AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON FEBRUARY 11, 2000
REGISTRATION NO. 333-
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
---------------
WESTSTAR FINANCIAL SERVICES CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
<TABLE>
<CAPTION>
NORTH CAROLINA 6712 56- (APPLIED FOR)
<S> <C> <C>
(STATE OR OTHER JURISDICTION (PRIMARY STANDARD (I.R.S. EMPLOYER
OF INCORPORATION OR ORGANIZATION) INDUSTRIAL CLASSIFICATION CODE NUMBER) IDENTIFICATION NO.)
</TABLE>
79 WOODFIN PLACE
ASHEVILLE, NORTH CAROLINA 28801-2426
(828) 252-1735
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
---------------
G. GORDON GREENWOOD
PRESIDENT AND CHIEF EXECUTIVE OFFICER
THE BANK OF ASHEVILLE
79 WOODFIN PLACE
ASHEVILLE, NORTH CAROLINA 28801-2426
(828) 252-1735
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE
OF AGENT FOR SERVICE)
---------------
WITH COPIES TO:
ANTHONY GAETA, JR., ESQ.
ERIK GERHARD, ESQ.
ANTHONY GAETA, JR., P.A.
808 SALEM WOODS DRIVE
SUITE 201
RALEIGH, NORTH CAROLINA 27615
(919) 845-2558
---------------
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 The Bank of Asheville.
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
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PROPOSED PROPOSED
AMOUNT MAXIMUM MAXIMUM
TITLE OF EACH CLASS OF TO BE OFFERING PRICE AGGREGATE AMOUNT OF
SECURITIES TO BE REGISTERED REGISTERED PER SHARE OFFERING PRICE REGISTRATION FEE
<S> <C> <C> <C> <C>
Common Stock $1.00 Par Value ..... 633,298 $ * $ * $ 1,170.33
</TABLE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
* As provided in the Agreement and Plan of Reorganization and Share Exchange,
each outstanding share of common stock of The Bank of Asheville 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 last sales price of The Bank of Asheville
Stock on January 31, 2000.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
THE BANK OF ASHEVILLE
79 Woodfin Place
Asheville, North Carolina 28801-2426
--------------------------------------------
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD ON APRIL 18, 2000
--------------------------------------------
The Bank of Asheville will hold its annual meeting of shareholders at the
Renaissance Asheville Hotel, One Thomas Wolfe Plaza, Asheville, North Carolina,
at 3:00 p.m. local time on April 18, 2000, to vote on the following proposals:
1. To approve the Agreement and Plan of Reorganization and Share Exchange,
dated as of February 9, 2000, between The Bank of Asheville and Weststar
Financial Services Corporation ("Weststar"), and the transactions contemplated
by the Agreement, including the holding company reorganization of The Bank of
Asheville by which its shareholders will exchange their shares of The Bank of
Asheville common stock for shares of the common stock of Weststar, on a
one-for-one basis.
2. To elect ten members of the Board of Directors for terms of one, two,
and three years as indicated.
3. To ratify the appointment of Deloitte & Touche LLP as The Bank of
Asheville's independent accountants for 2000.
4. Any other matters that properly come before the annual meeting, or any
adjournments or postponements of the annual meeting.
Record holders of The Bank of Asheville Common Stock at the close of
business on February 15, 2000, 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 The Bank of Asheville Common Stock outstanding on February 15, 2000.
Holders of The Bank of Asheville 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 an appendix 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
RANDALL C. HALL, SECRETARY
Asheville, North Carolina
, 2000
<PAGE>
TABLE OF CONTENTS
<TABLE>
<S> <C>
SUMMARY .................................................................................. 1
GENERAL INFORMATION ...................................................................... 4
PROPOSAL 1: REORGANIZATION OF THE BANK OF ASHEVILLE INTO A HOLDING
COMPANY ................................................................................ 5
DESCRIPTION OF THE HOLDING COMPANY AGREEMENT ............................................. 6
DISSENTERS' RIGHTS ....................................................................... 9
DESCRIPTION OF WESTSTAR'S CAPITAL STOCK .................................................. 13
COMPARISON OF THE RIGHTS OF SHAREHOLDERS ................................................. 15
PRO FORMA CONSOLIDATED CAPITALIZATION .................................................... 19
INFORMATION ABOUT BANK OF ASHEVILLE AND WESTSTAR ......................................... 19
MANAGEMENT AND CERTAIN TRANSACTIONS ...................................................... 22
PROPOSAL 2: ELECTION OF DIRECTORS ........................................................ 22
PROPOSAL 3: RATIFICATION OF INDEPENDENT PUBLIC ACCOUNTANTS ............................... 27
OTHER MATTERS ............................................................................ 28
PROPOSALS FOR 2001 MEETING ............................................................... 28
ADDITIONAL INFORMATION ................................................................... 28
REGULATION AND SUPERVISION ............................................................... 29
LEGAL MATTERS ............................................................................ 33
EXPERTS .................................................................................. 33
FORWARD LOOKING STATEMENTS ............................................................... 33
WHERE YOU CAN GET MORE INFORMATION ....................................................... 34
INFORMATION INCORPORATED BY REFERENCE .................................................... 34
MANAGEMENT'S DISCUSSION AND ANALYSIS OF BANK OF ASHEVILLE ................................ 36
INDEPENDENT AUDITORS REPORT .............................................................. F-1
FINANCIAL STATEMENTS ..................................................................... F-2
Appendix I: Agreement and Plan of Reorganization and Share Exchange
Appendix II: Article 13 of North Carolina Business Corporation Act regarding Dissenters'
Rights
</TABLE>
<PAGE>
SUMMARY
THIS SUMMARY HIGHLIGHTS THE MATERIAL TERMS OF THIS PROXY
STATEMENT-PROSPECTUS. TO UNDERSTAND THE BANK OF ASHEVILLE 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 34)
THE BANK OF ASHEVILLE WILL REORGANIZE INTO A HOLDING COMPANY STRUCTURE (PAGE 6)
Under a holding company reorganization agreement between The Bank of
Asheville ("Bank of Asheville") and Weststar Financial Services Corporation
("Weststar"), all of the outstanding shares of Bank of Asheville stock will be
automatically converted into the right to receive shares of Weststar stock in a
one-for-one exchange. As a result, Bank of Asheville will be owned by Weststar
and Bank of Asheville 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 Bank of Asheville common stock, you would receive 100 shares of
Weststar common stock in the holding company reorganization. The total cost of
forming the holding company is estimated to be $ . The cost will be borne
by Bank of Asheville.
FEDERAL INCOME TAX CONSEQUENCES (PAGE 9)
We have structured the transaction so that Bank of Asheville shareholders
would not recognize any gain or loss for federal income tax purposes. Lawyers
will furnish an opinion that Bank of Asheville shareholders will not recognize
any gain or loss for federal income tax purposes as a result of the holding
company reorganization. These opinions are 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.
BOARD RECOMMENDS SHAREHOLDER APPROVAL (PAGE 6)
The Board of Directors of Bank of Asheville 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 4)
Bank of Asheville will hold its annual meeting of shareholders at 3:00
p.m. local time on April 18, 2000, at the Renaissance Asheville Hotel, One
Thomas Wolfe Plaza, Asheville, North Carolina.
THE COMPANIES (PAGE 19)
THE BANK OF ASHEVILLE
79 WOODFIN PLACE
ASHEVILLE, NORTH CAROLINA 28801-2426
(828) 252-1735
Bank of Asheville is a state-chartered commercial bank organized under the
laws of the State of North Carolina. Bank of Asheville's main office is in
Asheville, North Carolina at the address above.
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<PAGE>
WESTSTAR FINANCIAL SERVICES CORPORATION
79 WOODFIN PLACE
ASHEVILLE, NORTH CAROLINA 28801-2426
(828) 252-1792
Weststar is a North Carolina corporation formed to be the owner of all of
Bank of Asheville's issued and outstanding shares. If Bank of Asheville
shareholders approve the holding company reorganization agreement, then
Weststar will own all of the shares of Bank of Asheville and the former Bank of
Asheville shareholders will become the owners of all of Weststar's shares.
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 6)
Approval of the holding company reorganization requires the affirmative
vote of the holders of at least a majority of the outstanding shares of Bank of
Asheville common stock. A shareholder's failure to vote will have the effect of
a vote against approval of the transaction.
Directors and executive officers of Bank of Asheville own about 7.87% of
the shares that may be cast at the meeting, and we expect them to vote in favor
of the holding company reorganization.
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 on April 28, 2000 assuming receipt of approvals
from all regulatory authorities.
RECORD DATE FOR THE MEETING IS FEBRUARY 15, 2000
If you owned shares of The Bank of Asheville at the close of business on
February 15, 2000, you may vote on the matters to be considered at the meeting.
On February 15, 2000, there were 633,298 shares of Bank of Asheville
common stock outstanding. Each Bank of Asheville shareholder will have one vote
at the meeting for each share of stock they owned on such date.
OTHER MATTERS TO BE ACTED ON
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 ten members of the Board of Directors for terms of one, two or
three years as indicated.
2. Ratify the appointment of the independent public accounting firm of
Deloitte & Touche LLP as accountants for Bank of Asheville for 2000.
3. To act on any other matters that may lawfully be brought before the
annual meeting.
2
<PAGE>
DISSENTERS' RIGHTS (PAGE 9)
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 Bank of Asheville 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 WESTSTAR COMMON STOCK
It is expected that Weststar's common stock will be traded on the
Over-the-Counter Bulletin Board under the trading symbol " ".
EXCHANGE OF SHARE CERTIFICATES (PAGE 8)
Certificates representing shares of Bank of Asheville stock will not
automatically represent shares of Weststar stock. Shareholders will need to
exchange their Bank of Asheville stock certificates for Weststar stock
certificates after the transaction is completed. We will mail you information
following the date on which we complete the transactions.
3
<PAGE>
GENERAL INFORMATION
THE BANK OF ASHEVILLE ANNUAL MEETING
GENERAL. This Proxy Statement-Prospectus is being furnished to the
shareholders of Bank of Asheville in connection with the solicitation by the
Board of Directors of Bank of Asheville of proxies for use at Bank of
Asheville's annual meeting of Shareholders. The purposes of Bank of Asheville's
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
9, 2000 (the "Holding Company Agreement") pursuant to which Bank of Asheville
will become a wholly-owned subsidiary of Weststar; (b) election of ten
directors for one, two, and three year terms as indicated; and (c) ratification
of the appointment of Deloitte & Touche LLP as Bank of Asheville's independent
accountants for 2000.
The principal executive offices of both Weststar and Bank of Asheville are
located at 79 Woodfin Place, Asheville, North Carolina 28801-2426. Their
telephone number is (828) 252-1735.
This Proxy Statement-Prospectus is first being mailed to shareholders on
or about , 2000.
RECORD DATE; VOTING RIGHTS. Bank of Asheville Shareholders of record at
the close of business on February 15, 2000 (the "Record Date") are entitled to
vote at the annual meeting, or at any adjournment or postponement. As of the
Record Date, there were 633,298 shares of Bank of Asheville Common Stock
outstanding and entitled to vote held of record by approximately 800 persons.
Each share of Bank of Asheville Common Stock entitles the holder to one vote on
each matter submitted to a vote at the meeting. Pursuant to the Bylaws of Bank
of Asheville, a majority of the votes entitled to be cast by holders of Bank of
Asheville 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 below, the affirmative vote of the holders of a
majority of the issued and outstanding shares of Bank of Asheville Common Stock
is required by Article 11 of the North Carolina Business Corporation Act (the
"NCBCA") to approve the Holding Company Agreement and the reorganization of
Bank of Asheville into a holding company, as provided in that agreement. In the
case of Proposal 2 below, the ten directors receiving the greatest number of
votes shall be elected. In the case of Proposal 3 below, for such a proposal to
be approved, the number of votes cast for approval must exceed the number of
votes cast against the Proposal.
The executive officers and directors of Bank of Asheville, together with
their affiliates, beneficially owned, directly or indirectly, as of December
31, 1999, an aggregate of 49,859 shares of Bank of Asheville Common Stock
constituting approximately 7.87% of such shares outstanding and entitled to
vote on that date. Of that amount, non-employee directors own 45,639 shares of
Bank of Asheville Common Stock or approximately 7.21% of the total, and
principal officers of Bank of Asheville own 4,220 of such shares or less than
0.67% of the total.
G. Gordon Greenwood, currently the sole director and officer of Weststar,
owns one share of Weststar Common Stock, or 100% of the total, with nominal
value. We expect that Weststar will cancel Mr. Greenwood's share after
consummation of the holding company reorganization. The result will be that the
same persons who held Bank of Asheville Common Stock before the transaction
(except if anyone exercises dissenters' rights) will own Weststar 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 BANK OF
ASHEVILLE TO COMPLETE, DATE, SIGN, AND RETURN THE PROXY CARD IN THE
ACCOMPANYING ENVELOPE, which is postage-paid if mailed in the United States.
4
<PAGE>
Since we need a majority of all outstanding Bank of Asheville shares to
vote FOR the Holding Company Agreement, if you neither submit a proxy card nor
vote in person at the annual meeting, you will, in effect, have voted AGAINST
the Holding Company Agreement and the reorganization of Bank of Asheville 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
Bank of Asheville, Randall C. Hall, 79 Woodfin Place, Asheville, NC 28801-2426,
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.
The expense of preparing, printing and mailing this Proxy
Statement-Prospectus will be paid by Bank of Asheville. In addition to the use
of the mails, proxies may be solicited personally or by telephone by regular
employees of Bank of Asheville without additional compensation. Bank of
Asheville will reimburse banks, brokers and other custodians, nominees and
fiduciaries for their costs in sending the proxy materials to the beneficial
owners of Bank of Asheville Common Stock.
AUTHORIZATION TO VOTE ON ADJOURNMENT AND OTHER MATTERS
By signing a proxy, Bank of Asheville 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 Bank of Asheville 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. Bank of Asheville
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 THE BANK OF ASHEVILLE INTO A HOLDING COMPANY
THE FOLLOWING INFORMATION DESCRIBES MATERIAL ASPECTS OF THE PROPOSED
REORGANIZATION OF THE BANK OF ASHEVILLE INTO A HOLDING COMPANY NAMED WESTSTAR
FINANCIAL SERVICES CORPORATION. THE HOLDING COMPANY AGREEMENT IS ATTACHED AS
APPENDIX I.
GENERAL
Weststar and Bank of Asheville entered into the Holding Company Agreement
pursuant to which Weststar will become a bank holding company with Bank of
Asheville as its wholly-owned subsidiary (the "Holding Company
Reorganization"). A copy of the Holding Company Agreement is attached as
Appendix I to this Proxy Statement-Prospectus. Weststar is a newly-formed North
Carolina corporation that was organized by Bank of Asheville for the purpose of
effecting the Holding Company Reorganization and, therefore, has no operating
history. If the Holding Company Reorganization is approved by the holders of
Bank of Asheville Common Stock, and subject to the satisfaction of all other
conditions set forth in the Holding Company Agreement, including receipt of all
required regulatory approvals, all of the outstanding shares of Bank of
Asheville 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 Weststar Common Stock in a one-for-one exchange.
After the effective date of the Holding Company Reorganization, Bank of
Asheville will continue its existing business and operations as a wholly-owned
subsidiary of Weststar. The consolidated assets, liabilities,
5
<PAGE>
shareholders' equity and income of Weststar immediately following the effective
date will be the same as those of Bank of Asheville immediately prior to the
effective date. The Board of Directors of Weststar is, and upon the Effective
Date will continue to be, comprised of the current members of the Board of
Directors of Bank of Asheville. The executive officers of Weststar are, and
upon the effective date of the Holding Company Reorganization will continue to
be, substantially the same as the current executive officers of Bank of
Asheville. Bank of Asheville will continue to operate under the name "The Bank
of Asheville" 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 Bank of Asheville will continue unaffected and
unimpaired by the Holding Company Reorganization, except that all of the
outstanding shares of Bank of Asheville Common Stock (other than shares held by
shareholders exercising dissenters' rights, if any) will be owned by Weststar.
The current shareholders of Bank of Asheville will own all of the outstanding
shares of Weststar Common Stock after completion of the Holding Company
Reorganization.
VOTE REQUIRED
Approval of the Holding Company Agreement requires the approval of a
majority of the issued and outstanding shares of Bank of Asheville. The
required vote of shareholders is based upon the number of outstanding shares of
Bank of Asheville Common Stock, and not the number of those shares that are
actually voted. Accordingly, as we explained on page 5, anything but a vote
"FOR" this proposal will have the effect of a vote "AGAINST" this proposal.
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 this proposal.
THE BANK OF ASHEVILLE BOARD OF DIRECTORS HAS UNANIMOUSLY APPROVED THE
PROPOSED HOLDING COMPANY REORGANIZATION AND UNANIMOUSLY RECOMMENDS A VOTE "FOR"
APPROVAL AND ADOPTION OF THE HOLDING COMPANY AGREEMENT.
DESCRIPTION OF THE HOLDING COMPANY AGREEMENT
BANK OF ASHEVILLE
Bank of Asheville was incorporated under the laws of the State of North
Carolina on October 29, 1997, and commenced operations as a state-chartered
banking corporation on December 1, 1997. Bank of Asheville is not a member of
the Federal Reserve System and has no subsidiaries. As of December 31, 1999,
Bank of Asheville had assets of approximately $43.3 million, net loans
outstanding of approximately $33.9 million, deposits of approximately $37.9
million and stockholders' equity of approximately $5.1 million.
WESTSTAR
Weststar was incorporated on February 8, 2000 at the direction of the
Board of Directors of Bank of Asheville to become a bank holding company with
Bank of Asheville as its wholly-owned subsidiary. Weststar, upon the approval
by the Board of Governors of the Federal Reserve System ("Federal Reserve
Board") of Weststar's application for approval to become a bank holding
company, will be subject to regulation by the Federal Reserve Board. Upon
consummation of the Holding Company Reorganization, Weststar will have no
significant assets other than the shares of Bank of Asheville's capital stock
acquired in the Holding Company Reorganization, and will have no significant
liabilities. Initially, Weststar will neither own nor lease any property, but
will instead use the premises, equipment and furniture of Bank of Asheville. At
the present time, Weststar does not intend to employ any persons other than
certain executive officers, but will utilize the support staff of Bank of
Asheville from time to time. Additional employees will be hired as appropriate,
to the extent Weststar expands its business in the future.
6
<PAGE>
REASONS FOR THE REORGANIZATION
Bank of Asheville'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 Bank of Asheville's growth,
the ability to accommodate distinct subsidiaries for additional lines of
business and increased efficiency with regard to acquisition activities.
Furthermore, the recent enactment of the Gramm-Leach-Bliley Act of 1999 which
made historic changes to the structure of the financial services industry would
require certain activities to only be conducted through the holding company
form of organization. While Weststar and Bank of Asheville have no current
plans for additional lines of business, they might consider such options in the
future. Also, neither have any current plans for funding additional growth,
although they will evaluate acquisition opportunities on a regular basis.
Effecting any such acquisition may necessitate additional capital funding. A
holding company structure would be consistent with Bank of Asheville's stated
strategy of positioning Bank of Asheville to seize opportunities that it
expects to result from the consolidation of the financial services industry.
HOLDING COMPANY EFFECTIVE DATE
The date and time on which the Holding Company Reorganization is effective
will be the first business day following the date on which Weststar files
Articles of Share Exchange in accordance with the NCBCA. We refer to this date
and time as the "Holding Company Effective Date."
ACTIONS AT THE HOLDING COMPANY EFFECTIVE DATE
The Holding Company Reorganization will be accomplished through the
following steps:
o Weststar has been incorporated as a North Carolina corporation. The
primary purpose of Weststar is to become the bank holding company for Bank
of Asheville.
o At the Holding Company Effective Date, Weststar will exchange shares of
its Common Stock for all the shares of Bank of Asheville Common Stock
issued and outstanding immediately prior to the Holding Company Effective
Date on a one-for-one basis. As an example, if a Bank of Asheville
shareholder owned 100 shares of Bank of Asheville's stock before the
Holding Company Effective Date, he or she would receive 100 shares
Weststar in the Holding Company Reorganization.
o Not more than 20 days following the Holding Company Effective Date,
Weststar will cause Registrar and Transfer Company, Cranford, New Jersey,
the transfer agent for Bank of Asheville Common Stock (the "Exchange
Agent"), to mail to each former shareholder of Bank of Asheville of record
immediately prior to the Holding Company Effective Date written
instructions and transmittal materials for use in surrendering shares of
Bank of Asheville Common Stock to the Exchange Agent.
o Upon the proper delivery to the Exchange Agent by a Bank of Asheville
shareholder of his or her share certificates, the Exchange Agent will
register in the name of such shareholder the shares of Weststar Common
Stock and deliver new share certificates to Bank of Asheville shareholder.
o Bank of Asheville shareholders have the right to dissent from the Holding
Company Reorganization if they follow the procedure in the NCBCA. We have
explained that procedure under "Dissenters' Rights" beginning on page 9
and have also included a copy of the statute itself in Appendix II to
this Proxy Statement-Prospectus.
7
<PAGE>
CONDITIONS TO THE HOLDING COMPANY REORGANIZATION
The Holding Company Agreement provides that the obligations of Bank of
Asheville and Weststar to consummate the Holding Company Reorganization are
subject to the satisfaction of the following conditions:
o the approval of the Holding Company Agreement by the affirmative vote of
the holders of a majority of the issued and outstanding shares of Bank of
Asheville Common Stock;
o the approval by the Federal Reserve Board of Weststar'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 Holding
Company Reorganization;
o the receipt of a favorable opinion from Bank of Asheville's legal counsel
as to the federal income tax consequences of the Holding Company
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 Holding Company Reorganization will be
consummated.
TERMINATION
The Holding Company Agreement may be terminated prior to the Holding
Company Effective Date if:
o any condition precedent to the Holding Company Reorganization has not
been fulfilled or waived;
o any action, suit, proceeding or claim has been instituted, made or
threatened relating to the Holding Company Agreement which makes
consummation of the transaction inadvisable in the opinion of the Board
of Directors of Bank of Asheville or Weststar;
o the number of shares of Bank of Asheville Common Stock owned by
dissenting shareholders, if any, makes consummation inadvisable in the
opinion of Bank of Asheville or Weststar; or
o for any other reason, consummation of the transaction is inadvisable in
the opinion of the Board of Directors of Bank of Asheville or Weststar.
EXCHANGE OF STOCK CERTIFICATES
At the Holding Company Effective Date, a certificate representing one
share of Bank of Asheville Common Stock will represent the right to be
exchanged for one share of Weststar Common Stock, except for certificates
representing Bank of Asheville shares whose holders, if any, have exercised
dissenters' rights. After the Holding Company Effective Date, shareholders will
exchange their present certificates for new certificates representing shares of
Weststar Common Stock. Bank of Asheville shareholders will be notified by
Weststar as to the procedure for the exchange of Bank of Asheville Common Stock
certificates for Weststar Common Stock certificates. Your present stock
certificates will for all purposes after the Holding Company Effective Date,
until exchanged with the Exchange Agent, evidence only the exchange rights for
which the Holding Company Agreement provides or, if applicable, the rights of a
dissenting shareholder.
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FEDERAL INCOME TAX CONSEQUENCES OF THE HOLDING COMPANY REORGANIZATION
Bank of Asheville expects to receive an opinion of Anthony Gaeta, Jr.,
P.A. to the effect that, among other things:
o The proposed Holding Company 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 Bank of Asheville's shareholders on
the receipt of Weststar's Common Stock in exchange for their Bank of
Asheville Common Stock.
o The basis of each Bank of Asheville shareholder in Weststar's Common
Stock received by such shareholder will be the same as the basis of Bank
of Asheville Common Stock surrendered in exchange therefor.
o The holding period of Weststar's Common Stock received by each Bank of
Asheville shareholder will include the holding period of Bank of
Asheville Common Stock surrendered in exchange therefor, provided that
Bank of Asheville Common Stock is held as a capital asset at the
effective time of the Holding Company Reorganization.
o If a Bank of Asheville shareholder dissents from the Holding Company
Reorganization and receives cash in exchange for his Bank of Asheville
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 Holding Company
Reorganization will be consummated as described in the Holding Company
Agreement, and that payment to dissenters will not exceed the fair market value
of the Weststar Common Stock issued in the Holding Company 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 HOLDING COMPANY REORGANIZATION
The Holding Company 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
Bank of Asheville and Weststar will be combined.
DISSENTERS' RIGHTS
Article 13 (entitled "Dissenters' Rights") of the NCBCA sets forth the
rights of Bank of Asheville shareholders who object to the Holding Company
Reorganization. The following is a summary of the material terms of the
statutory procedures to be followed by a holder of Bank of Asheville Common
Stock in order to dissent from the Holding Company Reorganization and perfect
dissenters' rights under the NCBCA. A copy of Article 13 of the NCBCA is
attached as Appendix II hereto.
If a Bank of Asheville 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 Bank of Asheville and Bank of Asheville
must actually receive, before the vote on approval or disapproval of
the Holding Company Reorganization is taken, written
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notice (the "Notice") of such shareholder's intent to demand payment for
such shareholder's shares if the Holding Company Reorganization is
effectuated (this Notice must be in addition to and separate from any
proxy or vote against the Holding Company Reorganization; neither voting
against, abstaining from voting, nor failing to vote on the Holding
Company Reorganization will constitute a Notice within the meaning of
the NCBCA); and
(b) such shareholder must not vote in favor of the Holding Company
Reorganization (a failure to vote will satisfy this requirement, but a
vote in favor of the Holding Company Reorganization, by proxy or in
person, or the return of a signed proxy which does not specify a vote
against approval of the Holding Company 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 Holding
Company Reorganization becomes effective, a Bank of Asheville 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 The Bank of Asheville, 79 Woodfin
Place, Asheville, North Carolina 28801-2426, attention: G. Gordon Greenwood.
The Notice must be executed by the holder of record of shares of Bank of
Asheville Common Stock. A beneficial owner may assert Dissenters' Rights only
if he dissents with respect to all Bank of Asheville Common Stock of which he
is the beneficial owner. With respect to shares of Bank of Asheville 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 Bank of Asheville 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
Bank of Asheville 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 Bank of Asheville
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 Holding Company Reorganization and
demanding payment for such person's shares.
If the Holding Company Reorganization is approved, Bank of Asheville 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 Holding Company
Reorganization, and must:
o state where the payment demand must be sent and where and when
certificates for shares of Bank of Asheville Common Stock must be
deposited;
o supply a form for demanding payment;
o set a date by which Bank of Asheville 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 Holding Company
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.
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Within 30 days after receipt of a demand for payment, Bank of Asheville is
required to pay each dissenting shareholder the amount Bank of Asheville
estimates to be the fair value of such shareholder's shares, plus interest
accrued from the effective date of the Holding Company Reorganization to the
date of payment. The payment must be accompanied by:
o Bank of Asheville'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 Bank of Asheville 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 Holding Company Reorganization is not consummated within 60 days
after the date set for demanding payment and depositing share certificates,
Bank of Asheville must, pursuant to the NCBCA, return the deposited
certificates. If after returning the deposited certificates the Holding Company
Reorganization is consummated, Bank of Asheville must send a new Dissenters'
Notice and repeat the payment demand procedure.
A shareholder may, however, notify Bank of Asheville 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 Bank of Asheville if: (a) the shareholder believes that the amount paid is
less than the fair value of Bank of Asheville Common Stock or that the interest
is incorrectly calculated; (b) Bank of Asheville 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 Holding Company Reorganization not having been
consummated, Bank of Asheville 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 Bank of Asheville
of such shareholder's demand in writing within 30 days of Bank of Asheville's
payment of its estimate of fair value (with respect to clause (a) above) or
Bank of Asheville's failure to perform (with respect to clauses (b) and (c) in
this paragraph). A shareholder who fails to notify Bank of Asheville 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 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 Bank of Asheville if the court finds that it
did not comply with the statutes; or (b) against Bank of Asheville 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 Bank of Asheville, the court
may award to these counsel reasonable fees to be paid out of the amounts
awarded the dissenting shareholders who were benefited.
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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 Holding Company Agreement provides that if the Board of Directors of
Bank of Asheville determines that the holders of a sufficient number of shares
of Bank of Asheville Common Stock have dissented from the Holding Company
Reorganization so that consummation of the Holding Company Reorganization is
inadvisable, the Board of Directors of Bank of Asheville may terminate the
Holding Company Agreement. In that regard, Bank of Asheville currently
anticipates that it would terminate the Holding Company Agreement if more than
63,329 shares of Bank of Asheville Common Stock dissent from the Holding
Company Reorganization. To comply with the requirements for a reorganization
under Section 368(a)(1)(B) of the Code, the Holding Company Agreement provides
that Bank of Asheville will establish an escrow fund from which all payments to
dissenting Bank of Asheville shareholders (if any) will be made. Weststar 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 Holding Company Agreement to
ensure that any and all Bank of Asheville dissenters would be paid from Bank of
Asheville's funds and that the Holding Company Reorganization would remain
eligible for treatment as a reorganization under Section 368(a)(1)(B) of the
Code.
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DESCRIPTION OF WESTSTAR'S CAPITAL STOCK
The following is a summary of the material provisions of Weststar's
Articles of Incorporation and Bylaws.
GENERAL
The Articles of Incorporation of Weststar 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 Weststar Common Stock currently issued and
outstanding, which is owned by G. Gordon Greenwood. There is currently no
established public trading market for Weststar Common Stock.
On the Holding Company Effective Date, the currently outstanding share of
Weststar Common Stock will be redeemed and canceled, and there will be, subject
to the exercise of Dissenters' Rights, 633,298 shares outstanding as a result
of the exchange of shares of Weststar Common Stock for shares of Bank of
Asheville Common Stock.
In the future, the authorized but unissued and unreserved shares of
Weststar 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 Weststar 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
Weststar Common Stock as compared to the holders of Bank of Asheville Common
Stock.
COMMON STOCK
GENERAL. Each share of Weststar Common Stock has the same relative rights
as, and is identical in all respects to, each other share of Weststar Common
Stock.
DIVIDEND RIGHTS. As a North Carolina corporation, Weststar will not be
directly subject to the restrictions on the payment of dividends applicable to
Bank of Asheville. Holders of shares of Weststar's Common Stock will be
entitled to receive such cash dividends as the Board of Directors of Weststar
may declare out of funds legally available therefor. However, the payment of
dividends by Weststar 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 Holding
Company Reorganization is consummated, the ability of Weststar to pay dividends
to the holders of shares of Weststar Common Stock will, at least initially, be
completely dependent upon the amount of dividends Bank of Asheville pays to
Weststar See "Comparison of the Rights of Shareholders -- Comparison of the
Rights of Holders of The Bank of Asheville Common Stock and Weststar Common
Stock -- Payment of Dividends".
VOTING RIGHTS. Each share of Weststar 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 Weststar is classified so that
approximately one-third of the directors will be elected each year.
Shareholders of Weststar 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 Bank of Asheville Common Stock and
Weststar Common Stock -- Voting Rights".
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LIQUIDATION RIGHTS. In the event of any liquidation, dissolution or
winding up of Weststar, the holders of shares of Weststar Common Stock will be
entitled to receive, after payment of all debts and liabilities of Weststar,
all remaining assets of Weststar available for distribution in cash or in kind.
In the event of any liquidation, dissolution or winding up of Bank of
Asheville, Weststar, as the holder of all shares of Bank of Asheville Common
Stock upon completion of the Holding Company Reorganization would be entitled
to receive payment of all debts and liabilities of Bank of Asheville (including
all deposits and accrued interest thereon) and all remaining assets of Bank of
Asheville available for distribution in cash or in kind.
PREEMPTIVE RIGHTS; REDEMPTION. Holders of shares of Weststar Common Stock
will not be entitled to preemptive rights with respect to any shares that may
be issued. Weststar Common Stock is not subject to call or redemption.
CERTAIN ARTICLES AND BYLAW PROVISIONS HAVING POTENTIAL ANTI-TAKEOVER EFFECTS
GENERAL. The following is a summary of the material provisions of
Weststar'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 Weststar (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 Weststar'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 10),
the Board of Directors of Weststar 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 Weststar, whose terms
may be shorter than three years as necessary to effect the classification
process). A director elected to fill a vacancy shall serve only until the next
meeting of shareholders at which directors are elected. As a result of the
classification of the Board of Directors of Weststar, approximately one-third
of the members of the Board of Directors of Weststar will be elected each year,
and two annual meetings will be required for Weststar's shareholders to change
a majority of the members constituting the Board of Directors of Weststar.
REMOVAL OF DIRECTORS; FILLING VACANCIES. Weststar's Articles of
Incorporation provide that shareholders may remove one or more of the directors
with cause which includes (i) criminal prosecution and conviction during the
course of a director's service as a director of Weststar of an act of fraud
embezzlement, theft, or personal dishonesty, (ii) the prosecution and
conviction of any criminal offense involving dishonesty or breach of trust, or
(iii) the occurrence of any event resulting in a director being excluded from
coverage, or having coverage limited as to the director when compared to other
covered directors under any of the fidelity bonds or insurance policies
covering its directors, officers or employees. Vacancies occurring in the Board
of Directors of Weststar 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 Weststar 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 Weststar. Generally, the shareholders of Weststar may adopt,
amend, or repeal the Bylaws in accordance with the NCBCA.
The Board of Directors is permitted by Weststar's Articles of
Incorporation to consider other constituents besides the shareholders if faced
with a proposal that could cause a change in control. Such constituents are
employees, depositors, customers, creditors and the communities in which
Weststar and its subsidiaries
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conduct business. Further, the Board is permitted to evaluate the competence,
experience and integrity of any proposed acquiror as well as the prospects for
success of such a takeover proposal from a regulatory perspective.
SPECIAL MEETINGS OF SHAREHOLDERS. Weststar's Bylaws provide that special
meetings of shareholders may be called only by the President or Board of
Directors of Weststar.
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for the Weststar Common Stock is expected
to be Registrar and Transfer Company, Cranford, New Jersey, which presently
serves as such for Bank of Asheville.
COMPARISON OF THE RIGHTS OF SHAREHOLDERS
COMPARISON OF THE RIGHTS OF HOLDERS OF BANK OF ASHEVILLE COMMON STOCK AND
WESTSTAR COMMON STOCK
GENERAL. Upon consummation of the Holding Company Reorganization,
shareholders of The Bank of Asheville, other than those shareholders who
properly exercise Dissenters' Rights, will become shareholders of Weststar.
Certain legal distinctions exist between owning Weststar Common Stock and Bank
of Asheville Common Stock. The shareholders of Weststar will be governed by and
subject to the Articles of Incorporation and Bylaws of Weststar rather than the
Articles of Incorporation and Bylaws of Bank of Asheville. Weststar is a
corporation governed by the laws of the State of North Carolina applicable to
business corporations, while Bank of Asheville 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 BANK OF ASHEVILLE COMMON STOCK NOR THE WESTSTAR 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 Weststar Common Stock and of holders of Bank of Asheville 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 Holding Company Reorganization.
CAPITAL STRUCTURE. Bank of Asheville's Articles of Incorporation authorize
the issuance of up to 10,000,000 shares of common stock, par value $5.00 per
share, and there are currently 633,298 shares issued and outstanding.
Weststar's Articles of Incorporation authorize the issuance of up to
9,000,000 shares of $1.00 par value common stock and 1,000,000 shares of
preferred stock. Because the exchange of shares of common stock by virtue of
the Holding Company Reorganization is to be one-for-one (and Weststar will
redeem and cancel the single share previously issued by it for nominal
consideration), Weststar will have the same number of shares issued and
outstanding immediately after consummation of the Holding Company
Reorganization as Bank of Asheville did before, except to the extent that any
shareholders of Bank of Asheville perfect their appraisal rights of dissent and
receive cash rather than Weststar Common Stock.
VOTING RIGHTS. In general, each holder of Bank of Asheville Common Stock
and Weststar 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 Bank of Asheville Common Stock and of Weststar 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 elected. Cumulative voting is not
available with respect to the election of directors of Bank of Asheville or
Weststar.
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Under North Carolina banking law, Bank of Asheville 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 Bank of Asheville's outstanding shares of Common Stock. Weststar 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 three-fourths Weststar's outstanding shares of Common Stock. However only
a majority of Weststar outstanding shares of Common Stock is 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.
DIRECTORS. The Bylaws of both Bank of Asheville and Weststar provide that
the Board of Directors shall have from 8 to 12 members. The Boards of Directors
of both Bank of Asheville and Weststar are currently comprised of the same 10
members. The Boards of Directors of both Bank of Asheville and Weststar may
fill vacancies arising in their directorships.
The Bylaws of both Bank of Asheville and Weststar provide that if the
number of directors is at least nine, the terms of the directors shall be
staggered. Pursuant to the Bylaws, 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
Bank of Asheville Common Stock are subject to assessment as provided by such
statute.
All shares of Weststar's Common Stock will, upon consummation of the
Holding Company Reorganization, be fully paid and non-assessable.
RIGHTS TO REPURCHASE STOCK. Under North Carolina banking law, Bank of
Asheville 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, Weststar 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 Weststar will require the prior approval of the Federal Reserve
Bank of Richmond. Weststar may consider repurchases of its stock in the future,
but there can be no assurance that Weststar will conduct such repurchases.
PAYMENT OF DIVIDENDS. The ability of Bank of Asheville 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. Bank of Asheville 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
Weststar's ability to pay dividends will not be subject to these restrictions,
such restrictions will indirectly affect Weststar because dividends from Bank
of Asheville will be a source of funds of Weststar for the payment of dividends
to shareholders of Weststar.
Weststar 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. See page .
LIMITATION OF LIABILITY AND INDEMNIFICATION OF DIRECTORS, OFFICERS AND
EMPLOYEES. The Articles of Incorporation of both Bank of Asheville and Weststar
eliminate a director's personal liability for breach of
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duty as a director to the fullest extent permitted by law. As required by North
Carolina banking law, the Articles of Incorporation of Bank of Asheville
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.
The Bylaws of both Bank of Asheville and Weststar provide for
indemnification to the fullest extent permitted by law. Under the Federal
Deposit Insurance Act, as amended ("FDIA"), both Bank of Asheville and Weststar
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 Weststar
pursuant to the forgoing provisions, Weststar 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 Bank of Asheville and Weststar are
subject to the North Carolina Shareholder Protection Act (the "Shareholder
Protection Act") and the North Carolina Control Share Acquisition Act (the
"Control Share Act"), each of which, if applicable, would hinder the ability of
a third party to acquire control of either company. The Shareholder Protection
Act generally requires that, unless certain "fair price" and other conditions
are met, the affirmative vote of the holders of 95% of the voting shares of a
corporation is necessary to adopt or authorize a business combination with any
other entity, if that entity is the beneficial owner, directly or indirectly,
of more than 20% of the voting shares of the corporation. The Control Share Act
provides that any person or party who acquires "control shares" (defined as a
number of shares which, when added to other shares held, gives the holder
voting power in the election of directors equal to 20%, 33 1/3% or a majority
of all voting power) may only vote those shares if the remaining shareholders
of the corporation, by resolution, permit those shares to be voted. If the
shareholders of the corporation permit the "control shares" to be accorded
voting rights and the holder of the "control shares" has a majority of all
voting power for the election of directors, the other shareholders of the
corporation have the right to the redemption of their shares at the fair value
of the shares as of the date prior to the date on which the vote was taken
which gave voting rights to the "control shares." The provisions of the
Shareholder Protection Act and the Control Share Act may have the effect of
discouraging a change of control by allowing minority shareholders to prevent a
transaction favored by a majority of the shareholders. The primary purpose of
these provisions is to encourage negotiations with the board of directors of a
company by groups or corporations interested in acquiring control of the
company.
The acquisition of more than ten percent (10%) of either the outstanding
Weststar Common Stock or the outstanding Bank of Asheville 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 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 Bank of Asheville or Weststar by any bank holding
company under the BHC Act. Control for purposes of the BHC
17
<PAGE>
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 Bank of Asheville or
Weststar. 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.
STATUTORY GOVERNANCE. Bank of Asheville, as a state chartered bank, is
subject to certain provisions of Chapter 53 of the North Carolina General
Statutes whereas the NCBCA, which governs bank holding companies does not
contain similar provisions. Therefore, although these provisions shall continue
to govern Bank of Asheville, they will only indirectly affect Weststar. The
relevant provisions of Chapter 53 of the North Carolina General Statutes
directly influencing Bank of Asheville to which Weststar is not subject 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 Bank of Asheville; and
o every director be required to take an oath.
BYLAW CHANGES. The Bylaws of Weststar are substantially the same as the
Bylaws of Bank of Asheville. However, Weststar's Bylaws do not include certain
bank-specific committees that are included in Bank of Asheville's Bylaws.
Upon request, Bank of Asheville will provide its shareholders with copies
of the Bylaws of both Bank of Asheville and Weststar free of charge. Requests
should be made to Randall C. Hall, at (828) 252-1735 or mailed to The Bank of
Asheville, 79 Woodfin Place, Asheville, North Carolina 28801-2426, Attention:
Randall C. Hall.
18
<PAGE>
PRO FORMA CONSOLIDATED CAPITALIZATION
The following table presents the pro forma consolidated capitalization of
Weststar and Bank of Asheville, as its subsidiary, at February 11, 2000,
adjusted to give effect to the Holding Company Reorganization as described in
this Proxy Statement-Prospectus. The authorized number of shares of Common
Stock of Weststar is 9,000,000.
<TABLE>
<CAPTION>
PRO FORMA
BANK CONSOLIDATED
OF ASHEVILLE WESTSTAR CAPITALIZATION
-------------- ---------- ---------------
<S> <C> <C> <C>
SHAREHOLDERS EQUITY
Common Stock ................................. $ 3,166,490 $ 1.00 $ 3,166,491
Additional Paid-In Capital ................... 3,596,444 9.00 3,596,453
Retained Deficit ............................. (1,590,896) -- (1,590,896)
Accumulated Other Comprehensive Loss ......... (3,639) -- (3,639)
Total Shareholders' Equity ................... 5,168,399 10.00 5,168,409
</TABLE>
INFORMATION ABOUT BANK OF ASHEVILLE AND WESTSTAR
WESTSTAR
GENERAL. Weststar is a business corporation incorporated under the laws of
the State of North Carolina on February 8, 2000. The only office of Weststar,
and its principal place of business, is located at the administrative office of
Bank of Asheville at 79 Woodfin Place, Asheville, North Carolina 28801-2426.
Weststar's telephone number is (828) 252-1735.
Weststar was organized for the purpose of becoming the holding company of
Bank of Asheville. Pursuant to the Holding Company Reorganization, Bank of
Asheville will become a wholly-owned subsidiary of Weststar, Weststar will
become a bank holding company, and each shareholder of Bank of Asheville will,
subject to the exercise of Dissenters' Rights, become a shareholder of Weststar
without any change in the number of shares owned or percentage ownership.
Weststar has not yet undertaken any operating business activities and does
not currently propose to do so. In the future, Weststar 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, Weststar will neither own nor lease any real or
personal property but will utilize the premises and property of Bank of
Asheville without the payment of any rental fees to Bank of Asheville.
COMPETITION. It is expected that for the near future the primary business
of Weststar will be the ongoing business of Bank of Asheville. Therefore, the
competitive conditions to be faced by Weststar will be the same as those faced
by Bank of Asheville. 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, thrift institutions or
companies engaged in bank-related activities. Thus, Weststar will face
competition in undertaking any such acquisitions and in operating subsequent to
any such acquisitions.
EMPLOYEES. At the present time, Weststar does not intend to have any
employees other than its management. See "Management of Weststar." It will
utilize the support staff of Bank of Asheville from time to time without the
payment of any fees to Bank of Asheville. If Weststar acquires other financial
institutions or pursues other lines of business, it may at such time hire
additional employees.
19
<PAGE>
BANK OF ASHEVILLE
GENERAL. Bank of Asheville was incorporated under the laws of the State of
North Carolina on October 29, 1997, and commenced operations as a
state-chartered banking corporation on December 1, 1997. Bank of Asheville is
not a member of the Federal Reserve System and has no subsidiaries. As of
December 31, 1999, Bank of Asheville had assets of approximately $43.3 million,
net loans outstanding of approximately $33.9 million and deposits of
approximately $37.9 million. Bank of Asheville's corporate and main office is
located at 79 Woodfin Place, Asheville, North Carolina 28801-2426, and its
telephone number is (828) 252-1735. In addition to the main office, Bank of
Asheville has one branch office in Candler, North Carolina that was opened in
1999.
Bank of Asheville is a community bank currently engaged in the general
commercial banking business in Buncombe County, North Carolina. The Bank's
market area consists of the area within a 10-mile radius of the City of
Asheville, North Carolina, and includes parts of Buncombe County. Asheville is
the industrial center of Buncombe County and, also serves as the commercial hub
for several prosperous towns surrounding the area. The area is a very strong
and diversified economic area. The total population of Asheville-Buncombe
County is approximately 190,000.
Bank of Asheville 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 Bank of Asheville customers. In addition, Bank
of Asheville provides automated teller machine access to its customers for cash
withdrawals through nationwide ATM networks. At present, Bank of Asheville does
not provide the services of a trust department.
LENDING ACTIVITIES AND DEPOSITS. Bank of Asheville 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 Bank of Asheville are influenced by the significant
industries within the region. Virtually all Bank of Asheville's business
activity is with customers located in Asheville and Buncombe County. The
ultimate collectibility of Bank of Asheville's loan portfolio is susceptible to
changes in the market conditions of this geographic region.
FINANCIAL STATEMENTS. A copy of Bank of Asheville's (i) Management's
Discussion and Analysis for the periods ended December 31, 1999, 1998 and 1997
and (ii) audited balance sheets as of December 31, 1999 and 1998 and the
related audited statements of operations, statements of changes in
shareholders' equity and statements of cash flows for the years ended December
31, 1999 and 1998 and the period from October 29, 1997 (Date of Incorporation)
to December 31, 1997, prepared in conformity with generally accepted accounting
principles, accompany this Prospectus/Proxy Statement.
COMPETITION
Commercial banking in North Carolina is extremely competitive in large
part due to statewide branching. Bank of Asheville 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 Bank of Asheville's competitors have broader geographic markets
and higher lending limits than Bank of Asheville 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 Bank of
Asheville's competitors. In addition, as a result of interstate banking,
20
<PAGE>
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, Bank of Asheville believes
that it has certain competitive advantages that distinguish it from its
competition. Bank of Asheville 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. Bank of
Asheville offers customers modern, high-tech banking without forsaking
community values such as prompt, personal service and friendliness. Bank of
Asheville offers many personalized services and intends to attract customers by
being responsive and sensitive to their individualized needs. Bank of Asheville
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, Bank of Asheville supports and participates in
local events and its officers and directors serve on boards of local civic and
charitable organizations.
YEAR 2000 ISSUES
The issues surrounding the computer concerns with the turn into the 21st
Century resulted in no adverse effect upon Bank of Asheville. The service
bureau utilized by Bank of Asheville was able to recognize the year 2000 and
continues to process all the data processing for Bank of Asheville without
error. Additionally, the year 2000 concerns proved to be a non-issue for Bank
of Asheville's third party vendors.
PROPERTIES
The following table sets forth the location and other related information
regarding Bank of Asheville's offices and other properties occupied as of
December 31, 1999.
<TABLE>
<CAPTION>
OFFICES LOCATION STATUS
- -------------------- --------------------------- ----------------------------
<S> <C> <C>
Main Office 79 Woodfin Place Own first floor and
Asheville, North Carolina rent part of first floor
to a third party.
Candler Branch 6 Dogwood Road Land lease; building owned.
Candler, North Carolina
</TABLE>
EMPLOYEES
At December 31, 1999, Bank of Asheville had 23 full-time equivalent
employees. None of its employees is represented by any collective bargaining
unit. Bank of Asheville considers relations with its employees to be good.
LEGAL PROCEEDINGS
In the normal course of its operations, Bank of Asheville 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 Bank of Asheville's business, financial position or results of
operations.
21
<PAGE>
MANAGEMENT AND CERTAIN TRANSACTIONS
BENEFICIAL OWNERSHIP OF VOTING SECURITIES
As of December 31, 1999, no shareholder owned more than 5% of Bank of
Asheville's common stock.
As of December 31, 1999, the beneficial ownership of Bank of Asheville's
common stock by directors individually, and by directors and executive officers
as a group, was as follows:
<TABLE>
<CAPTION>
AMOUNT AND
NATURE OF
BENEFICIAL PERCENT
NAME OF BENEFICIAL OWNER OWNERSHIP(1) OF CLASS(2)
- ------------------------------------------------------- -------------- ------------
<S> <C> <C>
William E. Anderson ........................... 9,300 1.47%
Max O. Cogburn, Sr. ........................... 5,500(3) 0.87%
M. David Cogburn, Jr., M.D. ................... 6,380 1.01%
Darryl J. Hart ................................ 1,999 0.32%
Carol L. King ................................. 3,140 0.50%
Howard B. Montgomery, Jr. ..................... 2,100(4) 0.33%
Stephen L. Pignatiello ........................ 2,420 0.38%
Kent W. Salisbury, M.D. ....................... 13,200 2.08%
Laura A. Webb ................................. 1,100 0.17%
David N. Wilcox ............................... 2,600 0.41%
All Directors and Executive Officers as a group
(13 persons)(5) .............................. 49,859 7.87%
</TABLE>
- --------
(1) Except as otherwise noted, to the best knowledge of Bank of Asheville'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: Dr. M.
David Cogburn, Jr. -- 220 shares; Mr. Montgomery -- 1100 shares; Dr.
Salisbury -- 2,200 shares; and Mr. Tuck -- 200 shares.
(2) The calculation of the percentage of class beneficially owned by each
individual and the group is based on a total of 633,298 outstanding shares
of common stock which equal the shares currently outstanding as of
December 31, 1999.
(3) Mr. Cogburn disclaims beneficial ownership of his wife's shares.
(4) Mr. Montgomery retired as President and Chief Executive Officer and
resigned as a Director effective January , 2000.
(5) Includes Randall C. Hall, Executive Vice President, Secretary, Treasurer,
and Chief Financial Officer, Robert E. Tuck, Senior Vice President and
Chief Credit Officer and Judy P. Waldroop, Senior Vice President.
REQUIRED REPORTS OF BENEFICIAL OWNERSHIP
Bank of Asheville's directors and executive officers are required to file
certain reports with the Federal Deposit Insurance Corporation regarding the
amount of and changes in their beneficial ownership of Bank of Asheville's
common stock (including, without limitation, an initial report following the
person's election as an officer or director of Bank of Asheville and a report
following the end of each month during which there has been a change in a
reporting person's beneficial ownership).
PROPOSAL 2: ELECTION OF DIRECTORS
Bank of Asheville's Bylaws provide that its Board of Directors shall
consist of between eight and twelve members, as determined by the Board of
Directors or the shareholders, and if more than nine members, they shall be
staggered into terms of one, two, and three years in as equal numbers as
possible. The Board has set
22
<PAGE>
the number of directors at ten and has established the staggered terms set
forth below as permitted by the Bylaws.
<TABLE>
<CAPTION>
POSITION(S) DIRECTOR PRINCIPAL OCCUPATION AND
NAME AND AGE HELD SINCE BUSINESS EXPERIENCE DURING PAST 5 YEARS
- ------------------------------ ----------------- ---------- ------------------------------------------------
<S> <C> <C> <C>
THREE-YEAR TERMS
M. David Cogburn, M.D. (44) Director 1999 President, Carolina Mountain Dermatology,
P.A., Arden, NC
Stephen L. Pignatiello (40) Director 1997 Owner, Pignatiello Communication, Asheville,
NC
Kent W. Salisbury, M.D. (56) Director 1997 Partner, Asheville Cardiology Associates, P.A.,
Asheville, NC
Laura A. Webb (40) Director 1999 President, Webb Investment Services, Inc.,
Asheville, NC
TWO-YEAR TERMS
Max O. Cogburn, Sr. (72) Chairman of 1997 Attorney and Partner, Cogburn, Goosman,
the Board of Brazil & Rose, P.A., Asheville, NC
Directors
Carol L. King (54) Director 1997 President, Carol L. King & Associates, P.A.,
Asheville, NC
David N. Wilcox (39) Director 1997 Vice President, Wilcox Travel Agency, Inc.,
Asheville, NC
ONE-YEAR TERMS
William E. Anderson (60) Director 1997 Director, Hasco Mold Bases, Asheville, NC
Darryl J. Hart (38) Director 1997 Vice President and General Manager, Hart
Funeral Services, Inc., Asheville, NC
G. Gordon Greenwood ( ) President and 2000 President and Chief Executive Officer, Bank of
Chief Executive Asheville, January, 2000-Present; Regional
Officer Market Manager, Centura Bank, Asheville
1996-2000; Senior Vice President/Commercial
Loans, First Commercial Bank, 1983-1996.
</TABLE>
THE BOARD OF DIRECTORS RECOMMENDS THAT SHAREHOLDERS VOTE "FOR" EACH OF THE
NOMINEES FOR DIRECTOR OF BANK OF ASHEVILLE AS SET FORTH ABOVE.
DIRECTOR RELATIONSHIPS
Only one family relationship on the Board of Directors exists. Max O.
Cogburn, Sr. is the father of M. David Cogburn, Jr., M.D. No director is a
director of any company with a class of 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
Bank of Asheville's Board of Directors held 16 regular meetings and no
special meetings during 1999. 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.
Bank of Asheville's Board of Directors has several standing committees,
including an Audit Committee, a Compensation Committee and a Nominating
Committee.
23
<PAGE>
The current members of the Audit Committee are William E. Anderson -
Chairman, Max. O. Cogburn, Sr., Darryl J. Hart, Stephen L. Pignatiello and
Randall C. Hall (non-voting). The Audit Committee provides general oversight of
internal audit function, reviews findings of external audits and examinations,
evaluates the adequacy of insurance coverage, and reviews the activities of
Bank of Asheville's regulatory compliance efforts. The committee met three
times in 1999.
The current members of the Compensation Committee are Kent W. Salisbury,
M.D. - Chairman, William E. Anderson, Max O. Cogburn, Sr., Carol L. King, G.
Gordon Greenwood, and David N. Wilcox. The Compensation committee reviews and
approves all salaries and benefits of Bank of Asheville personnel, recommends
officer salaries for Board of Director approval, and reviews and makes
recommendations to the Board of Directors regarding matters involving Bank of
Asheville's personnel policies. Howard B. Montgomery, Jr. served as a member of
Bank of Asheville's Board of Directors during 1999, and also served as an
executive officer of Bank of Asheville. Mr. Montgomery was the President and
CEO of Bank of Asheville who retired in January, 2000. While Mr. Montgomery
specifically excluded himself from any of Bank of Asheville's Board of
Directors' discussions concerning his own compensation, he did participate with
other Bank of Asheville Board members in discussions concerning other executive
officers compensation. The Compensation Committee met one time in 1999.
The current members of the Nominating Committee are Kent W. Salisbury,
M.D. - Chairman, William E. Anderson, Max O. Cogburn, Sr., Carol L. King, G.
Gordon Greenwood and David N. Wilcox. The Nominating Committee recommends
nominees to the full Board of Directors for election as directors of Bank of
Asheville. The Nominating Committee met one time in 1999. Shareholders may also
nominate candidates for director, provided that such nominations are made in
writing and received by Bank of Asheville at its executive offices not later
than 120 days prior to any meeting of shareholders called for the election of
directors. The nomination should be sent to the attention of Bank of
Asheville's secretary and must include, concerning the director nominee, the
following information: full name, age, date of birth, educational background
and business experience including positions held for at least the last five
years. The nomination must also include home and business addresses and
telephone numbers and include a signed representation by the nominee to timely
provide all the information requested by Bank of Asheville as part of its
disclosure in regard to the solicitation of proxies for the election of
directors. The name of each such candidate for director must be placed in
nomination at the Annual Meeting by a shareholder present in person. The
nominee must also be present in person at the meeting. A vote for a person who
has not been duly nominated pursuant to these requirements is void.
DIRECTOR COMPENSATION
BOARD FEES. As of January 2000, each director (other than directors who
also are salaried employees of Bank of Asheville) received no compensation.
EXECUTIVE OFFICERS
Set forth below is certain information regarding Bank of Asheville's
executive officers as of December 31, 1999. In January, 2000 the Board of
Directors hired G. Gordon Greenwood as President and Chief Executive Officer to
replace the retiring Howard B. Montgomery, Jr.
24
<PAGE>
<TABLE>
<CAPTION>
NAME AGE POSITION(S) HELD BUSINESS EXPERIENCE
- --------------------- ----- ---------------------------------
- -----------------------------------------------
<S> <C> <C> <C>
Randall C. Hall 34 Executive Vice President, Executive Vice President, Secretary, and Chief
Secretary, and Chief Financial Officer, Bank of Asheville, since
Financial Officer 1997; Vice President, Secretary and Chief
Financial Officer of Bank of Granite Corp and
Bank of Granite, 1988-1997.
Robert E. Tuck, Jr. 41 Senior Vice President and Chief Senior Vice President and Chief Credit
Credit Officer Officer, Bank of Asheville since 1997; Vice
President/Business Banker, First Citizens
Bank, Asheville, NC, 1985-1997.
Judy P. Waldrop 42 Senior Vice President Senior Vice President and Vice President,
Bank of Asheville since 1997; Sales and
Service Manager, Wachovia Bank, 1978-1997.
</TABLE>
BOARD REPORT ON EXECUTIVE OFFICER COMPENSATION
All compensation paid to Bank of Asheville's executive officers is paid by
Bank of Asheville to such persons in their capacity as executive officers of
Bank of Asheville. Accordingly, the compensation of such executives is reviewed
and approved annually by the full Board of Directors of Bank of Asheville which
consist of the same persons. This report is furnished by the Compensation
Committee of Bank of Asheville's Board of Directors.
Mr. Howard B. Montgomery, Jr., former President and Chief Executive
Officer of Bank of Asheville, served as such during 1999 with a total
compensation of $140,000 per annum. Mr. Montgomery's compensation consisted of
a base salary at a rate of $115,000 per annum. Mr. Montgomery entered into a
three (3) year contract with Bank of Asheville on November 18, 1997. The
contract covered base salary, performance bonuses, employee benefits and other
usual executive perquisites. Additionally, should there be a change in control
of Bank of Asheville, defined as (1) any one person acquiring 25% or more of
the voting stock, (2) Bank of Asheville consolidates or merges with or into
another equity and as a result Bank of Asheville is not the surviving
corporation, or (3) all or substantially all of Bank of Asheville's assets are
transferred to or are acquired by another entity, and (4) within two years of a
change in control, if (a) Mr. Montgomery was assigned duties or
responsibilities which were inconsistent with his position, (b) Mr.
Montgomery's annual base salary was reduced below the amount in effect at the
time of a change in control, (c) Mr. Montgomery's benefits such as life
insurance, medical or hospitalization insurance, disability insurance and
retirement plans are reduced in their level, scope or coverage, or (d) Mr.
Montgomery was transferred to a location outside of Buncombe County, North
Carolina, without his express written consent, Mr. Montgomery could have,
within twenty-four (24) months after a change in control, terminated his
contract and be entitled to 299% of his base salary. If such termination had
occurred on December 31, 1999, the payout would have been $343,850. As a result
of his retirement in January 2000, Mr. Montgomery's contract was terminated and
in February 2000 Bank of Asheville entered into an agreement similar in nature
with G. Gordon Greenwood. (See discussion below Summary Compensation Table)
For Bank of Asheville's executives, and Chief Executive Officer, base
salary is targeted to approximate average salaries for individuals in similar
positions with similar levels of responsibilities who are employed by other
banking organizations of similar size. Bank of Asheville participates in local,
state, and other salary/compensation surveys and has access to other published
salary/compensation data. The results of such surveys are used by the Board of
Directors in helping to set appropriate levels of Bank of Asheville's CEO and
other executive officer base salaries.
With 1999 being the second full year of operations for Bank of Asheville,
the CEO base salary was appropriately set by the Board of Directors. Bank of
Asheville desired to provide the CEO with a base salary comparable to that paid
by other banking organizations of similar size and financial performance. Bank
of
25
<PAGE>
Asheville's Board of Directors will annually review national, regional,
statewide and local peer group salary data (to the extent available) in its
determination of a comparable base salary.
This report is provided as a summary of current Board practice with regard
to annual compensation review and authorization of executive officer
compensation and with respect to specific action taken for the CEO.
Because executive officers and CEO salaries are not expected currently or
in the near future to exceed those limitations provided under Section 162(m) of
the Internal Revenue Code, the Board currently has no specific policy which
addresses the income tax deductibility of "qualifying compensation" under this
specific Code section.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
ANNUAL COMPENSATION(1) LONG TERM COMPENSATION
----------------------------------------------------------------------------------------
AWARDS PAYOUTS
------------------------------------------------
RESTRICTED SECURITIES
OTHER ANNUAL STOCK UNDERLYING LTIP
SALARY BONUS COMPENSATION AWARD(S) OPTIONS/ PAYOUTS ALL OTHER
NAME AND PRINCIPAL POSITION YEAR ($) ($) ($)(1) ($) SARS (#) ($) COMPENSATION
- ----------------------------- ------ --------- ------- -------------- ------------ ------------ ----------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Howard B. Montgomery, 1999 115,000 4,160 0 0 0 0 0
President and Chief 1998 90,000 0 0 0 0 0 0
Executive Officer 1997 90,000 0 0 0 0 0 0
</TABLE>
- --------
(1) Perquisites and personal benefits awarded to Mr. Montgomery did not exceed
10% of the total annual salary and bonus in any year reported.
Bank of Asheville has entered into an employment and change of control
agreement with G. Gordon Greenwood dated February 9, 2000 as its President and
Chief Executive Officer to establish his duties and compensation and to provide
for his continued employment with Bank of Asheville. The employment agreement
provides for an initial term of five years with renewal at the end of the third
year and on each anniversary thereafter for an additional one year term
provided an affirmative decision to renew is made by the Board of Directors.
The employment agreement provides for an annual base salary of $125,000, and
for participation in other pension and profit-sharing retirement plans
maintained by Bank of Asheville on behalf of its employees, as well as fringe
benefits normally associated with Mr. Greenwood's position or made available to
all other employees. Additionally, at the sooner to occur of (i) a "change in
control" of Bank of Asheville or, (ii) the end of the initial five year term,
Mr. Greenwood is to receive a 10 year annuity of $40,000 per year. Upon
adoption of a stock option plan, Mr. Greenwood is to be granted options to
purchase shares of Bank of Asheville, or Weststar, valued at 300% of base
compensation. The employment agreement provides that Mr. Greenwood 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 Bank of Asheville or by Mr. Greenwood. The
employment agreement provides that should Bank of Asheville terminate the
employment agreement other than for cause or disability within 24 months after
a "change in control", or should Mr. Greenwood terminate the agreement within
such 24 months during which his compensation or responsibilities have been
reduced, or his workplace location has been moved outside of Asheville, North
Carolina, then he shall receive a lump sum equal to 299% of his "base amount"
as determined by Section 280G of the Internal Revenue Code. A "Change in
Control" shall be deemed to have occurred upon any person becoming the
beneficial owner or otherwise acquiring control, directly or indirectly, of
securities of Bank of Asheville representing thirty-five percent (35%) or more
of the voting power of the Bank of Asheville'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 Bank of Asheville;
(iii) the merger of Bank of Asheville into another entity or the merger of any
entity into Bank of Asheville without Bank of Asheville being the survivor; or
(iv) the acquisition of substantially all of the assets of Bank
26
<PAGE>
of Asheville by another corporation. The reorganization into a holding company
form of organization is specifically excluded from becoming a "change of
control".
401(K) SAVINGS PLAN. In 1998, Bank of Asheville adopted a tax-qualified
savings plan (the "Savings Plan") which covers all current full-time employees
and any new full-time employees who have completed 1,000 hours of service for
Bank of Asheville. Under the Savings Plan, a participating employee may
contribute up to 15% 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"). Bank of Asheville may make additional
discretionary profit sharing contributions to the Savings Plan on behalf of all
participants. Total contributions (discretionary or otherwise) may not exceed
$30,000 per year. A participant's contributions and Bank of Asheville'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 Bank of Asheville's
matching and profit sharing contributions after completing five years of
service with Bank of Asheville. 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 Bank of Asheville, 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
Bank of Asheville 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, 1999, was $136,856 which represented approximately 2.65% of
Bank of Asheville's then current equity capital accounts.
On October 1, 1998, a partnership, of which Max O. Cogburn, Sr. and his
wife belong, leased the location of the Candler office to Bank of Asheville.
The term of the lease is four years and Bank of Asheville has options to extend
the lease for two additional three year terms. The rent on the land is $24,000
for the first two years and $30,000 for the subsequent two years. Mr. Cogburn
and his wife own one-third of the leased property as tenants-by-the-entirety.
All terms of the lease were reached by arms-length negotiations and were based
upon an independent third party professional appraisal.
PROPOSAL 3: RATIFICATION OF INDEPENDENT PUBLIC ACCOUNTANTS
The Board of Directors has appointed the firm of Deloitte & Touche LLP,
Certified Public Accountants, as Bank of Asheville's independent public
accountants for 2000. A representative of Deloitte & Touche LLP, is expected to
be present at the Annual Meeting and available to respond to appropriate
questions, and will have the opportunity to make a statement if he desires to
do so.
THE BOARD OF DIRECTORS RECOMMENDS THAT SHAREHOLDERS VOTE "FOR"
RATIFICATION OF DELOITTE & TOUCHE LLP, AS BANK OF ASHEVILLE'S INDEPENDENT
PUBLIC ACCOUNTANTS.
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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 2001 ANNUAL MEETING
It is anticipated that the 2001 Annual Meeting will be held on a date
during April 2001. Any proposal of a shareholder which is intended to be
presented at the 2001 Annual Meeting must be received by Bank of Asheville at
its main office in Asheville, North Carolina no later than November 14, 2000 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.
ADDITIONAL INFORMATION
BANK OF ASHEVILLE'S 1999 ANNUAL REPORT ON FORM 10-KSB WILL BE FILED WITH
THE FEDERAL DEPOSIT INSURANCE CORPORATION ON OR BEFORE MARCH 31, 2000. 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 RANDALL C. HALL, SECRETARY, THE BANK OF ASHEVILLE, 79 WOODFIN
PLACE, ASHEVILLE, NORTH CAROLINA 28801-2426.
IN ACCORDANCE WITH REGULATIONS OF THE FEDERAL DEPOSIT INSURANCE
CORPORATION, THE BANK OF ASHEVILLE'S 1999 ANNUAL DISCLOSURE STATEMENT WILL BE
MADE AVAILABLE TO THE PUBLIC NO LATER THAN MARCH 31, 2000. A COPY WILL BE
PROVIDED TO ANY SHAREHOLDER UPON REQUEST. REQUESTS FOR COPIES SHOULD BE
DIRECTED TO RANDALL C. HALL, SECRETARY, THE BANK OF ASHEVILLE, 79 WOODFIN
PLACE, ASHEVILLE, NORTH CAROLINA 28801-2426, TELEPHONE (828) 252-1735.
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REGULATION AND SUPERVISION
REGULATION OF BANK OF ASHEVILLE
Bank of Asheville 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
Weststar and Bank of Asheville.
STATE LAW. Bank of Asheville 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 Bank of
Asheville is required to make regular reports to the Commissioner describing in
detail the resources, assets, liabilities and financial condition of Bank of
Asheville. 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, Bank of
Asheville'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 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, 1999, Bank of Asheville was classified as "well-capitalized" with
Tier 1 and Total Risk-Based Capital of 15.88% and 17.13% 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
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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 Bank of Asheville to grow and could restrict the
amount of profits, if any, available for the payment of dividends to the
shareholders.
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 Bank of Asheville are
subject to legal limitations. In accordance with North Carolina banking law,
dividends may not be paid unless Bank of Asheville's capital
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surplus is at least 50% of its paid-in capital. See "Comparison of the Rights
of Shareholders -- Comparison of the Rights of Holders of Bank of Asheville
Common Stock and Weststar 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 Bank of Asheville 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 Bank of Asheville.
Bank of Asheville cannot predict what legislation might be enacted or what
regulations might be adopted, or if enacted or adopted, the effect thereof on
Bank of Asheville's operations.
REGULATION OF WESTSTAR
FEDERAL REGULATION. Following consummation of the Holding Company
Reorganization, Weststar 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.
Weststar 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 Weststar 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.
Weststar 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 Weststar'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 Weststar 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.
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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 Weststar maintains as a separate subsidiary a depository
institution in addition to Bank of Asheville.
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
Bank of Asheville, Weststar, any subsidiary of Weststar 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.
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.
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RECENT LEGISLATIVE DEVELOPMENTS
The Gramm-Leach-Bliley Act of 1999 represents the most sweeping reform of
financial services regulation in over sixty years. The Act permits the creation
of new financial services holding companies that can offer a range of financial
products under a regulatory regime based on the principle of functional
regulation. The legislation eliminates legal barriers to affiliations among
banks and securities firms, insurance companies, and other financial services
companies. The Act provides financial organizations with flexibility in
structuring these new financial affiliations through a holding company
structure or a financial subsidiary, with appropriate safeguards.
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 Bank of Asheville'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 2000, 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 2000 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 Weststar's Common Stock offered hereby has
been passed upon for Weststar by Anthony Gaeta, Jr., P.A., Raleigh, North
Carolina.
EXPERTS
The financial statements of Bank of Asheville included in this Proxy
Statement-Prospectus have been audited by Deloitte & Touche LLP, independent
auditors, as stated in their report appearing herein, and are included in
reliance upon the report of such firm given upon their authority 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 Weststar
following the consummation of the Holding Company 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;
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o general economic conditions, either nationally or regionally, are less
favorable than expected, resulting in, among other things, a
deterioration in credit quality;
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 Weststar, or its
management are intended to identify forward looking statements.
WHERE YOU CAN GET MORE INFORMATION
Bank of Asheville 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 Holding Company
Reorganization is completed, Bank of Asheville will no longer file these
reports with the FDIC. Instead, Weststar will begin filing such reports with
the SEC.
Weststar has filed with the SEC a Registration Statement under the
Securities Act regarding the shares of Weststar's Common Stock to be issued in
the Holding Company 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 Weststar
and the Weststar 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 Randall C. Hall, Secretary of The Bank of
Asheville, 79 Woodfin Place, Asheville, North Carolina 28801-2426 (828)
252-1735.
We expect Weststar 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 Weststar, 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: The Bank of Asheville's Summary
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Annual Report to Shareholders for the year ended December 31, 1999 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 Bank of Asheville
without charge, excluding all exhibits, unless we have specifically
incorporated by reference such an exhibit in this Proxy Statement-Prospectus.
Bank of Asheville shareholders may obtain documents incorporated by reference
in this Proxy Statement-Prospectus by requesting them in writing or by
telephone from G. Gordon Greenwood, The Bank of Asheville, 79 Woodfin Place,
Asheville, North Carolina 28801-2426 (828) 252-1735.
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 IS CONTAINED IN THIS PROXY
STATEMENT-PROSPECTUS. THIS PROXY STATEMENT-PROSPECTUS IS DATED , 2000. 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 THE WESTSTAR COMMON STOCK SHALL CREATE ANY IMPLICATION TO THE
CONTRARY.
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF BANK OF ASHEVILLE
The following discussion relates to the operations for the periods ended
December 31, 1999, 1998 and 1997, respectively. Because the Bank of Asheville
(the "Bank") operated for less than one year in 1997, operational results are
not comparable to that of 1998; therefore, operating results of 1997 are
discussed separately herein as opposed to comparatively.
FOR THE YEAR ENDED DECEMBER 31, 1999 COMPARED TO THE YEAR ENDED DECEMBER 31,
1998
Interest income, the primary source of revenue for the Bank, was derived
from interest-earning assets such as loans, investments and federal funds sold.
The rate earned on interest-earning assets and dollar volume of the
interest-earning assets drive interest income. Interest income totaled
$2,760,318 for the year ended December 31, 1999 compared to $1,061,351 in 1998.
Growth in interest income was primarily attributable to growth in
interest-earning assets; the average balance of interest-earning assets
increased from $13,886,850 during 1998 to $30,211,789 during 1999 or 118%.
Interest expense, derived from interest-bearing liabilities such as deposits
and borrowed funds, totaled $1,128,641 for 1999 compared to $424,509 for 1998.
The increase in interest expense was attributable to growth in interest-bearing
liabilities. The average balance of interest-bearing liabilities grew from
$8,390,404 in 1998 to $24,825,935 in 1999 or 196%. The following table sets
forth the dollar amount of increase (decrease) in interest income and interest
expense resulting from changes in the volume of interest-earning assets and
interest-bearing liabilities and from changes in yields and rates.
INTEREST AND RATE/VOLUME VARIANCE
FOR THE YEAR ENDED DECEMBER 31, 1999
<TABLE>
<CAPTION>
1999 COMPARED TO 1998
----------------------------------------------
VOLUME RATE TOTAL
-------------- ------------- -------------
<S> <C> <C> <C>
Interest-bearing deposits in other banks ......... $ (3,213) $ (136) $ (3,349)
Investment securities ............................ (63,662) (21,144) (84,806)
Federal funds sold ............................... (34,132) (9,515) (43,647)
Loans ............................................ 1,830,988 (219) 1,830,769
---------- ---------- ----------
Total interest-earning assets .................... $1,729,981 $ (31,014) $1,698,967
========== ========== ==========
Interest-bearing deposits ........................ $ 754,770 $ (24,335) $ 730,435
Borrowings ....................................... (20,483) (5,820) (26,303)
---------- ---------- ----------
Total interest-bearing liabilities ............... $ 734,287 $ (30,155) $ 704,132
========== ========== ==========
</TABLE>
- --------
(1) The rate/volume variance for each category has been allocated equally on a
consistent basis between rate and volume variance.
Other operating income totaled $414,864 in 1999 compared to $117,044 in
1998. Service charge fees on deposit accounts account and other fees and
commissions earned account for the majority of non-interest income. During
1999, the Bank earned $272,911 from service charges on deposits accounts
compared to $83,349 in 1998, an increase of 227%. Other service fees and
commissions, including fees from the origination of mortgage loans, totaled
$131,316 in 1999 compared to $29,162 in 1998. Mortgage loan fees in 1999
accounted for $50,339 or 38% of other fees and commissions. Miscellaneous
income, primarily the fees from the sales of checks and deposit slips, provided
additional income of $10,637 in 1999 compared to $4,533 in 1998. Other expenses
totaled $2,018,808 in 1999 compared to $1,458,899 in 1998. Expenses increased
as a result of opening a new banking office, increased personnel expense and
increased supplies expense to process the banks growth in loans and deposits.
Salaries and wages accounted for $1,049,339 in 1999 or 52% of other expenses
compared to $715,661 or 49% in 1998. Equipment expenses totaled $201,738 in
1999 compared to $132,439 in 1998. Other non-interest expenses of $688,451 in
1999 compared to $546,671 in 1998 included sundry items such as marketing,
accounting, insurance, and data processing. During the fourth quarter of
36
<PAGE>
1999, a tax benefit amounting to $110,625 was recorded. The net operating loss,
before cumulative effect of a change in accounting principle, totaled $178,327
or $.29 per share in 1999 compared to $974,627 or $1.60 per share in 1998. The
cumulative effect of a change in accounting principle during 1999 totaled
$71,326, net of taxes, or $.12 per share. The net operating loss after the
cumulative effect of a change in accounting principle totaled $249,653 in 1999
compared to $974,627 in 1998. The return on average assets and equity were
(.74%) and (5.05%) for 1999 compared to (6.09%) and (17.18%) in 1998. The
comprehensive loss, which is the change in equity during a period excluding
changes resulting from investments by shareholders and distributions to
shareholders, totaled $251,596 in 1999 compared to $982,897 in 1998.
NET INTEREST INCOME
Net interest income (the difference between interest earned on
interest-earning assets and interest paid on interest-bearing liabilities,
primarily deposits) represents the most significant portion of the Bank's
earnings. It is management's on-going policy to maximize net interest income.
Net interest income totaled $1,631,677 in 1999 compared to $636,842 in 1998.
The Bank's net yield on earning assets was 5.4% and 4.6% for the years 1999 and
1998, respectively. The Bank continues efforts to maximize this spread by
management of both loan and deposit rates in order to support the overall
earnings growth. The following table presents the daily average balances,
interest income/expense and average rates earned and paid on interest-earning
assets and interest-bearing liabilities of the Bank.
AVERAGE BALANCES AND INTEREST INCOME ANALYSIS
FOR THE YEARS ENDED DECEMBER 31, 1999 AND 1998
<TABLE>
<CAPTION>
1999 1998
-----------------------------------------------------------------------------
INTEREST INTEREST
AVERAGE AVERAGE INCOME/ AVERAGE AVERAGE INCOME/
BALANCE RATE EXPENSE BALANCE RATE EXPENSE
--------------- --------- -------------- -------------- --------- ------------
<S> <C> <C> <C> <C> <C> <C>
ASSETS:
Loans (1) ............................... $ 24,857,014 10.0% $ 2,492,208 $ 6,596,204 10.0% $ 661,439
Taxable securities ...................... 2,548,495 4.7% 123,944 3,773,274 5.5% 208,750
Federal funds sold ...................... 2,780,640 5.1% 142,955 3,425,331 5.4% 186,602
Interest-bearing deposits ............... 25,640 4.7% 1,211 92,041 5.0% 4,560
------------ ----------- ------------ -----------
Total interest-earning assets .......... 30,211,789 9.1% 2,760,318 13,886,850 7.6% 1,061,351
------------ ----------- ------------ -----------
All other assets ........................ 3,617,418 2,110,422
------------ ------------
Total assets ........................... $ 33,829,207 $ 15,997,272
------------ ------------
LIABILITIES AND SHAREHOLDERS'
EQUITY:
Interest-bearing deposits ............... $ 24,796,661 4.6% $ 1,127,022 $ 8,077,958 4.9% $ 396,587
Other borrowings ........................ 29,274 5.5% 1,619 312,446 8.9% 27,922
------------ ----------- ------------ -----------
Total interest-bearing liabilities ..... 24,825,935 4.6% 1,128,641 8,390,404 5.1% 424,509
Other liabilities ....................... 4,067,281 1,934,554
Shareholders' equity .................... 4,935,991 5,672,314
------------ ------------
Total liabilities and shareholders'
equity ................................. $ 33,829,207 $ 15,997,272
------------ ------------
Net yield on earning-assets and net
Interest income (2) .................... 5.4% $ 1,631,677 4.6% $ 636,842
----------- ----------
Interest rate spread (3) ................ 4.5% 2.5%
</TABLE>
- --------
(1) Non-accrual loans have been included.
(2) Net yield on earning assets is computed by dividing net interest earned by
average earning assets.
(3) The interest rate spread is the interest-earning assets rate less the
interest-bearing liabilities rate.
37
<PAGE>
LIQUIDITY AND INTEREST RATE SENSITIVITY
The objectives of the Bank's liquidity management policy include providing
adequate funds to meet the needs of depositors and borrowers at all times, as
well as providing funds to meet the basic needs for on-going operation of the
Bank and regulatory requirements. Liquidity requirements of the Bank are met
primarily through two categories of funds. The first is core deposits, which
include demand deposits, savings accounts and certificates of deposits. The
Bank considers these to be a stable portion of the Bank's liability mix and
results of on-going stable commercial and consumer banking relationships. At
December 31, 1999 and 1998 core deposits totaled $32,300,296 or 85% and
$13,240,528 or 81%, respectively, of the Bank's total deposits.
The other principal method of funding utilized by the Bank is through
large denomination certificates of deposit, federal funds purchased and other
short-term borrowings. The Bank's policy is to emphasize core deposit growth
rather than growth through purchased or brokered liabilities as the cost of
these funds is greater.
The majority of the Bank's deposit mix is rate-sensitive instruments with
rates which tend to fluctuate with market rates. This, coupled with the Bank's
short-term certificates of deposit, has increased the opportunities for deposit
repricing. The Bank places great significance on monitoring and managing the
Bank's asset/liability position. The Bank's policy of managing its net interest
margin (or net yield on interest-earning assets) is to maximize net interest
income while maintaining a stable deposit base. The Bank's deposit base is not
generally subject to volatility experienced in national financial markets in
recent years; however, the Bank does realize the importance of minimizing such
volatility while at the same time improving earnings. A common method used to
manage interest rate sensitivity is to measure, over various time periods, the
difference or gap between the volume of interest-earning assets and
interest-bearing liabilities repricing over a specific time period. However,
this method addresses only the magnitude of funding mismatches and does not
address the magnitude or relative timing of rate changes. Therefore, management
prepares on a regular basis, earnings projections based on a range of interest
rate scenarios of rising, flat and declining rates in order to more accurately
measure interest rate risk.
Interest-bearing liabilities and the loan portfolio are generally repriced
to current market rates. The Bank's balance sheet is asset-sensitive, meaning
that in a given period there will be more assets than liabilities subject to
immediate repricing as the market rates change. Because most of the Bank's
loans are at variable rates, they reprice more rapidly than rate sensitive
interest-bearing deposits. During period of rising rates, this results in
increased net interest income. The opposite occurs during periods of declining
rates.
38
<PAGE>
The following table reflects the Bank's rate sensitive assets and
liabilities by maturity as of December 31, 1999 and is not necessarily
indicative of future results.
<TABLE>
<CAPTION>
1-90 91-180 181-365 TOTAL NON-
DAYS DAYS DAYS ONE YEAR SENSITIVE TOTAL
--------------- ---------------- ---------------- --------------- ------------- --------------
<S> <C> <C> <C> <C> <C> <C>
Interest-earning assets:
Interest bearing deposits ....... $ 2,784 $ 2,784 $ 2,784
Federal funds sold .............. 2,110,000 2,110,000 2,110,000
Investment securities ........... -- $ 2,008,996 $ 499,343 2,508,339 2,508,339
Federal Home Loan Bank
stock ......................... -- -- --- -- $ 58,100 58,100
Loans ........................... 22,422,026 2,741,389 2,754,141 27,917,556 6,543,168 34,460,724
------------ ------------ ------------ ------------ ---------- -----------
Total interest-earning
assets ....................... 24,534,810 4,750,385 3,253,484 32,538,679 6,601,268 39,139,947
Interest-bearing liabilities:
Time deposits ................... 2,815,269 6,716,633 7,905,034 17,436,936 1,341,765 18,778,701
All other deposits .............. 14,361,398 -- -- 14,361,398 -- 14,361,398
------------ ------------ ------------ ------------ ---------- -----------
Total interest-bearing
liabilities .................. 17,176,667 6,716,633 7,905,034 31,798,334 $1,341,765 $33,140,099
Interest sensitivity gap ........ $ 7,358,143 $ (1,966,248) $ (4,651,550) $ 740,345
Cumulative interest
sensitivity gap ............... $ 7,358,143 $ 5,391,895 $ 740,345
Interest-earning assets as a
percent of interest
sensitive liabilities ......... 142.8% 70.7% 41.2% 102.3%
</TABLE>
MATURITIES AND SENSITIVITIES OF LOANS TO CHANGES IN INTEREST RATES AS OF
DECEMBER 31, 1999
<TABLE>
<CAPTION>
WITHIN ONE TO FIVE
ONE FIVE YEARS OR
YEAR YEARS MORE
------------- ------------ -----------
<S> <C> <C> <C>
Real estate -- Construction ................................ $ 6,808,752 $ 343,486 $ --
Real estate -- Mortgage .................................... 9,966,789 6,151,858 844,947
Predetermined rate, maturity greater than one year ......... $6,475,521 $844,947
Variable rate or maturing within one year .................. $16,745,541 49,823 --
</TABLE>
The Bank paid an average rate of 4.6% on interest-bearing deposits during
1999 compared to 5.0% during 1998. Significant growth in deposits came from
interest-bearing accounts. Interest-bearing accounts grew by $19,452,543 with
time deposits accounting for $11,319,993 or 58.2%. Increased customer awareness
of interest rates increases the importance of rate management by the Bank. The
Bank's management continuously monitors market pricing, competitor rates, and
profitability. Deposits continue to be the principal source of funds for
continued growth, so the Bank attempts to structure its rates so as to promote
deposit and asset growth while at the same time increasing overall profit
management. The daily average amounts of deposits of the bank are summarized
below.
AVERAGE DEPOSITS
FOR THE YEAR ENDED DECEMBER 31, 1999
<TABLE>
<S> <C>
Non-interest bearing deposits ......... $ 3,843,578
Interest-bearing ...................... 24,796,661
-----------
Total ................................. $28,640,239
===========
</TABLE>
39
<PAGE>
The above table includes deposits of $100,000 and over which at December
31, 1999 totaled $5,620,684. The table below presents the maturities of these
deposits of $100,000 or more.
MATURITIES OF DEPOSITS OF $100,000 OR MORE
DECEMBER 31, 1999
<TABLE>
<CAPTION>
GREATER
WITHIN WITHIN WITHIN THAN
THREE SIX TWELVE ONE
MONTHS MONTHS MONTHS YEAR
------------- ------------- ------------- -----------
<S> <C> <C> <C> <C>
Time deposits of $100,000 or more ......... $2,083,909 $1,800,047 $1,418,309 $318,419
</TABLE>
CAPITAL RESOURCES
During the third quarter of 1999, the Bank called the warrants attached to
its common stock. As a result of the call, 25,731 additional shares of common
stock were issued, and $257,310 in additional capital was raised. As of
December 31, 1999 and 1998, the Bank's ratio of total capital to risk-adjusted
assets was 17.13%, and 31.6%, respectively. Average capital to average assets
totaled 14.60% and 35.46% at December 31, 1999 and 1998, respectively. The Bank
remains well capitalized and fully expects to be able to meet future capital
needs caused by growth and expansion as well as regulatory requirements. The
Bank is not aware of any current recommendation by regulatory authorities,
which if implemented would materially affect the company's liquidity, capital
resources or operations.
LOANS
The Bank makes loans within its market area, defined as Asheville and
Buncombe County, North Carolina. It makes both commercial and consumer loans.
Total loans outstanding at December 31, 1999 and 1998 were $34,460,724 and
$14,023,265, respectively. The Bank places emphasis on consumer loans and
commercial loans to small businesses and professionals. The Bank has a
diversified loan portfolio with no concentration to any one borrower or
industry. The amounts and types of loans outstanding for the year ended
December 31, 1999 and 1998 are as follows:
<TABLE>
<CAPTION>
1999 1998
-------------- --------------
<S> <C> <C>
LOANS
Real estate
Construction .................................. $ 7,152,238 $ 1,780,563
Mortgage ...................................... 16,963,594 7,414,218
Commercial, financial and agricultural ......... 9,926,255 4,594,259
Consumer ....................................... 562,765 299,105
----------- -----------
Total loans .................................... 34,604,852 14,088,145
Deferred origination fees, net ................. (144,128) (64,880)
----------- -----------
Total loans, net of deferred fees .............. $34,460,724 $14,023,265
=========== ===========
</TABLE>
Non-accrual loans at December 31, 1999 totaled $247,559, and none on
December 31, 1998. If interest from non-accrual loans had been recognized in
accordance with the original terms of the loans, net income for 1999 would not
have been materially different from the amounts reported.
Any loans classified by regulatory examiners as loss, doubtful,
substandard or special mention that have not been disclosed hereunder, or under
"loans" or "Asset Quality" narrative discussions do not (i) represent or result
from trends or uncertainties that management expects will materially impact
future operating results, liquidity or capital resources, or (ii) represent
material credits about which management is aware of any information that causes
management to have serious doubts as to the ability of such borrowers to comply
with the loan repayment terms.
40
<PAGE>
Commercial, consumer and real estate mortgage loans of $27,452,614 and
$12,307,582 at 1999 and 1998, respectively, are loans for which the principal
source of repayment is derived from the ongoing cash flow of the business or
individual. Real estate construction loans of $7,152,238 and $1,780,563 at 1999
and 1998, respectively, are loans for which the principal source of repayment
comes from the sale of real estate or from obtaining permanent financing.
PROVISION AND ALLOWANCE FOR LOAN LOSSES
Management determines the allowance for loan losses based on a number of
factors including reviewing and evaluating the Bank's loan portfolio in order
to identify potential problem loans, credit concentrations and other risk
factors connected to the loan portfolio as well as current and projected
economic conditions locally and nationally. Upon loan origination, management
evaluates the relative quality of each loan and assigns a corresponding grade.
All loans are periodically reviewed to determine whether any changes in these
loan grades are necessary. This loan grading system assists management in
determining the overall risk in the loan portfolio. The allowance for loan
losses is created by direct charges to operations. Losses on loans are charged
against the allowance for loan losses in the accounting period in which they
are determined by management to be uncollectible. Recoveries during the period
are credited to the allowance for loan losses.
Management realizes that general economic trends greatly affect loan
losses and no assurances can be made that further charges to the loan loss
allowance may not be significant in relation to the amount provided during a
particular period or that further evaluation of the loan portfolio based on
conditions then prevailing may not require sizable additions to the allowance,
thus necessitating similarly sizable charges to operations. The allowance for
loan losses was 1.53% and 1.56% of total loans outstanding at December 31, 1999
and 1998, respectively, which was consistent with both management's desire for
strong reserves and the credit quality ratings of the loan portfolio. The ratio
of net charge-offs to average loans outstanding during the year was .03% and
.8%., during 1999 and 1998, respectively. This ratio reflects management's
conservative lending and effective efforts to recover credit losses.
CHANGES IN THE ALLOWANCE FOR LOAN LOSSES
<TABLE>
<CAPTION>
1999 1998 1997
------------ ------------ --------
<S> <C> <C> <C>
Balance at beginning of period ........................................ $ 218,719 $ 3,200 $ --
Loans charged-off:
Commercial, financial and agricultural .............................. (16,453) (55,522) --
Consumer ............................................................ (2,114) (316) --
--------- ---------
Total charge-offs ..................................................... (18,567) (55,838) --
Recoveries of loans previously charged-off:
Commercial, financial and agricultural .............................. 11,971 1,743 --
--------- ---------
Net charge-offs ....................................................... (6,596) (54,095) --
Additions charged to operations ....................................... 316,685 269,614 3,200
--------- --------- ------
Balance at end of period .............................................. $ 528,808 $ 218,719 $3,200
========= ========= ======
Ratio of net charge-offs during the period to average loans outstanding
during the period ................................................... .03% .8% --
</TABLE>
41
<PAGE>
ALLOCATION OF THE ALLOWANCE FOR LOAN LOSSES
DECEMBER 31, 1999 AND 1998
<TABLE>
<CAPTION>
1999 1998
------------------------ -----------------------
PERCENT PERCENT
OF TOTAL OF TOTAL
AMOUNT LOANS AMOUNT LOANS
----------- ---------- ----------- ---------
<S> <C> <C> <C> <C>
Real estate .................................... $367,917 70% $140,500 65%
Commercial, financial and agricultural ......... 150,445 29% 68,040 33%
Consumer ....................................... 8,650 1% 4,340 2%
-- --
Unallocated .................................... 1,796 5,839
-------- --------
Total allowance ................................ $528,808 100% $218,719 100%
======== === ======== ===
</TABLE>
INVESTMENT SECURITIES
At December 31, 1999 and 1998, securities carried at market value totaled
$2,502,411 and $2,085,000, respectively, with amortized costs of $2,508,339 and
$2,087,778, respectively. All investment securities are available for sale.
Securities available for sale are securities which will be held for an
indefinite period of time, including securities that management intends to use
as part of its asset/liability management strategy, or that may be sold in
response to changes in interest rates, changes in prepayment risk or the need
to increase regulatory capital or other similar factors.
MATURITIES AND YIELDS OF DEBT SECURITIES
DECEMBER 31, 1999 AND 1998
DECEMBER 31, 1999
AVAILABLE FOR SALE: (1)
<TABLE>
<CAPTION>
REMAINING
WITHIN AVERAGE
TYPE 1 YEAR YIELD LIFE
- ---------------------------------- ------------ --------- ----------
<S> <C> <C> <C>
U.S. Treasury Notes .............. $ 749,505 5.5% 6 months
U.S. Government Agencies ......... 1,758,834 5.5% 4 months
---------- ---
Total ............................ $2,508,339 5.5%
==========
</TABLE>
DECEMBER 31, 1998
AVAILABLE FOR SALE: (1)
<TABLE>
<CAPTION>
REMAINING
WITHIN AVERAGE
TYPE 1 YEAR YIELD LIFE
- ---------------------------------- ------------ --------- ----------
<S> <C> <C> <C>
U.S. Treasury Notes .............. $ 604,288 4.6% 7 months
U.S. Government Agencies ......... 1,483,490 5.4% 2 months
---------- ---
Total ............................ $2,087,778 5.2%
==========
</TABLE>
- --------
(1) Securities available for sale are stated at amortized cost.
In February 1999, the Bank opened its first full-service office outside of
the main office. A modular unit currently serves as the banking office. The
Bank owns the modular unit, but leases the property on which the unit is
located. Terms of the lease are consistent with current market rates for such
leases. During 1999, the new office, known as the Candler Office, generated
approximately $720 thousand in loans and $9.1 million in deposits.
During the second quarter of 1998, the Bank purchased the first floor of
79 Woodfin Place, where the main office is located. The Bank owns approximately
10,000 square feet of operating space, but leases approximately 5,000 square
feet to other tenants.
42
<PAGE>
YEAR 2000 ISSUES
The Year 2000 issue is the result of computer programs being written using
two digits rather than four to define the applicable year. While in the process
of organizing the Bank, management reviewed all proposed systems for Year 2000
compliance. Systems that were either not compliant or not substantially
compliant were removed from further consideration. The Bank tested its software
and did not have any significant systems that required modification. The Bank
inquired of certain major customers and vendors regarding Year 2000 compliance;
however, no assurances were given as to such compliance by its customers and
vendors. The Bank also developed contingency plans, which were based on actual
testing experience and assessments of outside risks. No significant expenditures
were incurred by the Bank to develop or test the systems relative to Year 2000
issues.
As of January 25, 2000, the Bank has not encountered any unforeseen
complications or issues not previously addressed in its assessment. If any
unforeseen complications or issues arise, additional resources would be
committed to complete the necessary conversions in the required time frame.
However, since the Bank has no reason to believe that it will need to use
additional resources, no estimate as to their cost has been made.
INFLATION
Since the assets and liabilities of a bank are primarily monetary in
nature (payable in fixed, determinable amounts), the performance of a bank is
affected more by changes in interest rates than inflation. Interest rates
generally increase as the rate of inflation increase, but the magnitude of the
change in rates may not be the same.
While the effect of inflation is normally not as significant as in the
influence on those businesses which have large investments in plant and
inventories, it does have an effect. There are normally corresponding increases
in the money supply, and banks will normally experience above average growth in
assets, loans and deposits. Also, general increases in the prices of goods and
services will result in increase operating expense.
FOR THE PERIOD ENDED DECEMBER 31, 1997
The Bank began operations on December 1, 1997. The opening balance sheet
reflected $6,572,712 in total assets. Assets were comprised primarily of
$4,990,000 in federal funds sold; $751,416 in interest-bearing balances due
from financial institutions, $148,345 in organizational costs and $398,423 in
premises and equipment. Liabilities totaled $290,517 of which $184,016
represented accounts payable for services and products acquired. Total equity
was $6,282,196. Equity was comprised of 607,557 shares of $5.00 par value
common stock, which sold for $11.00 per share. Beginning capital was
$6,505,514, net of $177,614 broker fees. Net pre-opening expenses totaled
$204,690. Pre-opening expenses, which are not capitalized, consisted of costs
such as salaries and benefits, rent, utilities, printing/postage, advertising
and supplies.
From December 1, 1997 to December 31, 1997 assets had grown $1,607,853 or
24.5% to $8,180,565. The increase was attributable to the $1,772,920 growth in
deposits during the month of operations. Approximately 34% or $1,334,476 of the
Bank's deposits were in the form of demand deposits, including NOW and Money
market accounts. At December 31, 1997, the aggregate amount of certificates of
deposit and other time deposits of the Bank, in amounts greater than or equal
to $100,000 was $200,000. The following table presents the maturity of these
certificates of deposit at December 31, 1997.
<TABLE>
<S> <C>
Over 3 months through 12 months ......... $200,000
</TABLE>
43
<PAGE>
Interest-earning assets reflected $3,790,000 in federal funds sold;
$2,977,342 in investments (gross of $10,768 net unrealized gains) and $214,126
in gross loans outstanding. Set forth below is selected data related to the
composition of the Bank's loan portfolio by type at December 31, 1997.
<TABLE>
<CAPTION>
PERCENT
AMOUNT OF TOTAL
----------- ---------
<S> <C> <C>
Commercial, financial and agricultural ......... $ 19,630 9%
Consumer ....................................... 194,928 91%
--------
Subtotal ....................................... 214,558
Net deferred loan origination fees ............. (432) --
-------- --
Total .......................................... $214,126 100%
-------- ---
</TABLE>
The following table sets forth maturities and sensitivities of certain
types to changes in interest rates at December 31, 1997. The table is based on
contractual maturities and does not include prepayments.
<TABLE>
<CAPTION>
DUE IN 1
YEAR OR LESS
-------------
<S> <C>
Commercial, financial and agricultural ......... $19,630
</TABLE>
An allowance for loan losses in the amount of $3,200 was established at
December 31, 1997. The allowance was general in nature and not allocated to any
particular class of loans.
Net premises and equipment were $550,220 or 6.7% of total assets.
Liabilities consisted primarily of deposits and a note payable. During the
month of operation, 216 deposit accounts were opened which reflected balances
of $1,772,920 at December 31, 1997. A note payable in the amount of $150,000
was incurred to finance the upfitting of the banking facility. The note bears
an interest rate of prime plus 1% and is repayable over a 3 year period.
Shareholders' equity was $6,145,472 including an accumulated deficit of
$366,616 or $.60 per share, and an unrealized gain on securities available for
sale (net of deferred income taxes) of $6,574. The Bank's capital to assets was
75.1% at December 31, 1997. Warrants outstanding totaled 60,360 at December 31,
1997. If exercised in full, these warrants would provide an additional $666,930
in capital.
The net operating loss, before other comprehensive income, incurred from
October 29, 1997 (date of incorporation) to December 31, 1997 totaled $161,926.
During the period, interest income totaled $100,855. The net operating loss
adjusted for comprehensive income totaled $155,352. Interest expense on
interest-bearing liabilities was $3,552. The Bank contributed $3,200 to the
loan loss reserve for a reserve of 1.5% to gross loans outstanding.
Non-interest income amounted to $1,103. Other expenses totaled $232,939. The
net loss before provision for income taxes totaled $137,823. As a result of net
deferred income tax credits, a provision for income taxes was incurred in the
amount of $24,103. The accumulated deficit (the accumulation of pre-opening and
post opening losses) totaled $366,616.
FORWARD LOOKING STATEMENTS
The foregoing discussion may contain forward looking statements within the
meaning of the Private Securities Litigation Reform Act. The accuracy of such
forward looking statements could be affected by such factors as, including but
not limited to, the financial success or changing strategies of the Bank's
customers, actions of government regulators, or general economic conditions.
44
<PAGE>
INDEPENDENT AUDITORS' REPORT
Board of Directors and Shareholders of The Bank of Asheville:
We have audited the accompanying balance sheets of The Bank of Asheville
(the "Bank") as of December 31, 1999 and 1998 and the related statements of
operations, changes in shareholders' equity, and cash flows for the years ended
December 31, 1999 and 1998 and the period from October 29, 1997 (date of
incorporation) to December 31, 1997. These financial statements are the
responsibility of the Bank's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, such financial statements present fairly, in all material
respects, the financial position of the Bank at December 31, 1999 and 1998 and
the results of its operations and its cash flows for the years ended December
31, 1999 and 1998 and the period from October 29, 1997 (date of incorporation)
to December 31, 1997, in conformity with generally accepted accounting
principles.
/S/ DELOITTE & TOUCHE LLP
January 25, 2000
Hickory, North Carolina
F-1
<PAGE>
THE BANK OF ASHEVILLE
BALANCE SHEETS
DECEMBER 31, 1999 AND 1998
<TABLE>
<CAPTION>
1999 1998
------------------------------
<S> <C> <C>
ASSETS:
Cash and cash equivalents (Notes 1, 7 and 12):
Cash and due from banks ..................................................... $ 1,892,403 $ 676,714
Interest-bearing deposits ................................................... 2,784 99,000
Federal funds sold .......................................................... 2,110,000 2,770,000
------------ ------------
Total cash and cash equivalents ........................................... 4,005,187 3,545,714
------------ ------------
Investment securities (Notes 1, 2 and 12) -- available for sale, at fair value
(amortized cost of $2,508,339 and $2,087,778 at December 31, 1999 and
1998, respectively) ......................................................... 2,502,411 2,085,000
------------ ------------
Loans (Notes 3 and 12) ....................................................... 34,460,724 14,023,265
Allowance for loan losses (Notes 1 and 4) .................................... (528,808) (218,719)
------------ ------------
Net loans .................................................................... 33,931,916 13,804,546
Premises and equipment, net (Notes 1, 5 and 9) ............................... 2,455,507 2,200,051
Accrued interest receivable .................................................. 220,151 100,039
Federal Home Loan Bank stock, at cost ........................................ 58,100 --
Organizational costs, net (Note 1) ........................................... -- 116,203
Deferred income taxes ........................................................ 133,688 --
Other assets ................................................................. 61,137 41,142
------------ ------------
TOTAL .......................................................................... $ 43,368,097 $ 21,892,695
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY:
Deposits (Note 6):
Demand ...................................................................... $ 4,780,881 $ 2,759,092
NOW accounts ................................................................ 3,154,225 1,820,714
Money market accounts ....................................................... 10,623,376 4,079,314
Savings ..................................................................... 583,797 328,820
Time deposits of $100,000 or more............................................ 5,620,684 3,206,120
Other time deposits ......................................................... 13,158,017 4,252,588
------------ ------------
Total deposits ............................................................ 37,920,980 16,446,648
Accrued interest payable ..................................................... 159,149 64,497
Deferred income taxes ........................................................ -- 23,021
Other liabilities ............................................................ 119,569 195,954
------------ ------------
Total liabilities ......................................................... 38,199,698 16,730,120
------------ ------------
COMMITMENTS AND CONTINGENCIES (Note 11)
SHAREHOLDERS' EQUITY (Notes 1 and 10):
Common stock, $5 par value, authorized--10,000,000 shares; outstanding
shares -- 633,298 and 607,557 at December 31, 1999 and 1998,
respectively ................................................................ 3,166,490 3,037,785
Additional paid-in capital ................................................... 3,596,444 3,467,729
Accumulated deficit .......................................................... (1,590,896) (1,341,243)
Accumulated other comprehensive loss (Note 2) ................................ (3,639) (1,696)
------------ ------------
Total shareholders' equity ................................................ 5,168,399 5,162,575
------------ ------------
TOTAL .......................................................................... $ 43,368,097 $ 21,892,695
============ ============
</TABLE>
See notes to financial statements.
F-2
<PAGE>
THE BANK OF ASHEVILLE
STATEMENTS OF OPERATIONS
YEARS ENDED DECEMBER 31, 1999 AND 1998 AND THE PERIOD FROM OCTOBER 29, 1997
(DATE OF INCORPORATION) TO DECEMBER 31, 1997
<TABLE>
<CAPTION>
1999 1998 1997
------------- ------------- -------------
<S> <C> <C> <C>
INTEREST INCOME:
Interest and fees on loans ...................................... $2,492,208 $ 661,439 $ 1,262
Federal funds sold .............................................. 142,955 186,602 24,947
Interest-bearing deposits ....................................... 1,211 4,560 64,482
Investments:
U. S. Treasuries .............................................. 26,129 64,213 5,000
U. S. Government agencies ..................................... 95,105 144,537 5,164
Corporate dividends ........................................... 2,710 -- --
---------- ---------- ----------
Total interest income ........................................ 2,760,318 1,061,351 100,855
---------- ---------- ----------
INTEREST EXPENSE:
Time deposits of $100,000 or more................................ 189,677 109,687 581
Other time and savings deposits ................................. 937,345 286,900 1,860
Federal funds purchased ......................................... 1,522 -- --
Note payable .................................................... -- 27,922 1,111
Other interest expense .......................................... 97 -- --
---------- ---------- ----------
Total interest expense ....................................... 1,128,641 424,509 3,552
---------- ---------- ----------
NET INTEREST INCOME .............................................. 1,631,677 636,842 97,303
PROVISION FOR LOAN LOSSES (Notes 1 and 4) ........................ 316,685 269,614 3,200
---------- ---------- ----------
NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES .............. 1,314,992 367,228 94,103
---------- ---------- ----------
OTHER INCOME:
Service charges on deposit accounts ............................. 272,911 83,349 30
Other service fees and commissions .............................. 131,316 29,162 563
Other ........................................................... 10,637 4,533 420
---------- ---------- ----------
Total other income ........................................... 414,864 117,044 1,013
---------- ---------- ----------
OTHER EXPENSES:
Salaries and wages .............................................. 941,253 649,415 98,119
Employee benefits ............................................... 108,086 66,246 9,467
Occupancy expense, net .......................................... 79,280 64,128 4,299
Equipment rentals, depreciation and maintenance ................. 201,738 132,439 29,526
Other ........................................................... 688,451 546,671 91,528
---------- ---------- ----------
Total other expenses ......................................... 2,018,808 1,458,899 232,939
---------- ---------- ----------
LOSS BEFORE CUMULATIVE EFFECT OF CHANGE IN ACCOUNTING
PRINCIPLE AND INCOME TAXES ...................................... (288,952) (974,627) (137,823)
INCOME TAX PROVISION (BENEFIT) (Notes 1 and 8) ................... (110,625) -- 24,103
---------- ---------- ----------
NET LOSS BEFORE CUMULATIVE EFFECT OF CHANGE IN
ACCOUNTING PRINCIPLE ............................................ (178,327) (974,627) (161,926)
CUMULATIVE EFFECT OF A CHANGE IN ACCOUNTING PRINCIPLE,
NET OF TAX BENEFIT OF $44,877 (Note 1)........................... (71,326) -- --
---------- ---------- ----------
NET LOSS ......................................................... (249,653) (974,627) (161,926)
OTHER COMPREHENSIVE INCOME (LOSS), NET OF TAX -- Unrealized
holding gains (losses) on securities available for sale ......... (1,943) (8,270) 6,574
---------- ---------- ----------
COMPREHENSIVE LOSS ............................................... $ (251,596) $ (982,897) $ (155,352)
========== ========== ==========
BASIC NET LOSS PER SHARE BEFORE CUMULATIVE EFFECT OF
CHANGE IN ACCOUNTING PRINCIPLE .................................. (.29) (1.60) (.27)
CUMULATIVE EFFECT OF CHANGE IN ACCOUNTING PRINCIPLE .............. (.12) -- --
---------- ---------- ----------
BASIC NET LOSS PER SHARE ......................................... $ (.41) $ (1.60) $ (.27)
========== ========== ==========
</TABLE>
See notes to financial statements
F-3
<PAGE>
THE BANK OF ASHEVILLE
STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 1999 AND 1998 AND THE PERIOD FROM OCTOBER 29, 1997
(DATE OF INCORPORATION) TO DECEMBER 31, 1997
<TABLE>
<CAPTION>
TOTAL
ACCUMULATED SHAREHOLDERS'
COMMON STOCK ADDITIONAL OTHER EQUITY
----------------------- PAID-IN ACCUMULATED COMPREHENSIVE (NOTES 1
SHARES AMOUNT CAPITAL DEFICIT INCOME (LOSS) AND 10)
--------- ------------- ------------ --------------- --------------- -------------
- --------------
<S> <C> <C> <C> <C> <C> <C>
BALANCE, OCTOBER 29,
1997 ........................ 607,557 $3,037,785 $3,467,729 $ (204,690) $ -- $6,300,824
Net change in unrealized gain
on securities available for
sale ...................... -- -- -- -- 6,574 6,574
Net loss .................... -- -- -- (161,926) -- (161,926)
------- ---------- ---------- ------------ -------- ----------
BALANCE, DECEMBER 31,
1997 ........................ 607,557 3,037,785 3,467,729 (366,616) 6,574 6,145,472
Net change in unrealized gain
on securities available for
sale ...................... -- -- -- -- (8,270) (8,270)
Net loss .................... -- -- -- (974,627) -- (974,627)
------- ---------- ---------- ------------ -------- ----------
BALANCE, DECEMBER 31,
1998 ........................ 607,557 3,037,785 3,467,729 (1,341,243) (1,696) 5,162,575
Net change in unrealized loss
on securities available for
sale ...................... -- -- -- -- (1,943) (1,943)
Warrants exercised .......... 25,741 128,705 128,715 -- -- 257,420
Net loss .................... -- -- -- (249,653) -- (249,653)
------- ---------- ---------- ------------ -------- ----------
BALANCE, DECEMBER 31,
1999 ........................ 633,298 $3,166,490 $3,596,444 $ (1,590,896) $ (3,639) $5,168,399
======= ========== ========== ============ ======== ==========
</TABLE>
See notes to financial statements.
F-4
<PAGE>
THE BANK OF ASHEVILLE
STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1999 AND 1998 AND THE PERIOD FROM OCTOBER 29, 1997
(DATE OF INCORPORATION) TO DECEMBER 31, 1997
<TABLE>
<CAPTION>
1999 1998 1997
---------------- ---------------- --------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss ....................................................... $ (249,653) $ (974,627) $ (161,926)
Adjustments to reconcile net loss to net cash provided by
(used in) operating activities:
Depreciation .................................................. 173,617 97,946 27,047
Amortization of organization costs ............................ -- 29,669 2,472
Provision for loan loss ....................................... 316,685 269,614 3,200
Premium amortization and discount accretion, net .............. (70,843) (116,570) (126)
Deferred income tax (benefit) provision ....................... (155,502) -- 24,103
Cumulative effect of a change in accounting principle ......... 116,203 -- --
Increase in accrued interest receivable ....................... (120,112) (71,952) (28,087)
Increase (decrease) in accrued interest payable ............... 94,652 62,358 (4,077)
(Increase) decrease in other assets ........................... (19,981) 13,393 28,478
(Decrease) increase in other liabilities ...................... (76,398) 114,216 26,088
------------- ------------- ------------
Net cash provided by (used in) operating activities .......... 8,668 (575,953) (82,828)
------------- ------------- ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of securities available for sale ..................... (4,449,719) (7,087,865) (2,977,217)
Maturities of securities available for sale .................... 4,100,000 8,094,000 --
Net increase in loans .......................................... (20,444,055) (13,863,234) (214,126)
Additions to premises and equipment ............................ (429,073) (1,747,777) (461,440)
Purchases of Federal Home Loan Bank stock ...................... (58,100) -- --
------------- ------------- ------------
Net cash used in investing activities ........................ (21,280,947) (14,604,876) (3,652,783)
------------- ------------- ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase in demand deposits, NOW accounts and savings
accounts ...................................................... 10,154,339 7,654,464 1,333,476
Net increase in certificates of deposits ....................... 11,319,993 7,019,264 439,444
Proceeds from notes payable .................................... -- 990,000 150,000
Repayment of notes payable ..................................... -- (1,140,000) --
Issuance of common stock ....................................... 257,420 -- --
------------- ------------- ------------
Net cash provided by financing activities .................... 21,731,752 14,523,728 1,922,920
------------- ------------- ------------
NET INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS .................................................... 459,473 (657,101) (1,812,691)
CASH AND CASH EQUIVALENTS:
Beginning of period ............................................ 3,545,714 4,202,815 6,015,506
------------- ------------- ------------
End of period .................................................. $ 4,005,187 $ 3,545,714 $ 4,202,815
============= ============= ============
SUPPLEMENTAL DISCLOSURE -- Cash paid during the
period for interest ............................................ $ 1,033,989 $ 362,151 $ 7,629
============= ============= ============
</TABLE>
See notes to financial statements.
F-5
<PAGE>
THE BANK OF ASHEVILLE
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1999 AND 1998 AND THE PERIOD FROM OCTOBER 29, 1997
(DATE OF INCORPORATION) TO DECEMBER 31, 1997
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION - The Bank of Asheville (the "Bank") is a state chartered
commercial bank headquartered in Asheville, North Carolina and provides
consumer and commercial banking services in the Buncombe County and surrounding
areas. The Bank was organized and incorporated in North Carolina on October 29,
1997 and began accepting deposits and making loans on December 1, 1997.
Prior to receiving a bank charter and articles of incorporation, the Bank
conducted an initial public offering of its common stock. Net proceeds from the
public offering were $6,505,514 representing 607,557 shares of common stock
sold at $11.00 per share net of costs. Operations prior to incorporation
consisted only of organizational activities and the sale of common stock.
CASH AND CASH EQUIVALENTS - Cash and cash equivalents include cash on
hand, amounts due from banks, and federal funds sold. Generally, federal funds
are purchased and sold for one-day periods.
INVESTMENT SECURITIES - Debt securities that the Bank has the positive
intent and ability to hold to maturity are classified as "held-to-maturity
securities" and reported at amortized cost. Debt and equity securities that are
bought and held principally for the purpose of selling in the near term are
classified as "trading securities" and reported at fair value, with unrealized
gains and losses included in earnings. Debt securities not classified as either
held-to-maturity securities or trading securities and equity securities not
classified as trading securities are classified as "available-for-sale
securities" and reported at fair value, with unrealized gains and losses
reported as other comprehensive income. Gains and losses on held for investment
securities are recognized at the time of sale based upon the specific
identification method. Declines in the fair value of individual
held-to-maturity and available-for-sale securities below their cost that are
other than temporary, result in write-downs of the individual securities to
their fair value. The related write-downs are included in earnings as realized
losses. Premiums and discounts are recognized in interest expense, or interest
income, respectively, using the interest method over the period to maturity.
Transfers of securities between classifications are accounted for at fair
value. The Bank has not classified any securities as trading or
held-to-maturity securities.
LOANS - Loans held for investment are stated at the amount of unpaid
principal, reduced by an allowance for loan losses.
ALLOWANCE FOR LOAN LOSSES - The provision for loan losses charged to
operations is an amount which management believes is sufficient to bring the
allowance for loan losses to an estimated balance considered adequate to absorb
potential losses in the portfolio. Management's determination of the adequacy
of the allowance is based on an evaluation of the portfolio, current economic
conditions, historical loan loss experience and other risk factors. Recovery of
the carrying value of loans is dependent to some extent on future economic,
operating and other conditions that may be beyond the Bank's control.
Unanticipated future adverse changes in such conditions could result in
material adjustments to the allowance for loan losses.
Loans that are deemed to be impaired (i.e., probable that the Bank will be
unable to collect all amounts due according to the terms of the loan agreement)
are measured based on the present value of expected future cash flows
discounted at the loan's effective interest rate or, as a practical matter, at
the loan's observable market value or fair value of the collateral if the loan
is collateral dependent. A valuation reserve is established to record the
difference between the stated loan amount and the loan's present value, market
value,
F-6
<PAGE>
THE BANK OF ASHEVILLE
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -- (CONTINUED)
or fair value of the collateral, as appropriate, of the impaired loan. Impaired
loans may be valued on a loan-by-loan basis (e.g., loans with risk
characteristics unique to an individual borrower) or on an aggregate basis
(e.g., loans with similar risk characteristics). As of December 31, 1999 and
1998, there were no loans within the Bank's portfolio that were considered to
be impaired.
PREMISES AND EQUIPMENT AND OTHER LONG-LIVED ASSETS - Premises and
equipment are stated at cost less accumulated depreciation and amortization.
Depreciation and amortization, computed by the straight-line method, are
charged to operations over the properties' estimated useful lives, which range
from 25 to 50 years for buildings, 5 to 15 years for furniture and equipment
or, in the case of leasehold improvements, the term of the lease, if shorter.
Maintenance and repairs are charged to operations in the year incurred. Gains
and losses on dispositions are included in current operations.
The Bank reviews long-lived assets and certain identifiable intangibles to
be held and used for impairment whenever events or changes in circumstances
indicate that the carrying amount of an asset may not be recoverable. If the
sum of the expected cash flows is less than the stated amount of the asset, an
impairment loss is recognized.
INCOME TAXES - Deferred income taxes are computed using the asset and
liability approach. The tax effects of differences between the tax and
financial accounting bases of assets and liabilities are reflected in the
balance sheet at the tax rates expected to be in effect when the differences
reverse. A valuation allowance is provided as a reserve against deferred tax
assets when realization is deemed not to be likely. As changes in tax laws or
rates are enacted, deferred tax assets and liabilities are adjusted through the
provision for income taxes.
INTEREST INCOME AND EXPENSE - The Bank utilizes the accrual method of
accounting. Substantially all loans earn interest on the level yield method
based on the daily outstanding balance. The accrual of interest is discontinued
when, in management's judgment, the interest may not be collected.
The Bank defers the immediate recognition of certain loan origination fees
and certain loan origination costs when new loans are originated and amortizes
these deferred amounts over the life of each related loan as an adjustment to
interest income.
USE 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.
NET LOSS PER SHARE - Basic net loss per common share amount has been
computed using the weighted average number of shares of common stock
outstanding during the respective period (615,521 shares in 1999 and 607,557
shares in 1998 and 1997). There were no potentially dilutive securities during
1999, 1998 and 1997.
NEW ACCOUNTING STANDARDS - In April 1998, the AICPA issued Statement of
Position 98-5, REPORTING ON THE COSTS OF START-UP ACTIVITIES, which provides
additional guidance on the financial reporting of start-up and organizational
costs, requiring such costs to be expensed as incurred. As a result, the Bank
wrote off its
F-7
<PAGE>
THE BANK OF ASHEVILLE
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -- (CONTINUED)
unamortized start-up and organizational costs of $116,203 as of January 1, 1999
as a cumulative effect of a change in accounting principle.
In June 1998, the FASB issued SFAS No. 133, ACCOUNTING FOR DERIVATIVE
INSTRUMENTS AND HEDGING ACTIVITIES. This statement establishes accounting and
reporting standards for derivative instruments and for hedging activities. It
requires that an entity recognize all derivatives as either assets or
liabilities in the balance sheet and measure those instruments at fair value.
The accounting for changes in the fair value of a derivative (that is, gains
and losses) depends on the intended use of the derivative. The statement is
effective for the Bank's fiscal year 2001 financial statements and may not be
applied retroactively. The Bank has not yet completed its analysis of the
effects of this new standard on its results of operations or financial
position.
2. INVESTMENT SECURITIES
The amortized cost, gross unrealized gains and losses and fair values of
investment securities at December 31, 1999 and 1998 are as follows:
Available-for-sale securities consist of the following at December 31,
1999:
<TABLE>
<CAPTION>
UNREALIZED
-----------------------
AMORTIZED FAIR
TYPE AND MATURITY GROUP COST GAINS LOSSES VALUE
- --------------------------------------------------------- -------------- ------- ------------- --------------
<S> <C> <C> <C> <C>
U. S. Treasury due -- within 1 year .................... $ 749,505 $-- $ (595) $ 748,910
U. S. Government agencies due -- within 1 year ......... 1,758,834 -- (5,333) 1,753,501
----------- --- --------- -----------
Total at December 31, 1999 ............................. $ 2,508,339 $-- $ (5,928) $ 2,502,411
=========== === ========= ===========
</TABLE>
Available-for-sale securities consist of the following at December 31,
1998:
<TABLE>
<CAPTION>
UNREALIZED
-----------------------
AMORTIZED FAIR
TYPE AND MATURITY GROUP COST GAINS LOSSES VALUE
- --------------------------------------------------------- -------------- ------- ------------- --------------
<S> <C> <C> <C> <C>
U. S. Treasury due -- within 1 year .................... $ 604,288 $ 212 $ -- $ 604,500
U. S. Government agencies due -- within 1 year ......... 1,483,490 -- (2,990) 1,480,500
----------- ----- --------- -----------
Total at December 31, 1998 ............................. $ 2,087,778 $ 212 $ (2,990) $ 2,085,000
=========== ===== ========= ===========
</TABLE>
3. LOANS
Loans at December 31, 1999 and 1998 classified by type, are as follows:
<TABLE>
<CAPTION>
1999 1998
---------------- ----------------
<S> <C> <C>
Real estate:
Construction ................................. $ 7,152,238 $ 1,780,563
Mortgage ..................................... 16,963,594 7,414,218
Commercial, financial and agricultural ......... 9,926,255 4,594,259
Consumer ....................................... 562,765 299,105
------------ ------------
Subtotal .................................. 34,604,852 14,088,145
Net deferred loan origination fees ............. (144,128) (64,880)
------------ ------------
Total .......................................... $ 34,460,724 $ 14,023,265
============ ============
</TABLE>
F-8
<PAGE>
THE BANK OF ASHEVILLE
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
3. LOANS -- (CONTINUED)
Non-performing assets at December 31, 1999 and 1998 are as follows:
<TABLE>
<CAPTION>
1999 1998
------------ -----
<S> <C> <C>
Non-accrual loans .......... $ 247,559 $--
</TABLE>
No loans have been restructured during the 1997, 1998 or 1999 periods.
Directors and officers of the Bank and companies with which they are
affiliated are customers of and borrowers from the Bank in the ordinary course
of business. At December 31, 1999 and 1998, directors' and principal officers'
direct and indirect indebtedness to the Bank aggregated $136,856 and $131,870,
respectively.
4. ALLOWANCE FOR LOAN LOSSES
Changes in the allowance for loan losses for the periods ended December 31,
1999, 1998 and 1997 are as follows:
<TABLE>
<CAPTION>
1999 1998 1997
------------ ------------ ----------
<S> <C> <C> <C>
Balance at beginning of period ........... $ 218,719 $ 3,200 $ --
Additions charged to operations .......... 316,685 269,614 3,200
Charge-offs .............................. (18,567) (55,838) --
Recoveries ............................... 11,971 1,743 --
--------- --------- -------
Balance at end of period ................. $ 528,808 $ 218,719 $ 3,200
========= ========= =======
</TABLE>
5. PREMISES AND EQUIPMENT
Premises and equipment at December 31, 1999 and 1998 are as follows:
<TABLE>
<CAPTION>
1999 1998
--------------- ---------------
<S> <C> <C>
Land .................................................... $ 113,900 $ 113,900
Land improvements ....................................... 121,874 --
Building and improvements ............................... 1,475,842 1,182,107
Furniture and equipment ................................. 744,064 502,472
Leasehold improvements .................................. 287,852 287,852
Construction in progress ................................ 10,585 238,714
----------- -----------
Total ............................................... 2,754,117 2,325,045
Less accumulated depreciation and amortization .......... (298,610) (124,994)
----------- -----------
Total ................................................... $ 2,455,507 $ 2,200,051
=========== ===========
</TABLE>
F-9
<PAGE>
THE BANK OF ASHEVILLE
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
6. DEPOSIT ACCOUNTS
At December 31, 1999, the scheduled maturities of time deposits of
$100,000 or more are as follows:
<TABLE>
<S> <C>
Within three months ........... $ 2,083,909
Within six months ............. 1,800,047
Within twelve months .......... 1,418,309
Greater than one year ......... 318,419
-----------
Total ......................... $ 5,620,684
===========
</TABLE>
7. NOTE PAYABLE
A 9.5% note payable, due in monthly installments of $4,805, was repaid in
full as of December 31, 1998.
8. INCOME TAXES
The income tax benefits for 1997 and 1999 were comprised solely of
deferred tax benefits.
For the years ended December 31, 1999 and 1998, a deferred tax benefit of
$1,207 and $1,082, respectively, was allocated to other comprehensive income as
the tax effect of the unrealized loss on investment securities available for
sale.
F-10
<PAGE>
THE BANK OF ASHEVILLE
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
8. INCOME TAXES -- (CONTINUED)
A reconciliation of reported income tax benefit for the periods ended
December 31, 1999, 1998 and 1997 to the amount of tax benefit computed by
multiplying the loss before income taxes by the statutory federal income tax
rate of 34% follows:
<TABLE>
<CAPTION>
1999 1998 1997
--------------- --------------- ---------------
<S> <C> <C> <C>
Tax benefit at statutory rate .................................. $ (137,757) $ (331,373) $ (116,454)
Increase (decrease) in income tax benefit resulting from:
State income tax benefit net of federal tax benefit .......... (17,745) (54,115) (16,955)
Valuation allowance .......................................... -- 385,488 157,512
----------- ----------- -----------
Income taxes reported .......................................... $ (155,502) $ -- $ 24,103
=========== =========== ===========
</TABLE>
The tax effect of the cumulative temporary differences and carryforwards
that gave rise to the deferred tax assets and liabilities at December 31, 1999
and 1998 are as follows:
<TABLE>
<CAPTION>
1999 ASSETS LIABILITIES TOTAL
- ------------------------------------------------------------ ------------ ------------- ------------
<S> <C> <C> <C>
Net operating loss carryforward ........................... $ 468,180 $ 468,180
Contribution carryforward ................................. 8,164 8,164
Allowance for loan losses ................................. 180,792 180,792
Unrealized loss on securities available for sale .......... 2,289 2,289
Depreciation .............................................. -- $ (58,707) (58,707)
Capitalized start-up expenditures ......................... 68,351 -- 68,351
Capitalized organization costs ............................ 33,420 -- 33,420
Prepaid expenses .......................................... -- (20,554) (20,554)
Other, net ................................................ -- (5,247) (5,247)
Valuation allowance ....................................... (543,000) -- (543,000)
---------- ---------- ----------
Total ..................................................... $ 218,196 $ (84,508) $ 133,688
========== ========== ==========
</TABLE>
<TABLE>
<CAPTION>
1998 ASSETS LIABILITIES TOTAL
- ------------------------------------------------------------ ------------ ------------- --------------
<S> <C> <C> <C>
Net operating loss carryforward ........................... $ 445,757 $ 445,757
Contribution carryforward ................................. 5,753 5,753
Allowance for loan losses ................................. 53,189 53,189
Unrealized loss on securities available for sale .......... 1,082 1,082
Depreciation .............................................. -- $ (28,394) (28,394)
Capitalized start-up expenditures ......................... 66,680 -- 66,680
Prepaid expenses .......................................... -- (6,936) (6,936)
Other, net ................................................ -- (17,152) (17,152)
Valuation allowance ....................................... (543,000) -- (543,000)
---------- ---------- ----------
Total ..................................................... $ 29,461 $ (52,482) $ (23,021)
========== ========== ==========
</TABLE>
As of December 31, 1999, federal and state operating loss carryovers of
approximately $1,190,000 and $1,358,000, respectively, are available to offset
future federal and state taxable income. The carryover period is 5 years for
state and 20 years for federal, which will result in expirations of varying
amounts.
The Bank has a charitable contribution carryforward of $24,011 available
to reduce federal taxable income. This credit will expire in year 2003.
F-11
<PAGE>
THE BANK OF ASHEVILLE
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
8. INCOME TAXES -- (CONTINUED)
Management has evaluated the available evidence about future taxable
income and other possible sources of realization of deferred tax assets. The
valuation allowance at December 31, 1999 reduces deferred tax assets to an
amount that represents management's best estimate of the amount of such
deferred tax assets which more likely than not will be realized.
9. LEASES
The Bank leases the banking facility premises and equipment under
operating lease agreements. Future minimum rental payments are as follows:
<TABLE>
<S> <C>
2000 ............... $ 34,045
2001 ............... 33,473
2002 ............... 24,525
Thereafter ......... --
--------
Total .............. $ 92,043
========
</TABLE>
The land for a branch office is leased from a partnership that includes a
director of the Bank. The annual rental is $24,000. Rental expense charged to
operations under all operating lease agreements was $45,529, $46,910 and $25,265
for the periods ended December 31, 1999, 1998 and 1997, respectively.
10. REGULATION AND REGULATORY RESTRICTIONS
The Bank is regulated by the Federal Deposit Insurance Corporation
("FDIC") and the North Carolina State Banking Commission.
The Bank is subject to various regulatory capital requirements
administered by federal 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 capital 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 also are 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 I capital (as defined in the regulations) to
risk-weighted assets (as defined), and of Tier I capital (as defined) to
average assets (as defined). As of December 31, 1999, the most recent
regulatory notifications categorized the Bank as well capitalized under the
regulatory framework for prompt corrective action. Management believes, as of
December 31, 1999 and 1998, that the Bank meets all capital adequacy
requirements to which it is subject. To be categorized as adequately
capitalized under the regulatory framework for prompt corrective action, the
Bank must monitor the minimum capital ratios as set forth in the table below.
The Bank's actual capital amounts and ratios are also presented in the table
(dollar amounts in thousands):
F-12
<PAGE>
THE BANK OF ASHEVILLE
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
10. REGULATION AND REGULATORY RESTRICTIONS -- (CONTINUED)
<TABLE>
<CAPTION>
TO BE WELL
CAPITALIZED UNDER
FOR CAPITAL PROMPT CORRECTIVE
ACTUAL ADEQUACY PURPOSES ACTION PROVISIONS
---------------------- --------------------- --------------------
AMOUNT RATIO AMOUNT RATIO AMOUNT RATIO
---------- ----------- ---------- ---------- -------- ----------
<S> <C> <C> <C> <C> <C> <C>
As of December 31, 1999:
Total Capital (to Risk Weighted Assets) .......... $ 5,580 17.13% $ 2,605 8.00% $3,256 10.00%
Tier I Capital (to Risk Weighted Assets) ......... $ 5,171 15.88% $ 1,303 4.00% $1,954 6.00%
Tier I Capital (to Average Assets) ............... $ 5,171 12.63% $ 1,638 4.00% $2,078 5.00%
</TABLE>
<TABLE>
<CAPTION>
TO BE WELL
CAPITALIZED UNDER
FOR CAPITAL PROMPT CORRECTIVE
ACTUAL ADEQUACY PURPOSES ACTION PROVISIONS
---------------------- -------------------- ---------------------
AMOUNT RATIO AMOUNT RATIO AMOUNT RATIO
-------- ----------- -------- --------- -------- ----------
<S> <C> <C> <C> <C> <C> <C>
As of December 31, 1998:
Total Capital (to Risk Weighted Assets) .......... $5,257 31.60% $1,331 8.0% $1,664 10.0%
Tier I Capital (to Risk Weighted Assets) ......... $5,049 30.35% $ 665 4.0% $ 998 6.0%
Tier I Capital (to Average Assets) ............... $5,049 25.25% $ 800 4.0% $1,000 5.0%
</TABLE>
11. COMMITMENTS AND CONTINGENCIES
The Bank has various financial instruments (outstanding commitments) with
off-balance sheet risk that are issued in the normal course of business to meet
the financing needs of its customers. These financial instruments include
commitments to extend credit and standby letters of credit. Commitments to
extend credit are legally binding agreements to lend to a customer as long as
there is no violation of any condition established in the contract. Commitments
generally have fixed expiration dates or other termination clauses. Since many
of the commitments are expected to expire without being drawn upon, the total
commitment amounts outstanding do not necessarily represent future cash
requirements. Standby letters of credit represent conditional commitments
issued by the Bank to assure the performance of a customer to a third party.
The unused portion of commitments to extend credit at December 31, 1999 and
1998 was $5,536,642 and $2,583,000, respectively.
The Bank's exposure to credit loss for commitments to extend credit and
standby letters of credit is the contractual amount of those financial
instruments. The Bank uses the same credit policies for making commitments and
issuing standby letters of credit as it does for on-balance sheet financial
instruments. Each customer's creditworthiness is evaluated on an individual
case-by-case basis. The amount and type of collateral, if deemed necessary by
management, is based upon this evaluation of creditworthiness. Collateral held
varies, but may include marketable securities, deposits, property, plant and
equipment, investment assets, inventories and accounts receivable. Management
does not anticipate any significant losses as a result of these financial
instruments.
In the normal course of its operations, the 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 the
Bank's business, financial position or results of operation.
12. FAIR VALUE OF FINANCIAL INSTRUMENTS
The fair value estimates presented herein are based on pertinent
information available to management as of December 31, 1999. Although
management is not aware of any factors that would significantly affect the
estimated fair value amounts, such amounts have not been comprehensively
revalued for purposes of these financial statements since that date and,
therefore, current estimates of fair value may differ significantly from the
amounts presented herein.
F-13
<PAGE>
THE BANK OF ASHEVILLE
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
12. FAIR VALUE OF FINANCIAL INSTRUMENTS -- (CONTINUED)
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------------------------------------
1999 1998
------------------------- ------------------------
CARRYING ESTIMATED CARRYING ESTIMATED
AMOUNT FAIR VALUE AMOUNT FAIR VALUE
---------- ------------ ---------- -----------
(IN THOUSANDS) (IN THOUSANDS)
<S> <C> <C> <C> <C>
Assets:
Cash and cash equivalents ............................... $ 4,005 $ 4,005 $ 3,546 $ 3,546
Marketable securities ................................... 2,502 2,502 2,085 2,085
Federal Home Loan Bank stock ............................ 58 58 -- --
Loans ................................................... 34,461 34,463 14,023 13,840
Liabilities:
Demand deposits ......................................... 19,142 19,142 8,989 8,989
Time deposits ........................................... 18,779 18,793 7,458 7,475
Off-Balance-Sheet -- commitments to extend credit ......... -- 5,537 -- 2,583
</TABLE>
13. EMPLOYEE BENEFIT PLAN
The Bank sponsors a defined contribution 401(k) plan, which allows those
employees who have attained the age of 21 years and worked 1,000 hours to elect
to contribute a portion of their salary to the plan in accordance with the
provisions and limits set forth in the plan document. The plan was established
in March 1999. The Bank makes discretionary matching contributions in an amount
determined each plan year to each participant who makes 401(k) savings
contributions during the year. The Bank may also make a discretionary
profit-sharing contribution for a plan year to those participants employed
during the year. The Bank's contribution to the plan was $10,000 for the year
ended December 31, 1999.
13. SUBSEQUENT EVENT
In January 2000, the Bank signed a nonbinding letter of intent to purchase
100% of the voting equity of an insurance agency. The Bank is currently
negotiating the terms of the transaction but a definitive agreement has not
been reached.
F-14
<PAGE>
APPENDIX I
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 9, 2000, by and between The
Bank of Asheville, a banking corporation organized under the laws of the State
of North Carolina and having its principal place of business in the City of
Asheville, Buncombe County, North Carolina (the "Bank"), and Weststar Financial
Services Corporation, a North Carolina business corporation (the "Holding
Company").
W I T N E S S E T H
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 "The
Bank of Asheville" and the name of the acquiring corporation is "Weststar
Financial Services Corporation"
(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 the 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.
<PAGE>
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 The Bank, 79 Woodfin Place, Buncombe County, Asheville, North
Carolina 28801-2426 on April 28, 2000, 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 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. 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.
6. 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;
<PAGE>
(b) Approvals to the extent required, 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.
7. 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 6 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.
8. ENTIRE AGREEMENT. This Agreement contains the entire agreement of the
parties with respect to the transactions contemplated hereby.
9. 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.
10. GOVERNING LAW. This Agreement shall be governed by and construed in
accordance with the laws of the State of North Carolina.
<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.
WESTSTAR FINANCIAL SERVICES
CORPORATION
By: /S/ G. GORDON GREENWOOD
-------------------------------------
G. GORDON GREENWOOD, PRESIDENT
ATTEST:
/S/ RANDALL C. HALL
- ---------------------------------
RANDALL C. HALL, SECRETARY
[corporate seal]
THE BANK OF ASHEVILLE
By: /S/ G. GORDON GREENWOOD
-------------------------------------
G. GORDON GREENWOOD, PRESIDENT
ATTEST:
/S/ RANDALL C. HALL
- ---------------------------------
RANDALL C. HALL, SECRETARY
[corporate seal]
<PAGE>
APPENDIX II
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;
<PAGE>
(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;
(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.
<PAGE>
(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.
(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.
<PAGE>
(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.
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;
<PAGE>
(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 Weststar provide for indemnification to the fullest extent
permitted under North Carolina law for persons who serve as directors or
officers of Weststar, or at the request of Weststar 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 Weststar. Accordingly, Weststar 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. The Bank of Asheville has purchased a standard directors' and officers
liability policy which will, subject to certain limitations, indemnify The Bank
of Asheville and its officers and directors for damages they become legally
obligated to pay as a result of any negligent act, error,
II-1
<PAGE>
or omission committed by directors or officers while acting in their capacity
as such. Weststar may also purchase such a policy.
As permitted by North Carolina law, Article 5 of Weststar'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 Weststar or otherwise, provided that such limitation will not apply to (i)
acts or omissions that the director at the time of such breach knew or believed
were clearly in conflict with the best interests of Weststar, (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
Weststar).
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 9, 2000, by and between The Bank of Asheville and Weststar Financial
Services Corporation ("Weststar") included as Appendix I to the Proxy Statement -
Prospectus
3.1 Articles of Incorporation of Weststar
3.2 Bylaws of Weststar
4.1 Specimen Common Stock Certificate of Weststar
5.1 Opinion of Anthony Gaeta, Jr., P.A. regarding the legality of securities being
registered
8.1 Opinion of Anthony Gaeta, Jr., P.A. regarding certain federal income tax
consequences of the Holding Company Reorganization
10.1 Employment Agreement, dated August 1, 1997, between The Bank of Asheville
and Howard B. Montgomery, Jr.
10.2 Employment Agreement, dated March 20, 1998, between The Bank of Asheville
and Randall C. Hall.
10.3 401(k) Savings Plan of The Bank of Asheville
10.4 Employment Agreement, dated February 9, 2000 between the Bank of Asheville
and G. Gordon Greenwood.
23.1 Consent of Deloitte & Touche LLP (The Bank of Asheville Financial Statements)
23.3 Consent of Anthony Gaeta, Jr., P.A. (included with Exhibit 5.1 hereto)
24.1 Power of Attorney
27.1 Financial Data Schedule
99.1 Form of Proxy Card (The Bank of Asheville)
99.2 1999 Annual Report of The Bank of Asheville
</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
II-2
<PAGE>
(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 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
II-3
<PAGE>
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 The Bank of Asheville
being acquired involved therein, that was not the subject of and included in
the Registration Statement when it became effective.
II-4
<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 Asheville, State of North Carolina, on February 11,
2000.
WESTSTAR FINANCIAL SERVICES
CORPORATION
By: /s/ G. GORDON GREENWOOD
----------------------------------
G. GORDON GREENWOOD
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 February 11,
2000 in the capacities indicated.
<TABLE>
<CAPTION>
SIGNATURE CAPACITY
- ----------------------------------- -----------------------------------------------
<S> <C>
/s/ G. GORDON GREENWOOD President and Chief Executive Officer
- ---------------------------------
G. GORDON GREENWOOD
/s/ RANDALL C. HALL Executive Vice President, Secretary, and Chief
- ---------------------------------
RANDALL C. HALL Financial Officer
/s/ WILLIAM E. ANDERSON Director
- ---------------------------------
WILLIAM E. ANDERSON
/s/ MAX O. COGBURN, SR. Chairman of its Board of Directors
- ---------------------------------
MAX O. COGBURN, SR.
/s/ M. DAVID COGBURN, JR. Director
- ---------------------------------
M. DAVID COGBURN, JR.
/s/ DARRYL J. HART Director
- ---------------------------------
DARRYL J. HART
/s/ CAROL L. KING Director
- ---------------------------------
CAROL L. KING
/s/ STEPHEN L. PIGNATIELLO Director
- ---------------------------------
STEPHEN L. PIGNATIELLO
/s/ KENT W. SALIBURY Director
- ---------------------------------
KENT W. SALIBURY
/s/ LAURA A. WEBB Director
- ---------------------------------
LAURA A. WEBB
/s/ DAVID N. WILCOX Director
- ---------------------------------
DAVID N. WILCOX
</TABLE>
*By: /s/ G. GORDON GREENWOOD
-----------------------------------
ATTORNEY-IN-FACT
II-5
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT NUMBER DESCRIPTION OF EXHIBIT
<S> <C>
2.1 Agreement and Plan of Reorganization and Share Exchange dated
February 9, 2000
3.1 Articles of Incorporation
3.2 Bylaws
4.1 Specimen stock certificate
5.1 Opinion of Anthony Gaeta, Jr. P.A. as to the legality
8.1 Opinion of Anthony Gaeta, Jr. P.A. as to the taxation
10.1 Employment Agreement with Howard B. Montgomery, Jr. dated August 1,
1997
10.2 Employment Agreement with Randall C. Hall dated March 20, 1998
10.3 401(k) Savings Plan of The Bank of Asheville
10.4 Employment Agreement with G. Gordon Greenwood dated February 9,
2000.
23.1 Consent of Deloitte & Touche LLP
23.3 Consent of Anthony Gaeta Jr. P.A. (included in Exhibit 5.1 hereof)
24.1 Power of Attorney
27.1 Financial Data Schedule
99.1 Form of Proxy Card
99.2 1999 Annual Report of the Bank of Asheville
</TABLE>
EXHIBIT 2.1
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 9, 2000, by and between The
Bank of Asheville, a banking corporation organized under the laws of the State
of North Carolina and having its principal place of business in the City of
Asheville, Buncombe County, North Carolina (the "Bank"), and Weststar Financial
Services Corporation, a North Carolina business corporation (the "Holding
Company").
W I T N E S S E T H
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 "The Bank of Asheville" and the name of the acquiring corporation is
"Weststar Financial Services Corporation".
(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 the 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
<PAGE>
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 The Bank, 79 Woodfin Place, Buncombe County, Asheville, North
Carolina 28801-2426 on April 28, 2000, 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 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. 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
<PAGE>
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.
6. 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 to the extent required, 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.
<PAGE>
7. 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 6 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.
8. ENTIRE AGREEMENT. This Agreement contains the entire agreement of
the parties with respect to the transactions contemplated hereby.
9. 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.
10. GOVERNING LAW. This Agreement shall be governed by and construed in
accordance with the laws of the State of North Carolina.
<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.
WESTSTAR FINANCIAL SERVICES CORPORATION
By: /s/ G. Gordon Greenwood
------------------------------
G. Gordon Greenwood, President
ATTEST:
/s/ Randall C. Hall
- ------------------------
Randall C. Hall, Secretary
[corporate seal]
THE BANK OF ASHEVILLE
By: /s/ G. Gordon Greenwood
------------------------------
G. Gordon Greenwood, President
ATTEST:
/s/ Randall C. Hall
- ------------------------
Randall C. Hall, Secretary
[corporate seal]
EXHIBIT 3.1
ARTICLES OF INCORPORATION
ARTICLES OF INCORPORATION
OF
WESTSTAR FINANCIAL SERVICES CORPORATION
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 Weststar Financial Services Corporation (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 79
Woodfin Place, Buncombe County, Asheville, North Carolina 28801-2426; the
mailing address of the initial registered office of the Corporation is Post
Office Box 3238, Buncombe County, Asheville, North Carolina 28802-3238; and, the
name of the initial registered agent at such address is G. Gordon Greenwood.
ARTICLE IV
The name of the incorporator is Anthony Gaeta Jr., and the address of the
incorporator is 808 Salem Woods Drive, Suite 201, Wake County, Raleigh, North
Carolina 27615.
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
<PAGE>
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.
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
2
<PAGE>
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.
ARTICLE VIII
Any person as a director of this Corporation may only be removed for "cause" by
the shareholders represented by a majority of all shares entitled to vote at an
annual or special meeting of this Corporation. The term "cause" for the purposes
of this paragraph shall mean (i) the criminal prosecution and conviction during
the course of the director's service as a director of this Corporation of an act
of fraud, embezzlement, theft or personal dishonesty (excepting minor traffic
and similar violations in the nature of a misdemeanor under North Carolina law),
(ii) the prosecution and conviction of any criminal offense involving dishonesty
or breach of trust, or (iii) the occurrence of any event resulting in a director
being excluded from coverage, or having coverage limited as to the director when
compared to other covered directors, under any of the Corporation's fidelity
bonds or insurance policies covering its directors, officers or employees.
This 7th day of February, 2000.
--------------------------------
Anthony Gaeta, Jr., Incorporator
3
EXHIBIT 3.2
BYLAWS
OF
WESTSTAR FINANCIAL SERVICES CORPORATION
Effective as of February ____, 2000
<PAGE>
INDEX OF BYLAWS
OF
WESTSTAR FINANCIAL SERVICES CORPORATION
ARTICLE I
OFFICES
Section 1. Principal Office
Section 2. Registered Office
Section 3. Other Offices
ARTICLE II
MEETINGS OF SHAREHOLDERS
Section 1. Annual Meeting
Section 2. Substitute Annual Meeting
Section 3. Special Meetings
Section 4. Place of Meeting
Section 5. Notice of Meeting
Section 6. Waiver of Notice
Section 7. Closing of Transfer Books or
Fixing of Record Date
Section 8. Voting Lists
Section 9. Voting Groups
Section 10. Quorum
Section 11. Proxies
Section 12. Voting of Shares
Section 13. Votes Required
ARTICLE III
BOARD OF DIRECTORS
Section 1. General Powers
Section 2. Number, Qualifications, Election and Tenure
Section 3. Nominations
Section 4. Vacancies
Section 5. Compensation
2
<PAGE>
ARTICLE IV
MEETINGS OF DIRECTORS
Section 1. Regular Meetings
Section 2. Special Meetings
Section 3. Notice
Section 4. Waiver of Notice
Section 5. Quorum
Section 6. Manner of Acting
Section 7. Presumption of Assent
Section 8. Action by Directors Without Meeting
Section 9. Meetings by Conference Telephone
ARTICLE V
COMMITTEES OF THE BOARD
Section 1. Executive Committee
Section 2. Other Committees
Section 3. Vacancy
Section 4. Removal
Section 5. Minutes
Section 6. Responsibility of Directors
ARTICLE VI
OFFICERS
Section 1. Officers of the Corporation
Section 2. Appointment and Term
Section 3. Compensation of Officers
Section 4. Removal of Officers
Section 5. Resignation
Section 6. Bonds
Section 7. President
Section 8. Vice Presidents
Section 9. Secretary
Section 10. Assistant Secretaries
Section 11. Treasurer
Section 12. Assistant Treasurers
3
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ARTICLE VII
CONTRACTS, LOANS, CHECKS AND DEPOSITS
Section 1. Contracts
Section 2. Loans
Section 3. Checks and Drafts
Section 4. Deposits
ARTICLE VIII
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
ARTICLE IX
GENERAL PROVISIONS
Section 1. Distributions
Section 2. Seal
Section 3. Fiscal Year
Section 4. Pronouns
Section 5. Amendments
Section 6. Voting of Shares of Other Corporations
ARTICLE X
INDEMNIFICATION
Section 1. Coverage
Section 2. Payment
Section 3. Evaluation
Section 4. Consideration
Section 5. Definitions
4
<PAGE>
BYLAWS
OF
WESTSTAR FINANCIAL SERVICES CORPORATION
ARTICLE I
OFFICES
Section 1. Principal Office. The principal office of the corporation
shall be located in Asheville, North Carolina, or at such other place as the
Board of Directors shall determine.
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 to the principal office. The address of the registered office
may be changed from time to time by the Board of Directors.
Section 3. Other Offices. The corporation may, from time to time, have
offices at such places, either within or without the State of North Carolina, as
the Board of Directors may designate or as the business of the corporation may
require.
ARTICLE II
MEETINGS OF SHAREHOLDERS
Section 1. Annual Meeting. The annual meeting of the shareholders shall
be held on the third Tuesday in the month of April in each year, beginning with
the year 2001, at the hour of 11:00 a.m. or such other time on such day
designated in the notice of meeting, for the purpose of electing directors and
for the transaction of such other business as may come before the meeting. If
the day fixed for the annual meeting shall be a legal holiday in the State of
North Carolina, such meeting shall be held on the next succeeding business day.
Section 2. Substitute Annual Meeting. If the annual meeting shall not
be held on the day designated by these bylaws for the annual meeting of
shareholders, or at any adjournment thereof, then a substitute annual meeting
may be called in accordance with Section 3 of this Article and the meeting so
called may be designated and treated for all purposes as the annual meeting.
Section 3. Special Meetings. Special meetings of the shareholders may
be called by the President or by the Board of Directors.
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<PAGE>
Section 4. Place of Meeting. The Board of Directors may designate any
place, either within or without the State of North Carolina, as the place of
meeting for any annual meeting or for any special meeting called by the Board of
Directors. A waiver of notice signed by all shareholders entitled to vote at a
meeting may designate any place, either within or without the State of North
Carolina, as the place for the holding of such meeting. If no designation is
made, or if a special meeting be otherwise called, the place of meeting shall be
the principal office of the corporation.
Section 5. Notice of Meeting. Written or printed notice stating the
time and place of the meeting and, in case of a special meeting, the purpose or
purposes for which the meeting is called, shall be delivered not less than ten
(10) nor more than sixty (60) days before the date of the meeting, either
personally or by mail, by or at the direction of the President, the Secretary,
or the officer or persons calling the meeting, to each shareholder of record
entitled to vote at such meeting. If mailed, such notice shall be deemed to be
delivered when deposited in the United States mail addressed to the shareholder
at his address as it appears on the record of shareholders of the corporation,
with postage thereon prepaid. In addition to the foregoing, notice of a
substitute annual meeting shall state that the annual meeting was not held on
the day designated by these bylaws and that such substitute annual meeting is
being held in lieu of and is designated as such annual meeting.
If a 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. If a new record
date for the adjourned meeting is fixed, however, notice of the adjourned
meeting must be given to persons who are shareholders as of the new record date.
Section 6. Waiver of Notice.
(a) A shareholder may waive any notice required by law, the
articles of incorporation, or these bylaws before or after the date and
time stated in the notice. The waiver must be in writing, be signed by
the shareholder entitled to the notice, and be delivered to the
corporation for inclusion in the minutes or filing with the corporate
records.
(b) A shareholder's attendance at a meeting:
(1) waives objection to lack of notice or defective
notice of the meeting, unless the shareholder at the beginning
of the meeting objects to holding the meeting or transacting
business at the meeting; and
(2) waives objection to consideration of a particular
matter at the meeting that is not within the purpose or
purposes described in the meeting notice, unless the
shareholder objects to considering the matter before it is
voted upon.
Section 7. Closing of Transfer Books or Fixing of Record Date. For the
purpose of determining shareholders entitled to notice of or to vote at any
meeting of shareholders or any adjournment thereof, or shareholders entitled to
receive payment of any dividend, or in order to make a determination of
shareholders for any other proper purpose, the Board of Directors may
7
<PAGE>
provide that the stock transfer books shall be closed for a stated period but
not to exceed, in any case, seventy (70) days. If the stock transfer books shall
be closed for the purpose of determining shareholders entitled to notice of or
to vote at a meeting of shareholders, such books shall be closed for at least
ten (10) days immediately preceding such meeting.
In lieu of closing the stock transfer books, the Board of Directors may
fix in advance a date as the record date for any such determination of
shareholders, such date in any case to be not more than seventy days and, in the
case of a meeting of shareholders, not less than ten (10) full days prior to the
date on which the particular action, requiring such determination of
shareholders, is to be taken.
If the stock transfer books are not closed and no record date is fixed
for the determination of shareholders entitled to notice of or to vote at a
meeting of shareholders, or shareholders entitled to receive payment of a
dividend, the date on which notice of the meeting is mailed or the date on which
the resolution of the Board of Directors declaring such dividend is adopted, as
the case may be, shall be the record date for such determination of
shareholders.
When a determination of shareholders entitled to vote at any meeting of
shareholders has been made as provided in this Section, such determination shall
apply to any adjournment thereof except where the determination has been made
through the closing of the stock transfer books and the stated period of closing
has expired, and except where the Board of Directors fixes a new record date,
which it must do if the meeting is adjourned to a date more than 120 days after
the date fixed for the original meeting.
Section 8. Voting Lists. After fixing a record date for a meeting, the
Secretary of the corporation shall prepare an alphabetical list of the names of
all its shareholders who are entitled to notice of a shareholders' meeting. 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 number of shares held by each
shareholder. The shareholders' list shall be available for inspection by any
shareholder, beginning two (2) business days after notice of the meeting is
given for which the list was prepared and continuing through the meeting, at the
corporation's principal office or at a place identified in the meeting notice in
the city where the meeting will be held. A shareholder, or his agent or
attorney, is entitled on written demand to inspect and, subject to the
requirements of N.C. Gen. Stat. ss.55-16-02(c), as may be hereafter amended, to
copy the list, during regular business hours and at his expense, during the
period it is available for inspection. The Secretary of the corporation shall
make the shareholders' list available at the meeting, and any shareholder or his
agent or attorney is entitled to inspect the list at any time during the meeting
or any adjournment.
Section 9. Voting Groups. All shares of one or more classes or series
that under the 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 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 articles of
incorporation or specifically required by law.
8
<PAGE>
Section 10. Quorum. Shares entitled to vote as a separate voting group
may take action on a matter at the meeting only if a quorum of those shares
exists. A majority of the votes entitled to be cast on the matter by the voting
group constitutes a quorum of that voting group for action on that matter.
The shareholders at a meeting at which a quorum is present may continue
to do business until adjournment, notwithstanding the withdrawal of enough
shareholders to leave less than a quorum.
In the absence of a quorum at the opening of any meeting of
shareholders, such meeting may be adjourned from time to time by a vote of the
majority of the shares voting on the motion to adjourn; and at any adjourned
meeting at which a quorum is present, any business may be transacted which might
have been transacted at the original meeting.
Section 11. Proxies. Shares may be voted either in person or by one or
more agents authorized by a written proxy executed by the shareholder or by his
duly authorized attorney in fact.
An appointment of a proxy is effective when received by the Secretary
or other officer or agent authorized to tabulate votes. An appointment is valid
for eleven (11) months unless a different period is expressly provided in the
appointment form.
Section 12. Voting of Shares. Each outstanding share entitled to vote
shall be entitled to one vote on each matter submitted to a vote at a meeting of
shareholders.
Except as otherwise provided by law, the articles of incorporation or
these bylaws, if a quorum exists, action on a matter by a voting group is
approved if the votes cast within the voting group favoring the action exceed
the votes cast opposing the action.
Shares of its own stock owned by the corporation directly, or
indirectly through a corporation in which it owns, directly or indirectly, a
majority of the shares entitled to vote for directors, shall not be voted at any
meeting and shall not be counted in determining the total number of outstanding
shares at a given time entitled to vote; provided that this provision does not
limit the power of the corporation to vote its own shares held by it in a
fiduciary capacity.
Section 13. Votes Required. The vote of a majority of the shares voted
at a meeting of shareholders, duly held at which a quorum is present, shall be
sufficient to take or authorize action upon any matter which may properly come
before the meeting except as otherwise provided by law, by the articles of
incorporation or by these bylaws. Any provision in these bylaws prescribing the
vote required for any purpose as permitted by law may not itself be amended by a
vote less than the vote prescribed therein.
9
<PAGE>
ARTICLE III
BOARD OF DIRECTORS
Section 1. General Powers. All corporate powers shall be exercised by
or under the authority of, and the business and affairs of the corporation
managed under the direction of, the Board of Directors.
Section 2. Number, Term and Qualifications. The number of directors
constituting the Board of Directors of the Corporation shall be not less than
eight(8) nor more than twelve (12) as from time to time may be fixed or changed
within said minimum and maximum by a majority of the full Board of Directors. If
there are less than nine (9) directors, they shall be elected for terms of one
(1) year. Provided there are nine (9) or more directors in number, 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.
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. Vacancies. Except as otherwise provided by law or the
articles of incorporation, any vacancy occurring in the Board of Directors may
be filled by the affirmative vote of a majority of the remaining directors even
though less than a quorum or by the sole remaining director.
The term of a director elected to fill a vacancy expires at the next
shareholders' meeting at which directors are elected.
At a special meeting of shareholders the shareholders may elect a
director to fill any vacancy not filled by the directors.
Section 5. Compensation. The Board of Directors may compensate
directors for their services as such and may provide for the payment of all
expenses incurred by directors in attending meetings of the Board.
10
<PAGE>
ARTICLE IV
MEETINGS OF DIRECTORS
Section 1. Regular Meetings. A regular meeting of the Board of
Directors shall be held without other notice than this Bylaw immediately after,
and at the same place as, the annual meeting of shareholders. 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 without other notice than such resolution.
Section 2. Special Meetings. Special meetings of the Board of Directors
may be called by the President or any two directors. The person or persons
authorized to call special meetings of the Board of Directors may fix any place,
either within or without the State of North Carolina, as the place for holding
any special meeting of the Board of Directors called by them.
Section 3. Notice. The person calling the meeting shall give or cause
to be given oral or written notice of special meetings of the Board of Directors
to each director not less than three (3) days before the date of the meeting.
Neither the business transacted at, nor the purposes of, any regular or
special meeting of the Board of Directors need be specified in the notice or
waiver of notice of such meeting.
Section 4. Waiver of Notice.
(a) A director may waive any notice required by law, the
articles of incorporation, or these bylaws before or after the date and
time stated in the notice. Except as provided by subsection (b), the
waiver must be in writing, signed by the director entitled to the
notice, and delivered to the corporation for filing with the minutes or
corporate records.
(b) A director's attendance at or participation in a meeting
waives any required notice to him of the meeting unless the director at
the beginning of the meeting (or promptly upon his arrival) objects to
holding the meeting or transacting business at the meeting and does not
thereafter vote for or assent to action taken at the meeting.
Section 5. Quorum. Unless the articles of incorporation or these bylaws
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, or if no number is so fixed, the number of
directors in office immediately before the meeting begins shall constitute a
quorum.
Section 6. Manner of Acting. If a quorum is present when a vote is
taken, the affirmative act of the majority of the directors present is the act
of the Board of Directors, except as otherwise provided in these bylaws.
11
<PAGE>
Section 7. Presumption of Assent. A director who is present at a
meeting of the Board of Directors or a committee of the Board of Directors when
corporate action is taken is deemed to have assented to the action taken unless:
(a) He objects at the beginning of the meeting (or promptly
upon his arrival) to holding it or transacting business at the meeting;
(b) His dissent or abstention from the action taken is entered
in the minutes of the meeting; or
(c) He files written notice of his dissent or abstention with
the presiding officer of the meeting before its adjournment or with the
corporation immediately after adjournment of the meeting. The right of
dissent or abstention is not available to a director who votes in favor
of the action taken.
Section 8. Action by Directors Without Meeting. Action required or
permitted by law to be taken at a Board of Directors' meeting may be taken
without a meeting if the action is taken by all members of the Board. The action
must be evidenced by one or more written consents signed by each director before
or after such action, describing the action taken, and included in the minutes
or filed with the corporate records. Action taken under this Section is
effective when the last director signs the consent unless the consent specifies
a different effective date. A consent signed under this Section has the effect
of a meeting vote and may be described as such in any document.
Section 9. Meetings by Conference Telephone. Any one or more directors
may participate in a meeting of the Board or a committee by means of a
conference telephone or similar communications device by which all directors
participating may simultaneously hear each other during the meeting, and such
participation in a meeting shall be deemed presence in person at such meeting.
ARTICLE V
COMMITTEES OF THE BOARD
Section 1. Executive Committee. The Board of Directors, by resolution
adopted by a majority of the number of directors fixed by these bylaws, may
designate two or more directors to constitute an Executive Committee, which
committee, to the extent provided in such resolution, shall have and may
exercise all of the authority of the Board of Directors to the extent permitted
by applicable law.
Section 2. Other Committees. The Board of Directors may create one or
more other committees and appoint members of the Board of Directors to serve on
them. Each committee must have two or more members, who serve at the pleasure of
the Board of Directors. The creation of a committee and appointment of members
to it must be approved by the greater of:
(a) A majority of all the directors in office when the action
is taken; or
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(b) The number of directors constituting a quorum under the
articles of incorporation or these bylaws.
Section 3. Vacancy. Any vacancy occurring in any committee shall be
filled by a majority of the number of directors fixed by these bylaws at a
regular or special meeting of the Board of Directors.
Section 4. Removal. Any member of a committee may be removed at any
time with or without cause by a majority of the number of directors fixed in
accordance with these bylaws.
Section 5. Minutes. Each committee shall keep regular minutes of its
proceedings and report the same to the Board when required.
Section 6. Responsibility of Directors. The designation of a 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 it or him by law.
Any resolutions adopted or other action taken by a committee within the
scope of the authority delegated to it by the Board of Directors shall be deemed
for all purposes to be adopted or taken by the Board of Directors.
If action taken by a committee is not thereafter formally considered by
the Board, a director may dissent from such action by filing his written
objection with the Secretary with reasonable promptness after learning of such
action.
ARTICLE VI
OFFICERS
Section 1. Officers of the Corporation. The officers of the corporation
shall consist of a President, a Secretary, a Treasurer and such Vice Presidents,
Assistant Secretaries, Assistant Treasurers and other officers as the Board of
Directors may from time to time appoint. The same individual may simultaneously
hold more than one office in the corporation, but no individual may act in more
than one capacity where action of two or more officers is required.
Section 2. Appointment and Term. The officers of the corporation shall
be appointed by the Board of Directors and each officer shall hold office until
his death, resignation, retirement, removal, disqualification or his successor
shall have been appointed and qualified.
Section 3. Compensation of Officers. The compensation of all officers
of the corporation shall be fixed by the Board of Directors and no officer shall
serve the corporation in any other capacity and receive compensation therefor
unless such additional compensation has been authorized by the Board of
Directors. The appointment of an officer does not itself create contract rights.
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Section 4. Removal of Officers. The Board of Directors may remove any
officer at any time with or without cause, but such removal shall not itself
affect the officer's contract rights, if any, with the corporation.
Section 5. Resignation. An officer may resign at any time by
communicating his or her resignation to the corporation, orally or in writing. A
resignation is effective when communicated unless it specifies in writing a
later effective date. If a resignation is made effective at a later date that is
accepted by the corporation, the Board of Directors may fill the pending vacancy
before the effective date if the Board provides that the successor does not take
office until the effective date. An officer's resignation does not affect the
corporation's contract rights, if any, with the officer.
Section 6. Bonds. The Board of Directors may by resolution require any
officer, agent, or employee of the corporation to give bond to the corporation,
with sufficient sureties, conditioned upon the faithful performance of the
duties of his respective office or position, and to comply with such other
conditions as may from time to time be required by the Board of Directors.
Section 7. President. The President shall be the principal executive
officer of the corporation and, subject to the control of the Board of
Directors, shall in general supervise and control all of the business and
affairs of the corporation. He shall, when present, preside at all meetings of
the shareholders.
He shall sign any deeds, mortgages, bonds, contracts or other
instruments which the Board of Directors has authorized to be executed, except
in cases where the signing and execution thereof shall be expressly delegated by
the Board of Directors or by these bylaws to some other officer or agent of the
corporation, or shall be required by law to be otherwise signed or executed; and
in general shall perform all duties incident to the office of President and such
other duties as may be prescribed by the Board of Directors from time to time.
Section 8. Vice Presidents. In the absence of the President or in the
event of his death, inability or refusal to act, the Vice Presidents, in the
order of the seniority of their titles or if they shall all be the same level of
Vice President in the order of their length of uninterrupted service at such
level of Vice President, 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. Each Vice
President shall perform such other duties as from time to time may be assigned
to him by the President or Board of Directors.
Section 9. Secretary. The Secretary shall: (a) attend all meetings of
the shareholders and of the Board of Directors, keep the minutes of such
meetings in one or more books provided for that purpose, and perform like duties
for the standing committees when required; (b) see that all notices are duly
given in accordance with the provisions of these bylaws or as required by law;
(c) be custodian of the corporate records and of the seal of the corporation and
see that the seal of the corporation is affixed to all documents, the execution
of which on behalf of the corporation under its seal is duly authorized; (d)
keep a register of the post office address of each shareholder which shall be
furnished to the Secretary by such shareholder; (e) have general charge of the
stock transfer books of the corporation; and (f) in general perform all duties
incident to the office
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<PAGE>
of secretary and such other duties as from time to time may be assigned to him
by the Board of Directors or by the President, under whose supervision he shall
be.
The Secretary shall keep or cause to be kept at the corporation's
principal office a record of the corporation's shareholders, giving the names
and addresses of all shareholders and the number and class of shares held by
each, and such other records as are required to be kept at the corporation's
principal office by N.C. Gen. Stat.ss.55-16-01 and any successor to such
statute.
Section 10. Assistant Secretaries. In the absence of the Secretary or
in the event of his death, inability or refusal to act, any Assistant Secretary,
unless otherwise determined by the Board of Directors, shall perform the duties
of the Secretary, and when so acting shall have all the powers of and be subject
to all the restrictions upon the Secretary. They shall perform such other duties
as may be assigned to them by the Secretary, by the President or by the Board of
Directors.
Section 11. Treasurer. The Treasurer shall: (a) have charge and custody
of and be responsible for all funds and securities of the corporation; receive
and give receipts for money due and payable to the corporation from any source
whatsoever, and deposit all such moneys in the name of the corporation in such
depositories as shall be selected in accordance with the provisions of Article
VII, Section 4 of these bylaws; and (b) in general perform all of the duties
incident to the office of Treasurer, including preparing, or causing to be
prepared, all financial statements required by law, and such other duties as
from time to time may be assigned to him by the President or by the Board of
Directors.
Section 12. Assistant Treasurers. In the absence of the Treasurer or in
the event of his death, inability or refusal to act, the Assistant Treasurers in
the order of their length of service as Assistant Treasurer, unless otherwise
determined by the Board of Directors, shall perform the duties of the Treasurer,
and when so acting shall have all the powers of and be subject to all the
restrictions upon the Treasurer. They shall perform such other duties as may be
assigned to them by the Treasurer, by the President or by the Board of
Directors.
ARTICLE VII
CONTRACTS, LOANS, CHECKS AND DEPOSITS
Section 1. Contracts. The Board of Directors may authorize any officer
or officers, agent or agents, to enter into any contract or 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.
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 of the Board of Directors. Such authority may be
general or confined to specific instances.
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, agent or agents of the corporation and in such manner
as shall from time to time be determined by resolution of the Board of
Directors.
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Section 4. Deposits. All funds of the corporation not otherwise
employed shall be deposited from time to time to the credit of the corporation
in such depositories as the Board of Directors may select.
ARTICLE VIII
CERTIFICATES FOR SHARES AND THEIR TRANSFER
Section 1. Certificates for Shares. The Board of Directors may
authorize the issuance of some or all of the shares of the corporation's classes
or series without issuing certificates to represent such shares. If shares are
represented by certificates, the certificates shall be in such form as shall be
determined by the Board of Directors. Certificates shall be signed by the
President or a Vice President and by the Secretary or an Assistant Secretary.
All certificates for shares shall be consecutively numbered or otherwise
identified. The name and address of the person to whom the shares represented
thereby are issued, with the number and class of shares and the date of issue,
shall be entered on the stock transfer books of the corporation. When shares are
represented by certificates, the corporation shall issue and deliver, to each
shareholder to whom such shares have been issued or transferred, certificates
representing the shares owned by him. When shares are not represented by
certificates, then within a reasonable time after the issuance or transfer of
such shares, the corporation shall send the shareholder to whom such shares have
been issued or transferred a written statement of the information required by
law to be on certificates.
Section 2. Transfer of Shares. Transfer of shares of the corporation
shall be made only on the stock transfer books of the corporation by the holder
of record thereof or by his legal representative, who shall furnish proper
evidence of authority to transfer, or by his attorney thereunto authorized by
power of attorney duly executed and filed with the Secretary, and, when shares
are represented by certificates, on surrender for cancellation of the
certificate for such shares.
Section 3. Lost Certificates. The Board of Directors or the President
may direct a new certificate to be issued in place of any certificate
theretofore issued by the corporation claimed to have been lost or destroyed,
upon receipt of an affidavit of such fact from the shareholder. When authorizing
such issuance of a new certificate, the Board of Directors or the President may
require that the shareholder give the corporation a bond in such sum as the
Board or the President may direct as indemnity against any claim that may be
made against the corporation with respect to the certificate claimed to have
been lost or destroyed or may require the shareholder to agree to indemnify the
corporation against any claims that may be made against the corporation with
respect to the certificate claimed to have been lost or destroyed.
Section 4. Holder of Record. The corporation may treat as an absolute
owner of shares the person in whose name the shares stand of record on its books
just as if that person had full competency, capacity and authority to exercise
all rights of ownership irrespective of any knowledge or notice to the contrary
or any description indicating a representative, pledge or other fiduciary
relation or any reference to any other instrument or to the rights of any other
person appearing upon its records or upon the share certificate except that any
person furnishing to the
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corporation proof of his appointment as a fiduciary shall be treated as if he
were a holder of record of its shares.
ARTICLE IX
GENERAL PROVISIONS
Section 1. Distributions. The Board of Directors may from time to time
authorize, and the corporation may grant, distributions and share dividends
pursuant to law and subject to the provisions of its 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, as impressed on the margin
hereof, is hereby adopted as the corporate seal of the corporation.
Section 3. Fiscal Year. The fiscal year of the corporation shall be
fixed by the Board of Directors.
Section 4. Pronouns. Each reference to pronouns herein shall be
construed in the masculine, feminine, neuter, singular or plural, as the context
may require.
Section 5. Amendments. The Board of Directors may amend or repeal the
bylaws, except to the extent otherwise provided by law, the articles of
incorporation or a Bylaw adopted by the shareholders, and except that a Bylaw
adopted, amended or repealed by the shareholders may not be readopted, amended
or repealed by the Board of Directors unless the 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.
Section 6. Voting of Shares of Other Corporations. Authority to vote
shares of another corporation or of any association held by this corporation,
and to execute proxies and written waivers and consents in relation thereto,
shall be vested exclusively in the President or such officer(s) and employee(s)
of this corporation as shall be expressly identified by name or title from time
to time by the Board of Directors of this corporation in resolutions formally
adopted for that purpose.
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ARTICLE X
INDEMNIFICATION
Section 1. Coverage. Any person who at any time serves or has served as
a director, officer, agent or employee of the corporation, or in such capacity
at the request of the corporation for any other corporation, partnership, joint
venture, trust or other enterprise, or as a trustee or administrator under an
employee benefit plan, shall have a right to be indemnified by the corporation
to the fullest extent permitted by law against (a) reasonable expenses,
including reasonable attorneys' fees, actually incurred by him in connection
with any threatened, pending or completed action, suit or proceeding (and any
appeal thereof), whether civil, criminal, administrative, investigative or
arbitrative, and whether or not brought by or on behalf of the corporation,
seeking to hold him liable by reason of the fact that he is or was acting in
such capacity, and (b) reasonable payments made by him in satisfaction of any
judgment, money decree, fine (including, without limitation, an excise tax
assessed with respect to an employee benefit plan), penalty or settlement for
which he may have become liable in any such action, suit or proceeding.
Section 2. Payment. Expenses incurred by such person shall be paid in
advance of the final disposition of such investigation, action, suit or
proceeding upon receipt of an undertaking by or on behalf of such person to
repay such amount unless it shall ultimately be determined that he is entitled
to be indemnified by the corporation.
Section 3. Evaluation. 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 Article X, including
without limitation, to the extent needed, making a determination that
indemnification is permissible under the circumstances and a good faith
evaluation of the manner in which the claimant for indemnity acted and of the
amount of indemnity due him, and giving notice to and obtaining approval by the
shareholders of the corporation.
Section 4. Consideration. Any person who at any time after the adoption
of this Article X 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 any other rights to which such
person may be entitled apart from the provisions of this Article X. Any repeal
or modification of these indemnification provisions shall not affect any rights
or obligations existing at the time of such repeal or modification.
Section 5. Definitions. For purposes of this Article X, terms defined
by the North Carolina Business Corporation Act and used but not defined herein
shall have the meanings assigned to them by the Act.
18
EXHIBIT 4.1
SPECIMEN COMMON STOCK CERTIFICATE
[specimen common stock certificate]
Incorporated Under the Laws of the State of North Carolina
Number of Shares of Common Stock: _________________ of Weststar Financial
Services Corporation $1.00 par value per share.
This Capital Stock of Weststar Financial Services Corporation is 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 _______, 2000.
- -------------------------- --------------------------
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,
said Stock on the books of the within named Corporation with full power of
substitution in the premises.
Dated: ______________, 2000.
In the presence of ___________________.
EXHIBIT 5.1
OPINION OF ANTHONY GAETA, JR., P.A.
February 11, 2000
Weststar Financial Services Corporation
79 Woodfin Place
Asheville, NC 28801-2426
RE: Registration Statement
Gentlemen:
We have acted as counsel to Weststar Financial Services Corporation (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 633,298 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,
ANTHONY GAETA, JR., P.A.
Anthony Gaeta, Jr.
EXHIBIT 8.1
FORM OF OPINION
___________, 2000
Board of Directors
The Bank of Asheville
79 Woodfin Place
Asheville, NC 28801-2426
RE: AGREEMENT AND PLAN OF REORGANIZATION AND SHARE EXCHANGE DATED AS OF
FEBRUARY 9, 2000 BY AND BETWEEN THE BANK OF ASHEVILLE AND WESTSTAR
FINANCIAL SERVICES CORPORATION ("WESTSTAR").
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 Weststar, a North
Carolina corporation, for the shares of $5 par value common stock of The Bank of
Asheville, a North Carolina-chartered bank, pursuant to the terms of the
Agreement and Plan of Reorganization and Share Exchange dated as of February 9,
2000 by and between The Bank of Asheville and Weststar (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 February 11, 2000 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 The Bank of Asheville and
Weststar 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
<PAGE>
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
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 The Bank of Asheville shareholders in
special circumstances, including insurance companies, tax-exempt organizations,
financial institutions and broker-dealers, persons who do not hold The Bank of
Asheville Common Stock as capital assets, individuals who received The Bank of
Asheville Common Stock 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 The Bank of Asheville and Weststar will
each be a party to the reorganization within the meaning of Section
368(b) of the Code.
(ii) The Bank of Asheville's shareholders will not recognize any gain or
loss on the receipt of the Weststar Common Stock in exchange for their
Common Stock in The Bank of Asheville.
(iii) The basis of each shareholder of The Bank of Asheville in Weststar's
Common Stock received by such shareholder will be the same as the basis
of such shareholder in the Common Stock of The Bank of Asheville
surrendered in exchange therefor.
(iv) The holding period of Weststar's Common Stock received by each
shareholder of The Bank of Asheville in the Exchange will include the
holding period of the Common Stock of The Bank of Asheville surrendered
in exchange therefor, provided that the Common Stock at The Bank of
Asheville is held as a capital asset at the Effective Time of the
Exchange.
(v) If a The Bank of Asheville shareholder dissents from the Exchange and
receives cash for his The Bank of Asheville 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.
Continuity of Interest Requirement
In order for the Exchange to qualify as a reorganization, among other
requirements, the shareholders of The Bank of Asheville must exchange a
substantial portion of the proprietary interests in The Bank of Asheville for a
proprietary interest in Weststar. The IRS takes the
2
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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
Weststar 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
shareholders of The Bank of Asheville in exchange for their Common Stock in The
Bank of Asheville. For purposes of this opinion, we have therefore assumed that
the cash and the fair market value of any property paid to dissenting
shareholders in The Bank of Asheville will not exceed the fair market value at
the Effective Time of the Exchange of the Weststar 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
3
<PAGE>
this opinion as an exhibit to the Registration Statement with the Securities and
Exchange Commission.
Very truly yours,
ANTHONY GAETA, JR., P.A.
Anthony Gaeta, Jr.
4
EXHIBIT 10.1
STATE OF NORTH CAROLINA
COUNTY OF BUNCOMBE
EMPLOYMENT AGREEMENT
THIS AGREEMENT entered into as of August 1, 1997, by and between THE BANK
OF ASHEVILLE (PROPOSED) (hereinafter referred to as the "Bank") and HOWARD B.
MONTGOMERY, JR. (hereinafter referred to as "Montgomery").
WITNESSETH:
WHEREAS, the Bank desires to retain Montgomery's services as an officer of
the Bank for the period specified herein, and Montgomery is willing to serve
as an officer of the Bank for such period; and, the parties desire to enter into
this Agreement to set forth the terms and conditions of Montgomery's employment
with the Bank;
NOW, THEREFORE, for and in consideration of the premises and mutual
promises, covenants and conditions hereinafter set forth, and other good and
valuable considerations, the receipt and sufficiency of which hereby are
acknowledged, the Bank and Montgomery hereby agree as follows:
1. Employment. The Bank hereby agrees to employ Montgomery, and Montgomery
hereby agrees to serve as an officer of the Bank, all upon the terms and
conditions stated herein. As an officer of the Bank, Montgomery will (i) serve
as President and Chief Executive Officer of the Bank, and (ii) have such other
duties and responsibilities, and render to the Bank such other management
services, as are customary for persons in Montgomery's position with the Bank or
as shall otherwise be reasonably assigned to him from time to time by the Bank.
Montgomery shall faithfully and diligently discharge his duties and
responsibilities under this Agreement and shall use his best efforts to
implement the policies established by the Bank.
Montgomery hereby agrees to devote to the employment granted hereunder
such number of hours as such efforts and endeavors as the Bank shall deem to be
necessary to discharge his duties hereunder, and, for so long as employment
hereunder shall exist, Montgomery shall not
<PAGE>
EMPLOYMENT AGREEMENT
Howard B. Montgomery, Jr.
engage in any other occupation which requires any significant amount of
Montgomery's personal attention during the Bank's regular business hours or
which otherwise interferes with Montgomery's attention to or performance of his
duties and responsibilities as an officer of the Bank hereunder except with the
prior written consent of the Bank. However, nothing herein contained shall
restrict or prevent Montgomery from personally, and for Montgomery's own
account, trading in stocks, bonds, securities, real estate or other forms of
investment for Montgomery's own benefit so long as said activities do not
interfere with Montgomery's attention to or performance of his duties and
responsibilities as an officer of the Bank hereunder.
2. Compensation. For all services rendered by Montgomery to the Bank under
this Agreement, the Bank shall provide Montgomery a total compensation package
in the amount of One Hundred Thirteen Thousand dollars and 00/100's ($113,000)
per annum. The Board of Directors shall review this amount no less often than
annually, 30 days after the Bank's fiscal year end. In the first year,
Montgomery's compensation shall consist of a base salary at a rate of Ninety
Thousand dollars and 00/100's ($90,000) per annum. Salary paid under this
Agreement shall be payable in cash not less frequently than monthly. All
compensation hereunder shall be subject to customary withholding taxes and such
other employment taxes as are required by law. In the event of a Change in
Control (as defined in Paragraph 9), Montgomery's base salary shall be increased
not less than five percent (5%) annually during the term of this Agreement.
In addition to the base salary, the Bank will provide Montgomery or pay for
his benefit the following:
(a) Medical insurance premiums to provide coverage for Montgomery and his
dependents;
(b) Life insurance premiums;
(c) Use of an automobile owned or leased by the Bank;
(d) A moving allowance to assist Montgomery in moving his residence from
Raleigh, North Carolina to Asheville, North Carolina;
(e) A matching contribution to the Bank's 401(k) Plan; and
(f) A contribution on behalf of Montgomery to a Non-Qualified Plan.
2
<PAGE>
EMPLOYMENT AGREEMENT
Howard B. Montgomery, Jr.
The cost of these benefits to the Bank shall be no more than Twenty Three
Thousand dollars and 00/100's ($23,000). The Bank and Montgomery reserve the
right to mix and match the benefits as mutually agreed as long as the total cost
of salary and benefits combined do not exceed One Hundred Thirteen Thousand
dollars and 00/100's ($113,000).
3. Participation in Retirement and Employee Benefit Plan; Establishment of
Bonus Plans; Fringe Benefits. Subject to the terms and conditions of this
Agreement, Montgomery shall be entitled to participate in any and all employee
benefit programs and compensation plans from time to time maintained by the Bank
and available to all employees of the Bank, all in accordance with the terms and
conditions (including eligibility requirements) of such programs and plans of
the Bank, resolutions of the Bank's Board of Directors establishing such program
and plans, and the Bank's normal practices and established policies regarding
such programs and plans.
The Bank shall develop and implement during the first year of the term of
this Agreement an incentive cash bonus plan whereby Montgomery will be entitled
to receive an annual cash bonus upon his attainment of prescribed goals set
forth in such plan.
In addition to the other compensation and benefits described in this
Agreement, the Bank shall promptly reimburse Montgomery for all reasonable
expenses incurred by him in the performance of his duties under this Agreement
and documented to the reasonable satisfaction of the Bank or appropriate
officers of the Bank pursuant to established procedures. The Bank shall make the
payment of civic club and country club dues selected by Montgomery provided that
Montgomery shall be responsible for all personal expenses for use of such clubs.
4. Vacation. Montgomery shall be entitled to paid vacation leave of four
weeks each year.
5. Term. Unless sooner terminated as provided in this Agreement and subject
to the right of either Montgomery or the Bank to terminate Montgomery's
employment at any time as provided herein, the initial term of this Agreement
and Montgomery's employment with the Bank hereunder shall commence upon August
15, 1997 and shall continue for a period of three (3) years. On the second
anniversary of the date of this Agreement, and if Montgomery has successfully
met objectives as set forth in the Business Plan, the term of this Agreement
shall be extended for an
3
<PAGE>
EMPLOYMENT AGREEMENT
Howard B. Montgomery, Jr.
additional one year period beyond the then effective expiration date unless
written notice from the Bank to Montgomery or from Montgomery to the Bank is
received 90 days prior to the anniversary date notifying the other party that
this Agreement shall not be so extended. It is contemplated that the Board of
Directors will review Montgomery's performance annually and make a determination
whether to renew this Agreement prior to the 90 day notice period.
Community First Organizers, LLC shall serve as substitute for the Bank as a
party to this agreement until such time as the Bank is fully subscribed and
meets all requirements to become chartered in the State of North Carolina.
In the event the Bank is not fully subscribed, or the Bank does not meet
all requirements to become chartered in the State of North Carolina, or the Bank
fails to open for business for any reason known or unknown, this contract shall
terminate.
6. Confidentiality. Montgomery hereby acknowledges and agrees that (i) in
the course of his service as an officer of the Bank, he will gain substantial
knowledge of and familiarity with the Bank's customers and the Bank's dealings
with them, and other information concerning the Bank's business, all of which
constitute valuable assets and privileged information which is particularly
sensitive due to the fiduciary responsibilities inherent in the banking
business, and, (ii) in order to protect the Bank's interest in and to assure it
to the benefit of its business, it is reasonable and necessary to place certain
restrictions on Montgomery to prevent him from competing with the Bank and to
prevent him from disclosing information about the Bank's business and customers.
For that purpose, and in consideration of this Employment Agreement, Montgomery
convenants and agrees with the Bank as follows:
For the purpose of this Paragraph 6, the following terms shall have these
meanings;
Customer. The term "Customer" means any Person with whom, as of the
effective date of termination of this Agreement or Montgomery's employment with
the Bank for any reason, the Bank has or has had a depository, loan or any other
bank relationship.
Financial Institution. The term "Financial Institution" means any federal
or state chartered bank, savings bank, savings and loan association or credit
union, or any holding company or corporation which owns or controls any such
entity, or any other Person engaged in the business of making loans of any type
or receiving deposits, other than the Bank.
4
<PAGE>
EMPLOYMENT AGREEMENT
Howard B. Montgomery, Jr
Person. The term "Person" means any natural person or any corporation,
partnership, proprietorship, joint venture, limited liability company, trust,
estate, governmental agency or instrumentality, fiduciary, unincorporated
association or other entity.
(a) Confidentiality Covenant. Montgomery covenants and agrees with the Bank
that any and all data, figures, projections, estimates, lists, files, records,
documents, manuals and all other such materials or information (financial or
otherwise) relating to the Bank and its banking business, regulatory
examinations, financial results and conditions, lending and deposit operations,
customers (including lists of the Bank's customers and information regarding
their accounts and business dealings with the Bank), policies and procedures,
computer systems and software, shareholders, employees, officers and directors
(herein referred to as "Confidential Information") are proprietary to the Bank
and are valuable, special and unique assets of the Bank and its business to
which Montgomery will have access during his employment with the Bank.
Montgomery agrees that (i) all such Confidential Information shall be considered
and kept as the confidential, private and privileged records and information of
the Bank, and (ii) at all times during the term of his employment with the Bank
and following the termination of this Agreement or his employment for any
reason, and Montgomery will not: (a) divulge any such Confidential Information
to any other Person or Financial Institution; (b) remove any such Confidential
Information in written or other recorded form from the Bank's premises; or (c)
make any use of any Confidential Information for his own purpose or for the
benefit of any Person or Financial Institution other than the Bank.
(b) Remedies for Breach. Montgomery understands and agrees that a breach or
violation by him of any convenant contained in Paragraph 6(a) of this Agreement
would constitute a material breach of this Agreement and would cause irreparable
damage and injury to the Bank for which the Bank would not have an adequate
remedy at law in that it would be difficult to ascertain the amount of monetary
damages which would result from any such breach or violation. In the event of
Montgomery's actual or threatened breach or violation of any covenant contained
in Paragraph 6(a), Montgomery agrees the Bank shall be entitled to bring a civil
action seeking a temporary restraining order and preliminary and permanent
injunction restraining Montgomery from violating or continuing to violate any of
these covenants or from threatening to violate any of them and seeking any other
legal or equitable relief relating to the breach or violation of any of these
covenants. Montgomery agrees if the Bank institutes any such civil action
against Montgomery, Montgomery shall have waived any claim or defense that the
Bank has an adequate remedy at law and shall not
5
<PAGE>
EMPLOYMENT AGREEMENT
Howard B. Montgomery, Jr.
plead or contend in any such civil action any claim or defense that the Bank has
adequate remedy at law. Moreover, the parties agree the exercise by the Bank of
its right to seek in injunctive relief shall not preclude the Bank or its
successors or assigns from pursing any other remedy or exercising any other
right, power or privilege available to it for any such breach or violation,
whether at law or in equity, including the recovery of damages, all of which
shall be cumulative and in addition to all other rights and remedies, available
to the Bank.
Further, Montgomery agrees the provisions of Paragraph 6(a) above and the
remedies provided in this Paragraph 6(b) shall be in addition to, and shall not
be deemed to supersede or to otherwise restrict, limit or impair the rights of
the Bank under the Trade Secrets Protection Act contained in Article 24, Chapter
66 of the North Carolina General Statues, or the rights of the Bank under any
other state or federal law or regulation dealing with or providing a remedy for
the wrongful disclosure, misuse or misappropriation of trade secrets or other
proprietary or confidential information.
(c) Survival of Covenants. Montgomery's covenants and agreements and the
Bank's rights and remedies provided for in this Paragraph 6 shall survive any
termination of this Agreement or termination of Montgomery's employment with the
Bank regardless of the reason for such termination.
7. Termination and Termination Pay.
(a) Montgomery's employment under this Agreement shall be terminated by his
death and his estate shall be entitled to receive any unpaid compensation due
him computed through the last day of the calendar month in which his death
occurs.
(b) Montgomery shall have cause to terminate his employment by the Bank if
he determines in good faith that the Bank has breached in any material respect
any of the terms or conditions of this Agreement. Prior to any such termination
by Montgomery upon his determination in good faith the Bank has breached in a
material respect any of the terms or conditions of this Agreement, Montgomery
shall give the Bank written notice which describes such breach and if the Bank
within five days following its receipt of such notice cures or corrects the
breach to the reasonable satisfaction of Montgomery, this Agreement shall remain
in full force and effect.
6
<PAGE>
EMPLOYMENT AGREEMENT
Howard B. Montgomery, Jr.
(c) Montgomery may terminate his employment at any time without cause
provided (i) Montgomery provides at least 90 days notice to the Bank of his
intention to terminate his employment by the Bank and (ii) Montgomery agrees to
be bound by a covenant not to compete by his employment with any Financial
Institution in Buncombe County for a period of not less than 2 years.
(d) The Bank may terminate Montgomery's employment at any time with cause
or without cause as "Cause" is defined below.
If Montgomery's employment is terminated for any reason other than for
cause, the termination shall not prejudice Montgomery's right to compensation
for other benefits under this Agreement for the remaining term of the Agreement.
On the other hand, if Montgomery's employment is terminated for cause,
Montgomery shall not thereafter have any rights under this Agreement (including
the right to receive any compensation or other benefits for any period after the
date of termination for cause).
For the purpose of Paragraph 7(d), the Bank shall be entitled to terminate
Montgomery's employment for cause upon any one or more of the following seven
grounds:
(i) A determination by the Bank's Board of Directors that there has been a
material adverse divergence from the annual Business Plan.
(ii) A determination by the Bank, in good faith, that Montgomery (A) has
breached in any material respect any of the terms or conditions of this
Agreement, or (B) is engaged or has engaged in willful misconduct or conduct
which is detrimental to the business prospects of the Bank or which has had or
likely will have a material adverse effect on the Banies business or reputation.
Prior to any termination by the Bank of Montgomery's employment for such a
breach, failure to perform, or conduct described in this subparagraph (ii) the
Bank shall give Montgomery written notice which describes such breach, failure
to perform, or conduct and if, during a period of five (5) days following such
notice, Montgomery cures or corrects the same to the reasonable satisfaction of
the Bank, then this Agreement shall remain in full force and effect. However,
notwithstanding the above, if the Bank has given written notice to Montgomery on
a previous occasion of the same or substantially similar breach, failure to
perform or conduct, or of a breach, failure to perform, or conduct which the
Bank determines in good faith to be of substantially similar import, or if the
Bank determines in good faith that the then current breach, failure to perform,
or conduct is not reasonably curable, then termination under this subparagraph
(ii) shall
7
<PAGE>
EMPLOYMENT AGREEMENT
Howard B. Montgomery, Jr.
be effective immediately and Montgomery shall have no right to cure such breach,
failure to perform, or conduct.
(iii) The violation by Montgomery of any applicable federal or state law,
or any applicable rule, regulation, order or statement of policy promulgated by
any governmental agency or authority having jurisdiction over the Bank or any of
its affiliates or subsidiaries (a "Regulatory Authority") including without
limitation the Federal Deposit Insurance Corporation, the North Carolina
Commissioner of Banks, the Federal Reserve Board or any other banking
regulator), which results from Montgomery's gross negligence, willful
misconduct, or intentional disregard of such law, rule, regulation, order, or
policy statement and results in any substantial damage, monetary or otherwise,
to the Bank or any of its affiliates or subsidiaries or to the Bank's
reputation;
(iv) The commission in the course of Montgomery's employment with the Bank
of an act of fraud, embezzlement, theft or proven personal dishonesty (whether
or not resulting in criminal prosecution or conviction);
(v) The conviction of Montgomery of any felony or any criminal offense
involving dishonesty or breach of trust, or the occurrence of any event
described in Section 19 of the Federal Deposit Insurance Act or any other event
or circumstance which disqualifies Montgomery from serving as an employee or
executive officer of, or a party affiliated with, the Bank or its bank holding
company; if any.
(vi) Montgomery becomes unacceptable to, or is removed, suspended or
prohibited from participating in the conduct of the Bank's affairs or if
proceedings for that purpose are commenced by, any Regulatory Authority and
(vii) The occurrence of any event believed by the Bank, in good faith, to
have resulted in Montgomery being excluded from coverage, or having coverage
limited as to Montgomery as compared to other covered officers or employees,
under the Bank's then current "blanket bond" or other fidelity bond or insurance
policy covering its directors, officers or employees.
8. Disability. In the event Montgomery becomes disabled during the term of
his employment and it is determined Montgomery is permanently unable to perform
his duties under this Agreement, Montgomery's employment under this Agreement
shall terminate. The Bank shall continue to compensate Montgomery at the level
of compensation set forth in Paragraph "2" above, and provide Montgomery each of
the benefits described in this Agreement, for the
8
<PAGE>
EMPLOYMENT AGREEMENT
Howard B. Montgomery, Jr.
remaining term of this Agreement, so long as Montgomery remains disabled, less
all other payments to which Montgomery is entitled under any insurance or
disability plan of the Bank applicable to Montgomery and such disability
payments as Montgomery may be entitled to receive from Social Security or any
other source.
In the event Montgomery becomes disabled during the term of his employment
and it is determined that Montgomery is temporarily unable to perform his duties
under this Agreement, the Bank will continue to compensate Montgomery at the
level of compensation set forth in Paragraph "2" above for a period of ninety
days.
If at any time a disagreement arises between Montgomery and the Bank as to
whether Montgomery is disabled or whether any disability of Montgomery is
permanent or temporary, either or both of such questions shall be submitted to
an impartial, reputable physician selected by agreement between Montgomery and
the Bank. Should Montgomery and the Bank be unable to agree upon such a
physician to resolve either or both of these questions, the Bank shall select a
physician, Montgomery shall select a physician, and these two physicians shall
select a third physician. This panel of three physicians shall resolve either or
both of these questions and the determination by the panel shall be final and
binding upon Montgomery and the Bank. The Bank shall pay the reasonable fees and
expenses of the physician or physicians making this determination.
9. Additional Regulatory Requirement. Notwithstanding anything contained in
this Agreement to the contrary, it is understood and agreed that the Bank (or
its successors in interest) shall not be required to make any payment or take
any action under this Agreement if (a) the Bank is declared by any Regulatory
Authority to be insolvent, in default or operating in an unsafe or unsound
manner, or if (b) in the opinion of counsel to the Bank such payment or action
(i) would be prohibited by or would violate any provision of state or federal
law applicable to the Bank, including without limitation the Federal Deposit
Insurance Act and Chapter 53 of the North Carolina General Statutes as now in
effect or hereafter amended, (ii) would be prohibited by or would violate any
applicable rules, regulations, orders or statements of policy, whether now
existing or hereafter promulgated, of any Regulatory Authority, or (iii)
otherwise would be prohibited by any Regulatory Authority.
9
<PAGE>
EMPLOYMENT AGREEMENT
Howard B. Montgomery, Jr.
10. Change in Control.
(a) In the event of a termination of Montgomery's employment in connection
with, or within twenty-four (24) months after, a "Change in Control" (as defined
in Subparagraph (d) below) of the Bank, for reasons other than for "cause" (as
defined in Paragraph 7(d) hereof), Montgomery shall be entitled to receive the
sum set forth in Subparagraph (c) below. Said sum shall be payable as provided
in Subparagraph (e) below.
(b) Montgomery shall have the right to terminate this Agreement upon the
occurrence of any of the following events (the "Termination Events") within the
twenty-four (24) months following a Change in Control of the Bank:
(i) Montgomery is assigned any duties or responsibilities which are
inconsistent with his position, duties, responsibilities, or status at the
time of the Change in Control or with his reporting responsibilities or
titles with the Bank in effect as such time;
(ii) Montgomery's annual base salary is reduced below the amount in
effect as of the effective date of a Change in Control or as the same shall
have been increased from time to time following such effective date;
(iii) Montgomery's life insurance, medical or hospitalization
insurance, disability insurance, stock option plans, stock purchase plans,
deferred compensation plans, management retention plans, retirement plans,
or similar plans or benefits being provided by the Bank to Montgomery as of
the effective date of the Change in Control are reduced in their level,
scope, or coverage, or any such insurance, plans, or benefits are
eliminated, unless such reduction or elimination applies proportionately to
all salaried employees of the Bank who participated in such benefits prior
to such Change in Control; or
(iv) Montgomery is transferred to a location outside of Buncombe
County, North Carolina, without Montgomery's express written consent.
A Termination Event shall be deemed to have occurred on the date such
action or event is implemented or takes effect.
(c) In the event Montgomery terminates this Agreement or the Bank
terminates this Agreement pursuant to this Paragraph 10, the Bank will be
obligated to pay or cause to be paid to Montgomery an amount equal to two
hundred ninety nine percent (299%) of Montgomery's "base amount" as defined in
Section 280G(b)(3)(A) of the Internal Revenue Code of 1986, as amended (the
"Code").
10
<PAGE>
EMPLOYMENT AGREEMENT
Howard B. Montgomery, Jr.
(d) For the purpose of this Agreement, the term Change in Control shall
mean any of the following events:
(i) After the effective date of this Agreement, any "person" (as such
term is defined in Section 70)(8)(A) of the Change in Bank Control Act of
1978), directly or indirectly, acquires beneficial ownership of voting
stock, or acquires irrevocable proxies or any combination of voting stock
and irrevocable proxies, representing twenty-five percent (25%) or more of
any class of voting securities of the Bank, or acquires control, in any
manner of the election of a majority of the directors of the Bank;
(ii) The Bank consolidates or merges with or into another corporation,
association, or entity, or is otherwise reorganized, as the result of which
the Bank is not the surviving corporation in such transaction; or
(iii) All or substantially all of the assets of the Bank are sold or
otherwise transferred to or are acquired by any other corporation,
association, or other person, entity, or group; "provided, however, that
should the Bank reorganize itself into the holding company form of
organization, whereby the share holders of the Bank immediately prior to
such reorganization are substantially the same share holders as the Bank's
holding company, such reorganization shall not be considered a "change in
control" for the purpose of this agreement."
Notwithstanding the other provisions of this Paragraph 10, a transaction or
event shall not be considered a Change in Control if, prior to the consummation
or occurrence of such transaction or event, Montgomery and the Bank agree in
writing that the same shall not be treated as a Change in Control for the
purposes of this Agreement.
(e) Amounts payable pursuant to this Paragraph 9 shall be paid, at the
option of Montgomery, either in one lump sum or in equal monthly payments over
the remaining term of this Agreement.
(f) Following a Termination Event which gives rise to Montgomery's right
hereunder, Montgomery shall have twelve (12) months from the date of the
occurrence of the Termination Event to terminate this Agreement pursuant to this
Paragraph 9. Any such termination shall be
11
<PAGE>
EMPLOYMENT AGREEMENT
Howard B. Montgomery, Jr.
deemed to have occurred only upon delivery to the Bank or any successor thereto,
of written notice of termination which describes the Change in Control and
Termination Event. If Montgomery does not so terminate this Agreement within
such twelve months period, Montgomery shall thereafter have no further rights
hereunder with respect to that Termination Event, but shall retain rights, if
any, hereunder with respect to any other Termination Event as to which such
twelve month period has not expired.
(g) It is the intent of the parties hereto that all payment made pursuant
to this Agreement be deductible by the Bank for federal income tax purpose and
not result in the imposition of an excise tax on Montgomery. Notwithstanding
anything contained in this Agreement to the contrary, any payments to be made to
or for the benefit of Montgomery which are deemed to be "parachute payments" as
that term is defined in Section 280G(b)(2) of the Code, shall be modified or
reduced to the extent deemed to be necessary by the Bank's Board of Directors to
avoid the imposition of an excise tax on Montgomery under Section 4999 of the
Code or the disallowance of a deduction to the Bank under Section 280G(a) of the
Code.
11. Successors and Assigns.
(a) This Agreement shall insure to the benefit of and be binding upon any
corporate or other successor of the Bank which shall acquire, directly or
indirectly, by conversion, merger, consolidation, purchase or otherwise, all or
substantially all of the assets of the Bank.
(b) The Bank is contracting for the unique and personal skills of
Montgomery. Therefore, Montgomery shall be precluded from assigning his rights
or delegating his duties hereunder.
12. Modification; Waiver; Amendments. No provision of the Agreement may be
modified, waived or discharged unless such waiver, modification or discharge is
contained in a written Agreement executed by the parties hereto. No waiver by
either party hereto, at any time, of any breach by the other party hereto of, or
the failure of the other party to comply with any condition or provision of this
Agreement to be performed by such other party shall be deemed a waiver of
similar or dissimilar provisions or conditions at the same or at any prior or
subsequent time. No amendments or additions to this Agreement shall be effective
unless in writing and signed by both parties.
12
<PAGE>
EMPLOYMENT AGREEMENT
Howard B. Montgomery, Jr.
13. Applicable Law. This Agreement shall be governed in all respects by the
laws of North Carolina, except to the extent that federal law shall be deemed to
apply.
14. Severability. The provisions of this Agreement shall be deemed
severable and the invalidity or unenforceability of any provision shall not
affect the validity or enforceability of the other provisions hereof.
15. Entire Agreement. This Agreement contains the entire agreement between
the parties and its supersedes any and all other oral or written agreement(s)
heretofore made, and there are no representations or inducements by or to, or
and agreements between, any of the parties hereto other than those contained
herein in writing.
IN WITNESS WHEREOF, the parties have executed this Agreement under seal and
in such form as to be binding as of the day and year first hereinabove written.
THE BANK OF ASHEVILLE (PROPOSED)
By: ____________________________
Max O. Cogburn, Sr.
Chairman
Attest:
_________________________________
Secretary
___________________________(SEAL)
Howard B. Montgomery, Jr.
13
EXHIBIT 10.2
STATE OF NORTH CAROLINA
COUNTY OF BUNCOMBE
EMPLOYMENT AGREEMENT
THIS AGREEMENT entered into as of March 20, 1998, by and between THE BANK
OF ASHEVILLE (hereinafter referred to as the "Bank") and Randall C. Hall
(hereinafter referred to as "Hall").
WITNESSETH:
WHEREAS, the Bank desires to retain Hall's services as an officer of the
Bank for the period specified herein, and Hall is willing to serve as an officer
of the Bank for such period; and, the parties desire to enter into this
Agreement to set forth the terms and conditions of Hall's employment with the
Bank;
NOW, THEREFORE, for and in consideration of the premises and mutual
promises, covenants and conditions hereinafter set forth, and other good and
valuable considerations, the receipt and sufficiency of which hereby are
acknowledged, the Bank and Hall hereby agree as follows:
1. Employment. The Bank hereby agrees to employ Hall, and Hall hereby
agrees to serve as an officer of the Bank, all upon the terms and conditions
stated herein. As an officer of the Bank, Hall will (i) serve as Chief Financial
Officer of the Bank, and (ii) have such other duties and responsibilities, and
render to the Bank such other management services, as are customary for persons
in Hall's position with the Bank or as shall otherwise be reasonably assigned to
him from time to time by the Bank.
Hall shall faithfully and diligently discharge his duties and
responsibilities under this Agreement and shall use his best efforts to
implement the policies established by the Bank.
<PAGE>
EMPLOYMENT AGREEMENT
Randall C. Hall
Hall hereby agrees to devote to the employment granted hereunder such
number of hours as such efforts and endeavors as the Bank shall deem to be
necessary to discharge his duties hereunder, and, for so long as employment
hereunder shall exist, Hall shall not engage in any other occupation which
requires any significant amount of Hall's personal attention during the Bank's
regular business hours or which otherwise interferes with Hall's attention to or
performance of his duties and responsibilities as an officer of the Bank
hereunder except with the prior written consent of the Bank. However, nothing
herein contained shall restrict or prevent Hall from personally, and for Hall's
own account, trading in stocks, bonds, securities, real estate or other forms of
investment for Hall's own benefit so long as said activities do not interfere
with Hall's attention to or performance of his duties and responsibilities as an
officer of the Bank hereunder.
2. Compensation. For all services rendered by Hall to the Bank under this
Agreement, the Bank shall provide Hall a total compensation package in the
amount of Seventy Four Thousand dollars and 00/100's ($74,000) per annum. The
Board of Directors shall review this amount no less often than annually, 30 days
after the Bank's fiscal year end. Salary paid under this Agreement shall be
payable in cash not less frequently than monthly. All compensation hereunder
shall be subject to customary withholding taxes and such other employment taxes
as are required by law. In the event of a Change in Control (as defined in
Paragraph 9), Hall's base salary shall be increased not less than five percent
(5%) annually during the term of this Agreement.
In addition to the base salary, the Bank will provide Hall or pay for his
benefit the following:
(a) Medical insurance premiums to provide coverage for Hall and his
dependents;
(b) Life insurance premiums;
(c) Automobile Allowance in the amount of $400 per month.
2
<PAGE>
EMPLOYMENT AGREEMENT
Randall C. Hall
3. Participation in Retirement and Employee Benefit Plan; Establishment of
Bonus Plans; Fringe Benefits. Subject to the terms and conditions of this
Agreement, Hall shall be entitled to participate in any and all employee benefit
programs and compensation plans from time to time maintained by the Bank and
available to all employees of the Bank, all in accordance with the terms and
conditions (including eligibility requirements) of such programs and plans of
the Bank, resolutions of the Bank's Board of Directors establishing such program
and plans, and the Bank's normal practices and established policies regarding
such programs and plans.
The Bank shall develop and implement during the first year of the term of
this Agreement an incentive cash bonus plan whereby Hall will be entitled to
receive an annual cash bonus upon his attainment of prescribed goals set forth
in such plan.
In addition to the other compensation and benefits described in this
Agreement, the Bank shall promptly reimburse Hall for all reasonable expenses
incurred by him in the performance of his duties under this Agreement and
documented to the reasonable satisfaction of the Bank or appropriate officers
of the Bank pursuant to established procedures.
4. Vacation. Hall shall be entitled to paid vacation leave of three weeks
each year.
5. Term. Unless sooner terminated as provided in this Agreement and subject
to the right of either Hall or the Bank to terminate Hall's employment at any
time as provided herein, the initial term of this Agreement and Hall's
employment with the Bank hereunder shall commence upon January 1, 1998 and shall
continue for a period of two (2) years. On the second anniversary of the date of
this Agreement, and if Hall has successfully met objectives as set forth in the
Business Plan or agreed to performance plans, the term of this Agreement shall
be extended for an additional one year period beyond the then effective
expiration date unless written notice from the Bank to Hall or from Hall to the
Bank is received 90 days prior to the anniversary date notifying the other
party that this Agreement shall not be so extended. It is contemplated that the
Chief Executive Officer will review
3
<PAGE>
EMPLOYMENT AGREEMENT
Randall C. Hall
Hall's performance annually and make a determination whether to renew this
Agreement prior to the 90 day notice period.
6. Confidentiality. Hall hereby acknowledges and agrees that (i) in the
course of his service as an officer of the Bank, he will gain substantial
knowledge of and familiarity with the Bank's customers and the bank's dealings
with them, and other information concerning the Bank's business, all of which
constitute valuable assets and privileged information which is particularly
sensitive due to the fiduciary responsibilities inherent in the banking
business, and, (ii) in order to protect the Bank's interest in and to assure it
to the benefit of its business, it is reasonable and necessary to place certain
restrictions on Hall to prevent him from competing with the Bank and to prevent
him from disclosing information about the Bank's business and customers. For
that purpose, and in consideration of this Employment Agreement, Hall
covenants and agrees with the Bank as follows:
For the purpose of this Paragraph 6, the following terms shall have these
meanings:
Customer. The term "Customer" means any Person with whom, as of the
effective date of termination of this Agreement or Hall's employment with the
Bank for any reason, the Bank has or has had a depository, loan or any other
bank relationship.
Financial Institution. The term "Financial Institution" means any federal
or state chartered bank, savings bank, savings and loan association or credit
union, or any holding company or corporation which owns or controls any such
entity, or any other Person engaged in the business of making loans of any
type or receiving deposits, other than the Bank.
Person. The term "Person" means any natural person or any corporation,
partnership, proprietorship, joint venture, limited liability company, trust,
estate, governmental agency or instrumentality, fiduciary, unincorporated
association or other entity.
(a) Confidentiality Covenant. Hall covenants and agrees with the Bank that
any and all data, figures, projections, estimates, lists, files, records,
documents, manuals and all other such materials or information (financial or
otherwise) relating to the Bank and its banking business, regulatory
examinations, financial results and conditions, lending and deposit
4
<PAGE>
EMPLOYMENT AGREEMENT
Randall C. Hall
operations, customers (including lists of the Bank's customers and information
regarding their accounts and business dealings with the Bank), policies and
procedures, computer systems and software, shareholders, employees, officers
and directors (herein referred to as "Confidential Information") are
proprietary to the Bank and are valuable, special and unique assets of the Bank
and its business to which Hall will have access during his employment with the
Bank. Hall agrees that (i) all such Confidential Information shall be considered
and kept as the confidential, private and privileged records and information
of the Bank, and (ii) at all times during the term of his employment with the
Bank and following the termination of this Agreement or his employment for any
reason, and Hall will not: (a) divulge any such Confidential Information to any
other Person or Financial Institution; (b) remove any such Confidential
Information in written or other recorded form from the Bank's premises; or (c)
make any use of any Confidential Information for his own purpose or for the
benefit of any Person or Financial Institution other than the Bank.
(b) Remedies for Breach. Hall understands and agrees that a breach or
violation by him of any covenant contained in Paragraph 6(a) of this Agreement
would constitute a material breach of this Agreement and would cause
irreparable damage and injury to the Bank for which the Bank would not have an
adequate remedy at law in that it would be difficult to ascertain the amount of
monetary damages which would result from any such breach or violation. In the
event of Hall's actual or threatened breach or violation of any covenant
contained in Paragraph 6(a), Hall agrees the Bank shall be entitled to bring
a civil action seeking a temporary restraining order and preliminary and
permanent injunction restraining Hall from violating or continuing to violate
any of these covenants or from threatening to violate any of them and seeking
any other legal or equitable relief relating to the breach or violation of any
of these covenants. Hall agrees if the Bank institutes any such civil action
against Hall, Hall shall have waived any claim or defense that the Bank has an
adequate remedy at law and shall not plead or contend in any such civil action
any claim or defense that the Bank has adequate remedy at law. Moreover, the
parties agree the exercise by the Bank of its right to seek in injunctive
relief shall not preclude the Bank or its successors or assigns from pursuing
any other remedy or exercising any other right, power or privilege
5
<PAGE>
EMPLOYMENT AGREEMENT
Randall C. Hall
available to it for any such breach or violation, whether at law or in equity,
including the recovery of damages, all of which shall be cumulative and in
addition to all other rights and remedies, available to the Bank.
Further, Hall agrees the provisions of Paragraph 6(a) above and the
remedies provided in this Paragraph 6(b) shall be in addition to, and shall not
be deemed to supersede or to otherwise restrict, limit or impair the rights of
the Bank under the Trade Secrets Protection Act contained in Article 24,
Chapter 66 of the North Carolina General Statues, or the rights of the Bank
under any other state or federal law or regulation dealing with or providing a
remedy for the wrongful disclosure, misuse or misappropriation of trade secrets
or other proprietary or confidential information.
(c) Survival of Covenants. Hall's covenants and agreements and the Bank's
rights and remedies provided for in this Paragraph 6 shall survive any
termination of this Agreement or termination of Hall's employment with the Bank
regardless of the reason for such termination.
7. Termination and Termination Pay.
(a) Hall's employment under this Agreement shall be terminated by his death
and his estate shall be entitled to receive any unpaid compensation due him
computed through the last day of the calendar month in which his death occurs.
(b) Hall shall have cause to terminate his employment by the Bank if he
determines in good faith that the Bank has breached in any material respect
any of the terms or conditions of this Agreement. Prior to any such termination
by Hall upon his determination in good faith the Bank has breached in a material
respect any of the terms or conditions of this Agreement, Hall shall give the
Bank written notice which describes such breach and if the Bank within five
days following its receipt of such notice cures or corrects the breach to the
reasonable satisfaction of Hall, this Agreement shall remain in full force and
effect.
(c) Hall may terminate his employment at any time without cause provided
(i) Hall provides at least 90 days notice to the Bank of his intention to
terminate his
6
<PAGE>
EMPLOYMENT AGREEMENT
Randall C. Hall
employment by the Bank and (ii) Hall agrees to be bound by a covenant not to
compete by his employment with any Financial Institution in Buncombe County for
a period of not less than 1 year.
(d) The Bank may terminate Hall's employment at any time with cause or
without cause as "Cause" is defined below.
If Hall's employment is terminated for any reason other than for cause, the
termination shall not prejudice Hall's right to compensation for other benefits
under this Agreement for the remaining term of the Agreement.
On the other hand, if Hall's employment is terminated for cause, Hall shall
not thereafter have any rights under this Agreement (including the right to
receive any compensation or other benefits for any period after the date of
termination for cause).
For the purpose of Paragraph 7(d), the Bank shall be entitled to terminate
Hall's employment for cause upon any one or more of the following seven grounds:
(i) A determination by the Bank's Board of Directors that, due to Hall's
actions or influence, there has been a material adverse divergence from the
Business Plan.
(ii) A determination by the Bank, in good faith, that Hall (A) has
breached in any material respect any of the terms or conditions of this
Agreement, or (B) is engaged or has engaged in willful misconduct or conduct
which is detrimental to the business prospects of the Bank or which has had or
likely will have a material adverse effect on the Bank's business or reputation.
Prior to any termination by the Bank of Hall's employment for such a breach,
failure to perform, or conduct described in this subparagraph (ii) the Bank
shall give Hall written notice which describes such breach, failure to perform,
or conduct and if, during a period of five (5) days following such notice, Hall
cures or corrects the same to the reasonable satisfaction of the Bank, then this
Agreement shall remain in full force and effect. However, notwithstanding the
above, if the Bank has given written notice to Hall on a previous occasion of
the same or substantially similar breach, failure to perform or conduct, or of a
breach, failure to perform, or conduct which the Bank determines in good faith
to be of substantially similar import, or if the Bank determines in good faith
that the then current breach, failure to perform, or conduct is not reasonably
curable, then termination under this
7
<PAGE>
EMPLOYMENT AGREEMENT
Randall C. Hall
subparagraph (ii) shall be effective immediately and Hall shall have no right to
cure such breach, failure to perform, or conduct.
(iii) The violation by Hall of any applicable federal or state law, or any
applicable rule, regulation, order or statement of policy promulgated by any
governmental agency or authority having jurisdiction over the Bank or any of its
affiliates or subsidiaries (a "Regulatory Authority") including without
limitation the Federal Deposit Insurance Corporation, the North Carolina
Commissioner of Banks, the Federal Reserve Board or any other banking
regulator), which results from Hall's gross negligence, willful misconduct, or
intentional disregard of such law, rule, regulation, order, or policy statement
and results in any substantial damage, monetary or otherwise, to the Bank or any
of its affiliates or subsidiaries or to the Bank's reputation;
(iv) The commission in the course of Hall's employment with the Bank of an
act of fraud, embezzlement, theft or proven personal dishonesty (whether or not
resulting in criminal prosecution or conviction);
(v) The conviction of Hall of any felony or any criminal offense involving
dishonesty or breach of trust, or the occurrence of any event described in
Section 19 of the Federal Deposit Insurance Act or any other event or
circumstance which disqualifies Hall from serving as an employee or executive
officer of, or a party affiliated with, the Bank or its bank holding company; if
any.
(vi) Hall becomes unacceptable to, or is removed, suspended or prohibited
from participating in the conduct of the Bank's affairs or if proceedings for
that purpose are commenced by, any Regulatory Authority.
(vii) The occurrence of any event believed by the Bank, in good faith, to
have resulted in Hall being excluded from coverage, or having coverage limited
as to Hall as compared to other covered officers or employees, under the Bank's
then current "blanket bond" or other fidelity bond or insurance policy covering
its directors, officers or employees.
8. Disability. In the event Hall becomes disabled during the term of his
employment and it is determined Hall is permanently unable to perform his duties
under this
8
<PAGE>
EMPLOYMENT AGREEMENT
Randall C. Hall
Agreement, Hall's employment under this Agreement shall terminate. The Bank
shall continue to compensate Hall at the level of compensation set forth in
Paragraph "2" above, and provide Hall each of the other benefits described in
this Agreement, for a period of one year or the remaining term of this Agreement
(whichever is less), so long as Hall remains disabled, less all other payments
to which Hall is entitled under any insurance or disability plan of the Bank
applicable to Hall and such disability payments as Hall may be entitled to
receive from Social Security or any other source.
In the event Hall becomes disabled during the term of his employment and it
is determined that Hall is temporarily unable to perform his duties under this
Agreement, the Bank will continue to compensate Hall at the level of
compensation set forth in Paragraph "2" above for a period of ninety days.
If at any time a disagreement arises between Hall and the Bank as to
whether Hall is disabled or whether any disability of Hall is permanent or
temporary, either or both of such questions shall be submitted to an impartial,
reputable physician selected by agreement between Hall and the Bank. Should Hall
and the Bank be unable to agree upon such a physician to resolve either or both
of these questions, the Bank shall select a physician, Hall shall select a
physician, and these two physicians shall select a third physician. This panel
of three physicians shall resolve either or both of these questions and the
determination by the panel shall be final and binding upon Hall and the Bank.
The Bank shall pay the reasonable fees and expenses of the physician or
physicians making this determination.
9. Additional Regulatory Requirement. Notwithstanding anything contained in
this Agreement to the contrary, it is understood and agreed that the Bank (or
its successors in interest) shall not be required to make any payment or take
any action under this Agreement if (a) the Bank is declared by any Regulatory
Authority to be insolvent, in default or operating in an unsafe or unsound
manner, or if (b) in the opinion of counsel to the Bank such payment or action
(i) would be prohibited by or would violate any provision of state or federal
law applicable to the Bank, including without limitation the Federal Deposit
Insurance Act and Chapter 53 of the North Carolina General Statutes as now in
effect or
9
<PAGE>
EMPLOYMENT AGREEMENT
Randall C. Hall
hereafter amended, (ii) would be prohibited by or would violate any applicable
rules, regulations, orders or statements of policy, whether now existing or
hereafter promulgated, of any Regulatory Authority, or (iii) otherwise would be
prohibited by any Regulatory Authority.
10. Change in Control.
(a) In the event of a termination of Hall's employment in connection with,
or within twenty-four (24) months after, a "Change in Control" (as defined in
Subparagraph (d) below) of the Bank, for reasons other than for "cause" (as
defined in Paragraph 7(d) hereof), Hall shall be entitled to receive the sum set
forth in Subparagraph (c) below. Said sum shall be payable as provided in
Subparagraph (e) below.
(b) Hall shall have the right to terminate this Agreement upon the
occurrence of any of the following events (the "Termination Events") within
twenty-four (24) months following a Change in Control of the Bank:
(i) Hall is assigned any duties or responsibilities which are
inconsistent with his position, duties, responsibilities, or status at
the time of the Change in Control or with his reporting
responsibilities or titles with the Bank in effect as such time;
(ii) Hall's annual base salary is reduced below the amount in
effect as of the effective date of a Change of Control or as the same
shall have been increased from time to time following such effective
date;
(iii) Hall's life insurance, medical or hospitalization
insurance, disability insurance, stock option plans, stock purchase
plans, deferred compensation plans, management retention plans,
retirement plans, or similar plans or benefits being provided by the
Bank to Hall as of the effective date of the Change in Control are
reduced in their level, scope, or coverage, or any such insurance,
plans, or benefits are eliminated, unless such reduction or elimination
applies proportionately to all salaried employees of the Bank who
participated in such benefits prior to such Change in Control; or
10
<PAGE>
EMPLOYMENT AGREEMENT
Randall C. Hall
(iv) Hall is transferred to a location outside of Buncombe County,
North Carolina, with Hall's express written consent.
A Termination Event shall be deemed to have occurred on the date such
action or event is implemented or takes effect.
(c) In the event Hall terminates this Agreement or the Bank terminates this
Agreement pursuant to this Paragraph 10, the Bank will be obligated to pay or
cause to be paid to Hall an amount equal to two hundred ninety nine percent
(299%) of Hall's "base amount" as defined in Section 28OG(b)(3)(A) of the
Internal Revenue Code of 1986, as amended (the "Code").
(d) For the purpose of this Agreement, the term Change in Control shall
mean any of the following events:
(i) After the effective date of this Agreement, any "person"
(as such term is defined in Section 70)(8)(A) of the Changes in Bank
Control Act of 1978), directly or indirectly, acquires beneficial
ownership of voting stock, or acquires irrevocable proxies or any
combination of voting stock and irrevocable proxies, representing
twenty-five percent (25%) or more of any class of voting securities of
the Bank, or acquires control, in any manner of the election of a
majority of the directors of the Bank;
(ii) The Bank consolidates or merges with or into another
corporation, association, or entity, or is otherwise reorganized, as
the result of which the Bank is not the surviving corporation in such
transaction; or
(iii) All or substantially all of the assets of the Bank are
sold or otherwise transferred to or are acquired by any other
corporation, association, or other person, entity, or group;
"provided, however, that should the Bank reorganize itself into the
holding company form of organization, whereby the share holders of the
Bank immediately prior to such reorganization are substantially the
same share holders as
11
<PAGE>
EMPLOYMENT AGREEMENT
Randall C. Hall
the Bank's holding company, such reorganization shall not be considered
a "change in control" for the purpose of this agreement."
Notwithstanding the other provisions of this Paragraph 10, a transaction or
event shall not be considered a Change in Control if, prior to the consummation
or occurrence of such transaction or event, Hall and the Bank agree in writing
that the same shall not be treated as Change in Control for the purposes of this
Agreement.
(e) Amounts payable pursuant to this Paragraph 9 shall be paid, at the
option of Hall, either in one lump sum or in equal monthly payments over the
remaining term of this Agreement.
(f) Following a Termination Event which gives rise to Hall's right
hereunder, Hall shall have twelve (12) months from the date of the occurrence
of the Termination Event to terminate this Agreement pursuant to this Paragraph
9. Any such termination shall be deemed to have occurred only upon delivery to
the Bank or any successor thereto, of written notice of termination which
describes the Change in Control and Termination Event. If Hall does not so
terminate this Agreement within such twelve months period, Hall shall thereafter
have no further rights hereunder with respect to that Termination Event, but
shall retain rights, if any, hereunder with respect to any other Termination
Event as to which such twelve month period has not expired.
(g) It is the intent of the parties hereto that all payments made pursuant
to this Agreement be deductible by the Bank for federal income tax purpose and
not result in the imposition of an excise tax on Hall. Notwithstanding anything
contained in this Agreement to the contrary, any payments to be made to or for
the benefit of Hall which are deemed to be "parachute payments" as that term is
defined in Section 28OG(b)(2) of the Code, shall be modified or reduced to the
extent deemed to be necessary by the Bank's Board of Directors to avoid the
imposition of an excise tax on Hall under Section 4999 of the Code or the
disallowance of a deduction to the Bank under Section 28OG(a) of the Code.
12
<PAGE>
EMPLOYMENT AGREEMENT
Randall C. Hall
11. Successors and Assigns.
(a) This Agreement shall insure to the benefit of and be binding upon any
corporate or other successor of the Bank which shall acquire, directly or
indirectly, by conversion, merger, consolidation, purchase or otherwise, all or
substantially all of the assets of the Bank.
(b) The Bank is contracting for the unique and personal skills of Hall.
Therefore, Hall shall be precluded from assigning his rights or delegating his
duties hereunder.
12. Modification; Waiver; Amendments. No provision of the Agreement may be
modified, waived or discharged unless such waiver, modification or
discharge is contained in a written Agreement executed by the parties
hereto. No waiver by either party hereto, at any time, of any breach by
the other party hereto of, or the failure of the other party to comply
with any condition or provision of this Agreement to be performed by
such other party shall be deemed a waiver of similar or dissimilar
provisions or conditions at the same or at any prior or subsequent
time. No amendments or additions to this Agreement shall be effective
unless in writing and signed by both parties.
13. Applicable Law. This Agreement shall be governed in all respects by the
laws of North Carolina, except to the extent that federal law shall be deemed to
apply.
14. Severability. The provisions of this Agreement shall be deemed
severable and the invalidity or unenforceability of any provision shall not
affect the validity or enforceability of the other provisions hereof.
15. Entire Agreement. This Agreement contains the entire agreement between
the parties and its supersedes any and all other oral or written agreement(s)
heretofore made, and there are no representations or inducements by or to, or
and agreements between, any of the parties hereto other than those contained
herein in writing.
13
<PAGE>
EMPLOYMENT AGREEMENT
Randall C. Hall
IN WITNESS WHEREOF, the parties have executed this Agreement under seal and
in such form as to be binding as of the day and year first hereinabove written.
THE BANK OF ASHEVILLE
By: /s/ Howard B. Montgomery, Jr.
----------------------------------
Howard B. Montgomery, Jr.
President & Chief Executive Officer
Attest:
/s/ Diana B. Barr
---------------------------------------
Secretary
/s/ Randall C. Hall (SEAL)
----------------------------------------
Randall C. Hall
14
EXHIBIT 10.3
BASIC PLAN DOCUMENT 04
TABLE OF CONTENTS
SECTION ONE: DEFINITIONS
l~01 Adoption Agreement 1
1.02 Basic Plan Document 1
1.03 Beneficiary 1
1.04 Break in Eligibility Service 1
1.05 Break in Vesting Service I
1.06 Code 1
1.07 Compensation 1
1.08 Custodian 2
1.09 Disability 3
1.10 Early Retirement Age 3
1.11 Earned Income 3
1.12 Effective Date 3
1.13 Eligibility Computation Period 3
1.14 Employee 3
1.15 Employer 3
1.16 Employer Contribution 3
1.17 Employment Commencement Date 3
1.18 Employer Profit Sharing Contribution 3
1.19 Entry Dates 3
1.20 ERISA 4
1.21 Forfeiture 4
1.22 Fund 4
1.23 Highly Compensated Employee 4
1.24 Hours of Service 4
1.15 Individual Account 5
1.26 Investment Fund 5
1.27 Key Employee 5
1.28 Leased Employee 5
1.29 Nondeductible Employee Contributions 5
1.30 Normal Retirement Age 5
1.31 Owner-Employee 5
1.32 Participant 6
1.33 Plan 6
1.34 Plan Administrator 6
1.35 PlanYear 6
1.36 Prior Plan 6
1.37 Prototype Sponsor 6
1.38 Qualifying Participant 6
1.39 Related Employer 6
1.40 Related Employer Participation Agreement 6
1.41 Self-Employed Individual 6
1.42 Separate Fund 6
1.43 Taxable Wage Base 6
1.44 Termination of Employment 6
1.45 Top-Heavy Plan 6
1.46 Trustee 6
1.47 Valuation Date 7
1.48 Vested 7
1.49 Year of Eligibility Service 7
ASO Year of Vesting Service 7
SECTION TwO: ELIGIBILITY PARTICIPATION
<PAGE>
2.01 Eligibility To Participate 7
2.02 PlanEntry 7
2.03 Transfer to or From Ineligible Class 8
2.04 Return as a Participant After Break in Eligibility
Service S
2.05 Determinations Under This Section 8
2.06 Terms of Employment S
2.07 Special Rules Where Elapsed Time Method Is Being Used S
2.08 Election Not To Participate 9
SECTION THREE: CONTRIBUTIONS
3.01 Employer Contributions 9
3.02 Nondeductible Employee Contributions 11
3.03 Rollover 12
3.04 Transfer Contributions 12
3.05 Limitation on Allocations 12
SECTION FOUR: INDIVIDUAL ACCOUNTS OF PARTICIPANTS AND VALUATION
4.01 Individual Accounts 16
4.02 Valuation of Fund 16
4.03 Valuation of Individual Accounts 16
4.04 Modification of Method for Valuing Individual Accounta 17
4.05 Segregation of Assets 17
4.06 Statement of Individual Accounts 17
SECTION FIVE: TRUSTEE OR CUSTODIAN
5.01 Creation of Fund 17
5.02 Investment Authority 17
5.03 Financial Organization Custodian or Trustee Without
Full Trust Powera 17
5.04 Financial Organization Trustee With Full Trust Powers
and Individual Trustee 18
5.05 Division of Fund Into Investment Funds 19
5.06 Compensation and Expenses 19
5.07 Not Obligated to Question Data 19
5.08 Liability For Withholding on Distributions 20
5.09 Resignation or Removal of Trustee (or Custodian) 20
5.10 Degree of Care - Limitations of Liability 20
5.11 indemnification of Prototype Sponsor and Trustee
(or Custodian~ 20
5.12 Investment Managers 21
5.13 Matters Relating to Insurance 21
5.14 Direction of Inve8tments by Participant 22
SECTION SIX: VESTING AND DISTRIBUTION
6.01 Distribution To Participant 22
6.02 Form of Distribution to a Participant 25
6.03 Distributions Upon the Death of a Participant 26
6.04 Form of Distribution to Beneficiary 26
6.05 Joint and Survivor Annuity Requirements 27
6.06 Distribution Requirements 30
6.07 Annuity Contracts 33
6.08 Loans to Participants 33
6.09 Distribution in Kind 34
6.10 Direct Rollovers of Eligible Rollover
Distributions 34
6.11 Procedure for Missing Participants or Henefician 35
SECTION SEVEN: CLAIMS PROCEDURE
7.01 Filing a Claim for Plan Distributions 35
7.02 Denial of Claim 35
7.03 Remedies Available 35
SECTION EIGHT: PLAN ADMINISTRATOR
8.01 Employer is Plan Administrator 36
<PAGE>
8.02 Powers and Duties of the Plan Adininistrator 36
8.03 Expenses and Compensation 37
8.04 Information from Employer 37
SECTION NINE: AMENDMENT AND TERMINATION
9.01 Right of Prototype Sponsor to Amend the Plan 37
9.02 Right of Employer to Amend the Plart 37
9.03 Limitation on Power to Amend 37
9.04 Amendment of Vesting Schedule 38
9.05 Permanency 38
9.06 Method and Procedure for Termination 38
9.07 Continuance of Plan by Successor Employer 38
9.08 Failure of Plan Qualification 38
SECTION TEN: MISCELLANEOUS.
10.01 State Comninnity Property Laws 38
10.02 Headings 38
10.03 Gender and Number 38
10.04 Plan Merger or Consolidatiort 39
10.05 Standard of Fiduciary Conduct 39
10.06 General Undertating Of All Parties 39
10.07 Agreement Binds Heirs, Etc 39
10.08 Determination Of Top-Heavy Status 39
10.09 Special Ltmitations for Owner-Employees 40
10.10 Inalienability of Benefits 41
10.11 Cannot Eliminate Protected Benefits 41
SECTION ELEVEN: 401(K) PROVISIONS
11.100 Definitions 41
11.101 Actual Deferral Percentage (ADP) 41
11.102 Aggregate Lirm 42
11.103 Average Contribution Percentage (ACP) 42
11.104 Contributing Participant 42
11.105 Contribution Percentage 42
11.106 Contribution Percentage Amounts 42
11.107 Elective Deferrals 42
11.108 Eligible Participant 42
11.109 Excess Aggregate Contributions 42
11.110 Excess Contributions 43
11.111 Excess Elective Deferrals 43
11.112 Matcliing Contribution 43
11.113 Qualified Nonelective Contributions 43
11.114 Qualified Matching Contributions 43
11.115 Qualifying Contributing Participant 43
11.200 Contributing Participant 43
11.201 Requirements to Enroll as a Contributing Participant 43
11.202 changing Elective Deferral Amounts 43
11.203 Ceasing Elective Deferrals 44
11.204 Return as a Contributing Participant After Ceasing
Elective Deferrals 44
11.205 Certain On Time Irrevocable Elections 44
11.300 Contributions 44
11.301 Contributions By Employer 44
11.302 Matcbiing Contributions 44
11.303 Qualified Nonelective Contributions 44
11.304 Qualified Matching Contributions 44
11.305 Nondeductible Employee Contributions 44
11.400 Nondiscrimination Testing 45
11.401 Actual Deferral Percentage Test (ADP) 45
11.402 Limits on Nondeductible Employee Contributions and
Matching Contributions 46
11.500 Distribution Provisions 47
11.501 General Rule 47
<PAGE>
11.502 Distribution Requirements 47
11.503 Hardship Distribution 48
11.504 Distribution of Excess Elective Deferrals 48
11.505 Distribution of Excess 48
11.506 Distribution of Excess Aggregate Contributions 49
11.50? Recharacterization 50
11.508 Distribution of Elective Deferrals if Excess Annual Additions 50
11.600 Vesting 50
11.601 100% Vesting on Certain Contributions 50
11.602 Forfeitures and Vesting of Matching Contributions 50
<PAGE>
QUALIFIED RETIREMENT PLAN AND TRUST Defined Contribution Basic Plan
Document 04
SECTION ONE
DEFTNITIONS
The following words and phrases when used in the Plan with initial capital
leners shall, for the purpose of this Plan, have the meanings set forth below
unless the context indicates that other meanings are intended:
1.01 ADOPTION AGREEMENT
Means the document executed by the Employer through which it adopts
the Plan and Trust and thereby agrees to he bound by all terms and
conditions of the Plan and Trust.
1.02 BASIC PLAN DOCUMENT
Means this prototype Plan and Trust document.
1.03 BENEFICIARY
Means the individual or individuals designated pursuant to Section
6.03(A) of the Plan.
1.04 BREAKIN ELIGIBILTY SERVICE
Means a 12 consecutive month period which coincides with an
Eligibility Computation Period during which an Employee fails to
complete more than 500 Hours of Service (or such lesser number of
Hours of Service specified in the Adoption Agreement for this
purpose).
1.05 BREAK IN VESTNG SERVICE
Means a Plan Year (or other vesting computation period described in
Section 1.50) during which an Employee fails to complete more than
500 Hours of Service (or such lesser number of Hours of Service
seecified in the Adoption Agreement for this purpose).
1.106 CODE
Means the Internal Revenue Code of 1986 as amended from
time-to-time.
1.07 COMPENSATION
A. Basic Definition
For Plan Years beginning on or after January
1,1989, the following definition of Compensation
shall apply:
As elected by the Employer in the Adoption
Agreement (and if no election is made, W-2 wages
will he deemed to have been selected), Compensation
shall mean one of the following:
1.W-2 wages. Compensation is defined as
information required to be reported under
Sections 6041 and 6051. and 6052 of the Code
OWages, tips and other compensation as
reported on Form W-2). Compensation is
defined as wages withan the meaning of
Section 3401(a) of the Code and all other
payments of compensation to an Employee by
the Employer (in the course of the Employer's
trade or business) for which the Employer is
required to flirnish the Employee a written
statement under Sections 6041(d) and
6051(a)(3). and 6052 of the Code.
Compensation must be determined without
regard to any rules under Section 3401(a)
that limit the remuneration included in wages
bssed on the nature or location of the
employment or the services performed (such as
the exception for agricultural labor in
Section 3401(a)(2)).
2. Section 3401(a) wages. Compensation is
defined as wages within the meaning of
Section 3401(a) of the Code, lor the
purposes of income tax withholding at the
source but determined without regard to any
rules that litni? the retnuneration included
in wages based on the nature or location of
the employment or the services performed
(such as the exception for agricultural
labor in Section 3401(a)(2)).
3. 415 safe-harbor compensation. Compensation is
defined as wages, salaries, and fees for
professional services and other amounts
reeeived (without regard to whether or not an
amount is pa!d in cash) for personal
services actually redered in the course of
<PAGE>
employment with the Employer maintaining the
Plan to the extent that the amounts are
includible in gross income (including, but
not limited to. commissions paid salesmen.
compensation for services on the basis of a
percentage of profits, conttnissions on
insurance pretniums, tips, bonuses, fringe
benefits. and reimbursements or other expense
allowaeces under a nonaccoutable plan (as
described in 1.62-2(c)), and excluding the
following:
a. Employer conrributions to a plan of
deferred compensation which are not
includible in the Employee's grnss
income for the' taxable year in which
contributed, or employer
contributions under a stmplifled
employee pension plan to the extent
such con:tributions are deductible by
the Employee, or any' distributions
from a pian of deferred compensation;
1
<PAGE>
h. Amounts realized from the exercjse of a
nonqualified stock option, or when restricted
stock (or property) held by the Employee either
becomes freely transferable o? is no longer
subject to a substantial risk of forfeiture;
C. Amounts realized from the sale, exchange or other
disposition of stock acquired under a qualified
stock option; and
d. Other amounts which received special tax
benefits, or contributions made by the Employer
(whether or not under a salary reduction
agreement) towards the purchase of an annuity
contract described in Section 403(13) of the Cede
(whether or not the contributions are actually
excludable from the gross income of the
Employee).
For any Self-Employed Inaividual covered under the Plan,
Compensation will mean Earned Income.
B. Determination Period And Other Rules
Compensation shall include only that Compensation which is
actually paid to the Pan icipant during the determination
period. Except as provided elsewhere in this Plan, the
determination period shall be the Plan Year unless the
Employer has selected another period in the Adoption
Agreement. If the Employer makes no election, the
determination period shall be the Plan Year,
Unless otherwise indicated in the Adoption Agteement,
Compensation shall include any amount which is contributed by
the Employer pursuant to a salary reduction agreement and
which is not includible in the gross income of the Employee
under Sections 125, 402(e)(3), 402(h)(l)(13) or 403(1,) of the
Code.
Where this Plan is being adopted as an amendment and
restatement to bring a Prior Plan into compliance with the Tax
Reform Act of 1986, such Prior Plan's definition of
Compensation shall apply for Plan Years beginning before
January 1,1989.
C. Limits On Compensation
For years beginning after December 31, 1988 and before January
1.1994, the annual Compensation of each Participant taken into
account for determining all benefits provided under the Plan
for any determlnation period shall not exeeed $200,000. This
limitation shall be adjusted by the Secreary at the same time
and in the same manner as under Section 415(d) of the Code,
except that the dollar increase in efibet on January 1 of any
calendar year is effective for Plan Years beginning in such
calendar year and the first adjustment to the $200,000
limitation is effective on January 1, 1990.
For Plan Years beginning on or after January 1, 1994, the
anmial Compensation of each Participant taken into account for
determining all benefits provided undtr the Plan for any Plan
Year shall not exceed $150,000, as adjusted for increases in
the wst~of-living in accordance with Section 401(a)(17)(11) of
the Iteernal Revenue Code. The cost~f-living adjustment in
effbct for a calendar year applies to any determination period
beginning in such calendar year.
If the period for determining Compensation used in calculating
an Employee's allocation for a determination period is a short
Plan Year (i.e., snorter than 12 months), the arurtal
Compensation limit is an amount equal to the otherw'ise
applicable annual Comperisation limit multiplied by a
fraction, the numerator of which is the number of months in
the short Plan Year, and the denominator of which is 12.
In determining the Compensation of a Prrticipant for purposes
of this limitation. the rules of Section 414(q)(6) of the Code
shall apply, except in applying such r'ules, the term "family"
shall include only the spouse of the Participant and any
lineal descendants of the Participant who have not attained
age 19 before the close of the year. If, as a result of the
application of such rules the adjusted $200,000 limitation is
exceeded, then (except for purposes of determining the portion
of Compensation up to the integration level, if this Plan
provides for permitted disparity), the limitation shall be
prorated among the affected hidividuals in proportion to each
such individual's Compensation as determined under this
Section prior to the application of this limitation.
If Compensation for any prior determination period is taken
into account in determining an Employee's
<PAGE>
allocations or benefits for the current determination period.
the Compensation for such prior determination period is
subject to the applicable annual Compensation limit in effect
for that prior period. For this purpose, in determining
allocations in Plan Years beginning on or after January 1,
1989, the annual Compensation limit in effect for
determination periods beginning before that date is $200,000.
In addition, in determining allocations in Plan Years
beginning on or after January 1,1994, the annual Compensation
limit in effect for determination periods beginning before
that date is $150,000.
1.08
CUSTODIAN
Means an entity specified in the Adoption Agreement as Custodian or any duly
appointed successor as provided in Section 5.09.
2
<PAGE>
1.09 DISABILITY
Unless the Employer has elected a different definition in the
Adoption Agreement, Disability means the inability to engage in any
substantial, gainill activity by reason of any medically
determinable physicai or mental impairment that can be expected~to
result in death or which has tasted or can he expected to last for a
continuous period of not less than 12 months. The permanence and
degree of such impairment shall be supported by medical evidence.
1.10 EARLY REITREMENT AGE
Means the age specified in the Adoption Agreement. The Plan will not
have an Early Retirement Age if none is specified in the Adoption
Agreement.
1.11 EARNED INCOME
Means the net earnings from self-employment in the trade or bwi ness
with respect to which the Plan is established, for which personal
services of the individual are a material incomeftociucing factor.
Net earnings will be determined without regard to items not included
!n gross income and the deductions allocable to such items. Net
earnings are reduced by contributions by the Employer to a qualified
plan to the extent deductible under Section 404 of the Code.
Net earnings shall be determinetl with regard to the deduction
allowed to the Employer by Section 164(1) of the Code for taxable
years beginning after December 31,1989.
1.12 EFFECTIVE DATE
Means the date the Plan becomes effective as indicated in the
Adoption Agreetnent. However, as indicated in the Adoption
Agreement, certain provisions may have specific effective dates.
Further, where a separate date is stated in the Plan as of which a
particular Plan provision becomes effective, such date will control
with respect to that provision.
1.13 ELIGIBILIW COMPUTAnON PERIOD
An Employee's initial Eligibility Computation Period shall be the 12 consecutive
month period commencing on the Employee's Employment Commencement Date. The
Employee's subsequent Eligibility Computation Periods shall be the 12
consecutive month periods commencing on the anniversaries of his or her
Employment Commencement Date; provided, however, if pur'suant to the Adoption
Agreement, an Employee is required to complete one or less Years of Eligibility
Service to become a Participant, then his or her subsequent Eligibility
Computation Periods shall be the Plan Years commencing with the Plan Year
beginning dun~ his or her initial Eligibility Computation Period. An Employee
does not complete a Year of Eligibility' Service before the end of the 12
consecutive month period regardless of when during such period the Employee
completes the required number of Hours of Service.
1.14 EMPLOYEE
Means any person employed by an Employer maintaining the
Plan or of any otleer employer required to be aggregated with such
Employer under Sections 414q,), (c), Cm) or (o) of the Code.
The term Employee shall also include any letaeetl Employee deemed to
be an Employee of any Employer described in the previous paragraph
as provided in Section 414(n) or (o) of the Code.
1.15 EMPLOYER
Means any corporation, partnership, sole-proprietorsltip or other
entity, named in the Adoption Agreement and any successor who by
merger, consolidation, purchase or otherwise ausumes the obligations
of the Plan. A partnership is considered to be the Employer of each
of the partners and a sole-proprietorship is considered to be the
Employer of a sole proprietor. Where this Plan is being maintained
by a union or other entity, that represents its member Employees in
the negotiation of collective bargaiining agreements, the terttn
Employer shall mean such union or other entity.
1.16 EMPLOYER CONTRIBUTiON
Means the amount contributed by the Employer each year as determined
under this Plan.
1.17 EMPLOYMENT COMMENCEMENT DATE
An Employee's Employment Commencement date means the date the
Employee first performs an Hour of Service for the Employer.
1.18 EMPLOYER PROFIT SHARING CONTRIBUTION
Means an Employer Contribution made pursuant to the Section of the
Adoption Agreement tided "Employer Profit
<PAGE>
Sharing Contributions". The Employer may make Employer Profit
Sharing Contributions without regard to current or accumulated
earnings or profits.
1.19 ENTRY DATES
Means the fir,st day of the Plan Year and the first day of the
seventh month of the Plan Year. unless the Employer has specified
different dates in the Adoption Agreement.
3
<PAGE>
ERISA
Means the Employee Retirement Income Security Act of 1974 as amended
from time-to-time.
1.21 FORFEITURE
Means that portion ofa Participant's Individual Account derived from
Employer Contributions which he or she is not entitled to receive
(i.e., the nonvested ponion).
1.22 FUND
Means the Plan assets held by the Trustee for the Participants'
exclusive benefit.
1.23 HIGHLY COMPENSATED EMPLOYEE
The term Highly Compensated Employee includes highly compensated
active employees and highly compensated former employees.
A highly compensated active employee includes any Employee who
performs service for the Employer during the determination year and
who, during the look-back year: (a) received Compensation from the
Employer in excess of $75,000 (as adjusted pursuant to Section
415(d) of the Code); 0,) received Compensation from the Employer in
excess of $50,000 (as adjusted pursuant to Section 415(d) of the
Code) and was a member of the top-paid group for such year; or Cc)
was an officer of the Employer and received Compensation during such
year that is greater than 30% of the dollar limitation in effect
under Section 4l5~)(l)(A) of the Code. The term Highly Compensated
Employee also includes: (a) Employees who are both describe:l in the
preceding sentence if the term "determination year" IS substituted
for the term "look-back year" and the Employee is one of the 100
Employees who received the most Compensation from the Employer
during the determination year; and (b) Employees who are 5% owners
at any time during the look-back year or determination year.
If no officer has satisfied the Compensation requirement of (c)
above during either a determination year or look-back year, the
highest paid officer for such year shall be treated as a Highly
Compensated Employee.
For this purpose, the determination year shall BE the Plan Year. The
look-back year shall be the 12 month period immediately preceding
the determination year.
A highly compensated former employee includes any Employee who
separated from service (or was deemed to have separated) prior to
the determination year, performs no service for the Employer during
the determination year, and was a highly compensated active employee
for either the separation year or any determination year ending on
or after the Employee's 55th birthday.
If an Employee is, during a determination year or look-back year, a
frilily member of either a 5% owner who is an active or former
Employee or a Highly Compensated Employee who is one of the 10 most
Highly Compensated Employees nnked on the basis of Compensation paid
by the Employer during such year. then the family member and the 5%
owner or top 10 Highly Compensated Employee shall be aggregated. In
such case, the family member and 5% owner or top 10 Highly
Compensated Employee shall be treated as a single Employee receiving
Compensation and Plan contributions or benefits equal to the suun of
such Compensation and contributions or benefits of the family member
and 5% owner or top 10 Highly Compensated Employee. For purposes of
this Section, family member includes the spouse, lineal ascendants
and descendants of the Employee or former Employee and the spouses
of such lineal ascendants and descendants.
The determination of who is a Highly Compensated Employee, including
the determinations of the number and identity of Employees in the
top~paid group, the top 100 Employees, the number of Employees
treated as officers and the Compensation that is considered, will be
made in accordance with Section 414(q) of the Code and the
regulations thereunder.
1.24 HOURS OF SERVICE - Means
A, Each hour for which an Employee is paid, or entitled to
payment, for the peeforniance of duties for the Employer.
These hours will be credited to the Employee for the
computation period in which the duties are performed; and
<PAGE>
B. Each hour for which an Employee is paid, or entitled to
payment, by the Employer on account of a period of time during
which no duties are lerformed (ineseective of whether the
employment relationship has terminated) due to vacation,
holiday, illness, incapacity (including disability), layoff,
jury duty, military duty or leave of abserice. No more than
501 Hours of Service will be credited under this paragraph for
any single continuous period (whether or not such period
occurs in a single computation period). Hours under this
paragraph shall be calcnlated and credited pursuant to Section
2530.2001-2 of the Department of Labor Regulations which is
incorporated herein by this reference; and
C. Each hour for which back pay, ~spective of mitigation of
damages. is either awarded or agreel to by the Employer. The
same Hours of Service will not be credited both under
paragraph (A) or paragraph $). as the case may be, and under
thls paragtaph (C). These hours will be credited to the
Employee for the computation period or periods to which the
award or agreement pertains rather than the computation period
in which the award, agreement, or payment is made.
4
<PAGE>
D. Solely for purposes of determining whether a Break in
Eligibility Service or a Break in Vesting Service has occurred
in a computation period (the computation period for purposes
of determining whether a Break in Vesting Service has occurred
is the Plan Year or other vesting computation period
describetl in Section 1.50), an individual who is absent from
w6rk for maternity or paternity reasons shall receiv6 credit
for the Hours of Service which would othetwise have been
credited to such individual but for such absence, or in any
case in which such hours cannot be determined, 8 Hours of
Service per day of such absence. For purposes of this
paragraph, an absence from work for maternity or paternity
reasons means an absence (I) by reason of the pregnancy of the
individual, by reason qf a birth of a child of the individual,
(3) by reason of the placement of a child with the individual
in connection with the adoption of such child by such
individual, or (4) for purposes of caring for such child for a
period beginning immediately following such birth or
placement. The Hours of Service credited under this paragraph
shall be credited (1) in the Eligibility Computation Period or
Plan Year or other vesting computation period described in
Section 1.50 in which the absence begins if the crediting is
necessary to prevent a Break in Eligibility Service or a Rreak
in Vesting Service in the applicable period, or (2) in all
other cases, in the following Eligibility Computation Period
or Plan Year or other vesting computation period described in
Section 1.50.
E. Hours of Service will be credited for employment with other
members of an affiliated service group (under Section 414(m)
of the Code), a controlled group of corporations (under
Section 414~) of the Code), or a group of trades or businesses
under common control (under Section 414(c) of the Code) of
which the adopting Employer is a member. and any other entity
required to be aggregated with the Employer pursuant to
Section 414(o) of the Code and tne regulations thereunder.
Hours of Service will also be credited for any individual
cionsidered an Employee for purposes of this Plan under Code
Sections 414(n) or 414(o) and the regulations thereunder.
F. Where the Employer maintains the plan of a predecessor
employer. service for such predecessor employer shall be
treated as service for the Employer.
G. The above mettiod for determining Hours of Service may be
altered as specified~in the Adoption Agreement.
1.25 INDIVIDUAL ACCOUNT
Means the account established and maintained under this Plan for
each Participant in accordance with Section 4.01.
1.26 INVESTMENT FUND
Means a subdivision of the Fund established puasuant to Section
5.05.
1.27 KEY EMPLOYEE
Means any person who is determined to be a Key Employee under
Section 10.08.
1.28 LEASED EMPLOYEE
Means any person (other than an Employee of the recipient) who
pursuant to an agreement between the recipient and any other person
("leasing organintion") has performed services for the recipient (or
for the recipient and related persons determined in accordance with
Section 414(n)(6) of the Code) on a substantially frill time basis
for a period of at least one year, and such services are of a type
historically performed by Employees in the business field of the
recipient Employer. Contributions or benefits provided a leased
Employee by the leasing organization which are attributable to
services performed for the recipient Employer shall be treated as
provided by the recipient Employer.
A Leased Employee shall not be considered an Employee of the
recipient if: (1) such employee is covered by a money putclsase
pension plan providing: (a) a nonintegrated employer contribution
rate of at least 10% of compensation, as defmed in Section 415(c)(3)
of the Code, but including amounts contributed pursuant to a salary
reduction agreement which are excludable from the employee's gross
income under Section 125, Section 402(e)(3), Section 402(h)(1)$) or
Section 403~) of the Code, 0,) iennediate participation, and (c)
foil and immediate vesting; and (2) laeased Employees do not
constitute more than 20% of the recipient's noniiighiy compensated
work force.
1.29 NONDEDUCTIBLE EMPLOYEE CONTRIBUTIONS
Means any contribution made to the Plan by or on behalf of a
Pttrtlcipant that is included in the Prrticipant's gross income in
the year in which made and that is maintained under a separate
account to which earnings and losses are
<PAGE>
allocated.
1.30 NORMAL RETIREMENT AGE
Means the age specified in the Adoption Ageeement. However, if the
Employer enforces a mandatory retirement age which is less than the
Normal Retirement Age. such mandatory age is deemed to be the Normal
Retirement Age. If no age is specified in the Adoption Agreement,
the Normal Retirement Age shall be age 65.
1.31 OWNER - EMPLOYEE
Means an individual who is a sole proprietor. or who is a partner
owmng more thati 10% of either the capital or profits interest of
the partnership.
5
<PAGE>
1.32 PARTICIPANT
Means any Employee or former Employee offlie Employer who has met
the Plan's eligibility requirements, has entered the Plan and who is
or may become eligible to receive a benefit of any type from this
Plan or whose Beneficiary may be eligible to receive any such
benefit.
1.33 PLAN
Means the prototype defined contribution plan adopted by the
Employer. The Plan consists of this Basic Plan Document plus the
corresponding Adoption Agreement as completed and signed by the
Employer.
1.34 PLAN ADMINiSTRATOR
Means the person or persons determined to be the Plan Administrator
in accordance with Section 8.01.
1.35 PLAN YEAR
Means the 12 consecuti* month period which coincides with the
Employer's fiscal year or such ocher 12 consecutive month period as
is designated in the Adoption Agreement.
1.36 PRIOR PLAN
Means a plan which was amended or replaced by adoption of this Plan
docnment as indicated in the Adoption Agreement.
1.37 PROTOTYPE SPONSOR
Means the entity specified in the Adoption Agreement that makes this
prototppe plan available to empl6yers for adoption.
1.38 QUALIFYING PARTICIPANT
Means a Participant who has satisfied the requirements described in
Section 3.01(b)(2) to be entitled to share in any Employer
Contribution (and Foreitures, if applicable) for a Plan Year.
1.39 RELATED EMPLOYER
Means an employer tt'at~may be required to be aggregated with the
Employer adopting this Plan for certain qualification requirements
under Sections 414q,), (c). (m) or (o) of the Code (or any other
employer that has ownership in common with the Employer). A Related
Employer may participate in this Plan if so indicated in the Section
of the Adoption Agreement tided '"Employer Information" or if such
Related Employer executes a Related Employer Participation
Agreement.
1.40 RELATED EMPLOYER PARTICIPATION AGREEMENT
Means the agreement under this prototype Plan that a Related
Employer may execute to participate in this Plan.
1.41 SELF-EMPLOYED INDIVWIDUAL
Means an individual who has Earned Income for the taxable year from
the trade or business for which the Plan is established; also, an
individual who would have had Earned Inccne but for the fact that
the trade or business had no net profits for the taxable year.
1.42 SEPARATE FUND
Means a subdivision of the Fund held in the name of a particular
Prrticipant representing certain assets held for that Participant.
The assets which comprise a Participant's Separate Fund are those
assets eaaatarked for him ot her and those assets subject to the
Participant's individual direction pursuant to Section 5.14.
1.43 TAXABLE WAGE BASE
Means, with reppect to any taxable year, the contribution and
benefit base in effect under Section 230 of the Social Security Act
at the beginning of the Plan Year.
1.44 TERMINATION OF EMPLOYMENT
A Termination of Employment of an Employee of an Employer shall
occur wbenever his or her status as an Employee of such Employer
ceases for any reason other than death. An Employee who does not
return to work for the Employer on or before the expiration of an
authorieed leave of absence from such Employer shall be deemed to
have incurred a Termination of Employment when such leave ends.
<PAGE>
1.45 TOP-HEAVY PLAN
This Plan is a TorHeavy Plan for any Plan Year if it is determined
to be such pursuant to Section 10.08.
1.46 TRUSTEE
Means an individual, individuals or corporation specified in the
Adoption Agreement as Trustee or any duly appointed suceessor as
provided in Section 5.09. Trustee shall mean Custodian in the event
the financial organization named as Trustee does not have foil trust
powers.
6
<PAGE>
1.47 VALUATION DATE
Means he date or dates as specified in the Adoption
Agreement. If no date is specified in the Adoption
Agreement, the Valuation Date shall be the last day of
the Plan Year and each other date designated by the Plan
Administrator which is selected in a uniform and
nondiscriminatory manner when the assets of the Fund are
valued at their then fair market value.
1.48
VESTED
Means nonforfeitable, that is. a claim which is
unconditional and legally enforceable against the Plan
obtained by a Participant or the Participant's Beneficiary
to that part of an immediate or deferred benefit under the
Plan which arises from a Participant's Years of Vesting
Service.
1.49 YEAR OF ELIGIBILITY SERVICE
Means a 12 consecutive month period which coincides with
an Eligibility Computation Period during which an
Employee completes at least 1,000 Hours of Service (or
such lesser number of Hours of Service specified in the
Adoption Agreement for this purpose). An Employee does
not complete a Year of Eligibility Service before the end
of the 12 consecutive month period regardless of when
during such period the Employee completes the required
number of Hours of Service.
1.50 YEAR OF VESTING SERVICE
Means a Plan Year during which an Employee completes at
least 1,000 Hours of Service (or such lesser number of
Hours of Service specified in the Adoption Agreement for
this purpose). Notwithstanding the preceding sentence,
where the Employer so indicates in the Adoption
Agreement, vesting shall be computed by refernnce to the
12 consecutive month period beginning with the Employee's
Employment Commencement Date and each successive 12 month
period cornmencing on the anniversaries thereof.
In the case of a Participant who has S or more
consecutive Breaks in Vesting Service, all Years of
Vesting Service after such Breaks in Vesting Service will
be disregarded for the purpose of determining the Vested
portion of his or her Individual Account derived from
Employer Contributions that accrued before such breaks.
Such Participant's prebreak service will count in vesting
the postbreak Individual Account derived from Employer
Contributions only if either.
(A) such Participant laad any Vested right to any
portion of his or her Individual Account derived
from Employer Contributions at the time of his or
her Termination of Employment; or
(13) upon returning to service, the nutnber of
consecutive Breaks in Vesting Service is less than
his or her number of Years of Vesting Service
before such bruks.
Separate subaccounts will be maintained for the
Participant's prebreak and postbreak portions of his or
her Individual Account derived from Employer
Contributions. Both subaccounts will share in the gains
and losses of the Fund.
Years of Vesting Service shall not include any period of
time excluded from Years of Vesting Service in the
Adoption Agreement.
In the event the Plan Year is changed to a new 12-month
period, Employees shall receive credit for Years of
Vesting Service, in accordance with the preceding
provisions of this definition, for each of the Plan Years
(the old and new Plan Years) which overlap as a restilt
of such change.
SECTION TwO
ELIGIBILITY AND PARTICIPATION
2.01 ELIGIBILITY TO PARTICIPATE
Each Employee of the Employer, except those Employees whb belong to
a class of Employees which is excluded from participation as
indicated in the Adoption Agreement. shall be eligible to
participate in this Plan upon the
<PAGE>
satisfaction of the age and Years of Eligibility Service
requiretnents specified in the Adoption Agreement.
2.02 PLAN ENTRY
A. If this Plan is a replacement of a Prior Plan by
amendment or restatement, each Employee of the
Employer who was a Participant in said Prior Plan
before the Effective Date shall continue to be a
Participant in this Plan.
B. An Employee will became a Participant in the Plan
as of the Effective Date if the Employee has met
the eligibility requirmnenu of Section 2.01 as of
such date. After the Effective Date, each Employee
shall become a Participant on the first Entry Date
following the date the Employee satisfies the
eligibility requirements of Section 2.01 unless
otherwise indicated in the Adoption Agreement.
7
<PAGE>
C. The Plan Administrator shall notify each Employee who becomes
eligible to be a Participant under this Plan and shall firnish
the Employee with the application form, enrollment forms or
other documents which are required of Participants. The
eligible Employee shall execute such forms or documents and
make available such information as may be required in the
administration oftie Plan.
2.03
TRANSFER TO OR FROM INELIGIBLE CLASS
If an Employee who had been a Participant becomes ineligible to participate
because he or she is no longer a member of an eligible class of Employees, but
has not incurred a Break in Eligibility Service, such Employee shall participate
immediately upon his or her return to an eligible class of Employees. If such
Employee incurs a Break in Eligibility Service, his or her eligibility to
participate shall be determined by Section 2.04.
An Employee who is not a member of the eligible class of Employees
will become a Participant immediately upon becoming a member of the
eligible class provided such Employee has satisfied the age and
Years of Eligibility Service requirements. If such Employee has not
satisfied the age and Years of Eligibility Service requirements as
of the date he or she becomes a member of the eligible class, such
Employee shall become a Participant on the first Entry Date
following the date he or she satisfies those requirements unless
otherwise indicated in the Adoption Agreement.
2.04 RETURN AS A PARTICIPANT AFTER BREAK IN ELIGIBILny SERVICE
A. Employee Not Participant Before Break - If an Employee incurs
a Break in Eligibility Service before satisiying the Plan's
eligibility requirements, such Employee's Years of Eligibility
Service before such Break in Eligibility Service will not be
taken into account.
B. Nonvested Participants - In the case of a Participant who
does not have a Vested interest in his or her Individual
Acconnt derived from Employer Contributions, Years of
Eligibility Service before a period of consecutive Breaks in
Eligibility Service will not be taken into account for
eligibility purposes if the number of consecutive Breaks in
Eligibility Service in such period equals or exceeds the
greater of S or the aggregate number of Years of Eligibility
Service before such break. Such aggregate number of Years of
Eligibility Service will not include any Years of
Eligibility Service disregarded under the prcceding sentercce
by reason of prior breaks.
If a Participant's Years of Eligibility Service are
disregartled pursuant to the preceding paragraph. such
Participant will be treated as a new Employee for eligibility
purposes. If a Participant's Years of Eligibility Service may
not be disregaraled pursuant to the preceding paragraph, suet'
Participant shall continue to participate in the Plan, or, if
terminated, shall participate immediately upon reemployment.
C. vested Participants - A Participant who has sustained a Break
in Eligibility Service and who had a Vested interest in all or
a portion of his or her Individual Account derived from
Employer Contributions shall continue to participate in the
Plan, or, if terminated, shall participate immediately upon
teemploymettt.
2.05 DETERMINATIONS UNDER THIS SECTION
The Plan Administrator shall determine the eligibility of each
Employee to be a Participant. This determination shall be conclusive
and binding upon all persons except as otherwise provided herein or
by law.
2.06 TERMS OF EMPLOYMENT
Neither the tact of the establishment of the Plan nor the fact that
a common law Employee has become a Participant slaali give to that
common law Employee any right to continuetl employment; nor shall
either fact limit the right of the Employer to disclaarge or to deal
otherwise with a common law Employee without regard to the effect
such treatment may have upon the Employee's rights under the Plan.
2.07
SPECIAL RULES WHERE ELAPSED TIME METHOD IS BEING USED
This Section 2.07 shall apply where the Employer has indicated in the Adoption
Agreement that the elapsed time method
<PAGE>
will be used. When this Section applies, the definitions of year of serv'ice,
break in service and hour of service in this Section will replace the
definitions of Year of Eligibility Service, Year of Vesting Service, Break in
Eligibility Service, Break in Vesting Service and Hours of Service found in the
Definitions Section of the Plan (Section One).
For purposes of determining an Employee's initial or continued
eligibility to participate in the Plan or the Vested interest in the
Participant's Individnal Account tm'ance derived from Employer
Contributions, (except for periods of service which may be
disregattled on account of the "rule of parity" described in
Sections 1.50 and 2.04) an Employee will receive credit for the
aggregate of all time period(s) commencing with the Employee's first
day of employment or reemployment and ending on the date a break in
service begins. The first day of employment or reetnployment is the
first day the Employee peiforms an hour of service. An Employee will
also receive credit for any period of severance of less than 12
consecutive months. Fractional periods of a year will be expressed
in terms of days.
8
<PAGE>
For purposes of this Section, hour of service will mean
each hour for which an Employee is paid or entitled to
payment for the performance of duties for the Employer,
Break in service is a period of severance of at least 12
consecutive months. Period of severance is a continuous
period of time during which the Employee is not employed
by the Employer. Such period begins on the date the
Employee retir'es, quits or is discharged. ot if earlier,
the 12 month anniversary of the date on which the Employee
was otherwise first absent from service.
In the case of an individual who is absent from work for
maternity or paternity reasons, the 12 consecutive month
period beginning on the first anniversary of the first
date of such absence shall not constitute a break in
service. For putposes of this paragraph, an absence from
work for maternity or paternity reasons means an absence
(1) by reason of the pregnancy of the individual, (2) by
reason of the birth of a child of the individual, (3) by
reason of the placement of a child with the individual in
connection with the adoption of such child by such
individual, or (4) for purposes of caring for such child
for a period beginning immediately following such birth or
placement.
Each Employee will share in Employer Contributions for the
period beginning on the date the Employee commences
panicipation under the Plan and ending on the date on
which such Employee severs employment with the Employer or
is no longer a member of an eligible class of Employees.
If the Employer is a member of an affiliated service group
(under Section 414(m) of the Code), a controlled group of
corporations (under Section 414(1)) of the Code), a group
of trades or businesses under common control (under
Section 414(c) of the Code), or any other entity required
to be~aggregaed with the Employer pursuant to Section
414(o) of the Code, service will be credited for any
employment for any period of time for any other member of
such group. Service will also be credited for any
individual required under Section 414(n) or Section 414(o)
to be considered an Employee of any Employer aggregated
under Section 414(1)), (c), or (m) of the Code.
2.08 ELECTION NOT TO PARTICIPATE
This Section 2.08 will apply if this Plan is a
nonstandardized plan and the Adoption Agreement so prov
ides. If this Section applies. then an Employee or a
Participant may elect not to par'ticipate in the Plan for
one or more Plan Years. The Employer may not contribute
for an Employee or Participant for any Plan Year during
which such Employee's or Participant's election not to
participate is in effect. Any election not to participate
must be in writing and filed with the
Plan Administrator.
The Plan Administrator shall establish such uniform and
nondiscriminatory rules as it deems necessary or advisable
to carry out the terms of this Section, including, but not
limited to, rules prescribing the timing of the filing of
elections not to participate and the procedures for
electing to re-participate in the Plan.
An Employee or Participant continues to earn credit for
vesting and eligibility purposes for each Year of Vesting
Service or Year of Eligibility Service he or she completes
and his or her Individual Account (if any) will share in
the gains or losses of the Fund during the periods he or
she elects not to participate.
SECTION THREE CONTRIBUTIONS
3.01 EMPLOYER CONTRIBUTIONS
A. Obligation to Contribute - The Employer shall make
contributions to the Plan in accordance with the
contribution formula specified in the Adoption
Agreement. If this Plan is a profit sharing plan.
the Employer shall, in its sole discretion, make
contributions without regard to cueent or
accumulated earnings or profits.
B. Allocation Formula and the Right to Share in the
Employer Contribution -
1. General - The Employer Contribution for any
Plan Year will be allocated or contributed to
<PAGE>
the Individual Accounts of Qualifying
Participntts in accordance with the allocation
or contribution formula specified in the
Adoption Agreement. The Employer Contribution
for any Plan Year will be allocated to each
Participant's Individual Account as of the
last day of that Plan Year.
Any Employer Contribution for a Plan Year must
satisfy Section 401 (a)(4) and the regulations
thereunder for such Plan Year.
2. Qualifying Participants - A Participant is a
Qualifying Participant and is entitled to
share in the Employer Contribution for any
Plan Year if the Participant was a Participant
on at least one day during the Plan Year and
satisfies any additional conditions specified
in the Adoption Agreement. If this Plan is a
staindardized plan, unless the Employer
specifies more favorable conditions in the
Adoption Agreement, a Participant will not he
qualifying Participant for a Plan Year if he
or she incurs a Termination of Employment
during such Plan Year with not more thau 500
Hours of Service if he or~se is not an
Employee on the last day of the Plan Year. The
determination of whether a Participant is
entitled to share in the Employer Contribution
shall be made as of the last day of each Plan
Year.
9
<PAGE>
3. Special Rules for Integrated Plans - This Plan may not allocate
contributions based on an integrated formula if the Employer
maintains any other plan that provides for allocation of
contributions based on an integrated formula that benefits any of
tie same Participants. If the Employer has selected the integrated
contribution or allocation formula in the Adoption Agteement, then
the maximum disparity rate shall be determined in accordance with
the following table.
<TABLE>
<CAPTION>
MAXIMUM DISPARITY RATE
<S> <C> <C> <C>
Top-Heavy Nonstandardized and
Integration Level Money Purchase Profit Sharing Non-Top-Heavy Profit Sharing
Taxable Wage Base (TWB) 5.7% 2.7% 5.7%
More than $0 but not more
than 20% of TWB 5.7% 2.7% 5.7%
More than 20% of TWB but
not more than 80% ofTWB 4.3% 1.3% 4.3%
More than 80% of TWB but
not more than Twil 5.4% 2.4% 5.4%
</TABLE>
C. Allocation of Forfeitures - Forfeitures for a Plan Year which arise as a
result of the application of Section 6.01(D) shall be allocated as
follows:
1.Profit SItaring Plan - If this is a profit sharing plan. unless
the Adoption Agreement indicates otherwise, Forfeitures shall be
allocated in the mariner provided in Section 3.01$) (for Employer
Contributions) to the Individual Accounts of Qualifying Participants
who are entitled to share in the Employer Contribution for such Plan
Year. Forfeitures shall be allocated as of the last day of the Plan
Year during which the Forfeiture arose (or any subsequent Plan Year
if indicated in the Adoption Agreement).
2. Money Purchase Pension and Target Benefit Plan - rf this Plan is a
money purchase plan or a target benefit plan, unless the Adoption
Agreement indicates otherwise, Forfeitures shall be applied towards
the reduction of Employer Contributions to the Plan. Forfeitures
shall be allocated as of the lastday of the Plan Year during which
the Forfeiture arose (or any subse:luent Plan Year if irttlicated in
the Adoption Agreement).
D. Timing of Employer Contribution The Employer Contribution for each Plan
Year shall be delivered to the Trustee (or Custodian, if applicable) not
later than the due date for filing the Employer's income tax return for
its fiscal year in which the Plan Year ends, including extensions thereof.
E. Minimum Allocation for Top-Heavy Plans - The contribution and allocation
provisions of this Section 3.01(E) shall apply for any Plan Year with
respect to which this Plan is a TowHeavy Plan.
1.Except as otherwise provided in (3) and (4) below, the Employer
Contributions and Forfeitures allocated on behalf of any Participant
who is not a Key Employee shall not be less than the lesser of 3% of
such Participant's Compensation or (in the case where the Employer
has to defiitetl benefit plan which designates this Plan to satisfy
Section 401 of the Codd) the largest percentage of Employer
Contributions and Forfeitures, as a pecenage ofthe ftrst $200,000
($150,000 for Plan Years beginning after December 31, 1993),
(increased by any cost of living adjustment made by the Secretary of
Treasry or the Secretary's delegate) of the Key Employee's
Cotnpensation, allocated on behalf of any Key Employee for that
year. The minirnum allocation is determined without regard to any
Social Seurity contribution. The Employer may, in the Adoption
Agreement, limit the Participants who are entitled to rcceive the
minitnum allocation. This minimum allocation shall be made even
though under other Plan provisions, the Participant would not
otherwise be entitled to receive an allocation, or would have
received a lesser allocation for the year because of (a) the
Participant's failure to complete 1.000 Hours of Service (or any
equivalent provided in the Plan), or Eb) the Participant's failure
to make mandatory Nondeductible Employee Contributions to the Plan,
or (c) Compensation less than a stated amount.
2. For purposes of computing the minlmum allocation, Compensation shall
mean Compensation as defined in Section 1.07 of the Plan and shall
include any amottnts contributed by the Employer pursuant to a
salary reduction agreement and which is not includible in the gross
income of the Employee under Sections 125, 402(e)(3), 402(11)(I)$)
or 403~)
<PAGE>
of the Code even if the Employer has elected to exclude such
contributions in the definition of Compensation used for other
putposes under the Plan.
10
<PAGE>
3. The provision in (1) above shall not apply to any
Panicipant who was not employed by the Employer on the
last day of the Plan Year.
4. The provision in (1) above shall not apply to any
Participant to the extent the Participant is covered
under any other plan or plans of the Employer and the
Employer has provided in the adoption agreement that the
minimum allocation or benefit requirement applicable to
Top-Heavy Plans will be met in the other plan or plans.
S. The minimum allocation required under this Section 3.O1E)
and Section 3.Ol(I)(1) (to the extent required to be
nonforfeitable under Code Section 416cb)) may nor be
forfeited under Code Section 411(ay3)(13) 0r411(a)(3)CD).
F. Special Requirements for Paired Plans - The Employer maintains
paired plans if the Employer has adopted both a standardized
profit sharing plan and a s~ndardized money purchase pension
i,lan using this Basic Plan Document.
1. Minimum Allocation - When the paired plans are towheavy,
the top-heavy requirements set forth in Section 3.01~)(1)
ofthe Plan shall apply.
a. Same eligibility requirements. In satisfying the
top-heavy minirnum allocation requirements set forth
in Section 3.01 CE) of the Plan, if the Employees
benefiting under each of the paired plans are
identical, the top~heavy minimum allocation shall be
made to the money purchase pension plan.
b. Different eligibility requirements. In satisfying the
tol-heavy minimum allocation req tiirements set forth
in Section 3.O1E) of the Plan, if the Employees
benefiting under each of the paired plans are not
identical, the top~heavy minimum allocation will be
niatle to both of the paired plans.
A Participant is treated as benefiting under the Plan for
any Plan Year during which the Participant received or is
deetned to receive an allocation in accordance with
Section 1 .410(!,)-3(a).
2. Only One Plan Can Be Integrated - If the Employer
maintains paired plans. only one of the Plans may provide
for the disparity in contributions which is permitted
under Section 401(I) of the Code. In the event that both
Adoption Agreements provide for such integration, only
the money purchase pension plan shall be deemed to be
integrated.
G. Return of the Employer Contribution to the Employer Under
Special Circumstances - Any contribution made by the Employer
because of a mistake of fact must be returned to the Employer
within one year of the contribution.
In the event that the Commissioner of Interntl Re, venue
determines that the Plan is not initially qualified under the
Code, any contributions made incident to that initial
qualification by the Employer must be returnetl to the
Employer within oneyear after the date the initial
qualification is denied, but only if the application for
qualification is rnade by the time prescribed by law for
filing the Employcras return for the taxable year in which the
Plan is adopted, or such later date as the Secretary of the
Treasury may prescribe.
In the event that a contribution made by the Employer under this
Plan is conditioned on deductibility and is not deductible under
Code Section 404, the contribution, to the extent of the amount
disallowed, must be returned to the Employer within one year
after the deduction is disallowed.
H. Omission of Participant
1.If the Plan is a money purchase plan or a target benefit
plan and, if in any Plan Year, any Employee who should be
included as a Participant is erroneously omitted and
discovery of such omission is not made until after a
contribution by the Employer tor the year has been mittle
and allocated. the Employer shall make a subsequent
contribution to include earn- thereon, with respect to the
omitted Employee in the amount which the Ernplbyer would
have contributed with respect to that Employee had he or
she not been omitted.
<PAGE>
2. If the Plan is a profit sharing plan, and if in any Plan
Year, any Employee who should be included as a Participant
is erroDeously omitted and discovery of such omission is
not made until after the Employer Contribution has been
made and allocated, then the Plan Adininistrator must
re-do the allocation (if a corccction can be made) and
infbrm the Employee. Alternatively, the Employer may
choose to contribute for the omitted Employee the amount
to include earnings thereon, which the Employer would have
contributed for the Employee.
3.02 NONDEDUCTIBLE EMPLOYEE CONTRIBUTIONS.
This Plan will not accept Nondeductible Employee Contributions and
matching contributions for Plan Years beginning after the Plan Year
in whicli this Plan is adopted by the Employer. Nondeductible
Employee Contributions for Plan Years beginning after December 31,
1986, together with any matching contributions as defined in Section
401(m) of the Code, will be limited so as to meet the
nondiscrimination test of Section 401(m) of the Code.
11
<PAGE>
A separate account will be maintained by the Plan Administrator for
the Nondeductible Employee Contributions of each Participant.
A Participant may. upon a written request subrniued to the Plan
Administrator withdraw the lesser of the portion of his or her
Individual Account attributable to his or her Nondeductible Employee
Contributions or the amount he or she contributed as Nondeductible
Employee Contributions.
Nondeductible Employee Contributions and earnings thereon will be
nonforfeitable at all times. No Forfeiture will occu. solely as a
result of an Employee's withdrawal of Nondeductible Employee
Contributions.
The Plan Administrator will not accept deductible employee
contributions which are made for a taxable year beginning after
December 31, 1986. Contributions nade prior to that date will be
maintained in a separate account which will be nonforfeitable at all
times. The account will share in the gains and losses of the Fund in
the same manner as described in Section 4.03 of the Plan. No part of
the deductible employee contribution account will be used to
purchase life insurance. Subject to Section 6.05. joint and survivor
annuity requirements (if applicable). the Participant may withdraw
any part of the deductible employee contribution account by mikcing
a written application to the Plan Administrator.
3.03 ROLLOVER CONTRThUnONS
If so indicated in the Adoption Agreement, an Employee may
contribute a rollover contribution to the Plan. The Plan
Administrator may require the Employee to submit a wrinen
certification that the contribution qualifies as a rollover
contribution under the applicable provisions of the Code. If it is
later determined that all or pan of a rollover contribution was
ineligible to be rolled into the Plan, the Plan Administrator shall
direct that any ineligible amounts. plus earnings attributable
thereto, be distributed from the Plan to the Employee as soon as
administratively feasible.
A separate account shall be maintained by the Plan Administrator for
each Employee's rollover contributions which will be nonforfeitable
at all times. Such account will share in the income and gains and
losses of the Fund in the manner described in Section 4.03 and shall
be subject to the Plan's provisions governing distributions.
The Employer MAY, in a uniform and nondiscriminatory manner, only
allow Employees who have become Participants in the Plan to make
rollover contributions.
3.04 TRANSFER CONTRIBUTIONS
If so indicated in the Adoption Agreement, the Trustee (or
Custotlian, if applicable) may receive any amounts transferred to it
from the trustee or custodian of another plan qualified uner Code
Section 401(a). If it is later determined that all or part of a
transfer contribution was ineligible to be transferred into the
Plan, the Plan Administrator shall direct that any ineligible
amounts. plus earnings attributable thereto, be distributed from the
Plan to the Employee as soon as administratively feasible.
A serate account shall be maintained by the Plan Administrator for
each Employee's transfer contributions which will be nonforfeitable
at all times. Such account will share in the income anti gains and
losses of the Fund in the manner described in Section 4.03 and shall
be subject to the man's provisions governing distributions.
The Employer may, in a uniform anti nondiscriminatory manner, only
allow Employees who have become Participants in the Plan to make
transfir contributions.
3.05 LIMITATIONS ON ALLOCATIONS
A. If the Participant does not participate in, and has never participated in
another qualified plan maintained by the Employer or a welfare benefit
find, as defined in Section 419(e) of the Code matintained by the
Employer. or an individual medical account. as defined in
Sectiori4lS(l)(2) of the Code, or a simplified employee pension plan, as
defined in Section 408~) of the Code, maintained by the Employer, which
provides an annual addition as defined in Section 3.OSE)(l). the following
rules shall apply:
1. The amount of anuual additions which may be credited to
the Participant's Individual Account for any limitation
year will not exceed the lesser of the maximum permissible
amount or any other limitation contained in this Plan. If
the Employer Contribution that would otherwise be
contributed or allocated to the Participant's Individual
Account would case the annual additions for the limltation
year to exceed the maximum permissible amount, the amount
contributed or allocated will be reduced so that the
annual additions for the limitation year will equal the
maximum permissible amount.
2. Prior to determining the Participant's actual
Compensation for the limitation year, the Employer may
determine the naximum permissible amount for a
Participant on the basis of a reasonable estimation of
the Participant's Compensation for the limitation year.
uniformly determined for all Panic ipants similarly
situated.
12
<PAGE>
3 As soon as is administratively feasible after the end of the
limitation year, the maximum permissible amount for the limitation
year will be determined on the basis of the Participant's actual
Compensation for the limitation year.
4. If pursuant to Section 3.OS(A)(3) or as a result of the allocation of
Forfeitures there is an excess amount, the excess will be disposed
ofas follows:
a. Any Nondeductible Employee Contributions, to the extent they
would reduce the excess amount. will be returned to the
Participant:
b. If after the application of paragraph (a) an excess amount still
exists, and the Participant is covered by the Plan at the end of
the limitation year, the excess amount in the Participant's
Individual Account will be used to reduce Einployer
Contributions (including any allocation of Forfeitures) for such
Participant in the next limitation year, and each succeeding
limitation year if necessary:
c. If after the application of paragraph q)) an excess amount still
exists, and the Participant is not covered by the Plan at the
end of a limitation year the excess amount will be held
unallocated in a suspense account. The suspense account will be
appued to reduce fixture Employer Contributions (including
allocation of any Forfeitures) for all remaining Participants in
the next limitation year, and each succeeding limitation year if
necessary:
d. If a suspense account is in existence at any time during a
limitation year pursuant to this Section, it will not
participate in the allocation of the Fund's investment gains and
losses, If a suspense account is in existence at any time during
a particular limitation year, all amounts in the suspense
account must be allocated and reallocated to Participants'
Individual Accounts before any Employer Contributions or any
Nondeductible Employee Contributions may be made to the Plan for
that limitation year. Excess amounts may not be distributed to
Participants or former Participants.
B. If, in addition to this Plan, the Participant is covered under another
qualified master or prototype defined contribution plan maintained by the
Employer, a wel tire benefit Aind maintained by the Employer. an
individual med ical account maintained by the Employer. or a simplified
employee pension maintained by the Employer that provides an ar-mi
addition as defined in Section 3.O5~)(l), during any limitation year, the
following rules apply:
1. The annual additions which may be credited to a Participant's
Individual Account under this Plan for any such limitation year will
not exceed the maximi;n permissible amount reduced by the annual
additions credited to a Participant's Individual Account under the
other qualified nsaster or prototype plans, welfire benefit finds,
individual medical accounts and simplified employee pensions for the
same limitation year. If the annual additions with respect to the
Participant under other qualified naaster or prototype defined
contribution plans. welfare benefit flinds, individual medical
accounts and simplified employee pensions maintained by the Employer
are less than the rnaximutn permissible amount and the Employer
Contribution that would otherwise be contributed or allocated to the
Participant's Individual Account under this Plan would cause the
annual additions for the limitation year to exceed this limitation,
the amount contributed or allocated will be reduced so that the
annual additions under all such plans and Ainds for the limitation
year will equal the naaximuna permissible amount. If the ~nn',pI
additions with respect to the Participant under such other qualified
master or prototype defined contribution plans, welfare benefit
Thrids, individual medical accounts and simplified employee pensions
in the aggregate are equal to or greater than the maximum permissible
amount, no amount will be contributed or allocated to the
Participant's Individual Account under this Plan for the limitation
year.
2. Prior to determining the Participant's actual Compentation for the
limitation year, the Employer may determine the maximum permissible
amount lor a Participant in the manner described in Section
3.OS(A)(2).
3. As soon as is administratively feasible after' the end of the
limitation year, the maximum pelnissible amount for the limitation
year will be determined on the basis of the Participant's actual
Compensation for the limitation year.
4. If, pur"suant to Section 3.O5~)(3) or as a result of the allocation
of Forfeinires a Participant's annual additions under' this Plan and
such other plans would result in an excess amount for a limitation
year. the excess amount will be deemed to consist of the annual
additions last allocated, except that annual additions anributable to
a simplified employee pension will be deemed to have been allocated
first. followed by annual additions to a welfare benefit find
<PAGE>
or individual medical account, regarrlless of the actual allocation
date.
5. If an excess amount was allocated to a Participant on an allocation
date of this Plan which coincides with an allocation date of another
plan. the excess amount' attributed to this Plan will be the product
of,
a. the total excess amount allocated as of such date, times
13
<PAGE>
b. the ratio of (I) the annual additions allocated to the
Participant for the limitation year as of such date under this
Plan to (ii) the total annual additions allocated to the
Participant for the limitation year as of such date under this
and all the other qualified prototype defined contribution
plans.
6. Any excess amount anributed to this Plan will be disposed in the
manner described in Section 3.0S(A)(4).
C. If the Participant is covered under another qualified defined contribution
plan maintained by the Employer which is not a master or prototype plan,
annual additions which may be credited to the Panicipant~s Individual
Account under this Plan for any limitation year will be limited in
accordance with Sections 3.OSB)(1) through 3.05(13)(6) as though the other
plan were a master or prototype plan unless the Employer provides other
limitations in the Section of the Adoption Agreement titled "Limitation on
Allocation - More Than One Plan."
D. If the Employer maintains, or at any time maintained4 a qualified defined
benefit plan covering any Participant in this Plan, the sum of the
participant's defined benefit plan fiaction and defined contribution plan
fraction will not exceed 1.0 in any Itmitation year. The annual additions
which may be credited to the Participant's Individual Account under this
Plan for any limitation year will be limited in accordance with the
Section of the Adoption Agreement titled "Limitation on Allocation - More
Than One Plan."
E. The following terms shall have the following meanings wben ueetl in this
Section 3.05:
1. Annual additions: The sum of the following amounts credited to a
Participant's Individual Account for the limitation year:
a. Employer Contributions,
b. Nondeductible Employee Contributions,
c. Forfeirnres,
d. amounts allocated, after March31, 1984, to an individual medical
account, as defined in Section 415(l)(2) of the Code, which is
part of a pension or annuity plan maintained by the Employer are
treated as annual additions to a defined contribution plan. Also
amounts derived from contributions paid or accrued after
December 31, 1985, in taxable years ending after such date,
which are attributable to post-retirement medical benefits,
allocated to the separate account of a lecy employee, as defined
in Section 419A(d)(3) of the Code, under a weltart benefit find.
as defined in Section 419(e) of the Code, maintained by the
Employer are treated as annual additions to a defined
contribution plan. and
e. allocanons under a sinplifled employee pension.
For this purpose, any excess amount applied under Section 3.05(A)(4)
or 3.05$)(6) in the limitation year to reduce Employer Contributions
will be considered annual additions for such limitation year.
2. Compensation: Means Compensation as defined in Section 1.07 of the
Plan except that Compensation for purposes of this Section 3.05 shall
not include any amounts contributed by the Employer pursuant to a
salary reduction agreement and which is not includible in the gross
income of the Employee under Sections 125, 402(e)(3), 402(11)(1)(11)
or 403~) of the Code even if the Employer has elected to include such
contributions in the definition of Compensation used for other
purposes under the Plan. Further, any other exclusion the Employer
has elected (such as the exclusion of certain tyees of pay or pay
earned~betore the Employee enters the Plan) will not apply for
purposes of this Section.
Notwithstanding the preceding sentence, Compensation for a
Participant in a defined contribution plan who is permanently and
totttlly disabled (as defined in Section 22(e)(3) of the Code) is the
Compensation such Participant would have received for the limitation
year if the Participant had been paid at the rate of Compensation
paid immediately before beconiiing perinanently and totally disabled;
such imputed Compensation for the disabled Participant may be taken
into account only if the Participant is not a Highly Compensated
Employee (as defined in Section 414(q) of the Code) and contributions
made on behalf of such Participant are nonforfeitable when made.
3. Defined benefit fraction: A fraction, the numerator of which is the
sum of the Participant's projected annual benefits
<PAGE>
under all the defined benefit plans (whether or not terminated)
maintained by the Employer, and the denominator of which is the
lesser of 125% of the dollar timltation determined for the limitation
year under Section 415Th) and (d) of the Code or 140% of the highest
average compensation, including any adjustments under Section 415~)
of the Code.
14
<PAGE>
Notwithstanding the above, if the Participant was a Participant as of the
first day of the first limitation year beginning after December31, [986, in
one or more defined benefit plans maintained by the Employer which were in
existence on May 6, 1986, the denominator of this fraction will not be less
than 125% of the sum of the annual benefits under such plans which the
Participant had accrued as of the close of the last limitation year
beginning before January 1,1987, disregarding any changes in the terms and
conditions of the plan after May 5, 1986. The preceding sentence applies
only if the defined benefit plans individually and in the aggregate
satisfied the requirements of Section 415 of the Code for all limitation
years beginning before January 1, 1987.
4. Defined contribution dollar limitation: $30,000 or if greater, one-fourth
of the defined benefit dollar limitation set tordi in Section 415()))(1)
of the Code as in efiect for the limitation year.
5. Defined contribution fraction: A flution, the numerator of which is the
sum of the annual additions to the Participant's account under all the
defined contribution plans (whether or not terminated) maintained by the
Employer for the current and all prior limitation years (including the
annual additions auributable to the Participant's nondeductible employee
contributions to all defined benefit plans. whether or not terminated,
maintained by the Employer, and the annual additions attributable to all
welfare benefit hinds, as defined in Section 419(e) of the Code,
individual medical accounts, and simplified employee pensions, maintained
by the Employer), and the denominator of which is the Sum of the maximum
aggregate amounts for the current and all prior limitation years of
service with the Employer (regardless of whether a defined contribution
plan was maintained by the Employer). The maximum aggregate amount in any
limitation year is the lesser of 125% of the dollar limitation determined
under Section 415~) and (d) of the Code in effect under Section
415(c)(1)(A) of the Code or 35% of the Participant's Compensation for such
year.
If the Employee was a Participant as of tile end of the first day of the
first limitation year beginning after December 31, 1986, in one or more
defined contribution plans maintained by the Employer which were in
existence on May 6, 1986, the numerator of this fraction will be adjusted
if the sum of this fraction and the defined benefit fraction would
otherwise exceed 1.0 under the terms of this Plan. Under the adjustment,
an amount equal to the product of (1) the excess of the sum of the
fractions over 1.0 times (2) the denominator of this fraction, will be
permanentiy subtracted from the numerator of this fraction. The adjustment
is calculated using the fractions as they would be computed as of the end
of the last limitation year beginning before January 1, 1987, and
disregarding any ctllnges in tile terms and conditions ofthe Plan made
after May 5, 1986, but using the Section 415 limitation applicable to the
first Ijinitation year beginning on or after January 1,1987.
The annual addition for any limitation yed beginning betore January
1,1987, slaa[l not be recomputed to treat all Nondeductible Employee
Contributions as annual additions.
6. Employer: For purposes of this Section 3.05, Employer shall mean the
Employer that adopts this Plan, and all members of a controlled group of
corporations (as defined in Section 414(b) of the Code as modified by
Section 415qi)), all commonly controlled trades or businesses (as defined
in Section 414(c) as modified by Section 415Qi)) or affiliated service
groups (as defined in Section 414(m)) of which the adopting Employer is a
part. and any other entity rejrn red to be aggregated with the Employer
pursuant to regulations under Section 414(o) of the Code.
7. Excess amount: The excess of the Participant's annual additions for the
linnation year over the maximum permissible amount.
8. Highest average compensation: The average compensation for the three
consecutive years of service with the Employer that produces the highest
average.
9. Limitation year: A caletndar year, or tile 12~nsecutive month period
elected by the Employer in the Adoption Agreement. All qualified plans
maintained by the Employer must use the same limitation year. If the
limitation year is amended to a different 12~neecutive month period, the
new limitation year must begin on a date within the limitation year in
which the amendment is made.
10, Master or prototype plan: A plan the form of which is tile subject of a
favorable opinion letter from the Internal Revenue Service.
11. Maximum permissible amount: The niiiximum ar-mi addition that may be
contributed or allocated to a Participant's Individual Account under
therlan for any limitation year shall not exceed the lesser of:
<PAGE>
a. the defined contribution dollar limitation. or
b. 25% of the Participant's Compensation for the limitation year.
The compensation limitation refened to in ~) shall not apply to any
contribution for medical benefits (within the meaning of Section 401(11) or
Section 419A(f)(2) of the Code) which is otherwise treated as an annual
addition under Section 415(l)(l) or 419A(d)(2) of the Code.
15
<PAGE>
If a short Jimitation year is created because
of an amendment changing the limitation year
to a different 12-consecutive month period,
the maximum permissible amount will not exceed
the defined contribution dollar limitation
multiplied by the following fraction:
Number of months in the shon limitation year
--------------------------------------------
12
12. Projected annual benefit: The annual
retirement benefit (adjusted to an actuarially
equivalent straight life annuity if such
benefit is expressed in a form other than a
straight life annuity or qualified joint and
survivor annuity) to which the Participant
would be entitled under the terms of the Plan
assuming:
a. the Participant will continue employment
until Normal Retirement Age under the Plan
(or current age, if later), and
b. the Participant's Compensation for the
current limitation year and all other
relevant factors used to determine benefits
under the Plan will remain constant for all
fliture limitation years.
Straight life annuity means an annuity payable
in equal installments for the life of the
Participant that terminates upon the
Participattts's death.
SECTION FOUR INDWIDUAL ACCOUNTS OF PARTICIPANTS AND VALUATION
4.01 INDIVIDUAL ACCOUNTS
A. The Plan Administrator shall establish and maintain
an Individual Account in the name of each
Participant to reflect the total value of his or
her interest in the Fund. Each Individual Account
established hereunder shall consist of such
subaccounts as may be needed for each Participant
including:
1. a subaccount to reflect Employer Contributions
and Forfeitures allocated on behalf of a
Participant:
2. a subaccount to reflect a Participant's
rollover contributions;
3. a subaccount to reflect a Participant's
transfer contributions;
4. a subaccount to reflect a Participant's
Nondeductible Employee Contributions: and
5. a subaccount to reflect a Participant's
deductible employee contributions.
B, The Plan Admirristrator may establish additional
accounts as it may deem necessary' for the proper
administration of the Plan, including, but not
limited to. a suspense account for Forfbituees as
required pursuant to Section 6.01w).
4.02 VALUATION OF FUND
The Fund will be valued each Valuation Date at flair
tuarket value.
4.03 VALUATION OF INDIVIDUAL ACCOUNTS
A. Where all or a portion of the assets of a
Participant's Individual Account are invested in a
Separate Fund for the Participant, then the value
of that portion of such Participant's Individual
Account at any relevant time equals the sum of the
flair market values of the assets in such Separate
Fund, less any applicable charges or penalties.
B. The fair ruarket value of the renainder of each
Individual Account is determined in the following
manner:
1. First, the portion of the Individual Account
invested in each Investment Fund as of the
previous Valuation Date is determined. Each
such portion is reduced by any withdrawal made
from the applicable Investment Fund to or for
the benefit of a Participant or the
Participant's Beneficiary, flintier reduced by
any amounts forfeited by the Participant
<PAGE>
pursuant to Section 6~O1~) and flintier
reduced by any transfer to another Investment
Fund since the previous Valuation Date and is
increased by any amount transfrned from
another Investment Fund since the previous
Valuation Date. The resulting amounts are the
net Individual Account portions invested in
the Investment Funds.
2. Secondly, the net Individual Account portions
invested in each Investmettt Fund are adjusted
upwards or downwards, pro ran (i.e., ratio of
each net Individual Account portion to the sum
of all net Individual Account portions) sothat
the sum of all the net Individual Account
portions invested in AN Investment Fund will
equal the then fair market value of the
Investment Fund. Notwithstanding the previous
sentence, ior the first Plan Year only, the
net Individual Account portions shall be the
sum of all contributions made to each
Participant's Individual Account during the
ftsst Plan Year.
16
<PAGE>
3. Thirdly, any contributions to the Plan and
Forfeitures are allocated in accordance with
the appropriate allocation provisions of
Section 3' For purposes of Section 4,
contributions made by the Employer for any
Plan Year but after that Plan Year will be
considered to have been made on the last day
of that Plan Year regardless of when paid to
the Trustee (or Custod ian, if applicable).
Amounts contributed between Valuation Dates
will not he credited with investment gains or
losses until the next following Valuation
Date,
4 Finally, the portions of the rndivi dual
Account invested in each Investment Fund
(determined in accordance with (1), (2) and
(3) above) are added together.
4.04 MODIFICATION OF METHOD FOR VALUING INDIVIDUAL ACCOUNTS
If necessary or appropriate, the Plan Administrator may
establish different or additional procedures (which shall
be uniform and nondiscriminatory) for determining the
fair market value of the Individual Accounts.
4.05 SEGREGATION OF ASSETS
If a Participant elects a mode of distribution other than
a lump sum, the Plan Administrator may place that
Panicipant 'S account balance into.a segregated
Investment Fund for the purpose of maintaining the
necessary liquidity to provide benefit installments on a
periodic basis.
4.06 STAThMENT OF INDIVIDUAL ACCOUNTS
No later than 270 days after the close of each Plan Year,
the Plan Adininistrator shall firnish a statement to each
Participant indicating the Individual Account balances of
such Participant as of the last Valuation Date in such
Plan Year.
SECTION FIVE
TRUSTEE OR CUSTODIAN
5.01 CREATION OF FUND
By adopting this Plan, the Employer establishes the Fund which shall
consist of the assets of the Plan held BY THE Tr'ustee (or Cuodian,
if applicable) pursuant to this Section 5. Assets within the Fund
may be pooled on behalf of all Participants, eartnarketl on behalf
of each Participant or be a combination of pooled and earmarked. To
the extent that assets are earmarked for a particular Participant.
they will be held in a Separate Fund for that Participant.
No part of the corpus or income of the Fund may be used
for, or diverted to, puposes other than for the exclusive
benefit of Participants or their Beneficiarles.
5.02 INVESTMENT AUTHORITY
Except as provided in Section 5.14 (relating to
individual direction of investments by Participants), the
Employer, not the Trustee (or Custodian, if applicable),
shall have exclusive management and control over the
investment of the Fund into any permined investment.
Notwithstanding the preceding sentence, a Trustee may
make an agreement with the Employer whereby the Trustee
will manage the uvet~ent of all or a portion of the Fund.
Any such agreetnent shall be in writing and set forth
such matters as the Trustee deems necessary or desirable.
5.03
FINANCIAL ORGANIZATION CUSTODIAN OR TRUSTEE WITHOUT FULL mUST POWERS
This Section 5.03 applies wlieie a financial organization has indicated in the
Adoption Agreement that it will serve, with respect to this Plan, as Cutoodian
or as Trustee without hill tiust powers (under applicable law). Hereinafter, a
financial organization Trt,stee without hill mast powers (under applicable law)
shall be relened to as a Custodian. The Custodian shall have no discretionary
authority with r'espect to the management of the Plan or the Fund but will act
only as directed by the entity who has such authority.
A. Permissible Investments - The assets of the Plan
shall be invested only in those investments
<PAGE>
which are available tlirough the Custodian in the
ordinary course of business which the Cutoodian may
legally hold in a qualified plan and which the
Custodian cliooses to make available to Employers
for qualified plan investments. Notwithstanding the
preceding sentence, the Prototype Sponsor my, as a
condition of making the Plan available to the
Employer, limit the types ofproperty in which the
assets ofthe Plan my be invested.
B. Responsibilities of the Custodian - The
responsibilities of the Custodian shall be limited
to the following:
1. To receive Plan contributions and to hold,
invest and reinvest the Fund without
distinction between principal and INTEREST;
provided, bowever, that nothing iji this Plan
shall require the Custodian to maintain
physical custody of stock certificates (or
other indicia of ownership of any type of
asset) representing assets within the Fund;
2. To maintain accurate records of contributions,
earnings, witlidrawals and other information
the Custodian deems relevant with respect to
the Plan;
3. To make disbursemetits from the Fund to
Participants or Beneficiaries upon the proper
authorization of the Plan Administrator; and
17
<PAGE>
4. To furnish to the Plan Administrator a statement which
reflects the value of the investments in the hands of the
Custodian as of the end of each Plan Year and as of any
other times as the Custodian and Plan Administrator may
agree.
C. Powers of the Custodian - Except as otherwise provided in this
Plan, the Custodian shall have the power to take any action
with respect to the Fund which it deems necessary or advisable
to discharge its responsibilities under this Plan including,
but not limitetl to, the following powers:
1. To invest all or a portion of the Fund (including idle
cash balances) in time deposits. savings accounts, money
market accounts or similar investments bearing a
reasonable rate of interest in the Custodian's own
savings department or the savings department of another
financial orgatnitation;
2, To vote upon any stocks, bonds, or other securities; to
give general or special proxies or powers of attorney
with or without power of substimtion; to exercise any
conversion privileges or subscription rights and to make
any payments incidental thereto; to oppose, or to consent
to, or otherwise participate in. corporate
reorganizations or other changes affecting corporate
sectirities, and to pay any assessment or charges in
connection therewith; and generally to exercise any of
the powers of an owner with respect to stocks. bonds,
securities or other property;
3. To hold securities or other property of the Fund in its
own name. in the name of its nominee or in bearer fortn;
and
4. To make, execute, acknowledge, and deliver any and all
documents of transfer and conveyance and any and all
other instruments that may be necessary or appropriate to
carry out the powers herein granted.
5.04
FINANCIAL ORGANIZATION TRUSTEE WITH FULL TRUST POWERS AND INDIVIDUAL ThUSThE
This Section 5.04 applies where a financial organization has indicated in the
Adoption Agreement that it will serve as Trustee with full trust powers. This
Section also applies where one or more individuals are named in the Adoption
Agreement to serve as Trustee(s).
A. Permissible Investments - The Trustee may invest the assets of
the Plan in property of any character, real or personal,
inelutling, but not limited to the following: stoclts,
including shu~ of open~nd investment companies (mutual firMs);
bonds; notes; debeneures: options; limited partnership
interests; mortgages; real estate or any interests therein;
unit investment mists; Treasury Bills, and other U.S.
Government obligations; common trust flinds, combined
investment trusts, collective mist fonds or commingled firMs
maintained by a bank or similar financial organization
(whether or not the Trustee hereunder); savings accounts, time
deposits or money market accounts of a bank or similar
financial organization (whether or not the Trustee hereunder);
annuity contracts; life insurance policies; or in such other
investments as is deemed proper without regard to investtnents
authorized by statute or rule of law governing the investment
of trust funds but with regar:l to EUSA and this Plan.
Notwithstanding the precccling sentence, the Prototype Sponsor
may, as a condition of making the Plan available to the
Employer, limit the types of property in which the assets of
the Plan may be invested.
B. Responsibilines of the Truetee - The responsibilities of the
Trustee shall be limited to the following:
1. To receive Plan contributions and to bold, invest and
reinvest the Fund without distinction between principal
and interest; provided, however, that nothi'ng in this
Plan shall require the Trustee to maintain physical
custody of stock certificates (or other indicia of
ownership) representing assets within the Fund;
2. To maintain acurate records of contributions, earnings,
withdrawals and other information the Trustee deems
relevant with respect to the Plan;
3. To raake disbursements from the Fund to Participants or
Beneficiaries upon the proper authorization of the Plan
Adininistrator, and
4. To flinlish to the Plan Administrator a statement which
reflects the value of the investments in the
18
<PAGE>
hands of the Trustee as of the end of each Plan Year and
as of any other times as the Trustee and Plan
Administrator may agree.
C. Powers of the Trustee - Except as otherwise provided in this
Plan, the Trustee shall have the power to take any action with
respect to the Fund which it deems necessary or advisable to
discharge its responsibilities under this Plan including, but
not ljniitel to, the following powers:
I. To bold any securities or other property of the Fund in
its own name, in the name of its nominee or in bearer
fbrm;
18
<PAGE>
2. To purchase or subscribe for securities issued. or real
property owned, by the Employer or any trade or business
under common control with the Employer but only if the
prudent investment and diversification requirements of
ERISA are satisfied;
3. To sell, exchange. convey, transfer or otherwise dispose
of any securities or other property held by the Trustee,
by private contract or at public auction. No person
dealing with the Trustee shall be bound to see to the
application of the purchase money or to inquire into the
validity, expediency, or propriety of any such sale or
other disposition, with or without advertisement;
4. To vote upon any stocks, bonds, qr other securities; to
give general or special proxies or powers of attorney
with or without power of substitution; to exercise any
conversion privileges or subscription rights and to make
any payments incidental thereto; to oppose, or to consent
to, or otherwise participate in. corporate reorganintions
or other changes iffecting corporate securities. and to
delegate discretionary powers. and to pay any assessments
or charges in connection therewith; and generally to
exercise any of the powers of an owner with respect to
stodIcs, bonds, securities or other property;
5. To invest any part or all of the Fund (including idle
cash balances) in certificates of deposit, demand or time
deposits, savings accounts, money market accottnts or
similar investments of the Trustee (if the Trustee is a
bank or similar financial organization), the Prototype
Sponsor or any affiliate of such Trustee or Prototype
Sponsor, which bear a reasonable rate of interest;
6. To provide sweep services without the receipt by the
Trustee of additional compensation or other consideration
(other than reimbursement of direct expenses properly and
actually incurred in the performance of such services);
7. To hold in the form of cash for distribution or
investment such portion of the Fund as. at any time and
from time-t~time, the Trustee shall deetn prudent and
deposit such cash in interest bearing or non' merest
bearing accounts;
8. To make, execute, aclonowledge. and deliver any and all
documents of transfer and conveyance and any and all
other instruments that may be necessary or appropriate to
carry out the powers hejein granted;
9. To settle, compromise, or submit to arbitration any
claims, debts, or damages due or owing to or from the
Plan, to commence or defrnd suits or legal or
administrative proceedings, and to represent the Plan in
all suits and legal and adrtiitisttative proceedings;
10. To employ suitable agents and counsel, to contract with
agents to perform administrative and recordkeeping duties
and to pay their reasonable expenses, fees and
compensation, and such agent or coutssel may br may not
be agent or counsel for the Employer;
11. To cause any part or all of the Fund, without limitation
as to amount, to be commingled with the funds of other
trusts (including trusts for qualified employee benefit
plans) by causing such money to be invested as a part of
any pooled, comtnon, collective or commingled trust find
(including any such fond described in the Adoption
Agreement) heretofore or hereafter created by any Trustee
(if the Treestee is a bank), by the Prototype Sponsor, by
any affiliate hank of such a Trustee or by such a Trustee
or the Irototype Sponsor4 or by such an affiliate in
participation with others; the instrument or instruments
establishing such trust fond or fonds, as amended, being
made part of this Plan and trust so long as any portion
of the Fund shall be invested through the medium thereof;
and
12. Generally to do all such acts, execute all such
instruments, initiate such proceedings, and exercise all
such rights and privileges with minion to property
constituting the Fund as if the Trustee were the absolute
owner thereof.
5.05 DIVISION OF FUND INTO INVESIMENT FUNDS
The Employer may direct the Trustee (or Custodian) from
tirne-to~timeto divide and redivide the Fund into one or more
Investment Funds. Such Investment Funds may incltllde, but not be
l~ted to. Investment Funds representing the assets under the control
of an mvessment manager pursuant to Section 5.12 and Investment
Funds representing
<PAGE>
investment options available for individual direction by
Participants purstant to Section 5.14. Upon each division or
redivision, the Employer may specify the part of the Fundto be
allocated to each such Investment Fund and the terms and
conditiotis, if any, under which the aesets in such Investment Fund
shall be invested.
5.06
COMPENSATION AND EXPENSES
The Trustee (or Custodian, if applicable) shall receive such reasonable
compensation as may be agreed upon by the Trustee (or Custodian) and the
Employer. The Trusee (or Custodian) shall be entitled to reimbursement by the
Employer for all proper expenses iteeuteed in carrying out his or her duties
under this Plan. including raasonable legal. accounting and actrratial expenses.
If not paid by the Employer, such compensation and expenses may be charged
against the Fund.
All taxes of any kindthatmay be levied or assessed under existing or
future laws upon, or in respet of, the Fund or the income thereof
shall be paid from the Fund.
19
<PAGE>
5.07 NOT OBLIGATED TO QUESTION DATA
The Employer shall furnish the Trustee (or Custodian, if applicable)
and Plan Administrator the information which each party deems
necessary for the administration of the Plan including, but not
limited to. changes in a Participant's status, eligibility, mailing
addresses and other such data as may be required. The Trustee (or
Custodian) and Plan Administrator shall be entitled to act on such
information as is supplied diem and shall have no duty or
responsibility to further verify or question such information.
5.08 LIABILITY FOR WITHOLDING ON DISTRIBUTIONS
The Plan Administrator shall be responsible for withholding federal
income taxes from distributions from the Plan, unless the
Participant (or Beneficiary, where applicable) elects not to have
such taxes withheld. The Trustee (or Custodian) or other payor may
act as agent for the Plan Administrator to withhold such taxes and
to make the appropriate distribution reports, if the Plan
Administrator ft' nnishes all the information to the Trustee (6R
Custodian) or other pay or it may need to do withholding and
reporting.
5.09
RESIGNATION OR REMOVAL OF TRUSTEE (OR CUSTODIAN)
The Trustee (or Custodian, if applicable) may resign at any time by giving 30
days advance written notice to the Employer. The resignation shali become
effective 30 days after receipt of such notice unless a shorter period is agreed
upon.
The Employer may remove any Trustee (or Custodian) at any time by
giving written notice to such Trustee (or Custodian) and such
removal shall be effective 30 days after receipt of such notice
unless a shorter period is agreed upon. The Employer shall have the
power to appoint a successor, Trustee (or Custodian).
Upon such resignation or removal, if the resigning or removed
Trustee (OR Custodian) is the sole Trustee (or Custodian), he or she
shall transfer all of the assets of the Fund then held by such
Trustee (or Custodian) as expeditiously as possible to the successor
Trustee (or Custodian) after paying or rreserving such reasonable
amount as he or she shall deem necessary to provide for the expense
in the settiemeet of the accounts and the amount of any compensation
due him or her and any sums chargeable against the Fund for which he
or she may be liable. rf the Funds as reserved are not sufficient
for such putpose, then he or she shall be entided to reimbursement
from the successor Trustee (or Custodian) out of the assets in the
successor Trustee's (or Custodian's) hanas under this Plan. If the
amount reserved shall be in excess of the amount actually needed,
the former Trustee (or Custodian) shall return such excess to the
successor Trustee (or Custodian).
Upon receipt of the taansferred assees, the successor Trustee (or
Custodian) shall thereupon succeed to all of the powers and
responsibilities given to the Trustee (or Custodian) by this Plan.
The resigning or removed Trustee (or Custodian) shall render an
accounting to the Employer and unless objected to by the Employer
within 30 days of its receipt, the accounting shall be deetned to
have been approved and the resigning or removed trustee (or
Custodian) shall be released and discharged as to all matters set
forth in the accounting. Where a financial organization is serving as
Trustee (or Custodian) and it is merged with or bought by another
organization (or comes under the control of any federal or state
agency), that organization shall serve as the successor Trustee (or
Custodian) of this Plan, but only if it is the type of organization
that can so serve under applicable law.
Where the Trustee or Custodian is serving as a noribtrik trustee or
custodian purstnantto Section 1.401-12(n) of the Income Tax
Regulations, the Employer will appoint a successor Trustee (or
Custodian) upon notification by the Commissioner of Internal Revenue
that such substitution is required because the Trustte (or Custodian)
has failed to comply with the requirements of Section 1.401-12(n) or
is not keeping such records or making such returns or rendering such
statements as are required by fomis or regulations.
5.10
DEGREE OF CARE - LIMITATIONS OF LIABILITY
The Trustee (or Custodian) shall not be liable for any losses incurred by the
Fund by any direction to invest communicated by the Employer, Plan
Ad(pound)ini'~tor, investment manager appointed pursuant to Section 5.12 or any
Participant or Beneficiary. The Trustee (or Custodian) shall be under no
liability for distributions made or other action taken or not taken at the
written direction of the Plan Administitor. It is specifically understood that
the Trustee (or Custodian) shall have no duty or responsibility with respect to
the determination of matters pertaining to the eligibility of any Empioyee to
become a Participant or remain a
<PAGE>
Participant her'eunder, the amount of benefit to which a Participant or
Beneficiary shall be entided to receive hereunder, whether a distribution to
Participant or Beneficiary is appropriate under the tertns of the Plan or the
size and type of any policy to be purchased fiom any insurer for any Participant
hereuntler or similar mailers', it being understootl that all such
responsibilities under the Plan are vested in the Plan Administrator.
5.11
INDEMNIFICATION OF PROTOTYPE SPONSOR AND TRUSTEE (OR CUSTODIAN)
Notwithstanlling any other provision herein, and except as may be otherwise
provided by ERISA, the Employer shall indemnify and bold hatmless the Trustee
(or Custodian, if applicable) and the Prototype Sponsor. their officers,
directors, employees, agents, their heirs, executors, successors and assigns,
from and against any and all liabilities, damages. judgments, settlements,
losses, costs. charges, or expenses (including legal expensa~) at any time
arising out of or incurred in conmnction with any action taken by such parties
in the per'fo~tcce of their duties with respect to this Plan. unless there has
been a final adjudication of gross negligence or willAil misconduct in the
performance of such duties.
20
<PAGE>
Further, except as may be otherwise provided by EPISA, the Employer
will indemnify the Trustee (or Custodian) and Prototype Sponsor from
any liability, claim or expense (including legal expense) which the
Trustee (or Custodian) and Prototype Sponsor shall incur by reason
of or which results, in whole or in part, from the Trustee's (or
Custodian's) or Prototype Sponsor's reliance on the tacts and other
directions and elections th&Employer communicates or fails to
communicate.
i12 INVESTMENT MANAGERS
A. Definition of Investment Manager - The Employer may appoint
one or more investment managers to make investment decisions
with respect to all. or a portion of the Fund. The investment
manager shalt be any firm or individual registered as an
investment adviser under the Investment Advisers Act of 1940,
a bank as defined in said Act or an insurance company
qualified,under the laws of more than one state to perform
services consisting of the management, acquisition or
disposition of any assets of the Plan.
B. Investment Manager's Authority - A separate Investtnent Fund
shall be established representing the assets of the Fund
invested at the direction of the investment manager. The
investment manager so appointed shall direct the Trustee (or
Custodian, if applicable) with respect to the investment of
such Investment Fund. The investments which may be acquired at
the direction of the investment manager are those described in
Section 5.03(A) (for Custodians) or Section 5.04(A) (for
Trustees),
C. Written Agreement - The appointment of any investment manager
shall be by written agreement between the Employer and the
investment manager and a copy of such agreement (and any
modification or termination thereof) must be given to the
Trustee (or Custodian).
The agreement shall set forth, among other matters, the
efective date of the investment manager's appointrnent and an
acknowledgement by the investment manager that it is a
fiduciary of the Plan under ERISA.
D. Concerning the Trustee (or Custodian) - Written notice of each
appointment of an investment manager shall be given to the
Trustee (or Custodian) in advance of the effective date of
such appointment. Such notice shall specifi' which portion of
the Fund will constitute the Investment Fund subject to the
investment manager's direction. The Trustee (or Custodian)
shall comply with the investment direction given to it by the
investment manager and will not be liable for any loss which
may rniflt by neason of any action (or inaction) it takes at
the direction of the investment manager.
5.13 MATTERS RELATING TO INSURANCE
A. If i life insurance policy is to be purchased for a
Participant, the aggregate premium for certain life insurance
for each Participant must be less than a certain percentage of
the aggregate Employer Contributions and Forfeimres allocated
to a Ptrrticipant's Individual Account at arty particular time
as follows:
1. Ordinary Life Insurance - For purposes of these
incidental insurance provisions. ordinary life insurance
contracts are contracts with both nondecreasing death
benefits and nonincreasing premiums. If such contracts
are purchased, less than 50% of the aggt'egate Employer
Contributions and Forfeitures allocated to any
Participant's Individual Account will be used to pay the
pttetniums attributable to them.
2. Term and Umversal Life Insutance - No ntiore than 25% of
the aggregate Employer Contributions and Forfeitures
allocated to any Participant's Individual Account will be
used to pay the premiums on term life insurance
contracts, univeraal life insurance contracts, and all
other life insurance contracts which are not ordinary
life.
3. Combination - The suni of 50% of the ordinary lift
insurauce premiums and all other life insurance premiums
will not exceed 25% of the aggregate Employer
Contributions and Forteitures allocated to any
Participant's Individual Account.
If this Plan is a profit sharing plan, the above incidental
benefits limits do not apply to life insurance contracts
<PAGE>
purchased with Employer Contributions and Forfeitures that
have been in the Participant's Individual Account for at least
2 'WI Plan Years, measured from the date such contributions
were allocated.
B. Any dividends or credits eareeed on insurance contracts for a
Participant shall be allocated to such Participant's
Individual Account.
C. Subject to Section 6.05, the contracts on a Participant's life
will be conveeted to cash or an annuity or distributed to the
Participant upon commencement of benefits.
21
<PAGE>
D. The Trustee (or Custodian, if appucable) shall
apply for and will be the owner of any insurance
contract(s) purchased under the terms of this Plan.
The insurance contract(s) must provide that
proeeeds will be payable to the Trustee (or
Custodian), however, the Trustee (or Custodian).
shall be required to pay over all proceeds of the
contract(s) to the Participant's designated
Beneficiary in accordance with the distribution
provisions of this Plan. A Participant's spouse
will be the designated Beneficiary of the proceeds
in all circumstances unless a qualified election
has been made in accordance with Section 6.05.
Under no circumstances shall the Fund retain any
part of the proceeds. In the event of any conflict
between the terms of this Plan and the terms of any
insurance contract purchased hereunder, the Plan
provisions shall control.
B. The Plan Administrator may direct the Trustee (or
Custodian) to sell and distribute insurance or
annuity contracts to a Panic ipant (or other parry
as may be permitted) in accordance with applicable
law or regulations.
5.14 DIRECTION OF INVESTMENTS BY PARTICIPANT
If so indicated in the Adoption Agreement, each
Participant may individually direct the Trustee (or
Custodian, if applicable) regarding the investment of
part or all of his or her Individual Account. To the
extent so directed, the Employer, Plan Administrator,
Trustee (or Custodian) and all other fiduciaries are
relieved of their fiduciary responsibility under Section
404 of ERISA.
The Plan Administrator shall direct that a Separate Fund
be established in the name of each Participant who
directs the investment of part or all of his or her
Individual Account. Each Separate Fund shall be charged
or credited (as appropriate) with the earnings, gains,
losses or expenses attributable to such Separate Fund. No
fiduciary shall be liable for any loss which results from
a Participant's individual direction. The assets subject
to individual direction shall not be invested in
collectibles as that term is defined in Section 408(m) of
the Code.
The Plan Administrator shall establish such uniform and
nondiscriminatory rules relating to individual direction
as it deerns necessary or advisable including, but not
limited to, rules describing (I) which portions of
Participant's Individual Account can be individually
directed; (2) the frequency of investment changes; (3)
the forms and procedures for making investment changes;
and (4) the effect of a Participant's failure to make a
valid direction.
The Plan Administrator may, in a uniform and
nondiscriminatory manner, limit the available investments
for Participants' individual direction to certain
specified investment options (including. but not limited
to. certain mutual flinds, investment contracts, deposit
accounts and group trusts). The Plan Administrator may
permit, in a uniform and nondiscriminatory manner, a
Beneficiary of a deceased Participant or the alternate
payee under a qualified domestic relations order (as
defined in Section 414~) of the Code) to individually
direct in accordance with this Section.
"ECTION SIX
VESIING AND DISTRIBUTION
6.01 DISTRIBUTION TO PARTICIPANT
A. Distributable Events
I. Entidement to Distribution - The Vested portion of a
Participant's Individual Account shall be distributable
to the Participant upon (1) the occurrence of any of the
distributable events specified in the Adoption Agreement;
(2) the Participant's Termination of Employment after
attaining Normal Retirement Age: (3) the termination of
the Plan; and (4) the Participant's Terninnination of
Employment after satisfying any Early Retirement Age
conditions.
If a Participant separates from service before
satisfying the Early Retirement Age
requirement, but has satisfied the service
requirement, the Participant will be entitled
to elect an early retirement benefit upon
satisfaction of such age requirement.
2. Written Request: When Distributed - A
Participant entitled to distribution who
wishes to receive a distribution must submit a
written request to the Plan Administrator.
Such request shall be made upon a form
provided by the Plan Administrator. Upon a
valid request. the
<PAGE>
Plan Administrator shall direct the Trssstee
(or Custodian, if applicable) to commence
distribution no later than the time specified
in the Adoption Agreement for this puspose
and, if not specified in the Adoption
Agreement, then no later than 90 days
following the later of:
a. the close of the Plan Year within which the
event occurs which entities the Participant to
distribution: or b. the close of the Plan Year
in which the request is received.
3. Special Rules for Withdrawals During Service -
If this is a profit sharing plan and the
Adoption Agreement so provides. a Participant
may elect to receive a distribution of all or
part of the Vested portion of his or her
Individual Account, subject to the
requirements of Section 6.05 and farther
subject to the following limits:
a. Participant for 5 or more years. An
Employ'ee who has been a Participant in
the Plan for 5 or more yearc. may withdraw
up to the entire Vested portion of his or
her Individual Account.
22
<PAGE>
b. Participant for less than 5 years. An Employee who has been a
Participant in the Plan for less than 5 years may withdraw only
the amount which has been in his or her Individjial Account
attributable to Employer Contributions for at least 2 flail Plan
Years, measured from the date such contributions were allocated.
However, if the distribution is on account of hardship, the
Participant may withdraw up to his or her entire Vested port ion
of the Participant' S Individual Account. For this purpose,
hardship shall have the meaning set forth in Section 6.0l(A)(4)
of the Code.
4. Special Rules for Hardship Withdrawals - If this is a profit
sharing plan and the Adoption Agreement so provides. a Participant
may elect to receive a hardship distribution of all or part of the
Ves red portion of his or her Individual Account, subject to the
requirements of Section 6.05 and further subject to the following
limits:
a. Participant for S or more yeats. An Employee who has been a
Participant in the Plan for 5 or more years may withdraw up to
the entire Vested portion of his or her Individual Account.
b. Participant for less than S years. An Employee who has been a
Participant in the Plan for less than 5 years may withdraw only
the amount which lats been in his or her Individual Account
anributable to Employer Contributions for at least 2 full Plan
Years, measured from the date such contributions were allocated.
For purposes of this Section 6.01(A)(4) and Section 6.01(A)(3)
hardship. is defined as an immediate and heavy financial need of
the Participant where such Participant lacks other available
resources. The following are the only financial needs considered
immediate and heavy: expenses incurred or necessary for medical
care, described in Section 213(d) of the Code, of the Employee,
the Employee's spouse or dependents; the purchase (excluding
mortgage payments) of a principal residence for the Employee;
payment of tuition and related educational fees for the next 12
months of post-secondary education for the Employee, the
Employee's spouse, children or dependents; or the need to
prevent the eviction of the Employee from, or a foreclosure on
the mortgage of, the Employee's principal residence.
A distribution will be considered as necessary to sansfy an
immediate and heavy financial need of the Employee only if:
1) The employee has obtained all distributions, other than
hardship distributions, and all nontaxable loans under all
plans matintained by the Employer;
2) The distribution is not in excess of the amount of an
immediate and heavy finairial need (including amounts
necessary to pay my federal, state or local income taxes
or penalties reasonably anticipated to resttlt from the
distribution).
5. On~Time In-Seevice Withdrawal Option - If this is a profit sharing
plan and the Employer las elected the one-time inservice withdrawal
option in the Adoption Agreement. then Participants will be permitted
only one in-service withdrawal during the course of such Participants
employment with the Employer. The amount which the Participant can
withdraw will be limited TO the lesser of the amount detetmined under
the limits set forth in Section 6.01(A)(3) or the percentage of the
Participant's Individual Account specified by the Employer in the
Adoption Agreement. Distribtttions under tliis Section will be
subject to the requirements of Section 6.05.
6. Commencement of Benefits - Notwithstanding any other provision,
unless the Participant elects otherwise. distribution of benefits
will begin no later thari the 6001 day after the latest of the
close of the Plan Year in which:
a. the Participant attains Normal Retirement Age;
b. occurs the 1001 anniversry of the year in which the Participant
commenced participation in the Plan; or
c. the Participant incurs a Termiaation of Employment.
Notwithstandirig the foregoing, the failure of a Participant and spouse
to consent to a distribution while a benefit is immediately
distributable. within the meaning of Section 6.02(11) of the Plan, shall
be deemed to be an election to defer commenoement of payment of any
benefit sufficient to satisfy this Section.
B. Determining the Vested Portion - In deterinming the Vested portion of
a Participant's Individual Account, the following rules apply:
1. Employer Contributions and Forfeitures - The Vested portion of a
Participant's Individual Account derived
<PAGE>
from Employer Contributions and Forfeitures is detemihis by applying
the vesting schedule selected in the Adoption Agreement (or the ves~
schedule described in Section 6.01(C) if the Plan is a TowHeavy
Plan).
2. Rollover and Transfer Contributions - A Participant is frilly Vested
in his or her rollover contributions and transfer contributions.
23
<PAGE>
3. FuIJy Vested Under Certain Circumstances - A Participant is frilly
Vested in his or her redividual Account if any of the following
occurs:
A. the Participant reaches Normal Retirement Age; b. the Plan is
terminated or partially terminated; or
c. there exists a complete discontinuance of contributions under the
Plan.
Further, unless otherwise indicated in the Adoption Agreement. a
Participant is Ailly Vested if the Panicipant dies, incurs a
Disability, or satisfies the conditions for Early Retirement Age (if
applicable).
4. Participants in a Prior Plan - If a Participant was a participant in
a Prior Plan on the Effective Date, his or her Vested percentage
shall not be less than it would have been under such Prior Plan as
computed on the Effective Date.
C. Minimum Vesting Schedule for To~~Heavy Plans - The following vesting
provisions apply for any Plan Year in which this Plan is a TowHeavy Plan.
Notwithstanding the other provisions of this Section 6.01 or the vesting
schedule selected in the Adoption Agreement (uniess those provisions or
that schedule provide for mote rapid vesting), a Participant's Vested
portion of his or her Individual Account attributable to Employer
Contributions and Fotfeitures shall be determined in accordance with the
vesting schedule elected by the Employer in the Adoption Agreement (and if
no election is made the 6 year graded schedule will be deemed to have been
elected) as described below:
6 YEAR GRADED
3 YEAR CLIF'l'
<TABLE>
<CAPTION>
Years of Years of
Vesting Service Vested Percentage Vesting Service Vested Percentage
--------------- ------ ---------- --------------- -----------------
<S> <C> <C>
I 0 I 0
2 20 2 0
3 40 3 '00
4 60
S 80
6 100
</TABLE>
This minttnum vesting schedule applies to all beeefits within the meaning
of Section 41 1(a)(7) of the Code, except those attributable to
Nondeductible Employee Cojitributions including benefits accrued before
the effective date of Section 416 of the Codeand benefits accrued before
the Plan becamea To~Hea'vy Plan. Further. no decrease ma Participant's
Vested percentage may occur in the event the Plan's status as a To~Heavy
Plan changes for any Plan Year. However, this Section 6.01(C) does not
apply to the Individual Account of any Employee who does not have an Hour
of Service after the Plan has initially become a Top-Heavy Plan and such
Employee's Individual Account attributable to Employer Contributions and
Forfeitures will be determined without rggard to this Section.
If this Plan ceases to be a T~Heavy Plan, then in accordance with the
above nerttictions, the vesting schedule as selected in the Adoption
Agreement will govern. If the vesting schedule under the Plan shifts in or
out of tow heavy status, such shift is an amendment to the vesting
schedule and the election in Section 9.04 applies.
D. Break in Vesting Service and Forfeitures - If a Participant inuurs a
Termination of Employment, any portion of his or her Individual Account
which is not Vested shall be held in a stsspes:se account. Such stpp:ense
account shall share in any incr'eae or decrease in the tair market value
of the assets of the Fund in accordance with Section 4 of the Plan. The
disposition of such suppense account shall be as follows:
1.Breaks in Vesting Ser'vice - If a Participant neither receives nor
is deemed to receive a distribution pursuant to Section 6.0l(1))(3)
or (4) and the Participant rettnns to the service of the Employer
before incuning 5 consecutive Breaks in Vesting Service, there shall
be no Forleiture and the amount in such suspense account shall be
recredited to such Participant's Individual Account.
<PAGE>
2. Five Consecutive Breaks in Vesting Service - If a Participant
neither receives nor is deemed to receive a distribution pusstnt to
Section 6.01~)(3) or (4) and the Participant does not return to the
service of the Employer before incurring S consscutive Breaks in
Vesting Service, the portion of the Participant's Individual
Account which is not Vested shall be treated as a Foifeiture and
allocated in accordance with Section 3.01(C).
3. Cash-out of Certain Panicipatts - If the value of the Vested
portion of such Participant's Individual Account derived irom
Nondeductible Employee Contributions and Employer Contributions
does not exceed $3,500, the Participant shall receive a
distribution of the entire Vested portion of such Individual
Account and the portion which is not Vested shall be treated as a
Forfeiture and allocated in accordance with Section 3.01(C). For
24
<PAGE>
purposes of this Section, if the value of the Vested
portion of a Participant's Individual Account is zero,
the Participant shall he deemed to have received a
distribution of such Nested Individual Account. A
Participant's Vested Individual Account balance shall not
include accumulated deductible employee contributions
within die meaning of Section 72(o)(5)(13) of the Code
for Plan Years beginning prior to January 1, 1989.
4. Participants Who Elect to Receive Distributions - If such
Participant elects to receive a distribution, in
accordance with Section 6.02(3), of the value of the
Vested portion of his or her Individual Account derived
from Nondeductible Employee Contributions and Employer
Contributions, the portion which is not Vested shall be
treated as a Forfeiture and allocated in accordance with
Section 3.01(C).
5. Re-employed Participants - If a Participant receives or
is deemed to receive a distribution pursuant to Section
6.01(D)(3) or (4) above and the Participant resumes
employment covered under this Plan, die Participant's
Employer~erivel Individual Account balance will be
restored to the amount on the date of distribution if the
Pan icipant repays to the Plan the till amount of the
distribution anributable to Employer Contributions before
the earlier of 5 years after the first date on which the
Panic ipant is subsequently re-employed by the Employer,
or the date the Participant incurs S consecutive Breaas
in Vesting Service following the date of the
distribution.
Any restoration of a Participant's Individual Account
pursuant to Section 6.olm)(s) shall be made from other
Forfeitures, income or gain to the Fund ot contributions
made by the Employer.
E. Distribution Prior to Full Vesting - If a distribution is made
to a Participant who was not then tilly Vested in his or her
Individual Account derived from Employer Contributions and the
Participant may increase his or her Vested percentage in his
or her Individual Account, then the following rules shall
apply:
1. a separate account will be established for the
Participant's interest in the Plan as of the time of the
distribution, and
2. at any relevant time the Participant's Vested portion of
the separate account will be equal to an amount ("X")
determined by the formula: X=P (AB + ~ x D)) - x D) wbere
"P" is the Vested percentage at the relevant time, "An,,
is the separate account balance at the relevant time; "D"
is the amount of the distribution; and "R" is the ratio
of the separate account balance at the relevant time to
the separate account balance after distribution.
6.02 FORM OF DISTRIBUTION TO A PARIICIPANT
A. Value of Individual Account Dees Not Exceed $3,500- If the
value of the Vested portion of a Participant's Individual
Account derived from Nondeductible Employee Contributions and
Employer Contributions does not exceed $3,500, distribution
from the Plan shall be made to the Participant in a single
lump sum in lieu of all other forms of distribution from the
Planas soon as administratively feasible.
B. Value of Individual Account Exceeds $3,500
1.If the value of the Vested portion of a Participant's
Individual Account derived from Nondeductible Employee
Contributions and Employer Contributions exceeds (or at
the time of any prior distribution exceeded) $3,500, and
the Individual Account is immediately distributable, the
Participant and the Participant's spouse (or where either
the Participant or the spouse died, the survivor) must
consent to any distribution of such Individual Account.
The consent of the Participant and the Participant's
spouse shall be obtained in writing within the 90~y period
ending on the annuity starting date. The annuity starting
date is the first day of the first period for which an
amount is paid as an annuity or any other form. The Plan
Administrator shall notify the Participant and the
Participant's spouse of the rigntto deler any distribution
until the Participant's Individual Account is no longer
immediately distributable. Such notification shall include
a general description of the material fratures. and an
explanation of the relative values of, the optional forms
of benefit available under the Plan in a maneer that would
satisfy the notice requirements of Section 417(a)(3) of
the Code, and shall be provided no less than 30 days and
no more than 90 days prior to the annuity starting date.
<PAGE>
If a distribution is one to which Sections 401(a)(l 1) and
417 of the Internal Revenue Code do not apply, such
distribution may commence less than 30 days after the
notice required under Section 1.411(a)-i 1(c) of the
Income Tax Regulations is given, provided that:
a. the Plan Administrator clearly informs the
Participant that the Participant has a fight to a
period of at least 30 days after receiving the
notice to consider the decision of whether or not
to elect a distribution (and. if applicable, a
particular distribution option), and
b. the Participant, after receiving the notice,
afflmtatively elects a distribution.
25
<PAGE>
Notwithstanding the foregoing, only the Participant need
consent to the commencement of a distribution in the
form of a quali fled joint and survivor annuity while
the Individual Account is immediately distributable.
Neither the consent of the Participant nor the
Participant's spouse shall be required to the extent
that a distribution is required to satisfy Section
401(a)(9) or Section 415 ofthe Code. In addition, upon
termination of this Plan if the Plan does not offer an
annuity option (purchased from a commercial provider),
the Participant's Individual Account may, without the
Participant's consent, be distributed to the Participant
or transferred to another defined contribution plan
(other than an employee stock ownership plan as defined
in Section 4975(e)(7) of the Cole) within the same
control led group.
An Individual Account is immediately distributable if any
part of the Individual Account could be distributed to
the Participant (or surviving spouse) before the
Participant attains or would have attained (if not
deceased) the later of Normal Retirement Age or age 62.
2, For purposes of determining the applicability of the
ibregoing consent requirements to distributions made
before the first day ofthe first Plan Year beginning
after Dececnber 31, 1988, the Vested portion ofa
Participant's Individual Account shall not include
amounts anributable to accumulated deductible employee
contributions within the meaning of Section fl(o)(5)~) of
the Code.
C. Other Forms of Distribution to Participant - If the value of
the Vested portion of a Participant's Individual Account
exceeds $3,500 and the Participant has propedy waived the
joint and survivor annuity, as described in Section 6.05. he
Participant may request in writing that the Vested portion of
his or her Individual Account be paid to him or her in one or
more of the following forms of payment: (1) in a lump sum: (2)
in installment payments over a period not to exceed the life
expectancy of the Participant or the joint and last sur'r'ivor
life expectancy of the Participant and his or her designated
Beneficiary; or (3) applied to the purchase of an annuity
contract.
Notwithstanding aqything in this Section 6.02 to the contrary,
a Pan icipant cannot elect payments in the form of an annuity
if the Retirement Equity Act safe harbor rules of Section
6.O5~ apply.
6.03 DISTRIBUTIONS UPON THE DEATH OF A PARTICIPANT
A. Designation of Beneficiary - Spousal Consent - Each
Participant may designate, upon a form provided by and
delivered to the Plan Administrator, one or more prinury and
contingent Beneficiaries to receive all or a specified portion
of the Participant's Individual Account in the event of his or
her death, A Participant may change or revoke such Beneficiary
designation from time to time by completing and delivering the
proper form to the Plan Administrator.
In the event that a Participant wishes to designate a primary
Beneficiary who is not his or her spouse, his or her spouse
must consent in writing to such designation, and the spouse's
consent must aclcnow ledge the effect of such designation and
be witnessed by a notary public or plan representative.
Notwithstanding this consent requiret'nent, if the Prtticipant
establishes to the satisfaction of the Plan Administrator that
such written consent may not be obtaiitetl because there is no
spouse or the spouse cannot be located, no consent shall be
required. Any change of Beneficiary will require a new spousal
consent.
B. Payment to Beneficiary - If a Participant dies before the
Participant's entire Individual Account has been paid to him
or her, such deceased Participant's Individuat Account shall
be payable to any surviving Beneficiary' designated by the
Participant, or, if no Beneficiary suvives the Participant, to
the Participant's estate.
C. Written Request: when Distributed - A Beneficiary' of a
deceased Participant entifled to a distribution who wishes to
receive a distribution must submit a written request to the
Plan Administrator. Such request shall be made upon a form
provided by the Plan Administrator. Upon a valid request, the
Plan Administrator shall direct the Trustee (or Custodian) to
commence distribution no later than the time specified in the
Adoption Agreement for this purpose and if not specified in
the Adoption Agreement, then no later than 90 days following
the later of:
<PAGE>
1. the close of the Plan Year within which the Participant
dies; or
2. the close of the Plan Year in which the request is
received.
6.04 FORM OF DISTRIBUTION TO BENEFICIRARY
A. Value of Individual Account Does Not Exceed $3,500 - If the
value of the Participant's Individual Account derived from
Nondeductible Employee Contributions and Emplbyer
Contributions does not exceed $3,500, the Plan Administrator
shall direct the Trustee (or Custodian, if applicable) to make
a distribution to the Beneficiary' in a single lump sum in
lieu of all other fomis of distributio'n from the Plan.
26
<PAGE>
B. Value of Individual Account Exceeds $3,500 - If the value of a
Participant's Individual Account derived from Nondeductible
Employee Contributions and Employer Contributions exceeds $3,500
the preretirement survivor annuity requirements of Section 6.05
shall apply unless waived in accordance with that Section or
unless the Retirement Equity Act safe harbor rules of Section
6.05~ apply Howbver, a surviving spouse Beneficiary may elect
any form of payment allowable under the Plan in lieu of the
preretirement survivor annuity. Any such payment to the
surviving spouse must meet the requirements of Section 6.06.
C. Other Forms of Distribution to Beneficiary - If the value of a
Participant's Individual Account exceeds $3,500 and the
Participant has properly waived the preretirement survivor
annuity, as described in Section 6.05 (if appiicable~ or if the
Beneficiary is the Participant's surviving spouse, the
Beneficiary may, subject to the requirements of Section 6.06,
request in writing that the Participant's Individual Account l:e
paid as follows: (I) in a lump sum; or (2) in installment
payments over a period not to exceed the life expectancy of such
Beneficiary.
6.05 JOINT AND SURVIVOR ANNUITY REQUIREMENTS
A. The provisions of this Section shall apply to any Participant
who is credited with at least one Hour of Eligibility Service
with the Employer on or after August23, 1984, and such other
Participants as provided in Section 6.05(G).
B. Qualified Joint and Survivor Annuity - Unless an optional form
of benefit is selected pursuant to a qualified election within
the 9Ckday period ending on the annuity starting date, a married
Panic ipant's Vested account balance will be paid in the form of
a qualified joint and survivor annuity and an unmarried
Participant's Vested account balance will be paid in the form of
a life annuity. The Participant may elect to have such annuity
distributed upon attainment of the earliest retirement age under
the Plan,
C. Qualified Preretirernent Survivor Annuity - Unless an optional
form of benefit has been selected within the election period
pursuant to a qualified election, if a Participant dies before
the annuity starting date then the Participant's Vested account
balante shall be applied toward the purchase of an annuity for
the life of the surviving spouse. The surviving spouse may elect
to have such annuity distributed within a reasonable period
after the Participant's death.
D. Definitions
I.Election Period - The period which beging on tile first
day of the Plan Year in which the Participant attains age
35 and ends on the date of the Participant's death, If a
Participant separates from service prior to the firsst
day of the Plan Year in which age 35 is attained, with
respect to the account balance as of the date of
separation, the election period shall begin on the date
of separation.
Pre-age 35 waiver - A Participant who will not yet attain
age 35 as of the end of any current Plan Year may make
special qualified election to waive the qualified
preretirement survivor annuity for the period beginning on
the date of such election and ending on the first day of
the Plan Year in which the Participant will attain age 35.
Such election shall not be valid unless the Participant
receives a written explanation of the qualified
preretirement survivor annuity in suet' terms as are
compaaable to the explanation required under Section
6.05~)(1). Qualified pneretirernent survivor annuity
coverage will be automatically reinstated as of the fusst
day of the Plan Year in which the Partidpant attains age
35. Any new waiver on or after such date shall be subject
to the it'll requirements of this Section 6.05.
2. Earliest Retirement Age - The earliest date on which,
under the Plan, the Participant could elect to receive
retirement benefits.
3. Qualified Election - A waiver of a qualified joint and
survivor annuity or a qualified preretirement survivor
annuity. Any waiver of a qualified joint and survivor
annuity or a qualified preretirement survivor annuity
shall not be efibative unless: (a) the Participant's
spotise consents in writing to the election, 0,) the
election designates a specific Beneficiary, including any
class of beneficiaries or any contingent beneficiaries,
wbich nay not be cbanged without spousal consent (or the
spouse expressly permits designations by the Participant
without any Airther spousal consent); (c) the spouse's
consent acknowledges the effect of the election; and (d)
the spouse's consent is witnessed by a plan
representative or notary public. Additionally, a
Participant's waiver of the qualified joint and survivor
<PAGE>
annuity shall not be eficetive unless the election
designates a form of benefit payment which may not be
changed widiqut spoLisal consent (or the spouse expressiy
permits designati6ns by the Participant without any
farther spousal consent). If it is established to the
satisfaction of a plan repesentative that there is no
spouse or that the spouse cannot be located, a waiver
will be deemed a qualified election.
Any consent by a spouse obtained under this provision (or
establiabment that the consent of a spouse may not be
obtained) shall be efiective only with respect to such
spouse. A corent that permits designations by the
Participant without any requirement of flintier consent
by such spousemtst acknowledge that the spouse has the
rigl:tto limit consent to a specific Beneficiary, and a
specific form of benefit where applicable. and that the
spouse voluntarily elects to relinquish either or both of
such rights. A revocation of a prior waiver may be made
by a Participant without the consent of the spouse at any
time before the commencement of benefits.
27
<PAGE>
The number of revocations shall not be limited. No consent obtained
under this provision shall be valid unless the Participant has
received notice as provided in Section 6(pound)5(E) below.
4. Qualified Joint and Survivor Annuity - An immediate annuity for the
life of the Participant with a survivor annuity for the life of the
spouse which is not less than 50% and not more than 100% of the
amount of the annuity which is payable during the joint lives of the
Participant and the spouse and which is the amount of benefit which
can be purchasetl with the Participant's vested account balance. The
percentage of the survivor annuity under the Plan shalt be 50%
(unless a different percentage is elected by the Employer in the
Adoption Agreement).
5. Spouse (surviving spouse) - The~spouse or surviving spouse of the
Participant, provided that a former spouse will be treated as the
spouse or surviving spouse and a current spouse will not be treated
as the spouse or surviving spouse to the extent provided under a
qualified domestic relations order as described in Section 414&) of
the Code.
6. Annuity Starting Date - The first day of the first period for which
an amount is paid as an annuity or any other form.
7. Vested Account Balance - The aggregate value of the Participant's
Vested account balances derived from Employer and Nondeductible
Employee Contributions (including roilovers), whether Vested before
or upon death, including the proceeds of insurance contracts, if any,
on the Participant's life. The provisions of this Section 6.05 shall
apply to a Participant who is Vested in amounts attributable to
Employer Contributions, Nondeductible Employee Contributions (or
both) at the time of death or distribution.
E. Notice Requirements
1.In the case of a qualified joint and survivor annuity, the Plan
Administrator shall no less than 30 days and not more than 90 days
prior to the annuity starting date provide each Participant a written
explanation of: (a) the terms and conditions of a qualified joint and
survivor annuity; O,)the Participant's right to make and the effect
of an election to waive the qualified joint and survivor annuity form
of benefit; (c) the rights of a Participant's spouse; and (d) the
right to maae, and the effect of, a revocation of a previous election
to waive the qualified joint and survivor annuity.
2. In the case of a qualified preretirement annuity as described in
Section 6.05(C), the Plan Administrator shall provide each
Participant within the applicable period for such Participant a
written explanation of the qualified preretirement survivor annuity
in such terms and in such manner as would be comparable to the
explanation provided for meeting the requirements of Sean on
6.05E)(1) applicable to a qualified joint and survivor annuity.
The applicable period for a Participant is whichever of the following
periods ends last: (a) the period beginning with the first day of the
Plan Year in which the Participant attains age 32 and ending with the
close of the Plan Year preceding the Plan Year in which the
Participant attains age 35; (0)a reasonable period ending after the
individual becomes a Participant; (c) a reasonable period ending
after Section 6.OSH)(3) ceases to apply to the Participant; and (d) a
reasonable period ending after this Section 6.05 first applies to the
Participant. Notwithstanding the foregoing, notice must be provided
within a reasonable period ending after separation from service in
the case of a Participant who separates from service before attaining
age 35.
For purposes of applying the preceding paragraph, a reasonable
period ending after the enumerated events described in fb), (c) and
(d) is the end of the two~year period beginning one year prior to
the date the applicable event occrs. and ending one year after that
date. In the case of a Participant who separates from service before
the Plan Year in which age 35 is attained, notice shall he provided
within the two~year period beginning one year prior to separation
and ending one year after separation. If such a Participant
thereafter returns to employment with the Employer, the applicable
period for such Participant shall be redetermined.
3. Notwithstantng the other requirtennents of this Section 6.0sF). the
reepective notices prescribed by this Section 6.0SF), need not be
given to a Participant if (a) the Plan "flilly subsidi::es' the costs
of a qualified joint and survivor annuity or qualified preretireneent
survivor annuity, and ~ the Plan does not allow the Participant to
waive the qualified joint and survivor annuity or qualified
preretirement survivor annuity and does not allow a married
Participant to designate a nonspouse beneficiary. For putposes of
this Section 6.05Ex3), a plan fully subsidi:ees the costs of a
benefit if no inctease in cost, or decrease in benefits to the
Participant may result from the Participant's failure to elect
another benefit.
28
<PAGE>
F, Retirement Equity Act Sate Harbor Rules
1.If the Employer so indicates in the Adoption Agreement, this
Section 6.05(F) shall apply to a Panicipant in a profit sharing
plan, and shall always apply to any distribution, made on or after
the first day of the first Plan Year beginning after December 31,
1988; from or under a separate account anributable solely to
accumulated deductible employee contributions. as defined in Section
72(o)(5)(13) of the Code, and maintained on behalf of a Participant
in a money purchase pension plan, (including a target benefit plan)
if the following conditions are satisfied:
a. the Participant does not or cannot elect payments in the form
of a life annuity; and
b. on the death of a Participant, the Participant's Vested
account balance will be paid to the Participant's surviving
spouse, but if there is no surviving spouse, or ifthe
surviving spouse has consented in a manner conforming to a
qualified election, then to the Participant's designated
Beneficiary. The surviving spouse may elect to have
distribution of the Vested account balance commence within the
90-day period following the date of the Participant's death.
The account balance shall be adjusted for gains or losses
occurring after the Participant's death in accordance with the
provisions of the Plan governing the adjustment of account
balances for other tppes of distributions. This Section
6.05(1) shall not be operative with respect to a Participant
in a profit sharing plan if the plan is a direct or indirect
transferee of a defined benefit plan, money purchase plan. a
target benefit plan, stock bonus, or profit sharing plan which
is subject to the survivor annuity requirements of Section
401(a)(1 1) and Section 417 of the code. If this Section
6.05~) is operative. then the provisions of this Section 6.05
other than Section 6.05(G) shall be inoperative.
2. The Participant may waive the spousal death benefit described in this
Section 6.05 (F) at any time provided that no such waiver shall be
effective unless it satisfies the conditions of Section
6.05((pound)))(3) (other than the notification requirement referred
to therein) that would apply to the Participant's waiver of the
qualified preretirernent survivor annuity.
3. For purposes of this Section 6.05(1). Vested account balance shall
mean, in the case of a money purchase pension plan or a target
benefit plan. the Participant's separate account balance attributable
solely to accumulated deductible employee contributions within the
meaning of Section 72(o)(5)(11) of the Code. In the case of a profit
sharing plan. Vested account balance shall have the same meaning as
provided in Section 6.05(1))(7).
G. Transitional Rules
1.Any living Participant not receiving benefits on August 23, 1984,
who would otherwise not receive the benefits prescribed by the
pr'vv'ious sulcsections of this Section 6.05 must be given the
opportunity to eject to have the prior subsections of this Section
apply if such Participant is credited with at least one Hour of
Service under this Plan or a predecessor plan in a Plan Year,
beginning on or after January 1.1976, and such Participant had at
least 10 Years of Vesting Service when he or she separated from
service.
2. Any living Participant not receiving benefits on August 23, 1984, who
was credited with at least one Hour of Service under this Plan or a
predecessor plan on or after Septeenber 2, 1974, and who is not
otherwise credited with any service in a Plan Year beginning on or
after January 1, 1976, must be given the opportunity to have his or
her benefits paid in ao:onlance with Section 6.05(G)(4).
3. The respective opportunities to elect (as described in Section
6.05(G)(1) and (2) above) must be afforded to the appropriate
Participants durihg the prriod commencing on August 23, 1984. and
ending on the date benefits would otherwise commence to said
Participants.
4. Any Participant who tin elected punuan to Section 6.05(G)(2) and any
Participant who does not elect under Section 6.05(G)(1) or who meets
the requirements of Section 6.05(G)(1) except that such Participant
does not have at least 10 Years of Vesting Service when he or slie
separates from service, shall have his or her benefits distributed in
accordance with all of the following requiiements if benefits would
have been payable in the form of a life annuity':
a, Automatic Joint and Survivor Annuity - If benefits in the form of
a life annuity become payable to a
inarried Participant who:
(1) begins to receive payments under the Plan on or after
Nonnil Retirement Age; or
(2) dies on or after Nornal Retirement Age while still
working for the Employer; or
<PAGE>
(3) begins to receive payments on or a'fter the qualified
early retirement age; or
(4) separates fiom service on or after attaining Normal
Retirement Age (or the qualified early retirement age)
and after satisfying the eligibility requirements for the
payment of benefits under the Plan and ther'eafter dies
before beginning to receive such benefits;
29
<PAGE>
then such benefits will be received under
this Plan in the form of a qualified joint
and survivor annuity, unless the Participant
has elected otheiwiseduting the election
period. The election period must begin at
least 6 months before the Participant
attains qualified early retirement age and
ends not more than 90 days before the
commencement of benefits. Any election
hereunder will be in writing and may be
changed by the Participant at any time.
b. Election of Early Survivor Annuity - A Participant
who is employed after attaining the qualified early
retirement age will he given the opportunity to
elect, during the election period. to have a
survivor annuity payable on death.. If the
Participant elects the survivor annuity, payments
under such annuity must not be less than the
payments which would have been made to the spouse
under the qualified joint and survivor annuity if
the Participant had retired on the da~ before his
or her death. Any election under this provision
will be in writing and may be changed by the Panic
ipant at any time. The election period begins on
the later of (1) the 90th day before the
Participant attains the qualified early retirement
age, or (2) the date on which participation begins,
and ends on the date the Participant terminates
employment.
c. For purooses of Section 6.05(G)(4):
1. Qualified early retirement age is the latest
of:
a. the earliest date, under the Plan, on
which the Participant may elect to
receive retirement benefits,
b. the first day of the 12oth month
beginning betore the Participant reaches
Normal Retirement Age, or
c. the date the Participant begins
participation.
2. Qualified joint and survivor annuity is an
annuity for the life of the Participant with
a survivor annuity for the lift of the
spouse as described in Section 6.05(D)(4) of
this Plan.
6.06 DISTRIBUTION REQUIREMENTS
A. General Rules
1. Subject to Section 6.05 Joint and Survivor Annuity
Requiretnents, the requirements of this Section shall
apply to any distribution of a Participant's interest and
will talte preodence over any inconsistent provisions of
this Plan. Ulness otherwise specified, the provisions of
this Section 6.06 apply to calendar years beginning after
December 31, 1984.
2. All distributions required under this Section 6.06 shall
be determined and made in accordance with the Income Tax
Regulations under Section 401 (a)(9), including the
minimum distribution incidetaal benefit requirement of
Section I.401(a)(9~2 of the proposed regliations.
B. Required Beginning Date - The entire interest of a Participant
must be distributed otbegin to be distributed no later thah
the Participant's required beginning date.
C. Limits on Distribution Periods - As of the first distribution
calendar year, distributions, if not made in a single sum, may
only be made over one of the following periods (or a
combination thereof):
1. the life of the Participant,
2. the life of the Participant and a designated Beneficiary,
3. a period certain not extending beyond the life expectancy
of the Participant, or
4. a period certain not extending beyond the joint and last
survivor expectancy of the Participant and a designated
Beneficiary.
D. Determination of Amount to be Distributed Each Year - If the
Participant's interest is to be distributed in other than a
single sum. the following minimum distribution rules shall
apply on or after the required beginning date:
<PAGE>
1. Individual Account
a. If a Participant's benefit is to be distributed over
(1) a period not extending beyond the life expectancy
of the Participant or the joint life and last
survivor expectancy of the Participant and the
Participant's designated Beneficiary or (2) a period
not extending beyond the life expectancy of the
designated Beneficiary, the amount required to be
distributed for each calendar year, beginning with
distributions ft the first distribution calendar
year. must at least equal the quotient obtained by
dividing the Participant's benefit by the applicable
life expectancy.
30
<PAGE>
b. For calendar years beginning before January 1, 1989, if the Panic
ipant's spouse is not the designated Beneficiary, the method of
distribution selected must assure that at least 50% of the
presern value of the amount available for distribution is paid
within the life expectancy of the Participant.
c.For calendar years beginning after December 31, 1988, the amount
to be distributed each year, beginning with distributions for the
first distribution calendar year shall not be less than the
quotient obtained by dividing the Participant's benefit by the
lesser of (1) the applicable life expectancy or (2) if the
Participant's spouse is not the designated Beneficiary, the
applicable divisor determined from the table set forth in Q&A4 of
Section 1 .40I(a)(9)-2 of tbe Proposed Income Tax Regulations.
Distributions after the death of the Participant shall be
distributed using the applicable liie~expectancy in Section
6.OSa))(l)(a) above as the relevant divisor without regard
to.proposed regulations 1 .401(a)(9)-2.
d. The mininium distribution required for the Participant's first
distribution calendar year must be made on or before the
Participant's required beginning date. The minimum distribution
for other calendar years, including the minimum distribution for
the distribution calendar year in which the Employee's required
beginning date occurs, must be made on or before December 31 of
that distribution calendar year.
2. Other Forms - If the Participant's benefit is distributed in the
form of an annuity purchased from an insurance company,
distributions thereunder shall be made in accordance with the
requirements of Section 401(a)(9) of the Code and the regulations
thereunder.
E. Death Distribution Provisions
1. Distribution Beginning Before Death - If the Participant dies after
distribution of his or her interest has begun, the remaining portion
of such interest will continue to be distributed at least as rapidly
as under the method of distribution being usetl prior to the
Participant's death.
2. Distribution Beginning Alter Death - If the Participant dies before
distribution of his or her interest begins, distribution of the
Participant's entire interest shall be completed by December 31 of
the calendar year containing the fifth anniversary of the
Participant's death except to the extent that an election is made
to receive distributions in accordance with (a) or 0,) below:
a. if any portion of the Participant's interest is payable to a
designated Beneficiary, distributions may be made over the life
or over a period certain not greater than the life expectancy of
the designated Beneficiary commencing on or before December 31 of
the calendar year immediately following the calendar year in
which the Participant died;
b. if the designated Beneficiary' is the Participant's surviving
spouse, the date distributions are required to begin in
accordance with (a) above shall not be earlier than the later of
(1) December 31 of the calendar year immediately following the
calendar year in which the Participant dies or (2) December 31
of the calendar year in which the Participant would have
attained age 70 1/2.
If the Participant has not made an election pursuant to this
Section 6.05E)(2) by the time of his or her death, the
Participant's desigttated Betteficiary must elect the method of
distribution no later than the earlier of (1) December31 of the
calendar year in which distributions would be required to begin
under this Section 6.OSE)(2), or (2) December 31 of the calendar
year which contains the fifth anniversary of the date of death
of the Participant. If the Participant has no designated
Beneficiary, or if the designated Beneficiary does not elect a
metliod of distribution, distribution of the Participant's
entire interest must be completetl by December31 of the calendar
year contaitung the fifth anniversary of the Participant's
death.
3. For purposes of Section 6,O6(E)(2) above, if the surviving spouse
dies after the Participant, but before payments to such spouse begin,
the provisions of Section 6.06(E)(2), with the exception of paragraph
~) therein, slaall be applied as if the surviving spouse were the
Participant.
4. For purposes of this Section 6.06~), any iniount paid to a child of
the Participant will be treated as if it had been paid to the
surviving spouse if the amount becotnes payable to the surviving
spouse when the child reaches the age of majority.
<PAGE>
5. For purposes of this Section 6.06(E), distribution of a
Participant's inter,est is considered to begin on the Participant's
required beginning date (or. if Section 6.06(E)(3) above is
applicable, the date distribution is required to begin to the
surviving spouse pursuant to Section 6.06(E)(2) above). If
distribution in the form of an annuity irrevocably commences to the
Participant before the required beginning date, the date distribution
is considered to begin is the date distribution actually commences.
31
<PAGE>
F. Definitions
I. Applicable Life Expectancy - The life expectancy (or joint and last
survivor expectancy) calculated using tne attained age of the
Participant (or designated Beneficiary) as of the Participant' S (or
designated Beneficiary' s) birthday in the applicable calendar year
reduced by one for each calendar year which has elapsed since the
date life expectancy was first calculated. If life expectancy is
being recalculated, the applicable life expectancy sha be the life
expectancy as so recalculated. The applicable calendar year shall be
the first distribution calendar year, and if life expectancy is being
recalculated such succeeding calendar year.
2. Designated Beneficiary - The individual who is designated as the
Beneficiary under the Plan in accordance with Section 401(a)(9) of
the Code and the regulations thereunder.
3. Distribution Calendar Year - A calendar year for which a minimum
distribution is required. For distributions beginning before the
Participant's death, the first distribution calendar year is the
calendar year immediately preceding the calendar year which contains
the Participant's required beginning date. For distributions
beginning after the Participant's death, the first distribution
calendar year is the calendar year in which distributions are
required to begin pursuant to Section 6.OSE) above.
4. Life Expectancy - Life expectancy and joint and last survivor
expectancy are computed by use of the expected return multiples in
Tables V and VI of Section 1.72-9 of the Income Tax Regulations.
Unless otherwise elected by the Participant (or spouse, in the case of
distributions described in Section 6.OSE)(2)q,) above) by the time
distributions are required to begin, life expectancies shall be
recalculated annually. Such election shall be irrevocable as to the
Participant (or spouse) and shall apply to all subsequent years. The
lift expectancy of a nonspouse Beneficiary may not be recalculated.
5. Participant's Benefit
a. The account balacce as of the last i'aluation date in the
valuation calendar year (the calendar year immediately preceding
the ditttribution calendar year) increased by the amount of any
Contributions or Forfeitures allocated to the account balance as
of dates in the valuation calendar year after the valuation date
and decreased by distributions made in the valuation calendar
year after the valuation date.
b. Exception for second distribution calendar year. For purposes of
paragraph (a) above, if any portion of the minimum distribution
fbr the first distribution calendar year is made in the second
distribution calendar year on or before the required beginning
date, the amount of the minirnum distribution made in the second
distribution calendar year shall be treated as if it had been
made in the imnaetliately preceding distribution calendar year.
6. Required Beginning Date
a. General Rule - The required beginning date of a Participant is
the first day of April of the calendar year following the
calendar year in which the Participant attains age 70 1/2.
b. Transitional Rules - The required beginning date of a Participant
who attains age 70 1/2 before January 1, 1988, shall be
determined in accordance with (1) or (2) below:
(I)Non 5% Owners - The required beginning date of a Participant
who is not a 5% owner is the first day of April of the
calendar year following the calendar year in which the later
of retirement or attainment of age 70 1/2 occurs.
(2) 5% Owners The required beginning date of a Participant who
is a 5% owner during any year beginning after December 31,
1979, is the first day of April following the later of:
(a) the calendar year in which the Participant attains age
70 1/2, or
(b) the earlier of~te calendar year with or within which
ends the Plan Year in which the Participant becomes a 5%
owner, or the calendar year in which the Participant
retires.
The required beginning date of a Participant who is not a 5%
owner who attains age 70 1/2 during l988antlwho has not
retired as of january 1,1989, is April 1,1990.
<PAGE>
c. 5% Owner - A Participant is treated as a 5% owner for purposes of
this Section 6.O6~(6) if such Participant is a 5% owner as
defined in Section 416(i) of the Code (determined in accordance
with Section 416 but without reg- to whether the Plan is
torheavy) at any tinie during the Plan Year ending with or within
the calendar year in which such owner attains age 66 1/2 or any
subsequent Plan Year.
32
<PAGE>
d. Once distributions have begun to a 5% owner under
this Section 6.06(F)(6) they must continue to be
distributed, even if the Participant ceases to be a
5% owner ma subsequent year.
G. Transitional Rule
1. Notwithstanding the other requirements of this Section
6.06 and subject to the requirements of Section 6.0$,
Joint and Survivor Annuity Requirements, distribution on
behalf of any Employee. including a 5% owner, may be made
in accordance with all of the following requirements
(regardless of when such distribution commences)
a. The distribution by the Fund is one which would not
have qualified such Fund under Section 40l(a)(9) of
the Code as in effect prior to amenduent by the
Deficit Reduction Act of 1984.
b. The distribution is in~aceordance with a method of
distribution designated by the Employee whose
interest in the Fund is being distributed or, if the
Employee is deceased, by a Beneficiary of such
Employee.
c, Such designation was in writing. was signed by the
Employee or the Beneficiary, and was made before
January 1, 1984.
d. The Employee had accrued a benefit under the Plan as
of December31, 1983.
e. The method of distribution designated by the Employee
or the Beneficiary specifies the time at which
distribution will commence, the period over which
distributions will be made, and in the case of any
distribution upon the Employee's death, the
Beneficiaries of the Employee listed in order of
priority.
2. A distribution upon death will not BE covered by this
transitional rule unless the information in the
designation contains the required information described
above with respect to. the distributions to be made upon
the death of the Employee.
3. For any distribution which commences before January 1,
1984, but continues after December 31,1983, the Employee,
or the Beneficiary, to whom such distribution is being
made, will be presumed to have designated the method of
distribution under which the distribution is being made
if the method of distribution was specified in writing
and the distribution satisfies the requirements in
Sections 6.06(G)(1)(a) and (e).
4. If a designation is revoked, any subsequent distribution
must satisfy the requirements of Section 401(a)(9) of the
Code and the regulations thereunder. If a designation is
revoked subsequent to the date distributions are required
to begin, the Plan must distribute by the end of the
calendar year following the calendar year in which the
revocation occurs the total amount not yet distributed
which would have been required to have been distributed to
satisfy Section 401(a)(9) of the Code and the regulations
thereunder, but for the Section 242~)(2) election. For
calendar' years beginnlng after December 31, 1988, such
distributions must meet the minimum distribution
incidental benefit rlequirements in Section 1.40l(a)(9~2
of the Proposed Income Tax Regulations. Any changes in the
designation will be considered to be a revocation of the
designation. However, the mere substitution or addition of
another Beeeficirry' (one not named in the designation)
i'nder the designation will not be considered to be a
revocation of the designation, so long as such
substitution or addition does not alter the period over
which distributions are to be made under the designation,
directly or indirectly (for example, by altering the
relevant measuring life). In the csse in which an amount
is transferred or rolled over from one plan to anther
plan, the rules in Q&A S-2 and Q&A J-3 shall apply.
6.07 ANNUITY CONTRACTS
Any annuity contract dtstributed under the Plan (if permitted or required by
this Section 6) must be nontransferable. The terms of any annuity contact
puretised and distributed by the Plan to a Participant or spouse shall comply
with the requirements of the Plan.
6.08 LOANS TO PARTICIPANTS
<PAGE>
If the Adoption Agreement 50 indicates, a Prrticipant may receive a
loan from the Fund, subject to the following rules:
A. Loans shall be made avallable to all Participants on a
reasonably equivalent basis.
B. Loans shall not be made available to Highly Compensated
Employees (as defined in Section 414(q) of the Code) in an
amount greater than the amount made available to other
Employees.
C. Loans must be adequately secured and bear a r'easomble
interest rate.
D. No Participant loan shall exceed the pr'esent value of the
Vested portion of a Participant's Individual Account.
33
<PAGE>
E. A Participant must obtain the cotesent of his or her spouse,
if any. to the use of the Individual Account as securitv for
the loan. Spousal consent shall be obtained no earlier than
the beginiii~~ng of the 90 day period that ends on the date on
which the loan is to be so secured. The consent must be in
writing, must aclmowledge the effect of the loan, and must be
witnessed by a plan representative or notary public. Such
consent shall thereafter be binding with respect to the
consenting spouse or any subsequent spouse with respect to
that loan. A new consent shall be required if the account
balance is used for renegotiation, extension. renewal, or
other revision of the loan. Notwithstanding the foregoing, no
spousal consent is necessary if, at the time the loan is
secured, no consent would be required for a distribution under
Section 417(a)(2)$). In addition, spousal consent is not
required if the Plan or the Participant is not subject to
Section 401(a)(1 1) at the time the Individual Account is used
as security, or if the total Individual Account subject to the
security~is less than or equal to $3,500.
F. In the event of default, foreclosure on the note and
attachment of security will not occur until a distributable
event occurs in the Plan. Notwithstanding the preceding
sentence, a Panic ipant's default on a loan will be treated as
a distributable event and as soon as administratively feasible
after the default, the Participant's Vested Individual Account
will be reduced by the lesser of the amount in default (plus
accrued interest) or the amount secured. If this Plan is a
401(k) plan, then to the extent the loan is attributable to a
Participant's Elective Deferrals, Qualified Nonelective
Contributions or Qualified Matching Contributions, the
Participant's Individual Account will not be reduced unless
the Participant has attained age 59 1/2 or has another
distributable event. A Participant will be deemed to have
consented to the provision at the time the loan is made to the
Participant.
G. No loans will be made to any shareholder-employee or
Owner-Employee. For purposes of this requirement, a
shareholder~employee means an employee or officer of an
electing small business (Subchapter S) corporation who owns
(or is considered as owning within the meaning of Section
318(a)(1) of the Code), on any day during the taxable year of
such corporation, more than 5% of the outstanding stock of the
corporation.
If a valid spousal consent has been obtained in accordance with
6.08(E), then, notwithstanding any other provisions of this Plan, the
portion of the Participant' S Vested Individual Account used as a
security interest held by the Plan by reason of a loan outstanding to
the Participant shall be taken into account for purposes of
determining the amount of the account balance payable at the time of
death or distribution, but only if the reduction is used as repayment
of the loan. If less than 100% of the Participant's Vested Individual
Account (determined without regard to the preceding sentence) is
payable to the surviving spouse, then the account balance shall be
adjusted by first reducing the Vested Individual Account by the
amount of the security used as repayment of the loan, and then
determining the benefit payable to the surviving spouse.
To avoid taxation to the Participant, no loan to any Participant can
be mlade to the extent that such loan when added to th outstanding
balance of all other loans to the Participant would exceed the lesser
of (a) $50,000 reduced by the excess (if any) of the highest
otitstattding balance of loans duting the one year letriod ending on
the day before the loan is made, over the outstanding balance of
loans from the Plan on the date the loan is made, or (1,) 50% of the
present value of the nonforfeitable Individual Account of the
Participant or, if greater, the total Individual Account up to
$10,000. For the purpose of the above limitation, all loans from all
plans of the Employer and other members of a group of employers
described in Sections 414(1,), 414(c), and 414(m) of the Code are
aggregated. Furthermore, any loan shall by its terms require that
repayment ("rincipal and interest) be amortized in level payments,
not less frequently than quarterly, over a period not extending
beyond 5 years from the date of the loan, unless such loan is used to
acquire a dwelling unit which within a reasonable time (deternihis at
the time the loan is made) will be used as the principal residence of
the Participant. An assignment or pledge of any portion of the
Participant's ireterest in the Plan and a loan, pledge, or assignment
with respect to any insurance contract purchased under the Plan, will
be treated as a loan under this paragraph.
The Plan Administrator shall adnnbdster the loan program in
accordance with a written document. Such written document shall
include, at a mininnum, the following: (i) the identity of the
person or positions authorized to administer the Participant loan
program: (ii) the procedure for applying for loans; (iii) the basis
on which loans will be approved or denied; (iv) limitations (if any)
on the teees and amounts of loans ofered; (v) the procedure under
the program for determining a reasonable rate of interest; (vi) the
types of collateral which may secure a Participant loan: and (vii)
the events constituting default and the steps that will be taken to
preserve Plan assets in the event of such deftult.
<PAGE>
6.09 DISTRIBUTION IN KIND
The Plan Administrator may cause any distribution under this Plan to
be made either in a form actually held in the Fund, or in cash by
converting assets other than cash into cash, or in any combination
of the two foregoing ways.
6.10 DIRECT ROLLOVERS OF ELIGIBLE ROLLOVER DISTRIBUTIONS
A. Direct Rollover Option
This Section applies to distributions made on or after Jamary
1,1993. Notwithstanding any provision of the Plan to the
contrary that would otherwise limlt a distrlbutee's'election
under this Section, a distributee may elect, at the time and
in the manner prescribed by the Plan Admi~tor, to have any
portion of an eligible rollover distribution that is equal to
at least $500 paid directly to an eligible retirement plan
specified by the distributee in a direct rollover,
34
<PAGE>
B. Definitions
1. Eligible rollover distribution - An eligible
rollover distribution is any distribution of
all or any portion of the balance to the
credit of the distributee, except that an
eligible rollover distribution does not
include:
A. any distribution that is one of a series
of substantially equal periodic payments
(not less frequently than annually) made
for the life (or life expectancy) of the
distributee or the joint lives (or joint
life expectancies) of the distributee and
the distributee's designated Beneficiary,
or for a specified period of ten years or
more;
b. any distribution to the extent such
distribution is required under Section
401(a)(9) of the Code;
C. the portion of any other distribution
that is not includible in gross income
(determined without regard to the
exclusion for net unrealized appreciation
with respect to employer securities); and
d. any other distribution(s) that is
reasonably expected to total less than
$200 during a year.
2. Eligible retirement plan - An eligible
retirement plan is an individual retirement
account described in Section 408(a) of the
Code. an individual retiremetit annuity
described in Section 408~) of the Code, an
annuity plan described in Section 403(a) of the
Code, or a qualified trust described in Section
401(a) of the Code, that accepts the
distributee's eligible rollover distribution.
However, in the case of an eligible rollover
distribution to the surviving spouse. an
eligible retirement plan is an individual
retirement account or individual retirement
annuity.
3. Distributee - A distributee includes an
Employee or former Employee. In addition, the
Employee's or former Employee's surviving
spouse and the Employee's or former Employee's
spouse or former spouse who is the alternate
payee under a qualified domestic relations
order, as defined in Section 414(p) of the
Code, are distributees with regard to the
inierest of the spouse or former spouse.
4. Direct rollover - A dircct rollover is a
payment by the Plan to the eligible retirement
plan specified by the distributee.
6.11 PROCEDURE FOR MISSING PARTICIPANTS OR BENENCLARIES
The Plan Adtnhiistrator must use all reasonable measures to locate Participants
or Beneficiaries who are entitled to distributions from the Plan. In the event
that the Plan Adminisator cannot locate a Participant or Beneficiary who is
entitled to a distribution from the Plan after wing all teasonable measures to
locate him or her, the Plan Administrator may, consistent with applicable laws,
regulations and other pronouncements under ERISA, use any reasonable procedure
to dispse of distributable plan assets, including any of the following: (1)
establish a bank account for and in the name of the Participant or Beneficiary
and taausfer the assets to such bank account, (2) purchatse an annuity contract
with the assets in the name of the Participant or Beneficiary, or (3) after the
expiration of 5 years after the benefit becomes payable, treat the amount
distributable as a Forfeiture and allocate it in accordance with the terms of
the Plan and if the Participant or Beneficiary is later locatccl, restore such
benefit to the Plan.
SECTION SEVEN
CLAIMS PROCEDURE
7.01 FILING A CLAIM FOR PLAN DISTRIBUTIONS
A Participant or Beneficiary who desires to MALTE a claim for the
Vestetl portion of the Participant's Individual Account shall file a
written request with the Plan Administrator on a torm to be airnished
to him or her by the Plan Administrator for such purpose. The request
shall set forth the basis of the claim. The Plan Administrator is
authoriaed to conduct such examinations as may be necessary TO
facilitate the payment of any benefits to which the Participant or
Beneficiary may be entitled under the tertns of the Plan.
7.02
DENIAL OF CLAIM
whenever a claim for a Plan distribution by any Participant or
Beneficiary has been wholly or partially denied, the Plan
Administrator must nirnith such Participant or Beneficiary written
notice of the denial within 60days of the date
<PAGE>
the original claim was filed. This notiice shall set forth the
specific reasons for the denial. specific reference to pertinent
Plan provisions on which the denial is based. a description~f any
additional information or material neededto perfect the claim, an
explanation of why stzch additional information or material is
necsry and an explanation of the prooclures for appeal.
.7.03
REMEDIES AVAILABLE
The Participant or Beneficiary shall have 60 days from rcceipt of the denial
notice in which TO niale written application for review by the Plan
Admitristator. The Participant or Beneficiary may re:luest that the review be in
the nature of a laearing. The Participant or Beneficiary shall have the right to
representation, to review pertinent documents and to submit comments in
'rrriting. The Plan Administrator shall issue a decision on such review within
60 days after receipt of an application for review as provided for in Section
7.02. Upon a decision unfavorable to the Participant or Beneficiary, such
Participant or Beneficiary shall be entitled to bring such actions in law or
equity as may be necessary or appropriate to protect or clarify his or her
riglitto benefits under this Plan.
35
<PAGE>
SECTION EIGHT PLAN ADMINISTRATOR
8.01 EMPLOYER IS PLAN ADMINISTRATOR
A. The Employer shall be the Plan Administrator unless
the managing body of the Employer designates a
person or persons other than the Employer as the
Plan Administrator and so notifies the Trustee (or
Custodian, if applicable). The Employer shall also
be the Plan Administrator if the person or persons
so designated cease to be the Plan Administrator.
The Employer may establish an administrative
committee that will carry out the Plan
Administrator's duties. Members of the
administrative committee may allocate the Plan
Administrator's duties among themselves.
B. If the managing body of the Employer designates a
person or persons other than the Employer as Plan
Administrator, such person or persons shall serve
at the pleasure of the Employer and shall serve
pursuant to such procedures as such managing body
may provide. Each such person shall be bonded as
may be required by law.
8.02 POWERS AND DUTIES OF THE PLAN ADMINISTRATOR
A. The Plan Administrator may, by appointtniett,
allocate the duties of the Plan Administrator among
several individuals or entities. Such appointments
shall not be effective until the party designated
accepts such appointment in writing.
B. The Plan Administrator shall have the authority to
control and manage the operation and administration
of the Plan. The Plan Administrator shall
administer the Plan for the exclusive benefit of
the Participants and their Beneficiaries in
accordance with the specific terms of the Plan.
C. The Plan Administrator shall be charged with the
duties of the general administration of the Plan,
including, but not limited to, the following:
1. To determine all questions of interpretation
or policy in a manner consistent with the
Plan's documents and the Plan Administrator's
consrruction or determination in good Itith
shall be conclusive and binding on all persons
except as otherwise provided herein or by law.
Any interpretation or construction shall be
done in a nondiscriminatory manner and shall be
consistent with the intent that the Plan shall
continue to be deemed a qualified plan under
the terms of Section 401(a) of the Code, as
amended from time-t~time, and shall comply with
the terms of ERISA, as amended from
time4frtime;
2. To determine all questions relating to the
eligibility of Employees to become or remain
Participants hereunder;
3. To compute the amounts tsecessary or desirable
to be contributed to the Plan;
4. To compute the amount and kind of benefits to
which a Participant or Beneficiary shall he
entitled under the Plan and to direct the
Trustee (or Custodian, if applicable) with
respect to all disbursements under the Plan,
and, when requested by tie Trustee (or
Custodian), to hirnisi the Trustee (or
Custodian) with instructions, in writing, on
matters pertaining to the Plan and the Trustee
(or Custodian) may rely and act thereon;
5. To maintain all records necessaay for the
adnilnistration of the Plan;
6. To be responsible for preparing and filing such
disclosure and tax forms as may be required
from time-t~time by the Secretary of Labor or
the Secretry of the Treasury; and
7 To flitnish each Employee, Participant or
Beneficiary such notices, information and
reports under such circumstances as may be
required by law.
D. The Plan Administrator shall have all of the powers
necessary or appropriate to accomplish his or her
duties under the Plan, including. but not limited
to. the following:
<PAGE>
1. To appoint and retain such persons as may be
necessaryto carry out the functions of the Plan
Administrator;
2. To appoint and retain counsel, specialists or
other persons as the Plan Administrator deems
necessary or advisable in the administration of
the Plan;
3. To resolve all questions of adiunistration of
the Plan;
4. To establish such uniform and nondiscriminatory
rules which it deems necessary to carry out the
terms of the Plan;
36
<PAGE>
5. To make any adjustments in a uniform and
nondiscriminatory manner which it deems
necessary to correct any arithmetical or
accounting errors which may have been made for
any Plan Year; and
6. To correct any defect, supply any Omission or
reconcile any inconsistency in such manner and
to such extent AS shall be deemed necessary or
advisable to carry out the purpose of the Plan.
8.03 EXPENSES AND COMPENSATION
All reasonable expenses of administration including, but
not limited to, those involved in retaining necessary
professional assistance may be paid from the flssets of
the Fund, Alternatively, the Employer may, in its
discretion, pay any or all such expenses. Pursuant to
uniform and nondiscriminatory rules that the Plan
Administrator may establish from time~t~ time,
administrative expenses and extnenses unique to a
panicular Participant may be charged to a Participant's
Individual Account or the Plan Administrator may allow
Participants to pay such fees outside of the Plan. The
Employer shall furnish the Plan Administrator with such
clerical and other assistance as the Plan Administrator
may need in the performance of his or her duties.
8.04 INFORMATION FROM EMPLOYER
To enable the Plan Administrator to perform his or her
duties, the Employer shall supply toll and timely
information to the Plan Administrator (or his or her
designated agents) on all matters relating to the
Compensation of all Participants, their regular
employment, retirement, death, Disability or Termination
of Employment, and such other pertinent facts as the Plan
Administrator (or his or her agents) MAY require. The
Plan Administrator shall advise the Trustee (or
Custodian, if applicable) of such of the foregoing facts
as may be pertinent to the Trustee's (or Custodian's)
duties under the Plan. The Plan Administrator (or his or
her agents) is cmi tied to rely on such infonmation as is
supplied by the Employer and shall have no duty or
responsibility to verify such infortnation.
SECTION NINE
AMENDMENT AND TERMINATION
9.01 RIGHT OF PROTOTYPE SPONSOR TO AMEND THE PLAN
A. The Employer, by adopting the Plan, exptessly delegates to the
Prototype Sponsor the power, but not the duty, to amend the
Plan without any flintier action or consent of the Employer as
the Prototype Sponsor deems necessary for the purpose of
adjusting the Plan to comply with all laws and regulations
governing pension or profit sharing plans.
Specifically, it is understood that the amendments may be made
tinilaterally by the Prototype Sponsor. However, it shall be
understood that the Prototppe Sponsor shall be under no
obligation to amend the Plan documents and the Employer
expressly waives any rights or claims against the Prototype
Sponsor for not exercising this power to arnend. For purposes
of Prototype Sponsor amendments, the mass subminer shall be
recognized as the agent or the Prototype Sponsor. If the
Prototype Sponsor does not adopt the amendments made by the
mass submitter, it will no longer be identical to or a minor
modifier of the mass submitter plan.
B. An amendment by the Prototype Sponsor shall be
accomplished by giving written notice to the
Employer of the amendment to be made. The notice
shall set forth the text of such amendment and the
date such amendment is to be effective. Such
amendment shall take effect unless within the 30
day period after such notice is provided, or within
such shorter period as the notice may specify, the
Employer gives the Prototype Sponsor written notice
of retosal to consent to the amendment. Such
written notice of refimal shall have the effect of
withdrawing the Plan as a prototype plan and shall
cause the Planto be considered an individually
designed plan. The right of the Prototype Sponsor
to cause the Plan to be amended shall tenninate
should the Plan cease to conform as a prototype
plan as provided in this or any other section.
9.02 RIGHT OF EMPLOYER TO AMEND THE PLAN
The Employer may (1) change the choice of options in the Adoption Agreement; (2)
add overriding language in the Adoption Agreement when such language is
necessity to satisfy Section 415 or Section 416 of the Code because of the
required aggregation of multiple plans; and (3) add certain model amendments
published by the linternal Revenue Service which specifically provide that their
adoption will not cause the Plan to be treated as individually designed. An
Ernployer that amends
<PAGE>
the Plan for any other raason, including a waiver of the mInimum finding
requirement under Section 412(d) of the Code, will no longer participate in this
prototype plan and will be considered to have an individually designed plan.
An Employer who wishes to amend the Plan to change the
options it has chosen in the Adoption Agreement must
complete and deliver a new Adoption Agreernent to the
Prototype Sponsor and Ti'utee (or Custodian, if
applicable). Such amendment shall become effective upon
execution by the Employer and Trustee (or Custodian).
The Employer flirther reserves the right to teplace the
Plan in its entirety by adopting another retirement plan
which the Emplpyer designates as a replacetnent plan.
9.03 LIMITATION ON POWER TO AMEND
No amendment to the Plan shall be effective to the extent that it has the effect
of decraasing a Participant's accrued benefit. Notwithstanding ~e preceding
semence, a Participant's Individual Account may be reduced to the extent
permitted under Section 412(c)(8) of the Code. For purposes of this paragraph, a
plan amendment which has the effect of decreasing a
37
<PAGE>
Participant's Individual Account or eliminating an
optional form of benefit with respect to benefits
attributable to service before the amendment shall be
treated as reducing an accrued benefit. Furthermore, if
the vesting schedule of a P!an is amended, in the case of
an Employee who is a Participant as of the later of the
date such amendment is adopted or the date it becomes
effective, the Vested percentage (determined as of such
date) of such Employee's Individual Account derived from
Employer Contributions will not be less than the
percentage computed under the Plan without regard to such
amendment.
9,04 AMENDMENT OF VESTING SCHEDULE
If the Plan's vesting schedule is amended, orthe Plan is
amended in any way that directly or indirectly affects
the computation of the Participant's Vested percentage,
0? if the Plan is deemed amended by an automatic change
to or from a top-heavy vesting schedule, each Participant
with at least 3 Years of Vesting Service with the
Employer may elect, within the time set forth below, to
have the Vested percentage computed under the Plan
without regard to such amendment,
For Participants who do not have at least 1 Hour of
Service in any Plan Year beginning after December 31,
1988, the pr"eceding sentence shall be applied by
substituting "5 Years of Vesting Service" for "3 Years of
Vesting Service" where such language appears. The Period
during which the election may be made shall commence with
the date the amendment is adopted or deemed to be made
and shall end the later of:
A. 60 days after the amendtnent is adopted;
11. 60 days after the amendtnent becomes effective; or
C. 60 days after the Participant is issued wrinen
notice of the amendment by the
Employer or Plan Administrator,
9.05 PERMANENCY
The Employer expects to continue this Plan and MAKE the
necessary contributions thereto indefinitely, but such
continuance and payment is not assumed as a contractual
obligation. Neither the Adoption Agreement nor the Plan
nor any amendment or modification thereof nor the making
of contributions her6under shall be construed as giving
any Participant or any person whomsoever my legal or
equitable right against the Employer, the Trustee (or
Custodian, if applicable) the Plan Adrnlnistrator or the
Irrototype Sponsor except as specifically provided
herein, or as provided by law.
9.06 METHOD AND PROCEDURE FOR TERMINATION
The Plan may BE terminated by the Employer at any tirne by appropriate action of
its natlaging body. Such termi nation shall be effective on the date specified
by the Employer. The Plan shall tenitinate if the Employer shall be dissolved,
terrninated, or declared bankrupt. Wrinen notice of the termInation and
effective date thereof shall be given to the Trustee (or Custodian), Plan
Administrator, Prototype Sponsor, lrrrticipants and Beneficiaries of deceased
Participants, and the required filings (such as the Form 5500 series and others)
must be made with the Internal Revenue Service and any other regulatory body as
required by curTent laws and regulatibns. Until all of the assets have been
distributed from the Fund, the Employer must keep the Plan in compliance with
current laws and regulations by (a) malting appropriate amendments to the Plan
and a,) talting such other measures as may be required,
9.07 CONIINUANCE OF PLAN BY SUCCESSOR EMPLOYER
Notwithstanding the proceeding Section 9.06, a successor
of the Employer may continue the Plan and be substituted
in the place of the present Employer. The succeesor and
the present Employer (or, if deceased, the executor of
the estate of a deceased Self-Employed Individual who was
the Employer) must execute a wrinen instrument
authorizing such substitution and the successor must
complete and sign a new plan document.
9.08 FAILURE OF PLAN QUALIFICAnON
If the Plan fails to retain its qualified status. the Plan
will no longer be considered to be part of a prototype
plan. and such Employer cm no longer participate under
thils prototype. In such event, the Plan will be
considered an individually designed plan.
SECTION TEN MISCELLANEOUS
<PAGE>
10.01 STATE COUNTY PROPERTY LAWS
The terms and conditions of this Plan shall be applicable
without regas'd to the community property laws of any
state.
10.02 HEADINGS
The headings of the Plan have been inserted for
tonvenience of reference only and are to be ignored in my
construction of the provisions hereof.
10.03 GENDER AND NUMBER
"Whenever my words are used Irerein in the masculine
gender they shall be constru~ as though they were also
used in the feminine gender in all cases where they would
so apply. and whenever any words are used herein in the
singular form they shall be construed as though they were
also used in the plural form in all cases where they
would so apply.
38
<PAGE>
10.04 PLAN MERGER OR CONSOLIDATION
In the case of any merger or consolidation of the Plan with, or
traisfer of assets or liabilities of such Plan to. any other plan,
each Participant shall be entitled to receive benefits immediately
after the merger, consolidation. or transfer (if the Plan had then
terminated) which are equal to or greater than the benefits he or
she would have been entitled to receive immediately before the
merger, consolidation, or transfer (if the Plan had then
terminated). The Trustee (or Custodian) has the authority to enter
into merger agreements or agreements to directly transfer the assets
of this Plan but only if such agreements are made with trustees or
custodians of other retirement plans described in Section 401(a) of
the Code.
10.05 STANDARD OF FIDUCIARY CONDUCT
The Employer, Plan Administrator, Trustee and any Other fiduciary
under this Plan shall discharge their duties with respect to this
Plan solely in the interests of Participants and their Beneficiaries
and with the care, skill, prudence and diligence under the
circutnstances then prevailing that a prudent man acting in like
capacity and firniliar with such matters would use in the conduct of
an enterprise of a like claaracter and with like aims. No fiduciary
shall cause the Plan to engage in any transaction known as a
"prohibited transaction" under ERISA.
10.06 GENERAL UNDERTAKING OF ALL PARTIES
All parties to this Plan and all persons claiming any interest
whatooever hereunder agree to perform any and all acts and execute
any and all documents and papers which may be necessary or desirable
for the carrying out of this Plan and any of its provisions.
10.07 AGREEMENT BINDS HEIRS, ETC.
This Plan shall be binding upon the heirs, executors,
administrators, successors and assigns, as those terms shall apply
to any and all parties hereto, present and ibture.
10.08 DETERMINAnON OF TOP-HEAVY STATUS
A. For any Plan Year beginning after December 31,1983, this Plan
is a TowHeavy Plan ifany of the following conditions exist:
I. If the to~heavy ratio for this Plan exceeds 60% and this
Plan is not part of any required aggregation group or
permissive aggregation group of plans.
2. If this Plan is pan of a required aggregation group of
plans but not part of a permissive aggregation group and
the to~heavy ratio for the group of plans exceeds 60%.
3. If this Plan is a part of a required aggregation group and
part of a permissive aggregation group of plans and the
to~hea'y ratio for the permissive aggregation group
exceeds 60%.
For putposes of this Section 10.08, the following terns shall
have the inenings indicated below:
B. Key Employee - Any Employee or foreeer Employee (and the
Beneficiaries of such Employee) who at any time during the
determination period was an officer of the Employer if such
individual's annual compensation exceeds 50% of the dollar
limitation under Section 415(0)(1)(A) of the Code, an owner
(or considered an owner under Section 318 of the Co:le) of one
of the 10 largest interests in the Employer if such
individual's compensation exceeds 100% of the dollar
limitation under Section 415(c)(1)(A) of the Code, a 5% owner
of the Employer. or a 1% owner of the Employer who has an
annual compeation of more than $150,000. Annual compensation
means compensation as defined in Section 415(c)(3) of the
Code, but including amounts contributed by the Employer
pursuant to a salary reduction agrteetnent which are
exciutlable from the Employee's gross income under Section
125, Section 402(e)(3), Section 402OI)(1)B) or Section 403fb)
of the Code. The determination period is the Plan Year
containing the deterenination date and the 4 preceding Plan
Years.
The determination of who is a Key Employee will be made in
accordance with Section 416(i)(1) of the Code and the
regulations theretlnder
C. Top-heavy ratio
1. If the Employer maintains one or more defined
cotrtribution plans (including any simplified employee
pension plan) and the Employer has not maintained any
defined benefit plan which during the 5-year period
ending on the determimtion date(s) ha~ or has had accrued
benefits, the t~leea'vy ratio for this Plan alone or for
the required or permissive aggregation group as
appropriate is a fraction, the
<PAGE>
numerator of which is the sum of the account balances of
all Key Employees as of the determination date(s)
(including any part of any account balance distributed in
the 5-year period ending on the determination date(s)),
and the denominator of which is the sum of all account
balances (including any part of any account balance
distributed in the 5-year period ending on the
determination date(s)), both computed in accordance with
Section 416 of the Code and the regulations thereunder.
Both the numerator and tlie denominator of the. top-heavy
ratio are increased to reflect any contribution not
actually made as of the determination date, but which is
required to be taken into account on that date under
Section 416 of the Code and the regulations thereunder,
39
<PAGE>
2. rf the Employer maintains one or more defined contribution
plans (including any simplified employee pension plan) and
the Employer maintains or has maintained one or more
defined benefit plans which during the S-year period
ending on the determination date(s) has or has lad any
accrued benefits, the top-heavy ratio for any required or
permissive aggregation group as appropriate is a fraction,
the numerator of which is the sum of account balances
under the aggregated defined contribution plan or plans
for all Key ?mployees, determined in accordance with (1)
above, and the present value of accrued benefits under the
aggregated defined benefit p1; or plans for all Key
Employees as of the determination date(s), and the
denominator of which is the sum of the account balances
under the aggregated defined contribution plan or plans
for all Participants, determined in accordance with (1)
above, and the present value of accrued benefits under the
defined benefit plan or plans for all Participants as of
the determination date(s), all determined in accordance
with Section 416 of the Code and the regulations
thereunder. The.accrued benefits under a defined benefit
plan in both the numerator and denominator of the
tbfrheavy ratio are increased for any distribution of an
accrued benefit made in the 5-year period ending on the
determination date.
3. For purposes of (1) and (2) above, the value of account
balances and the present value of accrued benefits will be
determined as of the most recent valuation date that falls
within or ends with the 12-month period ending on the
determination date, except as provided in Section 416 of
the Code and the regulations thereunder for the first and
second plan years of a defined benefit plan. The account
balances and accrued benefits of a Participant (a) who is
not a Key Employee but who was a Key Employee in a Prior
Year, pr (b) who has not been credited with at least one
Hour of Service with any employer maintaining the plan at
any time during the 5-year period ending on the
determination date will be disregarded. The calculation of
the top-heavy ratio, and the extent to which
distributions, rollovers, and transfers are taken into
account will be made in accordance with Section 416 of the
Code and the regulations thereunder. Deductible employee
contributions will not be taken into account for purposes
of computing the top-heavy ratio. When aggregating plans
the value of account balances and accrued benefits will be
calculated with reference to the determination dates that
till within the satne calendar year.
The accrued benefit of a Participant other than a Key
Employee shall be determined under (a) the method, if any,
that unifornily applies for accrual purposes under all
defined benefit plans maintained by the Employer, or
(',)if there is no such method, as if such benefit
accreeed not rnore rapidly than the slowest accrual rate
permitted underthe ftcctional rule
ofSection4llQ,)(l)(C)ofte Code.
4 Permissive aggregation group: The required aggregation
group of plans plus any other plan or plans of the
Employer which, when considered as a group with the
required aggregation group, would continue to satisfy the
requirements of Sections 401(a)(4) and 410 of the Code.
5. Required aggregation group: (a) Each qualified plan of
the Employer in which at least one Key Employee
participates or pa'rticipated at any time during the
determination period (regardless of whether the Plan has
terminated), and ~) any other qualified plan of the
Employer which enables a plan described in (a) to meet
the requirements of Sections 401(a)(4) or 410 of the
Code.
6. Determination date: For any Plan Year subsequent to the
first Plan Year, the last day of the preeeding Plan Year.
For the first Plan Year of the Plan, the last day of that
year.
7. Valuation date: For purposes of calculating the to~heavy
ratio, the valuation date shall be the last day of each
Plan Year.
8. Present value: For purposes of establishing the "present
value" of benefits under a defined benefit plan to
compute the top~heavy ratio, any benefit shall be
discounted only for mortality and interest based on the
interest rate and morta[ity table specified for this
purpose in the defined benefit plan. unless otherwise
indicated in the Adoption Agreement.
10.09 SPECIAL LIMITATIONS FOR OWNER-EMPLOYEES
If this Plan provides contributions or benefits for one or more
Owner-Employees who control both the business for which this Plan is
established and one or more other trades or businesses, this Plan
and the plan established for other trades or businesses must, when
looletd at as A single plan, satisfy Sections 401(A) and (d) of the
Code ftr the employees of those trades or businesses.
<PAGE>
If the Plan provides contributions or benefits for one or more
Owner-Employees who cotrtrol one or more other trades or businesses,
the employees of the other trades or businesses must be included in
a plan which satisfies Sections 401(a) and (d) of the Code and which
provides contributions and benefits not less favorable than provided
for Owner-Employees under this Plan.
40
<PAGE>
RR an individual is covered as an Owner-Employee under
the plans of two or more trades or businesses which are
not controlled and the individual controls a trade or
business, then the contributions or benefits of the
employees under the plan of the trade or business which
is controlled must be as favorable as those provided
for him or her under the most favorable plan of the
trade or business which is not controlled.
For purposes of the preceding paragraphs, an
Owner-Employee, or two or more Owner-Employees, will be
considered to control a trade or b~ines~ if the
Owner-Employee, or two or more Owner-Employees,
together:
A. own the entire interest in a unincorporated trade
or business, or
B. in the case ofa partnership, own more than 50% of
either the capital interest or the profit interest
in the partnership.
For purposes of the preceding sentence, an
Owner-Employee, or two or more Owner-Employees, shall
be treated as owning any interest in a partnership
which is owned, directly or indirectly, by a
partnership which such Owner-Employee. or such two or
more Owner-Employees, are considered to control within
the meaning of the preceding sentence.
10.10 INALIENABILITY OF BENEFITS
No benefit or interest available hereunder will be
subject to assignment or alienation, either voluntarily
or involuntarily. The preceding sentence shall also
apply to the creation, assignment, or recognition of a
right to any benefit payable with respect to a
Participant pursuant to a domestic relations order,
unless such order is determined to be a qualified
domestic relations order, as defined in Section 414(p)
of the Code.
Generally, a domestic relations order cannot be a
qtaalified domestic relations order until January 1,
1985. However, in the case of a domestic relations
order entered before such date, the Plan
Administrator..
(1) shall treat such order as a qualified domestic
relations order if such Plan Administrator is
paying benefits pursuant to such order on such
date, and
(2) may treat any other such order entered before such
date as a qualified domestic relations order even
if such order does not meet the requirements of
Section 414~ of the Code.
Notwithstanding any provision of the Planto the
contrary, a distribution to an alternate payee under a
qualified domestic relations order shall be leermitted
even if the Participant affected by such order is not
otherwise entitled to a distribution and even if such
Participant has not attained earliest retirement age as
defined in Section 414(p) of the Code.
10.11 CANNOT ELIMINATE PROTECTED BENEFITS
Purmant TO Section 41 1(d)(6) of the Code, and the
regulations thereunder, the Employer cannot reduce,
eliminate or make subject TO Employer discretion any
Section 41 l(d)(6) protected benefit. Where this Plan
document is being adopted to amend another plan that
contains a protected benefit not provided for in this
document, the Employer may attach a supplement to the
Adoption Agreetnent that describes such protected
benefit which shall become part of the Plan.
SECTION ELEVEN
461(K) PROVISIONS
In addition to Sections 1 through 10, the provisions of
this Section 11 shall apply if the Employer has
established a 401(K) cash or deferred arrangement (CODA)
by completing and signing the appropriate Adoption
Agreement.
11.1OO DEFINITIONS
<PAGE>
The following words and phrases when used in the Plan
with initial capital letters shall, for the purposes of
this Plan, have the meanings set forth below unless the
context indicates that other meanings are intended.
11.101 ACTUAL DEFERRAL PERCENTAGE (ADP)
Means, for a specified group of Participants for a Plan
Year. the average of the ratios (calculated separately
for each Participant in such group) of (1) the amount
of Employer Contributions aettally paid over to the
Fund on belalf of such Participant for the Plan Year to
(2) the Participant's Compensation for such Plan Year
(taking into account only that Compensation paid to the
Employee during the portion of the Plan Year he or she
was an eligible Participant. unless otherwise indicated
in the Adoption Agreement). For purposes of
calcttlating the ADP, Employer Contributions on behalf
of any Participant shall include: (1) any Elective
Deferrals made pursuant to the Participant's deferral
election, (including Excess Elective D~s of Highly
Compensated Employees), but excluding (a) Excess
Elective Deferrals of Non-highly Compensated Employees
that arise solely from Elective Deferrals made tlnder
the Plan or plans of this Employer and Elective
Deferrals that are taken into account in the
Contribution Percentage test ~roviled the ADP test is
satisfied both with and without exclusion of these
Elective Deterrals): and (2) at the election of the
Employer, Oualifled Nonelective Contributions and
Qualified Matching Contributions. For purposes of
computing Actual Deferral Percentages, an Employee who
would be a Participant but for the failure to make
Elective Deferrals shall be treated as a Participant on
wbose behalf no Elective Deferrals are made.
41
<PAGE>
11.102 AGGREGATE LIMIT
Means the sum of (1)125% of the greater of the AD? of the
Participants who are not Hig~y Compensated Employees for the Plan
Year or the AC? of the Panicipants who are not Highly Compensated
Employees under the Plan subject to Code Section 401(m) for the Plan
Year beginning with or within the Plan Year of the CODA: and (2) the
lesser of 200% or two pJus the lesser ofsuch ADP or AC?. "Lesser" is
substituted for "greater" in "(1)" above, and "greater" is
substituted for "lesser" after "two plus the" in "(2)' if it would
result in a larger Aggregate Limit.
11.103 AVERAGE CONTRIBUTION PERCENTAGE (ACP)
Means the average of the Contribution Percentages of the Eligible
Participants in a group.
11.104 CONTRIBUTING PARTICIPANT
Means a Participant who laas enrolled as a Contributing Participant
pursuant to Section 11.201 and on whose behalf the Employer is
contributing Elective~Deferrals to the Plan (or is making
Nondeductible Employee Contributions).
11,105 CONTRIBUTION PERCENTAGE
Means the ratio (expressed as a percentage) of the Patticipant's
Contribution Percentage Amounts to the Participant's Compensation
for the Plan Year (taking into account only the Compensation paid to
the Employee during the portion of the Plan Year he or she was an
eligible Participant, unless otherwise indicated in the Adoption
Agreement).
11.106 CONTRIBUTION PERCENTAGE AMOUNTS
Means the sum of THE Nondeductible Employee Contributions, Matching
Contributions, and Qualified Matching Contributions made under the
Plan on behalf of the Participant for the Plan Year. Such
Contribution Percentage Amounts shall not include Matching
Contributions that are forfeited either to correct Excess Aggregate
Contributions or because the contributions to which they relate are
Excess Deferrals, Excess Contributions, Excess Aggregate
Contributions or excess annual additions which are distributed
punsuant to Section 11.508. If so elected in the Adoption Agreement,
the Employer may include Qualified Nonelective Contributions in the
Contribution Percentage Atnount. The Employer also may elect to use
Elective Deferrals in the Contribution Percentage Amounts so long as
the AD? test is met before the Elective Deferrals are used in the
AC? test and continues to be met following the exclusion of those
Elective Deferrals that are used to meet the ACP test.
11.107 ELECTIVE DEFERRALS
Means any Employer Contributions made to the Plan at the election of
the Participant, in lieu of cash compensation, and shall include
contributions made pursuant to a salary reduction agreement or other
deferral mechanism. With respect to any taxable year, a
Participant~s Elective Deferral is the sum of all Employer
contributions made on behalf of such Participant pursant to an
election to defer under any qualified CODA as described in Section
40I~) of the Code, any simplified employee pension cash or deferred
arrangement as described in Section 402(11)(1)$), any eligible
deferred compensation plan under Section 457, any plan as described
under Section 501(c)(18), and any Employer contributions made on the
behalf of a Participant for the purclsase of an annuity contract
under Section 403(1,) pursuant to a salary reduction agreement,
Elective Deferrals shall not include any deferrals properly
distributed as excess annual additions.
No Participant shall be Perinitted to have Elective Deft nab made
under this Plan, or any other qualified plan maintained by the
Employer, during any taxable year, in excess of the dollar
limitation contained in Section 402~) of the Code in effect at the
beginning of such taxable year.
Elective Deferrals may not be taken into account for purposes of
satisfying the miniruum allocation requirement applicable to
TorHeavy Plans described in Section 3.0l~),
11.108 ELIGIBLE PARTICIPANT
Means any Employee who is eligible to make a Nondeductible Employee
Contribution or an Elective Deferral (if the Employer takes such
contributions into account in the calculation of the Contribution
Percentage), or to receive a Matching Contribution (inclnding
Forfeitures thereof) or a Qualified Matching Contribution.
If a Nondeductible Employee Contribntion is required as a condition
of participation in the Plan, any Employee who would be a
Participant in the Plan if such Employee made such a contribution
shall be treated as an Eligible Participant on behalf of whom no
Nondeductible Ernployee Contributions are made.
11.109 EXCESS AGGREGATE CONTRIBUTIONS
<PAGE>
Means, with respect to any Plan Year, the excess of:
A. The aggregate Contribution Percentage Amounts taken into
account in computing the numerator of the Contribution
Percentage actually made on behalf of Highly Compensated
Employees for such Plan Year, over
B. The maximum Contribution Percentage Amounts permined by the
ACP test (determined by reducing contributions made on behalf
of Highly Compensated Employees in order of their Contribution
Percentages beginning with the highest of such percentages).
42
<PAGE>
Such determination shall be made after first determining
Excess Elective Deferrals. pursuant to Section 11 - 111 and
then determining Excess Contributions pursuant to Section
11.110.
11.110 EXCESS CONTRIBUTIONS
Means, with respect to any Plan Year, the excess of:
A. The aggregate amount of Employer Contributions actually taken
into account in computing the ADP of Highly Compensated
Employees for such Plan Year, over
B. The maximum amount of such contributions permitted by the ADP
test (determined by reducing contributions made on behalf of
Highly Compensated Employees in order of the ADPs, beginning
with the highest of such percentages).
11.111 EXCESS ELECTIVE DEFERRALS
Means those Elective Deferrals that are includible in a
Participant's gross income under Section 402(g) of the Code to the
extent such Participant's Elective Deferrals for a taxable year
exceed the dollar limitation under such Code section. Excess
Elective Deferrals shall be treated as annual additions under the
Plan, unless such amounts are distributed no later than the first
April 15 following the close of the Participant's taxable year.
11.112 MATCHING CONTRIBUTiON
Means an Employer Contribution made to this or any other defined
contribution plan on behalf of a Participant on account of an
Elective Deferral or a Nondeductible Employee Contribution made by
such Panic ipant under a plan maintained by the Employer.
Matching Contributions may not be taken into account for purposes of
satisfying the minimum allocation requirement applicable to
Top~Heavy Plans described in Section 3.01(E).
11.113 QUALIFIED NONELEOTWE COWIUBUnONS
Means contributions (other than Matching Contributions or Qualified
Matching Contributions) made by the Employer and allocated to
Participants' Individual Accounts that the yarticipants may not
elect to receive in cash until distributed from the Plan; that are
nonforfeitable when made; and that are distributable only in
accordance with the distribution provisions that are applicable to
Elective Deferrals and Qualified Matching Contributions.
Qualified Nonelective Contribution may be taken into account for
purposes of satisfying the minimum allocation requirement applicable
to To~Heavy Plans described in Section 3.01(13).
11.114 QUALIFIED MATCECfflNG COWInIBUTIONS
Means Matching Contributions which are subject to the distribution
and nonforfeitability requirements under Section 401(1:) of the Code
when made.
11.115 QUALIFYING CONTRIBUTING FARnUPANT
Means a Contributing Participant who satisfies the requirements
described in Section 11.302 to be entided to receive a Matching
Contribution (and Forfeitures, if applicable) for a Plan Year.
11.200 CONTRIBUTING PARnCrpANT
11.201 REQUIREMENTS TO ENROLL AS A CONThIBUTING PARflCIPANT
A. Each Employee who satisfies the eligibility requirements
specified in the Adoption Agreement may enroll as a
Contributing Participant as of any subsequent Entry Date (or
earlier if required by Section 2.03) specified in the Adoption
Agreement for this puppose. A Participant who wishes to enroll
as a Contributing Participant must complete, sign and file a
salary reduction agreement (or agreement to make Nondeductible
Employee Contributions) with the Plan Administrator.
B. Notwithstanding the times set forth in Section 11.201(A) as of
which a Participant may enroll as a Contributing Participant,
the Plan Administrator shall have the authority to designate,
in a nondiscriminatory manner, additional enrollment times
during the 12 month period beg intung on the Effective Date
(or the date that Elective Deferrals may cornmence, if later)
in order that an orderly first enrollment might be completetl.
In addition, if the Employer has indicated in the Adoption
Agreement that Elective Deferrals may be based on bonuses,
then Participants shall be afforded a reasonable period of
time prior to the issuance of such bonuses to elect to defer
them into the Plan.
<PAGE>
11.202 CHANGING ELECIWE DEFntRL AMOUNTS
A Contributing Participant may modify his or her salary reduction
agreement (or agreement to make Nondeductible Employee
Contributions) to increase or decrease (within the limits placed on
Elective Deferrals (or Nondeductible Employee Contributions) in the
Adoption Agreement) the amount of his or her Compensation deferred
into the Plan. Such modification may only be naade as of the dates
specified in the Adoption Agreement for this purpose, or as of any
other more frequent date(s) if the Plan Administrator permits in a
uniform and nondiscriminatory manner. A Contributing Participant who
desires to make such a modification shall complete, sign and file a
new salary reduction agreement (or agreement to make Nondeductible
Employee Contribution) with the Plan Administrator. The Plan
Administrator may prescribe such unilorm and nondiscritninatory
rules it deems appropriate to carry out the tenms of this Section.
43
<PAGE>
11.203 CEASING ELECTIVE DEFERRALS
A Participant may cease Elective Deferrals (or Nondeductible
Employee Contributions) and thts withdraw as a Contributing Panic
ipant as of the dates specified in the Adoption Agreement fqr this
purpose (or as of any other date if the Plan Administrator 50
permits in a uniform and nondiscriminatory manner) by revoking the
authorization to the Employer to make Elective Deferrals (or
Nondeductible Employee Contributions) on his or her behalf. A
Participant who desires to withdraw as a Contributing Pan icipant
shall give written notice of withdrawal to the Plan Administrator at
least thirty days (or such lesser period of days as the Plan
Administrator shall permit in a uniform and nondiscriminatory
manner) before the effective date of withdrawal. A Participant shall
cease to be a Contributing Participant upon his or her Termination
of Employment, or an account of termination of the Plan.
11.204 RETURN AS A CONTRIBUTING PARTICIPANT AFTER CEASING ELECTIVE DEFERRALS
A Participant who laas withdrawn as a Contributing Participant under
Section 11.203 (or because the Participant has taken a hardship
withdrawal pursuant to Section 11.503) may not again become a
Contributing Participant until the dates set forth in the Adoption
Agreement for this purpose, unless the Plan Administrator, in a
uniform and nondiscriminatory manner, permits withdrawing
Participants to resume their status as Contributing Participants
sooner.
11.205 CERTAIN ONE~TIME IRREVOCABLE ELECTIONS
This Section 11.205 applies where the Employer has indicated in the
Adoption Agreement that an Employee may make a one-time inevocable
election to have the Employer make contributions to the Plan on such
Employee's behalf. In such event, an Employee may elect, upon the
Employee's first becoming eligible to participate in the Plan, to
have contributions equal to a specified amount or percentage of the
Employee's Compensation (including no atnount of Compensation) made
by the Employer on the Employee's behalf to the Plan (and to any
other plan of the Employer) for the duration of the Employeets
employment with the Employer. Any contributions made pursuant to a
one-time irrevocable election described in this Section are not
treated as made pursuant to a cash or deferred election, are not
Elective Deferrals and are not includible in an Employee's gross
income.
The Plan Administrator shall establish such uniform and
nondiscriminatory procedures as it deems necessary or advisable to
administer this provision.
11.300 CONTRIBUTIONS
11.301 CONTRIBUTIONS BY EMPLOYER
The Employer shall make contributions to the Plan in accordance with
the contribution formulas specified in the Adoption Agreement.
11.302 MATCHING CONTRIBUTIONS
The Employer may elect to make Matching Contributions under the Plan
on behalf of Qualifying Contributing Participants as provided in the
Adoption Agreement. To be a Qualiiying Contributing Participant for
a Plan Year, the Participant must make Elective Deferrals (or
Nondeductible Employee Contributions, if the Employer has agreed to
match such contributions) for the Plan Year, satisfy any age and
Years of Eligibility Service requirements that are specified for
Matching Contributions in the Adoption Agreement and also satisfy
any additional conditions set forth in the Adoption Agreement for
this purpose. In a uniform and nondiscriminatory mm-er, the Empioyer
may make Matching Contributions at the same time as it contributes
Elective Deferrals or at any other time as permitted by laws and
regulations.
11.303 QUALIFIED NONELECTIVE CONTRIBUTIONS
The Employer may elect to make Qualified Nonelective Contributions
under the Plan on behalf of Participants as provided in the Adoption
Agreement.
In addition, in lieu of distributing Excess Contributions as
provided in Section 11.505 of the Plan, or Excess Aggregate
Contributions as provided in Section 11.506 of the Plan, and to the
extent elected by the Employer in the Adoption Agreement, the
Employer may make Qualified Nonelective Contributions on behalf of
Participants who are not Highly Compensated Employees that are
sufficient to satisfy either the Actual Defiertal Percentage test or
the Average
Contribution Percentage test, or both, pursuant to regulations under
the Code.
<PAGE>
11.304 QUALIFIED MATCHING CONTRIBUTIONS
The Employer may elect to make Qualified Matching Contributions
under the Plan on behalf of Participants as provided in the Adoption
Agreement.
11.305 NONDEDUCTIBLE EMPLOYEE CONTRIBUTIONS
Notwithstanding Section 3 02, if the Employer so allows in the
Adoption Agreement, a Participant may contribute Nondeductible
Employee Contributions to the Plan.
44
<PAGE>
If the Employer has indicated in the Adoptiop Agreement that
Nondeductible Employee~Contributions will be mandatory, then the
Employer shall establish uniform and nondiscriminatory rules and
procedures for Nondeductible Employee Contributions as it deems
necessary and advisable including, but not limited to. rules
describing in amounts or percentages of Compensation Participants
may or must contribute to the Plan.
A separate account will be maintained by the Plan Administrator for
the Nondeductible Employee Contributions for each Participant.
A Participant may. upon a written request submitted to the Plan
Administrator, withdraw the lesser of the portion of his or her
Individual Account attributable to his or her Nondeductible Employee
Contributions or the amount he or she contributed as Nondeductible
Employee Contributions.
Nondeductible Employee Contributions and earnings thereon will be
nonforfeitable at all times. No Forfeiture will occur solely As a
result of an Employee's withdrawal of Nondeductible Employee
Contributions.
11.400 NONDISCRIMINATION TESTING
11.401 ACTUAL DEFERRAL PERCENTAGE TEST (ADP)
A. Limits on Highly Compensated Employees - The Actual Deferral
Percentage (hereinafter "ADP") for Participants who are Highly
Compensated Employees for each Plan Year and the ADP for
Participants who are not Highly Compensated Employees for the
same Plan Year must satisfy one of the following tests:
1. The ADP for Participants who are Highly Compensated
Employees for the Plan Year shall not exceed the ADP for
Participants who are not Highly Compensated Employees for
the same Plan Year multiplied by 1.25; or
2. The ADP for Participants who are Highly Compensated
Employees for the Plan Year shall not exceed the AD? for
Participants who are not Highly Compensated Employees for
the same Plan Year multiplied by 2.0 provided that the AD?
for Participants whb are Highly Compensated Employees does
not exceed the ADP for Participants who are not Highly
Compensated Employees by more than 2 percentage points.
B. SpecialRules
1. The ADP for any Participant who is a Highly Compensated
Employee for the Plan Year and who is eligible to have
Elective Defrraals (and Qualified Nonelective
Contributions or Qualified Matching Contributions, or
both, if treated as Elective Deferrals for purposes of the
AD? test) allocated to his or her Individual Accounts
under two or more arrangements described in Section
401(1:) of the Code, that are maintained by the Employer,
shall be determined as if such Elective Defrirals (and, if
applicable, such Qualified Nonelective Contributions or
Qualified Matching Contributions, or both) were made under
a single arrangement. If a Highly Compensated Employee
participetes in two or more cash or deferred aranngements
that have different Plan Years, all cash or deferred
arrrngemeiats ending with or witliin the same calendar
year shall be treated as a single arrangement.
Notwithstanding the foregoing, certain plans shall be
treated as separate if maudatorily disaggregated under
regulations under Section 401(1:) of the Code.
2. In the event that this Plan satisfies the requirements of
Sections 401(1:), 401(a)(4), or 4l0~) of the Code only if
aggregated with one or more other plans, or if one or more
other plans satisfy the requirements of such sections of
the Code only if aggregated with this Plan, thenthis
Section 11.401 shall be applied by determining the ADP of
Employees as if all such plans were a single plan. For
Plan Years beginning after December 31, 1989, plans may be
aggregated in order to satisfy Section 401(1:) of the Code
only if they have the same Plan Year.
3. For purposes of determining the AD? of a Participant who
is a 5% owner or one of the 10 most highly paid Highly
Compensated Employees, the Elective Deferrals (and
Qualified Nonelective Contributions or Qualified Matching
Contributions, or both. if treated as Elective Deferrals
for purposes of the ADP test) and
<PAGE>
Compensation of such Participaatt shall incltlde the
Elective Deferrals (and. if applicable, Qualified
Nonelective Contributions and Qualified Matching
Contributions. or both) and Compensation for the Plan Year
of tamily members (as defined in Section 414(q)(6) of the
Code). Family members, with res~ to such Highly
Compensated Employees, shall be disregarded as separate
Employees in determining the ADP both for Participants who
are not Highly Compensated Employees and for Participants
who are Highly Compensated Employees.
4. For purposes of determinlng the AD? test, Elective
Deferrals, Qualified Nonelective Contributions and
Qualified Matching Contributions must be made before the
last day of the 12 month period immediately following the
Plan Year to which contributions relate.
45
<PAGE>
5 The Employer shall maintain records sufficient to
demonstrate satisfaction of the AD? test and the amount of
Qualified Nonelective Contributions or Qualified Matching
Contributions, or~boh, used in such test.
6. The determination and treatment of the AD? amounts of any
Participant shall satisfy such other requirements as may
be prescribed by the Secretary of the Treasury.
7. If the Employer elects to take Qualified Matching
Contributions into account as Elective Deferrals for
purpos of the AD? test, then (subject to such other
requirements as may be prescribed by the Secretary of the
Treasury) unless otherwise indicated in the Adoption
Agreement, only the amount of such Qualified Matching
Contributions that are needed to meet the AD? test shall
be taken into account.
8. In the event that the Plan Administrator determines that
it is not likely that the AD? test will be satisfied for a
particular Plan Year unless certain steps are taken prior
to the end of such Plan Year, the Plan Administrator may
require Contributing Participants who are Highly
Compensated Employees to reduce their Elective Deferrals
for such Plan Year in order to satisfy that requirement.
Said reduction shall also be required by the Plan
Administrator in the event that the Plan Administrator
anticipates that the Employer will not be able to deduct
all Employer Contributions from its income for Federal
income tax purposes.
11.402 LIMJTS ON NONDEDUCTIBLE EMPLOYEE CONl~UTIONS AND MATCHING
CONTRIBULIONS
A. Limits on Highly Compensated Employees - The Avenge
Contribution Percentage (hereinaftet" AC?") for Participants
who are Highly Compensated Employees for each Plan Year and
the AC? for Participants who are not Highly Compensated
Employees for the same Plan Year must satisfy one of the
following tests:
1, The ACP for Participants who are Highly Compensated
Employees for the Plan Year shall not exceed the AC? for
Participants who are not Highly Compensated Employees for
the same Plan Year multiplied by 1.25; or
2. The ACP for Participants who are Highly Compensated
Employees for the Plan Year shall not exceed the AC? ior
Participants who are not Highly Compensated Employees for
the same Plan Year multiplied by 2, provided that THE AC?
for the Participants who are Highly Compensated Employees
does not exceed the AC? for Participants who are not
Highly Compensated Employees by more than 2 percentage
points.
B. SPECIAL RULES
1.Multiple Use - If one or more Highly Compensated
Employees participate in both a CODA and a plan subject to
the ACP test maintained by the Employer and the sum of the
AD? and AC? of those Highly Compensated Employees subject
to either or both tests exceeds the Aggregate Limit, then,
as elected in the Adoption Agreement, the ACP or the ADP
of those Highly Compensated Employees who also participate
in a CODA will be reduced ("eginning with such Highly
Compensated Employee whose AC? (or AD?, if elected) is the
highest) so that the limit is not exceet:led. The amount
by which each Highly Compensated Employee's Contribution
Percentage Attiounts (or AD?, if elected) is reduced shall
be treated as an Excess Aggregate Contribution (or Exeess
Contribution, if elected). The ADP and ACP of the Highly
Compensated Employees are determined after any corecetions
required to meet the AD? and ACP tests. Multiple use does
not occur if the AD? and ACP of the Highly Compeus-
Employees does not exceed 1.25 multiplied by the AD? and
AC? of the Participants who are not Highly Compensated
Employees.
2. For purposes of this Section 11.402, the Contribution
Percentage for any Participant who is a Highly Compensated
Employee and who is eligible to have Contribution
Pcrcentage Amounts allocated t6 his or her Individual
Account under two or more plans described in Section
401(a) of the Code, or arrangements described in Section
401(1:) of the Code that are maintained by the Employer,
shall be determined as if the total of such Coittribution
Percentage Amounts was made under each plan. If a Highly
Compensated Employee participates in two or more casat or
deferred arnangements that have difterent plan years, all
cash or deferred arrangetnents ending with or within the
same calendar year shall be treated as a single
arrangement. Notwithatanding the toregoing, certain plans
shall be treated as
<PAGE>
separate if mandatorily disaggregated under regulations
under Section 401(m) of the Code.
3. Inthe event tlatthis Plan satisfies the requirements
ofSections40l(m), 401(a)(4) or4l0~) of the Code only if
aggregated with one or more other plans, or if one or
more other plans satisfy the requirements of such
Sections of the Code only if aggregated with this Plan,
then this Section shall be applied by determining the
Contribution Percentage of Employees as if all such plans
were a single plan. For Plan Years beginning after
December31, 1989, plans may be aggregated in order to
satisfy Section 401(m) of the Code only if they have the
Same Plan Year.
46
<PAGE>
4. For purposes of determining the Contribution Percentage
of a Participant who is a 5% owner or one of the 10 most
highly paid Highly Compensated Employees. the
Contribution Percentage Amounts and Compensation of such
Participant shall include the Contribution Percentage
Amounts and Compensation for the Plan Year of family
members, (as defined in Section 414(q)(6) of the Code).
Family members, with respect to Highly anen. Compensated
Employees, shall be disregarded as separate Employees in
determining the Contribution als (ar Percentage both for
Participants who are not Highly Compensated Employees and
for Participants who are Highly Compensated Employees.
5. For purposes of determining the Contribution Percentage
test, Nondeductible Employee Contributions are considered
to have been made in the Plan Year in which contributed
to the Fund. Matching Contributions and Qualified
Nonelective Contributions will be considered made for a
Plan Year if made no later than the end of the 12 month
period beginning on the day after the close of the Plan
Year.
6. The Employer shall maintain recorttls sufficient to
demonstrate satisfaction of the ACP test and the amount
of Qualified Nonelective Contributions or Qualified
Matching Contributions, or both, wed in such test.
7. The determination and treatinent of the Contribution
Percentage of any Participant shall satisfy such other
requirements as may be prescribed by the Secretary of the
Treasury.
8. If the Employer elects to take Qualified Nonelective
Contributions into account as Contribution Percentage
Amounts for purposes of the ACP test, then (subject to
such other requirements as may be prescribed by the
Secretary of the Treasury) unless otherwise indicated in
the Adoption Agreement, only the amount of such Qualified
Nonelective Contributions that are needed to meet the AC?
test shall be taken into account.
9. If the Employer elects to talte Elective Deferrals into
account as Contribution Percentage Amounts for purposes
of the AC? test. then (subject to such other requirements
as may be prescribed. by the Secretary of the Treasury)
unless otherwise indicated in the Adoption Agreement,
only the amount of such Elective Deferrals that are
needed to meet the AC? test shall be taken into account.
11.500 DISTRIBUTION PROVISIONS
Au"
.N.
11.501 GENERAL RULE
Distributions nun the Plan are subject to the
provisions of Section 6 and the provisions of this
Section 11. lii the event of a conflict between
the provisions of Section 6 and Section 11, the
t)rovisions of Section 11 shall control.
11.502 DISTRIBUTION REQUIREMENTS
Elective Deferrals, Qualified Nonelective
Contributions, and Qualified Matching
Contributions, and income allocable to each are not
distributable to a Participant or his or her
Beneficiary or Beneficiaries, in accordance with
such Participant's or Beneficiary or Beneficiaries'
election, earlier than upon separation from
service, death or disability.
Such amounts may also be distributed upon:
A. Termination of the Plan without the
establishment of another defined contribution
plan.
<PAGE>
other than an employee stock ownership
plan (as defined in Section 4975(e) or Section
409 of the Code) or a simplified employee
pension plan as defined in Section 408~).
B. The disposition by a corporation to an
unrelated corporation of substaatially all of
the assets (within the meaning of Section
409(d)(2) of THE Code used in a trade or
business of such corporation if such
corporation continues to maintain tltis Plan
after the disposition, but only with respect
to Employees who continue employment with the
corporation acquiring such assets.
C. The disposition by a corporation to an
unrelated entity of such corporation's
interest in a subsidiary (within the meaning
of Section 409(d)(3) of the Code) if such
corporation continues TO maintain THIS Plan.
but only with respect to Employees who
continue employment with such subsidiary.
D. The attainnnent of age 59 1/2 in the case ofa
profit saarmg plan.
E. IF THE Employer has so eleeted in the Adoption
Agreenent, the hardship of the Participant as
described in Section 11.503.
All distributions that may be made purstusstto one or.more of the foregoing
distributable events are subject to the spousal and Participant consent
requirements (if applicable) contained in Section 401(a)(1 1) and 417 of the
Code. In addition, distributions after March31, 1988, that are triggered by any
of the first three events enumerated above must be made in a lump sum.
47
<PAGE>
11.503 HARDSHIP DISTRIBUTION
A. General - If the Employer has so elected in the Adoption
Agreement, distribution of Elective Deferrals (and any
earnings credited to a Participant's account as of the end of
the last Plan Year, ending before July 1, 1989) may be made to
a Participant in the event of hardship. For the purposes of
this Section, hardship is defined as an immediate and heavy
financial need of the Employee where such Employee lacks other
available resources. Hardship distributions are subject to tie
spousal consent requirements contained in Sections 40l(a)(1 1)
and 417 of the Code.
B. Special Rules
1. The following are the only financial needs considered
immediate and heavy: expenses incurred or necessary for
medical care, described in Section 213(d) of the Code, of
the Employee. the Employee's spouse or dependents; the
purchase (excluding mortgage payments) of a principal
residence for the Employee: payment of tuhion and related
educational fees for the next 12 months of post-secondary
education for the Employee, the Employee's spouse,
children or dependents; or the need to prevent the
eviction of the Employee from, or a foreclosure on the
mongage of, the Employee's principal residence.
2. A distribution will be considered as necessary to satisfy
an immediate and heavy financial need of the Employee only
if:
a. The Employee has obtained all distributions, other
than hardship distributions, and all nontaxable loans
under all plans maintained by the Employer:
b. All plans maintained by the Employer provide that the
Employee's Elective Deferrals (and Nondeductible
Employee Contributions) will be suspended for 12
months after the receipt of the hardship
distribution;
C. The distribution is not in excess of the amount of an
immediate and heavy financial need (including amounts
necessary to pay any Federal, state or local income
taxes or penalties reasonably anticipated to result
from the distri'bttion); and
d. All plans maintained by the Employer provide that the
lnmployee may not make Elective Deferrals for the
Employee's taxable year immediately following the
taxable year of the hardship distribution in excess
of the applicable limit 'flier Section 402((pound))
of the Code for such taxable year less the amount of
such Employee's Elective Deferrals for the taxable
year of the hardship distribution.
11.504 DISTRIBUTION OF EXCESS ELECTION DEFERRALS
A. GENERAL Rule - A Participant may assignto this Plan any Excess
Elective Deferrals made during a taxable year of the
Participant by notifying the Plan Administrator on or before
the date specified in the Adoption Agreement of the amount of
the Excess Elective Deferrals to be assigned to the Plan. A
Participant is deemed to notify the Plan Administrator of any
Excess Elective Deferrals that arise by taking into account
only those Elective Deferrals made to this Plan and any other
plans of the Employer.
Notwithstanding any other provision of the Plan, E:scess
Elective Deferrals, plus any income and minus any loss
allocable theeto, shall be distributed no later than April 15
to any Participant to whose Individual Account Excess Elective
Deferrals 'were assigned for the preceding year and who claims
Excess Elective Deferrals for such taxable year.
B. Determination of Income or Loss - Exeess Elective Deferrals
shall be adjusted for any income or loss up to the date of
distribution. The income of loss allocable to Excess Elective
Deferrals is the sum of: (I) income or loss allocable to the
Participant's Elective Deferral account for the taxable year
multiplied by a fraction, the numerator of which is such
Participant's Elective Deferrals for the year and the
denominator is the Participant's Individual Account balance
attributable to Elective Deferrals without regard to any
income or ioss occurring during such taxable year; and (2)10%
of the amount determined under (1) multiplied by the number of
whole calendar months between the end of the Participant's
taxable year and the date of distribution, counting the month
of distribution if distribution occurs after the 15th of such
month. Notwithstanding the preeding sentence, the Plan
Administrator may compute the income or loss allocable to
Excess Elective Deferrals in the manner described in Section 4
(i.e,, the usual manner used by the Plan for
<PAGE>
allocating income or loss to Participants' Individual
Accounts), provided such method is used consistently for all
Pttticipats and for all corrective distributions under the
Plan for the Plan Year.
11.505 DISTRIBUTION OF EXCESS CONTRIBUTIONS
A. General Rule - Notwitltstanding any other provision of this
Plan, Excess Contributions, plus any income and minu any loss
allocable thereto, shall be distributed no later than the last
day of each Plan Yearto Participants to whose Individual
Accounts such Excess Contributions were allocated for the
preceding Plan Year. If such excess amounts
48
<PAGE>
are distributed wore than 2 1/2 months after the last day of
the Plan Year in which such excess amounts arose, a 10% excise
tax will be imposed on the Employer maintaining the Plan with
respect to such amounts. Such distributions shall be made to
Highly Compensated Employees on the basis of the respective
portions of the Excess Contributions attributable to each of
such Employees. Excess Contributions of Panicipants who are
subject to the family member aggregation rules shall be
allocated among the family members in proportion to the
Elective Deferrals (and amounts treated as Elective Deterrals)
of each frnily member that is combined to determine the
combined ADP.
Excess Contributions (including the amounts recharacterized)
shall be treated as annual additions under the Plan.
B. DeterminatioD or Income or Loss - Excess Contributions shall
be adjusted for any income or loss up to the date of
distribution. The income or lqss allocable to Excess
Contributions is the sum of' (1) income or loss allocable to
Participant's Elective Deferr~l account (and, if applicable,
the Qualified Nonelective Contribution account or the
Qualified Matching Contributions account or both) for the Plan
Year multiplied by a fraction, the numerator of which is such
Participant's Excess Contributions for the year and the
denominator is the Participant's Individual Account balance
attributable to Elective Deferrals (and Qualified Nonelective
Contributions or Qualified Matching Contributions, or both, if
any of such contributions are included in the ADP test)
without regard to any income or loss occurting during such
Plan Year; antl (2) 10% of the amount determined under (1)
multiplied by the number of whole calendar months between the
end of the Plan Year and the date of distribution, counting
the month of distribution if distribution occurs after the
15th of such month. Notwithstanding the preceding sentence.
the Plan Administrator may compute the income or loss
allocable to Excess Contributions in the manner described in
Section 4 (i.e.. the usual manner used by the Plan for
allocating income or loss to Participants' Individual
Accounts), provided such method is used consistently for all
Participants and for all corrective distributions under the
Plan for the Plan Year.
C. Accounting for Excess CODtributiOns - Excess Contributions
shall be distributed fiom the Participant's Elective Deferral
account and Qualified Matching Contribution account (IF
applicable) in proportion to the Participant's Elective
Deferrals and Qualified Matching Contributions (to the extent
USED in THE ADP test) for the Plan Year. Excess Contributions
shall be distributed from the Participant's Qualified
Nonelective Contribution account orly to the extent that such
Excess Contributions exceed the balance in the Participant's
Elective Deferral account and Qualified Matching Contribution
account.
11.506 DISTRIBUTION OF EXCESS AGGREGATE CONTRIBUTIONS
A. General Rule - Notwithstanding any other provision of this
Pian, Excess Aggregate Contributions, plus any income and
minus any loss allocable thereto, shall be forfeited, if
formitable, or if not forfeitable, distributed no later than
the last day of each Plan Year to Ptrticipants to whose
accounts such Excess Aggregate Contributions were allocated
for the preceding Plan Year. Excess Aggregate Contributions of
Participants who are subject to the family member aggregation
rules shall be allocated among the fannily members in
proportion to the Employee and Matching Contributions (or
mourn. treated as Matching Contributions) of each family
member that is combined to determine the combined ACP. If such
Excess Aggtegate Contributions are distributed more than 2 1/2
months after the last day of the Plan Year in which such
excess amounts arose, a 10% excise tax will be imposed on the
Employer maintaining the Plan with respect to those amounts.
Excess Aggregate Contributions shall be treated as annual
additions under the Plan.
B. Determination of Income or Loss - Excess Aggregate
Contributions shall be adjusted for any income or loss up to
the date of distribution. The income or loss allocable to
Excess Aggregate Contributions is the sum of: (1) income or
loss allocable to the Participant's Nondeductible Employee
Contribution account. Matching Contribution account (if any.
and if all amounts therein are not used in the ADP test) and,
if applicable, Qualified Nonelective Contrtution account and
Elective Deferral account for the Plan Year multiplied by a
fraction, the numerator of which is such Participant's Excess
Aggregate Contributions for the year and the denominator is
the Participant's Individual Account balance(s) attributable
to Contribution Percentage
<PAGE>
Atnounts without regard to any income or loss occunring during
such Plan Year; and (2)10% of the amount determined under (1)
multiplied by the number of whole calendar months between the
end of the Plan Year and the date of distribution, counting
the month of. distribution if distribution occurs after the
15th of such month. Notwithstanding the preceding sentence,
the Plan Administrator may compute the incotne or loss
allocable to Excess Aggregate Contributions in the manner
described in Section 4 (i.e., the uuaal maneer used by the
Plan for allocating income or loss to Participants' Individual
Accounts), provided such method is used consistently for all
Participants and for all corrective distributions under the
Plan for the Plan Year.
C. Forfeitures of Excess Aggregate Contributions - Forfeituees of
Excess Aggregate Contributions may either be reallocated to
the accottnts of Contributing Participants who are not
IIigltly Compensated Employees or applied to reduce Employer
Contributions, as elected by the Employer in the Adoption
Agreement.
49
<PAGE>
D. Accounting for Excess Aggregate Contributions - Excess
Aggregate Contributions shall be forfeited. if forfeitable
or distributed on a pro rata basis from the Participant's
Nondeductible Employee Contribution account, Matching
Contribution account, and Qualified Matching Contribution
account (and, if applicable, the Participant's Qualified
Nonelective Contribution account or Elective Deferral
account, or both).
11.507 RECHARACTERIZATION
A Participant may treat his or her Excess Contributions as an
amount distributed to the Participant and then contributed by the
Participant to the Plan. Recharacterized amounts will remain
nonforfeitable and subject to the same distribution requirements
as Elective Deferrals. Amounts may not be recharacterized by a
Highly Compensated Employee to the extent that such amoum in
combination with other Nondeductible Employee Cpntributions made
by that Employee would exceed any stated limit under the Plan on
Nondeductible Employee Contributions.
Recharacterization must occur no later than two and one-half
months after the last day of the Plan Year in which such Excess
Contributions arose and is deemed to occur no earlier than the
date the last Highly Compensated Employee is informed in writing
of the amount recharacterized and the consequences thereof
Recharacterized amounts will be taxable to the Participant for the
Participant's tax year in whi6h the Participant would have
received them in cash.
11.508 DISTIUBUTION OF ELECTIVE DEFERRALS IF EXCESS ANNUAL ADDITIONS
Notwithstanding any other provision of the Plan, a Participant's
Elective Deferrals shall be distributed.to him or her to the
extent that the distribution will reduce an excess anaaal addition
(as that term is described in Section 3.05 of the Plan),
11.600 'VESTING
11.601 100% VESTING ON CERTAIN CONTRIBUTIONS
The Participant's accrued benefit derived from Elective Deferrals.
Qualified Nonelective Contributions, Nondeductible Employee
Contributions, and Qualified Matching Contributions is
nonforfeitable. Separate accounts for Elective Deferrals,
Qualified Nonelective Contributions, Nondeductible Employee
Contributions, Matching Contributions, and Qualified Matching
Contributions will be maintained for each Panicipant. Each account
will be credited with the applicable contributions and earnings
thereon.
11.602 FORFEITURES AND "VESITNG OF MATCHING CONTRIBUTIONS
Matching Contributions shall be Vested in accordance with the
vesting schedule fbr Matching Contributions in the Adoption
Agreement. In any event, Matching Contributions shall be flilly
Vested at Normal Retirement Age, upon the complete or partial
termination of the profit sirarlng plan, or upon the complete
discontinuance of Employer Contributio~ Notwithstanding any other
provisions of the Plan, Matching Contributions or Qualified
Matching Contributions must be fbreited if the contributions to
which they relate am Excess Elective Deferrals, Excess
Contributions, Excess Aggregate Contributions or excess annual
additions which are distubuted pursuant to Section 11.508. Such
Forfeitures shall be allocated in accordance with Section 3.01(C).
When a Participant incurs a Termination of Employment, whether a
Forfeiture arises with respect to Matching Contributions shall be
datermined in accordacce with Section 6.01(1)).
50
<PAGE>
REVENUE PROCEDURE 96-55
TRANSFER AMENDMENT TO
BASIC PLAN DOCUMENT
THIS AMENDMENT IS EFFECTIVE: . (FOR PLANS, OTHER THAN THOSE ENTITLED TO EXTENDED
RELIANCE AS DESCRIBED IN REV. RUT 94-76, INSERT A DATE NOT LATER THAN THEFIRSE
DAY OFTHE FIRST PLAN YEAR BEGINNING ON OR AFTER DECEMBER 12, 1994, OR, FLATER,
.90 DAYS AFTER DECEMBER 12, 1994. FOR PLANS ENTITLED TO EXTENDED RELIANCE, SEE
REV. RUT 94-76FOR THE PERMISSIBLE EFFECTIVE DATE.)
Section 3.01(E)(2) is amended to read as follows:
For purposes of computing the minimum allocation, Compensation shall mean
Compensation as defined in Section 1.07 of the Plan and shall exclude any
amounts contributed by the Employer pursuant to a salary reduction agreement and
which is not includible in the gross income of the Employee under Sections 125,
402(e)(3), 402(h)(1)(B) or 403(b) of the Code even if the Employer has elected
to include such contributions in the definition of Compensation used for other
purposes under the Plan.
Section 3.04 is amended by adding the following sentence to the end of the
second paragraph thereof:
Notwithstanding any provision of this Plan to the contrary, to the extent that
any optional form of benefit under this Plan permits a distribution prior to the
Employee's retirement, death, Disability, or severance from employment, and
prior to Plan termination, the optional form of benefit is not available with
respect to benefits attributable to assets (including the post-transfer earnings
thereon) and liabilities that are transferred, within the meaning of Section
414(1) of the Internal Revenue Code, to this Plan from a money purchase pension
plan qualified under Section 401(a) of the Internal Revenue Code (other than any
portion of those assets and liabilities attributable to voluntary employee
contributions).
EXHIBIT 10.4
STATE OF NORTH CAROLINA
COUNTY OF BUNCOMBE
EMPLOYMENT AGREEMENT
THIS AGREEMENT entered into as of ___________________, 2000 by and
between THE BANK OF ASHEVILLE (hereinafter referred to as the "Bank") and G.
GORDON GREENWOOD (hereinafter referred to as "Greenwood").
W I T N E S S E T H:
WHEREAS, the expertise and experience of Greenwood and his
relationships and reputation in the financial institutions industry are
extremely valuable to the Bank; and
WHEREAS, it is in the best interests of the Bank and its shareholders
to maintain an experienced and sound executive management team to manage the
Bank and to further the Bank's overall strategies to protect and enhance the
value of its shareholders' investments; and
WHEREAS, the Bank and Greenwood desire to enter into this Agreement to
establish the scope, terms and conditions of Greenwood's employment by the Bank;
and
WHEREAS, the Bank and Greenwood desire to enter into this Agreement
also to provide Greenwood with security in the event of a change of control of
the Bank and to insure the continued loyalty of Greenwood during any such change
of control in order to maximize shareholder value as well as the continued safe
and sound operation of the Bank.
NOW, THEREFORE, for and in consideration of the premises and mutual
promises, covenants and conditions hereinafter set forth, and other good and
valuable considerations, the receipt and sufficiency of which hereby are
acknowledged, the Bank and Greenwood hereby agree as follows:
1. EMPLOYMENT. The Bank hereby agrees to employ Greenwood, and
Greenwood hereby agrees to serve as an officer of the Bank, all upon the terms
and conditions stated herein. As an officer of the Bank, Greenwood will (i)
serve as President and Chief Executive Officer of the Bank, and (ii) have such
other duties and responsibilities, and render to the Bank such other management
services, as are customary for persons in Greenwood's position with the Bank or
as shall otherwise be reasonably assigned to him from time to time by the Bank.
Greenwood shall faithfully and diligently discharge his duties and
responsibilities under this Agreement and shall use his best efforts to
implement the policies established by the Bank. Greenwood hereby agrees to
devote such number of hours of his working time and endeavors to
<PAGE>
the employment granted hereunder as Greenwood and the Bank shall deem to be
necessary to discharge his duties hereunder, and, for so long as employment
hereunder shall exist, Greenwood shall not engage in any other occupation which
requires a significant amount of Greenwood's personal attention during the
Bank's regular business hours or which otherwise interferes with Greenwood's
attention to or performance of his duties and responsibilities as an officer of
the Bank hereunder except with the prior written consent of the Bank. However,
nothing herein contained shall restrict or prevent Greenwood from personally,
and for Greenwood's own account, trading in stocks, bonds, securities, real
estate or other forms of investment for Greenwood's own benefit so long as said
activities do not interfere with Greenwood's attention to or performance of his
duties and responsibilities as an officer of the Bank hereunder.
During the term of this Agreement, Greenwood shall be allowed,
in his sole discretion, to maintain his primary work location in Asheville,
North Carolina.
2. COMPENSATION. For all services rendered by Greenwood to the
Bank under this Agreement, the Bank shall pay Greenwood a base salary at a rate
of One Hundred Twenty-Five Thousand Dollars and 00/100's ($125,000.00) per
annum; provided that the rate of such salary shall be reviewed by the Board of
directors not less often than annually. Salary paid under this Agreement shall
be payable in cash not less frequently than monthly. All compensation hereunder
shall be subject to customary withholding taxes and such other employment taxes
as are required by law. In the event of a Change in Control (as defined in
Paragraph 8), Greenwood's base salary shall be increased not less than six
percent (6%.) annually during the term of this Agreement.
3. PARTICIPATION IN RETIREMENT AND EMPLOYEE BENEFIT PLANS;
FRINGE BENEFITS. Subject to the terms and conditions of this Agreement,
Greenwood shall be entitled to participate in any and all employee benefit
programs and compensation plans from time to time maintained by the Bank and
available to all employees of the Bank, all in accordance with the terms and
conditions (including eligibility requirements) of such programs and plans of
the Bank, resolutions of the Bank's Board of Directors establishing such
programs and plans, and the Bank's normal practices and established policies
regarding such programs and plans.
In addition to the other compensation and benefits described
in this Agreement, the Bank shall :
(i) Provide Greenwood with four (4) weeks of paid vacation
leave;
2
<PAGE>
(ii) The Bank shall assume payment of Greenwood's dues of the
Asheville Country Club, Asheville, North Carolina provided that Greenwood shall
be responsible for all personal expenses for use of such clubs;
(iii) The Bank shall reimburse Greenwood for all reasonable
expenses incurred by him in the performance of his duties under this Agreement
and documented to the reasonable satisfaction of the Bank pursuant to
established policies;
(iv) The Bank shall provide Greenwood, his spouse, and his
dependent son major medical insurance coverage at no cost to Greenwood which
will be a policy at least equivalent to the major medical insurance coverage
generally provided to active full-time employees of the Bank from time to time;
and
(v) The Bank shall provide, effective upon completion of the
initial five year term of this Agreement or sooner should a "change of control"
of the Bank occur within such five year period, a retirement annuity that will
pay Greenwood $40,000 per year for ten years commencing on the date of his
retirement.
(vi) Upon adoption by the Board of Directors of either the
Bank, or its holding company, of a stock incentive plan, Greenwood shall be
granted options to purchase shares of common stock reserved under such plan in
such amount as shall be determined by the stock option committee established
pursuant to such plan. The minimum aggregate number of options that will be
granted to Greenwood after adoption of such stock incentive plan and during the
initial five (5) year term of this Agreement and prior to any
"change-in-control" of the Bank will be equal in value to an amount equivalent
to three hundred percent (300%) of his compensation set forth in Paragraph 2
hereof. Additionally, the grant of such options will provide for immediate
vesting should a "change-in-control" of the Bank occur as such term is defined
in Paragraph 8 hereof.
4. TERM. Unless sooner terminated as provided in this
Agreement and subject to the right of either Greenwood or the Bank to terminate
Greenwood's employment at any time as provided herein, the term of this
Agreement and Greenwood's employment with the Bank hereunder shall be for a
period commencing on the date hereof and continuing for a period of five (5)
years. Within ninety (90) days prior to the third anniversary of this Agreement,
and within ninety (90) days of each anniversary thereafter, the Board of
Directors shall determine whether the term shall be extended. Should the Board
of Directors make such an affirmative
3
<PAGE>
decision to extend the Agreement, one additional year to the term of this
Agreement shall be added at the end of the third anniversary of this Agreement
and, with subsequent affirmative decisions to extend, on each anniversary date
thereafter.
5. CONFIDENTIALITY AND NON-COMPETITION. Greenwood hereby
acknowledges and agrees that (i) in the course of his service as an officer of
the Bank, he will gain substantial knowledge of and familiarity with the Bank's
customers and its dealings with them, and other information concerning the
Bank's business, all of which constitutes valuable assets and privileged
information that is particularly sensitive due to the fiduciary responsibilities
inherent in the banking business; and, (ii) in order to protect the Bank's
interest in and to assure it the benefit of its business, it is reasonable and
necessary to place certain restrictions on Greenwood's ability to compete
against the Bank and on his disclosure of information about the Bank's business
and customers. For that purpose, and in consideration of the Bank's agreements
contained herein, Greenwood covenants and agrees as provided below.
For the purposes of this Paragraph 5, the following terms
shall have the meanings set forth below:
CUSTOMER. The term "Customer" means any Person with whom, as
of the effective date of termination of this Agreement or Greenwood's employment
with the Bank for any reason, the Bank has or has had a depository, loan and/or
other banking relationship.
FINANCIAL INSTITUTION. The term "Financial Institution" means
any federal or state chartered bank, savings bank, savings and loan association
or credit union, or any holding company for or corporation that owns or controls
any such entity, or any other Person engaged in the business of making loans of
any type or receiving deposits, other than the Bank.
PERSON. The term "Person" means any natural person or any
corporation, partnership, proprietorship, joint venture, limited liability
company, trust, estate, governmental agency or instrumentality, fiduciary,
unincorporated association or other entity.
(a) CONFIDENTIALITY COVENANT. Greenwood covenants and agrees
that any and all data, figures, projections, estimates, lists, files, records,
documents, manuals or other such materials or information (financial or
otherwise) relating to the Bank and its banking business, regulatory
examinations, financial results and condition, lending and deposit operations,
customers (including lists of the Bank's customers and information regarding
their
4
<PAGE>
accounts and business dealings with the Bank), policies and procedures, computer
systems and software, shareholders, employees, officers and directors (herein
referred to as "Confidential Information") are proprietary to the Bank and are
valuable, special and unique assets of the Bank's business to which Greenwood
will have access during his employment with the Bank. Greenwood agrees that (i)
all such Confidential Information shall be considered and kept as the
confidential, private and privileged records and information of the Bank, and
(ii) at all times during the term of his employment with the Bank and following
the termination of this Agreement or his employment for any reason, and except
as shall be required in the course of the performance by Greenwood of his duties
on behalf of the Bank or otherwise pursuant to the direct, written authorization
of the Bank, Greenwood will not: divulge any such Confidential Information to
any other Person or Financial Institution; remove any such Confidential
Information in written or other recorded form from the Bank's premises; or make
any use of any Confidential Information for his own purposes or for the benefit
of any Person or Financial Institution other than the Bank. However, following
the termination of Greenwood's employment with the Bank, this subparagraph (b)
shall not apply to any Confidential Information which then is in the public
domain (provided that Greenwood was not responsible, directly or indirectly, for
permitting such Confidential Information to enter the public domain without the
Bank's consent), or which is obtained by Greenwood from a third party which or
who is not obligated under an agreement of confidentiality with respect to such
information.
(b) NON-COMPETITION COVENANT. During the term of this
Agreement and for a period of two years after termination, Greenwood agrees that
he will not, within Buncombe County, North Carolina, 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 financial
institution which competes with the Bank without the prior written consent of
the Board of Directors of the Bank and provided, however, that the provisions of
this Section 5(b) shall not apply in the event that Greenwood's employment
hereunder is terminated by the Board of Directors of the Bank without "cause" as
such term is defined in Section 6(d) hereof, and in the event that no additional
non-competition agreement is made as part of a separate severance agreement
giving rise to Greenwood's termination of this Agreement.
(c) REMEDIES FOR BREACH. Greenwood understands and agrees that
a breach or violation by him of the covenants contained in Paragraph 5 of this
Agreement will be
5
<PAGE>
deemed a material breach of this Agreement and will cause irreparable injury to
the Bank, and that it would be difficult to ascertain the amount of monetary
damages that would result from any such violation. In the event of Greenwood's
actual or threatened breach or violation of the covenants contained in Paragraph
5, the Bank shall be entitled to bring a civil action seeking an injunction
restraining Greenwood from violating or continuing to violate those covenants or
from any threatened violation thereof, or for any other legal or equitable
relief relating to the breach or violation of such covenant. Greenwood agrees
that, if the Bank institutes any action or proceeding against Greenwood seeking
to enforce any of such covenants or to recover other relief relating to an
actual or threatened breach or violation of any of such covenants, Greenwood
shall be deemed to have waived the claim or defense that the Bank has an
adequate remedy at law and shall not urge in any such action or proceeding the
claim or defense that such a remedy at law exists. However, the exercise by the
Bank of any such right, remedy, power or privilege shall not preclude the Bank
or its successors or assigns from pursuing any other remedy or exercising any
other right, power or privilege available to it for any such breach or
violation, whether at law or in equity, including the recovery of damages, all
of which shall be cumulative and in addition to all other rights, remedies,
powers or privileges of the Bank.
Notwithstanding anything contained herein to the contrary,
Greenwood agrees that the provisions of Paragraph 5(a) above and the remedies
provided in this Paragraph 5(c) for a breach by Greenwood shall be in addition
to, and shall not be deemed to supersede or to otherwise restrict, limit or
impair the rights of the Bank under the Trade Secrets Protection Act contained
in Article 24, Chapter 66 of the North Carolina General Statutes, or any other
state or federal law or regulation dealing with or providing a remedy for the
wrongful disclosure, misuse or misappropriation of trade secrets or other
proprietary or confidential information.
(d) SURVIVAL OF COVENANTS. Greenwood's covenants and
agreements and the Bank's rights and remedies provided for in this Paragraph 5
shall survive any termination of this Agreement or Greenwood's employment with
the Bank.
6. TERMINATION AND TERMINATION PAY.
(a) Greenwood's employment under this Agreement may be
terminated at any time by Greenwood upon sixty (60) days written notice to the
Bank. Upon such termination, Greenwood shall be entitled to receive compensation
through the effective date of such termination; provided, however, that the
Bank, in its sole discretion, may elect for
6
<PAGE>
Greenwood not to serve out part or all of said notice period.
(b) Greenwood's employment under this Agreement shall be
terminated upon the death of Greenwood during the term of this Agreement. Upon
any such termination, Greenwood estate shall be entitled to receive any
compensation due to Greenwood computed through the last day of the calendar
month in which his death shall have occurred but which remains unpaid.
(c) In the event Greenwood becomes disabled during the term of
his employment hereunder and it is determined by the Bank that Greenwood is
permanently unable to perform his duties under this Agreement, the Bank shall
continue to compensate Greenwood at the level of compensation described in
Paragraph 2 above, and shall continue to provide Greenwood each of the other
benefits set forth or described in this Agreement, for the remaining term of
this Agreement, less any other payments provided under any disability income
plan of the Bank which is applicable to Greenwood. In the event of any
disagreement between Greenwood and the Bank as to whether Greenwood is
physically or mentally incapacitated such as will result in the termination of
Greenwood's employment pursuant to this Paragraph 6(c), the question of such
incapacity shall be submitted to an impartial and reputable physician for
determination, selected by mutual agreement of Greenwood and the Bank or,
failing such agreement, by two (2) physicians (one (1) of whom shall be selected
by the Bank and the other by Greenwood), and such determination of the question
of such incapacity by such physician or physicians shall be final and binding on
Greenwood and the Bank. The Bank shall pay the reasonable fees and expenses of
such physician or physicians in making any determination required under this
Paragraph 6 (c) .
(d) The Bank may terminate Greenwood's employment at any time
for any reason with or without "Cause" (as defined below), but any termination
by the Bank other than termination for "Cause", (as defined below) shall not
prejudice Greenwood's right to compensation or other benefits under this
Agreement for its remaining term. Following any termination of Greenwood's
employment by the Bank for "Cause", Greenwood shall have no further rights under
this Agreement (including any right to receive compensation or other benefits
for any period after such termination).
For purposes of this Paragraph 6 (d) , the Bank shall have
"Cause" to terminate Greenwood's employment upon:
7
<PAGE>
(i) A determination by the Bank, in good faith, that Greenwood
(A) has breached in any material respect any of the terms or conditions of this
Agreement, or (B) is engaging or has engaged in willful misconduct or conduct
which is detrimental to the business prospects of the Bank or which has had or
likely will have a material adverse effect on the Bank's business or reputation.
Prior to any termination by the Bank of Greenwood's employment for a breach,
failure to perform or conduct described in this subparagraph (i), the Bank shall
give Greenwood written notice which describes such breach, failure to perform or
conduct and if during a period of five business (5) days following such notice
Greenwood cures or corrects the same to the reasonable satisfaction of the Bank,
then this Agreement shall remain in full force and effect. However,
notwithstanding the above, if the Bank has given written notice to Greenwood on
a previous occasion of the same or a substantially similar breach, failure to
perform or conduct, or of a breach, failure to perform or conduct which the Bank
determines in good faith to be of substantially similar import, or if the Bank
determines in good faith that the then current breach, failure to perform or
conduct is not reasonably curable, then termination under this subparagraph (i)
shall be effective immediately and Greenwood shall have no right to cure such
breach, failure to perform or conduct.
(ii) The violation by Greenwood of any applicable federal or
state law, or any applicable rule, regulation, order or statement of policy
promulgated by any governmental agency or authority having jurisdiction over the
Bank or any of its affiliates or subsidiaries (a "Regulatory Authority",
including without limitation the Federal Deposit Insurance Corporation, the
North Carolina Commissioner of Banks or any other banking regulator having legal
jurisdiction over the Bank), which results from Greenwood's gross negligence,
willful misconduct or intentional disregard of such law, rule, regulation, order
or policy statement and results in any substantial damage, monetary or
otherwise, to the Bank or any of its affiliates or subsidiaries or to the Bank's
reputation;
(iii) The commission in the course of Greenwood's employment
with the Bank of an act of fraud, embezzlement, theft or proven personal
dishonesty (whether or not resulting in criminal prosecution or conviction);
(iv) The conviction of Greenwood of any felony or any criminal
offense involving dishonesty or breach of trust, or the occurrence of any event
described in Section 19 of the Federal Deposit Insurance Act or any other event
or circumstance which
8
<PAGE>
disqualifies Greenwood from serving as an employee or executive officer of, or a
party affiliated with, the Bank or its bank holding company;
(v) Greenwood becomes unacceptable to, or is removed,
suspended or prohibited from participating in the conduct of the Bank's affairs
(or if proceedings for that purpose are commenced) by any Regulatory Authority;
and,
(vi) The occurrence of any event believed by the Bank, in good
faith, to have resulted in Greenwood being excluded from coverage, or having
coverage limited as to Greenwood as compared to other covered officers or
employees, under the Bank's then current "blanket bond" or other fidelity bond
or insurance policy covering its directors, officers or employees.
7. ADDITIONAL REGULATORY REQUIREMENTS. Notwithstanding
anything contained in this Agreement to the contrary, it is understood and
agreed that the Bank (or its successors in interest) shall not be required to
make any payment or take any action under this Agreement if (a) the Bank is
declared by any Regulatory Authority to be insolvent, in default or operating in
an unsafe or unsound manner, or if (b) in the opinion of counsel to the Bank
such payment or action (i) would be prohibited by or would violate any provision
of state or federal law applicable to the Bank, including without limitation the
Federal Deposit Insurance Act and Chapter 53 of the North Carolina General
Statutes as now in effect or hereafter amended, (ii) would be prohibited by or
would violate any applicable rules, regulations, orders or statements of policy,
whether now existing or hereafter promulgated, of any Regulatory Authority, or
(iii) otherwise would be prohibited by any Regulatory Authority.
8. CHANGE IN CONTROL
(a) In the event of a "Change in Control" (as defined in
Subparagraph (d) below), of the Bank, Greenwood shall be entitled to terminate
this Agreement upon the occurrence within twenty-four (24) months following a
change in control of any Termination Event as defined in Subparagraph (b) below.
(b) A Termination Event shall mean the occurrence
of any of the following events:
(i) Greenwood is assigned any duties and/or
responsibilities that are inconsistent with
his position, duties, responsibilities, or
status at the time of the Change in Control
or with his reporting
9
<PAGE>
responsibilities or titles with the Bank in
effect at such time;
(ii) Greenwood's annual base salary is
reduced below the amount in effect as of the
effective date of a Change in Control or as
the same shall have been increased from time
to time following such effective date;
(iii) Greenwood's life insurance, medical or
hospitalization insurance, disability
insurance, dental insurance, stock option
plans, stock purchase plans, deferred
compensation plans, management retention
plans, retirement plans, or similar plans or
benefits being provided by the Bank to
Greenwood as of the effective date of the
Change in Control are reduced in their level,
scope, or coverage, or any such insurance,
plans, or benefits are eliminated, unless
such reduction or elimination applies
proportionately to all salaried employees of
the Bank who participated in such benefits
prior to such Change in Control; or
(iv) Greenwood is transferred to a location
outside of Asheville, North Carolina, without
Greenwood's express written consent.
A Termination Event shall be deemed to have occurred on the
date such action or event is implemented or takes effect.
(c) In the event that Greenwood terminates this Agreement or
the Bank terminates this Agreement pursuant to this Paragraph 8, the Bank will
be obligated to pay or cause to be paid to Greenwood the greater of (i) all
amounts due and owing to the end of the term of this Agreement, or (ii) an
amount equal to two hundred ninety-nine percent (299%) of Greenwood's "base
amount" as defined in Section 28OG(b) (3) (A) of the Internal Revenue Code of
1986, as amended (the "Code").
(d) For the purposes of this Agreement, the term Change in
Control shall mean any of the following events:
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<PAGE>
(i) After the effective date of this
Agreement, any "person" (as such term is
defined in Section 7 (j) (8) (A) of the
Change in Bank Control Act of 1978) ,
directly or indirectly, acquires beneficial
ownership of voting stock, or acquires
irrevocable proxies or any combination of
voting stock and irrevocable proxies,
representing thirty-five percent (35%) or
more of any class of voting securities of the
Bank, or acquires control of in any manner
the election of a majority of the directors
of the Bank;
(ii) The Bank consolidates or merges with or
into another corporation, association, or
entity, or is otherwise reorganized, where
the Bank is not the surviving corporation in
such transaction; or
(iii) All or substantially all of the assets
of the Bank are sold or otherwise transferred
to or are acquired by any other corporation,
association, or other person, entity, or
group.
Notwithstanding the other provisions of this Paragraph 8, a
transaction or event shall not be considered a Change in Control if, (i) the
transaction is effected to reorganize the Bank into a holding company form of
organization or, (ii) prior to the consummation or occurrence of such
transaction or event, Greenwood and the Bank agree in writing that the same
shall not be treated as a Change in Control for purposes of this Agreement.
(e) Amounts payable pursuant to this Paragraph 8 shall be
paid, at the option of Greenwood either in one lump sum or in equal monthly
payments over the remaining term of this Agreement.
(f) Following a Termination Event which gives rise to
Greenwood's rights hereunder, Greenwood shall have twenty-four (24) months from
the date of occurrence of the Termination Event to terminate this Agreement
pursuant to this Paragraph 8. Any such termination shall be deemed to have
occurred only upon delivery to the Bank or any successor thereto, of written
notice of termination which describes the Change in Control and Termination
11
<PAGE>
Event. If Greenwood does not so terminate this Agreement within such twenty-four
month period, Greenwood shall thereafter have no further rights hereunder with
respect to that Termination Event, but shall retain rights, if any, hereunder
with respect to any other Termination Event as to which such period has not
expired.
(g) It is the intent of the parties hereto that all payments
made pursuant to this Agreement be deductible by the Bank for federal income tax
purposes and not result in the imposition of an excise tax on Greenwood.
However, if any payments to be made to or for the benefit of Greenwood are
deemed to be "parachute payments" as that term is defined in Section 28OG(b) (2)
of the Code, the Bank shall pay to Greenwood the amount of any excise taxes
imposed on Greenwood as well as any additional tax imposed on Greenwood as a
result of such payment.
(h) In the event any dispute shall arise between Greenwood and
the Bank as to the terms or interpretation of this Agreement, including this
Paragraph 8, whether instituted by formal legal proceedings or otherwise,
including any action taken by Greenwood to enforce the terms of this Paragraph 8
or in defending against any action taken by the Bank, the Bank shall reimburse
Greenwood for all costs and expenses, proceedings or actions, in the event
Greenwood prevails in any such action.
9. SUCCESSORS AND ASSIGNS.
(a) This Agreement shall inure to the benefit of and he
binding upon any corporate or other successor of the Bank which shall acquire,
directly or indirectly, by conversion, merger, consolidation, purchase or
otherwise, all or substantially all of the assets of the Bank.
(b) The Bank is contracting for the unique and personal skills
of Greenwood. Therefore, Greenwood shall be precluded from assigning or
delegating his rights or duties hereunder without first obtaining the written
consent of the Bank.
10. MODIFICATION; WAIVER; AMENDMENTS. No provision of this
Agreement may be modified, waived or discharged unless such waiver, modification
or discharge is agreed to in writing and signed by the parties hereto. No waiver
by either party hereto, at any time, of any breach by the other party hereto of,
or compliance with, any condition or provision of this Agreement to be performed
by such other party shall be deemed a waiver of similar or dissimilar provisions
or conditions at the same or at any prior or subsequent time. No amendments or
12
<PAGE>
additions to this Agreement shall be binding unless in writing and signed by
both parties, except as herein otherwise provided.
11. APPLICABLE LAW. This Agreement shall be governed in all
respects whether as to validity, construction, capacity, performance or
otherwise, by the laws of North Carolina, except to the extent that federal law
shall be deemed to apply.
12. SEVERABILITY. The provisions of this Agreement shall be
deemed severable and the invalidity or unenforceability of any provision shall
not affect the validity or enforceability of the other provisions hereof.
13
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement
under seal and in such form as to be binding as of the day and year first
hereinabove written.
THE BANK OF ASHEVILLE
By: _____________________________
Max O. Cogburn, Chairman
ATTEST:
_______________________________
____________________, Secretary
____________________________
G. Gordon Greenwood
14
EXHIBIT 23.1
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in this Registration Statement of
Weststar Financial Services Corporation on Form S-4 of our report dated January
25, 2000, included in the Summary Annual Report of The Bank of Asheville for the
year ended December 31, 1999 and to the use of our report dated January 25,
2000, appearing in the Proxy Statement-Prospectus, which is part of this
Registration Statement. We also consent to the reference to us under the heading
"Experts" in such Proxy Statement-Prospectus.
Deloitte & Touche LLP
Hickory, North Carolina
February 11, 2000
EXHIBIT 24.1
POWER OF ATTORNEY
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each of Weststar Financial
Services Corporation, and the several undersigned Officers and Directors thereof
whose signatures appear below hereby makes, constitutes and appoints G. Gordon
Greenwood and Randall C. Hall, or either of them, its and his or her true and
lawful attorneys, with full power of substitution to execute, deliver and file
in its or his or her name and on its or his or her behalf, and in each of the
undersigned Officer's and Director's capacity or capacities as shown below, (a)
Registration Statement on Form S-4 (or other appropriate form) with respect to
the registration under the Securities Act of 1933, as amended, of the shares of
common stock of Weststar Financial Services Corporation, $1.00 par value per
share, to be issued in connection with the exchange of shares pursuant to the
Agreement and Plan of Reorganization and Share Exchange between The Bank of
Asheville and Weststar Financial Services dated February 9, 2000, all documents
in support thereof or supplemental thereto and any and all amendments, including
any and all post-effective amendments, to the foregoing (hereinafter called the
"Registration Statement"), and (b) such registration statement, petitions,
applications, consents to service of process or other instruments, any and all
documents in support thereof or supplemental thereto, and any and all amendments
or supplements to the foregoing, as may be necessary or advisable to qualify or
register the securities covered by said Registration Statement; and each of
Weststar Financial Services Corporation and said Officers and Directors hereby
grants to said attorneys, or any of them, full power and authority to do and
perform each and every act and thing whatsoever as said attorneys may deem
necessary or advisable to carry out fully the intent of this power of attorney
to the same extent and with the same effect as Weststar Financial Services
Corporation might or could do, and as each of said Officers and Directors might
or could do personally in his or her capacity or capacities as aforesaid, and
each of Weststar Financial Services Corporation and said Officers and Directors
hereby ratifies and confirms all acts and things which said attorneys might do
or cause to be done by virtue of this power of attorney and its or his or her
signatures as the same may be signed by said attorneys to any or all of the
following (and/or any and all amendments and supplements to any or all thereof);
such Registration Statement filed under the Securities Act of 1933, as amended,
and all such registration statement, petitions, applications, consents to
service of process and other instruments, and all documents in support thereof
or supplemental thereto, filed under such securities laws, regulations and
requirements as may be applicable.
IN WITNESS WHEREOF, Weststar Financial Services Corporation has caused
this power of attorney to be signed on its behalf, and each of the undersigned
Officers and Directors in the capacity or capacities noted has hereunto set his
or her hand on the date indicated below.
WESTSTAR FINANCIAL SERVICES CORPORATION
(Registrant)
By:
--------------------------------------
G. Gordon Greenwood, President and CEO
Dated: __________, 2000
<PAGE>
SIGNATURE CAPACITY
- --------- --------
_______________________________________ President and Chief Executive
G. Gordon Greenwood Officer
_______________________________________ Executive Vice President, Secretary,
Randall C. Hall Treasurer and Chief Financial Officer
_______________________________________ Director
William E. Anderson.
_______________________________________ Chairman of its Board of Directors
Max O. Cogburn, Sr.
_______________________________________ Director
M. David Cogburn, Jr.
_______________________________________ Director
Darryl J. Hart
_______________________________________ Director
Carol L. King
_______________________________________ Director
Stephen L. Pignatiello
_______________________________________ Director
Kent W. Salisbury
_______________________________________ Director
Laura A. Webb
_______________________________________ Director
David N. Wilcox
<TABLE> <S> <C>
<ARTICLE> 9
<S> <C> <C>
<PERIOD-TYPE> YEAR YEAR
<FISCAL-YEAR-END> DEC-31-1999 DEC-31-1998
<PERIOD-START> JAN-01-1999 JAN-01-1998
<PERIOD-END> DEC-31-1999 DEC-31-1998
<CASH> 1,892,403 676,714
<INT-BEARING-DEPOSITS> 2,784 99,000
<FED-FUNDS-SOLD> 2,110,000 2,770,000
<TRADING-ASSETS> 0 0
<INVESTMENTS-HELD-FOR-SALE> 2,502,411 2,085,000
<INVESTMENTS-CARRYING> 2,508,339 2,087,778
<INVESTMENTS-MARKET> 0 0
<LOANS> 34,460,724 14,023,265
<ALLOWANCE> 528,808 218,719
<TOTAL-ASSETS> 43,368,097 21,892,695
<DEPOSITS> 37,920,980 16,446,648
<SHORT-TERM> 0 0
<LIABILITIES-OTHER> 278,718 283,112
<LONG-TERM> 0 0
0 0
0 0
<COMMON> 3,166,490 3,037,785
<OTHER-SE> 2,001,909 2,124,790
<TOTAL-LIABILITIES-AND-EQUITY> 43,368,097 21,892,335
<INTEREST-LOAN> 2,492,208 661,439
<INTEREST-INVEST> 123,944 208,750
<INTEREST-OTHER> 144,166 191,162
<INTEREST-TOTAL> 2,760,318 1,061,351
<INTEREST-DEPOSIT> 1,128,544 396,587
<INTEREST-EXPENSE> 1,128,641 424,509
<INTEREST-INCOME-NET> 1,631,677 636,842
<LOAN-LOSSES> 316,685 269,614
<SECURITIES-GAINS> 0 0
<EXPENSE-OTHER> 2,018,808 1,458,899
<INCOME-PRETAX> (288,952) (974,627)
<INCOME-PRE-EXTRAORDINARY> (178,327) (974,627)
<EXTRAORDINARY> 0 0
<CHANGES> (71,326) 0
<NET-INCOME> (249,653) (974,627)
<EPS-BASIC> (.41) (1.60)
<EPS-DILUTED> (.41) (1.60)
<YIELD-ACTUAL> 5.4 4.6
<LOANS-NON> 247,559 0
<LOANS-PAST> 0 0
<LOANS-TROUBLED> 0 0
<LOANS-PROBLEM> 0 0
<ALLOWANCE-OPEN> 218,719 3,200
<CHARGE-OFFS> 18,567 55,838
<RECOVERIES> 11,971 1,743
<ALLOWANCE-CLOSE> 528,808 218,719
<ALLOWANCE-DOMESTIC> 527,012 212,880
<ALLOWANCE-FOREIGN> 0 0
<ALLOWANCE-UNALLOCATED> 1,796 5,839
</TABLE>
EXHIBIT 99.1
PROXY
THE BANK OF ASHEVILLE
79 WOODFIN PLACE
ASHEVILLE, NORTH CAROLINA 28001-2426
APPOINTMENT OF PROXY
SOLICITED BY THE BOARD OF DIRECTORS
The undersigned hereby appoints Kathy E. Fox, Randall C. Hall, and
Robert E. Tuck, Jr., or any of them, as attorneys and proxies, with full power
of substitution, to vote all shares of the common stock of The Bank of Asheville
(the "Bank") to be held at the Renaissance Asheville Hotel, One Thomas Wolfe
Plaza, Asheville, North Carolina, at 3:00 p.m. on April 18, 2000, 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 The Bank of Asheville and
Weststar Financial Services Corporation and the transactions contemplated
thereby including the holding company reorganization of The Bank of
Asheville by which its shareholders will exchange their shares of common
stock for shares of the common stock of Weststar Financial Services
Corporation on a one-for-one basis.
|__| FOR |__| AGAINST |__| ABSTAIN
2. ELECTION OF DIRECTORS: Proposal to elect ten directors of the Bank for
one-year, two-year, and three-year terms as indicated below or until their
successors are duly elected and qualified.
|__| FOR all nominees listed below |__| WITHHOLD AUTHORITY to vote
(except as indicated otherwise for all nominees listed below
below)
Nominees:
ONE-YEAR TERMS: TWO-YEAR TERMS: THREE-YEAR TERMS:
William E. Anderson Max O. Cogburn, Sr. M. David Cogburn
Darryl J. Hart Carol L. King Stephen L. Pignatiello
G. Gordon Greenwood David N. Wilcox Kent W. Salisbury
Laura A. Webb
<PAGE>
INSTRUCTION: To withhold authority to vote for any individual nominee, write
that nominee's name on the line below:
- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -
3. RATIFICATION OF INDEPENDENT ACCOUNTANTS: Proposal to ratify the appointment
of Deloitte & Touche LLP as the Bank's independent public accountants for
2000.
|__| FOR |__| AGAINST |__| ABSTAIN
4. 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 judgement.
PLEASE DATE AND SIGN THIS APPOINTMENT OF PROXY
ON THE REVERSE SIDE AND RETURN TO THE BANK OF ASHEVILLE
<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 PROPOSALS 1 AND 3. 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 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: ____________________, 2000
- - - - - - - - - - - - - - - - - - - - - - -
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 YOU APPOINTMENT OF PROXY, YOU WILL BE ABLE TO VOTE IN PERSON AT THE MEETING
IF YOU SO DESIRE.
EXHIBIT 99.2
[BANK OF ASHEVILLE LOGO HERE]
1999 ANNUAL REPORT
BANKING THE WAY IT OUGHT TO BE
<PAGE>
99.3
BANKING -
THE WAY IT OUGHT TO BE
The Bank of Asheville is a community bank that is committed to providing high
quality service, growing safely and steadily while maintaining profitability and
being sensitive to the needs of customers and employees. We are an independent
community bank serving the needs of Asheville and Buncombe County in western
North Carolina. Our 1999 annual report is presented in summary format, which
allows us to provide information to our shareholders on a timely basis. More
detailed information can be found in Form 10-KSB.
Shareholder Information 2
Letter From the Board of
Directors 3
Board of Directors &
Officers 5
Financial Overview 6
Balance Sheets 8
Statements of Operations 9
Statements of Changes in
Shareholders' Equity 10
Independent Auditors' Report 11
Quarterly Financial Data 12
Office Locations 13
<PAGE>
SHAREHOLDER INFORMATION
ANNUAL MEETING
The Annual Meeting of the shareholders of The Bank of Asheville will be held at
3:00 p.m., Tuesday, April 18, 2000, at the Renaissance Asheville Hotel, One
Thomas Wolfe Plaza, Asheville, North Carolina (LOCATED OFF INTERSTATE I-240 AT
EXIT 5-B).
STOCK TRANSFER AGENT AND REGISTRAR
Registrar and Transfer Company
10 Commerce Drive
Cranford, New Jersey 07016
908.497.2312 or 800.368.5948
SHAREHOLDER INFORMATION
For information, contact Randall C. Hall, Executive Vice President and
Secretary, Bank of Asheville, 79 Woodfin Place, Asheville, North Carolina, 28801
or 828.232.2904.
EQUAL OPPORTUNITY
The Bank of Asheville is an equal opportunity employer. It is the policy of The
Bank of Asheville to treat all employees and applicants for employment without
regard to race, creed, color, national origin, sex or age.
COPIES OF FORM 10-KSB
Copies of The Bank of Asheville's Annual Report on Form 10-KSB filed with the
Federal Deposit Insurance Corporation may be obtained by shareholders at no
charge by writing: Randall C. Hall, Executive Vice President and Secretary, Bank
of Asheville, 79 Woodfin Place, Asheville, North Carolina 28801.
INDEPENDENT AUDITORS
Deloitte & Touche LLP
310 First Union Financial Center
P.O. Box 9197
Hickory, North Carolina 28603
MARKET SUMMARY
The Bank of Asheville stock is traded on the Over-The-Counter Bulletin Board
under the symbol "BKAH." J.C. Bradford & Co. is an investment firm making a
market in The Bank of Asheville stock. There were 633,298 shares outstanding at
December 31, 1999 owned by approximately 800 shareholders.
During 1999, 93,500 shares of the Bank's common stock were traded. The closing
price of the stock was $7.375.
1999 1ST 2ND 3RD 4TH
QTR. QTR. QTR. QTR.
High $11.00 $10.50 $11.00 $10.50
Low $9.50 $9.50 $9.00 $6.375
Close $9.50 $10.50 $10.00 $7.375
1998 1ST 2ND 3RD 4TH
QTR. QTR. QTR. QTR.
High $NA $11.50 $14.50 $12.00
Low $NA $11.00 $12.00 $10.0625
Close $NA $11.50 $13.00 $11.25
MARKET INFORMATION
The Bank of Asheville serves the people of Asheville and Buncombe County of
North Carolina. This region offers an exceptional quality of life, with both
scenic and cultural treasures to over 190,000 citizens.
2
<PAGE>
PRESIDENT'S LETTER
To the Shareholders of The Bank of Asheville:
The often-quoted Chinese blessing "May you live in interesting times" comes to
mind when we look back at the accomplishments of your Bank over the course of
the last year. Among our many accomplishments in 1999, your Bank doubled in
size, achieved monthly profitability, opened its first branch, received awards
for lending efforts in the areas of small business and community development,
and successfully met the challenges of Y2K. Knowing that this letter will be
included as a part of a full and complete report covering the Bank's financial
performance, I will not dwell on the "numbers". However, it is significant to
note that your Bank closed the year as a $43 million institution that performed
financially better than management had expected.
As noted in several of our quarterly newsletters during 1999, we felt like we
were prepared for Y2K. We were. There have been those who have said that Y2K was
much to do about nothing. We prefer to think that good planning and execution
managed the issue. Y2K had little, if any, impact on the Bank.
1999 saw the opening of our Bank in the Candler market. Clearly, as the Bank
grows and as customer demand supports, we plan to take steps to be better
positioned to serve the banking needs of all of Asheville and Buncombe County.
We continue to evaluate future branch locations. Branching is a cornerstone of
our service strategy. As branch locations are justified, we will continue to
strategically place banking facilities throughout our market area.
During the year, we continued to review the "menu" of services offered by The
Bank of Asheville. Our goal is to refine and expand our deposit and loan
offerings to meet the broad spectrum of needs represented by our customers and
the markets they represent. The Bank of Asheville is dedicated to "community"
banking. While we cannot and will not be all things to all persons, we are
dedicated to providing those products and services that are consistent with our
commitment to community banking.
The review and refinement process is fundamental to providing the services and
products our customers both want and need. 2000 represents the challenge and
opportunity to also consider new services like Internet banking and electronic
bill payment services. Though slowed by our need to dedicate resources to the
Y2K issue, we are again evaluating and planning as steps in the process of
integrating these new styles of community banking into the Bank of Asheville.
The process of building a bank is just that, a process. It is a process of
refinement and change, growth and expansion - a process of learning and applying
what we learn to build a better bank. We encourage your participation in the
process. Please let us know how we are doing. We value your input and always
welcome the opportunity to discuss any aspect of The Bank of Asheville with you.
Your management and staff are committed to building the best bank we can
possibly build.
As some of you may know, our name, The Bank of Asheville, is not new to a bank
in Asheville. Two predecessor banks, one in the 1800's and one in the 1900's
used the same name. In watching
3
<PAGE>
a recent news report appearing on television that highlighted some of the
changes during the 1900's, it occurred to me that in the midst of all of the
change and progress, some things remain a constant in banking. It is a business
that emphasizes people, service, integrity and trust. Whether the 1800's, the
1900's or the 2000's, The Bank of Asheville is committed to being the best
possible Bank it can be.
Before I close, it is appropriate that I make a few comments about the valuable
contributions of our officers and employees. The Bank of Asheville is not one
individual or even a group of individuals. Your Bank is fortunate to be staffed
by some of the best community bankers in North Carolina. We would not be the
Bank we are today without their dedication, support, commitment, and focus. The
results speak for themselves, and I am delighted to have the opportunity to work
with them. They are what truly makes your Bank special.
We also appreciate your support and business as well as the confidence you have
placed in the management and employees of The Bank of Asheville. Thank you for
giving us the opportunity to be of service to you. We look forward to a great
2000 and encourage you to think of The Bank of Asheville when a banking need
arises.
Sincerely
Max O. Cogburn, Sr.
Chairman of the Board of Directors
4
<PAGE>
THE BANK OF ASHEVILLE
BOARD OF DIRECTORS
AND OFFICERS
BOARD OF DIRECTORS
<TABLE>
<CAPTION>
<S> <C>
W. EDWARD ANDERSON DAVID N. WILCOX
DIRECTOR DIRECTOR
Hasco Mold Bases Wilcox Travel Agency, Inc.
M. DAVID COGBURN, M.D. OFFICERS
PRESIDENT
Carolina Mountain Dermatology, P.A. G. GORDON GREENWOOD*
PRESIDENT AND CHIEF EXECUTIVE OFFICER
MAX O. COGBURN, SR.
ATTORNEY AND PARTNER RANDALL C. HALL, C.P.A.
Cogburn, Goosmann, Brazil & Rose, P.A. EXECUTIVE VICE PRESIDENT AND SECRETARY
CHIEF FINANCIAL OFFICER
DARRYL J. HART
VICE PRESIDENT AND GENERAL MANAGER ROBERT E. TUCK, JR.
Hart Funeral Services, Inc. SENIOR VICE PRESIDENT AND CHIEF CREDIT OFFICER
CAROL L. KING, C.P.A. JUDY P. WALDROOP
PRESIDENT SENIOR VICE PRESIDENT
Carol L. King & Associates, P.A.
SUE S. DONALDSON
G. GORDON GREENWOOD* VICE PRESIDENT
PRESIDENT AND CHIEF EXECUTIVE OFFICER
The Bank of Asheville KATHY E. FOX, C.P.A.
VICE PRESIDENT
STEPHEN L. PIGNATIELLO
OWNER DIANA B. BARR
Pignatiello Communications ASSISTANT VICE PRESIDENT
KENT W. SALISBURY, M.D. KAREN E. KNOWLTON
PARTNER ASSISTANT VICE PRESIDENT
Asheville Cardiology Associates, P.A.
WILLIAM W. NESBIT, III
LAURA A. WEBB ASSISTANT VICE PRESIDENT
PRESIDENT
Webb Investment Services, Inc.
</TABLE>
* G. Gordon Greenwood was hired as President and CEO in January 2000 to replace
Howard B. Montgomery, Jr. who retired and resigned from the Board of Directors.
5
<PAGE>
FINANCIAL OVERVIEW
1999 was the second full year of operations for The Bank of Asheville. The
achievement of significant milestones emanates in financial growth and improved
operating results of the Bank. During 1999, the Bank focused on three key areas:
growth, increasing its market share and creating shareholder value. Through
branch expansion, the continuous redesign of deposit products, competitive
interest rate pricing and marketing efforts, the Bank achieved its goals.
Deposits grew by a total of $21,474,332 or 131% to $37,920,980. The addition of
a second banking location generated approximately $9 million in deposits during
1999. Growth in bank deposits manifested in both time and demand deposit
accounts. Time deposits accounted for over $11 million or 53% of total deposit
growth. Time deposits growth resulted from the offering of competitive interest
rates, product offerings and effective sales call efforts. Demand deposits grew
from $8,987,840 to $19,142,279 or 113%. Of the total $19,142,279 in demand
deposit and savings accounts, $14,361,398 or 75% of the accounts earn
competitive interest rates in the form of NOW, money market or savings accounts.
Deposit accounts serve as the primary source of funding for the Bank's loan and
investment portfolios.
Loans outstanding totaled $34,460,724 at December 31, 1999, an increase of 146%.
The Bank of Asheville specializes in lending to small businesses, professionals
and consumers. Loans secured by real estate accounted for $9,782,130 or 29%,
while commercial loans accounted for $24,115,830 or 70% of total loans. Consumer
loans comprised only a small portion of the loan portfolio. However, as the Bank
expanded into retail based markets during 1999, the consumer loan portfolio
reflected corresponding increases in consumer lending.
Interest income, derived from interest-earning assets, serves as the Bank's
primary source of income. Changes in interest income and interest expense
reflect changes in rates and volume. The bank currently operates with an asset
sensitive balance sheet. Asset sensitive means that when interest rates in the
overall economy change, rates on the Bank's loans change more quickly than rates
on its deposits. Therefore, when rates rise, the Bank's interest income rises at
a faster pace than the interest expense it pays on its deposits. Likewise, when
rates fall, the Bank's interest income on loans declines at a faster pace than
the interest it pays on deposits. The Bank manages the maturities and pricing of
its interest-earning assets and interest-bearing liabilities so as to maximize
net interest income, regardless of whether rates rise or fall in the market.
During 1999, the Bank earned $2,760,318 on interest-earning assets such as loans
and investment securities compared to $1,061,351 in 1998. Increases in interest
income were attributable to growth in interest-earning assets. Interest expense
totaled $1,128,641 in 1999 compared to $424,509 in 1998. The growth in interest
expense was attributable to growth in interest-bearing liabilities. Net interest
income, the difference between interest income and interest expense, totaled
$1,631,677 in 1999 compared to $636,842 in 1998.
Non-interest income, which parallels growth in transaction accounts such as
demand, NOW and money market accounts, accounted for $414,864 or 13% of total
revenue. Non-interest income results from service charges on deposit accounts
and other fees for services provided. Service charges on deposit accounts
produced $272,911 in fee income during 1999 compared to $83,349 in
6
<PAGE>
1998. Other income, including service fees and commissions and fees from the
origination of mortgage loans, generated $141,953 in 1999 compared to $33,695 in
1998. Non-interest expense totaled $2,018,808 in 1999 compared to $1,458,899 in
1998. In 1999 salaries and benefits accounted for $1,049,339 or 52% of total
non-interest expense. Other expenses incurred to operate the Bank totaled
$969,469 in 1999 compared to $743,238 in 1998. In February 1999, the Bank opened
a new banking office in Candler, which contributed to additional operating
expenses. Despite the increase in expenses, the Bank was able to effectively
increase it efficiency through growth in asset size, effective cost containment,
and evaluating investments relative to the value they generate.
In January 1999, the Bank adopted Statement of Position 98-5 "Reporting on the
Costs of Start-Up Activities," which provides guidance on the financial
reporting of start-up and organizational costs. The pronouncement requires costs
of start-up activities and organizational costs to be expensed as incurred.
Unamortized organizational costs, net of deferred income taxes, of $71,326 were
expensed in January 1999, and is reflected as a cumulative effect of a change in
accounting principle within the accompanying financial statements.
During the third and fourth quarters of 1999, the Bank achieved profitability of
$7,034 and $30,643, before income taxes. Due in part to this evidence of
profitable operations, a tax benefit of $110,625 related to the carryforward of
prior net operating losses.
The net operating loss for 1999, prior to the effect of a change in accounting
principle, was $178,327 or $.29 per share compared to $974,627 or $1.60 per
share in 1998. The net operating loss after the cumulative effect of a change in
accounting principles totaled $249,653 or $.41 per share. The comprehensive
loss, which is the change in equity during a period excluding changes resulting
from investments by shareholders and distributions to shareholders, net of tax
totaled $251,596 in 1999 and $982,897 in 1998.
Asset quality remained strong during l999. While there was skepticism about the
strength of the economy, the Bank insulated itself to some degree by investing
in high quality loans. Our internal credit administration department monitors
potential problem loans in an effort to minimize losses and delinquencies. Net
charge-offs totaled $6,596 or .03% of average loans outstanding. As a matter of
prudence, management continued to contribute to the loan loss reserve. The total
allowance for loan losses increased to $528,808 or 1.53% of gross loans
outstanding as of December 31, 1999. We anticipate asset quality to remain
strong during 2000 with emphasis on conservative lending practices.
The foregoing discussion may contain forward-looking statements within the
meaning of the Private Securities Litigation Reform Act. The accuracy of such
forward looking statements could be affected by such factors as, including but
not limited to, the financial success of changing strategies of the Bank's
customers, action of government regulators, or general economic conditions.
7
<PAGE>
THE BANK OF ASHEVILLE
BALANCE SHEETS
DECEMBER 31, 1999 AND 1998
<TABLE>
<CAPTION>
1999 1998
<S> <C> <C>
ASSETS:
Cash and cash equivalents:
Cash and due from banks $ 1,892,403 $ 676,714
Interest-bearing deposits 2,784 99,000
Federal funds sold 2,110,000 2,770,000
----------- ----------
Total cash and cash equivalents 4,005,187 3,545,714
Investment securities - available for sale, at fair value ----------- ----------
(amortized cost of $2,508,339 and $2,087,778
at December 31, 1999 and 1998, respectively) 2,502,411 2,085,000
----------- ----------
Loans 34,460,724 14,023,265
Allowance for loan losses (528,808) (218,719)
----------- ----------
Net loans 33,931,916 13,804,546
Premises and equipment, net 2,455,507 2,200,051
Accrued interest receivable 220,151 100,039
Federal Home Loan Bank stock, at cost 58,100 -
Organizational costs, net - 116,203
Deferred income taxes 133,688 -
Other assets 61,137 41,142
----------- ----------
TOTAL $43,368,097 $ 21,892,695
=========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY:
Deposits:
Demand $ 4,780,881 $ 2,759,092
NOW accounts 3,154,225 1,820,714
Money market accounts 10,623,376 4,079,314
Savings 583,797 328,820
Time deposits of $100,000 or more 5,620,684 3,206,120
Other time deposits 13,158,017 4,252,588
----------- ----------
Total deposits 37,920,980 16,446,648
Accrued interest payable 159,149 64,497
Deferred income taxes - 23,021
Other liabilities 119,569 195,594
----------- ----------
Total liabilities 38,199,698 16,729,760
----------- ----------
SHAREHOLDERS' EQUITY:
Common stock, $5 par value, authorized - 10,000,000 shares;
outstanding shares- 633,298 and 607,557 at
December 31, 1999 and 1998, respectively 3,166,490 3,037,785
Additional paid-in capital 3,596,444 3,467,729
Accumulated deficit (1,590,896) (1,341,243)
Accumulated other comprehensive loss (3,639) (1,696)
----------- ----------
Total shareholders' equity 5,168,399 5,162,575
----------- ----------
TOTAL $43,368,097 $ 21,892,335
=========== ==========
</TABLE>
8
<PAGE>
<TABLE>
<CAPTION>
THE BANK OF ASHEVILLE
STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 1999 AND 1998 AND THE PERIOD FROM OCTOBER 29, 1997
(DATE OF INCORPORATION) TO DECEMBER 31, 1997
1999 1998 1997
<S> <C> <C> <C>
INTEREST INCOME:
Interest and fees on loans $ 2,492,208 $ 661,439 $ 1,262
Federal funds sold 142,955 186,602 24,947
Interest-bearing deposits 1,211 4,560 64,482
Investments:
U. S. Treasuries 26,129 64,213 5,000
U. S. Government agencies 95,105 144,537 5,164
Corporate dividends 2,710 -- --
----------- ----------- -----------
Total interest income 2,760,318 1,061,351 100,855
----------- ----------- -----------
INTEREST EXPENSE:
Time deposits of $100,000 or more 189,677 109,687 581
Other time and savings deposits 937,345 286,900 1,860
Federal funds purchased 1,522 -- --
Note payable -- 27,922 1,111
Other interest expense 97 -- --
----------- ----------- -----------
Total interest expense 1,128,641 424,509 3,552
----------- ----------- -----------
NET INTEREST INCOME 1,631,677 636,842 97,303
PROVISION FOR LOAN LOSSES 316,685 269,614 3,200
----------- ----------- -----------
NET INTEREST INCOME AFTER PROVISION
FOR LOAN LOSSES 1,314,992 367,228 94,103
----------- ----------- -----------
OTHER INCOME:
Service charges on deposit accounts 272,911 83,349 30
Other service fees and commissions 131,316 29,162 563
Other 10,637 4,533 420
----------- ----------- -----------
Total other income 414,864 117,044 1,013
----------- ----------- -----------
OTHER EXPENSES:
Salaries and wages 941,253 649,415 98,119
Employee benefits 108,086 66,246 9,467
Occupancy expense, net 79,280 64,128 4,299
Equipment rentals, depreciation and maintenance 201,738 132,439 29,526
Other 688,451 546,671 91,528
----------- ----------- -----------
Total other expenses 2,018,808 1,458,899 232,939
----------- ----------- -----------
LOSS BEFORE CUMULATIVE EFFECT OF CHANGE IN ACCOUNTING
PRINCIPLE AND INCOME TAXES (288,952) (974,627) (137,823)
INCOME TAX PROVISION (BENEFIT) (110,625) -- 24,103
----------- ----------- -----------
NET LOSS BEFORE CUMULATIVE EFFECT OF CHANGE IN
ACCOUNT PRINCIPLE (178,327) (974,627) (161,926)
CUMULATIVE EFFECT OF A CHANGE IN ACCOUNTING PRINCIPLE,
NET OF TAX BENEFIT OF $44,877 (71,326) -- --
----------- ----------- -----------
NET LOSS (249,653) (974,627) (161,926)
OTHER COMPREHENSIVE INCOME (LOSS), NET OF TAX -
Unrealized holding gains (losses) on securities available for sale (1,943) (8,270) 6,574
----------- ----------- -----------
COMPREHENSIVE LOSS $ (251,596) $ (982,897) $ (155,352)
=========== =========== ===========
BASIC NET LOSS PER SHARE BEFORE CUMULATIVE EFFECT OF
CHANGE IN ACCOUNTING PRINCIPLE $ (0.29) $ (1.60) $ (0.27)
CUMULATIVE EFFECT OF CHANGE IN ACCOUNTING PRINCIPLE $ (0.12) $ -- $ --
----------- ----------- -----------
BASIC NET LOSS PER SHARE $ (0.41) $ (1.60) $ (0.27)
=========== =========== ===========
</TABLE>
9
<PAGE>
THE BANK OF ASHEVILLE
STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 1999 AND 1998 AND THE PERIOD FROM OCTOBER 29, 1997
(DATE OF INCORPORATION) TO DECEMBER 31, 1997
<TABLE>
<CAPTION>
ACCUMULATED
COMMON STOCK ADDITIONAL OTHER TOTAL
----------- ------------ PAID-IN ACCUMULATED COMPREHENSIVE SHAREHOLDERS'
SHARES AMOUNT CAPITAL DEFICIT INCOME/(LOSS) EQUITY
<S> <C> <C> <C> <C> <C> <C>
BALANCE, OCTOBER 29, 1997 607,557 $3,037,785 $3,467,729 $(204,690) $6,300,824
Net unrealized gain on securities
available for sale - - - - $6,574 6,574
Net loss - - - (161,926) - (161,926)
--------- ------------- ---------- --------- ------- ---------
BALANCE, DECEMBER 31, 1997 607,557 3,307,785 3,467,729 (366,616) 6,574 6,154,472
Net change in unrealized gain
on securities available for sale - - - - (8,270) (8,270)
Net loss - - - (974,627) - (974,627)
--------- ------------- ---------- --------- ------- ---------
BALANCE, DECEMBER 31, 1998 607,557 3,037,785 3,467,729 (1,341,243) (1,696) 5,162,575
Net change in unrealized loss
on securities available for sale - - - - (1,943) (1,943)
Warrants exercised 25,741 128,705 128,715 257,420
Net loss - - - (249,653) - (249,653)
--------- ------------- ---------- --------- -------- ---------
BALANCE, DECEMBER 31, 1999 633,298 $3,166,490 $3,596,444 $(1,590,896) $(3,639) $5,168,399
======= ========== ========== ============ ======== ==========
</TABLE>
10
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders The Bank of Asheville
Asheville, North Carolina
We have audited the balance sheets of The Bank of Asheville (the "Bank") as of
December 31, 1999 and 1998, and the related statements of operations,
stockholders' equity, and cash flows for the years ended December 31, 1999 and
1998 and for the period from October 29, 1997 (Date of Incorporation) to
December 31, 1997. Such financial statements and our report thereon dated
January 25, 2000, expressing an unqualified opinion (which are not included
herein), are included in the proxy statement for the 2000 annual meeting of
stockholders. The accompanying condensed financial statements are the
responsibility of the Bank's management. Our responsibility is to express an
opinion on such condensed financial statements in relation to the complete
financial statements.
In our opinion, the information set forth in the accompanying condensed
financial statements of the Bank is fairly stated in all material respects in
relation to the basic financial statements from which it has been derived.
January 25, 2000
Hickory, North Carolina
11
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
Quarterly Financial Data (unaudited)
1999 1Q 2Q 3Q 4Q
Net interest income $ 267,274 $ 357,448 $ 473,741 $ 533,214
Provision for loan losses 74,460 129,825 61,170 51,230
---------- --------- --------- ---------
Net interest income after provision for loan
losses 192,814 227,623 412,571 481,984
---------- --------- --------- ---------
Other income 55,062 101,897 126,086 131,819
--------- --------- --------- ---------
Other expenses 448,228 455,797 531,623 583,160
---------- --------- --------- ---------
Income (loss) before income taxes (benefits)
and cumulative effect of a change in
accounting principle (200,352) (126,277) 7,034 30,643
---------- --------- --------- ---------
Income taxes (benefits) 0 0 0 (110,625)
---------- --------- --------- ---------
Net income (loss) before cumulative effect of
a change in accounting principle (200,352) (126,277) 7,034 141,268
---------- --------- --------- ---------
Cumulative effect of a change in accounting
principle (71,326) 0 0 0
---------- --------- --------- ---------
Net income (loss) $(271,678) $(126,277) $ 7,034 $ 141,268
--------- --------- --------- ---------
Earnings per share:
Basic income (loss) before cumulative effect
of a change in accounting principle $ (.33) $ (.21) $ .02 $ .23
Cumulative effect of a change in accounting
principle (.12) -- -- --
---------- --------- --------- ---------
Basic $ (.45) $ (.21) $ .02 $ .23
---------- --------- --------- ---------
Diluted $ (.45) $ (.21) $ .02 $ .23
---------- --------- --------- ---------
Average shares outstanding
Basic 607,565 607,567 613,395 633,298
Diluted 607,565 607,567 613,395 633,298
1998 1Q 2Q 3Q 4Q
Net interest income $ 100,590 $ 137,203 $ 173,302 $ 225,747
Provision for loan losses 46,100 37,300 87,600 98,614
---------- --------- --------- ---------
Net interest income after provision for loan
losses 54,490 99,903 85,702 127,133
---------- --------- --------- ---------
Other income 13,386 21,458 34,210 47,990
--------- --------- --------- ---------
Other expenses 339,529 325,504 380,818 413,048
---------- --------- --------- ---------
Net loss $(271,653) $(204,143) $(260,906) $(237,925)
---------- --------- --------- ---------
Earnings per share:
Basic $ (.45) $ (.34) $ (.43) $ (.38)
---------- --------- --------- ---------
Diluted $ (.45) $ (.34) $ (.43) $ (.38)
--------- --------- --------- ---------
Average shares outstanding
Basic 607,557 607,557 607,557 607,557
Diluted 607,557 607,557 607,557 607,557
</TABLE>
12
<PAGE>
CORPORATE OFFICES
79 Woodfin Place
Asheville, NC 28801
828.252.1735 telephone
828.252.1792 facsimile
BANKING LOCATIONS
ASHEVILLE OFFICE
79 Woodfin Place
Asheville, NC 28801
828.252.1735 telephone
828.252.1792 facsimile
CANDLER OFFICE
6 Dogwood Road
Candler, NC 28715
828.665.3846 telephone
828.665.3849 facsimile
TELEPHONE BANKING
828.281.0012
WEB SITE
www.bankofasheville.com
13
