<PAGE> 1
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(A) OF THE SECURITIES EXCHANGE ACT OF 1934
Filed by the registrant |X|
Filed by a party other than the registrant |_|
Check the appropriate box:
|_| Preliminary proxy statement
|_| Confidential, for Use of the Commission only (as permitted by Rule 14a-6(e)
(2))
|X| Definitive proxy statement
|_| Definitive additional materials
|_| Soliciting material pursuant to Rule 14a-11(c) or Rule 14a-12
Union Financial Bancshares, Inc.
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(Name of Registrant as Specified in Its Charter)
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(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of filing fee (Check the appropriate box):
|X| No fee required.
|_| Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
(1) Title of each class of securities to which transaction applies:
N/A
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(2) Aggregate number of securities to which transactions applies:
N/A
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(3) Per unit price or other underlying value of transaction computed pursuant
to Exchange Act Rule 0-11 (set forth the amount on which the filing fee is
calculated and state how it was determined):
N/A
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(4) Proposed maximum aggregate value of transaction:
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(5) Total fee paid:
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|_| Fee paid previously with preliminary materials.
|_| Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11 (a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
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(4) Date Filed:
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<PAGE> 2
December 22, 2000
Dear Stockholder:
You are cordially invited to attend the annual meeting of stockholders of
Union Financial Bancshares, Inc. The meeting will be held in the University of
South Carolina Auditorium, Union Campus, at East Main Street, Union, South
Carolina on Wednesday, January 17, 2001 at 2:00 p.m., local time.
The notice of annual meeting and proxy statement appearing on the
following pages describe the formal business to be transacted at the meeting.
During the meeting, we will also report on the operations of the Company.
Directors and officers of the Company, as well as a representative of Elliott,
Davis & Company, LLP, the Company's independent auditors, will be present to
respond to appropriate questions of stockholders.
It is important that your shares are represented at this meeting, whether
or not you attend the meeting in person and regardless of the number of shares
you own. To make sure your shares are represented, we urge you to complete and
mail the enclosed proxy card. If you attend the meeting, you may vote in person
even if you have previously mailed a proxy card.
We look forward to seeing you at the meeting.
Sincerely,
/s/ Carl L. Mason
Carl L. Mason
CHAIRMAN OF THE BOARD
<PAGE> 3
UNION FINANCIAL BANCSHARES, INC.
203 WEST MAIN STREET
UNION, SOUTH CAROLINA 29379
(864) 427-9000
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NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
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The annual meeting of stockholders of Union Financial Bancshares, Inc.
(the "Company") will be held in the University of South Carolina Auditorium,
Union Campus, at East Main Street, Union, South Carolina, on Wednesday, January
17, 2001, at 2:00 p.m., local time, for the following purposes:
1. To elect two directors of the Company;
2. To ratify the Union Financial Bancshares, Inc. 2001 Stock Option
Plan;
3. To ratify the appointment of Elliott, Davis & Company, LLP as
independent auditors for the Company for the fiscal year ending
September 30, 2001; and
4. To transact any other business that may properly come before the
meeting.
NOTE: The Board of Directors is not aware of any other business to come
before the meeting.
Stockholders of record at the close of business on December 1, 2000 are
entitled to receive notice of the meeting and to vote at the meeting and any
adjournment or postponement of the meeting.
Please complete and sign the enclosed form of proxy, which is solicited by
the Board of Directors, and mail it promptly in the enclosed envelope. The proxy
will not be used if you attend the meeting and vote in person.
BY ORDER OF THE BOARD OF DIRECTORS
/s/ Wanda J. Wells
Wanda J. Wells
CORPORATE SECRETARY
Union, South Carolina
December 22, 2000
IMPORTANT: THE PROMPT RETURN OF PROXIES WILL SAVE THE COMPANY THE EXPENSE OF
FURTHER REQUESTS FOR PROXIES IN ORDER TO ENSURE A QUORUM. A SELF-ADDRESSED
ENVELOPE IS ENCLOSED FOR YOUR CONVENIENCE. NO POSTAGE IS REQUIRED IF MAILED IN
THE UNITED STATES.
<PAGE> 4
UNION FINANCIAL BANCSHARES, INC.
----------------------------------
PROXY STATEMENT
----------------------------------
This proxy statement is furnished in connection with the solicitation of
proxies by the Board of Directors of Union Financial Bancshares, Inc. ("Union
Financial" or the "Company") to be used at the annual meeting of stockholders of
the Company. The Company is the holding company for Provident Community Bank
("Provident"). The annual meeting will be held in the University of South
Carolina Auditorium, Union Campus, at East Main Street, Union, South Carolina on
Wednesday, January 17, 2001, at 2:00 p.m., local time. This proxy statement and
the enclosed proxy card are being first mailed to stockholders on or about
December 15, 2000.
VOTING AND PROXY PROCEDURE
WHO CAN VOTE AT THE MEETING
You are entitled to vote your Union Financial common stock if the records
of the Company showed that you held your shares as of the close of business on
December 1, 2000. As of the close of business on that date, a total of 1,914,577
shares of Union Financial common stock were outstanding. Each share of common
stock has one vote. As provided in the Company's Certificate of Incorporation,
record holders of the Company's common stock who beneficially own in excess of
10% of the Company's outstanding shares are entitled to cast only one-hundredth
of a vote in respect of the shares held in excess of the 10% limit.
ATTENDING THE MEETING
If you are a beneficial owner of Union Financial common stock held by a
broker, bank or other nominee (i.e., in "street name"), you will need proof of
ownership to be admitted to the meeting. A recent brokerage statement or letter
from a bank or broker are examples of proof of ownership. If you want to vote
your shares of Union Financial common stock held in street name in person at the
meeting, you will have to get a written proxy in your name from the broker, bank
or other nominee who holds your shares.
VOTE REQUIRED
The annual meeting will be held if a majority of the outstanding shares of
common stock entitled to vote is represented at the meeting. If you return valid
proxy instructions or attend the meeting in person, your shares will be counted
for purposes of determining whether there is a quorum, even if you abstain from
voting. Broker non-votes also will be counted for purposes for determining the
existence of a quorum. A broker non-vote occurs when a broker, bank or other
nominee holding shares for a beneficial owner does not vote on a particular
proposal because the nominee does not have discretionary voting power with
respect to that item and has not received voting instructions from the
beneficial owner.
In voting on the election of directors, you may vote in favor of both
nominees, withhold votes as to both nominees, or withhold votes as to specific
nominees. There is no cumulative voting for the election of directors. Directors
must be elected by a plurality of the votes cast at the annual meeting. This
means that
<PAGE> 5
the nominees receiving the greatest number of votes will be elected. Votes that
are withheld and broker non- votes will have no effect on the outcome of the
election. In voting on the ratification of the Union Financial Bancshares, Inc.
2001 Stock Option Plan and ratification of the appointment of Elliott, Davis &
Company, LLP as independent auditors, you may vote in favor of the proposal,
against the proposal or abstain from voting. These matters will be decided by
the affirmative vote of a majority of votes cast by stockholders. Abstentions
and broker non-votes will have no effect on the outcome of the vote.
VOTING BY PROXY
This proxy statement is being sent to you by the Board of Directors of
Union Financial for the purpose of requesting that you allow your shares of
Union Financial common stock to be represented at the annual meeting by the
persons named in the enclosed proxy card. All shares of Union Financial common
stock represented at the meeting by properly executed proxies will be voted in
accordance with the instructions indicated on the proxy card. If you sign and
return a proxy card without giving voting instructions, your shares will be
voted as recommended by the Company's Board of Directors. The Board of Directors
recommends a vote "FOR" each of the nominees for director, "FOR" ratification of
the Union Financial Bancshares, Inc. 2001 Stock Option Plan and "FOR"
ratification of Elliott, Davis & Company, LLP as independent auditors.
If you are a participant in the Company's Dividend Reinvestment Plan, the
proxy card covers the shares in your account under the Plan, as well as shares
registered in your name.
If any matters not described in this proxy statement are properly
presented at the annual meeting, the persons named in the proxy card will use
their own judgment to determine how to vote your shares. This includes a motion
to adjourn or postpone the meeting in order to solicit additional proxies. If
the annual meeting is postponed or adjourned, your Union Financial common stock
may be voted by the persons named in the proxy card on the new meeting date as
well, unless you have revoked your proxy. The Company does not know of any other
matters to be presented at the meeting.
You may revoke your proxy at any time before the vote is taken at the
meeting. To revoke your proxy you must either advise the Secretary of the
Company in writing before your shares have been voted at the annual meeting,
deliver a later dated proxy, or attend the meeting and vote your shares in
person. Attendance at the annual meeting will not in itself constitute
revocation of your proxy.
If your Union Financial common stock is held in street name, you will
receive instructions from your broker, bank or other nominee that you must
follow in order to have your shares voted. Your broker or bank may allow you to
deliver your voting instructions via the telephone or the Internet. Please see
the instruction form that accompanies this proxy statement. If you wish to
change your voting instructions after you have returned your voting instruction
form to your broker or bank, you must contact your broker or bank.
2
<PAGE> 6
STOCK OWNERSHIP
The following table provides information about the shares of Union
Financial common stock that may be considered to be owned by each director or
nominee for director of the Company, by the executive officers of the Company
named in the Summary Compensation Table and by all directors and executive
officers of the Company as a group as of December 1, 2000. A person may be
considered to beneficially own any shares of common stock over which he or she
has, directly or indirectly, sole or shared voting or investing power. Unless
otherwise indicated, each of the named individuals has sole voting power and
sole investment power with respect to the shares shown.
<TABLE>
<CAPTION>
NUMBER OF SHARES
NUMBER OF THAT MAY BE ACQUIRED PERCENT OF
SHARES OWNED WITHIN 60 DAYS BY COMMON STOCK
NAME (EXCLUDING OPTIONS) EXERCISING OPTIONS OUTSTANDING(1)
------------------------- -------------------- -------------------- ----------------
<S> <C> <C> <C>
Mason G. Alexander 11,856(2) 2,975 *
James W. Edwards 2,612 6,125 *
Richard H. Flake 10,505(3) 36,118 2.39%
William M. Graham 15,000 6,125 1.10
Louis M. Jordan 56,091(4) 6,125 3.24
Carl L. Mason 5,548 6,125 *
John S. McMeekin 5,903(5) -- *
Dwight V. Neese 11,694 65,367 3.89
Philip C. Wilkins 5,551(6) -- *
All directors and executive
officers as a group (16 persons) 153,752 165,750 15.36
</TABLE>
----------------------------------------
* Less than 1% of the shares outstanding.
(1) Based on 1,914,577 shares of Union Financial common stock outstanding and
entitled to vote as of December 1, 2000, plus the number of shares that may
be acquired within 60 days by each individual (or group of individuals) by
exercising stock options.
(2) Includes 200 shares owned by the Frances & Mason Alexander Family Foundation
over which Mr. Alexander shares voting power.
(3) Includes 1,000 shares owned by Mr. Flake's spouse.
(4) Includes 20,251 shares owned by Mr. Jordan's spouse and 14,789 shares held
in a trust for which Mr. Jordan serves as trustee and shares voting power.
(5) Includes 250 shares held by a corporation in which Mr. McMeekin is a
majority owner.
(6) Includes 27 shares held by Mr. Wilkins' spouse.
3
<PAGE> 7
PROPOSAL 1 -- ELECTION OF DIRECTORS
The Company's Board of Directors currently consists of nine members. Eight
of them are independent directors and one is a member of management. Quay W.
McMaster, having reached the age limit established by the Board of Directors in
the Company's bylaws, will retire at the annual meeting, at which point the
Board of Directors will be reduced to eight members. The Board is divided into
three classes with three-year staggered terms, with one-third of the directors
elected each year. Three directors will be elected at the annual meeting to
serve for a three-year term, or until their respective successors have been
elected and qualified. The nominees are Mason G. Alexander and James W. Edwards,
both of whom are currently directors of the Company and Provident.
It is intended that the proxies solicited by the Board of Directors will
be voted for the election of the nominees named above. If any nominee is unable
to serve, the persons named in the proxy card would vote your shares to approve
the election of any substitute proposed by the Board of Directors.
Alternatively, the Board of Directors may adopt a resolution to reduce the size
of the Board. At this time, the Board of Directors knows of no reason why any
nominee would be unable to serve.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" THE ELECTION OF ALL OF THE
NOMINEES.
Information regarding the nominees for election at the annual meeting, as
well as information regarding the continuing directors whose terms expire in
2002 and 2003, is provided below. Unless otherwise stated, each individual has
held his current occupation for the last five years. The age indicated in each
individual's biography is as of September 30, 2000. The indicated period for
service as a director includes service as a director of Provident.
NOMINEES FOR ELECTION OF DIRECTORS
The directors standing for election are:
MASON G. ALEXANDER. Mr. Alexander is a director of Mid-South Management
Company, a newspaper holding company, in Spartanburg, South Carolina. Age 68.
Director since 1996.
JAMES W. EDWARDS. Mr. Edwards is the Dean of Academics at the University
of South Carolina, Union Campus located in Union, South Carolina. Age 63.
Director since 1996.
DIRECTORS CONTINUING IN OFFICE
The following directors have terms ending in 2002:
CARL L. MASON. Mr. Mason is the Chairman of the Board of the Company and
Provident. He is the retired President of Cone Mills Corporation, a textile
finishing company. Age 56. Director since 1989.
WILLIAM M. GRAHAM. Mr. Graham is the sole owner and operator of Graham's
Flowers in Union, South Carolina. Age 56. Director since 1990.
JOHN S. MCMEEKIN. Mr. McMeekin is the President of Winnsboro Furniture
Company located in Winnsboro, South Carolina. Age 46. Director since 1999.
4
<PAGE> 8
The following directors have terms ending in 2003:
LOUIS M. JORDAN. Mr. Jordan is a major stockholder of Jordan's Ace
Hardware, Inc. located in Union South Carolina. Age 65. Director since 1971.
DWIGHT V. NEESE. Mr. Neese is the President and Chief Executive Officer of
the Company and Provident. Age 50. Director since 1995.
PHILIP C. WILKINS, DMD. Dr. Wilkins is a dentist with offices in
Winnsboro, South Carolina. Age 44. Director since 1999.
MEETINGS AND COMMITTEES OF THE BOARD OF DIRECTORS
The business of the Company and Provident is conducted through meetings
and activities of their Boards of Directors and their committees. During the
fiscal year ended September 30, 2000, the Board of Directors of the Company held
twelve meetings and the Board of Directors of Provident held twelve meetings. No
director attended fewer than 75% of the total meetings of the Boards of
Directors and committees on which such director served.
The Audit/Compliance Committee, consisting of Directors McMeekin
(Chairman), Edwards and Graham, meets as needed to select and review the work
performed by the independent auditors. This Committee met two times during the
year ended September 30, 2000.
Provident's Human Resources Committee, composed of Directors Alexander
(Chairman), Mason and Wilkins meets as needed to review the employee wage and
benefit packages, hear employee grievances and prepare employee job
descriptions. This Committee met three times during the year ended September 30,
2000.
The Company's Governance Committee, composed of Directors Mason
(Chairman), Jordan, Neese and Alexander, selects nominees for election as
directors. The Company's bylaws provide for stockholder nominations of
directors. These provisions require that nominations be made pursuant to timely
written notice to the secretary. The stockholder's notice must contain all
information relating to the nominee which is required to be disclosed by the
Company's bylaws and the Securities Exchange Act of 1934. See "STOCKHOLDER
PROPOSALS." This Committee met two times during the year ended September 30,
2000.
The Company and Provident also maintain Loan, Asset/Liability, Long Range
Planning and Strategic Planning Committees.
DIRECTORS' COMPENSATION
The members of the Company's Board of Directors are the same individuals
who serve on Provident's Board of Directors. Members of the Board of Directors
of Provident receive a monthly fee of $900. The Chairman of the Board of
Directors receives an additional monthly fee of $300. Committee members do not
receive additional fees for committee meetings attended. Currently, directors
receive a fee of $500 per quarter for service on the Company's Board of
Directors.
5
<PAGE> 9
EXECUTIVE COMPENSATION
SUMMARY COMPENSATION TABLE
The following information is furnished for Messrs. Neese and Flake. No
other executive officer of Union Financial received salary and bonus of $100,000
or more during the year ended September 30, 2000.
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
------------------------
ANNUAL COMPENSATION AWARDS
--------------------------------------- ------------------------
OTHER RESTRICTED SECURITIES
ANNUAL STOCK UNDERLYING ALL OTHER
NAME AND PRINCIPAL FISCAL COMPENSATION AWARDS OPTIONS COMPENSATION
POSITIONS YEAR SALARY($) BONUS($) ($)(1) ($) (#) ($)
---------------------------- -------- ---------- --------- ------------- ---------- ----------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Dwight V. Neese 2000 $131,040 $50,400 $ -- $ -- -- $21,442(2)
President and Chief 1999 126,000 58,000 -- -- -- 21,780
Executive Officer 1998 120,000 38,319 -- -- 7,250 20,713
Richard H. Flake 2000 $ 83,760 $28,175 $ -- $ -- -- 14,756(3)
Executive Vice President 1999 80,500 32,125 -- -- -- 13,473
and Chief Financial Officer 1998 77,500 22,360 -- -- 4,450 11,709
-------------------------------------
</TABLE>
(1) Does not include the aggregate amount of perquisites and other personal
benefits, which was less than 10% of the total annual salary and bonus
reported.
(2) Consists of employer contribution to Provident's 401(k) plan of $9,072 and
contribution to money purchase pension plan of $12,370.
(3) Consists of employer contribution to Provident's 401(k) plan of $5,597 and
contribution to money purchase pension plan of $9,159.
OPTION VALUE AT FISCAL YEAR END
The following table provides information regarding the exercise of
stock options during the past fiscal year and information regarding unexercised
stock options for Messrs. Neese and Flake as of September 30, 2000.
<TABLE>
<CAPTION>
NUMBER OF SECURITIES
UNDERLYING UNEXERCISED VALUE OF UNEXERCISED
OPTIONS IN-THE-MONEY OPTIONS
SHARES AT FISCAL YEAR-END (#) AT FISCAL YEAR-END ($)(1)
ACQUIRED VALUE ----------------------------- -----------------------------
NAME ON EXERCISE (#) REALIZED ($) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---------------------- ------------------ ------------- ------------- --------------- ------------- --------------
<S> <C> <C> <C> <C> <C> <C>
Dwight V. Neese 2,200 $12,738 65,367 3,046 $134,368 $ --
Richard H. Flake -- -- 36,118 2,830 73,096 --
</TABLE>
------------------------
(1) Value of unexercised in-the-money stock options equals the market value of
shares covered by in-the-money options on September 30, 2000 less the
option exercise price. Options are in-the-money if the market value of
shares covered by the options is greater than the exercise price.
6
<PAGE> 10
EMPLOYMENT AGREEMENT
The Company and Provident maintain three-year employment agreements with
Dwight V. Neese, President and Chief Executive Officer, and Richard H. Flake,
Executive Vice President and Chief Financial Officer. The terms of the
agreements may be extended for an additional 12 full calendar months by action
of the Board of Directors on the anniversary date of the agreements. Mr. Neese's
base salary for the 2001 fiscal year is $137,000. Mr. Flake's base salary for
the 2001 fiscal year is $87,100. The agreements may be terminated at any time by
the Board of Directors for "cause," as defined in the agreements. In the event
that the executive's employment is terminated without "cause," the agreements
provide that the executive's current salary and benefits would be continued
through the remaining term of the agreements. The agreements provide for
severance payments if employment is terminated following a change in control (as
defined in the agreements), equal to 2.99 times the average annual compensation
paid to the executive during the five years immediately preceding the change in
control and continuation of other employee benefits for three years. The sum
would be paid promptly after any change in control. Section 280G of the Internal
Revenue Code states that severance payments that equal or exceed three times the
base amount compensation of the individual are deemed to be "excess parachute
payments" if they are contingent upon a change in control. Individuals receiving
excess parachute payments are subject to a 20% excise tax on the amount of the
payments in excess of their base amount compensation, and the Company is not
entitled to deduct such amounts.
AUDIT COMMITTEE REPORT
The Audit Committee of the Board of Directors is responsible for providing
independent, objective oversight of Union Financial's independent auditors,
accounting functions and internal controls. The Audit Committee is comprised of
three directors, each of whom is independent under the National Association of
Securities Dealers' listing standards. The Audit Committee acts under a written
charter adopted by the Board of Directors, a copy of which is attached to this
proxy statement as Appendix A.
The Audit Committee reviewed and discussed the annual financial statements
with management and the independent accountants. As part of this process,
management represented to the Audit Committee that the financial statements were
prepared in accordance with generally accepted accounting principles. The Audit
Committee also received and reviewed written disclosures and a letter from the
accountants concerning their independence as required under applicable standards
for auditors of public companies. The Audit Committee discussed with the
accountants the contents of such materials, the accountant's independence and
the additional matters required under Statement on Auditing Standards No. 61.
Based on such review and discussions, the Audit Committee recommended that the
Board of Directors include the audited consolidated financial statements in
Union Financial's Annual Report on Form 10-KSB for the year ended September 30,
2000 for filing with the Securities and Exchange Commission.
John S. McMeekin (Chairman)
James W. Edwards
William M. Graham
7
<PAGE> 11
COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT
Section 16(a) of the Securities Exchange Act of 1934 requires the
Company's executive officers and directors, and persons who own more than 10% of
any registered class of the Company's equity securities, to file reports of
ownership and changes in ownership with the Securities and Exchange Commission.
Executive officers, directors and greater than 10% stockholders are required by
regulation to furnish the Company with copies of all Section 16(a) reports they
file.
Based solely on its review of the copies of the reports it has received
and written representations provided to the Company from the individuals
required to file the reports, the Company believes that each of the Company's
executive officers and directors has complied with applicable reporting
requirements for transactions in Union Financial common stock during the fiscal
year ended September 30, 2000.
TRANSACTIONS WITH MANAGEMENT
Federal regulations require that all loans or extensions of credit to
executive officers and directors of insured financial institutions must be made
on substantially the same terms, including interest rates and collateral, as
those prevailing at the time for comparable transactions with other persons,
except for loans made pursuant to programs generally available to all employees,
and must not involve more than the normal risk of repayment or present other
unfavorable features. Union Financial is therefore prohibited from making any
new loans or extensions of credit to executive officers and directors at
different rates or terms than those offered to the general public, except for
loans made pursuant to programs generally available to all employees, and has
adopted a policy to this effect. In addition, loans made to a director or
executive officer in an amount that, when aggregated with the amount of all
other loans to such person and his or her related interests, are in excess of
the greater of $25,000 or 5% of the institution's capital and surplus (up to a
maximum of $500,000) must be approved in advance by a majority of the
disinterested members of the Board of Directors. The Company's policy is to not
make any new loans or extensions of credit to executive officers and directors
at different rates or terms than those offered to the general public and to have
the Board of Directors approve all loans to executive officers and directors.
The aggregate outstanding balance of loans made by Union Financial to its
directors and executive officers was approximately $1.0 million at September 30,
2000.
8
<PAGE> 12
PROPOSAL 2 -- RATIFICATION OF UNION FINANCIAL BANCSHARES, INC.
2001 STOCK OPTION PLAN
GENERAL
On November 21, 2000, the Board of Directors of the Company adopted,
subject to stockholder approval, the Union Financial Bancshares, Inc. 2001 Stock
Option Plan.
The Company formerly adopted the 1995 Stock Option Plan, which provided
for the grant of 60,500 shares covered by stock options to directors and
officers of the Company and its affiliates. The granting of stock options has
been an effective way for the Company to reward its current directors and
officers and attract and retain key personnel who provide services to the
Company and its affiliates. The Company wishes to continue its stock option
program, however, no options remain under the 1995 Stock Option Plan. Therefore,
the Board of Directors has adopted the 2001 Stock Option Plan, subject to
stockholder approval, to continue the Company's program of rewarding and
motivating directors and officers of the Company with stock options.
The following summary is a brief description of the material features of
the 2001 Stock Option Plan. THIS SUMMARY IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO THE 2001 STOCK OPTION PLAN, A COPY OF WHICH IS ATTACHED AS APPENDIX
B.
SUMMARY OF THE PLAN
TYPE OF STOCK OPTION GRANTS. The 2001 Stock Option Plan provides for the
grant of incentive stock options, within the meaning of Section 422 of the
Internal Revenue Code, and non-qualified options which do not satisfy the
requirements for incentive stock option treatment.
ADMINISTRATION. The 2001 Stock Option Plan is administered by a committee
of the Company's Board of Directors. Subject to the terms of the 2001 Stock
Option Plan and resolutions of the Board, the committee interprets the 2001
Stock Option Plan and is authorized to make all determinations and decisions
thereunder. The committee also determines the participants to whom stock options
will be granted, the type and amount of stock options that will be granted and
the terms and conditions applicable to such grants.
PARTICIPANTS. Officers, directors, employees and independent contractors
of the Company and its subsidiaries are eligible to participate in the 2001
Stock Option Plan.
NUMBER OF SHARES OF COMMON STOCK AVAILABLE. On the date the Board of
Directors adopted the 2001 Stock Option Plan, the Company reserved 125,000
shares of Common Stock (subject to adjustment as provided for in the 2001 Stock
Option Plan) for issuance under the 2001 Stock Option Plan in connection with
the exercise of options. Shares of common stock to be issued under the 2001
Stock Option Plan may be either authorized but unissued shares, or reacquired
shares held by the Company in its treasury. Any shares subject to an award which
expires or is terminated unexercised will again be available for issuance under
the 2001 Stock Option Plan.
STOCK OPTION GRANTS. The exercise price of each incentive stock option or
non-qualified stock option will not be less than the fair market value of a
common stock on the date the incentive stock option or non-qualified stock
option is granted. The aggregate fair market value of the shares for which
incentive
9
<PAGE> 13
stock options granted to any employee under the 2001 Stock Option Plan or any
other stock option plans of the Company may be exercisable for the first time by
such employee during any calendar year (under all stock option plans of the
Company and its subsidiaries) may not exceed $100,000.
Options may be exercised in whole or in part. The exercise price of an
option may be paid in Common Stock of the Company, by the surrender of all or
part of the option being exercised, or in cash or a cash equivalent acceptable
to the Company.
Under the 2001 Stock Option Plan, the Board may permit participants to
transfer options to eligible transferees (as such eligibility is determined by
the Board). Each option may be exercised during the holder's lifetime, and after
death only by the holder's beneficiary or, absent a beneficiary, by the estate
or by a person who acquired the right to exercise the option by will or the laws
of descent and distribution. Options may become exercisable in full at the time
of grant or at such other times and in such installments as the Board determines
or as may be specified in the 2001 Stock Option Plan. Options may be exercised
during periods before and after the participant terminates employment, as the
case may be, to the extent authorized by the Board or specified in the 2001
Stock Option Plan. However, no option may be exercised after the tenth
anniversary of the date the option was granted. The Board may, at any time and
without additional consideration, accelerate the date on which an option becomes
exercisable.
EFFECT OF A CHANGE IN CONTROL. In the event of a change in control (as
defined in the 2001 Stock Option Plan) of the Company, each outstanding stock
option grant will become fully vested and immediately exercisable. In addition,
in the event of a change in control, the 2001 Stock Option Plan provides for the
cash settlement of any outstanding stock option if provision is not made for the
assumption of the options in connection with the change in control.
TERM OF THE 2001 STOCK OPTION PLAN. The 2001 Stock Option Plan was
effective on November 21, 2000, subject to approval by the stockholders of the
Company. The 2001 Stock Option Plan will expire on the tenth anniversary of the
effective date, unless terminated sooner by the Board.
AMENDMENT OF THE 2001 STOCK OPTION PLAN. The Board may amend the 2001
Stock Option Plan without stockholder approval, unless such approval is required
to comply with a tax law or regulatory requirement.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES. The following brief description
of the tax consequences of stock option grants under the 2001 Stock Option Plan
is based on federal income tax laws currently in effect and does not purport to
be a complete description of such federal income tax consequences.
There are no federal income tax consequences either to the optionee or to
the Company upon the grant of an incentive stock option or and non-qualified
stock option. On the exercise of an incentive stock option during employment or
within three months thereafter, the optionee will not recognize any income and
the Company will not be entitled to a deduction, although the excess of the fair
market value of the shares on the date of exercise over the option price is
included in the optionee's alternative minimum taxable income, which may give
rise to alternative minimum tax liability for the optionee. Generally, if the
optionee disposes of shares acquired upon exercise of an incentive stock option
within two years of the date of grant or one year of the date of exercise, the
optionee will recognize ordinary income, and Company will be entitled to a
deduction, equal to the excess of the fair market value of the shares on the
date of exercise over the option price (limited generally to the gain on the
sale). The balance of any gain or loss will be treated
10
<PAGE> 14
as a capital gain or loss to the optionee. If the shares are disposed of after
the two year and one year holding periods mentioned above, the Company will not
be entitled to any deduction, and the entire gain or loss for the optionee will
be treated as a capital gain or loss.
On exercise of an non-qualified stock option, the excess of the
date-of-exercise fair market value of the shares acquired over the option price
will generally be taxable to the optionee as ordinary income and deductible by
the Company, provided the Company properly withholds taxes in respect of the
exercise. The 2001 Stock Option Plan allows the Committee to require an optionee
to satisfy any withholding tax liability incurred in connection with the
exercise of stock options. This disposition of shares acquired upon the exercise
of a non-qualified stock option will generally result in a capital gain or loss
for the optionee, but will have no tax consequences for the Company.
NEW PLAN BENEFITS
While it is anticipated that awards under the 2001 Stock Option Plan will
be made following the Annual Meeting, the Board has made no specific
determination regarding the size or terms of awards.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" THE ADOPTION OF THE 2001
STOCK OPTION PLAN ATTACHED AS APPENDIX B.
Proposal 3 -- Ratification of Auditors
The Board of Directors has appointed Elliott, Davis & Company, LLP to be
its auditors for the 2001 fiscal year, subject to the ratification by
stockholders. A representative of Elliott, Davis & Company, LLP is expected to
be present at the annual meeting to respond to appropriate questions from
stockholders and will have the opportunity to make a statement should he or she
desire to do so.
If the ratification of the appointment of the auditors is not approved by
a majority of the votes cast by stockholders at the annual meeting, other
independent public accountants will be considered by the Board of Directors. THE
BOARD OF DIRECTORS RECOMMENDS THAT STOCKHOLDERS VOTE "FOR" THE RATIFICATION OF
THE APPOINTMENT OF AUDITORS.
MISCELLANEOUS
The Company will pay the cost of this proxy solicitation. The Company will
reimburse brokerage firms and other custodians, nominees and fiduciaries for
reasonable expenses incurred by them in sending proxy materials to the
beneficial owners of Union Financial common stock. In addition to soliciting
proxies by mail, directors, officers and regular employees of the Company may
solicit proxies personally or by telephone. None of these persons will receive
additional compensation for these activities.
The Company's Annual Report to Stockholders has been mailed to all persons
who were stockholders as of the close of business on December 1, 2000. Any
stockholder who has not received a copy of the Annual Report may obtain a copy
by writing to the Secretary of the Company. The Annual Report is not to be
treated as part of the proxy solicitation material or as having been
incorporated herein by reference.
11
<PAGE> 15
A COPY OF THE COMPANY'S FORM 10-KSB FOR THE FISCAL YEAR ENDED SEPTEMBER
30, 2000, AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION, WILL BE
FURNISHED WITHOUT CHARGE TO ALL PERSONS WHO WERE STOCKHOLDERS AS OF THE CLOSE OF
BUSINESS ON DECEMBER 1, 2000 UPON WRITTEN REQUEST TO CORPORATE SECRETARY, UNION
FINANCIAL BANCSHARES, INC., 203 WEST MAIN STREET, UNION, SOUTH CAROLINA 29379.
STOCKHOLDER PROPOSALS
Proposals that stockholders seek to have included in the proxy statement
for the Company's next annual meeting must be received by the Company no later
than August 24, 2000. However, if the annual meeting is held more than 30
calendar days from January 17, 2002, a stockholder proposal must be received by
a reasonable time before the proxy solicitation materials are mailed to be
included in the proxy statement. Any such proposals will be subject to the
requirements of the proxy rules adopted by the Securities and Exchange
Commission.
The Company's Certificate of Incorporation provides that in order for a
stockholder to make nominations for the election of directors or proposals for
business to be brought before the annual meeting, a stockholder must deliver
notice of such nominations and/or proposals to the Secretary not less than 30
nor more than 60 days prior to the date of the annual meeting; provided that if
less than 31 days' notice of the annual meeting is given to stockholders, such
notice must be delivered not later than the close of the tenth day following the
day on which notice of the annual meeting was mailed to stockholders. A copy of
the Certificate of Incorporation may be obtained from the Company.
BY ORDER OF THE BOARD OF DIRECTORS
/s/ Wanda J. Wells
Wanda J. Wells
CORPORATE SECRETARY
Union, South Carolina
December 22, 2000
12
<PAGE> 16
APPENDIX A
AUDIT COMMITTEE OF THE DATE BOARD APPROVED: 05/16/2000
BOARD OF DIRECTORS AUDIT COMMITTEE DATE APPROVED: 05/17/2000
CHARTER
-------
I. PURPOSE
The primary function of the Audit Committee is to assist the Board of
Directors in fulfilling its oversight responsibilities by reviewing: the
financial reports and other financial information provided by the Corporation to
any governmental body or the public; the Corporation's system of internal
controls regarding finance, accounting, legal compliance and ethics that
management and the Board have established; and the Corporation's auditing,
accounting and financial reporting processes generally. Consistent with this
function, the Audit Committee should encourage continuous improvement of, and
should foster adherence to, the Corporation's policies, procedures and practices
at all levels. The Audit Committee's primary duties and responsibilities are to:
- Serve as an independent and objective party to monitor the Corporation's
financial reporting process and internal control system.
- Review and appraise the audit efforts of the Corporation's independent
accountants and internal audit function.
- Provide an open avenue of communication among the independent
accountants, financial and senior management, the internal audit function,
and the Board of Directors.
The Audit Committee will primarily fulfill these responsibilities by carrying
out the activities outlined in Section IV. of this Charter.
II. COMPOSITION
The Audit Committee shall be comprised of three or more directors as
determined by the Board, each of whom shall be independent directors, and free
from any relationship that, in the opinion of the Board, would interfere with
the exercise of his independent judgement as a member of the Committee. All
members of the Committee shall have a working familiarity with basic finance and
accounting practices, and at least one member of the Committee shall have
accounting or related financial management expertise.
The members of the Committee shall be elected by the Board annually or
until their successor shall be dully elected and qualified. Unless a Chairperson
is elected by the full Board, the members of the Committee may designate a
Chairperson by majority vote of the full Committee membership.
<PAGE> 17
II. MEETINGS
The Committee shall meet at least four times annually, or more frequently
as circumstances dictate. As part of its job to foster open communication, the
Committee should meet at least annually with management and the external
auditors to discuss the internal and external audit functions and any other
matters that the Committee or each of these groups believe should be discussed
privately.
IV. RESPONSIBILITIES AND DUTIES
To fulfill its responsibilities and duties the Audit Committee shall:
Documents/Reports Review
------------------------
1. Review and update this Charter periodically, at least annually, as
conditions dictate.
2. Review the regular internal reports to management prepared by the internal
audit function and management's response.
3. Review the Corporation's audited annual financial statements and the
independent accountants' opinion rendered with respect to such financial
statements, including reviewing the nature and extent of any significant
changes in accounting principles or the application therein.
4. Review and approve requests for any management consulting engagement to be
performed by the Corporation's independent auditor and be advised of any
other study undertaken at the request of management that is beyond the
scope of the audit engagement letter.
5. Review with financial management interim financial reports prior to the
release of earnings. The Chair of the Committee may represent the entire
Committee for the purposes of this review.
Independent Accountants
-----------------------
6. Recommend to the Board of Directors the selection of the independent
accountants, considering independence and effectiveness and approve the
fees and other compensation to be paid to the independent accountants. On
a annual basis, the Committee should review and discuss with the
accountants all significant relationships the accountants have with the
Corporation to determine the accountants independence.
7. Review the performance of the independent accountants and approve any
proposed discharge of the independent accountants when circumstances
warrant.
8. Periodically consult with the independent accountants out of the presence
of management about internal controls and the fullness and accuracy of the
organization's financial statements.
Financial Reporting Process
---------------------------
9. In consultation with the independent accountants and the internal audit
function, review the integrity of the organization's financial reporting
processes, both internal and external.
10. Consider the independent accountant's judgement about the quality and
appropriateness of the Corporation's accounting principles as applied in
its financial reporting.
11. Consider and approve, if appropriate, major changes to the Corporation's
auditing and accounting principles and practices as suggested by the
independent accountants, management, or the internal audit function.
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<PAGE> 18
Process Improvement
-------------------
12. Establish regular and separate systems of reporting to the Audit Committee
by each of management, the independent accountants and the internal audit
function regarding any significant judgements made in management's
preparation of the financial statements and the view of each as to
appropriateness of such judgements.
13. Following completion of the annual audit, review separately with each of
management, the independent accountants, and the internal audit function
any significant difficulties encountered during the course of the audit,
including any restrictions on the scope of work or access to required
information.
14. Review any significant disagreement among management and the independent
accountants or the internal audit function in connection with the
preparation of the financial statements.
15. Review with the independent accountants, the internal audit function and
management the extent to which changes or improvements in financial or
accounting practices, as approved by the Audit Committee, have been
implemented.
Ethical and Legal Compliance
----------------------------
16. Review activities, organizational structure, and qualifications of the
internal audit function.
17. Review all legal compliance matters as they occur.
18. Review any legal matter that could have a significant impact on the
organization's financial statements.
19. Perform any other activities consistent with this Charter, the
Corporation's By-laws and governing law, as the Committee or the Board
deems necessary or appropriate.
20. Review and update periodically a Code of Ethical Conduct to ensure that
the Corporation's financial statements, reports and other financial
information disseminated to governmental organizations, and the public
satisfy legal requirements.
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<PAGE> 19
APPENDIX B
UNION FINANCIAL BANCSHARES, INC.
2001 STOCK OPTION PLAN
1. PURPOSE OF THE PLAN AND TYPES OF AWARDS
a. Union Financial Bancshares, Inc. (the "Company"), a Delaware corporation,
intends for the Union Financial Bancshares, Inc. 2001 Stock Option Plan
(the "Plan") to provide additional incentive to certain valued and trusted
officers, employees, and others who perform services for Union Financial
Bancshares, Inc. and its subsidiary, Provident Community Bank (the
"Bank"), by encouraging these individuals to acquire shares of common
stock of the Company (the "Stock"). The Plan offers them options to
purchase Stock granted pursuant to the Plan ("Options"), thereby
increasing their proprietary interest in the business of the Company and
their personal interest in the continued success and progress of the
Company and the Bank, to the benefit of the Company and its shareholders.
b. The Committee (as described below) will grant Options under the Plan that
are intended either to qualify as incentive stock options ("ISOs") within
the meaning of Section 422 of the Internal Revenue Code of 1986, as
amended (the "Code"), or non-qualified options ("NQOs"). Each individual
granted an option (an "Optionee") under the Plan shall enter into an
agreement with the Company (an "Option Agreement") that sets forth the
terms and conditions of the Option, as determined in accordance with the
Plan.
2. ADMINISTRATION OF THE PLAN
A committee (the "Committee"), composed of two (2) or more members of the Board
of Directors of the Company (the "Board of Directors") who shall be appointed
from time to time by the Board of Directors, shall administer the Plan. If a
Committee is not appointed, the entire Board of Directors shall serve as the
Committee. The Committee shall have sole and absolute power, subject to the
Provisions of the Plan, to take the following actions:
(i) determine the terms and conditions of all options, and construe and
interpret the Plan and any Option Agreement under the Plan;
(ii) determine the time or times an Option may be exercised, the number
of shares that may be exercised at any one time, and when an Option
may terminate;
(iii) establish, amend, and revoke rules and regulations related to the
Plan and its administration, and correct any defect, supply any
omission, or reconcile any inconsistencies in the Plan, or in any
option agreement, in a manner and to the extent necessary;
(iv) determine all questions of policy and expediency that may arise in
the administration of the Plan and exercise such powers and perform
such acts as are deemed necessary and in the best interests of the
Company; and
<PAGE> 20
(v) to the extent permissible by law, allocate or delegate all or any
portion of its powers and responsibilities to one or more of its
members or to any person(s) it selects, subject to further
revocation or modification by the Committee.
All of the determinations and interpretations made by the Committee shall be
conclusive and binding on all Optionees, their legal representatives and
beneficiaries.
3. SHARES SUBJECT TO THE PLAN
Subject to the provisions of Paragraph 13 of the Plan, the Stock issued pursuant
to Options granted under the Plan shall not exceed in the aggregate 125,000
shares. If any Options granted under the Plan terminate, expire or are
surrendered without full exercise, the unpurchased number of shares of Stock
shall once again become available for purposes of the Plan.
4. PERSONS ELIGIBLE FOR OPTIONS
a. All officers, employees, directors and independent contractors of the
Company and its subsidiaries shall be eligible to receive Options under
the Plan. The Committee, or the Board of Directors, shall determine the
individuals to be granted options, the times Options shall be granted, the
types of Options to be granted, the number of shares subject to each
Option, the times when Options may be exercised, and any other terms and
conditions associated with the Options. The Committee may grant ISOs or
NQOs, or both, under the Plan.
b. With regard to the granting of ISOs, no ISO will be granted, and any
attempted grant shall be void, if the aggregate Fair Market Value Per
Share (as defined below), as determined by the Committee at the time of
grant, of the current and all previously granted ISOs exercisable for the
first time by the Optionee during any calendar year (under all plans of
the Company), exceeds $100,000 or such other amount as may be specified in
Section 422(d) of the Code.
5. PURCHASE PRICE
The purchase price of each share of Stock covered by each ISO will equal at
least one hundred percent (100%) of the Fair Market Value Per Share (as defined
below) of the Stock on the date the ISO is granted. However, if at the time an
ISO is granted, the Optionee owns, or will be considered to own by reason of
Section 424(d) of the Code, more than 10% of the total voting power of all
classes of stock of the Company, the purchase price of the Stock will equal at
least one hundred and ten percent (110%) of the Fair Market Value Per Share of
the Stock on the date the ISO is granted. The purchase price of each share of
Stock covered by each NQO shall be set periodically by the Committee; PROVIDED,
however, that the Committee shall set the purchase price for each share of Stock
covered by an Option at the time it grants the Option.
DEFINITION OF FAIR MARKET VALUE PER SHARE. For purposes of this Plan, "Fair
Market Value Per Share" shall mean:
(i) if the Stock is not publicly traded, the amount determined by the
Committee in good faith on the date of grant;
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<PAGE> 21
(ii) if the Stock is traded, but not on a securities exchange and it is
not reported on The Nasdaq National Market ("Nasdaq"), the closing quoted
selling price of the Stock on the date of grant as quoted in the "pink
sheets" published by the National Daily Quotation Bureau;
(iii) if the Stock is traded, but not on a securities exchange, but is
reported on Nasdaq, the closing Nasdaq reported sales price of the Stock
on the date of grant, as reported in the Wall Street Journal; or
(iv) if the Stock is admitted to trading on a securities exchange, the
closing quoted selling price of the Stock on the date of the Option grant,
as reported in the Wall Street Journal.
6. DURATION OF OPTIONS
a. Non-Qualified Options
---------------------
Unless the Committee, in its discretion, determines otherwise, the
duration of Non-Qualified Options shall be as follows:
TERMINATION OF EMPLOYMENT OR SERVICE (GENERAL). Upon termination of
employment or service for reasons OTHER than retirement, disability,
death, or Termination for Cause, the Optionee may exercise only
those NQOs that were immediately exercisable by the Optionee at the
date of termination and only for a period of three (3) months
following the date of termination, or until expiration of the NQOs,
if they expire less than three months from the date of termination.
TERMINATION OF EMPLOYMENT OR SERVICE (RETIREMENT). Upon retirement
(as defined in the Option Agreement) an Optionee may exercise only
those NQOs that were immediately exercisable at the date of
retirement, and only for a period of one (1) year following the date
of retirement, or until expiration of the NQOs, if they expire less
than one year from the date of termination.
TERMINATION OF EMPLOYMENT OR SERVICE (DISABILITY OR DEATH). Upon
termination of employment or service due to disability (as defined
in the Option Agreement) or death, all NQOs held by an Optionee
shall immediately become exercisable and shall remain exercisable
for a period of two (2) years following the date of termination, or
until expiration of the NQOs, if they expire less than two years
from the date of termination.
TERMINATION FOR CAUSE. Upon Termination for Cause (as defined
below), all NQOs held by an Optionee shall expire immediately upon
the effective date of termination.
DEFINITION OF TERMINATION FOR CAUSE. For purposes of this Plan,
"Termination for Cause" shall include termination because of:
personal dishonesty, incompetence, willful misconduct, breach of
fiduciary duty involving personal profit, intentional failure to
perform stated duties, or willful violation of any law, rule, or
regulation (other than traffic violations or similar infractions).
B-3
<PAGE> 22
b. Incentive Stock Options
-----------------------
Unless the Committee, in its discretion, determines otherwise, the
duration of Incentive Stock Options shall be as follows:
TERMINATION OF EMPLOYMENT OR SERVICE (GENERAL). Upon termination of
employment or service for any reason other than retirement,
disability or death, or Termination for Cause, the Optionee may
exercise only those ISOs that were immediately exercisable at the
date of termination and only for a period of three (3) months
following the date of termination, or until expiration of the ISOs,
if they expire in less than three months.
TERMINATION OF EMPLOYMENT (RETIREMENT). Upon retirement (as defined
in the Option Agreement), the Optionee may exercise only those ISOS
immediately exercisable at the date of retirement, and only for a
period of one (1) year following the date of retirement, or until
expiration of the ISOs, if they expire in less than one year.
TERMINATION OF EMPLOYMENT (DISABILITY OR DEATH). Upon termination of
employment or service due to disability (as defined in the Option
Agreement) or death, all ISOs held by the Optionee shall immediately
become exercisable, and shall remain exercisable, for a period of
one (1) year from the date of disability or death, or a shorter
period of time, if they expire in less than one year.
TERMINATION FOR CAUSE. Upon Termination for Cause (defined in the
same manner as above, for NQOs), all rights under the ISOs shall
expire immediately upon the effective date of termination.
c. Duration of Options Upon a Change in Control
--------------------------------------------
Unless the Committee, in its discretion, determines otherwise, and
notwithstanding any contrary provisions in this Plan, upon a Change in
Control, all outstanding options shall be vested and immediately
exercisable as of the effective date of the Change in Control. If the
Company is merged into or consolidated with another corporation, becomes a
subsidiary of another corporation, or sells or otherwise disposes of
substantially all of its assets to another corporation, such Options shall
be canceled as of the effective date of the merger, consolidation, or
sale, and the Optionee shall be paid in cash an amount equal to the
difference between the Fair Market Value of the Stock subject to the
Options on the effective date of the change in control, and the exercise
price of the Options. The foregoing shall apply UNLESS provisions are made
in connection with such transactions for the continuance of the Plan
and/or the assumption or substitution of outstanding Options with new
Options covering the stock of the successor corporation, with appropriate
adjustments as to the number and kinds of shares and prices. However, if
the consummation of a Change in Control is contingent upon the use of
pooling of interests accounting methodology, the Board may, in its
discretion, take any action necessary to preserve the use of pooling of
interests accounting.
DEFINITION OF A CHANGE IN CONTROL. For purposes of this Plan, a Change in
Control means, with respect to the Bank or the Company, an event of a
nature that:
B-4
<PAGE> 23
(i) would be required to be reported in response to Item 1(a) of the
current report on Form 8-K, as in effect on the date hereof,
pursuant to Section 13 or 15(d) of the Securities Exchange Act of
1934, as amended (the "Exchange Act"); or
(ii) results in a Change in Control of the Bank or the Company
within the meaning of the Change in Bank Control Act and the Rules
and Regulations promulgated by the Federal Deposit Insurance
Corporation ("FDIC") at 12 C.F.R. ss. 303.81(c), with respect to the
Bank, and the Rules and Regulations promulgated by the Office of
Thrift Supervision ("OTS") (or its predecessor agency), with respect
to the Company, as in effect on the date thereof.
In addition, and without limitation, a Change in Control shall be deemed
to have occurred at such time as:
(iii) any "person" (as the term is used in Sections 13(d) and 14(d)
of the Exchange Act) is or becomes the "beneficial owner" (as
defined in Rule 13d-3 under the Exchange Act), directly or
indirectly, of voting securities of the Bank or the Company
representing 20% or more of the Bank's or the Company's outstanding
voting securities or right to acquire such securities, except for
any voting securities of the Bank purchased by the Company and any
voting securities purchased by any employee benefit plan of the
Company or its Subsidiaries; or
(iv) individuals who constitute the Board on the date hereof (the
"Incumbent Board") cease for any reason to constitute at least a
majority thereof, provided that any person becoming a director
subsequent to the date hereof whose election was approved by a vote
of at least three-quarters of the directors comprising the Incumbent
Board, or whose nomination for election by the Company's
stockholders was approved by a Nominating Committee solely composed
of members which are Incumbent Board members, shall be considered as
though he were a member of the Incumbent Board, or
(v) a plan of reorganization, merger, consolidation, sale of all or
substantially all the assets of the Bank or the Company or similar
transaction occurs or is effectuated and the Bank or Company is not
the resulting entity, or
(vi) a proxy statement has been distributed by someone other than
the current management of the Company soliciting proxies from
stockholders of the Company and seeking stockholder approval of a
plan of reorganization, merger or consolidation of the Company or
Bank with one or more corporations, and as a result the outstanding
shares of the class of securities subject to such plan or
transaction are exchanged for or converted into cash, property or
securities not issued by the Bank or the Company, or
(vii) a tender offer is made for 20% or more of the then outstanding
voting securities of the Bank or Company.
B-5
<PAGE> 24
7. EXERCISE OF OPTIONS
An Option may be exercised in installments or upon such other terms as the
Committee shall determine when the Option is granted. As a condition of the
exercise of any option, the Committee may require the Optionee to pay, in
addition to the purchase price of the Stock covered by the Option, any Federal,
state, local and foreign taxes to be withheld in connection with the exercise of
the Option. The Committee may also authorize the Company's officers to establish
procedures whereby an Optionee can satisfy withholding tax liability incurred
upon exercise of the Option by authorizing the Company to retain upon exercise
the number of shares (based on the Fair Market Value Per Share as determined by
the Committee) necessary to satisfy the withholding tax due.
8. METHOD OF EXERCISE
a. When the right to purchase shares accrues or vests, the Optionee may
exercise Options by giving written notice to the Company stating the
number of shares for which the Option shall be exercised. The written
notice must be accompanied by payment in full, in cash or an equivalent
form acceptable to the Company, of the entire price for the shares to be
purchased, and, if applicable, any required Federal, state, local and
foreign withholding taxes, in accordance with the provisions of Paragraph
7 of this Plan. The Committee may, from time to time, establish or direct
additional or different procedures or requirements for the exercise of
Options.
b. The Committee, in its discretion, may allow payment of the purchase price
for the shares to be made in whole or in part with other shares of Stock
of the Company that are free and clear of all liens and encumbrances. The
value of the shares of Stock tendered in payment shall be the Fair Market
Value Per Share on the date the Optionee provides written notice of intent
to exercise the Options.
c. Notwithstanding paragraph 8(b), The Company reserves the right to postpone
the time of delivery of the shares for as long as necessary for the
Company, with reasonable diligence, to comply with any applicable listing
requirements of any national securities exchange, Nasdaq or Federal,
state, local or foreign laws. If the Optionee, or another person entitled
to exercise the Option, fails to timely accept delivery of and pay for the
shares specified in the written notice of intent to exercise an Option or
Option(s), the Committee shall have the right to terminate the Option(s)
with respect to those shares.
d. Each Option Agreement pertaining to an ISO shall require the Optionee to
notify the Committee within ten (10) days of any disqualifying disposition
of Stock issued pursuant to the exercise of such Option, under the
circumstances described in Section 421(b) of the Code.
9. TRANSFERABILITY OF OPTIONS
Unless the Committee determines otherwise, the Optionee may not transfer or
assign any Option granted under the Plan, either voluntarily or by operation of
law, other than by will or the laws of descent and distribution. During the
lifetime of the Optionee, only the Optionee may exercise Options granted under
this Plan.
B-6
<PAGE> 25
10. CONTINUANCE OF EMPLOYMENT OR SERVICE
No provision of this Plan or any Option Agreement shall confer upon an Optionee
any rights to continue employment or service with the Company, or to interfere
in any way with the Company's right (subject to any contrary terms of a separate
employment agreement) to terminate employment or service, or to increase or
reduce the compensation of the Optionee, at any time.
11. RESTRICTIONS ON SHARES
If counsel advises the Company that certain requirements of Federal, state or
foreign securities laws must be met before Stock may be issued under this Plan,
the Company shall notify all persons who were issued Options. The Company shall
not be liable for failure to issue Stock under any Option exercise because of a
delay in compliance, or an inability to comply, with these legal requirements.
12. PRIVILEGES OF STOCK OWNERSHIP
No person entitled to exercise any Option to purchase shares of Stock granted
under the Plan shall have the rights or privileges of a shareholder of the
Company until such person has become the record holder of the shares. No
adjustment shall be made for dividends or other rights if the record date is
prior to the date on which that person became the holder of record, except as
provided in Paragraph 13 of this Plan.
13. ADJUSTMENT
a. If the number of outstanding shares of Stock of the Company increases or
decreases, or outstanding shares are exchanged for a different number or
kind of shares of securities of the Company through reorganization,
merger, recapitalization, reclassification, stock dividend, stock split,
reverse stock split, combination of shares, or similar transaction, the
Committee shall appropriately and proportionately adjust the aggregate
number of shares of Stock subject to the Plan as provided in Paragraph 3,
the maximum number of shares under Options that may be granted during any
calendar year as specified in paragraph 4(a), and the shares subject to
issued and outstanding Options under the Plan. The Committee shall make
adjustments without changing the aggregate purchase price applicable to
the unexercised portion of the Option, but instead shall change the price
for each share or other unit of any security covered by the Option. If the
Committee determines that any dividend or distribution (whether in the
form of cash, shares of Stock, other securities, or other property),
recapitalization, stock split, reverse stock split, reorganization,
merger, consolidation, split-up, spin- off, combination, repurchase,
exchange of shares of Stock or other securities of the Company, issuance
of warrants, issuance of other rights to purchase shares of Stock or other
securities of the Company, or similar transaction or event affects the
shares of Stock, other securities or property then covered by an Option,
such that an adjustment other than as provided for in this subparagraph
(a) is appropriate in order to prevent dilution or enlargement of the
benefits or potential benefits under the Plan and Options granted
thereunder, the Committee shall, in a manner it deems equitable, adjust
any or all of:
(i) the number and kind of shares of stock (or other securities or
property) which thereafter may be made the subject of Options;
B-7
<PAGE> 26
(ii) the number and kind of shares of stock (or other securities or
property) subject to outstanding Options;
(iii) the purchase price with respect to any outstanding Options,
or, if deemed appropriate, the Committee shall make a cash payment
to the holders of outstanding Options; and
(iv) the aggregate number of shares of Stock or number and kind of
other securities or property subject to the Plan and the maximum
number of shares or other securities or property under Options that
may be granted to an Optionee during any calendar year as specified
in Paragraph 4(a) of the Plan.
b. The Committee shall make any necessary adjustments under this Paragraph
13. The Committee's determination as to adjustments to be made, and their
extent, shall be final, binding and conclusive. No fractional shares of
Stock shall be issued, however, under the Plan or in connection with any
adjustment.
14. AMENDMENT AND TERMINATION OF THE PLAN
a. The Board of Directors may, from time to time, suspend or terminate the
Plan, or amend or revise the terms of the Plan or any Option Agreements.
However, to the extent it is required to do so by applicable law or rule,
the Board of Directors will submit an amendment for approval by a majority
of votes cast at a meeting of shareholders, at which a quorum representing
a majority of the Stock is present in person or by proxy, or to such other
vote as required by the applicable law or rule.
b. Subject to the provisions of Paragraph 13, no amendment, suspension, or
termination of this Plan or any Option Agreement shall, without the
consent of the Optionee, adversely affect the rights of such Optionee
under any Option previously granted under the Plan.
15. EFFECTIVE DATE OF THE PLAN
The Plan shall become effective upon adoption by the Board of Directors, subject
to approval by a majority of shareholders of the Company present or represented
by proxy at a meeting of the shareholders occurring within twelve (12) months of
the date of Board adoption. Options may be granted under the Plan prior to the
date of shareholder approval; PROVIDED, HOWEVER, that they will be null and void
if shareholder approval is not obtained.
16. TERM OF THE PLAN
No Options shall be granted more than 10 years after the effective date of the
Plan.
17. GOVERNING LAW
The Plan shall be governed by, and construed in accordance with, the laws of the
State of Delaware, except to the extent that Federal law is deemed to apply.
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<PAGE> 27
UNION FINANCIAL BANCSHARES, INC.
ANNUAL MEETING OF STOCKHOLDERS
JANUARY 17, 2001
-------------------------------
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned hereby appoints the Board of Directors, with full power of
substitution, to act as proxy for the undersigned, and to vote all shares of
common stock of Union Financial Bancshares, Inc. (the "Company") owned of record
by the undersigned at the Annual Meeting of Stockholders, to be held on January
17, 2001, at 2:00 p.m., local time, in the University of South Carolina
Auditorium, Union Campus at East Main Street, Union, South Carolina, and at any
and all adjournments thereof, as designated below with respect to the matters
set forth below and described in the accompanying Proxy Statement and, in their
discretion, for the election of a person to the Board of Directors if any
nominee named herein becomes unable to serve or for good cause will not serve
and with respect to any other business that may properly come before the
meeting. Any prior proxy or voting instructions are hereby revoked.
1. The election as directors of all nominees listed (except as marked
to the contrary below).
Mason G. Alexander James W. Edwards
FOR ALL
FOR VOTE WITHHELD EXCEPT
--- ------------- ------
|_| |_| |_|
INSTRUCTION: To withhold your vote for any individual nominee, mark "FOR ALL
EXCEPT" and write that nominee's name in the space provided below.
--------------------------------------------------------------------------------
2. The ratification of the Union Financial Bancshares, Inc. 2001 Stock
Option Plan.
FOR AGAINST ABSTAIN
--- ------- -------
|_| |_| |_|
3. The ratification of the appointment of Elliott, Davis & Company, LLP
as independent auditors for the Company for the fiscal year ending
September 30, 2001.
FOR AGAINST ABSTAIN
--- ------- -------
|_| |_| |_|
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR"
EACH OF THE LISTED PROPOSALS.
<PAGE> 28
THIS PROXY IS SOLICITED BY THE BOARD OF DIRECTORS
THIS PROXY WILL BE VOTED AS DIRECTED, BUT IF NO INSTRUCTIONS ARE
SPECIFIED, THIS PROXY WILL BE VOTED "FOR" EACH OF THE PROPOSALS LISTED. IF ANY
OTHER BUSINESS IS PRESENTED AT THE MEETING, INCLUDING WHETHER OR NOT TO ADJOURN
THE MEETING, THIS PROXY WILL BE VOTED BY THE PROXIES IN THEIR BEST JUDGMENT. AT
THE PRESENT TIME, THE BOARD OF DIRECTORS KNOWS OF NO OTHER BUSINESS TO BE
PRESENTED AT THE ANNUAL MEETING.
The above-signed acknowledges receipt from the Company prior to the
execution of this proxy of a Notice of Annual Meeting of Stockholders, a Proxy
Statement dated December 22, 2000 and the Annual Report to Stockholders.
Please sign exactly as your name appears on this card. When signing as
attorney, executor, administrator, trustee or guardian, please give your full
title. If shares are held jointly, each holder may sign but only one signature
is required.
Dated:___________________________
--------------------------------
STOCKHOLDER SIGN ABOVE
--------------------------------
CO-HOLDER (IF ANY) SIGN ABOVE
-----------------------------
PLEASE COMPLETE, DATE, SIGN AND PROMPTLY MAIL THIS PROXY
IN THE ENCLOSED POSTAGE-PAID ENVELOPE.
