease:
The Bank has a noncancelable operating lease for a branch location that expires
in 2000. The lease has three five-year renewal options based on market rates
Future minimum lease payments under the lease for years subsequent to December
31, 1998 are as follows:
1999 $ 33,373
2000 33,373
Total rental expense related to the operating lease was $33,094, $31,116 and
$31,579 for the years ended December 31, 1998, 1997 and 1996, respectively.
23
<PAGE>
CATAWBA VALLEY BANK
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1998 AND 1997
8. Stock Option Plans:
The Bank maintains an incentive stock option plan (the "Employee Plan"), which
is intended to attract and induce continued employment of key employees and to
provide them an opportunity to acquire a proprietary interest in the Bank, and
to align their long-term interests with that of the stockholders. The Plan was
ratified by the shareholders prior to implementation. Non-employee directors do
not participate in the Plan. The exercise price of each share of common stock
covered by an option is equal to the fair market value per share of the Bank's
common stock on the date the option is granted. Employees vest in the options at
20% each year of continuous employment. Options under the Employee Plan expire
ten years after the grant date.
During 1997, the Bank created a nonqualified stock option plan for directors
(the "Director Plan") which is intended to attract capable individuals to serve
on the Board of Directors of the Bank. The Director Plan was ratified by the
shareholders prior to implementation. Employee directors do not participate in
the Director Plan. The exercise price of each share of common stock covered by
an option is equal to the fair market value per share of the Bank's common stock
on the date the option is granted. Options under the Director Plan fully vest at
the date of grant and expire ten years after the grant date.
In 1996, 105,036 shares were authorized for grant under the Employee Plan. Under
this Plan, 75,000 options were granted in 1996 with an exercise price of $8.67
and 23,125 options were granted in 1998 with an exercise price of $16.80. No
options were exercised through December 31, 1998. At that date, 30,000 options
were exercisable at a weighted average exercise price of $8.67. The weighted
average remaining contractual life of the outstanding options under the Employee
Plan was 96 months at December 31, 1998.
Under the Director Plan, 105,036 shares were authorized for grant and issued
during 1997. At December 31, 1998, 104,286 options with an exercise price of
$9.66 were outstanding and exercisable, as 750 options were exercised during
1997. The weighted average remaining contractual life of the outstanding options
under the Director Plan was 104 months at December 31, 1998.
The Bank has adopted the disclosure only provision of SFAS No. 123, "Accounting
for Stock-Based Compensation." Accordingly, no compensation cost has been
recognized for the stock option plans.
24
<PAGE>
CATAWBA VALLEY BANK
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1998 AND 1997
Had compensation costs for the Bank's stock option plans been determined based
on the fair value at the grant date for awards in 1998 and 1997 consistent with
the provisions of SFAS No. 123, the Bank's net income and basic net income per
share would have changed to the pro forma amounts indicated as follows:
1998 1997
Net income as reported $ 740,375 $ 518,472
Net income pro forma $ 661,634 $ 299,042
Basic income per share as reported $ 0.67 $ 0.49
Basic income per share pro forma $ 0.60 $ 0.28
The fair value of each option grant was estimated on the date of grant using the
Black-Scholes option pricing model with the following assumptions used for
grants in 1998 and 1997, respectively: dividend yield of 0.0%; expected
volatility of 36.87% and 9.07%; risk free interest rate of 6.25% and 5.75%; and
weighted average expected lives of seven years.
9. Commitments and Contingencies:
In the normal course of business the, Bank offers various financial products to
its customers to meet their credit and liquidity needs. Subject to its normal
credit standards and risk monitoring procedures, the Bank extends credit in the
form of loan commitments, lines of credit, and standby letters of credit.
Contract amounts of the instruments indicate the maximum exposure the Bank has
in each class of financial instrument. These commitments and contingencies are
not reflected in the accompanying financial statements.
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. The total commitments does not necessarily represent future cash
requirements as many commitments may expire without being exercised.
Financial instruments whose contract amounts represent potential credit risk at
December 31, 1998 and 1997 included unfunded lines of credit and loan
commitments totaling approximately $17,615,000 and $12,775,000, respectively.
25
<PAGE>
CATAWBA VALLEY BANK
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1998 AND 1997
The Bank's lending is concentrated primarily in Catawba County, 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. Income Taxes:
The components of income tax expense (benefit) for the years ended December 31
were as follows:
1998 1997 1996
Current $577,000 $ 264,000 $ 66,000
Deferred (122,000) (174,000) (66,000)
------------- ------------- ----------
$455,000 $ 90,000 $ -
============= ============= ==========
The difference between the provision for income taxes and the amount computed by
applying the statutory federal income tax rate of 34% was primarily a result of
state income taxes for the year ended December 31, 1998. The difference between
the provision for income taxes and the amount computed by applying the statutory
federal income tax rate of 34% was primarily a result of the changes in
valuation allowance on the net deferred tax assets during the years ended
December 31, 1997 and 1996.
26
<PAGE>
CATAWBA VALLEY BANK
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1998 AND 1997
Significant components of deferred tax assets and liabilities, included in other
assets, at December 31 are as follows:
1998 1997
DEFERRED TAX ASSETS
Allowance for loan losses $344,000 $213,000
Pre-opening costs 29,000 45,000
Other 27,000 -
------------ ------------
Total deferred tax assets 400,000 258,000
DEFERRED TAX LIABILITIES
Depreciation 13,000 9,000
Unrealized investment gain 3,000 3,000
Deferred loan fees 5,000 9,000
------------ ------------
Total deferred tax liabilities 21,000 21,000
------------ ------------
Net deferred tax asset $379,000 $237,000
============ ============
11. Earnings Per Share:
The following tables reconcile the numerators and denominators of the basic and
diluted computations for earnings per share for the year ended December 31:
<TABLE>
<CAPTION>
INCOME SHARES PER-SHARE
1998 (NUMERATOR) (DENOMINATOR) AMOUNT
<S> <C> <C> <C>
BASIC EPS
Income available to common shareholders $ 740,375 1,101,243 $ 0.67
------------
DILUTED EPS
Effect of Dilutive Securities - Stock options 75,147
------------- ---------------
Income available to common shareholders
and assumed conversion $ 740,375 1,176,390 $ 0.63
------------- --------------- ------------
</TABLE>
27
<PAGE>
CATAWBA VALLEY BANK
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1998 AND 1997
<TABLE>
<CAPTION>
INCOME SHARES PER-SHARE
1997 (NUMERATOR) (DENOMINATOR) AMOUNT
<S> <C> <C> <C>
BASIC EPS
Income available to common shareholders $ 518,472 1,050,423 $ 0.49
------------
DILUTED EPS
Effect of Dilutive Securities - Stock options 16,563
------------- ---------------
Income available to common shareholders
and assumed conversion $ 518,472 1,066,986 $ 0.49
------------- --------------- ------------
</TABLE>
For the year ended December 31, 1996, there was no adjustments to either the
numerator or denominator for purpose of calculating diluted earnings per share.
Options to purchase 73,500 shares of common stock at $8.67 per share were
outstanding during the second half of 1996 but were not included in the
computation of diluted EPS because the Bank had a net loss.
12. 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 financial soundness of the Bank.
The Bank is subject to various regulatory capital requirements administered by
the 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. Under capital adequacy guidelines and the regulatory framework for
prompt corrective action, the Bank must meet specific guidelines that involve
quantitative measures of the Bank's assets, liabilities, and certain
off-balance-sheet items as calculated under regulatory accounting practices. The
Bank's capital amounts and classification are also subject to qualitative
judgments by the regulators about components, risk weightings and other factors.
Quantitative measures established by regulation to ensure capital adequacy
require the Bank to maintain minimum amounts and ratios (set forth in the table
below) of total and Tier 1 capital (as defined in the regulations) to
risk-weighted assets (as defined), and of Tier 1 capital to average assets (as
defined). Management believes that as of December 31, 1998, the Bank meets all
capital adequacy requirements to which it is subject.
28
<PAGE>
CATAWBA VALLEY BANK
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1998 AND 1997
As of December 31, 1998, the most recent notification from the Federal Deposit
Insurance Corporation categorized the Bank as well capitalized under the
regulatory framework for prompt corrective action. To be well capitalized the
Bank must maintain minimum total risk-based, Tier 1 risk-based, and Tier 1
leverage ratios as set forth in the table below. There are no conditions or
events since the notification that management believes have changed the Bank's
category. The Bank's actual capital amounts and ratios are also presented in the
following table.
<TABLE>
<CAPTION>
ACTUAL FOR CAPITAL ADEQUACY WELL CAPITALIZED
1998 AMOUNT PERCENT AMOUNT PERCENT AMOUNT PERCENT
<S> <C> <C> <C> <C> <C> <C>
Total Capital (to Risk
Weighted Assets) $ 14,317,000 23.28% $4,920,000 8.00% $ 6,150,000 10.00%
Tier 1 Capital (to Risk
Weighted Assets) 14,292,000 23.24% 2,460,000 4.00% 3,690,000 6.00%
Tier 1 Capital (to Average
Assets) 14,292,000 16.74% 3,415,000 4.00% 4,268,000 5.00%
ACTUAL FOR CAPITAL ADEQUACY WELL CAPITALIZED
1997 AMOUNT PERCENT AMOUNT PERCENT AMOUNT PERCENT
Total Capital (to Risk
Weighted Assets) $ 7,745,000 17.82% $3,477,000 8.00% $ 4,346,000 10.00%
Tier 1 Capital (to Risk
Weighted Assets) 7,695,000 17.70% 1,738,000 4.00% 2,607,000 6.00%
Tier 1 Capital (to Average
Assets) 7,695,000 15.38% 2,000,000 4.00% 2,500,000 5.00%
</TABLE>
13. Fair Value of Financial Instruments:
SFAS No. 107, "Disclosures About Fair Value of Financial Instruments", requires
disclosure of fair value information about financial instruments, whether or not
recognized in the balance sheet, for which it is practicable to estimate that
value. In cases where quoted market prices are not available, fair values are
based on estimates using present value or other valuation techniques. Those
techniques are significantly affected by the assumptions used, including the
discount rate and estimates of future cash flows.
In that regard, the derived fair value estimates cannot be substantiated by
comparison to independent markets and, in many cases, could not be realized in
immediate settlement of the instrument. SFAS 107 excludes certain financial
instruments and all nonfinancial instruments from its disclosure requirements.
Accordingly, the aggregate fair value amounts presented do not represent the
underlying value of the Bank.
29
<PAGE>
CATAWBA VALLEY BANK
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1998 AND 1997
The following methods and assumptions were used by the Bank in estimating its
fair value disclosures for financial instruments:
CASH AND CASH EQUIVALENTS AND TIME DEPOSITS WITH OTHER FINANCIAL INSTITUTIONS
The carrying amounts reported in the balance sheet for cash and short-term
instruments approximate those assets' fair value.
SECURITIES
Fair values for securities are based on quoted market prices, where available.
If quoted market prices are not available, fair values are based on quoted
market prices of comparable instruments.
LOANS RECEIVABLE
The fair values for loans are estimated using discounted cash flow analyses
using interest rates currently being offered for loans with similar terms. The
carrying amount of accrued interest approximates its fair value.
DEPOSITS
The fair values disclosed for deposits with no stated maturity (e.g., interest
and noninterest checking, passbook savings, and certain types of money market
accounts) are, by definition, equal to the amount payable on demand at the
reporting date (i.e., their carrying amounts). Fair values for deposits with a
stated maturity date (time deposits) are estimated using a discounted cash flow
calculation that applies interest rates currently being offered on these
accounts to a schedule of aggregated expected monthly maturities on time
deposits.
OFF-BALANCE SHEET INSTRUMENTS
Fair values for the Bank's off-balance sheet instruments, primarily loan
commitments, are based on fees currently charged to enter into similar
agreements taking into account the remaining terms of the agreements and the
counter parties' credit standing.
30
<PAGE>
CATAWBA VALLEY BANK
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1998 AND 1997
The following table reflects the estimated fair values and carrying values at
December 31:
<TABLE>
<CAPTION>
1998 1997
CARRYING ESTIMATED CARRYING ESTIMATED
VALUE FAIR VALUE VALUE FAIR VALUE
<S> <C> <C> <C> <C>
Cash and cash equivalents $ 11,595,786 $ 11,595,786 $ 12,297,535 $ 12,297,535
Time deposits with other financial
institutions 2,476,956 2,476,956 1,082,976 1,082,976
Securities available for sale 9,564,531 9,564,531 2,894,868 2,894,868
Securities held to maturity 1,833,472 1,857,317 3,226,982 3,227,269
Federal Home Loan Bank and
Bankers Bank stock 257,525 257,525 153,325 153,325
Net loans 59,556,680 59,574,862 42,314,517 42,399,146
Deposits with no stated maturity 28,352,663 28,352,663 20,171,843 20,171,843
Deposits with stated maturity 46,468,386 46,807,605 36,935,653 37,094,476
</TABLE>
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<PAGE>
SHAREHOLDER INFORMATION
<TABLE>
<CAPTION>
<S> <C>
INDEPENDENT AUDITORS NOTICE OF ANNUAL MEETING
PricewaterhouseCoopers LLP The Annual Meeting of the shareholders of
Certified Public Accountants Catawaba Valley Bank will be held on May 25th
NationsBank Corporate Center 1999, at 2:00 p.m. in the Conference Room at
100 North Tryon Street, Suite 3400 J.C. Bradford & Co., 400 Second Avenue, N.W.
Charlotte, North Carolina 28202 Hickory, North Carolina
SPECIAL COUNSEL FORM 10-KSB
Moore & Van Allen, PLLC A copy of Catawba Valley Bank's Annual Report
One Hanover Square, Suite 1700 on Form 10-KSB as filed with the Federal Deposit
Raleigh, North Carolina 27604 Insurance Corporation, will be furnished without
charge to the stockholders as of the record date,
STOCK TRANSFER AGENT upon written request to G. Marvin Lowder, Vice
President and Treasurer, Catawba Valley Bank,
First-Citizens Bank & Trust Company Post Office Box 2328, Hickory, North Carolina.
2917 Highwoods Boulevard
Raleigh, North Carolina 27604
</TABLE>
BANK OFFICERS
<TABLE>
<CAPTION>
<S> <C> <C>
R. Steve Aaron Joe S. Tripp Carole F. Teague
President, Chief Executive Officer Vice President/Lending Vice President/Retail Services
N. Jack Rector G. Marvin Lowder David A. Kozak
Vice President/Lending Vice President/Accounting Vice President/Branch Manager
</TABLE>
CATAWBA VALLEY BANK
Main Office: 1039 Second Street, N.E.
Hickory, North Carolina 28601
(828) 431-2300
Branches: 1445 Second Avenue, N.W. 2675 NW Boulevard
Hickory, North Carolina 28601 Newton, North Carolina 28658
(828) 431-2333 (828) 464-9911
MEMBER FEDERAL DEPOSIT INSURANCE CORPORATION
This statement has not been reviewed for accuracy or relevancy
by the Federal Deposit Insurance Corporation.
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