SCHEDULE 14-A 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
|X| Definitive Proxy Statement
|_| Definitive Additional Materials
|_| Soliciting Material Pursuant to ss.240.14a-11(c) or ss.240.14a-12
Citizens South Banking Corporation
(Name of Registrant as Specified In Its Charter)
(Name of Person(s) Filing Proxy Statement)
Payment of Filing Fee (Check the appropriate box):
|X| No fee required.
|_| $125 per Exchange Act Rules 0-11(c)(1)(ii), 14a-6(i)(1), or 14a-6(j)(2).
|_| $500 per each party to the controversy pursuant to Exchange Act Rule
14a-6(i)(3).
|_| Fee computed on table below per Exchange Act Rules 14a-6(i)(4) 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:
...............................
4) Proposed maximum aggregate value of transaction:
...............................
|_| 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: September ___, 2003
[CITIZENS SOUTH BANKING CORPORATION "CORONA" LOGO]
September 8, 2003
Dear Stockholder:
We cordially invite you to attend the Special Meeting of Stockholders of
Citizens South Banking Corporation (the "Company"). The Special Meeting will be
held at the Gaston County Public Library, 1555 East Garrison Boulevard,
Gastonia, North Carolina, at 10:30 a.m. (local time) on October 23, 2003.
The enclosed Notice of the Special Meeting and proxy statement describe the
formal business to be transacted. Directors and officers of the Company will be
present to respond to any questions that stockholders may have.
The business to be conducted at the Special Meeting consists of the approval by
stockholders of the 2003 Stock Option Plan and the 2003 Recognition and
Retention Plan. The Board of Directors of the Company has determined that each
of these plans is in the best interests of the Company and its stockholders. For
the reasons set forth in the proxy statement, the Board of Directors recommends
a vote "FOR" approval of each of these plans.
On behalf of the Board of Directors, we urge you to sign, date and return the
enclosed proxy card as soon as possible, even if you currently plan to attend
the Special Meeting. This will not prevent you from voting in person, but will
assure that your vote is counted if you are unable to attend the meeting. Your
vote is important, regardless of the number of shares that you own.
Sincerely,
/s/ Kim S. Price
- -------------------------------------
Kim S. Price
President and Chief Executive Officer
Citizens South Banking Corporation
245 West Main Avenue
Gastonia, North Carolina 28053-2249
(704) 868-5200
NOTICE OF
SPECIAL MEETING OF STOCKHOLDERS
To Be Held On October 23, 2003
Notice is hereby given that a Special Meeting of Citizens South Banking
Corporation (the "Company") will be held at the Gaston County Public Library,
1555 East Garrison Boulevard, Gastonia, North Carolina, at 10:30 a.m. (local
time) on October 23, 2003.
A proxy card and a proxy statement for the Special Meeting are enclosed.
The Special Meeting is for the purpose of considering and acting upon:
1. approval of the Citizens South Banking Corporation 2003 Stock
Option Plan; and
2. approval of the Citizens South Banking Corporation 2003
Recognition and Retention Plan.
In accordance with the bylaws, the business of the Special Meeting is
limited to the foregoing two matters. Action may be taken on these proposals at
the Special Meeting on the date specified above, or on any date or dates to
which the Special Meeting may be adjourned. Stockholders of record at the close
of business on September 2, 2003 are the stockholders entitled to vote at the
Special Meeting and any adjournments thereof.
A list of stockholders entitled to vote at the Special Meeting will be
available at the Company's Main Office, 245 West Main Avenue, Gastonia, North
Carolina 28053-2249, for the 10 days immediately prior to the Special Meeting.
It also will be available for inspection at the meeting itself.
EACH STOCKHOLDER, WHETHER HE OR SHE PLANS TO ATTEND THE SPECIAL MEETING,
IS REQUESTED TO SIGN, DATE AND RETURN THE ENCLOSED PROXY CARD WITHOUT DELAY IN
THE ENCLOSED POSTAGE-PAID ENVELOPE. ANY PROXY GIVEN BY THE STOCKHOLDER MAY BE
REVOKED AT ANY TIME BEFORE IT IS EXERCISED. A PROXY MAY BE REVOKED BY FILING
WITH THE SECRETARY OF THE COMPANY A WRITTEN REVOCATION OR A DULY EXECUTED PROXY
BEARING A LATER DATE. ANY STOCKHOLDER PRESENT AT THE SPECIAL MEETING MAY REVOKE
HIS OR HER PROXY AND VOTE PERSONALLY ON EACH MATTER BROUGHT BEFORE THE SPECIAL
MEETING. HOWEVER, IF YOU ARE A STOCKHOLDER WHOSE SHARES ARE NOT REGISTERED IN
YOUR OWN NAME, YOU WILL NEED ADDITIONAL DOCUMENTATION FROM YOUR RECORD HOLDER IN
ORDER FOR YOU TO VOTE PERSONALLY AT THE SPECIAL MEETING.
By Order of the Board of Directors
/s/ Paul L. Teem, Jr.
----------------------------------
Paul L. Teem, Jr.
Secretary
Gastonia, North Carolina
September 8, 2003
IMPORTANT: THE PROMPT RETURN OF PROXIES WILL SAVE THE COMPANY THE EXPENSE OF
FURTHER REQUESTS FOR PROXIES. A SELF-ADDRESSED ENVELOPE IS ENCLOSED FOR YOUR
CONVENIENCE. NO POSTAGE IS REQUIRED IF MAILED WITHIN THE UNITED STATES.
PROXY STATEMENT
OF
Citizens South Banking Corporation
245 West Main Avenue
Gastonia, North Carolina 28053-2249
(704) 868-5200
SPECIAL MEETING OF STOCKHOLDERS
October 23, 2003
This proxy statement is furnished in connection with the solicitation of
proxies on behalf of the Board of Directors of Citizens South Banking
Corporation (the "Company") to be used at the Special Meeting of Stockholders of
the Company (the "Special Meeting"), which will be held at the Gaston County
Public Library, 1555 East Garrison Boulevard, Gastonia, North Carolina, at 10:30
a.m. (local time) on October 23, 2003, and all adjournments of the Special
Meeting. The accompanying Notice of Special Meeting of Stockholders and this
proxy statement are first being mailed to stockholders on or about September 12,
2003.
REVOCATION OF PROXIES
Stockholders who execute proxies in the form solicited hereby retain the
right to revoke them in the manner described below. Unless so revoked, the
shares represented by such proxies will be voted at the Special Meeting and all
adjournments thereof. Proxies solicited on behalf of the Board of Directors of
the Company will be voted in accordance with the directions given thereon. Where
no instructions are indicated, validly executed proxies will be voted "FOR" the
proposals set forth in this proxy statement for consideration at the Special
Meeting.
In accordance with the bylaws of the Company, the business of the Special
Meeting is limited to the two proposals described in this proxy statement. In
the event there are not sufficient votes for a quorum, or to approve either of
the proposals being presented, at the time of the Special Meeting, the Special
Meeting may be adjourned in order to permit the further solicitation of proxies.
Proxies may be revoked by sending written notice of revocation to the
Secretary of the Company at the address shown above. The presence at the Special
Meeting of any stockholder who had returned a proxy shall not revoke such proxy
unless the stockholder delivers his or her ballot in person at the Special
Meeting or delivers a written revocation to the Secretary of the Company prior
to the voting of such proxy.
VOTING SECURITIES AND PRINCIPAL HOLDERS THEREOF
Holders of record of the Company's common stock (the "Common Stock") as of
the close of business on September 2, 2003 (the "Record Date") are entitled to
one vote for each share then held, except as described below. As of the Record
Date, the Company had 8,885,708 shares issued and outstanding. The presence in
person or by proxy of a majority of the outstanding shares of Common Stock
entitled to vote is necessary to constitute a quorum at the Special Meeting.
Broker non-votes and proxies marked ABSTAIN will be counted for purposes of
determining that a quorum is present.
In accordance with the provisions of the Company's Certificate of
Incorporation, record owners of Common Stock who beneficially own in excess of
10% of the outstanding shares of Common Stock (the "Limit") are not entitled to
any vote with respect to the shares held in excess of the Limit. The Company's
Certificate of Incorporation authorizes the Board of Directors (i) to make all
determinations necessary to implement and apply the Limit, including determining
whether persons or entities are acting in concert, and (ii) to demand that any
person who is reasonably believed to beneficially own stock in excess of the
Limit supply information to the Company to enable the Board of Directors to
implement and apply the Limit.
Persons and groups who beneficially own in excess of five percent of the
Common Stock are required to file certain reports with the Securities and
Exchange Commission (the "SEC") regarding such ownership. The following table
sets forth, as of the Record Date, the shares of Common Stock beneficially owned
by each person who was the beneficial owner of more than five percent of the
Company's outstanding shares of Common Stock. The table also sets forth, as of
the Record Date, the shares of Common Stock beneficially owned by the Company's
directors and named executive officers. The information set forth in the table
is based solely upon information supplied to the Company and filings required
pursuant to the Securities Exchange Act of 1934.
Amount of Shares Owned and Percent of Shares of Common
Name and Address of Beneficial Owners Nature of Beneficial Ownership(1) Stock Outstanding(2)
- ---------------------------------------------- --------------------------------- ---------------------------
Directors and Named Executive Officers(3):
Senator David W. Hoyle 165,249 1.82%
Ben R. Rudisill, II 96,011 1.05%
Kim S. Price 122,179 1.34%
Martha B. Beal 82,959 *
James J. Fuller 39,337 *
Charles D. Massey 79,793 *
Eugene R. Matthews, II 48,652 *
Gary F. Hoskins 56,004 *
Paul L. Teem, Jr. 96,832 1.06%
Michael R. Maguire 24,342 *
Vance B. Brinson, Jr. 4,569 *
Daniel M. Boyd, IV 2,698 *
J. Stephen Huffstetler 32,900 *
All Directors and Named Executive Officers as
a Group (13 persons) 851,525 (4) 9.38%
Principal Stockholders:
Citizens South Bank Employee Stock Ownership Plan
(ESOP) (5) 460,734 5.07%
245 West Main Avenue
Post Office Box 2249
Gastonia, North Carolina 28053-2249
Citizens South Bank Employees' Savings and 272,590 3.00%
Profit Sharing Plan (401(k) Plan) (5)
245 West Main Avenue
Post Office Box 2249
Gastonia, North Carolina 28053-2249
- ----------
* Less than 1%.
(1) A person is deemed to be the beneficial owner, for purposes of this table,
of any shares of Common Stock if he or she has shared voting or investment
power with respect to such security, or has a right to acquire beneficial
ownership at any time. As used herein, "voting power" is the power to vote
or direct the voting of shares and "investment power" is the power to
dispose or direct the disposition of shares. Includes all shares held
directly as well as by spouses and minor children, in trust and other
indirect ownership, over which shares the named individuals effectively
exercise sole or shared voting and investment power. The shares of common
stock in this column include 185,759 shares in total and by individual the
following shares which may be acquired by the persons indicated pursuant
to the exercise of stock options within 60 days of the Record Date:
Senator Hoyle - 8,061; Mr. Rudisill - 8,084; Mr. Price - 70,002; Mrs. Beal
- 14,985; Mr. Fuller - 14,985; Mr. Massey - none; Mr. Matthews - 4,995;
Mr. Hoskins - 10,561; Mr. Teem - 14,059; Mr. Maguire - 17,126; Mr. Brinson
- 3,425; Mr. Boyd - none; and Mr. Huffstetler - 19,476.
(2) Calculated by dividing the number of shares in the second column of this
table by the total shares of common stock outstanding at the Record Date
(8,885,708 shares) plus 185,759 shares representing the total number of
shares that may be acquired pursuant to the exercise of stock options
within 60 days of the Record Date.
(3) The mailing address for each director and executive officer listed is Post
Office Box 2249, Gastonia, North Carolina 28053-2249.
(4) Includes 35,384 shares of Common Stock allocated to the accounts of the
named executive officers under the ESOP and excludes the remaining 425,350
shares of Common Stock (representing 4.68% of the shares of Common Stock
outstanding as of the Record Date) owned by the ESOP for the benefit of
the employees of the Company and the Bank. Under the terms of the ESOP,
shares of Common Stock allocated to the account of employees are voted in
accordance with the instructions of the respective employees. Unallocated
shares are voted by the ESOP trustee in the manner calculated to most
accurately reflect the instructions it has received from the participants
regarding the allocated shares, unless its fiduciary duties require
otherwise.
(5) All shares are held on behalf of the plan by a third-party trustee.
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VOTING PROCEDURES AND METHOD OF COUNTING VOTES
As to the approval by stockholders of the 2003 Stock Option Plan and the
2003 Recognition and Retention Plan, by checking the appropriate box a
stockholder may vote "FOR" each item, vote "AGAINST" each item or "ABSTAIN" from
voting on each item. The 2003 Stock Option Plan and the 2003 Recognition and
Retention Plan must be approved by a majority of the votes cast, in person or by
proxy, "FOR" or "AGAINST", without regard to broker non-votes or proxies marked
"ABSTAIN."
Proxies solicited hereby will be returned to the Company and will be
tabulated by an Inspector of Election designated by the Company's Board of
Directors.
COMPENSATION OF DIRECTORS AND EXECUTIVE OFFICERS
Compensation of Directors
Fees. Non-employee Directors of Citizens South Bank received a retainer
fee of $12,000 ($15,600 for the Chairman), plus a fee of $300 per Board meeting
attended, $400 per meeting for attendance at Executive Committee meetings and
$300 per meeting for attendance at all other committee meetings during the year
ended December 31, 2002.
Stock-Based Compensation. Directors are eligible to participate and have
received awards under the 1999 Stock Option Plan and the 1999 Recognition and
Retention Plan. No awards were granted to directors in 2002. Directors will be
eligible to participate in the 2003 Stock Option Plan and the 2003 Recognition
and Retention Plan that are being presented for stockholder approval at this
Special Meeting.
Deferred Compensation and Income Continuation Agreement. In May 1986,
Citizens South Bank entered into nonqualified deferred compensation agreements
("DCA") for the benefit of certain Directors at that time, including Directors
Fuller, Hoyle, Massey, and Rudisill. The DCAs provided each director with the
opportunity to defer up to $20,000 of his annual compensation into the DCA. In
the event of a director's termination of service, amounts credited to his
account under the DCA will be paid in 120 equal monthly installments beginning
not later than the sixth month following the end of the year in which the
director reaches age 70. In the event of death, amounts under the DCA will be
paid to the director's designated beneficiaries. The DCA is an unfunded plan for
tax purposes and for purposes of the Employment Retirement Income Security Act
("ERISA"). All obligations arising under the DCA are payable from the general
assets of Citizens South Bank.
Supplemental Retirement Plan. In February 1992, Citizens South Bank
entered into nonqualified supplemental retirement agreements ("SRA") for certain
Directors at that time, including Directors Fuller, Hoyle, Massey, and Rudisill.
Citizens South Bank entered into SRAs for Directors Beal and Matthews in October
2000. The SRAs provide for an annual benefit that ranges from $4,000 to $15,600.
Monthly benefits are provided for designated beneficiaries of directors. Amounts
not paid to the director, beneficiaries or spouse are paid to the estate of the
director in a lump sum. Benefits under the SRA are forfeited if the director's
service is terminated for cause. The SRA is considered an unfunded plan for tax
and ERISA purposes. All obligations arising under the SRA are payable from the
general assets of Citizens South Bank.
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Executive Compensation
The following table sets forth certain information as to the total
remuneration paid to the chief executive officer and to each other executive
officer who earned over $100,000 in salary and bonuses during the year ended
December 31, 2002 (the "Named Executive Officers").
Annual Compensation Long-Term Compensation
------------------------------------- --------------------------------------------
Awards Payouts
------------------------ ------------------
Other Annual Restricted Options/ All Other
Name and Year Ended Compensation Stock SARS LTIP Compensation
Principal Position 12/31 (1) Salary (2) Bonus (3) (4) Awards (#) Payouts (5)
- ------------------------------ ---------- ----------- ---------- ------------ ---------- -------- ------- ------------
Kim S. Price 2002 $ 150,000 $ 41,580 -- -- -- -- $ 77,714 (6)
President, Chief Executive 2001 $ 139,368 $ 34,000 -- -- -- -- $ 39,597 (6)
Officer, and Director 2000 $ 130,008 $ 25,000 -- -- -- -- $ 13,321
Paul L. Teem, Jr. 2002 $ 95,016 $ 21,949 -- -- -- -- $ 53,252 (6)
Executive Vice President, 2001 $ 90,192 $ 15,000 -- -- -- -- $ 28,755 (6)
Secretary, and Chief 2000 $ 87,384 $ 12,000 -- -- -- -- $ 10,565
Administrative Officer
Ronald E. Bostian (7) 2002 $ 150,000 -- -- -- -- -- $ 4,500
Executive Vice President
and Director
Gary F. Hoskins 2002 $ 80,016 $ 21,064 -- -- -- -- $ 14,229 (6)
Executive Vice President, 2001 $ 75,264 $ 12,500 -- -- -- -- $ 11,183 (6)
Treasurer, and Chief 2000 $ 72,916 $ 10,000 -- -- -- -- $ 8,765
Financial Officer
Michael R. Maguire 2002 $ 92,520 $ 17,094 -- -- -- -- $ 17,574 (6)
Senior Vice President and 2001 $ 88,032 $ 15,500 -- -- -- -- $ 12,842 (6)
Chief Credit Officer 2000 $ 85,296 $ 10,000 -- -- -- -- $ 9,427
- ----------
(1) In 2001, Citizens South Banking Corporation changed its fiscal year end to
December 31. Compensation for the year 2000 reflects a fiscal year ending
on September 30.
(2) Includes compensation deferred at the election of executives pursuant to
the 401(k) Plan of Citizens South Bank.
(3) Includes bonuses deferred at the election of executives pursuant to the
401(k) Plan of Citizens South Bank.
(4) Citizens South Bank provides certain members of senior management with
certain other personal benefits, the aggregate value of which did not
exceed the lesser of $50,000 or 10% of the total annual salary and bonus
reported for each officer. The value of such benefits is not included in
this table.
(5) Includes employer contributions to Citizens South Bank's 401(k) Plan and
Employee Stock Ownership Plan on behalf of the executive.
(6) Includes the vested portion of the annual increase in the value of
Citizens South Bank's 2001 Executive Supplemental Retirement Plan.
(7) Mr. Bostian retired from all positions with Citizens South Banking
Corporation and Citizens South Bank on February 14, 2003.
Employment Agreements. Citizens South Bank has entered into an employment
agreement with its President and Chief Executive Officer, Kim S. Price, which
provides for a term of 36 months. On each anniversary date, the agreement may be
extended for an additional 12 months, so that the remaining term shall be 36
months. If the agreement is not renewed, the agreement will expire 36 months
following the anniversary date. At January 1, 2003, the base salary for Mr.
Price was $190,008. The base salary may be increased but not decreased. In
addition to the base salary, the agreement provides for, among other things,
participation in stock benefit plans and other employee and fringe benefits
applicable to executive personnel. The agreement provides for termination by
Citizens South Bank for cause at any time. In the event Citizens South Bank
terminates the executive's employment for reasons other than for cause, or in
the event of the executive's resignation from Citizens South Bank upon the
occurrence of certain events that would amount to a constructive termination,
the executive would be entitled to severance pay in an amount equal to 2.99
times the annual rate of Base Salary (which includes any salary deferred at the
election of Mr. Price) at the time of termination, plus the highest annual cash
bonus paid to him during the prior three years. Citizens South Bank would also
continue the executive's life, health, dental and disability coverage for the
unexpired term of the agreement. In the event the payments include an "excess
parachute payment" as defined by Section 280G of the Internal Revenue Code
(relating to payments made in connection with a change in control), the payments
would be reduced in order to avoid having an excess parachute payment.
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In the event of the executive's disability, the executive will receive his
base salary for the remaining term of the agreement or one year, whichever is
longer, reduced by any benefits paid to the executive pursuant to any disability
insurance policy maintained by Citizens South Bank. In the event of the
executive's death, Citizens South Bank will pay his base salary to his named
beneficiaries for one year following his death, and will also continue medical,
dental, and other benefits to his family for one year. The employment agreement
provides that, following termination of employment, other than following a
change in control, the executive will not compete with Citizens South Bank for a
period of one year.
In February 2003, Citizens South Banking Corporation and Ronald E.
Bostian, Executive Vice President and Director, mutually agreed to terminate his
employment agreement upon his retirement. In consideration for the termination
of the agreement, Mr. Bostian received a lump sum cash payment of $122,500.
Executive Supplemental Retirement Plan. In June 2001, Citizens South Bank
adopted an Executive Supplemental Retirement Plan for six executives, including
Messrs. Price, Teem, Maguire and Hoskins. The Executive Supplemental Retirement
Plan is a non-qualified, unfunded deferred compensation plan evidenced by
separate agreements for each executive. Although the Executive Supplemental
Retirement Plan is unfunded, Citizens South Bank has purchased life insurance
policies on each executive that are actuarially designed to offset the annual
expenses associated with the plan and will, if the actuarial assumptions are
accurate, offset all of the costs associated with the plan during the life of
the executive, providing complete recovery of all plan costs upon the
executive's death. The amount of an executive's benefit will be determined
pursuant to the accrual of two accounts: (i) a pre-retirement account and (ii)
an index retirement benefit account. The pre-retirement account is a liability
reserve account of Citizens South Bank and is increased or decreased each year
by the aggregate annual after-tax income from specified life insurance contracts
reduced by an "opportunity cost," which is calculated by taking into account
Citizens South Bank's after-tax cost of funds. The index retirement benefit
account is equal to the excess of the annual earnings of the insurance policies
over the "opportunity cost." Upon retirement at age 65 (normal retirement) or on
or after age 55 (early retirement), the balance in the executive's
pre-retirement account will be paid in 156 monthly installments commencing
within 30 days following the executive's retirement. In addition, upon normal or
early retirement, the executive will receive an index retirement benefit
annually until his death. Should the executive die prior to having received the
entire amount of his pre-retirement account, the unpaid balance will be paid in
a lump sum to his designated beneficiaries.
Messrs. Price and Teem vested in their benefits under the plan at the rate
of 20% per year of employment with Citizens South Bank. At the end of 2002, both
Mr. Price and Mr. Teem were 100% vested in their accrued benefit. Each of Mr.
Maguire and Mr. Hoskins will vest in his benefits under the plan at the rate of
10% per year times the number of years from the effective date of the agreement,
to a maximum of 75%, prior to attaining age 60. Upon attainment of age 60, each
executive's vested percentage in his accounts will be 75%, and will increase by
5% for each subsequent year, until full vesting at age 65.
In the event Mr. Price, Teem, Maguire, or Hoskins becomes disabled prior
to termination of employment and the executive's employment is terminated
because of such disability, the executive will be entitled to receive the
balance in his pre-retirement account payable in 156 monthly installments
commencing 30 days following termination of service due to disability. In
addition, the executive will receive the annual index retirement benefit until
the executive's death. The benefits are forfeitable by the executive if the
executive's service is terminated for cause. In the event of a change in
control, the executive will be entitled to the benefits due upon attainment of
early retirement, as if the executive had been continuously employed by Citizens
South Bank until his early retirement date. At December 31, 2002, Messrs. Price,
Teem, Maguire and Hoskins had $74,565, $57,271, $17,290 and $10,838,
respectively, accrued to their pre-retirement accounts.
Split Dollar Death Benefits. In conjunction with the adoption of the
Executive Supplemental Retirement Plan, Citizens South Bank also adopted
Endorsement Split Dollar Agreements with the six executives covered by the
Executive Supplemental Retirement Plan. Under the Endorsement Split Dollar
Agreements, if the executives die while employed by Citizens South Bank, their
beneficiaries will be paid a death benefit equal to 100% of the net-at-risk
insurance portion of the proceeds on certain life insurance policies purchased
by Citizens South Bank on the executives' lives. If an executive dies after
termination of employment with Citizens South Bank, the executive's beneficiary
would receive a portion of the net-at-risk insurance proceeds equal to the
amount of the net-at-risk insurance proceeds multiplied by the executive's
vested percentage. Messrs. Price and Teem vested in their death
5
benefits under the agreements at the rate of 20% per year of employment with
Citizens South Bank. At the end of 2002, Mr. Teem was 100% vested in his accrued
benefit and Mr. Price was 100% vested. Each of Mr. Maguire and Mr. Hoskins will
vest in his death benefits under his agreement at the rate of 10% per year times
the number of years from the effective date of the executive agreement, to a
maximum of 75%, prior to attaining age 60. Upon attainment of age 60, their
vested percentage in his death benefit will be 75%, and will increase by 5% for
each subsequent year, until full vesting at age 65. The net-at-risk insurance
portion is the total proceeds less the cash value of the policy.
Merger/Acquisition Protection Agreements. Citizens South Bank has entered
into a merger/acquisition protection agreement with each of Michael R. Maguire,
its Senior Vice President and Chief Credit Officer, Paul L. Teem, Jr., its
Executive Vice President, Gary F. Hoskins, its Executive Vice President and
Chief Financial Officer, and Daniel M. Boyd, IV, its Executive Vice President,
pursuant to which each executive will be paid as severance a sum equal to one
and one-half times his annual compensation, including base salary at the highest
rate of pay and aggregate bonuses paid during the 12-month period prior to
termination of employment in the event of a change in control of Citizens South
Bank or Citizens South Banking Corporation. In addition, the executive would be
entitled to continued life, medical, dental and disability coverage for 18
months following termination of employment. In exchange for this protection, the
executive has agreed not to directly or indirectly compete against Citizens
South Bank or Citizens South Banking Corporation for twelve months following the
payment of the severance amount. The term of the agreement continues during the
term of his employment and for twelve months following a change in control of
Citizens South Bank or Citizens South Banking Corporation.
Compensation Committee Interlocks and Insider Participation
No member of the Compensation Committee has ever been an officer or
employee of Citizens South Banking Corporation or any of its subsidiaries or
affiliates (including Citizens South Bank). None of our executive officers has
served on the board of directors or on the compensation committee of any other
entity, for which any officers served either on our Board or on our Compensation
Committee.
Report of the Compensation Committee on Executive Compensation
The Compensation Committee annually reviews the compensation levels of
executive officers of Citizens South Banking Corporation and Citizens South Bank
and recommends changes to the Board of Directors. The Compensation Committee is
composed entirely of non-employee directors. It is intended that the executive
compensation program will enable Citizens South Banking Corporation to attract,
develop, retain and motivate qualified executive officers who are capable of
maximizing its performance for the benefit of its stockholders. The Compensation
Committee's strategy seeks to provide competitive compensation strongly aligned
with the financial and stock performance of Citizens South Banking Corporation.
The compensation program has three key elements: base salary, annual incentive
bonuses and long-term equity-based compensation.
In 2002, Citizens South Banking Corporation retained a recognized
compensation consulting firm to review its annual compensation package for
executive officers. Compensation levels of Citizens South Banking Corporation
were compared to other similarly situated publicly-traded financial services
companies in Citizens South Banking Corporation's market area. The review
determined that base salaries, annual incentive bonuses and equity-based
compensation offered by Citizens South Banking Corporation are within the
competitive range of similarly situated financial services companies.
Base Salaries. Base salary levels and changes to such levels reflect a
variety of factors including the results of the Compensation Committee's review
of reports of independent consulting firms, including the report described
above, and the executive's contribution to the long-term goals of Citizens South
Banking Corporation as well as recent results. The Compensation Committee also
considers employment agreements, if any, which entitle executives to certain
salaries and other benefits. Changes to base salaries are based on numerous
objective criteria and the weighing of such criteria using a previously
established formula.
Incentive Bonuses. In 2002, Citizens South Banking Corporation adopted a
Management Incentive Plan for certain officers from which performance-oriented
bonuses may be paid in any given year based on the executive's
6
relative responsibilities and ability to improve the financial and operating
performance of Citizens South Banking Corporation. The Compensation Committee
annually determines the officers eligible to participate in the plan.
The plan is based on operating earnings of Citizens South Bank. If
Citizens South Bank's operating earnings exceed a specified target, a bonus pool
is created based on the amount by which the target is exceeded. An individual
executive's bonus is based upon the achievement of individual performance goals
considering elements of performance such as Citizens South Banking Corporation's
actual operating performance considered in relation to targeted long range
strategic plans. Other criteria also are considered, including the executive's
initiative, contribution to overall corporate performance, and managerial
ability.
Equity-Based Compensation. The final component of compensation consists of
stock options and restricted stock awards. The Compensation Committee believes
that long-term incentives are the most effective way of aligning executive
compensation with the creation of value for stockholders through stock
appreciation. Awards of equity-based compensation are based on individual
performance as well as the executive's ability to impact the financial and
operating performance of Citizens South Banking Corporation.
The outside members of the Board of Directors determine the compensation
of the Chief Executive Officer based on recommendations of the Compensation
Committee. Factors considered by the Compensation Committee in recommending the
Chief Executive Officer's 2002 base salary included the financial performance of
Citizens South Banking Corporation and the advancement of its long-term
strategic goals. During 2002, the executive's base salary increased to $150,000
from $139,368. The executive's incentive bonus, calculated using the same
methodology as for other senior executives, amounted to $41,580 in 2002 compared
to $34,000 in the prior year.
The Compensation Committee
Ben R. Rudisill, II (Chairman)
James J. Fuller
Eugene R. Matthews, II
7
Stock Performance Graph
Set forth hereunder is a stock performance graph comparing (a) the
cumulative total return on the common stock for the period beginning with the
last trade of Citizens South Banking Corporation's stock on April 13, 1998, as
reported by the Nasdaq Stock Market, through December 31, 2002, (b) the
cumulative total return on stocks included in the Russell 2000 Index over such
period, and (c) the cumulative total return on stocks included in the SNL
Southeast Thrift Index over such period. Cumulative return assumes the
reinvestment of dividends, and is expressed in dollars based on an assumed
initial investment of $100.
Citizens South Banking Corporation
[LINE GRAPH OMITTED]
Period Ended
-------------------------------------------------------------------------
Index 04/13/98 12/31/98 12/31/99 12/31/00 12/31/01 12/31/02
- ---------------------------------------------------------------------------------------------------------------------
Citizens South Banking Corporation 100.00 72.75 64.71 63.98 89.55 132.46
Russell 2000 100.00 88.73 107.59 104.34 106.93 85.03
SNL Southeast Thrift Index 100.00 79.22 78.60 77.36 118.28 138.75
There can be no assurance that the common stock's performance will
continue in the future with the same or similar trend depicted in the graph.
Citizens South Banking Corporation will not make or endorse any predictions as
to future stock performance.
8
Stock Benefit Plans
1999 Stock Option Plan. During the fiscal year ended September 30, 1999,
Citizens South Bank adopted, and Citizens South Banking Corporation's
stockholders approved, the 1999 Stock Option Plan. Directors and employees are
entitled to receive option grants under this plan. No options were granted to
executive officers or directors during 2002. Set forth below is certain
information concerning options outstanding to the Named Executive Officers at
December 31, 2002. No options were exercised by the Named Executive Officers
during the year ended December 31, 2002.
======================================================================================================================
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND
FISCAL YEAR-END OPTION VALUES
======================================================================================================================
Number of Unexercised Value of Unexercised
Options at In-The-Money Options at
Year-End Year-End (1)
------------------------------------------------------
Shares Acquired Value Exercisable/Unexercisable Exercisable/Unexercisable
Name Upon Exercise Realized (#) ($)
- ----------------------------------------------------------------------------------------------------------------------
Kim S. Price............ -- $-- 56,001 / 14,001 $257,325 / $64,335
- ----------------------------------------------------------------------------------------------------------------------
Paul L. Teem, Jr........ -- $-- 26,045 / 6,512 $119,677 / $29,923
- ----------------------------------------------------------------------------------------------------------------------
Gary F. Hoskins......... -- $-- 19,564 / 4,892 $89,897 / $22,478
- ----------------------------------------------------------------------------------------------------------------------
Michael R. Maguire...... -- $-- 12,844 / 8,564 $59,018 / $39,352
======================================================================================================================
- ----------
(1) Equals the difference between the aggregate exercise price of such options
and the aggregate fair market value of the shares of common stock that
would be received upon exercise, assuming such exercise occurred on
December 31, 2002, at which date the last trade price of the common stock
as quoted on the Nasdaq National Market was $10.20.
Employee Stock Ownership Plan and Trust. Citizens South Bank implemented
an employee stock ownership plan in connection with its initial mutual holding
company reorganization. The employee stock ownership plan was established
effective January 1, 1998, and purchased 169,068 shares of common stock in the
initial public offering that was completed on April 9, 1998, and 105,198 shares
in the offering that was completed on September 30, 2002. Each time the employee
stock ownership plans borrowed funds from Citizens South Banking Corporation and
used those funds to purchase the shares of the common stock of Citizens South
Banking Corporation. The collateral for the loans is the common stock purchased
by the employee stock ownership plan. Each loan is being repaid principally from
Citizens South Bank's contributions to the employee stock ownership plan over a
period of 15 years. The interest rate on the loans adjusts at the prime rate,
which is the base rate charged on corporate loans at large U.S. money center
commercial banks. Shares purchased by the employee stock ownership plan are held
in a suspense account for allocation among participants as the loans are repaid.
Employees with at least one year of employment in which they work 1,000
hours or more with Citizens South Bank and who have attained age 21 are eligible
to participate in the employee stock ownership plan. Contributions to the
employee stock ownership plan and shares released from the suspense account in
an amount proportional to the repayment of the employee stock ownership plan
loans are allocated among employee stock ownership plan participants on the
basis of compensation in the year of allocation. For the plan year ended
December 31, 2002, 32,580 shares were released from the suspense account and
allocated to employees. Benefits will not vest at all during the first four
years of an employee's service and will become 100% vested upon the completion
of five years of service. Employees who were employed by Gaston Federal Savings
and Loan Association, Citizens South Bank's mutual predecessor, generally
received credit for up to five years of service with the mutual institution. A
participant also becomes 100% vested upon early or normal retirement, disability
or death of the participant or a change in control (as defined in the employee
stock ownership plan). A participant who terminates employment for reasons other
than death, retirement or disability prior to five years of credited service
will forfeit his entire benefit under the employee stock ownership plan.
Benefits will be payable in the form of common stock and cash upon death,
retirement, early retirement, disability or separation from service. Citizens
South Bank's contributions to the employee stock ownership plan are
discretionary, and subject to the loan terms and tax law limits and, therefore,
benefits payable under the employee stock ownership plan cannot be estimated.
9
Citizens South Bank is required to record compensation expense in an amount
equal to the fair market value of the shares released from the suspense account.
Citizens South Bank's Board of Directors administers the employee stock
ownership plan. Citizens South Bank has appointed an independent financial
institution to serve as trustee of the employee stock ownership plan. The
employee stock ownership plan committee may instruct the trustee regarding
investment of funds contributed to the employee stock ownership plan. The
employee stock ownership plan trustee, subject to its fiduciary duty, must vote
all allocated shares held in the employee stock ownership plan in accordance
with the instructions of participating employees. Under the employee stock
ownership plan, nondirected shares and shares held in the suspense account will
be voted in a manner calculated to most accurately reflect the instructions the
trustee has received from participants regarding the allocated stock so long as
such vote is in accordance with the provisions of ERISA.
Equity Compensation Plan Disclosure. Set forth below is information as of
December 31, 2002 regarding compensation plans under which equity securities of
Citizens South Banking Corporation are authorized for issuance.
======================================================================================================================
Number of Securities to be
Issued upon Exercise of Number of Securities
Outstanding Options and Weighted Average Remaining Available for
Plan Rights Exercise Price Issuance under Plan
- ----------------------------------------------------------------------------------------------------------------------
Equity compensation plans
approved by stockholders 380,401 $ 5.73 20,534(1)
- ----------------------------------------------------------------------------------------------------------------------
Equity compensation plans not
approved by stockholders -- -- --
- ----------------------------------------------------------------------------------------------------------------------
Total 380,401 $ 5.73 20,534(1)
======================================================================================================================
(1) There are no shares available for future issuance pursuant to the 1999
Recognition and Retention Plan and 20,534 shares underlying options
available for future issuance pursuant to the 1999 Stock Option Plan.
PROPOSAL I - APPROVAL OF THE 2003 STOCK OPTION PLAN
General
Subject to stockholder approval at the Special Meeting, the Company has
established the Citizens South Banking Corporation 2003 Stock Option Plan (the
"Stock Option Plan"). Pursuant to the Stock Option Plan, options to purchase up
to 525,995 shares of common stock may be granted to Citizens South Bank's and
the Company's employees and directors. As of September 5, 2003, the market value
of the common stock was $14.95 per share. The Board of Directors of the Company
believes that it is appropriate to adopt a flexible and comprehensive stock
option plan that permits the granting of a variety of long-term incentive awards
to directors and officers as a means of enhancing and encouraging the
recruitment and retention of those individuals on whom the continued success of
Citizens South Bank and the Company most depends. Attached as Exhibit A to this
proxy statement is the complete text of the Stock Option Plan. The principal
features of the Stock Option Plan are summarized below.
Principal Features of the Stock Option Plan
The Stock Option Plan provides for awards in the form of stock options,
reload options, and/or limited stock appreciation rights ("Limited Rights").
Each award shall be on such terms and conditions, consistent with the Stock
Option Plan and applicable OTS regulations, as the committee administering the
Stock Option Plan may determine.
The term of stock options generally will not exceed ten years from the
date of grant. Stock options granted under the Stock Option Plan may be either
"Incentive Stock Options" as defined under Section 422 of the Code or stock
options not intended to qualify as such ("non-qualified stock options"). No
stock option awards have been granted to date under the Stock Option Plan.
Shares issued upon the exercise of a stock option may be either authorized
but unissued shares, treasury shares, or shares acquired by the Company in open
market purchases. Any shares subject to an award that expires or
10
is terminated unexercised will again be available for issuance under the Stock
Option Plan. Generally, in the discretion of the Board, all or any vested
non-qualified stock options granted under the Stock Option Plan may be
transferable by the participant but only to the persons or classes of persons
determined by the Board. No other award or any right or interest therein is
assignable or transferable except under certain limited exceptions set forth in
the Stock Option Plan.
The Stock Option Plan is administered by a committee (the "Committee")
consisting of either two or more "non-employee directors" (as defined in the
Stock Option Plan), or the entire Board of the Company. The members of the
Committee shall be appointed by the Board of the Company. Pursuant to the terms
of the Stock Option Plan, outside directors and key employees of Citizens South
Bank or the Company or their affiliates are eligible to participate. As of
September 8, 2003, there were six non-employee directors eligible to participate
in the 2003 Stock Option Plan. Subject to the provisions of the Stock Option
Plan, the Committee will determine to whom the awards will be granted, in what
amounts, and the period over which such awards will vest. The Committee may
accelerate the time period for exercising options.
In granting awards under the Stock Option Plan, the Committee will
consider, among other things, position and years of service, and the value of
the individual's services to the Company and Citizens South Bank. The exercise
price of stock options will be at least the fair market value of the underlying
common stock at the time of the grant. Once granted, stock options may not be
re-priced (i.e., the exercise price may not be changed other than adjustments
for stock splits, stock dividends and similar events). The exercise price may be
paid in cash, common stock, or via a broker-assisted "cashless exercise" (as
defined in the Stock Option Plan).
Stock Options. Incentive Stock Options can only be granted to employees of
the Bank, the Company or an "affiliate" (i.e., a parent or subsidiary
corporation of the Bank or the Company). Outside directors will be granted
non-qualified stock options. No option granted to an officer in connection with
the Stock Option Plan will be exercisable as an Incentive Stock Option subject
to incentive tax treatment if exercised more than three months after the date on
which the optionee terminates employment with the Bank and/or the Company,
except as set forth below. In the event a participant ceases to maintain
continuous service with the Company or an affiliate by reason of death,
disability, normal retirement, or following a change in control, options still
subject to restrictions will vest and be free of these restrictions and can be
exercised for up to five years after cessation of service but in no event beyond
the expiration of the options' original term. In the event a participant ceases
to maintain continuous service for any other reason, the participant will
forfeit all nonvested options. The participant's vested options will remain
exercisable for up to three months in the case of Incentive Stock Options, and
one year in the case of non-qualified stock options. If an optionee terminates
employment with the Bank, the Company or an affiliate, any Incentive Stock
Options exercised more than three months following the date the optionee
terminates employment shall be treated as a non-qualified stock option as
described above; provided, however, that in the event of death or disability,
Incentive Stock Options may be exercised and receive incentive tax treatment for
up to at least one year following termination of employment, subject to the
requirements of the Code.
In the event of death or disability of an optionee, the Company, if
requested by the optionee or beneficiary, may elect, in exchange for the option,
to pay the optionee or beneficiary the amount by which the fair market value of
the common stock exceeds the exercise price of the option on the date of the
optionee's termination of service for death or disability.
Limited Stock Appreciation Rights. The Committee may grant Limited Rights
to employees simultaneously with the grant of any option. A Limited Right gives
the option holder the right, upon a change in control of the Company or the
Bank, to receive the excess of the market value of the shares represented by the
Limited Rights on the date exercised over the exercise price. Limited Rights
generally will be subject to the same terms and conditions and exercisable to
the same extent as stock options, as described above. Payment upon exercise of a
Limited Right will be in cash.
Limited Rights may be granted at the time of, and must be related to, the
grant of a stock option. The exercise of one will reduce to that extent the
number of shares represented by the other. If a Limited Right is granted with
and related to an Incentive Stock Option, the Limited Right must satisfy all the
restrictions and limitations to which the related Incentive Stock Option is
subject.
11
Reload Options. Reload options may also be granted at the time of the
grant of a stock option. Reload options entitle the option holder, who has
delivered shares that he or she owns as payment of the exercise price for option
stock, to a new option to acquire additional shares equal in amount to the
shares he or she has traded in. Reload options may also be granted to replace
option shares retained by the employer for payment of the option holder's
withholding tax. The option price at which additional shares of stock can be
purchased by the option holder through the exercise of a reload option is equal
to the market value of the previously owned stock at the time it was surrendered
to the employer. The option period during which the reload option may be
exercised expires at the same time as that of the original option that the
holder has exercised.
Effect of Adjustments. Shares as to which awards may be granted under the
Stock Option Plan, and shares then subject to awards, will be adjusted by the
Committee in the event of any merger, consolidation, reorganization,
recapitalization, stock dividend, stock split, combination or exchange of shares
or other change in the corporate structure of the Company without receipt of
payment or consideration by the Company.
In the case of any merger, consolidation or combination of the Company
with or into another holding company or other entity, whereby holders of common
stock will receive a cash payment (the "Merger Price") for each share of common
stock exchanged in the transaction, any individual with exercisable options will
receive an amount equal to the difference between the Merger Price times the
number of shares of common stock subject to such options and the aggregate
exercise price of all surrendered options.
Amendment and Termination. The Board may at any time amend, suspend or
terminate the Stock Option Plan or any portion thereof, provided, however, that
no such amendment, suspension or termination shall impair the rights of any
individual, without his consent, in any award made pursuant to the plan. Unless
previously terminated, the Stock Option Plan shall continue in effect for a term
of ten years, after which no further awards may be granted under the Stock
Option Plan.
Federal Income Tax Consequences. The following brief description of the
tax consequences of stock option grants under the Stock Option Plan is based on
federal income tax laws currently in effect and does not purport to be a
complete description of such federal income tax consequences.
The exercise of a stock option which is an "Incentive Stock Option" within
the meaning of Section 422 of the Code will generally not, by itself, result in
the recognition of taxable income to the individual nor entitle the Company to a
deduction at the time of such exercise. However, the difference between the
exercise price and the fair market value of the option shares on the date of
exercise is an adjustment to alternative minimum taxable income which may, in
certain situations, trigger the alternative minimum tax. The alternative minimum
tax is incurred only when it exceeds the regular income tax. The sale of an
Incentive Stock Option share prior to the end of the applicable holding period,
i.e., the longer of two years from the date of grant or one year from the date
of exercise, will cause any gain to be taxed at ordinary income tax rates, with
respect to the spread between the exercise price and the fair market value of
the share on the date of exercise and at applicable capital gains rates with
respect to any post exercise appreciation in the value of the share.
The exercise of a non-qualified stock option will result in the
recognition of ordinary income on the date of exercise in an amount equal to the
difference between the exercise price and the fair market value of the shares on
the date of exercise.
Reload options are of the same type (non-qualified or incentive) as the
option that the option holder exercised. Therefore, the tax consequences of the
reload option are determined under the applicable tax rules for Incentive Stock
Options or non-qualified stock options.
The exercise of a Limited Right will result in the recognition of ordinary
income by the individual on the date of exercise equal to the amount of cash
acquired pursuant to the exercise.
The Company will be allowed a deduction at the time, and in the amount of,
any ordinary income recognized by the individual under the various circumstances
described above, provided that the Company meets its federal withholding tax
obligations.
12
The affirmative vote of a majority of the total votes cast "FOR" or
"AGAINST" the Stock Option Plan at the Special Meeting is required for approval
of the Stock Option Plan.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" THE APPROVAL OF THE STOCK
OPTION PLAN.
PROPOSAL II - APPROVAL OF THE 2003 RECOGNITION AND RETENTION PLAN
General
Subject to stockholder approval at the Annual Meeting, the Company has
established the Citizens South Banking Corporation 2003 Recognition and
Retention Plan (the "2003 Recognition Plan") as a method of providing certain
key employees and outside directors of the Company and Citizens South Bank with
a proprietary interest in the Company in a manner designed to encourage such
persons to remain with the Company and/or Citizens South Bank, and to provide
further incentives to achieve corporate objectives. The following discussion is
qualified in its entirety by reference to the 2003 Recognition Plan, the text of
which is attached hereto as Exhibit B.
The Company intends to contribute stock or sufficient funds for the 2003
Recognition Plan to acquire 210,398 shares of common stock of the Company, which
will be available to be awarded to key employees and outside directors of the
Company. It is expected that such shares will be purchased in the open market,
although authorized but unissued shares and treasury shares may be used. No
stock awards have been granted to date under the 2003 Recognition Plan.
Principal Features of the 2003 Recognition Plan
The 2003 Recognition Plan provides for the award of shares of common stock
("2003 Recognition Plan Shares") subject to the restrictions described below. As
of September 5, 2003, the market value of the common stock was $14.95 per share.
Each award under the 2003 Recognition Plan will be made on terms and conditions
consistent with the 2003 Recognition Plan.
The 2003 Recognition Plan is administered by a committee (the
"Committee"), which shall be appointed by the Board of Directors of the Company
and shall consist of either (i) at least two "non-employee directors" (as
defined in the 2003 Recognition Plan) of the Company or (ii) the entire Board of
the Company. The Committee will select the recipients and terms of awards
pursuant to the 2003 Recognition Plan. Pursuant to the terms of the 2003
Recognition Plan, any director or key employee of the Bank, the Company or its
affiliates may be selected by the Committee to participate in the 2003
Recognition Plan. In determining to whom and in what amount to grant awards, the
Committee will consider the position and responsibilities of eligible persons,
the value of their services to the Company and the Bank and other factors it
deems relevant. As of September 8, 2003, there were six non-employee directors
eligible to participate in the 2003 Recognition Plan.
The Committee will determine the period during which or at the expiration
of which the shares awarded as restricted stock vest. In its discretion, the
Committee may accelerate the time at which any or all of the restrictions will
lapse, or to remove any or all of such restrictions, whenever it may determine
that such action is appropriate by reason of changes in applicable tax or other
laws or other changes in circumstances occurring after the commencement of such
restricted period. Subject to the above restrictions, in the event a recipient
ceases to maintain continuous service with the Company or Citizens South Bank by
reason of death or disability, normal retirement or following a change in
control, the 2003 Recognition Plan Shares still subject to restrictions
("restricted stock") will vest and be free of these restrictions. In the event
of termination for any other reason, all nonvested restricted stock will be
forfeited. Prior to vesting of the nonvested restricted stock, a recipient will
have the right to vote the nonvested restricted stock, which has been awarded to
the recipient and will receive any dividends declared on such nonvested
restricted stock. Nonvested restricted stock is subject to forfeiture if the
recipient fails to remain in the continuous service (as defined in the 2003
Recognition Plan) as an employee, officer, or director of the Company or
Citizens South Bank for the restricted period.
13
Effect of Adjustments. Restricted stock awarded under the 2003 Recognition
Plan will be adjusted by the Committee in the event of a reorganization,
recapitalization, stock split, stock dividend, combination or exchange of
shares, merger, consolidation or other change in corporate structure.
Federal Income Tax Consequences. Holders of restricted stock will
recognize ordinary income on the date that the shares of restricted stock are no
longer subject to a substantial risk of forfeiture, in an amount equal to the
fair market value of the shares on that date. In certain circumstances, a holder
may elect to recognize ordinary income and determine such fair market value on
the date of the grant of the restricted stock. Holders of restricted stock will
also recognize compensation income (or in the case of nonemployee directors,
self employment income) equal to their dividend payments when such payments are
received. Generally, the amount of income recognized by individuals will be a
deductible expense for tax purposes by the Company.
Amendment to the 2003 Recognition Plan. The Board of Directors of the
Company may at any time amend, suspend or terminate the 2003 Recognition Plan or
any portion thereof, provided, however, that no such amendment, suspension or
termination shall impair the rights of any award recipient, without his consent,
in any award therefore made pursuant to the 2003 Recognition Plan.
The affirmative vote of a majority of the total votes cast "FOR" or
"AGAINST" the 2003 Recognition Plan at the Special Meeting is required to
approve the 2003 Recognition Plan.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE APPROVAL OF THE 2003
RECOGNITION PLAN.
STOCKHOLDER PROPOSALS AND NOMINATIONS
In order to be eligible for inclusion in Citizens South Banking
Corporation's proxy materials for the Annual Meeting of Stockholders to be held
following the year ending December 31, 2003, a stockholder proposal to take
action at such meeting must be received at Citizens South Banking Corporation's
executive office, 245 West Main Avenue, Gastonia, North Carolina 28053-2249, no
later than December 3, 2003. Any such proposals shall be subject to the
requirements of the proxy rules adopted under the Securities Exchange Act of
1934.
The Bylaws of Citizens South Banking Corporation provide an advance notice
procedure for certain business, or nominations to the Board of Directors, to be
brought before an annual meeting. In order for a stockholder to properly bring
business before an annual meeting, or to propose a nominee to the Board, the
stockholder must give written notice to the Secretary of Citizens South Banking
Corporation not less than ninety (90) days before the date fixed for such
meeting; provided, however, that in the event that less than one hundred (100)
days notice or prior public disclosure of the date of the meeting is given or
made, notice by the stockholder to be timely must be received no later than the
close of business on the tenth day following the day on which such notice of the
date of the annual meeting was mailed or such public disclosure was made. The
notice must include the stockholder's name, record address, and number of shares
owned by the stockholder, describe briefly the proposed business, the reasons
for bringing the business before the annual meeting, and any material interest
of the stockholder in the proposed business. In the case of nominations to the
Board, certain information regarding the nominee must be provided. In addition,
the Bylaws of Citizens South Banking Corporation provide that in order to
qualify for appointment or election to the Board of Directors, a person must own
at least 100 shares of Citizens South Banking Corporation common stock and must
reside or work in a county in which Citizens South Bank maintains an office or
in a county contiguous to such county. Nothing in the paragraph shall be deemed
to require Citizens South Banking Corporation to include in its proxy statement
and proxy relating to an annual meeting any stockholder proposal which does not
meet all of the requirements for inclusion established by the SEC in effect at
the time such proposal is received.
The date on which the next Annual Meeting of Stockholders of Citizens
South Banking Corporation is expected to be held is May 10, 2004. Accordingly,
advance written notice of business or nominations to the Board of Directors to
be brought before such Annual Meeting of Stockholders must be given to Citizens
South Banking Corporation no later than February 10, 2004.
14
MISCELLANEOUS
The cost of solicitation of proxies in the form enclosed herewith will be
borne by the Company. Proxies also may be solicited personally or by mail,
telephone or facsimile by the Company's directors, officers and employees,
without additional compensation therefor. The Company also will request persons,
firms and corporations holding shares in their names, or in the names of their
nominees which are beneficially owned by others, to send proxy materials to and
to obtain proxies from such beneficial owners, and will reimburse such holders
for their reasonable expenses in doing so. The Company has retained Georgeson
Shareholder Communications, Inc., a proxy solicitation firm, to assist in the
solicitation of proxies. It is not expected that the cost of using the proxy
solicitation firm for solicitation of proxies will exceed $5,000.
BY ORDER OF THE BOARD OF DIRECTORS
/s/ Paul L. Teem, Jr.
---------------------------------------
Paul L. Teem, Jr.
Secretary
Gastonia, North Carolina
September 8, 2003
15
EXHIBIT A
CITIZENS SOUTH BANKING CORPORATION
2003 STOCK OPTION PLAN
1. Purpose
The purpose of the Citizens South Banking Corporation 2003 Stock Option
Plan (the "Plan") is to advance the interests of Citizens South Banking
Corporation (the "Company") and its stockholders by providing Key Employees and
Outside Directors of the Company and its Affiliates, including Citizens South
Bank (the "Bank"), upon whose judgment, initiative and efforts the successful
conduct of the business of the Company and its Affiliates largely depends, with
an additional incentive to perform in a superior manner as well as to attract
people of experience and ability.
2. Definitions
"Affiliate" means any "parent corporation" or "subsidiary corporation" of
the Company or the Bank, as such terms are defined in Section 424(e) or 424(f),
respectively, of the Code, or a successor to a parent corporation or subsidiary
corporation.
"Award" means an Award of Non-Statutory Stock Options, Incentive Stock
Options, Limited Rights and/or Reload Options granted under the provisions of
the Plan.
"Bank" means Citizens South Bank, or a successor corporation.
"Beneficiary" means the person or persons designated by a Participant to
receive any benefits payable under the Plan in the event of such Participant's
death. Such person or persons shall be designated in writing on forms provided
for this purpose by the Committee and may be changed from time to time by
similar written notice to the Committee. In the absence of a written
designation, the Beneficiary shall be the Participant's surviving spouse, if
any, or if none, his estate.
"Board" or "Board of Directors" means the board of directors of the
Company, unless otherwise noted herein.
"Cause" means personal dishonesty, willful misconduct, any breach of
fiduciary duty involving personal profit, intentional failure to perform stated
duties, or the willful violation of any law, rule or regulation (other than
traffic violations or similar offenses) or a final cease-and-desist order, any
of which results in a material loss to the Company or an Affiliate.
"Change in Control" of the Bank or the Company means a change in control
of a nature that: (i) would be required to be reported in response to Item 1(a)
of the current report on Form 8-K, as in effect on the date hereof, pursuant to
Section 13 or 15(d) of the Securities Exchange Act of 1934 (the "Exchange Act");
or (ii) results in a Change in Control of the Bank or the Company within the
meaning of the Home Owners' Loan Act, as amended ("HOLA"), and applicable rules
and regulations promulgated thereunder, as in effect at the time of the Change
in Control; or (iii) without limitation such a Change in Control shall be deemed
to have occurred at such time as (a) any "person" (as the term is used in
Sections 13(d) and 14(d) of the Exchange Act) is or becomes the "beneficial
owner" (as defined in Rule 13d-3 under the Exchange Act), directly or
indirectly, of securities of the Company representing 25% or more of the
combined voting power of Company's outstanding securities except for any
securities purchased by the Bank's employee stock ownership plan or trust; or
(b) individuals who constitute the Board on the date hereof (the "Incumbent
Board") cease for any reason to constitute at least a majority thereof, provided
that any person becoming a director subsequent to the date hereof whose election
was approved by a vote of at least three-quarters of the directors comprising
the Incumbent Board, or whose nomination for election by the Company's
stockholders was approved by the same Nominating Committee serving under an
Incumbent Board, shall be, for purposes of this clause (b), considered as though
he were a member of the Incumbent Board; or (c) a plan of reorganization,
merger, consolidation, sale of all or substantially all the assets of the Bank
or the Company or similar transaction in which the Bank or Company is not the
surviving institution occurs; or (d) a proxy statement soliciting proxies from
stockholders of the Company, by someone other than the current management of the
A-1
Company, seeking stockholder approval of a plan of reorganization, merger or
consolidation of the Company or similar transaction with one or more
corporations as a result of which the outstanding shares of the class of
securities then subject to the Plan are to be exchanged for or converted into
cash or property or securities not issued by the Company; or (e) a tender offer
is made for 25% or more of the voting securities of the Company and the
shareholders owning beneficially or of record 25% or more of the outstanding
securities of the Company have tendered or offered to sell their shares pursuant
to such tender offer and such tendered shares have been accepted by the tender
offeror.
"Code" means the Internal Revenue Code of 1986, as amended.
"Committee" means the Stock Benefits Committee consisting of either (i) at
least two Non-Employee Directors of the Company, or (ii) the entire Board of the
Company.
"Common Stock" means shares of the common stock of the Company, par value
$.01 per share.
"Company" means Citizens South Banking Corporation, the stock holding
company of the Bank, or a successor corporation.
"Continuous Service" means employment as a Key Employee and/or service as
an Outside Director without any interruption or termination of such employment
and/or service. Continuous Service shall also mean a continuation as a member of
the Board of Directors following a cessation of employment as a Key Employee or
continuation of service as a Director Emeritus following cessation of service as
a Director. In the case of a Key Employee, employment shall not be considered
interrupted in the case of sick leave, military leave or any other approved
leave of absence or in the case of transfers between payroll locations of the
Company, its subsidiaries or its successor.
"Date of Grant" means the actual date on which an Award is granted by the
Committee.
"Director" means a member of the Board.
"Director Emeritus" means a former member of the Board who has been
appointed to the status of Director Emeritus by the Board of the Company or the
Bank.
"Disability" means the permanent and total inability by reason of mental
or physical infirmity, or both, of an employee to perform the work customarily
assigned to him, or of a Director or Outside Director to serve as such.
Additionally, in the case of an employee, a medical doctor selected or approved
by the Board must advise the Committee that it is either not possible to
determine when such Disability will terminate or that it appears probable that
such Disability will be permanent during the remainder of said employee's
lifetime.
"Effective Date" means the date of, or a date determined by the Board of
Directors following, approval of the Plan by the Company's stockholders.
"Fair Market Value" means, when used in connection with the Common Stock
on a certain date, the reported closing price of the Common Stock as reported by
the Nasdaq stock market (as published in The Wall Street Journal, if published)
on such date, or if the Common Stock was not traded on such date then, on the
next preceding day on which the Common Stock was traded; provided, however, that
if the Common Stock is not reported on the Nasdaq stock market, Fair Market
Value shall mean the average sale price of all shares of Common Stock sold
during the 30-day period immediately preceding the date on which such stock
option was granted, and if no shares of stock have been sold within such 30-day
period, the average sale price of the last three sales of Common Stock sold
during the 90-day period immediately preceding the date on which such stock
option was granted. In the event Fair Market Value cannot be determined in the
manner described above, then Fair Market Value shall be determined by the
Committee. The Committee is authorized, but is not required, to obtain an
independent appraisal to determine the Fair Market Value of the Common Stock.
"Incentive Stock Option" means an Option granted by the Committee to a Key
Employee, which Option is designated as an Incentive Stock Option pursuant to
Section 9.
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"Key Employee" means any person who is currently employed by the Company
or an Affiliate who is chosen by the Committee to participate in the Plan.
"Limited Right" means the right to receive an amount of cash based upon
the terms set forth in Section 10.
"Non-Statutory Stock Option" means an Option granted by the Committee to
(i) an Outside Director or (ii) any other Participant and such Option is either
(A) not designated by the Committee as an Incentive Stock Option, or (B) fails
to satisfy the requirements of an Incentive Stock Option as set forth in Section
422 of the Code and the regulations thereunder.
"Non-Employee Director" means, for purposes of the Plan, a Director who
(a) is not employed by the Company or an Affiliate; (b) does not receive
compensation directly or indirectly as a consultant (or in any other capacity
than as a Director) greater than $60,000; (c) does not have an interest in a
transaction requiring disclosure under Item 404(a) of Regulation S-K; or (d) is
not engaged in a business relationship for which disclosure would be required
pursuant to Item 404(b) of Regulation S-K.
"Normal Retirement" means for an officer, retirement at the normal or
early retirement date set forth in the Bank's employee stock ownership plan, or
any successor plan. Normal retirement for an Outside Director means cessation of
service on the Board of Directors any reason other than Termination for Cause,
after any one of the following: (i) attainment of age 55 with 10 years of
service on the Board; (ii) attainment of age 65 with 5 years service on the
Board; or (iii) attainment of age 72 (age 70 in the case of a member of the
Bank's Board of Directors), provided however, that a Director who continues as a
Director Emeritus shall not be deemed to have terminated due to Normal
Retirement solely as a result of terminating service as a Director following
satisfaction of one of the above stated conditions.
"Option" means an Award granted under Section 8 or Section 9.
"OTS" means the Office of Thrift Supervision.
"Outside Director" means a Director of the Company or an Affiliate who is
not an employee of the Company or an Affiliate.
"Participant" means a Key Employee or Outside Director of the Company or
its Affiliates who receives or has received an award under the Plan.
"Reload Option" mean an option to acquire shares of Common Stock
equivalent to the number of shares (i) used by a Participant to pay for an
Option, or (ii) deducted from any distribution in order to satisfy income tax
required to be withheld, based upon the terms set forth in Section 19 of the
Plan.
"Right" means a Limited Right.
"Termination for Cause" means the termination of employment or termination
of service on the Board caused by the individual's personal dishonesty, willful
misconduct, any breach of fiduciary duty involving personal profit, intentional
failure to perform stated duties, or the willful violation of any law, rule or
regulation (other than traffic violations or similar offenses), or a final
cease-and-desist order, any of which results in material loss to the Company or
one of its Affiliates.
3. Administration of the Plan.
(a) Role of the Committee. The Plan shall be administered by the
Committee. The interpretation and construction by the Committee of any
provisions of the Plan or of any Award granted hereunder shall be final and
binding. The Committee shall act by vote or written consent of a majority of its
members. Subject to the express provisions and limitations of the Plan, the
Committee may adopt such rules and procedures as it deems appropriate for the
conduct of its affairs. The Committee shall report its actions and decisions
with respect to the Plan to the Board at appropriate times, but in no event less
than one time per calendar year.
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(b) Role of the Board. The members of the Committee shall be appointed or
approved by, and will serve at the pleasure of, the Board of Directors of the
Company. The Board may in its discretion from time to time remove members from,
or add members to, the Committee. The Board shall have all of the powers
allocated to it in the Plan, may take any action under or with respect to the
Plan that the Committee is authorized to take, and may reverse or override any
action taken or decision made by the Committee under or with respect to the
Plan, provided, however, the Board may not revoke any Award except in the event
of revocation for Cause or with respect to unearned Awards in the event the
Recipient of an Award voluntarily terminates employment with the Bank prior to
Normal Retirement.
(c) Plan Administration Restrictions. All transactions involving a grant,
award or other acquisitions from the Company shall:
(i) be approved by the Company's full Board or by the Committee;
(ii) be approved, or ratified, in compliance with Section 14 of the
Exchange Act, by either: the affirmative vote of the holders
of a majority of the shares present, or represented and
entitled to vote at a meeting duly held in accordance with the
laws under which the Company is incorporated; or the written
consent of the holders of a majority of the securities of the
issuer entitled to vote, provided that such ratification
occurs no later than the date of the next annual meeting of
stockholders; or
(iii) result in the acquisition of an Option or Limited Right that
is held by the Recipient for a period of six months following
the date of such acquisition.
(d) Limitation on Liability. No member of the Board or the Committee shall
be liable for any determination made in good faith with respect to the Plan or
any Awards granted under it. If a member of the Board or the Committee is a
party or is threatened to be made a party to any threatened, pending or
completed action, suit or proceeding, whether civil, criminal, administrative or
investigative, by reason of anything done or not done by him in such capacity
under or with respect to the Plan, the Bank or the Company shall indemnify such
member against expense (including attorneys' fees), judgments, fines and amounts
paid in settlement actually and reasonably incurred by him in connection with
such action, suit or proceeding if he acted in good faith and in a manner he
reasonably believed to be in the best interests of the Bank and the Company and,
with respect to any criminal action or proceeding, had no reasonable cause to
believe his conduct was unlawful.
4. Types of Awards
Awards under the Plan may be granted in any one or a combination of: (a)
Incentive Stock Options; (b) Non-Statutory Stock Options; (c) Limited Rights;
and (d) Reload Options.
5. Stock Subject to the Plan
Subject to adjustment as provided in Section 17, the maximum number of
shares reserved for issuance under the Plan is 525,995 shares. Shares issued
under the Plan may be issued by the Company from authorized but unissued shares,
treasury shares, or acquired by the Company in open market purchases. To the
extent that Options or Rights granted under the Plan are exercised, the shares
covered will be unavailable for future grants under the Plan; to the extent that
Options together with any related Rights granted under the Plan terminate,
expire or are forfeited without having been exercised or, in the case of Limited
Rights exercised for cash, new Awards may be made with respect to these shares.
In addition, any shares that are used for full or partial payment of the
exercise price of any Option will not be counted as issued under the Plan and
will be available for future grants under the Plan.
6. Eligibility
Key Employees of the Company and its Affiliates shall be eligible to
receive Incentive Stock Options, Non-Statutory Stock Options, Limited Rights
and/or Reload Options under the Plan. Subject to adjustment as provided in
Section 17 of the Plan (and except for shares awarded pursuant to the exercise
of a Reload Option), the maximum number of shares subject to Options that may be
awarded under the Plan to any Key Employee shall be
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175,332. Outside Directors shall be eligible to receive Non-Statutory Stock
Options and/or Reload Options under the Plan.
7. General Terms and Conditions of Options and Rights
The Committee shall have full and complete authority and discretion to
grant Options and/or Rights and to provide the terms and conditions (which need
not be identical among Participants) thereof. In particular, the Committee shall
prescribe the following terms and conditions: (i) the exercise price of any
Option or Right, which shall not be less than the Fair Market Value per share on
the Date of Grant, (ii) the number of shares of Common Stock subject to, and the
expiration date of, any Option or Right, which expiration date shall not exceed
ten years from the Date of Grant, (iii) the manner, time and rate (cumulative or
otherwise) of exercise of such Option or Right, and (iv) the restrictions, if
any, to be placed upon such Option or Right or upon shares of Common Stock which
may be issued upon exercise of such Option or Right. Notwithstanding anything
herein to the contrary, and subject to any adjustment that may be made pursuant
to Section 17 hereof, once an option has been awarded at Fair Market Value, the
Committee shall not have the authority to reprice such option so that the
exercise price of the option shall be less than the exercise price on the Date
of Grant.
8. Non-Statutory Stock Options
The Committee may, from time to time, grant Non-Statutory Stock Options to
eligible Key Employees and Outside Directors. Non-Statutory Stock Options
granted under the Plan, including Non-Statutory Stock Options granted in
exchange for and upon surrender of previously granted Awards, are subject to the
terms and conditions set forth in this Section.
(a) Option Agreement. Each Option shall be evidenced by a written option
agreement between the Company and the Participant specifying the number of
shares of Common Stock that may be acquired through its exercise and containing
such other terms and conditions that are not inconsistent with the terms of the
Plan.
(b) Price. Subject to Section 17 of the Plan, the purchase price per share
of Common Stock deliverable upon the exercise of each Non-Statutory Stock Option
shall be not less than the Fair Market Value of the Common Stock of the Company
on the Date of Grant. Shares may be purchased only upon full payment of the
purchase price in one or more of the manners set forth in Section 13 hereof, as
determined b the Committee.
(c) Vesting. A Non-Statutory Stock Option granted under the Plan shall
vest in a Participant at the rate or rates determined by the Committee. Unless
the Committee determines otherwise, no Options shall become vested in a
Participant unless the Participant maintains Continuous Service until the
vesting date of such Option, except as set forth herein.
(d) Exercise of Options. A vested Option may be exercised from time to
time, in whole or in part, by delivering a written notice of exercise to the
President or Chief Executive Officer of the Company, or his designee. Such
notice shall be irrevocable and must be accompanied by full payment of the
purchase price in cash or shares of Common Stock at the Fair Market Value of
such shares, determined on the exercise date in the manner described in Section
2 hereof. If previously acquired shares of Common Stock are tendered in payment
of all or part of the exercise price, the value of such shares shall be
determined as of the date of such exercise.
(e) Amount of Awards. Non-Statutory Stock Options may be granted to any
Key Employee or Outside Director in such amounts as determined by the Committee.
In granting Non-Statutory Stock Options, the Committee shall consider such
factors as it deems relevant, which factors may include, among others, the
position and responsibility of the Key Employee or Outside Director, the length
and value of his service to the Bank, the Company or the Affiliate, the
compensation paid to the Key Employee or Outside Director, and the Committee's
evaluation of the performance of the Bank, the Company or the Affiliate,
according to measurements that may include, among others, key financial ratios,
level of classified assets and independent audit findings.
(f) Term of Options. Unless the Committee determines otherwise, the term
during which Non-Statutory Stock Options granted to Outside Directors may be
exercised shall not exceed ten years from the Date of Grant. In no event shall a
Non-Statutory Stock Option be exercisable in whole or in part more than ten
years
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from the Date of Grant. The Committee may, in its sole discretion accelerate the
time during which any Non-Statutory Stock Option vests in whole or in part to
the Key Employees and/or Outside Directors.
(g) Termination of Employment or Service. Unless the Committee otherwise
determines at the time of an Award, upon the termination of a Participant's
Continuous Service for any reason other than death, Normal Retirement,
Disability, Termination for Cause or termination following a Change in Control
(other than for Cause following a Change in Control), the Participant's
Non-Statutory Stock Options shall be exercisable only as to those shares that
were immediately purchasable on the date of termination and only for one year
following termination. In the event of Termination for Cause, all rights under a
Participant's Non-Statutory Stock Options shall expire upon termination. In the
event of the Participant's termination of employment or service due to death,
Normal Retirement or Disability, or following a Change in Control, all
Non-Statutory Stock Options held by the Participant, whether or not vested at
such time, shall vest and become exercisable by the Participant or his legal
representative or beneficiaries for five years following the date of such
termination, death or cessation of employment or service, provided that in no
event shall the period extend beyond the expiration of the Non-Statutory Stock
Option term.
(h) Transferability. In the discretion of the Board, all or any
Non-Statutory Stock Option granted hereunder may be transferable by the
Participant once the Option has vested in the Participant, provided, however,
that the Board may limit the transferability of such Option or Options to a
designated class or classes of persons.
9. Incentive Stock Options
The Committee may, from time to time, grant Incentive Stock Options to Key
Employees. Incentive Stock Options granted pursuant to the Plan shall be subject
to the following terms and conditions:
(a) Option Agreement. Each Option shall be evidenced by a written option
agreement between the Company and the Key Employee specifying the number of
shares of Common Stock that may be acquired through its exercise and containing
such other terms and conditions that are not inconsistent with the terms of the
Plan.
(b) Price. Subject to Section 17 of the Plan and Section 422 of the Code,
the purchase price per share of Common Stock deliverable upon the exercise of
each Incentive Stock Option shall be not less than 100% of the Fair Market Value
of the Company's Common Stock on the date the Incentive Stock Option is granted.
However, if a Key Employee owns stock possessing more than 10% of the total
combined voting power of all classes of stock of the Company or its Affiliates
(or under Section 424(d) of the Code is deemed to own stock representing more
than 10% of the total combined voting power of all classes of stock of the
Company or its Affiliates by reason of the ownership of such classes of stock,
directly or indirectly, by or for any brother, sister, spouse, ancestor or
lineal descendant of such Key Employee, or by or for any corporation,
partnership, estate or trust of which such Key Employee is a shareholder,
partner or Beneficiary), the purchase price per share of Common Stock
deliverable upon the exercise of each Incentive Stock Option shall not be less
than 110% of the Fair Market Value of the Company's Common Stock on the date the
Incentive Stock Option is granted. Shares may be purchased only upon payment of
the full purchase price. Payment of the purchase price may be made, in whole or
in part, through the surrender of shares of the Common Stock of the Company at
the Fair Market Value of such shares determined on the exercise date.
(c) Vesting. Incentive Stock Options awarded to Key Employees shall vest
at the rate or rates determined by the Committee. Unless the Committee
determines otherwise, no Incentive Stock Option shall become vested in a
Participant unless the Participant maintains Continuous Service until the
vesting date of such Option, except as set forth herein.
(d) Exercise of Options. Vested Options may be exercised from time to
time, in whole or in part, by delivering a written notice of exercise to the
President or Chief Executive Officer of the Company, or his designee. Such
notice is irrevocable and must be accompanied by full payment of the exercise
price in cash or shares of Common Stock at the Fair Market Value of such shares
determined on the exercise date.
The Options comprising each installment may be exercised in whole or in
part at any time after such installment becomes vested, provided that the amount
able to be first exercised in a given year is consistent with the terms of
Section 422 of the Code. To the extent required by Section 422 of the Code, the
aggregate Fair Market
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Value (determined at the time the Option is granted) of the Common Stock for
which Incentive Stock Options are exercisable for the first time by a
Participant during any calendar year (under all plans of the Company and its
Affiliates) shall not exceed $100,000.
In the event of a Change in Control of the Company, all Incentive Stock
Options that have been awarded shall become immediately exercisable, provided,
however, that if the aggregate Fair Market Value (determined at the time the
Option is granted) of Common Stock for which Options are exercisable as a result
of a Change in Control, together with the aggregate Fair Market Value
(determined at the time the Option is granted) of all other Common Stock for
which Incentive Stock Options become exercisable during such year, exceeds
$100,000, then the first $100,000 of Incentive Stock Options (determined as of
the Date of Grant) shall be exercisable as Incentive Stock Options and any
excess shall be exercisable as Non-Statutory Stock Options (but shall remain
subject to the provisions of this Section 9 to the extent permitted).
(e) Amounts of Awards. Incentive Stock Options may be granted to any
eligible Key Employee in such amounts as determined by the Committee; provided
that the amount granted is consistent with the terms of Section 422 of the Code.
In granting Incentive Stock Options, the Committee shall consider such factors
as it deems relevant, which factors may include, among others, the position and
responsibilities of the Key Employee, the length and value of his or her service
to the Bank, the Company, or the Affiliate, the compensation paid to the Key
Employee and the Committee's evaluation of the performance of the Bank, the
Company, or the Affiliate, according to measurements that may include, among
others, key financial ratios, levels of classified assets, and independent audit
findings. The provisions of this Section 9(e) shall be construed and applied in
accordance with Section 422(d) of the Code and the regulations, if any,
promulgated thereunder.
(f) Terms of Options. The term during which each Incentive Stock Option
may be exercised shall be determined by the Committee, provided, however, in no
event shall an Incentive Stock Option be exercisable in whole or in part more
than 10 years from the Date of Grant. If any Key Employee, at the time an
Incentive Stock Option is granted to him, owns stock representing more than 10%
of the total combined voting power of all classes of stock of the Company or its
Affiliate (or, under Section 424(d) of the Code, is deemed to own stock
representing more than 10% of the total combined voting power of all classes of
stock, by reason of the ownership of such classes of stock, directly or
indirectly, by or for any brother, sister, spouse, ancestor or lineal descendant
of such Key Employee, or by or for any corporation, partnership, estate or trust
of which such Key Employee is a shareholder, partner or Beneficiary), the
Incentive Stock Option granted to him shall not be exercisable after the
expiration of five years from the Date of Grant. The Committee may, in its sole
discretion accelerate the time during which any Incentive Stock Option vests in
whole or in part to the Key Employee.
(g) Termination of Employment. Unless the Committee determines otherwise
at the time of an Award, upon the termination of a Key Employee's Continuous
Participation for any reason other than death, Normal Retirement, Disability,
Termination for Cause, or termination following a Change in Control (other than
for Cause following a Change in Control), the Key Employee's Incentive Stock
Options shall be exercisable only as to those shares that were immediately
purchasable by such Key Employee at the date of termination for a period of
three months following termination. Upon termination of a Key Employee's
employment due to death, Normal Retirement or Disability, or following a Change
in Control, all Incentive Options held by a Key Employee, whether or not vested
at such time, shall vest and become exercisable by the Participant or his legal
representative or beneficiaries for five years following the date of such
termination, death or cessation of employment, provided that in no event shall
the period extend beyond the expiration of the Stock Option term, and provided,
further, that such Option shall not be eligible for treatment as an Incentive
Stock Option in the event such Option is exercised more than three months
following termination due to Normal Retirement or following a Change in Control.
In the event of Termination for Cause all rights under the Incentive Stock
Options shall expire upon termination.
No Option shall be eligible for treatment as an Incentive Stock Option in
the event such Option is exercised more than one year following termination of
employment due to Disability. In order to obtain Incentive Stock Option
treatment for Options exercised by heirs or devisees of an Optionee, the
Optionee's death must have occurred while employed or within three months of
termination of employment.
(h) Transferability. No Incentive Stock Option granted under the Plan is
transferable except by will or the laws of descent and distribution and is
exercisable during his lifetime only by the Key Employee to which it is granted.
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(i) Compliance with Code. The options granted under this Section 9 are
intended to qualify as Incentive Stock Options within the meaning of Section 422
of the Code, but the Company makes no warranty as to the qualification of any
Option as an Incentive Stock Option within the meaning of Section 422 of the
Code. If an Option granted hereunder fails for whatever reason to comply with
the provisions of Section 422 of the Code, and such failure is not or cannot be
cured, such Option shall be a Non-Statutory Stock Option.
10. Limited Rights
The Committee may grant a Limited Right simultaneously with the grant of
any Option to any Key Employee of the Bank or the Company, with respect to all
or some of the shares covered by such Option. Limited Rights granted under the
Plan are subject to the following terms and conditions:
(a) Terms of Rights. In no event shall a Limited Right be exercisable in
whole or in part before the expiration of six months from the date of grant of
the Limited Right. A Limited Right may be exercised only in the event of a
Change in Control of the Company.
The Limited Right may be exercised only when the underlying Option is
eligible to be exercised, provided that the Fair Market Value of the underlying
shares on the day of exercise is greater than the exercise price of the related
Option.
Upon exercise of a Limited Right, the related Option shall cease to be
exercisable. Upon exercise or termination of an Option, any related Limited
Rights shall terminate. The Limited Rights may be for no more than 100% of the
difference between the exercise price and the Fair Market Value of the Common
Stock subject to the underlying Option. The Limited Right is transferable only
when the underlying Option is transferable and under the same conditions.
(b) Payment. Upon exercise of a Limited Right, the holder shall promptly
receive from the Company an amount of cash equal to the difference between the
Fair Market Value on the Date of Grant of the related Option and the Fair Market
Value of the underlying shares on the date the Limited Right is exercised,
multiplied by the number of shares with respect to which such Limited Right is
being exercised.
11. Reload Option
Simultaneously with the grant of any Option to a Participant, the
Committee may grant a Reload Option with respect to all or some of the shares
covered by such Option. A Reload Option may be granted to a Participant who
satisfies all or part of the exercise price of the Option with shares of Common
Stock (as described in Section 13(c) below). The Reload Option represents an
additional Option to acquire the same number of shares of Common Stock as is
used by the Participant to pay for the original Option. Reload Options may also
be granted to replace Common Stock withheld by the Company for payment of a
Participant's withholding tax under Section 19. A Reload Option is subject to
all of the same terms and conditions as the original Option, including the
remaining Option exercise term, except that (i) the exercise price of the shares
of Common Stock subject to the Reload Option will be determined at the time the
original Option is exercised and (ii) such Reload Option will conform to all
provisions of the Plan at the time the original Option is exercised.
12. Surrender of Option
In the event of a Participant's termination of employment or termination
of service as a result of death or Disability, the Participant (or his or her
personal representative(s), heir(s), or devisee(s)) may, in a form acceptable to
the Committee make application to surrender all or part of the Options held by
such Participant in exchange for a cash payment from the Company of an amount
equal to the difference between the Fair Market Value of the Common Stock on the
date of termination of employment or the date of termination of service on the
Board and the exercise price per share of the Option. Whether the Company
accepts such application or determines to make payment, in whole or part, is
within its absolute and sole discretion, it being expressly understood that the
Company is under no obligation to any Participant whatsoever to make such
payments. In the event that the Company accepts such application and determines
to make payment, such payment shall be in lieu of the exercise of the underlying
Option and such Option shall cease to be exercisable.
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13. Alternate Option Payment Mechanism
The Committee has sole discretion to determine what form of payment it
will accept for the exercise of an Option. The Committee may indicate acceptable
forms in the agreement with the Participant covering such Options or may reserve
its decision to the time of exercise. No Option is to be considered exercised
until payment in full is accepted by the Committee or its agent.
(a) Cash Payment. The exercise price may be paid in cash or by certified
check. To the extent permitted by law, the Committee may permit all or a portion
of the exercise price of an Option to be paid through borrowed funds.
(b) Cashless Exercise. Subject to vesting requirements, if applicable, a
Participant may engage in a "cashless exercise" of the Option. Upon a cashless
exercise, the Participant shall give the Company written notice of the exercise
of the Option together with an order to a registered broker-dealer or equivalent
third party, to sell part or all of the Common Stock subject to the Option and
to deliver enough of the proceeds to the Company to pay the Option exercise
price and any applicable withholding taxes. If the Participant does not sell the
Common Stock subject to the Option through a registered broker-dealer or
equivalent third party, the Participant may give the Company written notice of
the exercise of the Option and the third party purchaser of the Common Stock
subject to the Option shall pay the Option exercise price plus applicable
withholding taxes to the Company.
(c) Exchange of Common Stock. The Committee may permit payment of the
Option exercise price by the tendering or constructive tendering of previously
acquired shares of Common Stock. All shares of Common Stock tendered in payment
of the exercise price of an Option shall be valued at the Fair Market Value of
the Common Stock. No tendered shares of Common Stock which were acquired by the
Participant upon the previous exercise of an Option or as awards under a stock
award plan (such as the Company's Recognition and Retention Plan) shall be
accepted for exchange unless the Participant has held such shares (without
restrictions imposed by said plan or award) for at least six months prior to the
exchange.
14. Rights of a Stockholder
A Participant shall have no rights as a stockholder with respect to any
shares covered by a Non-Statutory and/or Incentive Stock Option until the date
of issuance of a stock certificate for such shares. Nothing in the Plan or in
any Award granted confers on any person any right to continue in the employ of
the Company or its Affiliates or to continue to perform services for the Company
or its Affiliates or interferes in any way with the right of the Company or its
Affiliates to terminate his services as an officer, director or employee at any
time.
15. Agreement with Participants
Each Award of Options, Reload Options, and/or Limited Rights will be
evidenced by a written agreement, executed by the Participant and the Company or
its Affiliates that describes the conditions for receiving the Awards, including
the date of Award, the purchase price, applicable periods, and any other terms
and conditions as may be required by the Board or applicable securities laws.
16. Designation of Beneficiary
A Participant may, with the consent of the Committee, designate a person
or persons to receive, in the event of death, any Option, Reload Option, or
Limited Rights to which he would then be entitled. Such designation will be made
upon forms supplied by and delivered to the Company and may be revoked in
writing. If a Participant fails effectively to designate a Beneficiary, then his
estate will be deemed to be the Beneficiary.
17. Dilution and Other Adjustments
In the event of any change in the outstanding shares of Common Stock by
reason of any stock dividend or split, pro rata return of capital to all
shareholders, recapitalization, or any merger, consolidation, spin-off,
reorganization, combination or exchange of shares, or other similar corporate
change, or other increase or decrease in such shares, without receipt or payment
of consideration by the Company, the Committee will make such
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adjustments to previously granted Awards, to prevent dilution or enlargement of
the rights of the Participant, including any or all of the following:
(a) adjustments in the aggregate number or kind of shares of Common
Stock that may be awarded under the Plan;
(b) adjustments in the aggregate number or kind of shares of Common
Stock covered by Awards already made under the Plan; or
(c) adjustments in the purchase price of outstanding Incentive and/or
Non-Statutory Stock Options, or any Limited Rights attached to such
Options.
No such adjustments may, however, materially change the value of benefits
available to a Participant under a previously granted Award. With respect to
Incentive Stock Options, no such adjustment shall be made if it would be deemed
a "modification" of the Award under Section 424 of the Code.
18. Effect of a Change in Control on Option Awards
In the event of a Change in Control, the Committee and the Board of
Directors will take one or more of the following actions to be effective as of
the date of such Change in Control:
(a) provide that such Options shall be assumed, or equivalent options
shall be substituted ("Substitute Options") by the acquiring or succeeding
corporation (or an affiliate thereof), provided that: (A) any such Substitute
Options exchanged for Incentive Stock Options shall meet the requirements of
Section 424(a) of the Code, and (B) the shares of stock issuable upon the
exercise of such Substitute Options shall be registered in accordance with the
Securities Act of 1933, as amended ("1933 Act") or such securities shall be
exempt from such registration in accordance with Sections 3(a)(2) or 3(a)(5) of
the 1933 Act, (collectively, "Registered Securities"), or in the alternative, if
the securities issuable upon the exercise of such Substitute Options shall not
constitute Registered Securities, then the Participant will receive upon
consummation of the Change in Control a cash payment for each Option surrendered
equal to the difference between the (1) fair market value of the consideration
to be received for each share of Common Stock in the Change in Control times the
number of shares of Common Stock subject to such surrendered Options, and (2)
the aggregate exercise price of all such surrendered Options; or
(b) in the event of a transaction under the terms of which the holders of
Common Stock will receive upon consummation thereof a cash payment (the "Merger
Price") for each share of Common Stock exchanged in the Change in Control
transaction, make or provide for a cash payment to the Participants equal to the
difference between (1) the Merger Price times the number of shares of Common
Stock subject to such Options held by each Participant (to the extent then
exercisable at prices not in excess of the Merger Price), and (2) the aggregate
exercise price of all such surrendered Options.
19. Withholding
There may be deducted from each distribution of cash and/or Common Stock
under the Plan the minimum amount of any federal or state taxes, including
payroll taxes, that are applicable to such supplemental taxable income and that
are required by any governmental authority to be withheld. Shares of Common
Stock will be withheld where required from any distribution of Common Stock.
20. Amendment of the Plan
The Board may at any time, and from time to time, modify or amend the Plan
in any respect, or modify or amend an Award received by Key Employees and/or
Outside Directors; provided, however, that no such termination, modification or
amendment may affect the rights of a Participant, without his consent, under an
outstanding Award.
21. Effective Date of Plan
The Plan shall become effective upon the date of approval of the Plan by
the Company's stockholders.
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22. Termination of the Plan
The right to grant Awards under the Plan will terminate upon the earlier
of (i) 10 years after the Effective Date, or (ii) the date on which the exercise
of Options or related rights equaling the maximum number of shares reserved
under the Plan occurs, as set forth in Section 5. The Board may suspend or
terminate the Plan at any time, provided that no such action will, without the
consent of a Participant, adversely affect his rights under a previously granted
Award.
23. Applicable Law
The Plan will be administered in accordance with the laws of the State of
Delaware.
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EXHIBIT B
CITIZENS SOUTH BANKING CORPORATION
2003 RECOGNITION AND RETENTION PLAN
1. Establishment of the Plan; Creation of Separate Trust
(a) Citizens South Banking Corporation (the "Company") hereby establishes
the Citizens South Banking Corporation 2003 Recognition and Retention Plan (the
"Plan") upon the terms and conditions hereinafter stated in the Plan.
(b) A separate trust or trusts may be established to purchase shares of
the Common Stock that will be awarded hereunder (the "Trust"). If a trust is
established and a Recipient hereunder fails to satisfy the conditions of the
Plan and forfeits all or any portion of the Common Stock awarded to him or her,
such forfeited shares will be returned to said Trust. If no trust is
established, forfeited shares shall be cancelled or held in treasury as
determined by the Committee.
2. Purpose of the Plan
The purpose of the Plan is to advance the interests of the Bank and
Citizens South Banking Corporation (the "Company") and the Company's
stockholders by providing Key Employees and Outside Directors of the Company and
its Affiliates, including the Bank, upon whose judgment, initiative and efforts
the successful conduct of the business of the Company and its Affiliates largely
depends, with compensation for their contributions to the Company and its
Affiliates and an additional incentive to perform in a superior manner, as well
as to attract people of experience and ability.
3. Definitions
The following words and phrases, when used in this Plan with an initial
capital letter, unless the context clearly indicates otherwise, shall have the
meanings set forth below. Wherever appropriate, the masculine pronoun shall
include the feminine pronoun and the singular shall include the plural:
"Affiliate" means any "parent corporation" or "subsidiary corporation" of
the Company or the Bank, as such terms are defined in Section 424(e) and (f),
respectively, of the Code, or a successor to a parent corporation or subsidiary
corporation.
"Award" means the grant by the Committee of Restricted Stock, as provided
in the Plan.
"Bank" means Citizens South Bank, or a successor corporation.
"Beneficiary" means the person or persons designated by a Recipient to
receive any benefits payable under the Plan in the event of such Recipient's
death. Such person or persons shall be designated in writing on forms provided
for this purpose by the Committee and may be changed from time to time by
similar written notice to the Committee. In the absence of a written
designation, the Beneficiary shall be the Recipient's surviving spouse, if any,
or if none, his estate.
"Board" or "Board of Directors" means the Board of Directors of the
Company, unless otherwise noted.
"Cause" means personal dishonesty, willful misconduct, any breach of
fiduciary duty involving personal profit, intentional failure to perform stated
duties, or the willful violation of any law, rule or regulation (other than
traffic violations or similar offenses) or a final cease-and-desist order, any
of which results in a material loss to the Company or an Affiliate.
"Change in Control" of the Bank or the Company means a change in control
of a nature that: (i) would be required to be reported in response to Item 1(a)
of the current report on Form 8-K, as in effect on the date hereof, pursuant to
Section 13 or 15(d) of the Securities Exchange Act of 1934 (the "Exchange Act");
or (ii) results in a Change in Control of the Bank or the Company within the
meaning of the Home Owners' Loan Act, as amended
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("HOLA"), and applicable rules and regulations promulgated thereunder, as in
effect at the time of the Change in Control; or (iii) without limitation such a
Change in Control shall be deemed to have occurred at such time as (a) any
"person" (as the term is used in Sections 13(d) and 14(d) of the Exchange Act)
is or becomes the "beneficial owner" (as defined in Rule 13d-3 under the
Exchange Act), directly or indirectly, of securities of the Company representing
25% or more of the combined voting power of Company's outstanding securities
except for any securities purchased by the Bank's employee stock ownership plan
or trust; or (b) individuals who constitute the Board on the date hereof (the
"Incumbent Board") cease for any reason to constitute at least a majority
thereof, provided that any person becoming a director subsequent to the date
hereof whose election was approved by a vote of at least three-quarters of the
directors comprising the Incumbent Board, or whose nomination for election by
the Company's stockholders was approved by the same Nominating Committee serving
under an Incumbent Board, shall be, for purposes of this clause (b), considered
as though he were a member of the Incumbent Board; or (c) a plan of
reorganization, merger, consolidation, sale of all or substantially all the
assets of the Bank or the Company or similar transaction in which the Bank or
Company is not the surviving institution occurs; or (d) a proxy statement
soliciting proxies from stockholders of the Company, by someone other than the
current management of the Company, seeking stockholder approval of a plan of
reorganization, merger or consolidation of the Company or similar transaction
with one or more corporations as a result of which the outstanding shares of the
class of securities then subject to the Plan are to be exchanged for or
converted into cash or property or securities not issued by the Company; or (e)
a tender offer is made for 25% or more of the voting securities of the Company
and the shareholders owning beneficially or of record 25% or more of the
outstanding securities of the Company have tendered or offered to sell their
shares pursuant to such tender offer and such tendered shares have been accepted
by the tender offeror.
"Code" means the Internal Revenue Code of 1986, as amended.
"Committee" means a committee of the Board of the Company consisting of
either (i) at least two Non-Employee Directors of the Company, or (ii) the
entire Board of the Company.
"Common Stock" means shares of the common stock of the Company, par value
$.01 per share.
"Company" means Citizens South Banking Corporation, the stock holding
company of the Bank, or a successor corporation.
"Continuous Service" means employment as a Key Employee and/or service as
an Outside Director without any interruption or termination of such employment
and/or service. Continuous Service shall also mean a continuation as a member of
the Board of Directors following a cessation of employment as a Key Employee and
continuation of service as a Director Emeritus following cessation of service as
a Director. In the case of a Key Employee, employment shall not be considered
interrupted in the case of sick leave, military leave or any other leave of
absence approved by the Bank or in the case of transfers between payroll
locations of the Bank or between the Bank, its parent, its subsidiaries or its
successor.
"Director" means a member of the Board.
"Director Emeritus" means a former member of the Board who has been
appointed to the status of Director Emeritus by the Board.
"Disability" means the permanent and total inability by reason of mental
or physical infirmity, or both, of an employee to perform the work customarily
assigned to him, or of a Director or Outside Director to serve as such.
Additionally, in the case of an employee, a medical doctor selected or approved
by the Board must advise the Committee that it is either not possible to
determine when such Disability will terminate or that it appears probable that
such Disability will be permanent during the remainder of such employee's
lifetime.
"Effective Date" means the date of, or a date determined by the Board
following, approval of the Plan by the Company's stockholders.
"Key Employee" means any person who is currently employed by the Company
or an Affiliate who is chosen by the Committee to participate in the Plan.
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"Non-Employee Director" means, for purposes of the Plan, a Director who
(a) is not employed by the Company or an Affiliate; (b) does not receive
compensation directly or indirectly as a consultant (or in any other capacity
than as a Director) greater than $60,000; (c) does not have an interest in a
transaction requiring disclosure under Item 404(a) of Regulation S-K; or (d) is
not engaged in a business relationship for which disclosure would be required
pursuant to Item 404(b) of Regulation S-K.
"Normal Retirement" means for an officer, retirement at the normal or
early retirement date set forth in the Bank's employee stock ownership plan, or
any successor plan. Normal retirement for an Outside Director means cessation of
service on the Board of Directors for any reason other than Termination for
Cause, after any one of the following: (i) attainment of age 55 with 10 years of
service on the Board; (ii) attainment of age 65 with 5 years service on the
Board; or (iii) attainment of age 72 (age 70, in the case of a member of the
Bank's Board of Directors), provided however, that a Director who continues as a
Director Emeritus shall not be deemed to have terminated due to Normal
Retirement solely as a result of terminating service as a Director following
satisfaction of one of the above stated conditions.
"Outside Director" means a Director of the Company or an Affiliate who is
not an employee of the Company or an Affiliate.
"Recipient" means a Key Employee or Outside Director of the Company or its
Affiliates who receives or has received an Award under the Plan.
"Restricted Period" means the period of time selected by the Committee for
the purpose of determining when restrictions are in effect under Section 6 with
respect to Restricted Stock awarded under the Plan.
"Restricted Stock" means shares of Common Stock that have been
contingently awarded to a Recipient by the Committee subject to the restrictions
referred to in Section 6, so long as such restrictions are in effect.
4. Administration of the Plan.
(a) Role of the Committee. The Plan shall be administered by the
Committee. The interpretation and construction by the Committee of any
provisions of the Plan or of any Award granted hereunder shall be final and
binding. The Committee shall act by vote or written consent of a majority of its
members. Subject to the express provisions and limitations of the Plan, the
Committee may adopt such rules and procedures as it deems appropriate for the
conduct of its affairs. The Committee shall report its actions and decisions
with respect to the Plan to the Board at appropriate times, but in no event less
than one time per calendar year.
(b) Role of the Board. The members of the Committee shall be appointed or
approved by, and will serve at the pleasure of, the Board of Directors of the
Company. The Board may in its discretion from time to time remove members from,
or add members to, the Committee. The Board shall have all of the powers
allocated to it in the Plan, may take any action under or with respect to the
Plan that the Committee is authorized to take, and may reverse or override any
action taken or decision made by the Committee under or with respect to the
Plan, provided, however, that except as provided in Section 6(b), the Board may
not revoke any Award except in the event of revocation for Cause or with respect
to unearned Awards in the event the Recipient of an Award voluntarily terminates
employment with the Bank prior to Normal Retirement.
(c) Plan Administration Restrictions. All transactions involving a grant,
award or other acquisitions from the Company shall:
(i) be approved by the Company's full Board or by the Committee;
(ii) be approved, or ratified, in compliance with Section 14 of the
Exchange Act, by either: the affirmative vote of the holders
of a majority of the shares present, or represented and
entitled to vote at a meeting duly held in accordance with the
laws under which the Company is incorporated; or the written
consent of the holders of a majority of the securities of the
issuer entitled to vote, provided that such ratification
occurs no later than the date of the next annual meeting of
stockholders; or
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(iii) result in the acquisition of Common Stock that is held by the
Recipient for a period of six months following the date of
such acquisition.
(d) Limitation on Liability. No member of the Board or the Committee shall
be liable for any determination made in good faith with respect to the Plan or
any Awards granted under it. If a member of the Board or the Committee is a
party or is threatened to be made a party to any threatened, pending or
completed action, suit or proceeding, whether civil, criminal, administrative or
investigative, by reason of anything done or not done by him in such capacity
under or with respect to the Plan, the Bank or the Company shall indemnify such
member against expense (including attorneys' fees), judgments, fines and amounts
paid in settlement actually and reasonably incurred by him in connection with
such action, suit or proceeding if he acted in good faith and in a manner he
reasonably believed to be in the best interests of the Bank and the Company and,
with respect to any criminal action or proceeding, had no reasonable cause to
believe his conduct was unlawful.
5. Eligibility; Awards
(a) Eligibility. Key Employees and Outside Directors are eligible to
receive Awards.
(b) Awards to Key Employees and Outside Directors. The Committee may
determine which of the Key Employees and Outside Directors referenced in Section
5(a) will be granted Awards and the number of shares covered by each Award;
provided, however, that in no event shall any Awards be made that will violate
the Bank's Charter and Bylaws, the Company's Certificate of Incorporation and
Bylaws, or any applicable federal or state law or regulation. Shares of
Restricted Stock that are awarded by the Committee shall, on the date of the
Award, be registered in the name of the Recipient and transferred to the
Recipient, in accordance with the terms and conditions established under the
Plan. The aggregate number of shares that shall be issued under the Plan is
210,398.
(c) In the event Restricted Stock is forfeited for any reason, the
Committee, from time to time, may determine which of the Key Employees and
Outside Directors will be granted additional Awards to be awarded from forfeited
Restricted Stock.
(d) In selecting those Key Employees and Outside Directors to whom Awards
will be granted and the amount of Restricted Stock covered by such Awards, the
Committee shall consider such factors as it deems relevant, which factors may
include, among others, the position and responsibilities of the Key Employees
and Outside Directors, the length and value of their services to the Company and
its Affiliates, the compensation paid to the Key Employees or fees paid to the
Outside Directors, and the Committee may request the written recommendation of
the Chief Executive Officer and other senior executive officers of the Bank, the
Company and its Affiliates or the recommendation of the full Board. All
allocations by the Committee shall be subject to review, and approval or
rejection, by the Board.
No Restricted Stock shall be earned unless the Recipient maintains
Continuous Service with the Company or an Affiliate until the restrictions
lapse.
(e) Manner of Award. As promptly as practicable after a determination is
made pursuant to Section 5(b) to grant an Award, the Committee shall notify the
Recipient in writing of the grant of the Award, the number of shares of
Restricted Stock covered by the Award, and the terms upon which the Restricted
Stock subject to the Award may be earned. Upon notification of an Award of
Restricted Stock, the Recipient shall execute and return to the Company a
restricted stock agreement (the "Restricted Stock Agreement") setting forth the
terms and conditions under which the Recipient shall earn the Restricted Stock,
together with a stock power or stock powers endorsed in blank. Thereafter, the
Recipient's Restricted Stock and stock power shall be deposited with an escrow
agent specified by the Company ("Escrow Agent") who shall hold such Restricted
Stock under the terms and conditions set forth in the Restricted Stock
Agreement. Each certificate in respect of shares of Restricted Stock Awarded
under the Plan shall be registered in the name of the Recipient.
(f) Treatment of Forfeited Shares. In the event shares of Restricted Stock
are forfeited by a Recipient, such shares shall be returned to the Company and
shall be held and accounted for pursuant to the terms of the Plan until such
time as the Restricted Stock is re-awarded to another Recipient, in accordance
with the terms of the Plan and the applicable state and federal laws, rules and
regulations.
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6. Terms and Conditions of Restricted Stock
The Committee shall have full and complete authority, subject to the
limitations of the Plan, to grant awards of Restricted Stock to Key Employees
and Outside Directors and, in addition to the terms and conditions contained in
Sections 6(a) through 6(h), to provide such other terms and conditions (which
need not be identical among Recipients) in respect of such Awards, and the
vesting thereof, as the Committee shall determine.
(a) General Rules. Restricted Stock shall be earned by a Recipient at the
rate or rates determined by the Committee, provided that such Recipient
maintains Continuous Service. Subject to any such other terms and conditions as
the Committee shall provide with respect to Awards, shares of Restricted Stock
may not be sold, assigned, transferred (within the meaning of Code Section 83),
pledged or otherwise encumbered by the Recipient, except as hereinafter
provided, during the Restricted Period.
(b) Continuous Service; Forfeiture. Except as provided in Section 6(c), if
a Recipient ceases to maintain Continuous Service for any reason, unless the
Committee shall otherwise determine, all shares of Restricted Stock theretofore
awarded to such Recipient and which at the time of such termination of
Continuous Service are subject to the restrictions imposed by Section 6(a) shall
upon such termination of Continuous Service be forfeited. Any stock dividends or
declared but unpaid cash dividends attributable to such shares of Restricted
Stock shall also be forfeited.
(c) Exception for Termination Due to Death, Normal Retirement or
Disability, and Following a Change in Control. Notwithstanding the general rule
contained in Section 6(a) and (b), Restricted Stock awarded to a Recipient whose
Continuous Services terminates due to death, Normal Retirement, Disability, or
following a Change in Control, shall be deemed earned as of the Recipient's last
day of employment with the Company or an Affiliate, or last day of service on
the Board of the Company or an Affiliate; provided that Restricted Stock awarded
to a Key Employee who at any time also serves as a Director shall not be deemed
earned until both employment and service as a Director (or as a Director
Emeritus) have been terminated.
(d) Revocation for Cause. Notwithstanding anything hereinafter to the
contrary, the Board may by resolution immediately revoke, rescind and terminate
any Award, or portion thereof, previously awarded under the Plan, to the extent
Restricted Stock has not been redelivered by the Escrow Agent to the Recipient,
whether or not yet earned, in the case of a Key Employee whose employment is
terminated by the Company or an Affiliate or an Outside Director whose service
is terminated by the Company or an Affiliate for Cause or who is discovered
after termination of employment or service on the Board to have engaged in
conduct that would have justified termination for Cause.
(e) Restricted Stock Legend. Each certificate in respect of shares of
Restricted Stock awarded under the Plan shall be registered in the name of the
Recipient and deposited by the Recipient, together with a stock power endorsed
in blank, with the Escrow Agent, and shall bear the following (or a similar)
legend:
"The transferability of this certificate and the shares of
stock represented hereby are subject to the terms and conditions
(including forfeiture) contained in the Citizens South Banking
Corporation 2003 Recognition and Retention Plan. Copies of such Plan
are on file in the offices of the Secretary of Citizens South
Banking Corporation, 245 West Main Avenue, Gastonia, North Carolina
28053."
(f) Payment of Dividends and Return of Capital. After an Award has been
granted but before such Award has been earned, the Recipient shall receive any
cash dividends paid with respect to such shares, or shall share in any pro-rata
return of capital to all stockholders with respect to the Common Stock. Stock
dividends declared by the Company and paid on Awards that have not yet been
earned shall be subject to the same restrictions as the Restricted Stock and the
certificate(s) or other instruments representing or evidencing such shares shall
be legended in the manner provided in Section 6(e) and shall be delivered to the
Escrow Agent for distribution to the Recipient when the Restricted Stock upon
which such dividends were paid are earned. Unless the Recipient has made an
election under Section 83(b) of the Code, cash dividends or other amounts so
paid on shares that have not yet been earned by the Recipient shall be treated
as compensation income to the Recipient when paid. If dividends are paid with
respect to shares of Restricted Stock under the Plan that have been forfeited
and returned to the
B-5
Company or to a trust established to hold issued and unawarded or forfeited
shares, the Committee can determine to award such dividends to any Recipient or
Recipients under the Plan, to any other employee or director of the Company or
the Bank, or can return such dividends to the Company.
(g) Voting of Restricted Shares. After an Award has been granted, the
Recipient as conditional owner of the Restricted Stock shall have the right to
vote such shares.
(h) Delivery of Earned Shares. At the expiration of the restrictions
imposed by Section 6(a), the Escrow Agent shall redeliver to the Recipient (or
where the relevant provision of Section 6(c) applies in the case of a deceased
Recipient, to his Beneficiary) the certificate(s) and any remaining stock power
deposited with it pursuant to Section 5(d) and the shares represented by such
certificate(s) shall be free of the restrictions referred to in Section 6(a).
7. Adjustments upon Changes in Capitalization
In the event of any change in the outstanding shares subsequent to the
Effective Date by reason of any reorganization, recapitalization, stock split,
stock dividend, combination or exchange of shares, or any merger, consolidation
or any change in the corporate structure or shares of the Company, without
receipt or payment of consideration by the Company, the maximum aggregate number
and class of shares as to which Awards may be granted under the Plan and the
number of shares subject to an outstanding Award shall be appropriately
adjusted, which adjustment if not self-effectuating may be made by the
Committee, whose determination shall be conclusive. Any shares of stock or other
securities received, as a result of any of the foregoing, by a Recipient with
respect to Restricted Stock shall be subject to the same restrictions and the
certificate(s) or other instruments representing or evidencing such shares or
securities shall be legended and deposited with the Escrow Agent in the manner
provided in Section 6(e).
8. Assignments and Transfers
No Award nor any right or interest of a Recipient under the Plan in any
instrument evidencing any Award under the Plan may be assigned, encumbered or
transferred (within the meaning of Code Section 83) except, in the event of the
death of a Recipient, by will or the laws of descent and distribution until such
Award is earned.
9. Key Employee Rights under the Plan
No Key Employee shall have a right to be selected as a Recipient nor,
having been so selected, to be selected again as a Recipient and no Key Employee
or other person shall have any claim or right to be granted an Award under the
Plan or under any other incentive or similar plan of the Company or any
Affiliate. Neither the Plan nor any action taken thereunder shall be construed
as giving any Key Employee any right to be retained in the employ of the Company
or any Affiliate.
10. Outside Director Rights under the Plan
Neither the Plan nor any action taken thereunder shall be construed as
giving any Outside Director any right to be retained in the service of the
Company or any Affiliate.
11. Withholding Tax
Upon the termination of the Restricted Period with respect to any shares
of Restricted Stock (or at any such earlier time that an election is made by the
Recipient under Section 83(b) of the Code, or any successor provision thereto,
to include the value of such shares in taxable income), the Bank or the Company
shall have the right to require the Recipient or other person receiving such
shares to pay the Bank or the Company the minimum amount of any federal or state
taxes, including payroll taxes, that are applicable to such supplemental income
and that the Bank or the Company is required to withhold with respect to such
shares, or, in lieu thereof, to retain or sell without notice, a sufficient
number of shares held by it to cover the amount required to be withheld. The
Bank or the Company shall have the right to deduct from all dividends paid with
respect to shares of Restricted Stock the amount of any taxes which the Bank or
the Company is required to withhold with respect to such dividend payments.
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12. Amendment or Termination
The Board of the Company may amend, suspend or terminate the Plan or any
portion thereof at any time, provided, however, that no such amendment,
suspension or termination shall impair the rights of any Recipient, without his
consent, in any Award theretofore made pursuant to the Plan. Any amendment or
modification of the Plan or an outstanding Award under the Plan, shall be
approved by the Committee, or the full Board of the Company.
13. Governing Law
The Plan shall be governed by the laws of the State of Delaware.
14. Term of Plan
The Plan shall become effective on the date of, or a date determined by
the Board of Directors following, approval of the Plan by the Company's
stockholders. It shall continue in effect until the earlier of (i) ten years
from the Effective Date unless sooner terminated under Section 12 hereof, or
(ii) the date on which all shares of Common Stock available for award hereunder,
have vested in the Recipients of such Awards.
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CITIZENS SOUTH BANKING CORPORATION
SPECIAL MEETING OF STOCKHOLDERS
October 23, 2003
The undersigned hereby appoints the official proxy committee consisting of
the Board of Directors with full powers of substitution to act as attorneys and
proxies for the undersigned to vote all shares of Common Stock of the Company
which the undersigned is entitled to vote at the Special Meeting of Stockholders
("Special Meeting") to be held at the Gaston County Public Library, 1555 East
Garrison Boulevard, Gastonia, North Carolina 28054-5156, on October 23, 2003, at
10:30 a.m. local time. The official proxy committee is authorized to cast all
votes to which the undersigned is entitled as follows:
FOR AGAINST ABSTAIN
1. The approval of the Citizens South Banking
Corporation 2003 Stock Option Plan. |_| |_| |_|
2. The approval of the Citizens South Banking
Corporation 2003 Recognition and Retention Plan. |_| |_| |_|
The Board of Directors recommends a vote "FOR" Proposals 1 and 2.
THIS PROXY WILL BE VOTED AS DIRECTED, BUT IF NO INSTRUCTIONS ARE SPECIFIED, THIS
PROXY WILL BE VOTED FOR PROPOSALS 1 AND 2.
THIS PROXY IS SOLICITED BY THE BOARD OF DIRECTORS
Should the undersigned be present and elect to vote at the Special Meeting or at
any adjournment thereof and after notification to the Secretary of the Company
at the Special Meeting of the stockholder's decision to terminate this proxy,
then the power of said attorneys and proxies shall be deemed terminated and of
no further force and effect. This proxy may also be revoked by sending written
notice to the Secretary of the Company at the address set forth on the Notice of
Special Meeting of Stockholders, or by the filing of a later proxy prior to a
vote being taken on a particular proposal at the Special Meeting.
The undersigned acknowledges receipt from the Company prior to the execution of
this proxy of notice of the Special Meeting and a proxy statement dated
September 8, 2003.
Dated: _________________________ |_| Check Box if You Plan
to Attend Special Meeting
________________________________ ___________________________________
PRINT NAME OF STOCKHOLDER PRINT NAME OF STOCKHOLDER
________________________________ ___________________________________
SIGNATURE OF STOCKHOLDER SIGNATURE OF STOCKHOLDER
Please sign exactly as your name appears on this card. When signing as attorney,
executor, administrator, trustee or guardian, please give your full title.
Please complete and date this proxy and return it promptly
in the enclosed postage-prepaid envelope.