Piedmont Bancorp, Inc.
260 South Churton Street
Hillsborough, North Carolina 27278
(919) 732-2143
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
To Be Held on November 12, 1997
NOTICE IS HEREBY GIVEN that the annual meeting (the "Meeting") of the
stockholders of Piedmont Bancorp, Inc. (the "Company") will be held on November
12, 1997 at 6:00 p.m., Eastern Time, at the offices of the Company at 260 South
Churton Street, Hillsborough, North Carolina 27278.
The Meeting is for the purpose of considering and voting upon the
following matters:
1. To elect three persons who will serve as directors of the Company
until the 2000 Annual Meeting of Stockholders or until their
successors are duly elected and qualify;
2. To ratify the selection of KPMG Peat Marwick LLP as the
independent auditor for the Bank for the fiscal year ending June
30, 1998;
3. To transact such other business as may properly come before the
Meeting or any adjournments thereof. The Board of Directors is
not aware of any other business to be considered at the Meeting.
The Board of Directors has established September 15, 1997 as the record
date for the determination of stockholders entitled to notice of and to vote at
the Meeting and at any adjournments thereof. In the event there are not
sufficient shares present in person or by proxy to constitute a quorum at the
time of the Meeting, the Meeting may be adjourned in order to permit further
solicitation of proxies by the Company.
By Order of the Board of Directors
/s/Peggy S. Walker
------------------
Peggy S. Walker
Secretary
Hillsborough, North Carolina
October 3, 1997
A form of proxy is enclosed to enable you to vote your shares at the Meeting.
You are urged, regardless of the number of shares you hold, to complete, sign,
date and return the proxy promptly. A return envelope, which requires no postage
if mailed in the United States, is enclosed for your convenience.
<PAGE>
Piedmont Bancorp, Inc.
PROXY STATEMENT
ANNUAL MEETING OF STOCKHOLDERS
November 12, 1997
SOLICITATION, VOTING AND REVOCABILITY OF PROXIES
General
This Proxy Statement is being furnished to stockholders of Piedmont
Bancorp, Inc. (the "Company") in connection with the solicitation by the board
of directors of the Company (the "Board of Directors") of proxies to be used at
an annual meeting of stockholders (the "Meeting") to be held on November 12,
1997, at 6:00 p.m., Eastern Time, at the offices of the Company at 260 South
Churton Street, Hillsborough, North Carolina, and at any adjournments thereof.
This Proxy Statement and the accompanying form of proxy were first mailed to
stockholders on October 3, 1997. The Company's office is located at 260 South
Churton Street, Hillsborough, North Carolina, 27278, and its telephone number is
(919) 732-2143.
Other than the matters listed on the attached Notice of 1997 Annual
Meeting of Stockholders, the Board of Directors knows of no matters that will be
presented for consideration at the Meeting. Execution of a proxy, however,
confers on the designated proxyholders discretionary authority to vote the
shares represented thereby in accordance with their best judgment on such other
business, if any, that may properly come before the Meeting or any adjournments
thereof.
Revocability of Proxy
A proxy may be revoked at any time prior to its exercise by the filing
of a written notice of revocation with the Secretary of the Company, by
delivering to the Company a duly executed proxy bearing a later date, or by
attending the Meeting and voting in person. However, if you are a stockholder
whose shares are not registered in your own name, you will need appropriate
documentation from your recordholder to vote personally at the Meeting.
Solicitation
The cost of solicitation of proxies on behalf of the Board of Directors
will be borne by the Company. Proxies may be solicited personally or by
telephone by directors, officers, and regular employees of the Company and its
wholly-owned savings bank subsidiary, Hillsborough Savings Bank, Inc., SSB (the
"Bank"), without additional compensation therefor. The Company will also request
persons, firms, and corporations holding shares in their names, or in the name
of their nominees, which are beneficially owned by others, to send proxy
material to, and obtain proxies from, such beneficial owners and will reimburse
such holders, upon request, for their reasonable out-of-pocket expenses in doing
so.
Voting Securities and Vote Required for Approval
Regardless of the number of shares of the Company's common stock (the
"Common Stock") owned, it is important that stockholders be represented by proxy
or be present in person at the Meeting. Stockholders are requested to vote by
<PAGE>
completing the enclosed form of proxy and returning it signed and dated in the
enclosed postage-paid envelope. Any stockholder may vote for, against, or
withhold authority to vote with respect to any matter to come before the
Meeting. If the enclosed proxy is properly completed, signed, dated, and
returned, and not revoked, it will be voted in accordance with the instructions
therein. If no instructions are given, the proxy will be voted for the nominees
for election to the Board of Directors named in this Proxy Statement and for the
other matters described in this Proxy Statement calling for a vote of the
shareholders. If instructions are given with respect to some but not all
proposals, such instructions as are given will be followed, but the proxy will
be voted for the proposals on which no instructions are given.
The securities which may be voted at the Meeting consist of shares of
Common Stock, with each share entitling its owner to one vote on all matters to
be voted on at the Meeting. The close of business on September 15, 1997, has
been fixed by the Board of Directors as the record date ("Record Date") for the
determination of stockholders of record entitled to notice of and to vote at the
Meeting and any adjournments thereof. The total number of shares of Common Stock
outstanding on the Record Date was 2,750,800.
The presence, in person or by proxy, of the holders of at least the
majority of the total number of shares of Common Stock entitled to vote at the
Meeting is necessary to constitute a quorum at the Meeting. Since many of our
stockholders cannot attend the Meeting, it is necessary that a large number be
represented by proxy. Accordingly, the Board of Directors has designated proxies
to represent those stockholders who cannot be present in person and who desire
to be so represented. In the event there are not sufficient stockholders
present, in person or by proxy, to constitute a quorum or to approve any
proposal at the time of the Meeting, the Meeting may be adjourned in order to
permit the further solicitation of proxies.
In the election of directors, a nominee need only receive a plurality
of the votes cast in the election of directors in order to be elected. As a
result, those persons nominated who receive the largest number of votes in each
class will be elected as directors. Accordingly, shares not voted for any reason
respecting any one or more nominees, including abstentions, will not be counted
as votes against such nominees. No shareholder has the right to cumulatively
vote his or her shares in the election of directors.
The proposal to ratify the appointment of the Company's independent
auditor for the fiscal year ending June 30, 1998, will be approved if the votes
cast in favor of the proposal exceed the votes cast opposing the proposal.
Shares not voted for any reason respecting the appointment of KPMG Peat Marwick
LLP will not be counted as a vote against such appointment.
Abstentions will be counted for purposes of determining whether a
quorum is present at the Meeting. Broker non-votes will not be counted either
for determining the existence of a quorum or for tabulating votes cast on any
proposal.
Proxies solicited hereby will be returned to the Board of Directors,
and will be tabulated by one or more inspectors of election designated by the
Board of Directors.
<PAGE>
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
The Securities Exchange Act of 1934, as amended (the "Exchange Act"),
requires that any person who acquires the beneficial ownership of more than five
percent of the Common Stock of the Company notify the Securities and Exchange
Commission (the "SEC") and the Company. Following is certain information, as of
the Record Date, regarding all persons or groups, as defined in the Exchange
Act, who are known to the Company to own beneficially more than five percent of
the Company's Common Stock.
<TABLE>
<CAPTION>
Amount and Percentage
Nature of of
Name and Address Beneficial Ownership Class(1)
- ---------------- -------------------- --------
<S> <C> <C>
Alfred L. Carr 218,134 (2) 7.93%
Director of the Bank and Company
P.O. Box 435
Hillsborough, North Carolina 27278
M. Marion Clark 229,006 (2,3) 8.33%
Chairman of Board of Directors of the
Bank and Company
P.O. Box 185
Hillsborough, North Carolina 27278
William Larry Rogers 231,650 (2,4) 8.42%
Director of the Bank and Company
5500 Corbett Ridge Road
Mebane, North Carolina 27302-8512
- ------------------------------
(1) Based upon a total of 2,750,800 shares of Common Stock outstanding at the
Record Date.
(2) Includes 4,534 shares of restricted stock awarded under the Management
Recognition Plan on August 29, 1996. The number stated also includes 82,681
unallocated and 128,919 allocated shares held by the Bank's Employee Stock
Ownership Plan. Mr. Carr, M. Marion Clark and William Larry Rogers are
trustees of such plan and share certain voting and investment power over
such shares.
(3) Includes 2,620 shares held indirectly by spouse for which Mr. Clark
disclaims beneficial ownership.
(4) Includes 3,092 shares held by spouse for which Mr. Rogers shares voting and
investment power.
</TABLE>
<PAGE>
Set forth below is certain information, as of the Record Date,
regarding those shares of Common Stock owned beneficially by each of the members
of the Board of Directors of the Company, each of the members of the Board of
Directors of the Bank, each of the executive officers of the Company and the
Bank, and the directors and executive officers of the Company and the Bank as a
group.
<TABLE>
<CAPTION>
Amount and Nature Percentage
Name and Address of Beneficial Ownership(1,2) of Class(3)
- ---------------- ---------------------------- -----------
<S> <C> <C>
M. Marion Clark 229,006 (4,5) 8.33%
Chairman of Board of Directors of the
Bank and Company
P.O. Box 185
Hillsborough, NC 27278
Robert B. Nichols, Jr. 15,434 (5,6) 0.56%
Vice Chairman of Board of Directors
of the Bank and Company
4304 NC 86 North
Hillsborough, NC 27278
Alfred L. Carr 218,134 (5,7) 7.93%
Director of the Bank and Company
P.O. Box 435
Hillsborough, NC 27278
Everett H. Kennedy 24,534 (5) 0.89%
Director of the Bank and Company
120 South Churton St.
Hillsborough, NC 27278
Donald W. Pope 9,534 (5) 0.35%
Director of the Bank and Company
7201 Efland-Cedar Grove Rd.
Cedar Grove, NC 27231
James P. Ray 31,195 (5,8) 1.13%
Director of the Bank and Company
P.O. Box 759
Hillsborough, NC 27278
William Larry Rogers 231,650 (5,9) 8.42%
Director of the Bank and Company
5500 Corbett Ridge Rd.
Mebane, NC 27302-8512
D. Tyson Clayton 54,653 (10) 1.99%
Director of Bank and Company and
President of Bank and Company
318 Crawford Rd.
Hillsborough, NC 27278
<PAGE>
<CAPTION>
Amount and Nature Percentage
Name and Address of Beneficial Ownership(1,2) of Class(3)
- ---------------- ---------------------------- -----------
<S> <C> <C>
Peggy S. Walker 41,396 (11) 1.50%
Director of Bank and Company,
Secretary of Company, and
Executive Vice President and
Secretary of Bank
3626 NC 57
Hillsborough, NC 27278
Directors and Executive Officers 414,518 (12) 15.08%
as a Group (11 Persons)
- ---------------
(1) Voting and investment power is not shared unless otherwise indicated.
(2) Unless otherwise noted, all shares directly of record by the named
individuals, by their spouses and minor children, or by other entities
controlled by the named individuals.
(3) Based upon a total of 2,750,800 shares of Common Stock outstanding at the
Record Date.
(4) Includes 2,620 shares held indirectly by spouse for which Mr. Clark
disclaims beneficial ownership. Also includes 82,681 unallocated and
128,919 allocated shares held by the Bank's Employee Stock Ownership Plan.
Mr. Clark, Alfred L. Carr and William Larry Rogers are trustees of such
plan and share certain voting and investment power over such shares.
(5) Includes 4,534 shares of restricted stock awarded under the Management
Recognition Plan on August 29, 1996.
(6) Includes 2,500 shares held by spouse for which Mr. Nichols shares voting
and investment power.
(7) The number stated includes 82,681 unallocated and 128,919 allocated shares
held by the Bank's Employee Stock Ownership Plan. Mr. Carr, M. Marion Clark
and William Larry Rogers are trustees of such plan and share certain voting
and investment power over such shares.
(8) Includes 6,206 shares held by spouse for which Mr. Ray shares voting and
investment power.
(9) Includes 3,092 shares held by spouse for which Mr. Rogers shares voting and
investment power. The number stated includes 82,681 unallocated and 128,919
allocated shares held by the Bank's Employee Stock Ownership Plan. Mr.
Rogers, Alfred L. Carr and M. Marion Clark are trustees of such plan and
share certain voting and investment power over such shares.
(10) Includes 1,315 shares held by spouse for which Mr. Clayton shares voting
and investment power. Includes 12,445 shares of restricted stock awarded
under the Management Recognition Plan on August 29, 1996. Includes 15,706
shares allocated to Mr. Clayton under the Hillsborough Savings Bank, Inc.,
SSB Employee Stock Ownership Plan.
<PAGE>
(11) Includes 11,048 shares of restricted stock awarded under the Management
Recognition Plan on August 29, 1996. Includes 15,612 shares allocated to
Ms. Walker under the Hillsborough Savings Bank, Inc., SSB Employee Stock
Ownership Plan.
(12) Includes 68,731 shares of restricted stock awarded to directors and
executive officers under the Management Recognition Plan on August 29,
1996. The number stated also includes 82,681 unallocated and 128,919
allocated shares held by the Bank's Employee Stock Ownership Plan.
</TABLE>
COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT OF 1934
Section 16(a) of the Exchange Act requires the Company's executive
officers and directors, and persons who own more than ten percent of the Common
Stock, to file reports of ownership and changes in ownership with the SEC.
Executive officers, directors and greater than ten percent beneficial owners are
required by SEC regulations to furnish the Company with copies of all Section
16(a) forms they file.
Based solely on a review of the copies of such forms furnished to the
Company and written representations from the Company's executive officers and
directors, the Company believes that during the fiscal year ended June 30, 1997,
all but three of its executive officers and directors and greater than ten
percent beneficial owners complied with all applicable Section 16(a) filing
requirements. Mr. Ted R. Laws, Vice President, and Mr. Eric J. Schuppenhauer,
Treasurer, filed a late Form 3 on June 27, 1997, reflecting their appointment as
executive officers of the Company in March of 1997. Gina B. Riggins, the former
Treasurer of the Company who resigned on March 10, 1997, filed a late Form 4 on
August 27, 1997 reflecting the forfeiture of 6,488 shares of restricted stock
awarded under the Bank's Management Recognition Plan and the sale of a total of
8,575 shares of Common Stock between May 13, 1997 and July 27, 1997.
PROPOSAL 1
ELECTION OF DIRECTORS
The Articles of Incorporation of the Bank provide that the number of
directors of the Bank shall not be less than five nor more than fifteen. The
exact number of directors shall be fixed or changed from time to time by the
Board of Directors. The Board of Directors has currently fixed the size of the
Board at nine members.
So long as the total number of directors is nine or more, the directors
shall be divided into three classes, as nearly equal as possible in number as
may be to serve in the first instance for terms of one, two and three years,
respectively, from the date such class of directors takes office or until their
earlier death, resignation, retirement, removal or disqualification or until
their successors shall be elected and shall qualify. As a result, there is one
class of directors to be elected at the Meeting for a three year term.
The Board of Directors has nominated the three persons named below for
election as directors to serve for the term specified or until their earlier
death, resignation, retirement, removal or disqualification or until their
successors shall be elected and shall qualify.
<PAGE>
The persons named in the accompanying form of proxy intend to vote any
shares of Common Stock represented by valid proxies received by them to elect
the three nominees listed below as directors for the terms specified, unless
authority to vote is withheld or such proxies are revoked. Each of the nominees
for election is currently a member of the Board of Directors. In the event that
any of the nominees should become unavailable to accept nomination or election,
it is intended that the proxyholders will vote to elect in his stead such other
person as the present Board of Directors may recommend. The present Board of
Directors has no reason to believe that any of the nominees named herein will be
unable to serve if elected to office.
In order to be elected as a director, a nominee need only receive a
plurality of the votes cast. As a result, the three nominees who receive the
largest number of votes will be elected as directors. Accordingly, shares not
voted for any reason respecting any one or more nominees will not be counted as
votes against such nominees.
The Board of Directors recommends a vote FOR all of the following
nominees for election as directors.
The following table sets forth as to each nominee for the term ending
as of the 2000 Annual Meeting of Stockholders, his or her name, age, principal
occupation during the last five years and the year he or she was first elected
as a director.
<TABLE>
<CAPTION>
Director
of the
Age on Principal Occupation During Company
Name June 30, 1997 Last Five Years Since
---- ------------- --------------- -----
<S> <C> <C> <C>
Everett H. Kennedy 70 Retired, formerly owner and 1962
operator of Kennedy's Realty
William L. Rogers 53 Farmer 1981
Peggy S. Walker 59 Executive Vice President and 1991
Secretary of the Bank
</TABLE>
Board of Directors of the Bank
The Bank currently has a nine-member board of directors which is
composed of the same persons who are now directors of the Company.
Board Meetings and Committees
The Company's Board of Directors met ten times in the fiscal year ended
June 30, 1997. The Bank's board of directors has regular meetings twice each
month, and held 27 regular and special meetings in the fiscal year ended June
30, 1997. The Company's Board of Directors has also established one standing
committee--an Audit Committee. No director attended fewer than 75% of the total
number of Company or Bank board meetings, and committee meetings of the
Company's Board of Directors on which he served, during the year ended June 30,
1997.
<PAGE>
The Company's Audit Committee is composed of directors Kennedy, Pope
and Carr. This committee is responsible for retaining internal and independent
auditors, overseeing the adequacy of internal control, insuring compliance with
the Company's policies and procedures and with generally accepted accounting
principles. During the fiscal year ended June 30, 1997, the Audit Committee met
two times.
In addition, the full Board of Directors acts as a nominating committee
each year prior to the annual meeting of stockholders to nominate persons for
election to the Board of Directors. The Company's Bylaws provide that, in order
to be eligible for consideration at the annual meeting of stockholders, all
nominations of directors, other than those made by the Company's Board of
Directors, must be made in writing and must be delivered to the Secretary of the
Company not less than 30 days nor more than 50 days prior to the meeting at
which such nominations will be made; provided, however, if less than 21 days
notice of the meeting is given to stockholders, such nominations must be
delivered to the Secretary of the Company not later than the close of business
on the seventh day following the day on which the notice of meeting was mailed.
The Bank's board of directors has appointed five other standing
committees to which certain responsibilities have been delegated--the Loan
Committee, the Community Reinvestment Act Committee, the Personnel Committee,
the Environmental Committee and the Business Plan Committee. The Board of
Directors and the Bank's board of directors appoint other committees of its
members to perform certain more limited functions from time to time and have
appointed committees to administer the various employee and director benefit
plans which have been established by the Company and the Bank.
Director Compensation
Board Fees. Members of the Board of Directors receive no fees or
compensation for serving on the Board of Directors of the Company. However, all
members of the Company's Board of Directors are also directors of the Bank.
During fiscal year 1997, each member of the Bank's board of directors received
directors' fees of $900 per month, and an additional fee of $450 for each
special meeting attended. In addition, all non-employee directors who serve on
the Bank's Audit Committee received $25 per hour for their service. In addition
to his Bank board fees, M. Marion Clark, Chairman of the Bank's and Company's
Board of Directors, was paid $12,000 for his services to the Bank, including his
services as a member of the Bank's Loan Committee.
Deferred Compensation Agreements. The Bank has entered into deferred
compensation agreements with several of its directors. Under such arrangements,
the directors waived immediate receipt of their directors' fees for various
periods of time in exchange for the Bank's agreement to pay to the directors
amounts over a specified period of time upon the directors reaching an age set
forth in the agreement. Benefits are also payable to a director or to his
designated beneficiary upon the director's death (either before or after normal
deferred payments have begun) or upon termination of service as a director. The
Bank has purchased life insurance policies of which it is the beneficiary in
order to fund the deferred compensation benefits. The total expense related to
the deferred compensation arrangements was approximately $73,000 in the fiscal
year ending June 30, 1997.
Stock Option Plan. See "Management Compensation--Stock Option Plan" for
a discussion of the stock options granted to members of the Board of Directors
under the Piedmont Bancorp, Inc. Stock Option Plan (the "Stock Option Plan").
<PAGE>
Management Recognition Plan. See "Management Compensation--Management
Recognition Plan" for a discussion of the restricted stock awards made to
members of the Board of Directors under the Hillsborough Savings Bank, Inc., SSB
Management Recognition Plan (the "MRP").
Executive Officers
The following table sets forth certain information with respect to the
persons who are executive officers of either the Company or the Bank or both.
<TABLE>
<CAPTION>
Employed By
Age on Positions and Occupations the Bank or the
Name June 30, 1997 During Last Five Years Company Since
- ---- ------------- ------------------------ -------------
<S> <C> <C> <C>
D. Tyson Clayton 59 President of the Company and 1972
the Bank
Peggy S. Walker 59 Secretary of the Company and 1961
Bank Executive Vice
President and Secretary;
Personnel and Operations
Manager; previously Vice
President
Eric J. Schuppenhauer 27 Treasurer of the Company and 1997
Bank Vice President and
Chief Financial Officer;
Certified Public Accountant
with KPMG Peat Marwick
LLP from July 1992 through
February 1997
Ted R. Laws 39 Vice President of the 1997
Company and Bank and Chief
Lending Officer of the Bank;
Vice President, Mortgage
Lending, Guaranty State
Bank, from February 1994 to
March 1997; Vice President,
Commercial Lending, BB&T,
from March 1993 to February
1994; Senior Vice President,
Mortgage Lending, Security
Federal, from October 1986 to
March 1993
</TABLE>
<PAGE>
Management Compensation
Summary Compensation Table. The executive officers of the Company are
not paid any cash compensation by the Company. However, the executive officers
of the Company are also executive officers of the Bank and receive cash
compensation from the Bank. The following table shows, for the fiscal years
ending June 30, 1997 and 1996, the cash compensation paid by the Bank, as well
as certain other compensation paid or accrued for those years, to (i) the Chief
Executive Officer of the Bank and (ii) all other executive officers of the Bank
whose cash compensation exceeded $100,000 in fiscal 1997 (there were none), for
services in all capacities.
<TABLE>
<CAPTION>
Annual Compensation Long Term Compensation Awards
-------------------------------------- -------------------------------------
Securities Underlying
Restricted Options/Stock
Name and Other Annual Stock Appreciation Rights All Other
Principal Position Year Salary Bonus Compensation(2) Awards ("SARs") (in shares) Compensation(1)
- ------------------ ------ ------ ----- --------------- -------- -------------------- ---------------
<S> <C> <C> <C> <C> <C> <C> <C>
D. Tyson Clayton, 1997 $96,862 $10,250 $91,000(3) $186,675(4) 44,444/0(5) $174,577
President and Director 1996 $91,905 $10,000 0 0 0/0 $ 20,484
- -----------
(1) Includes (a) directors' fees of $10,800 and $12,150, (b) $0 and $692
contributed to the Bank's defined contribution retirement plan for Mr.
Clayton, (c) $2,673 and $2,958 contributed to the Bank's 401(k)
retirement plan for Mr. Clayton, and (d) $161,104 and $4,684
contributed to the Bank's ESOP for Mr. Clayton, during fiscal 1997 and
1996, respectively. A total of 15,706 shares of Common Stock, with a
market value of $160,986.50 or $10.25 per share as of June 30, 1997,
were allocated to Mr. Clayton under the ESOP during fiscal 1997 and
1996.
(2) Perquisites on other personal benefits, securities, or property for the
fiscal years ended June 30, 1997 and 1996, did not exceed the lesser of
$50,000 or 10% of total salary and bonus as reported for Mr. Clayton.
(3) Represents cash dividends paid to Mr. Clayton pursuant to the Bank's
Management Recognition Plan.
(4) Pursuant to the Bank's Management Recognition Plan, Mr. Clayton has
been awarded 12,445 shares of the Common Stock which had a market value
of $15.00 per share on the date of grant (August 29, 1996) and $10.25
per share as of June 30, 1997, or a total value of $127,561 on June 30,
1997. These shares will vest 20% on August 29, 1997 and 20% each year
thereafter until all such shares are vested on August 29, 2001. Mr.
Clayton has all rights of ownership with respect to such shares,
including the right to receive dividends.
(5) These options, granted pursuant to the Company's Stock Option Plan,
entitle Mr. Clayton to purchase, at any time after vesting and before
January 22, 2007, shares of the Common Stock in exchange for an
exercise price of $9.25 per share, which was the fair market value of
the shares on the date of grant. These shares will vest 20% on January
22, 1998 and 20% each year thereafter until all such options are vested
on January 22, 2002. Options become 100% vested upon death or
disability.
</TABLE>
<PAGE>
Bonus Compensation. For many years, the Bank has paid bonuses to its
employees in amounts determined in the discretion of the Board of Directors. The
Bank anticipates that discretionary bonuses will continue to be paid to its
employees in the future.
401(k) Profit Sharing Plan. The Bank has established a contributory
savings plan for its employees, which meets the requirements of section 401(k)
of the Code. All employees who have completed one year of service may elect to
contribute a percentage of their compensation to the plan each year, subject to
certain maximums imposed by federal law. The Bank will match 50% of each
participant's contribution, up to a maximum employer contribution of 3% of the
participant's compensation. For purposes of the 401(k) plan, compensation means
a participant's total compensation received from the employer.
Participants are fully vested in amounts they contribute to the plan.
Participants are fully vested in amounts contributed to the plan on their behalf
by the Bank as employer matching contributions and as profit sharing
contributions after seven years of service as follows: one year, 0%; two years,
0%; three years, 20%; four years, 40%; five years, 60%; six years, 80%; seven or
more years, 100%.
Benefits under the plan are payable in the event of the participant's
retirement, death, disability or termination of employment. Normal retirement
age under the plan is 65 years of age. The total amount contributed by the Bank
to the 401(k) plan during fiscal 1997 was approximately $18,000.
Other Benefits. The Bank provides its employees with group medical,
dental, life and disability insurance benefits. Employees are also provided with
vacation, holiday and sick leave.
Employment Agreements. The Bank has entered into employment agreements
with D. Tyson Clayton, President, Peggy S. Walker, Executive Vice President and
Secretary, Ted R. Laws, Vice President, and Eric J. Schuppenhauer, Vice
President, Treasurer and Chief Financial Officer. The agreements provide for
current annual base salaries of $96,862, $71,768, $56,500 and $59,000,
respectively. The agreements provide for an initial term of employment of three
years. Commencing on the first anniversary date and continuing on each
anniversary date thereafter, following a performance evaluation of the employee,
the agreement may be extended for an additional year so that the remaining term
shall be three years unless written notice of non-renewal is given by the Board
of Directors. The agreements also provide that base salary shall be reviewed by
the Board of Directors not less often than annually. In the event of a change in
control (as defined below), the employee's base salary shall be increased by at
least 6% annually. In addition, the employment agreements provide for
profitability and discretionary bonuses and participation in all other pension,
profit-sharing or retirement plans maintained by the Bank or by the Company for
employees of the Bank, as well as fringe benefits normally associated with such
employee's office. The employment agreements provide that they may be terminated
by the Bank for cause, as defined in the agreement, and that they may otherwise
be terminated by the Bank (subject to vested rights) or by the employee.
All of the employment agreements provide that the nature of the
employee's compensation, duties or benefits cannot be diminished following a
change in control of the Bank or the Company. For purposes of the employment
agreement, a change in control generally will occur if (i) after the effective
date of the employment agreement, any "person" (as such term is defined in
<PAGE>
Sections 3(a)(9) and 13(d)(3) of the Exchange Act) directly or indirectly,
acquires beneficial ownership of voting stock, or acquires irrevocable proxies
or any combination of voting stock and irrevocable proxies, representing 25% or
more of any class of voting securities of either the Company or the Bank, or
acquires in any manner control of the election of a majority of the directors of
either the Company or the Bank, (ii) either the Company or the Bank consolidates
or merges with or into another corporation, association or entity, or is
otherwise reorganized, where neither the Company nor the Bank is the surviving
corporation in such transaction, or (iii) all or substantially all of the assets
of either the Company or the Bank are sold or otherwise transferred to, or are
acquired by, any other entity or group.
Severance Plan. The Bank has adopted a Severance Plan for the benefit
of its employees. The Severance Plan provides that in the event there is a
"change in control" of the Bank or the Company (as defined in the Severance
Plan) and (i) the Bank or any successor of the Bank terminates the employment of
any full time employee of the Bank in connection with, or within 24 months after
the change in control, other than for "cause" (as defined in the Severance
Plan), or (ii) an employee terminates his or her employment with the Bank or any
successor following a decrease in the level of such employee's annual base
salary rate or a transfer of such employee to a location outside of Orange
County, North Carolina within 24 months after a change in control, the employee
shall be entitled to a severance benefit equal to the greater of (a) an amount
equal to two weeks' salary at the employee's existing salary rate multiplied
times the employee's number of complete years of service as the Bank's employee
or (b) the amount of one month's salary at the employee's salary rate at the
time of termination, subject to a maximum payment equal to two times an
employee's annual salary. Officers of the Bank who, at the time of a "change in
control," are parties to employment agreements having a remaining term of more
than two years are not covered by the Severance Plan.
Employee Stock Ownership Plan. The Bank has established an Employee
Stock Ownership Plan (the "ESOP") for its eligible employees. Employees with one
year of service with the Bank are eligible to participate. The ESOP borrowed
funds from the Company and used the funds to purchase 8% of the shares of Common
Stock issued in connection with the Bank's conversion from a North
Carolina-chartered mutual savings bank to a North Carolina-chartered stock
savings bank (the "Conversion"), or 211,600 shares.
Collateral for the Company's loan to the ESOP is the Common Stock
purchased by the ESOP. It is expected that the loan will be repaid within three
years principally from the Bank's discretionary contributions to the ESOP.
Dividends, if any, paid on shares held by the ESOP may be and have been used to
reduce the loan. Dividends of $1.5 million were used to pay down the loan in the
fiscal year ended June 30, 1997. The loan is not guaranteed by the Bank. Shares
purchased by the ESOP and pledged as security for the loan are held in a
suspense account for allocation among participants as the loan is repaid.
Contributions to the ESOP and shares released from the suspense account
in an amount proportional to the repayment of the ESOP loan are allocated among
ESOP participants on the basis of relative compensation in the year of
allocation. Benefits will vest in full upon five years of service with credit
given for years of service prior to the Conversion. Benefits immediately vest
upon death or disability.
<PAGE>
The Bank's contributions to the ESOP are not fixed, so benefits payable
under the ESOP cannot be estimated. Principal and interest payments totalling
$1,709,777 were made on the loan from the Company to the ESOP in the fiscal year
ended June 30, 1997. During that same period, 125,819 shares, with a market
value of $1,289,645 ($10.25 per share) at June 30, 1997, were allocated to
participants in the ESOP during that same period.
The Bank has established a committee of the Board of Directors to
administer the ESOP. The Trustees for the ESOP are M. Marion Clark, Alfred L.
Carr and William Larry Rogers. The ESOP committee may instruct the trustees
regarding investment of funds contributed to the ESOP. Participating employees
shall instruct the trustees as to the voting of all shares allocated to their
respective accounts and held in the ESOP. The unallocated shares held in the
suspense account, and all allocated shares for which voting instructions are not
received, will be voted by the trustees in their discretion subject to the
provisions of the Employee Retirement Income Security Act of 1974, as amended.
Stock Option Plan. The Stock Option Plan is administered by a committee
of the Company's Board of Directors (the "Stock Option Plan Committee"). The
Company has reserved 264,500 shares of the Common Stock for issuance upon the
exercise of options which have been granted under the Stock Option Plan. All
directors, officers and employees of the Company, the Bank, and any of the
Bank's subsidiaries are eligible for participation in the Stock Option Plan. The
Stock Option Plan Committee, in its sole discretion, determines who will
participate in the Stock Option Plan. Options to purchase 262,354 shares of the
Common Stock were granted during fiscal year 1997 and outstanding at June 30,
1997.
The following table provides certain information with respect to the
grant of stock options to Mr. Clayton made during the fiscal year ended June 30,
1997.
<TABLE>
<CAPTION>
Option/SAR Grants in Last Fiscal Year
Potential Realizable
Value at Assumed
Annual Rates for Stock Price
Individual Grants Appreciation for Option Term
- -------------------------------------------------------------------------------------------------- ----------------------------
% of Total
Number of Securities Options/SARs Exercise 5% 10%
Underlying Options/SARs Granted to or Base Expiration Appreciation Appreciation
Name Granted Employees in Fiscal Year Price Date (3) (4)
---- ------- ------------------------ ----- ---- ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
D. Tyson Clayton 44,444/01 16.94%/0% $9.25(2) January 22, 2007 $258,543 $655,199
- ----------------
(1) 20% of the options granted vest on January 22, 1998 and 20% each year
thereafter until all such options are vested on January 22, 2002.
(2) Represents the closing market price per share of the underlying securities
on the date of grant (January 22, 1997).
<PAGE>
(3) The dollar values shown represent the potential realizable value of the
grant of options at an assumed 5% annualized appreciation rate in the price
of the Common Stock. The potential realizable value is calculated under the
following formula: [(A x B) - C] x D, where A = $9.25, the per share market
price at the time of the grant; B = 1.6289, the assumed rate of stock price
appreciation (5%) compounded annually over the 10-year term of the option;
C = $9.25, the per share exercise price of the option; and D = 44,444, the
number of securities underlying the grant at year end 1997.
(4) The dollar values shown represent the potential realizable value of the
grant of options at an assumed 10% annualized appreciation rate in the
price of the Common Stock. The potential realizable value is calculated
under the following formula: [(A x B) - C] x D, where A = $9.25, the per
share market price at the time of the grant; B = 2.5937, the assumed rate
of stock price appreciation (10%) compounded annually over the 10-year term
of the option; C= $9.25, the per share exercise price of the option; and D
= 44,444, the number of securities underlying the grant at year end 1997.
</TABLE>
No options were exercised by Mr. Clayton during the fiscal year ended June 30,
1997.
<TABLE>
<CAPTION>
Aggregated Option/SAR Exercises in Last Fiscal Year
and Fiscal Year-End Option/SAR Values
Value of
Number of Securities Unexercised
Underlying Unexercised in-the-Money
Shares Acquired Value Options/SARs at Options/SARs at
Name on Exercise Realized Fiscal Year End(1) Fiscal Year End(2)
---- ----------- -------- ------------------ ------------------
Exercisable Unexercisable Exercisable Unexercisable
----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
D. Tyson Clayton 0 $ 0 0/0 44,444/0 $ 0/0 $44,444/0
- ----------------
(1) All stock options were granted as of January 22, 1997. No stock options
vested in the fiscal year ended June 30, 1997.
(2) The exercise price of the stock options is $9.25. On June 30, 1997, the
closing market price per share for the Common Stock as reported on the
American Stock Exchange was $10.25.
</TABLE>
Options granted under the Stock Option Plan have a vesting schedule
which provides that 20% of the options granted vest on the first anniversary of
the date of grant, and 20% will vest on each subsequent anniversary date, so
that the options would be completely vested on the fifth anniversary of the date
of grant. Options become 100% vested upon death or disability, if earlier.
Although both incentive and non-qualified options have been granted
under the Stock Option Plan, all of the stock options granted to employees are
intended to be incentive stock options. In the case of an incentive stock
option, an optionee is not deemed to have received taxable income upon the grant
or exercise of the stock option, provided the shares are not disposed of by the
<PAGE>
optionee for at least one year after the date of exercise and two years after
the date of grant. No compensation deduction may be taken by the Company at the
time of the grant or exercise of an incentive option, assuming these holding
periods are satisfied. In the case of a non-qualified stock option, an optionee
is deemed to receive ordinary income upon exercise of the stock option in an
amount equal to the amount by which the exercise price is exceeded by the fair
market value of the stock. The amount of any ordinary income deemed to be
received by the optionee upon the exercise of a non-qualified stock option is a
deductible expense of the Company for tax purposes.
No cash consideration was paid for the options. Options have an option
exercise price of $9.25, the fair market value of the Common Stock on the date
of grant (January 22, 1997). The exercise price may be paid in cash or by
delivery of shares of Common Stock with a market value equal to the exercise
price. Based upon the closing market price per share paid on September 2, 1997,
the per share market value of the Common Stock underlying the options would be
$10.625.
Options granted under the Stock Option Plan have a term of ten years,
are not transferable except upon death and continue to be exercisable upon
retirement.
The Stock Option Plan places certain limitations on termination and
amendment of the Stock Option Plan. It provides that the Stock Option Plan
cannot be terminated upon an acquisition or merger of the Company or the Bank
unless the acquiror provides for an equivalent benefit for all then current
option holders. It provides that the Stock Option Plan may be amended by the
Board of Directors of the Company at any time. It states, however, that
stockholder approval of certain amendments may be necessary in order for the
Stock Option Plan to satisfy the requirements of SEC Rule 16b-3. It provides
that certain Stock Option Plan provisions, including the number of options to be
initially granted, may not be amended more than once every six months, except
under very limited circumstances.
Management Recognition Plan. On June 11, 1996, the stockholders of the
Company approved the Hillsborough Savings Bank, Inc., SSB Management Recognition
Plan (the "MRP"). Effective August 29, 1996, restricted stock awards of 105,800
shares of the Common Stock were made to 38 directors, officers and employees of
the Bank.
The MRP serves as a means of providing the directors, officers, and
employees with an ownership interest in the Company in a manner designed to
encourage such persons to continue their service to the Company and the Bank and
to provide performance incentives. The MRP is administered by a committee of the
Bank's Board of Directors (the "MRP Committee"). All directors, officers, and
employees of the Company and the Bank are eligible for participation in the MRP.
Except with regard to the initial awards made on August 29, 1996, the MRP
Committee, in its sole discretion, will determine who will participate in the
MRP. Initially, all shares authorized under the MRP were allocated pursuant to
the plan. Therefore, only forfeited shares are subject to allocation later,
unless the plan is amended. During the fiscal year ended June 30, 1997, 14,914
MRP shares were forfeited and 13,500 MRP shares were reallocated to new
participants.
The shares awarded under the MRP were issued from authorized but
unissued shares of Common Stock. Shares issued under the MRP are issued at no
cost to recipients.
<PAGE>
Recipients are entitled to vote MRP shares and receive all dividends
and cash distributions with respect thereto. The shares granted vest at a rate
of 20% on the first anniversary of the effective date of the award of shares
under the MRP, and 20% on each subsequent anniversary date, so that the shares
would be completely vested at the end of five years after the date of award.
Awards of Common Stock under the MRP would immediately vest upon the disability
or death of a recipient. The MRP cannot be terminated upon an acquisition or
merger of the Company or the Bank unless the acquiror provides for an equivalent
benefit for all then current MRP participants. The awards are not forfeitable
upon vesting.
The MRP may be amended by the Board of Directors of the Bank at any
time. However, stockholder approval of certain amendments may be necessary in
order for the MRP to satisfy the requirements of Rule 16b-3 promulgated under
the Exchange Act. Certain MRP provisions, including the number of shares of
Common Stock to be awarded initially, may not be amended more than once every
six months, except under very limited circumstances.
Compensation Committee Interlocks and Insider Participation. The
Personnel Committee of the Bank's board of directors serves the role of the
compensation committee. The Personnel Committee determines the compensation of
the executive officers and the Bank's other employees. During the fiscal year
ended June 30, 1997, the Personnel Committee consisted of directors Carr,
Nichols, Ray and Rogers.
Report of Compensation Committee on Executive Compensation. It is the
responsibility of the Bank's Personnel Committee to review and evaluate
performance of the Bank's executive officers. The salary of each executive
officer, including Mr. Clayton, the Chief Executive Officer, is determined based
upon the executive officer's contributions to the Bank's overall profitability,
maintenance of regulatory compliance standards, professional leadership, and
management effectiveness in meeting the needs of day to day operations. In
addition, the executive officers of the Bank are eligible to receive
discretionary bonuses based on profit--as are all other employees -- declared by
the Bank's board of directors based upon after-tax net income of the Bank.
Alfred L. Carr
Robert B. Nichols, Jr.
James P. Ray
William Larry Rogers
<PAGE>
Performance Graph
The following graph compares the Company's cumulative shareholder
return on the Common Stock with a AMEX (U.S. companies) index and with a savings
institution peer group whose stock is quoted on AMEX. The graph was prepared
using data through June 30, 1997.
[GRAPHIC-GRAPH PLOTTED TO POINTS LISTED BELOW]
COMPARISON OF FIVE-YEAR CUMULATIVE TOTAL RETURNS
Performance Report for
Piedmont Bancorp, Inc.
Prepared by the Center for Research in Security Prices Produced on August 7,
1997 including data to June 30, 1997
<TABLE>
<CAPTION>
Date Company Index Market Index Peer Index
---- ------------- ------------ ----------
<S> <C> <C> <C>
12/08/95 100.000 100.000 100.000
12/29/95 98.039 102.207 99.360
01/31/96 95.098 102.299 106.994
02/29/96 100.000 103.980 110.988
03/29/96 104.737 104.941 110.480
04/30/96 106.713 108.583 108.599
05/31/96 104.737 112.187 107.000
06/28/96 104.697 105.942 108.059
07/31/96 104.697 97.696 105.770
08/30/96 120.651 100.557 112.339
09/30/96 124.584 103.309 115.789
10/31/96 126.594 101.252 115.601
11/29/96 144.679 105.427 118.778
12/31/96 142.700 103.835 117.488
01/31/97 147.796 106.250 127.925
02/28/97 144.399 108.183 141.404
03/31/97 149.171 102.885 134.835
04/30/97 145.742 99.852 136.788
05/30/97 146.171 109.889 140.134
06/30/97 141.962 113.883 151.962
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
LEGEND
CRSP Total Returns Index for: 12/08/95 12/29/95 06/28/96 12/31/96 06/30/97
- ----------------------------- -------- -------- -------- -------- --------
<C> <C> <C> <C> <C> <C>
Piedmont Bancorp, Inc. 100.0 98.0 104.7 142.7 142.0
AMEX Stock Market (US Companies) 100.0 102.2 105.9 103.8 113.9
AMEX Stocks (SIC 6030-6039 US Companies) 100.0 99.4 108.1 117.5 152.0
Savings Institutions
Notes:
A. The lines represent monthly index levels derived from compounded
daily returns that include all dividends.
B. The indexes are reweighted daily, using the market capitalization
on the previous trading day.
C. If the monthly interval, based on the fiscal year-end, is not a
trading day, the preceding trading day is used.
D. The index level for all series was set to $100.0 on 12/08/95.
</TABLE>
Certain Indebtedness and Transactions of Management
The Bank makes loans to executive officers and directors of the Bank in
the ordinary course of its business. These loans are made on the same terms,
including interest rates and collateral, as those then prevailing for comparable
transactions with nonaffiliated persons, and do not involve more than the normal
risk of collectibility or present any other unfavorable features. Applicable
regulations prohibit the Bank from making loans to executive officers and
directors of the Bank on terms more favorable than could be obtained by persons
not affiliated with the Bank. The Bank's policy concerning loans to executive
officers and directors complies with such regulations.
PROPOSAL 2
RATIFICATION OF SELECTION OF INDEPENDENT AUDITOR
KPMG Peat Marwick LLP was the Company's independent auditor for the
year ended June 30, 1997 and has been selected as the Company's independent
auditor for the year ending June 30, 1998. Such selection is being submitted to
the Company's stockholders for ratification. Representatives of KPMG Peat
Marwick LLP are expected to attend the Meeting and will be afforded an
opportunity to make a statement, if they so desire, and to respond to
appropriate questions from stockholders.
The Board of Directors recommends that the stockholders vote FOR
ratification of the selection of KPMG Peat Marwick LLP as independent auditor
for the Company for the 1998 fiscal year.
<PAGE>
DATE FOR RECEIPT OF STOCKHOLDER PROPOSALS
It is presently anticipated that the 1998 Annual Meeting of
Stockholders will be held in November 1998. In order for stockholder proposals
to be included in the proxy material for that meeting, such proposals must be
received by the Secretary of the Company at the Company's principal executive
office not later than July 16, 1998, and meet all other applicable requirements
for inclusion therein.
OTHER MATTERS
Management knows of no other matters to be presented for consideration
at the Meeting or any adjournments thereof. If any other matters shall properly
come before the Meeting, it is intended that the proxyholders named in the
enclosed form of proxy will vote the shares represented thereby in accordance
with their judgment, pursuant to the discretionary authority granted therein.
MISCELLANEOUS
The Annual Report of the Company for the year ended June 30, 1997,
which includes financial statements audited and reported upon by the Company's
independent auditor, is being mailed along with this Proxy Statement; however,
it is not intended that the Annual Report be deemed a part of this Proxy
Statement or a solicitation of proxies.
THE FORM 10-K FILED BY THE COMPANY WITH THE SECURITIES AND EXCHANGE
COMMISSION, INCLUDING THE FINANCIAL STATEMENTS AND SCHEDULES THERETO, WILL BE
PROVIDED FREE OF CHARGE UPON WRITTEN REQUEST DIRECTED TO: PIEDMONT BANCORP,
INC., 260 SOUTH CHURTON STREET, HILLSBOROUGH, NORTH CAROLINA 27278, ATTENTION:
D. TYSON CLAYTON.
By Order of the Board of Directors
/s/Peggy S. Walker
------------------
Peggy S. Walker
Secretary
Hillsborough, North Carolina
October 3, 1997
<PAGE>
REVOCABLE PROXY
PIEDMONT BANCORP, INC.
[ X ] PLEASE MARK VOTES AS IN THIS EXAMPLE
ANNUAL MEETING OF STOCKHOLDERS
NOVEMBER 12, 1997
6:00 p.m.
The undersigned hereby appoints the official proxy committee consisting of all
the members of the Board of Directors of Piedmont Bancorp, Inc.(the "Company"),
each with full power of substitution, to act as attorneys and proxies for the
undersigned, and to vote all shares of Common Stock of the Company which the
undersigned is entitled to vote only at the Annual Meeting of Stockholders, to
be held at the offices of the Company, 260 South Churton Street, Hillsborough,
North Carolina, on November 12, 1997, at 6:00 p.m. and at any and all
adjournments thereof, as follows:
1. The approval of the election of the following named directors:
Everett H. Kennedy, William L. Rogers and Peggy S. Walker
[ ] FOR [ ] WITHHOLD [ ] EXCEPT
INSTRUCTION: To withhold authority to vote for any individual nominee, mark "For
All Except" and write that nominee's name in the space provided below.
- --------------------------------------------------------------------------------
2. The ratification of KPMG Peat Marwick LLP as the independent auditors of
the Company for the year ending June 30, 1998.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
PLEASE CHECK BOX IF YOU PLAN TO ATTEND THE ANNUAL MEETING. [ ]
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" EACH OF THE LISTED PROPOSALS.
If no instructions are given, the proxy will be voted for the nominees for
election to the Board of Directors named in this Revocable Proxy and for the
ratification of the selection of KPMG Peat Marwick LLP as the independent
auditors for the Company for the 1998 fiscal year. If instructions are given
with respect to one but not both proposals, such instructions as are given will
be followed and the proxy will be voted for the proposal on which no
instructions are given.
Please be sure to sign and date
this Proxy in the box below.
_________________________________________
Date
_________________________________________
Stockholder sign above
_________________________________________
Co-holder (if any) sign above
<PAGE>
Detach above card, sign, date and mail in postage paid envelope provided.
PIEDMONT BANCORP, INC.
THIS PROXY IS SOLICITED BY THE BOARD OF DIRECTORS.
The above signed acknowledges receipt from the Company, prior to the
execution of this Proxy, of a Notice of Annual Meeting and a Proxy Statement
dated October 3, 1997.
Please sign exactly as your name appears hereon. 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.
PLEASE ACT PROMPTLY
SIGN, DATE & MAIL YOUR PROXY CARD TODAY
