SCHEDULE 14A
(Rule 14a-101)
INFORMATION REQUIRED BY PROXY STATEMENT
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
|X| Definitive Proxy Statement Commission Only
| | Definitive Additional Materials (as permitted by Rule 14a-6(e)(2))
|_| Soliciting Material Under Rule 14a-12
High Country Financial Corporation
________________________________________________________________________________
(Name of Registrant as Specified in Its Charter)
________________________________________________________________________________
(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 the table below per Exchange Act Rules 14a-6(i)(1) and 0-11
(1) Title of each class of securities to which transaction applies:
(2) Aggregate number of securities to which transaction applies:
(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):
(4) Proposed maximum aggregate value of transactions:
(5) Total fee paid:
|_| 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:
___________________________________________________________________________
(2) Form, Schedule or Registration Statement No.:
___________________________________________________________________________
(3) Filing Party:
___________________________________________________________________________
(4) Date Filed:
___________________________________________________________________________
HIGH COUNTRY FINANCIAL CORPORATION
149 Jefferson Road
Boone, North Carolina 28607
(828) 265-4333
NOTICE OF 2003 ANNUAL MEETING OF STOCKHOLDERS
To Be Held on May 13, 2003
NOTICE IS HEREBY GIVEN that the 2003 Annual Meeting of Stockholders (the
"Meeting") of High Country Financial Corporation (the "Company") will be held on
May 13, 2003, at 10:00 o'clock a.m., Eastern Time, at the Best Western, Blue
Ridge Plaza, 8401 East King Street, Boone, North Carolina.
The Meeting is for the purpose of considering and voting upon the
following matters:
1. To elect four persons who will serve as directors of the Company
until the 2006 Annual Meeting of Stockholders or until their
successors are duly elected and qualify;
2. To ratify the appointment of Larrowe & Company, PLC, as the
independent auditor for the Company for the fiscal year ending
December 31, 2003; and
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 March 17, 2003, as the record date
for the determination of stockholders entitled to notice of and to vote at the
Meeting and at any adjournments. 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/ John M. Brubaker
John M. Brubaker
President and Chief Executive Officer
Boone, North Carolina
April 10, 2003
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.
HIGH COUNTRY FINANCIAL CORPORATION
PROXY STATEMENT
2003 ANNUAL MEETING OF STOCKHOLDERS
May 13, 2003
SOLICITATION, VOTING AND REVOCABILITY OF PROXIES
General
This Proxy Statement is being furnished to stockholders of High Country
Financial Corporation (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 the Annual Meeting of Stockholders (the "Meeting") to be held on May 13,
2003, at 10:00 o'clock a.m., Eastern Time, at the Best Western, Blue Ridge
Plaza, 8401 East King Street, Boone, North Carolina, and at any adjournments.
This Proxy Statement and the accompanying form of proxy were first mailed to
stockholders on April 10, 2003.
Other than the matters listed on the attached Notice of 2003 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 by the proxy in accordance with their best judgment on any
other business that may properly come before the Meeting or any adjournments.
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 Company will pay the cost of solicitation of proxies. Proxies may be
solicited personally or by telephone by directors, officers and regular
employees of the Company and its wholly-owned bank subsidiary, High Country Bank
(the "Bank"), without additional compensation for doing so. 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 materials to, and obtain proxies from, those beneficial owners and will
reimburse the 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 Common Stock owned, it is important
that stockholders be present in person or represented by proxy at the Meeting.
Stockholders are requested to vote by 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 abstain 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 given in
the proxy. If no instructions are given, the proxy will be voted FOR all of the
proposals. If instructions are given with respect to some but not all of the
proposals, the instructions that are given will be followed, and the proxy will
be voted FOR any proposal on which no instructions are given.
The securities which may be voted at the Meeting consist of shares of
Common Stock. The close of business on March 17, 2003 has been fixed by the
Board of Directors as the record date (the "Record Date") for the determination
of those stockholders of record entitled to notice of and to vote at the Meeting
and any adjournments of the Meeting. A total of 1,418,809 shares of Common Stock
were outstanding on the Record Date. Each share of Common Stock entitles its
owner to one vote on each matter calling for a vote of stockholders at the
Meeting.
The presence, in person or by proxy, of the holders of at least a 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. Because 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 votes for a quorum
or to approve or ratify any proposal at the time of the Meeting, the Meeting may
be adjourned in order to permit the further solicitation of proxies.
In order to be elected, a nominee need only receive a plurality of the
votes cast in the election of the applicable class of directors for which he has
been nominated. As a result, those persons nominated for election who receive
the largest number of votes will be elected as directors. Accordingly,
abstentions and shares not voted for any reason with respect to any one or more
nominees will not be counted as votes against the nominee. No stockholder has
the right to vote his or her shares cumulatively in the election of directors.
The proposal to ratify the appointment of the Company's independent
auditor for the fiscal year ending December 31, 2003 will be approved if the
votes cast in favor of the proposal exceed the votes cast opposing the proposal.
Proxies solicited by this Proxy Statement 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. Abstentions will be counted for purposes
of determining whether a quorum is present at the Meeting. Abstentions will not
be counted in tabulating the votes cast on any proposal submitted to the
stockholders. Broker non-votes will not be counted either for determining the
existence of a quorum or for tabulating votes cast on any proposal.
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 5%
of the Common Stock of the Company notify the Securities and Exchange Commission
(the "SEC") and the Company. As of the Record Date, no persons or groups, as
defined in the Exchange Act, held of record or are known to the Company to own
beneficially more than 5% of the Company's Common Stock.
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 (including nominees for election at the Meeting), each of the
members of the board of directors of the Bank, certain executive officers of the
Company and the Bank, and the directors and executive officers of the Company
and the Bank as a group.
2
Amount and Percentage
Nature of of
Name and Address of Beneficial Owner Beneficial Ownership(1) Class(2)
- ------------------------------------ ----------------------- ----------
John M. Brubaker 37,438(3) 2.59%
Post Office Box 2748
Boone, North Carolina 28607
Larry V. Hughes 18,800(4) 1.32%
Post Office Box 2955
Boone, North Carolina 28607
Faye E. Cooper 15,600(4) 1.09%
Mast General Store
Highway 194
Valle Crucis, North Carolina 28691
Reba S. Moretz 26,688(4) 1.87%
Appalachian Ski Mtn.
Ski Mountain Road
Blowing Rock, North Carolina 28605
John H. Councill 30,820(4) 2.16%
155 Ray Brown Road
Boone, North Carolina 28607
C. Kenneth Wilcox 41,200(4) 2.88%
Post Office Box 1758
Boone, North Carolina 28607
Harry M. Davis 24,500(4) 1.72%
Appalachian State University
Dept. of Finance
Raley Hall
Boone, North Carolina 28608
Roger D. Wright 39,920(4) 2.79%
161 Howard Street
Boone, North Carolina 28607
James C. Furman 23,840(4) 1.67%
166 Southgate Drive, Suite 10
Boone, North Carolina 28607
Cecil M. Greene 12,900(4) 0.90%
678 Highway 105 Ext.
Boone, North Carolina 28607
Dale L. Greene 20,509(4) 1.44%
230 Cabbage Row
Boone, North Carolina 28607
Robert E. Washburn 13,409(5) 0.94%
148 Deer Run Road
Boone, North Carolina 28607
3
Amount and Percentage
Nature of of
Name and Address of Beneficial Owner Beneficial Ownership(1) Class(2)
- ------------------------------------ ----------------------- ----------
All directors and named executive 305,624 19.70%
officers as a group (12 people)
- ----------
(1) Unless otherwise noted, all shares are owned directly of record by the
named individuals, by their spouses and minor children, or by other
entities controlled by the named individuals.
(2) Based upon a total of 1,418,809 shares of Common Stock outstanding as of
the Record Date. Assumes the exercise of only those stock options included
with respect to the designated recipients.
(3) Includes 24,000 shares which Mr. Brubaker has a right to acquire a
beneficial interest within 60 days by the exercise of stock options
granted under the Stock Option Plan.
(4) Includes 9,600 shares which the designated recipient has a right to
acquire a beneficial interest within 60 days by the exercise of stock
options granted under the Stock Option Plan.
(5) Includes 12,600 shares which Mr. Washburn has a right to acquire a
beneficial interest within 60 days by the exercise of stock options
granted under the Stock Option Plan.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Exchange Act requires the Company's executive
officers and directors, and persons who own more than 10% of the Company's
Common Stock, to file reports of ownership and changes in ownership with the
SEC. Executive officers, directors and greater than 10% 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 December 31,
2002, all of its directors, officers and 10% beneficial owners complied with all
applicable Section 16(a) filing requirements.
PROPOSAL 1
ELECTION OF DIRECTORS
Nominees
The Bylaws of the Company provide that the number of directors of the
Company shall not be less than five nor more than twenty. The exact number of
directors shall be fixed by the Board of Directors prior to the annual meeting
of stockholders at which such directors are to be elected. The Board of
Directors has currently fixed the size of the Board at eleven members.
The Company's Articles of Incorporation and Bylaws provide that, 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. Each director in a
class will be elected for a term of three years or until his or her earlier
death, resignation, retirement, removal or disqualification or until his or her
successor is elected and qualifies. 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 four 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 are elected and qualified. Any other persons nominated must be
nominated for a three-year term.
4
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 four nominees listed below as directors for the term specified, unless
authority to vote is withheld or such proxies are duly 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 or her
stead such other person as the present Board of Directors may recommend or to
reduce the number of directors to be elected at the Meeting by the number of
persons unable or unwilling to serve (subject to the requirements of the
Company's Articles of Incorporation and Bylaws). The present Board of Directors
has no reason to believe that any of the nominees named 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.
The following table sets forth as to each nominee, the term for which he
or she has been nominated, his or her name, age, principal occupation during the
last five years, when his or her present term expires, and the year he or she
was first elected as a director.
NOMINEES FOR TERM ENDING AS OF 2006 ANNUAL MEETING
Age on Principal Occupation Term Director
Name December 31, 2002 During Last Five Years Expires Since
- ----------------- ----------------- ---------------------- ------- --------
John H. Councill 73 President of Watauga Wood Products, 2003 1998
Inc. (producer of products used in
furniture industry)
Dale L. Greene 62 President of Hollar & Greene Produce 2003 1998
Company, Inc. (wholesale produce)
Reba S. Moretz 70 Co-owner/Secretary of Appalachian 2003 1998
Ski Mtn. (a local ski resort)
James C. Furman 66 President and Chief Executive Officer 2003 1998
of Tarheel Capital (owner and operator
of Wendy's franchises in the southeast)
and Vice President of Boone Drug, Inc.
(pharmacy)
The following table sets forth as to each director continuing in office,
his or her name, age, principal occupation during the last five years, the term
for which he or she is serving, and the year he or she was first elected as a
director.
DIRECTORS CONTINUING IN OFFICE
Age on Principal Occupation Term Director
Name December 31, 2002 During Last Five Years Expires Since
- ----------------- ----------------- ---------------------- -------- --------
John M. Brubaker 53 President and Chief Executive Officer 2004 1998
of the Company and the Bank
C. Kenneth Wilcox 65 Developer 2004 1998
5
Age on Principal Occupation Term Director
Name December 31, 2002 During Last Five Years Expires Since
- ----------------- ----------------- ---------------------- -------- --------
Harry M. Davis 54 Professor of Finance, Department of 2004 1998
Finance, Banking and Insurance,
Appalachian State University
Larry V. Hughes 50 Partner at Crisp Hughes Evans, LLP 2004 1998
(CPA firm)
Cecil M. Greene 75 Retired, June 2002; Vice President of 2005 1998
Watauga Building Supply; prior to that
President Farmers Hardware Co.
Faye E. Cooper 55 Co-owner of Mast General Store (retail 2005 1998
outlet specializing in outdoor ware and
accessories)
Roger D. Wright 54 President of Wilcox Warehouse 2005 1998
Emporium (retail outlet for various
vendors)
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR ALL OF THE ABOVE-LISTED
NOMINEES FOR ELECTION AS DIRECTORS.
Board of Directors of the Bank
The Bank currently has an eleven member board of directors which is
currently comprised of all of the same persons who are currently director of the
Company.
Meetings of the Board and Committees of the Board
The Board of Directors meets monthly and held 14 meetings during the
fiscal year ended December 31, 2002. All of the existing directors of the Bank
attended at least 75% of the aggregate number of meetings of the Board of
Directors, the Bank's board of directors and committees of both boards on which
they served during the fiscal year ended December 31, 2002.
The Company's Board of Directors has three committees to which certain
responsibilities have been delegated--the Executive Committee, Audit Committee
and Compensation Committee. 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 Bank's board of directors has appointed eight standing committees to
which certain responsibilities have been delegated -- including the Executive
Committee, Compensation Committee, Loan Committee, Community Reinvestment Act
Committee, Audit Committee and Asset Liability Committee. The members of the
Company's Audit Committee also serve on the Bank's Audit Committee. The Bank's
Audit Committee met four times during the fiscal year ended December 31, 2002;
and each meeting after the holding company's formation in July 2002 was a joint
meeting with the Company's Audit Committee. The Bank's board of directors
appoints other committees of its members to perform certain more limited
functions from time to time and has appointed committees to administer the
employee benefit plans which have been established by the Bank.
The Executive Committee of both the Company and the Bank is composed of
directors C. Kenneth Wilcox, Larry V. Hughes, Harry M. Davis, and John M.
Brubaker. The Executive Committee makes recommendations to the
6
full Board of Directors and the board of directors of the Bank and acts upon
policies adopted by both boards in the absence of a meeting of either entire
board. This Committee meets on an as needed basis, and during the fiscal year
ended December 31, 2002 met 14 times.
The Compensation Committee is composed of directors C. Kenneth Wilcox,
Larry V. Hughes, Harry M. Davis, and John M. Brubaker. This Committee determines
the compensation of the executive officers of the Company and the Bank. The
salaries of each of the executive officers 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. The
Board of Directors also compares the compensation of the Company's and the
Bank's executive officers with compensation paid to executives of comparable
financial institutions in North Carolina and executives of other businesses in
the market area. Mr. Brubaker participates in the deliberations of the Board of
Directors regarding compensation of executive officers other than himself. He
does not participate in the discussions or decisions regarding his own
compensation. The Compensation Committee met twice during the fiscal year ended
December 31, 2002.
Report of Audit Committee
The Audit Committee is composed of directors Faye E. Cooper, Larry V.
Hughes, and Reba S. Moretz. These members are believed to be independent as that
term is defined in Rule 4200(a)(14) of the National Association of Securities
Dealers' listing standards. In accordance with its revised written charter
adopted by the Board of Directors on February 18, 2003, a copy of which is
attached as Appendix A, the Audit Committee meets at least quarterly or more
frequently as circumstances dictate and (i) oversees the independent auditing of
the Company; (ii) arranges for periodic reports from the independent auditors,
from management of the Company, and from the internal auditor of the Company in
order to assess the impact of significant regulatory and accounting changes and
developments; (iii) advises the Board of Directors regarding significant
accounting and regulatory developments; (iv) reviews the Company's policies
regarding compliance with laws and regulations, conflicts of interest and
employee misconduct and reviews situations related thereto; (v) develops and
implements the Company's policies regarding internal and external auditing and
appoints, meets with and oversees the performance of those employed in
connection with both internal and external audits; and (vi) performs such other
duties as may be assigned to it by the Board of Directors. The Audit Committee
met four times during the fiscal year ended December 31, 2002.
The Audit Committee reviewed and discussed with the independent auditors
all matters required by generally accepted auditing standards, including those
described in Statement on Auditing Standards No. 61, as amended, and reviewed
and discussed the audited financial statements of the Company, both with and
without management present. In addition, the Audit Committee obtained from the
independent auditors a formal written statement describing all relationships
between the auditors and the Company that might bear on the auditors'
independence consistent with Independence Standards Board Standard No. 1,
"Independent Discussions with Audit Committees," and discussed with the auditors
any relationships that may impact their objectivity and independence and
satisfied itself as to the auditors' independence. Based upon the Audit
Committee's review and discussions with management and the independent auditors
referenced above, the Audit Committee recommended to the Board of Directors that
the Company's audited financial statements be included in its Annual Report on
Form 10-KSB for the fiscal year ended December 31, 2002 for filing with the SEC.
The Audit Committee also recommended reappointment, subject to stockholder
approval, of the independent auditors and the Board of Directors concurred with
the appointment.
Faye E. Cooper
Larry V. Hughes
Reba S. Moretz
7
Director Compensation
Directors Fees. Members of the Board of Directors receive no fees or
compensation for their service. However, all members of the Board of Directors
are also directors of the Bank and are compensated for that service. For their
service on the Bank's board of directors during the fiscal year ended December
31, 2002, all non-employee members of the Bank's board received a fee of $500
for each Bank board meeting attended. No director who was also a salaried
employee of the Bank received compensation for service on the Bank's board of
directors or any committee of the Bank's board. No additional fees were paid for
service on Board Committees.
Stock Option Plan. On September 14, 1999, each director was granted 9,600
options (adjusted to reflect the August 14, 2000 stock split) under the High
Country Financial Corporation Stock Option Plan (the "Plan"), except Mr.
Brubaker, who was granted 3,000 options (adjusted to reflect the August 14, 2000
stock split) for his service as a director. See "Executive Compensation--Stock
Option Plan" below for a discussion of the directors' benefits under the Plan.
Executive Officers
The following table sets forth certain information with respect to the
persons who are executive officers of the Company, the Bank or both.
Employed
By the Bank
Age on or the
December 31, Positions and Occupations Company
Name and Title 2002 During Last Five Years Since
- ------------------------- ------------ ------------------------- -----------
John M. Brubaker, 53 President and Chief Executive Officer of November
President and the Company and Bank, November 1998 to 1998
Chief Executive Officer Present; Senior Vice President and Regional
Market Manager for Centura Bank, Inc.,
Boone, North Carolina, 1991 to 1998.
David H. Harman 54 Senior Vice President and Chief Financial August
Senior Vice President and Officer of the Company and the Bank, 2002
Chief Financial Officer August 2002 to present; Director of the
Bank, 1998 to August 2002; prior to that
business consultant and former President
of Goodwin Weavers (manufacturer of afghans
and throws).
Robert E. Washburn, 45 Senior Vice President and Chief Credit November
Senior Vice President and Officer of the Bank, November 1998 to 1998
Chief Credit Officer Present; Market President and Commercial
Relationship Manager, First Union National
Bank, Boone, North Carolina, 1996 to
1998.
Joseph E. Eller 46 Senior Vice President of the Bank, May May
Senior Vice President 2001 to Present; Secretary of the Company, 2001
2002 to present; Vice President, Regional
Business Banking Manager, First Union
National Bank, Boone, North Carolina,
1996 to 2001.
8
Executive Compensation
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 indicated, the cash and
certain other compensation paid to or accrued for that year to the chief
executive officer and to the Bank's executive officers whose total annual salary
and bonus exceeded $100,000.
SUMMARY COMPENSATION TABLE
Long Term
Annual Compensation Compensation
------------------- Securities
Name and Other Annual Underlying All Other
Principal Position Year Salary Bonus Compensation(1) Options/SARS Compensation(2)
- ------------------ ---- ------ ----- ---------------- ------------ ---------------
John M. Brubaker, 2002 $127,000 $15,000 $ -- 0/0 $8,387
President and Chief 2001 $127,000 $ -- $ -- 0/0 $3,810
Executive Officer 2000 $102,000 $25,000 $ -- 33,000/0(3) $3,108
Robert E. Washburn, 2002 $ 98,500 $ 8,000 $ -- 0/0 $3,650
Senior Vice President and 2001 $ 95,000 $ -- $ -- 0/0 $2,850
Chief Credit Officer 2000 $ 85,000 $15,000 $ -- 18,000/0(4) $1,560
- ----------
(1) Perquisites for the fiscal year did not exceed the lesser of $50,000 or
10% of reported salary and bonus.
(2) This amount includes contributions made by the Bank to the Bank's 401(k)
plan for the benefit of Mr. Brubaker and Mr. Washburn for the fiscal year
indicated. In addition, this amount includes $4,577 and $695 paid for life
insurance policy premiums and club dues for Mr. Brubaker and for life
insurance policy premiums for Mr. Washburn, respectively.
(3) Includes 24,000 shares subject to options (adjusted to reflect the August
14, 2000 stock split) which have vested or are exercisable within 60 days
under the Plan. These options, granted pursuant to the Plan, entitle Mr.
Brubaker to purchase, at any time after vesting and before September 14,
2009, shares of Common Stock in exchange for an exercise price of $11.00
per share, which was the fair market value of the shares on the date of
grant. The Plan provides that the option exercise price may be adjusted
under certain circumstances, including the occurrence of a stock split. On
August 14, 2000, the Stock Option Plan Committee adjusted the exercise
price of the options to $9.17 per share in order to reflect the effect of
the August 14, 2000 stock split on the fair market value of a share of
Common Stock. Of the options granted to Mr. Brubaker as a director, 2,100
options vested on September 14, 1999, 300 vested on September 30, 2000,
and 300 vested on September 30, 2001 and 300 vested on September 30, 2002.
Of the options granted to Mr. Brubaker as an employee, 3,000 options
vested on September 14, 1999, 4,500 options vested on September 30, 2000,
6,000 options vested on September 30, 2001, 7,500 options vested on
September 30, 2002 and the remaining 9,000 options will vest on September
30, 2003. These options become 100% vested upon death, disability or a
change in control of the Company.
(4) Includes 12,600 shares subject to options (adjusted to reflect the August
14, 2000 stock split) which have vested or are exercisable within 60 days
under the Plan. These options, granted pursuant to the Plan, entitle Mr.
Washburn to purchase, at any time after vesting and before September 14,
2009, shares of Common Stock in exchange for an exercise price of $11.00
per share, which was the fair market value of the shares on the date of
grant. The Plan provides that the option exercise price may be adjusted
under certain circumstances, including the occurrence of a stock split. On
August 14, 2000, the Stock Option Plan Committee adjusted the exercise
price of the options to $9.17 per share in order to reflect the effect of
the August 14, 2000 stock split on the fair market value of a share of
Common Stock. Of the options granted to Mr. Washburn as an employee, 1,800
options vested on September 14, 1999, 2,700 options vested on September
30, 2000, 3,600 options vested on September 30, 2001, 4,500 options vested
on September 30, 2002 and the remaining 5,400 options will vest on
September 30, 2003. These options become 100% vested upon death,
disability or a change in control of the Company.
9
Employment Agreements. The Bank has entered into employment agreements
with John M. Brubaker, President and Chief Executive Officer, Robert E.
Washburn, Senior Vice President and Chief Credit Officer and Joseph E. Eller,
Senior Vice President, in order to establish their duties and compensation and
to provide for their continued employment with the Bank. The agreements provide
for initial annual base salaries of $102,000, $85,000 and $85,000, respectively,
and for initial terms of employment of three years. Commencing on the first
anniversary date and continuing on each anniversary date thereafter, unless
notice of a non-extension is given by either party, each agreement is
automatically extended for an additional year so that the remaining term will
always be no less than two and no more than three years. The agreements provide
that the base salary will be reviewed by the Board of Directors not less often
than annually. In addition, the employment agreements provide for participation
in other bonus, pension, profit-sharing or retirement plans maintained by the
Bank, as well as fringe benefits normally associated with the employee's office.
The employment agreements provide that they may be terminated by the Bank for
cause, as defined in the agreements, and that they may otherwise be terminated
by the Bank (subject to vested rights) or by the employee.
Each employment agreement provides that upon (i) termination of employment
by the Bank or the employee within one year after a change in control not
approved by the Board of Directors, (ii) the required relocation of the
employee's office or residence to more than 20 miles from Boone, North Carolina,
or (iii) the diminishment of the nature of the employee's responsibilities,
authority or benefits within one year following a change in control approved by
the Board of Directors, the employee will receive an amount equal to 3.99 times
his salary plus bonuses.
For purposes of the employment agreements, a "change in control" means (i)
a change in control of the Bank of a nature that would be required to be
reported in response to Item 6(e) of Schedule 14A of Regulation 14A promulgated
under the Exchange Act, (ii) the acquisition of control, within the meaning of
Section 2(a)(2) of the Bank Holding Act of 1956, as amended, or Section 602 of
the Change in Control Act of 1978, of the Bank by any person, (iii) if any
person is or becomes the "beneficial owner" (as defined in Rule 13d-3 under the
Exchange Act), directly or indirectly, of securities of the Bank representing
30% or more of the combined voting power of the Bank's then outstanding
securities, or (iv) during any period of two consecutive years, individuals who
at the beginning of the term of the employment agreement constitute the Board of
Directors cease for any reason to constitute at least a majority thereof unless
the election, or the nomination for election by the Bank's stockholders, of each
new director was approved by a vote of at least two-thirds of the directors then
still in office who were directors at the beginning of the term.
Equity Compensation Plan Information. The following table presents the
number of shares of Common Stock to be issued upon the exercise of outstanding
options; the weighted-average price of the outstanding options and the number of
options remaining that may be issued under High Country Financial Corporation's
Stock Option Plan described below.
Plan Category Number of Securities to Weighted-average Number of securities
be issued upon exercise exercise price of remaining available for
of outstanding options, outstanding options, future issuance under
warrants and rights warrants and rights equity compensation
plans (excluding
securities reflected in
column (a))
- ----------------------------------------------------------------------------------------------------
(a) (b) (c)
- ----------------------------------------------------------------------------------------------------
Equity compensation
plans approved by 201,750(1) $9.72(2) 81,250
security holders
- ----------------------------------------------------------------------------------------------------
Equity compensation
plans not approved by 0 0 0
security holders
- ----------------------------------------------------------------------------------------------------
Total 201,750 $9.72 81,250
- ----------------------------------------------------------------------------------------------------
10
- ----------
(1) Of the 201,750 stock options issued under the Stock Option Plan, a total
of 163,643 of those stock options have vested or are exercisable within 60
days.
(2) The exercise prices for the grants of stock options under the Stock Option
Plan on September 30, 1999, January 16, 2001, August 1, 2002 and March 12,
2003 are $9.17, $15.00, $15.00 and $12.25 respectively.
Stock Option Plan. On May 25, 1999, the Bank's stockholders approved the
Plan for the benefit of the employees and directors of the Bank, and an
amendment to the Plan was approved by stockholders on May 15, 2001. The Plan is
designed to attract and retain qualified personnel in key positions, to provide
directors and employees, as applicable, with a proprietary interest in the Bank
as an incentive to contribute to the success of the Bank, and to reward
directors and employees for outstanding performance. The Plan provides for the
grant of incentive stock options intended to comply with the requirements of
Section 422 of the Internal Revenue Code of 1986, as amended (the "Code"), and
nonqualified or compensatory stock options.
Eleven directors have been granted options to purchase an aggregate of
99,000 shares of Common Stock, each option having an initial exercise price of
$11.00, the fair market value of Common Stock on the date of grant. The Plan
provides that the option exercise price may be adjusted under certain
circumstances, including the occurrence of a stock split. On August 14, 2000,
the Stock Option Plan Committee adjusted the exercise price of the options to
$9.17 per share in order to reflect the effect of the August 14, 2000 stock
split on the fair market value of a share of Common Stock. Of these options
granted to directors, 62,100 options vested at the time of grant and 12,300
options vested on each of September 30, 2000, 2001 and 2002. Options granted
under the Plan have a term of ten years and are not transferable except upon
death.
Thirty-four employees have been granted options to purchase an aggregate
of 90,250 shares of Common Stock. Of the options awarded, 75,000 have an
original exercise price of $11.00, the fair market value of the Common Stock on
the date of grant (September 30, 1999). On August 14, 2000, the Stock Option
Plan Committee adjusted the exercise price of the 75,000 options granted on
September 30, 1999 to $9.17 per share in order to reflect the effect of the
August 14, 2000 stock split on the fair market value of a share of Common Stock.
Ten percent of the 75,000 incentive options granted to employees on September
30, 1999 vested immediately, 15% vested on September 30, 2000, 20% vested on
September 30, 2001, 25% vested on September 30, 2002 and the remaining 30% will
vest on September 30, 2003. In addition, 5,650 of the total options granted have
an exercise price of $15.00, the fair market value of the Common Stock on the
date of grant (January 16, 2001) and 9,600 of the total options granted have an
exercise price of $15.00, the fair market value of the Common Stock on the date
of grant (August 1, 2002). Of the 5,650 options granted on January 16, 2001, 10%
vested immediately, 15% vested on January 16, 2002, 20% vested on January 16,
2003, 25% will vest on January 16, 2004, and the remaining 30% will vest on
January 16, 2005. Of the 9,600 options granted on August 1, 2002, 8,400 vested
immediately and 1,200 vested on September 30, 2002. Options granted under the
Plan have a term of ten years and are not transferable except upon death. No
cash consideration was paid by employees or directors for the award of the
options under the Plan.
No options were granted to or exercised by Mr. Brubaker or Mr. Washburn
under the Plan during the fiscal year ended December 31, 2002.
11
The following table provides information with respect to outstanding stock
options held by Mr. Brubaker and Mr. Washburn during the fiscal year ended
December 31, 2002.
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
Options/SARs at Options/SARs at
Fiscal Year End(1) Fiscal Year End(2)
Shares Acquired Value --------------------------- ---------------------------
Name on Exercise Realized Exercisable Unexercisable Exercisable Unexercisable
- ------------------ --------------- -------- ----------- ------------- ----------- -------------
John M. Brubaker 0 $0 24,000 9,000 $92,160 $34,560
Robert E. Washburn 0 $0 12,600 5,400 $48,384 $20,736
(1) All stock options were granted as of September 14, 1999. Includes 24,000
shares for Mr. Brubaker and 12,600 shares for Mr. Washburn subject to
options (adjusted to reflect the August 14, 2000 stock split) which have
vested or are exercisable within 60 days under the Plan. These options,
granted pursuant to the Plan, entitle Mr. Brubaker and Mr. Washburn to
purchase, at any time after vesting and before September 14, 2009, shares
of Common Stock in exchange for an exercise price of $9.17 per share
(adjusted to reflect the August 14, 2000 stock split). Of the options
granted to Mr. Brubaker as a director, 2,100 options vested on September
14, 1999 and 300 options vested on each of September 30, 2000, 2001 and
2002. Of the options granted to Mr. Brubaker as an employee, 3,000 options
vested on September 14, 1999, 4,500 options vested on September 30, 2000,
6,000 options vested on September 30, 2001, 7,500 options vested on
September 30, 2002 and the remaining 9,000 options will vest on September
30, 2003. Of the options granted to Mr. Washburn as an employee, 1,800
vested on September 14, 1999, 2,700 vested on September 30, 2000, 3,600
options vested on September 30, 2001, 4,500 options vested on September
30, 2002, and the remaining 5,400 options will vest on September 30, 2003.
These options become 100% vested upon death, disability or a change in
control of the Company.
(2) Dollar amounts shown represent the value of stock options held as of
December 31, 2002. All of Mr. Brubaker's and Mr. Washburn's options were
"in- the-money" at such date. Options are considered "in-the-money" if the
fair market value of Common Stock exceeds the exercise price or base price
of the options. At December 31, 2002, the exercise price of the stock
options was $9.17 per share and the price paid for the Common Stock in the
last trade known to management to have occurred prior to December 31, 2002
was $13.01, which trade occurred on December 16, 2002.
The following description of the Plan is a summary of its terms and is
qualified in its entirety by reference to the Plan.
Administration. The Plan is administered and interpreted by a committee of
the Board of Directors (the "Committee") that is composed of two or more
"non-employee directors" as that term is defined by the Exchange Act rules and
regulations.
Stock Options. The Board of Directors or the Committee determine which
directors and employees will be granted options under the Plan, whether the
options will be incentive or nonqualified options, the number of shares subject
to each option, and when the options become exercisable. The Plan provides that
each share of Common Stock underlying the options will have an exercise price of
not less than the fair market value of a share of Common Stock on the date of
grant. The fair market value will be determined by the Committee based on market
information and the advice of an independent brokerage firm.
12
All options granted to participants under the Plan become vested and
exercisable at the rate determined by the Committee when making an award.
Unvested options are forfeited if a participant's employment with or service to
the Bank is terminated for any reason other than the participant's death or
disability. Unless the Committee specifically states otherwise at the time an
option is granted, all options granted to participants will become vested and
exercisable in full on the date an optionee's employment with or service to the
Bank or the Company terminates due to the death or disability of the optionee.
In addition, all stock options become vested and exercisable in full in the
event of a change in control of the Company, as defined in the Plan. Options
granted under the Plan may have a term of up to ten years. Stock options are
non-transferable except by will or the laws of descent and distribution. Payment
for shares purchased upon the exercise of options may be made in cash, by check,
bank draft or money order.
Number of Shares Covered by the Plan. A total of 141,500 shares of Common
Stock have been reserved for issuance to employees pursuant to the Plan. An
additional 141,500 shares of Common Stock also has been reserved for issuance to
directors pursuant to the Plan. In lieu of issuing reserved unissued shares upon
the exercise of options, the Company may elect to purchase shares in the open
market to fund exercises of options. To the extent that exercised options are
funded by authorized but unissued shares, the interests of existing stockholders
will be diluted. In the event of a stock split, reverse stock split or stock
dividend, the number of shares of Common Stock under the Plan, the number of
shares to which any option relates and the exercise price per share under any
option will be adjusted to reflect increases or decreases in the total number of
shares of Common Stock outstanding.
Amendment and Termination of the Plan. Unless terminated, the Plan will
continue in effect until September 14, 2009. The Board of Directors may at any
time alter, suspend, terminate or discontinue the Plan, subject to any
applicable regulatory requirements and any required stockholder approval or any
stockholder approval which the Board may deem advisable for any reason, such as
for the purpose of obtaining or retaining any statutory or regulatory benefits
under tax, securities or other laws or satisfying applicable stock exchange or
quotation system listing requirements. The Board of Directors may not, without
the consent of the optionee, make any alteration which would deprive the
optionee of his rights with respect to any previously granted option.
Termination of the Plan would not affect any previously granted options.
401(k) 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 and who are at least 18 years
of age may elect to contribute up to 15% of their compensation to the plan each
year, subject to certain maximums imposed by federal law. The Bank matches 50%
of the first 6% of each participant's contribution. For purposes of the 401(k)
plan, compensation means a participant's compensation received from the employer
as reported on Form W-2.
Participants are fully vested in amounts they contribute to the plan.
Participants are fully vested in Bank contributions to the plan after five years
of service, with 20% vesting each year. Benefits under the plan are payable at
retirement, death, disability or termination of employment.
Certain Indebtedness and Transactions of Management
The Bank makes loans to its executive officers and directors in the
ordinary course of its business. These loans are currently made on substantially
the same terms, including interest rates, collateral and repayment terms, 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 its executive officers and directors at terms more favorable than could
be obtained by non-executive employees of the Bank. The Bank's policy concerning
loans to executive officers and directors currently complies with these
regulations.
13
The highest aggregate outstanding balance of loans to current directors,
executive officers and their associates, as a group, since January 1, 2002, was
$2,106,504 (the amount outstanding at November 30, 2002), which represented
approximately 19.70% of the Bank's then current equity capital accounts.
PROPOSAL 2
RATIFICATION OF APPOINTMENT OF INDEPENDENT AUDITOR
Larrowe & Company, PLC ("Larrowe"), the Company's independent auditor for
the year ended December 31, 2002, has been appointed by the Audit Committee of
the Board of Directors as the Company's independent auditor for the year ending
December 31, 2003. This appointment is being submitted to the Company's
stockholders for ratification. Representatives of Larrowe 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.
Audit Fees
The aggregate fees (including related out-of-pocket expenses) billed for
each of the last two fiscal years for professional services rendered by Larrowe
in connection with (i) the audit of the Bank's annual financial statements for
2002 and 2001 fiscal years, and (ii) review of financial statements included in
the Bank's Quarterly Report filings on Form 10-QSB for those fiscal years were
approximately $29,960 and $22,509, respectively.
Audit-Related Fees
Larrowe did not provide any assurance and related services reasonably
related to the performance of the audit or review of the Bank's financial
statements that are not included in "Audit Fees" above for fiscal years 2002 and
2001.
Tax Fees
The aggregate fees billed in each of the last two fiscal years for
professional services rendered by Larrowe to the Bank for tax compliance, tax
consulting and tax planning were $2,500 and $2,000 for fiscal years 2002 and
2001, respectively.
All Other Fees
In addition to the fees outlined above, Larrowe billed or anticipates
billing fees in the amount of $2,514 and $628 for additional products and
services rendered during fiscal years 2002 and 2001, respectively. These
services included regulatory assistance and capital planning.
Pursuant to the revised charter of the Board of Directors' Audit Committee
adopted on February 18, 2003, the Audit Committee is required to pre-approve all
audit and permitted non-audit services provided to the Bank by its independent
auditor. The Audit Committee may delegate pre-approval authority to a
subcommittee of the Audit Committee or to a particular individual when
appropriate. The decisions of any subcommittee or individual acting under
authority delegated by the Audit Committee must be presented to the Audit
Committee at its next scheduled meeting.
14
The following table sets forth for the fiscal years indicated the
percentage of auditor fees disclosed under "Audit-Related Fees," "Tax Fees" and
"All Other Fees" above that were pre-approved by the Audit Committee and the
method of pre-approval received.
PERCENTAGE (%) OF AUDITOR FEES PRE-APPROVED BY AUDIT COMMITTEE
Type of Pre-Approval
------------------------------------------------------------------------
Service or Product
Pre-Approved Waiver of Pre-
Pursuant to Audit Approval Applicable,
Specific Service or Committee Policy & but Approved Prior to
Type of Auditor Fees Product Pre-Approved Procedure Completion of Audit
- -------------------------------------------------------------------------------------------------
2002 2001 2002 2001 2002 2001
- -------------------------------------------------------------------------------------------------
Audit-Related Fees 100% 100% 0% 0% 0% 0%
- -------------------------------------------------------------------------------------------------
Tax Fees 100% 100% 0% 0% 0% 0%
- -------------------------------------------------------------------------------------------------
All Other Fees 0% 0% 0% 0% 100% 100%
- -------------------------------------------------------------------------------------------------
THE BOARD OF DIRECTORS RECOMMENDS THAT THE STOCKHOLDERS VOTE FOR
RATIFICATION OF THE APPOINTMENT OF LARROWE AS INDEPENDENT AUDITOR FOR THE
COMPANY FOR THE FISCAL YEAR ENDING DECEMBER 31, 2003.
DATE FOR RECEIPT OF STOCKHOLDERS' PROPOSALS
It is presently anticipated that the 2004 Annual Meeting of Stockholders
of the Company will be held in May 2004. In order for stockholder proposals to
be included in the Company's proxy materials for that meeting, such proposals
must be received by the Secretary of the Company at the Company's main office no
later than December 11, 2003, and meet all other applicable requirements for
inclusion in the proxy statement.
In the alternative, if a stockholder follows the Securities and Exchange
Commission's proxy solicitation rules, a stockholder may commence his or her own
proxy solicitation and present a proposal from the floor at the 2004 Annual
Meeting of Stockholders of the Company. In order to do so, the stockholder must
notify the Secretary of the Company of his or her proposal in writing at the
Company's main office no later than February 24, 2004. If the Secretary of the
Company is not notified of the stockholder's proposal by February 24, 2004, the
Board of Directors may vote on the proposal pursuant to the discretionary
authority granted by the proxies solicited by the Board of Directors for the
2004 Annual Meeting.
The Company's Bylaws provide that, in order to be eligible for
consideration at a meeting of stockholders, all nominations of directors, other
than those made by the Board of Directors, must be made in writing and must be
delivered to the Secretary of the Company not less than 50 days nor more than 90
days prior to the meeting at which such nominations will be made; provided,
however, if less than 60 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 tenth day following the day on which the
notice of meeting was mailed.
15
OTHER MATTERS
Management knows of no other matters to be presented for consideration at
the Meeting or any adjournments thereof. If any other matters of which the
Company was notified after February 16, 2003 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 Company's Annual Report to Stockholders for the year ended December
31, 2002, which includes financial statements audited and reported upon by the
Company's independent auditor, is being mailed along with this Proxy Statement.
It is not intended that the Annual Report be deemed a part of this Proxy
Statement or a solicitation of proxies.
THE FORM 10-KSB FILED BY THE COMPANY WITH THE SEC, INCLUDING THE FINANCIAL
STATEMENTS AND SCHEDULES THERETO, WILL BE PROVIDED FREE OF CHARGE TO THE
COMPANY'S STOCKHOLDERS UPON WRITTEN REQUEST DIRECTED TO: HIGH COUNTRY FINANCIAL
CORPORATION, 149 JEFFERSON ROAD, BOONE, NORTH CAROLINA 28607, (828) 265-4333,
ATTENTION: JOHN M. BRUBAKER.
By Order of the Board of Directors
/s/ John M. Brubaker
John M. Brubaker
President and Chief Executive Officer
Boone, North Carolina
April 10, 2003
16
Appendix A
HIGH COUNTRY FINANCIAL CORPORATION
AUDIT COMMITTEE CHARTER
Purpose
The principal purpose of the Audit Committee is to assist the Board of Directors
of High Country Financial Corporation and High Country Bank (the "Company") in
fulfilling its responsibility to oversee: (i) the integrity of the Company's
financial statements; (ii) the Company's financial reporting process; (iii) the
Company's systems of internal accounting and financial controls; (iv) the
performance of the Company's internal audit function and independent auditor;
(v) the independent auditor's qualifications and independence; and (vi) the
Company's compliance with ethics policies and legal and regulatory requirements.
In so doing, it is the responsibility of the Committee to maintain free and open
communication between the committee, independent auditor, the internal auditors,
and management of the Company.
In discharging its oversight role, the Audit Committee is granted the authority
to investigate any matter brought to its attention with full access to all
books, records, facilities and personnel of the Company and the authority to
engage independent counsel and other advisers, as it determines necessary to
carry out its duties. The Company shall provide appropriate funding, as
determined by the Audit Committee, for compensation to the independent auditor
and to any advisers, including independent counsel, that the Committee chooses
to engage.
The Committee shall review and reassess the adequacy of this Charter annually
and recommend any proposed changes to the Board for approval.
Composition
The Committee shall be comprised of no fewer than three members. The members of
the Committee shall be appointed by the Board on recommendation of the
Nominating Committee. Committee members may be replaced by the Board.
The Committee's members will meet the requirements of the applicable stock
exchange listing standards. Accordingly, all members of the Committee shall be
directors who:
o Have no relationship to management or the Company that may interfere
with the exercise of their independent judgment;
o Do not receive any consulting, advisory or other compensatory fee
from the Company, other than in the member's capacity as a member of
the Board or any of its committees;
o Are not "affiliated persons" (as defined by applicable law or
regulation) of the Company or any subsidiary, other than as a member
of the Board or any of its committees; and
o Are financially literate as required by applicable stock exchange
listing standards.
In addition, at least one member of the Committee will have accounting or
related financial management expertise and, to the extent practicable, be a
"financial expert" (as that term is defined by the Securities and Exchange
Commission ("SEC")) as determined by the Board.
The Committee shall meet at least quarterly, or more frequently as circumstances
dictate. The Committee shall periodically meet separately with management, the
internal auditors, and the independent auditor to discuss issues
A-1
and concerns warranting Committee attention. The Committee may delegate
authority to subcommittees or individuals when appropriate. Any such
subcommittee or individual acting under authority delegated by the Committee
shall report any actions taken to the Committee at its next scheduled meeting.
The Committee shall report regularly to the Board.
Duties and Responsibilities
The primary responsibility of the Committee is to oversee the Company's
financial reporting process on behalf of the Board and report the results of
their activities to the Board. While the Committee has the responsibilities and
powers set forth in this Charter, it is not the duty of the Committee to plan or
conduct audits or to determine that the Company's financial statements are
complete and accurate and are in accordance with generally accepted accounting
principles and applicable rules and regulations. Management is responsible for
the preparation, presentation, and integrity of the Company's financial
statements and for the appropriateness of the accounting principles and
reporting policies that are used by the Company. The independent auditor is
responsible for auditing the Company's financial statements and for reviewing
the Company's unaudited interim financial statements.
The Committee, in carrying out its responsibilities, believes its policies and
procedures should remain flexible in order to best react to changing conditions
and circumstances. The Committee should take appropriate actions to set the
overall corporate "tone" for quality financial reporting, sound business risk
practices, and ethical behavior. The following shall be the principal duties and
responsibilities of the Committee. These are set forth as a guide with the
understanding that the Committee may supplement them as appropriate.
Financial Statement and Disclosure Matters
o The Committee shall review and discuss with management and the
independent auditor the annual audited financial statements,
including disclosures made in management's discussion and analysis,
and recommend to the Board whether the audited financial statements
should be included in the Company's Annual Report on Form 10-KSB and
the Annual Report to Stockholders.
o The Committee shall review and discuss with management and the
independent auditor the Company's quarterly financial statements
prior to the filing of its Quarterly Reports on Form 10- QSB,
including the results of the independent auditor' reviews of the
quarterly financial statements.
o The Committee shall periodically review with management and the
independent auditor the quality, as well as acceptability, of the
Company's accounting policies, and discuss with the independent
auditor how the Company's accounting policies compare with those in
the industry and all alternative treatments of financial information
within generally accepted accounting principles that have been
discussed with management, the ramifications of use of such
alternative disclosures and treatments and the treatment preferred
by the independent auditor.
o The Committee shall periodically discuss with the independent
auditor whether all material correcting adjustments identified by
the independent auditor in accordance with generally accepted
accounting principles and applicable SEC rules are reflected in the
Company's financial statements.
o The Committee shall review with management and the independent
auditor any material financial or other arrangements of the Company
which do not appear on the Company's financial statements and any
transactions or courses of dealing with third parties that are
significant in size or involve terms or other aspects that differ
from those that would likely be negotiated with independent
A-2
parties, and which arrangements or transactions are relevant to an
understanding of the Company's financial statements.
o The Committee shall discuss with management and the independent
auditor significant financial reporting issues and judgments made in
connection with the preparation of the Company's financial
statements, including any significant changes in the Company's
selection or application of accounting principles, any major issues
as to the adequacy of the Company's internal controls, the
developments, selection and disclosure of critical accounting
policies and estimates, and analyses of the effect of alternative
assumptions, estimates or GAAP methods on the Company's financial
statements.
o The Committee shall review and discuss with management the Company's
earnings press releases, including the use of "pro forma" or
"adjusted" non-GAAP information, as well as financial information
and earnings guidance provided to analysts and rating agencies.
o The Committee shall discuss with management and the independent
auditor the effect of regulatory and accounting initiatives as well
as off-balance sheet structures on the Company's financial
statements.
o The Committee shall discuss with management the Company's major
financial risk exposures and the steps management has taken to
monitor and control such exposures, including the Company's risk
assessment and risk management policies.
o The Committee shall discuss with the independent auditor the matters
required to be discussed by Statement on Accounting Standards No. 61
relating to the conduct of the audit. In particular, the Committee
shall discuss:
> The adoption of, or changes to, the Company's significant
auditing and accounting principles and practices as suggested
by the independent auditor, internal auditors or management.
> The management letter provided by the independent auditor and
the Company's response to that letter.
> Any difficulties encountered in the course of the audit work,
including any restrictions on the scope of activities or
access to requested information, and any significant
disagreements with management.
o The Committee shall prepare its report as required by SEC
regulations to be included in the Company's annual proxy statement.
Oversight of the Company's Relationship with the Independent Auditor
o The Committee shall be directly responsible for the appointment,
compensation and oversight of the work of the independent auditor in
preparing or issueing any audit report or related work, including
resolution of any disagreements between management and the
independent auditor regarding financial reporting.
A-3
o The Committee shall approve the engagement of the independent
auditor and shall approve, in advance, all audit services and all
permitted non-audit services to be provided to the Company by the
independent auditor. The Committee may delegate pre-approval
authority to a member of the Committee. The decisions of any
Committee member to whom pre-approval authority is delegated must be
presented to the full Committee at its next scheduled meeting.
o On an annual basis, the Committee shall obtain from the independent
auditor and review a formal written statement delineating all
relationships between the auditor and the Company consistent with
Independence Standards Board Standard No. 1 and such other
requirements as may be established by the Public Company Accounting
Oversight Board, discuss with the independent auditor any disclosed
relationships and their impact on the independent auditor's
independence, and take appropriate action regarding the independence
of the independent auditor.
o At least annually, the Committee shall obtain and review a report by
the independent auditor describing:
> The auditor's internal quality control procedures;
> Any material issues raised by the most recent internal quality
control review, or peer review, of the Company, or by any
inquiry or investigation by governmental or professional
authorities within the preceding five years respecting one or
more independent audits carried out by the independent
auditor, and any steps taken to deal with such issues; and
> All relationships between the independent auditor and the
Company.
o The Committee shall evaluate the qualifications, performance and
independence of the independent auditor, including considering
whether the auditor's quality controls are adequate and the
provision of non-audit services is compatible with maintaining the
auditor's independence, while taking into account the opinions of
management and the internal auditor. The Committee shall present its
conclusions to the Board and, if so determined by the Committee,
recommend that the Board take additional action to satisfy itself of
the qualifications, performance and independence of the auditor.
o The Committee shall recommend to the Board policies for the
Company's hiring of employees or former employees of the independent
auditor who were engaged on the Company's account.
o The Committee shall discuss with the internal auditors and the
independent auditor the overall scope and plans for their respective
audits, including the adequacy of staffing and compensation.
o The Committee shall discuss with management, the internal auditors,
and the independent auditor the adequacy and effectiveness of the
accounting and financial controls, including the Company's policies
and procedures to assess, monitor, and manage business risk, and
legal and ethical compliance programs (e.g., Company's Code of
Business Conduct and Ethics).
Oversight of the Company's Internal Audit Function
o The Committee shall review the appointment and replacement of the
internal auditor.
o The Committee shall review all significant reports to management
prepared by the internal auditor and management's responses.
A-4
o The Committee shall discuss with the independent auditor the
internal audit function responsibilities, budget and staffing and
any recommended changes in the planned scope of the internal audit.
o The Committee shall periodically (and at least annually) discuss
with management and the independent auditor the quality and adequacy
of the Company's internal controls and internal auditing procedures,
including any significant deficiencies in the design or operation of
those controls which could adversely affect the Company's ability to
record, process, summarize and report financial data and any fraud,
whether or not material, that involves management or other employees
who have a significant role in the Company's internal controls, and
discuss with the independent auditor how the Company's financial
systems and controls compare with industry practices.
o The Committee shall review management's assertion on its assessment
of the effectiveness of internal controls as of the end of the most
recent fiscal year and the independent auditor' report on
management's assertion.
Compliance Oversight Responsibilities
o The Committee shall obtain reports from management, the Company's
internal auditor and independent auditor that the Company and its
affiliates are in conformity with applicable legal requirements and
the Company's Code of Business Conduct and Ethics. The Committee
shall advise the Board with respect to the Company's policies and
procedures regarding compliance with applicable laws and regulations
and with the Company's Code of Business Conduct and Ethics.
o The Committee shall review reports and disclosures of insider and
affiliated party transactions.
o The Committee shall establish procedures for (i) the receipt,
retention and treatment of complaints received by the Company
regarding accounting, internal accounting controls or auditing
matters and (ii) the confidential, anonymous submission by employees
of the Company of concerns regarding questionable accounting or
auditing matters.
o The Committee shall discuss with the Company's general and other
counsel any legal matters that may have a material impact on the
financial statements or the Company's compliance policies.
o The Committee shall perform an evaluation of its performance at
least annually to determine whether it is functioning effectively.
A-5
REVOCABLE PROXY
HIGH COUNTRY FINANCIAL CORPORATION
[X] PLEASE MARK VOTES AS IN THIS EXAMPLE
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
Annual Meeting of STOCKHOLDERS May 13, 2003
The undersigned hereby constitutes and appoints Faye E. Cooper, Larry V.
Hughes and Roger D. Wright. each and any of them, proxies of the undersigned,
with full power of substitution, to vote all of the shares of High Country
Financial Corporation (the "Company") that the undersigned may be entitled to
vote at the Annual Meeting of Stockholders of the Company to be held at the Best
Western, Boone, North Carolina on Tuesday, May 13, 2003 at 10:00 a.m.,
prevailing time, and at any adjournment or postponement thereof as follows with
respect to the following matters as described in the Proxy Statement:
With- For All
For hold Except
[ ] [ ] [ ]
1. ELECTION OF DIRECTORS: for all
nominees listed below (except as marked
to the contrary below): John H.
Councill, Dale L. Greene, Reba S. Moretz
and James C. Furman until the 2006
Annual Meeting of Stockholders or until
their successors are duly elected and
qualify.
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.
For Against Abstain
[ ] [ ] [ ]
2. To ratify the appointment of Larrowe
& Company, PLC Certified Public
Accountants as the independent auditors
for the fiscal year ended December 31,
2003.
THIS PROXY, WHEN PROPERLY EXECUTED, WILL BE VOTED IN THE MANNER HEREIN
SPECIFIED BY THE UNDERSIGNED STOCKHOLDER. IF NO DIRECTION IS INDICATED, THIS
PROXY WILL BE VOTED FOR THE NOMINEES LISTED ABOVE AND FOR PROPOSAL 2 AND IN
ACCORDANCE WITH THE DISCRETION OF THE PROXIES ON ANY OTHER MATTERS TO COME
BEFORE THE ANNUAL MEETING.
Please be sure to sign and date this Proxy in the box below.
---------------------------------------
Date
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Stockholder sign above
---------------------------------------
Co-holder (if any) sign above
Detach above card, sign, date and mail in postage paid envelope provided.
HIGH COUNTRY FINANCIAL CORPORATION
Please sign exactly as your name appears on this proxy card, date and
return this card promptly using the enclosed envelope. Executors,
administrators, guardians, officers of corporations, and others signing in a
fiduciary capacity should state their full title as such.
WHETHER OR NOT YOU PLAN TO ATTEND THE ANNUAL MEETING, PLEASE ACT PROMPTLY.
SIGN, DATE & MAIL YOUR PROXY CARD TODAY, USING THE ENCLOSED ENVELOPE.
If your address has changed, please correct the address in the space provided
below and return this portion with the proxy in the envelope provided.
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