SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934 (Amendment No. )
Filed by the Registrant [X]
Filed by a Party other than the Registrant [_]
Check the appropriate box:
[_] Preliminary Proxy Statement [_] Confidential, for Use of the
Commission Only (as permitted by
Rule 14a-6(e)(2))
[X] Definitive Proxy Statement
[_] Definitive Additional Materials
[_] Soliciting Material Pursuant to Section 240.14a-11(c) or Section 240.14a-12
Stone Street Bancorp, Inc.
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(Name of Registrant as Specified In Its Charter)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[_] 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:
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(2) Aggregate number of securities to which transaction applies:
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(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which
the filing fee is calculated and state how it was determined):
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(4) Proposed maximum aggregate value of transaction:
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(5) Total fee paid:
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[_] Fee paid previously with preliminary materials.
[_] Check box if any part of the fee is offset as provided by Exchange
Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee
was paid previously. Identify the previous filing by registration statement
number, or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
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(2) Form, Schedule or Registration Statement No.:
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(3) Filing Party:
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(4) Date Filed:
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Notes:
STONE STREET BANCORP, INC.
232 South Main Street
Mocksville, North Carolina 27028
(704) 634-5936
NOTICE OF 1997 ANNUAL MEETING OF STOCKHOLDERS
To Be Held on April 15, 1997
NOTICE IS HEREBY GIVEN that the 1997 Annual Meeting of Stockholders (the
"Annual Meeting") of Stone Street Bancorp, Inc. (the "Company") will be held on
April 15, 1997, at 4:00 p.m., Eastern Time, at the main office of the Company at
232 South Main Street, Mocksville, North Carolina.
THE PURPOSES OF THE ANNUAL MEETING ARE:
1. To elect (a) three persons who will serve as directors of the Company
until the 1998 Annual Meeting of Stockholders or until their successors
are duly elected and qualify, (b) three persons who will serve as
directors of the Company until the 1999 Annual Meeting of Stockholders
or until their successors are duly elected and qualify, and (c) three
persons who will serve as directors of the Company until the 2000
Annual Meeting of Stockholders or until their successors are duly
elected and qualify;
2. To ratify the selection of Weir Smith Jones Miller & Elliott, Certified
Public Accountants, P.A. as the independent auditor for the Company for
the fiscal year ending December 31, 1997;
3. To approve the Stone Street Bancorp, Inc. Stock Option Plan;
4. To approve the Mocksville Savings Bank, Inc., SSB Management Recognition
Plan;
5. To transact such other business as may properly come before the Annual
Meeting or any adjournments thereof. The Board of Directors is not aware
of any other business to be considered at the Annual Meeting.
The Board of Directors has established March 4, 1997, as the record date
for the determination of stockholders entitled to notice of and to vote at the
Annual Meeting and any adjournments thereof. Only record holders of the Common
Stock of the Company as of the close of business on that date will be entitled
to vote at the Annual Meeting or any adjournments thereof. In the event there
are not sufficient shares present in person or by proxy to constitute a quorum
at the time of the Annual Meeting, the Annual Meeting may be adjourned in order
to permit further solicitation of proxies by the Company.
By Order of the Board of Directors
J. Charles Dunn
President
Mocksville, North Carolina
March 14, 1997
A form of proxy is enclosed to enable you to vote your shares at the Annual
Meeting. You are urged, regardless of the number of shares you hold, to
complete, sign, date and return the proxy promptly. A return envelope, which
requires no postage if mailed in the United States, is enclosed for your
convenience.
Stone Street Bancorp, Inc.
PROXY STATEMENT
1997 ANNUAL MEETING OF STOCKHOLDERS
April 15, 1997
SOLICITATION, VOTING AND REVOCABILITY OF PROXIES
General
This Proxy Statement is being furnished to stockholders of Stone Street
Bancorp, Inc. (the "Company") in connection with the solicitation by the board
of directors of the Company (the "Board of Directors" or "Board") of proxies to
be used at the 1997 Annual Meeting of Stockholders (the "Annual Meeting") to be
held on April 15, 1997, at 4:00 p.m., Eastern Time, at the offices of the
Company at 232 South Main Street, Mocksville, North Carolina, and at any
adjournments thereof. This Proxy Statement and the accompanying form of proxy
were first mailed to stockholders on or about March 14, 1997.
Other than the matters listed on the attached Notice of 1997 Annual Meeting
of Stockholders, the Board of Directors knows of no matters that will be
presented for consideration at the Annual Meeting. Execution of a proxy,
however, confers on the designated proxy holders discretionary authority to vote
the shares in accordance with their best judgment on such other business, if
any, that may properly come before the Annual Meeting or any adjournments
thereof.
Revocability of Proxy
A proxy may be revoked at any time prior to its exercise by the filing of a
written notice of revocation with the Secretary of the Company, by delivering to
the Company a duly executed proxy bearing a later date, or by attending the
Annual Meeting and voting in person. However, if you are a beneficial owner of
shares of the Company's common stock (the "Common Stock") that are not
registered in your own name, you will need appropriate documentation from the
holder of record of your shares to vote personally at the Annual Meeting.
Solicitation
The Company will pay the cost of preparing, assembling and mailing this
Proxy Statement and other proxy solicitation expenses, if any. In addition to
the use of the mail, proxies may be solicited personally or by telephone or
telegraph by directors, officers and regular employees of the Company and its
wholly-owned savings bank subsidiary, Mocksville Savings Bank, Inc., SSB (the
"Bank"), without additional compensation therefor. Brokerage houses and
nominees have been requested to forward these proxy materials to the beneficial
owners of shares held of record by such persons and, upon request, the Company
will reimburse such persons for their reasonable out-of-pocket expenses in doing
so.
Voting Securities and Vote Required for Approval
Regardless of the number of shares of Common Stock owned, it is important
that stockholders be present in person or represented by proxy at the Annual
Meeting. Stockholders are requested to vote by completing, signing, dating and
returning the enclosed proxy card in the enclosed postage-paid envelope. Any
stockholder may vote for, against, or abstain from voting on any matter to come
before the
Annual Meeting. If the enclosed proxy is properly marked, signed, dated and
returned, and not revoked, it will be voted in accordance with the instructions
therein. If no instructions are given, the proxy will be voted FOR the nominees
---
for election to the Board of Directors named in this Proxy Statement and FOR the
---
other matters described in this Proxy Statement calling for a vote of the
stockholders. If instructions are given with respect to some but not all
proposals, such instructions as are given will be followed, but the proxy will
be voted FOR the proposals on which no instructions are given.
---
The close of business on March 4, 1997 has been fixed by the Board of
Directors as the record date (the "Record Date") for the determination of
stockholders of record entitled to notice of and to vote at the Annual Meeting
and any adjournments thereof. As of the Record Date, the Company had
outstanding 1,825,050 shares of Common Stock. Each share of Common Stock
entitles its owner to one vote on each matter calling for a vote of stockholders
at the Annual Meeting.
The presence, in person or by proxy, of the holders of at least a majority
of shares of the Common Stock entitled to vote at the Annual Meeting is
necessary to constitute a quorum at the Annual Meeting. Since many of our
stockholders cannot attend the Annual Meeting, it is necessary that a large
number be represented by proxy. Accordingly, the Board of Directors has
designated proxies to represent those stockholders who cannot be present in
person and who desire to be so represented. In the event there are not
sufficient votes for a quorum or to approve or ratify any proposal at the time
of the Annual Meeting, the Annual Meeting may be adjourned in order to permit
the further solicitation of proxies.
In order to be elected to the Board of Directors, a nominee need only
receive a plurality of the votes cast in the election of directors. As a
result, those persons nominated who receive the largest number of votes in each
class will be elected as directors. Accordingly, shares not voted for any
reason respecting any one or more nominees will not be counted as votes against
such nominees.
The other issues to be voted upon which are described in the Notice of
Annual Meeting will be approved or ratified if the votes cast in favor of such
action exceed the votes cast opposing the action.
Abstentions will be counted for purposes of determining whether a quorum is
present at the Annual Meeting. Abstentions will not be counted in tabulating
the votes cast on any proposal submitted to the stockholders. Broker non-votes
will not be counted either for determining the existence of a quorum or for
tabulating votes cast on any proposal.
2
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
The Securities Exchange Act of 1934, as amended (the "Exchange Act"),
requires that any person or group who acquires the beneficial ownership of more
than 5% of the Common Stock notify the Securities and Exchange Commission (the
"SEC") and the Company. Following is certain information, as of the Record
Date, regarding all persons or groups, as defined in the Exchange Act, who held
of record or who are known to the Company to own beneficially, more than 5% of
the Company's Common Stock.
Amount and
Nature of Percentage
Beneficial of
Name and Address Ownership/1/ Class/2/
- ---------------- ------------ ----------
Robert B. Hall 148,700/3/ 8.15%
Post Office Box 812
Mocksville, NC 27028
J. Roy Harris 148,700/4/ 8.15%
673 Salisbury Street
Mocksville, NC 27028
George W. Martin 146,399/5/ 8.02%
10 Court Square
Mocksville, NC 27028
____________________________________
/1/ Unless otherwise noted, all shares are owned directly or indirectly by the
named individuals, by their spouses and minor children, or by other entities
controlled by the named individuals.
/2/ Based upon a total of 1,825,050 shares of Common Stock outstanding.
/3/ This includes 130,400 shares of the Company's Common Stock held by the
Mocksville Savings Bank, Inc., SSB Employee Stock Ownership Plan (the "ESOP").
Mr. Hall serves as a trustee of the ESOP. The trustees of such plan share
certain voting and investment power of such shares.
/4/ This includes 130,400 shares of the Company's Common Stock held by the ESOP.
Mr. Harris serves as a trustee of the ESOP. The trustees of such plan share
certain voting and investment power of such shares.
/5/ This includes 130,400 shares of the Company's Common Stock held by the ESOP.
Mr. Martin serves as a trustee of the ESOP. The trustees of such plan share
certain voting and investment power of such shares.
Set forth below is certain information as of the Record Date regarding
beneficial ownership of the Common Stock by each of the members of the Board of
Directors, each of the nominees for election to the Board of Directors, each of
the members of the Board of Directors of the Bank, certain executive officers of
the Company and the Bank, and the directors and executive officers of the
Company and the Bank as a group.
3
Amount and
Nature of Percentage
Beneficial of
Name and Address Ownership/1,2/ Class/3/
- ----------------------- -------------- -----------
Robert B. Hall, Chairman of the Board of
Directors of the Bank and the Company, Nominee
for Re-election 148,700/4/ 8.15%
Post Office Box 816
Mocksville, NC 27028
William F. Junker, Vice Chairman of the Board of
Directors of the Bank and the Company, Nominee
for Re-election 18,300 1.00%
Post Office Box 342
Mocksville, NC 27028
Donald G. Bowles, Director of the Bank and the
Company, Nominee for Re-election 6,000 0.33%
Post Office Box 645
Mocksville, NC 27028
J. Roy Harris, Director of the Bank and the
Company, Nominee for Re-election 148,700/5/ 8.15%
673 Salisbury Street
Mocksville, NC 27028
Claude R. Horn, Jr., Director of the Bank and the
Company, Nominee for Re-election 18,300 1.00%
190 North Main Street
Mocksville, NC 27028
George W. Martin, Director of the Bank and the
Company, Nominee for Re-election 146,399/6/ 8.02%
10 Court Square
Mocksville, NC 27028
Lois C. Shore, Director of the Bank and the Company
190 West Church Street 1,200 0.07%
Mocksville, NC 27028
Ronald H. Vogler, Director of the Bank and the
Company, Nominee for Re-election
150 Stratford Road 15,100 0.83%
Suite 150
Winston-Salem, NC 27104
4
Amount and
Nature of Percentage
Beneficial of
Name and Address Ownership/1,2/ Class/3/
- ----------------------- -------------- -----------
Terry L. Bralley, Nominee for Election to Board
of Directors of the Company and the Bank 275 0.02%
Post Office Box 621
Mocksville, NC 27028
J. Charles Dunn, President and Chief Executive
Officer and Director of the Company and the Bank,
Nominee for Re-election 20,504/7/ 1.12%
Post Office Box 531
Mocksville, NC 27028
Allen W. Carter, Senior Vice President of the
Company and the Bank 3,680/8/ 0.20%
287 Rollingwood Drive
Mocksville, NC 27028
Marjorie D. Foster, Vice President and Controller
of the Company and the Bank 3,493/9/ 0.19%
124 Hemlock Street
Mocksville, NC 27028
Directors and all executive officers as a group
(11 persons) 265,886/10/ 14.57%
(1) Voting and investment power is not shared unless otherwise indicated.
(2) Unless otherwise noted all shares are owned directly or indirectly by the
named individuals, by their spouses or minor children, or by other
entities controlled by the named individuals.
(3) Based upon a total of 1,825,050 shares of the Common Stock outstanding at
the Record Date.
(4) Includes 130,400 shares of the Company's Common Stock held by the ESOP.
Mr. Hall serves as a trustee of the ESOP. The trustees of such plan share
certain voting and investment power of such shares.
(5) Includes 130,400 shares of the Company's Common Stock held by the ESOP.
Mr. Harris serves as a trustee of the ESOP. The trustees of such plan
share certain voting and investment power of such shares.
(6) Includes 130,400 shares of the Company's Common Stock held by the ESOP.
Mr. Martin serves as a trustee of the ESOP. The trustees of such plan
share certain voting and investment power of such shares.
(7) Includes 2,104 shares of the Company's Common Stock held in the ESOP but
allocated to Mr. Dunn. Mr. Dunn shares certain voting power with respect
to such shares.
(8) Includes 977 shares of the Company's Common Stock held in the ESOP but
allocated to Mr. Carter. Mr. Carter shares certain voting power with
respect to such shares.
(9) Includes 809 shares of the Company's Common Stock held in the ESOP but
allocated to Ms. Foster. Ms. Foster shares certain voting power with
respect to such shares.
5
/(10)/ The 130,400 shares held by the ESOP for which the trustees, Messrs. Hall,
Harris and Martin, share voting and investment power have been included
only once in the total number of shares owned beneficially by the
directors and executive officers as a group. Also, the shares held by the
ESOP which have been allocated to Messrs. Dunn and Carter and Ms. Foster,
which are included in the share totals for such persons, have not been
included in this total for directors and executive officers as a group.
6
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Exchange Act requires the Company's executive officers
and directors, and persons who own more than ten percent of the Common Stock, to
file reports of ownership and changes in ownership with the SEC. Executive
officers, directors and greater than ten percent beneficial owners are required
by SEC regulations to furnish the Company with copies of all Section 16(a) forms
they file.
Based solely on a review of the copies of such forms furnished to the
Company and written representations from the Company's executive officers and
directors, the Company believes that during the fiscal year ended December 31,
1996, all of its executive officers and directors and greater than ten percent
beneficial owners complied with all applicable Section 16(a) filing
requirements.
PROPOSAL 1
ELECTION OF DIRECTORS
General
The Articles of Incorporation of the Company provides that the number of
directors of the Company shall not be less than five nor more than fifteen. The
exact number of directors shall be fixed or changed from time to time by the
Board of Directors. The Board of Directors has currently fixed the size of the
Board at nine members.
The Articles of Incorporation provide that, so long as the total number of
directors is nine or more, the directors shall be divided into three classes, as
nearly equal as possible in number as may be to serve in the first instance for
terms of one, two and three years, respectively, from the date such class of
directors takes office or until their earlier death, resignation, retirement,
removal or disqualification or until their successors shall be elected and shall
qualify. As a result, there are three classes of directors to be elected at the
Annual Meeting for one, two and three year terms. Thereafter, the successors
in each class of directors shall be elected for terms of three years each or
until their earlier death, resignation, retirement, removal, or disqualification
or until their successors shall be elected and shall qualify.
The Board of Directors has nominated the nine persons named below for
election as directors for the terms specified or until their earlier death,
resignation, retirement, removal or disqualification or until their successors
are elected and qualified. All nominees currently serve as Directors of the
Company, except Mr. Bralley, who is nominated to replace Lois C. Shore, who is
retiring after 18 years of service to the Bank and Company.
The persons named in the accompanying form of proxy intend to vote any
shares of the Common Stock represented by valid proxies received by them to
elect the nine nominees listed below as directors for the terms specified,
unless authority to vote is withheld or such proxies are revoked. In the event
that any of the nominees should become unavailable to accept nomination or
election, it is intended that the proxy holders will vote to elect in his stead
such other person as the present Board of Directors may recommend. The present
Board of Directors has no reason to believe that any of the nominees named
herein will be unable to serve if elected to office. In order to be elected as
a director in a particular class, a nominee need only receive a plurality of the
votes cast. Votes will be separately cast and tabulated for persons nominated
in each of the three classes of directors for the terms specified. As a result,
those three nominees for terms
7
expiring at the 1998 Annual Meeting who receive the largest number of votes will
be elected as directors for that term, those three nominees for terms expiring
at the 1999 Annual Meeting who receive the largest number of votes will be
elected for that term and those three nominees for terms expiring at the 2000
Annual Meeting who receive the largest number of votes will be elected for that
term. Accordingly, shares not voted for any reason respecting any one or more
nominees will not be counted as votes against such nominees. No stockholder has
the right to cumulatively vote his or her shares in the election of directors.
8
The Board of Directors recommends a vote FOR all of the following nominees
---
for election as directors.
The following table sets forth as to each nominee, his name, age, principal
occupation during the last five years and the year he was first elected as a
director of the Bank. All the nominees except Mr. Bralley have previously
served as directors of the Bank and were appointed to serve as initial directors
of the Company in connection with its incorporation on November 20, 1995.
Age on Director
December 31, Principal Occupation of Bank
Name 1996 During Last Five Years Since
- ---- ----------- ---------------------- -----------
Class I - Term Ending as
of 1998 Annual Meeting
J. Charles Dunn 58 President and CEO of 1975
the Company and the Bank
J. Roy Harris 70 President of Davie Auto 1979
Parts Co., Inc., Rowan
Auto Parts, Inc. and
Colonial Estates, Inc.
Claude R. Horn, Jr. 63 President of Horn Oil 1979
Co.
Class II - Term Ending as
of 1999 Annual Meeting
Robert B. Hall, Chairman 70 Retired, formerly a 1969
pharmacist
Donald G. Bowles 40 Certified Public 1988
Accountant
Ronald H. Vogler 50 Financial Consultant 1988
with Paine Webber since
1993, formerly with
Merrill Lynch
Class III - Term Ending as
of 2000 Annual Meeting
William F. Junker, Vice 51 President of 1978
Chairman Featherlite Trailer
George W. Martin 69 Attorney and Partner in 1955
Martin, Van Hoy, Smith
& Raisbeck
Terry L. Bralley 45 Town Manager, NA
Mocksville, North
Carolina
9
Board of Directors of the Bank
The Bank also has a nine-member board of directors which is currently
comprised of the same persons who are currently directors of the Company. Ms.
Shore will be retiring as a director of the Bank at the time of the Bank's 1997
annual meeting of stockholders. If Mr. Bralley is elected as a director of the
Company, it is expected that the Company will also nominate and elect him as a
director of the Bank, to take the position formerly held by Ms. Shore.
Meetings of the Board and Committees of the Board
The Company was organized in November 1995 by the board of directors of the
Bank to acquire the capital stock of the Bank issued in connection with the
conversion of the Bank from a North Carolina chartered mutual savings bank to a
North Carolina chartered stock savings bank (the "Conversion."). The Company
did not actively engage in any business until after consummation of the
Conversion on March 29, 1996. The Board of Directors is scheduled to meet
quarterly and may have additional meetings as needed. During fiscal 1996, the
Board of Directors held three meetings. All directors attended at least 75% of
the aggregate number of meetings of the Board of Directors and committees of the
Board on which they served during the year ended December 31, 1996.
The Board of Directors has one standing committee -- the Audit Committee.
The Audit Committee of the Board consists of directors Bowles, Horn and Shore.
This committee is scheduled to meet annually to review and discuss the annual
audit report from the Company's and the Bank's independent auditor and also
meets on an as-needed basis.
The Bank's board of directors has appointed five standing committees to
which certain responsibilities have been delegated -- the Loan Committee, the
Audit Committee, the Personnel Committee, the Executive Committee and the
Branching Committee. The members of the Company's Audit Committee also serve on
the Bank's Audit Committee. The Bank's Audit Committee did not meet during the
fiscal year ended December 31, 1996. It is responsible for retaining internal
and independent auditors, overseeing the adequacy of internal control, and
formulating recommended responses to examinations and audits.
The Personnel Committee is composed of directors Dunn, Hall, Harris, and
Martin. The Personnel Committee is responsible for reviewing the Bank's job
applicants, compensation system and performance appraisal system. This
committee meets on an as-needed basis, and during the fiscal year ended December
31, 1996, met three times.
The Bank's Directors' Loan Committee is composed of directors Dunn, Hall,
Junker, and Shore. The Bank also maintains an Officers' Loan Committee composed
of J. Charles Dunn, President and Allen W. Carter, Senior Vice President. The
Directors' Loan Committee is responsible for establishing the Bank's loan policy
giving due consideration to risk management, safety and soundness and compliance
issues. In addition, it approves all real estate loans in excess of $150,000
and all commercial, church and employee loans. The Directors' Loan Committee
previews all loans in excess of $250,000 before they are submitted to the Bank's
board of directors for approval. The Directors' Loan Committee meets on an as-
needed basis. During the fiscal ended December 31, 1996, it met 24 times.
The Bank's Branching Committee is composed of directors Bowles, Dunn, Horn
and Vogler. The Branching Committee is responsible for considering
opportunities for expansion through new branches and
10
reviews any studies undertaken for that purpose. This committee did not meet
during the fiscal year ended December 31, 1996.
The Bank's Executive Committee is composed of directors Dunn, Hall, Junker,
and Martin. This committee meets periodically and exercises the power of the
board of directors on such matters as loans and investment policies and
approvals between regular board meetings. All such actions of the Executive
Committee are reviewed and ratified by the full board of directors. The
Executive Committee met one time during fiscal 1996.
Directors' Compensation
Directors' Fees. Members of the Board of Directors receive no fees or
compensation for their service. However, all members of the Board of Directors
also are directors of the Bank and are compensated for that service. For their
service on the Bank's board of directors, members of the Board, including Mr.
Dunn, receive $1,000 per regular monthly board meeting attended. In addition,
all directors who serve on committees of the Bank's board of directors receive
$75.00 per meeting attended for their service. Board fees are determined by the
board to which such fees relate and are subject to adjustment annually.
Retirement Payment Agreements with Directors. The Bank has entered into a
Retirement Payment Agreement with all of its directors. Under the agreement,
the Bank agrees to pay each director $1,000 per month for a period of 10 years
upon the director's attainment of age 65. For the directors who were already 65
or older when the Retirement Payment Agreement was executed in March 1994, the
retirement benefits may begin to be paid in March 1997.
If a director dies while serving as a director of the Bank but before
receiving all of his or her benefits under the agreement, payments will be made
to his or her designated beneficiary. If a director becomes disabled while
serving as a director, but prior to his normal retirement date, the Bank will
pay the benefits due under the agreement, either in installments over the 10-
year period or in a lump sum payment. If a director terminates his or her
service to the Bank for reasons other than death or disability, he or she shall
be entitled at the normal retirement date to receive only the vested portion of
the benefit due under the agreement. Vesting occurs according to a schedule
contained in the agreement. If any director's termination of service shall
occur after a change in control of the Bank, the director shall be 100% vested
in the retirement benefits.
As a condition of the agreement, each director has agreed not to engage in
activities in competition with the Bank and to provide consulting services to
the Bank during the period that the retirement benefits are payable.
The Bank has purchased life insurance on the lives of its directors to fund
its obligations under this agreement. Total expense related to the agreement
was approximately $48,000 in the fiscal year ended December 31, 1996. For the
fiscal year ended December 31, 1997, management expects that the total expenses
related to the agreement will be approximately $48,000.
11
Executive Officers
The following table sets forth certain information with respect to the
persons who are executive officers of either the Company or the Bank or both.
Age on Employed By
December 31, Positions and Occupations the Bank or the
Name 1996 During Last Five Years Company Since
- ---- ---- ---------------------- -------------
J. Charles Dunn 58 President and Chief Executive 1968
Officer of the Company and
the Bank
Allen W. Carter 40 Senior Vice President of the 1984
Company and the Bank
Marjorie D. Foster 33 Vice President and Controller of 1986
the Company and the Bank
Executive Compensation
The executive officers of the Company are not paid any cash compensation by
the Company. However, the executive officers of the Company also are executive
officers of the Bank and receive cash compensation from the Bank.
The following table sets forth for the fiscal years ended December 31,
1996, 1995 and 1994 certain information as to the cash compensation received by
and the amounts accrued for the benefit of the President of the Bank. No other
executive officer of the Bank had cash compensation during the years ended
December 31, 1996, 1995 and 1994 that exceeded $100,000 in any such year for
services rendered in all capacities to the Bank.
Other Annual
Name and Compensation All Other
Principal Position Year Salary Bonus ($)/(1)/ Compensation
- -------------------- ---- -------- ------- ------------ ------------
J. Charles Dunn, 1996 $95,800 ------ ----------- $59,130/(2)/
President and CEO
1995 $90,400 ------ ----------- $87,253/(3)/
1994 $85,000 $8,655 ----------- $82,763/(4)/
(1) Under the "Other Annual Compensation" category, perquisites for the
fiscal years ended December 31, 1996, 1995 and 1994 did not exceed the
lesser of $50,000 or 10% of salary and bonus as reported for Mr. Dunn.
12
(2) Includes (a) directors' fees of $14,625; (b) $471 contributed to the Bank's
401(k) profit sharing plan for Mr. Dunn for fiscal year 1996; (c) $26,280
paid to Mr. Dunn under the Bank's supplemental retirement plan, and (d)
$17,754 of accrued expense under the supplemental income agreement
established for the benefit of Mr. Dunn. Mr. Dunn received no payments
under the supplemental income agreement. See "-- Bank Supplemental Income
Agreement".
(3) Includes (a) directors' fees of $12,825; (b) $28,355 contributed to the
Bank's defined contribution, target benefit plan for Mr. Dunn during fiscal
1995; (c) $1,830 contributed to the Bank's 401(k) profit sharing plan for
Mr. Dunn for fiscal year 1995; (d) $26,490 paid to Mr. Dunn under the
Bank's supplemental retirement plan, and (e) $17,753 of accrued expense
under the supplemental income agreement established for the benefit of Mr.
Dunn. Mr. Dunn received no payments under the supplemental income
agreement. See "-- Bank Supplemental Income Agreement".
(4) Includes (a) directors' fees of $8,525; (b) $28,530 contributed to the
Bank's defined contribution, target benefit plan for Mr. Dunn during fiscal
1994; (c) $7,955 contributed to the Bank's 401(k) profit sharing plan for
Mr. Dunn for fiscal year 1994; (d) $20,000 paid to Mr. Dunn under the
Bank's supplemental retirement plan and (e) $17,753 of accrued expense
under the supplemental income agreement established for the benefit of Mr.
Dunn. Mr. Dunn received no payments under the supplemental income
agreement. The amounts contributed on Mr. Dunn's behalf to the target
benefit plan during fiscal year 1994 were for the plan year beginning July
1, 1993 and ending June 30, 1994, as well as for the short plan year
beginning July 1, 1994 and ending December 31, 1994, as a result of a
change in the plan year from a June 30 fiscal year to a December 31
calendar year.
Bank Supplemental Income Agreement. The Bank entered into a Supplemental
Income Agreement with Charles Dunn on March 1, 1994. The agreement provides
that the Bank will pay Mr. Dunn $20,000 per year for a continuous period of 15
years, commencing on the first day of the month following Mr. Dunn's 65th
birthday, or if earlier, the first day of the month following Mr. Dunn's
retirement should he retire after reaching his 60th birthday. Such initial
annual income shall be increased 5% annually for each additional full year of
service to the Bank after the execution of the agreement, except there will be
no increases in benefits after age 65. If Mr. Dunn dies before receiving any or
all of the payments due under the agreement, the remaining payments will be made
to his designated beneficiary, or, if none, to his estate. If Mr.. Dunn becomes
disabled prior to his retirement from the Bank, the Bank will pay him the
benefits due under the agreement.
If Mr. Dunn terminates his employment before age 65, he will be entitled to
a portion of benefits due under the agreement according to a vesting schedule.
Mr. Dunn's benefits under the agreement will be fully vested after December 31,
1998 or after a change in control of the Bank.
As a condition of the agreement, Mr. Dunn must be available to provide
consulting services to the Bank during the period the retirement payments are
payable and must not engage in activities in Davie County, North Carolina in
competition with the Bank.
The Bank has purchased life insurance on the life of Mr. Dunn to fund its
obligations under the agreement.
13
Supplemental Retirement Plan. In 1990, the Bank established a supplemental
retirement plan for Mr. Dunn, under which he is paid an annual amount to be
invested in tax-exempt municipal bonds for his retirement. The amount of the
annual contribution is calculated by subtracting the current value of the
investment from a target amount, as adjusted for inflation, and dividing the
result by the number of years remaining in the 12-year term of the plan. This
amount is then increased to reimburse Mr. Dunn for the additional federal and
state income taxes that result from the payment.
401(k) Profit Sharing Plan. In 1994, the Bank established a
contributory savings plan for its employees, which meets the requirements of
section 401(k) of the Internal Revenue Code of 1986, as amended (the "Code").
All employees who have completed one year of service and who are at least 21
years of age may elect to contribute a percentage of their compensation to the
plan each year, subject to certain maximums imposed by federal law. During years
prior to fiscal 1996, the Bank matched 50% of each participant's contribution,
up to a maximum employer contribution of 3% of the participant's compensation.
The Bank ceased making contributions to the 401(k) profit sharing plan during
fiscal 1996 and does not contemplate making additional contributions at this
time.
Participants are fully vested in amounts they contribute to the plan.
Participants are fully vested in amounts which have been contributed to the plan
on their behalf by the Bank as employer matching contributions and as profit
sharing contributions after six years of service as follows: 1 year, 0%; 2
years, 20%; 3 years, 40%; 4 years, 60%; 5 years, 80%; 6 or more years, 100%.
Benefits under the plan are payable in the event of the participant's
retirement, death, disability or termination of employment. Normal retirement
age under the plan is 65 years of age. The total amounts contributed by the
Bank to the 401(k) profit sharing plan during fiscal 1996, 1995 and 1994 were
$1,943, $31,755, and $37,748, respectively.
Employee Stock Ownership Plan. In connection with the Conversion, the Bank
established the ESOP for eligible employees of the Bank. Employees with one
year of service with the Bank and who have attained age 21 are eligible to
participate. As part of the Conversion, the ESOP borrowed funds from the
Company and used the funds to purchase 130,400 of the shares of Common Stock.
Collateral for the loan is the Common Stock purchased by the ESOP. It is
expected that the loan will be repaid principally from the Bank's discretionary
contributions to the ESOP over a period of 15 years or less. Dividends, if any,
paid on shares held by the ESOP may also be used to reduce the loan. The loan
has not been guaranteed by the Bank.
Shares purchased by the ESOP are held in a suspense account for allocation
among participants as the loan is repaid. Contributions to the ESOP and shares
released from the suspense account in an amount proportional to the repayment of
the ESOP loan are allocated among ESOP participants on the basis of relative
compensation in the year of allocation. Benefits vest in annual increments with
full vesting upon attaining five years of service (with credit given for years
of service prior to the Conversion). Prior to the completion of five years of
credited service, a participant who terminates employment for reasons other than
death, retirement (or early retirement), or disability will receive only vested
benefits under the ESOP. Forfeitures are reallocated among remaining
participating employees in the same proportion as contributions. Benefits
immediately vest and are payable upon death or disability. The Bank's
contributions to the ESOP are not fixed, so benefits payable under the ESOP
cannot be estimated.
14
The Bank has established a committee of the board of directors to
administer the ESOP. Trustees for the ESOP were appointed prior to the
Conversion. The ESOP committee may instruct the trustees regarding investment of
funds contributed to the ESOP. Participating employees may instruct the trustees
as to the voting of all shares allocated to their respective ESOP accounts. The
unallocated shares held in the suspense account, and all allocated shares for
which voting instructions are not received, will be voted by the trustees in
their discretion subject to the provisions of the Employee Retirement Income
Security Act of 1974, as amended.
Employment Agreement. In connection with the Conversion, the Bank entered
into an employment agreement with J. Charles Dunn in order to establish his
duties and compensation and to provide for his continued employment with the
Bank. The agreement provided for an initial annual base salary of $95,900, and
for an initial term of employment of three years. Commencing on the first
anniversary date and continuing on each anniversary date thereafter, following a
performance evaluation, the agreement may be extended for an additional year.
The agreement provides that the base salary shall be reviewed by the board of
directors of the Bank not less often than annually. In addition, the employment
agreement provides for profitability and discretionary bonuses and participation
in all other pension, profit-sharing or retirement plans maintained by the Bank
or by the Company for employees of the Bank, as well as fringe benefits normally
associated with Mr. Dunn's office. The employment agreement provides that it
may be terminated by the Bank for cause, as defined in the agreement, and that
it may otherwise be terminated by the Bank (subject to vested rights) or by the
employee. In the event of a change in control (as defined below), the term of
the agreement shall be automatically extended for three years from the date of
the change of control, and Mr. Dunn's base salary shall be increased at least 6%
annually.
The employment agreement provides that the nature of Mr. Dunn's
compensation, duties or benefits may not be diminished following a change in
control of the Bank or the Company. For purposes of the employment agreement, a
change in control generally will occur if (i) after the effective date of the
employment agreement, any "person" (as such term is defined in Sections 3(a)(9)
and 13(d)(3) of the Exchange Act) directly or indirectly, acquires beneficial
ownership of voting stock, or acquires irrevocable proxies or any combination of
voting stock and irrevocable proxies, representing 25% or more of any class of
voting securities of either the Company or the Bank, or acquires in any manner
control of the election of a majority of the directors of either the Company or
the Bank, (ii) either the Company or the Bank consolidates or merges with or
into another corporation, association or entity, or is otherwise reorganized,
where neither the Company nor the Bank is the surviving corporation in such
transaction, or (iii) all or substantially all of the assets of either the
Company or the Bank are sold or otherwise transferred to, or are acquired by,
any other entity or group.
Special Termination Agreements. In connection with the Conversion, in order
to assure the continued employment of Allen W. Carter and Marjorie D. Foster,
the Bank entered into special termination agreements with each of them to
provide benefits in the event of a change in control of the Bank or the Company.
Such agreements are intended to ensure that the Bank will be able to maintain a
stable and competent employee base. The continued success of the Bank depends,
to a significant degree, on the skill and competence of its employees.
Each special termination agreement provides for payment to the employee
only (i) in the event of a change in control of the Company or the Bank followed
by termination of the employee's employment within 24 months by the Bank for
other than "cause," as such term is defined in the agreement, or (ii) in the
event the nature of the employee's compensation, duties or benefits are
diminished within 24 months following a change in control of the Bank or the
Company and the employee terminates his employment within twelve months
thereafter. In the event of such a termination of employment, the employee is
entitled
15
to payment in an amount equal to two times his or her average annual
compensation for income tax purposes for the most recent five tax years prior to
the change in control, payable in a lump sum or in equal monthly payments. Based
on Mr. Carter's and Ms. Foster's annual compensation for income tax purposes for
the most recent five tax years, Mr. Carter and Ms. Foster would be paid $102,586
and $76,678, respectively, under the agreements in the event of their
termination after a change in control. The initial term of each agreement is for
a period commencing March 29, 1996, and ending three calendar years later. For
purposes of the special termination agreement, "change in control" has the same
meaning as contained in the employment agreement with Mr. Dunn. See
"--Employment Agreement".
Severance Plan. In connection with the Conversion, the Bank's board of
directors adopted a Severance Plan for the benefit of its employees. The
Severance Plan provides that in the event there is a "change in control" of the
Bank or the Company (as defined in the Severance Plan) and (i) the Bank or any
successor of the Bank terminates the employment of any full time employee of the
Bank in connection with, or within 24 months after the change in control, other
than for "cause" (as defined in the Severance Plan), or (ii) an employee
terminates his or her employment with the Bank or any successor following a
decrease in the level of such employee's annual base salary rate or a transfer
of such employee to a location outside of Davie County, North Carolina, within
24 months after a change in control, the employee shall be entitled to a
severance benefit equal to the greater of (a) an amount equal to two weeks'
salary at the employee's existing salary rate multiplied times the employee's
number of complete years of service as a Bank employee; or (b) the amount of one
month's salary at the employee's salary rate at the time of termination;
provided, however, that the severance benefit shall not exceed two times an
employee's annual salary. Officers of the Bank who, at the time of a "change
in control," are parties to employment agreements or written special termination
agreements are not covered by the Severance Plan.
Compensation Committee Interlocks and Insider Participation
The Personnel Committee of the Bank's board of directors serves the role of
the compensation committee for the Company. The Personnel Committee determines
the compensation of the executive officers and the Bank's other employees.
During the fiscal year ended December 31, 1996, the Personnel Committee
consisted of directors Dunn, Hall, Harris and Martin. Director Dunn is also the
chief executive officer of the Company and the Bank. Mr. Dunn makes
recommendations to the compensation committee regarding compensation of the
Bank's executive officers. Mr. Dunn participates in the deliberations and
decisions of the compensation committee regarding compensation of executive
officers other than himself. He does not participate in the committee's
discussions or decisions regarding his own compensation.
Report of Personnel Committee on Executive Compensation
It is the responsibility of the Bank's Personnel Committee to review and
evaluate the performance of the Bank's executive officers. As part of this
evaluation process, the Personnel Committee analyzes and reviews the Bank's
compensation practices as compared with practices at comparable institutions,
compensation surveys and comparative data available from trade associations.
The base salaries for each the executive officers, including Mr. Dunn, the
President and Chief Executive Officer, and Mr. Carter, the Senior Vice
President, and Ms. Foster, Vice President and Controller, have been largely
determined by market factors, including salaries and benefits offered for
similar positions by financial institution competitors of similar size and
characteristics. Increases in the base salary of each executive officer are
determined based upon the executive officer's contributions to the Bank's
overall profitability, maintenance
16
of regulatory compliance standards, professional leadership, and management
effectiveness in meeting the needs of day-to-day operations.
Performance Graph
The Company is required to provide its stockholders with a line graph
comparing the Company's cumulative total shareholder return with a performance
indicator of the overall stock market and either a published industry index or a
Company-determined peer comparison. The purpose of the chart is to help
stockholders determine the reasonableness of the Personnel Committee's decisions
with respect to the setting of various levels of executive officer compensation.
Shareholder return (measured through increases in stock price and payment of
dividends) is often a benchmark used in assessing corporate performance and the
reasonableness of compensation paid executive officers.
However, the stockholders should recognize that corporations often use a
number of other performance benchmarks (in addition to shareholder return) to
set various levels of executive officer compensation. Stockholders should thus
consider other relevant performance indicators in assessing shareholder return,
such as growth in earnings per share, book value per share, and cash dividends
per share, along with other performance measures such as return on equity and
return on assets.
The following graph compares the Company's cumulative shareholder return on
the Common Stock with the American Stock Exchange ("AMEX") Index and with a
savings institution peer group whose stock is quoted on the AMEX. The graph was
prepared using data through December 31, 1996.
17
[LETTERHEAD OF CRSP APPEARS HEAR]
Comparison of Five Year-Cumulative Total Returns
Performance Graph for
Stone Street Bancorp, Inc.
Prepared by the Center for Research in Security Prices
Produced on 02/06/97 including data to 12/31/96
[Insert Performance Graph here]
- --------------------------------------------------------------------------------
Legend
CRSP Total Returns Index for: 12/31/91 12/31/92 12/31/93 12/30/94 12/29/95 12/31/96
- ---------------------------- -------- -------- -------- -------- -------- --------
Stone Street Bancorp, Inc. 119.3
AMEX Stock Market (US Companies) 65.5 68.8 80.9 75.5 97.3 99.2
AMEX Stocks (SIC 6030-6039 US Companies) 22.2 37.2 69.4 53.5 89.6 105.9
Savings Institutions
Notes:
A. The lines represent monthly index levels derived from compounded daily
returns that include all dividends.
B. The indexes are reweighted daily, using the market capitalization on the
previous trading day.
C. If the monthly interval, based on the fiscal year-end, is not a trading
day, the preceding trading day is used.
D. The Index level for all series was set to $100.00 on 04/01/96.
- --------------------------------------------------------------------------------
18
Certain Indebtedness and Transactions of Management
The Bank makes loans to its executive officers and directors in the
ordinary course of its business. These loans are currently made on
substantially the same terms, including interest rates, collateral and repayment
terms, as those then prevailing for comparable transactions with nonaffiliated
persons, and do not involve more than the normal risk of collectibility or
present any other unfavorable features. Applicable regulations prohibit the
Bank from making loans to its executive officers and directors at terms more
favorable than could be obtained by persons not affiliated with the Bank. The
Bank's policy concerning loans to executive officers and directors currently
complies with such regulations.
PROPOSAL 2
RATIFICATION OF SELECTION OF INDEPENDENT AUDITOR
Weir Smith Jones Miller & Elliott, CPAs, P.A., the Company's and the Bank's
independent auditor for the year ended December 31, 1996, has been selected as
the Company's and the Bank's independent auditor for the 1997 fiscal year. Such
selection is being submitted to the Company's stockholders for ratification. A
representative of Weir Smith Jones Miller & Elliott, Certified Public
Accountants, P.A. is expected to attend the Annual Meeting and will be afforded
an opportunity to make a statement, if she so desires, and to respond to
appropriate questions from stockholders.
The Board of Directors recommends that the stockholders vote FOR this
---
proposal.
PROPOSAL 3
APPROVAL OF STONE STREET BANCORP, INC. STOCK OPTION PLAN
The Board of Directors of the Company has unanimously adopted the Stone
Street Bancorp, Inc. Stock Option Plan ("Stock Option Plan") in order to
encourage the continued service of directors, employees and servants of the
Company and the Bank, to provide incentives for their performance and to reward
past performance. The Prospectus of the Company dated February 9, 1996 (the
"Prospectus"), delivered in connection with the Conversion and the Company's
initial public offering, contained a summary of a stock option plan and of
options which could be granted to directors and employees of the Company and the
Bank. The stock option plan as described in the Prospectus contained certain
provisions required by the regulations of the Federal Deposit Insurance Company
(the "FDIC"). Because the Company has not sought stockholder approval of the
Stock Option Plan until more than 12 months after the Conversion, the FDIC
regulations are no longer applicable. Consequently, the Board of Directors
decided to adopt a Stock Option Plan with several provisions which differ from
those described in the Prospectus, including (i) accelerated vesting of options
upon retirement or a "change in control" of the Company or the Bank; (ii)
possible shorter vesting schedules for options; (iii) the discretionary power to
adjust the option exercise price to reflect the effects of extraordinary
dividends or returns of capital; (iv) the discretionary power to make cash
payments to holders of unexercised, vested and unvested options equal to
dividends which would have been paid on shares subject to such options if such
options had been exercised and (v) the discretionary power to grant stock
appreciation rights in tandem with stock options. The total number of options
to be issued under the Stock Option Plan (options to purchase 10% of the number
of shares issued in the Conversion) is as described in the Prospectus. As
described in the Prospectus, the Company anticipates issuing 30% of the
19
options under the Stock Option Plan to its existing non-employee directors and
50% of the options to its executive officers.
The Stock Option Plan will not be effective unless approved by the
stockholders. The following is a summary of the material provisions of the
Stock Option Plan. It is qualified in its entirety by the provisions of the
Stock Option Plan, which is attached to this Proxy Statement as Appendix A.
Options granted to employees under the Stock Option Plan may be "incentive
stock options" which are designed to result in beneficial tax treatment to the
employee but no tax deduction to the Company or the Bank. The holder of an
incentive stock option generally is not taxed for federal income tax purposes on
either the grant or the exercise of the option. However, the optionee must
include in his or her federal alternative minimum tax income any excess (the
"Bargain Element") of the acquired Common Stock's fair market value at the time
of exercise over the exercise price paid by the optionee. Furthermore, if the
optionee sells, exchanges, gives or otherwise disposes of such Common Stock
(other than in certain types of transactions) either within two years after the
option was granted or within one year after the option was exercised (an "Early
Disposition"), the optionee generally must recognize the Bargain Element as
compensation income for regular federal income tax purposes. Any gain realized
on the disposition in excess of the Bargain Element is subject to recognition
under the usual rules applying to dispositions of property. If a taxable sale
or exchange is made after such holding periods are satisfied, the difference
between the exercise price and the amount realized upon the disposition of the
Common Stock generally will constitute a capital gain or loss for tax purposes.
If an optionee exercises an incentive stock option and delivers shares of Common
Stock as payment for part or all of the exercise price of the stock purchased
("Payment Stock"), no gain or loss generally will be recognized with respect to
the Payment Stock; provided, however, if the Payment Stock was acquired pursuant
to the exercise of an incentive stock option, the optionee will be subject to
recognizing as compensation income the Bargain Element on the Payment Stock as
an Early Disposition if the exchange for the new shares occurs prior to the
expiration of the holding periods for the Payment Stock. The Company generally
would not recognize gain or loss or be entitled to a deduction upon either the
grant of an incentive stock option or the optionee's exercise of an incentive
stock option. However, if there is an Early Disposition, the Company generally
would be entitled to deduct the Bargain Element as compensation paid the
optionee.
Options granted to nonemployees under the Stock Option Plan would be "non-
qualified stock options." In addition, options granted to employees under the
Stock Option Plan may be non-qualified stock options. In general, the holder of
a non-qualified stock option will recognize compensation income equal to the
amount by which the fair market value of the Common Stock received on the date
of exercise exceeds the sum of the exercise price and any amount paid for the
non-qualified stock option. If the optionee elects to pay the exercise price in
whole or in part with Common Stock, the optionee generally will not recognize
any gain or loss on the Common Stock surrendered in payment of the exercise
price. The Company would not recognize any income or be entitled to claim any
deduction upon the grant of a non-qualified stock option. At the time the
optionee is required to recognize compensation income upon the exercise of the
non-qualified stock option, the Company would recognize a compensation expense
and be entitled to claim a deduction in the amount equal to such compensation
income.
The Internal Revenue Code of 1986, as amended (the "Code"), requires that,
in order for stock options to be considered incentive stock options, they must
be approved by the stockholders within one year after the date that the stock
option plan is adopted. As a result of these Code provisions and pursuant to
20
regulatory and AMEX requirements, the Board of Directors is submitting the Stock
Option Plan for stockholder approval.
Upon stockholder approval of the Stock Option Plan, it will be administered
to a committee of non-employee directors of the Company's Board of Directors
(the "Stock Option Plan Committee"). The Company expects to issue options to
purchase 182,505 shares of Common Stock (10% of the number of shares of Common
Stock now outstanding) to employees and existing directors of the Company and
the Bank (including Lois Shore who is retiring as a director but will continue
to serve the Company after her retirement). It is expected that the options will
be granted sometime subsequent to approval of the Stock Option Plan. No cash
consideration will be paid for the options. Upon approval of the Stock Option
Plan, the Company will reserve 182,505 shares of its unissued Common Stock for
possible issuance upon the exercise of stock options. In lieu of issuing
reserved unissued shares upon the exercise of options, the Company may elect to
purchase shares in the open market to fund exercises of options. To the extent
authorized but unissued shares are used to fund the Stock Option Plan, the
interests of existing stockholders will be diluted.
The Stock Option Plan provides that all options will have an option
exercise price of not less than the fair market value of the Common Stock on the
date the options are granted. The fair market value will be equal to the
average high and low selling prices of the Common Stock on AMEX. Based upon the
high and low selling prices on March 3, 1997, if options had been granted on
that day, they would have had an option price of $27 1/8, the per share market
value of the Common Stock underlying the options on that date. The Stock
Option Plan provides that the Stock Option Plan Committee will have the
discretionary power to adjust the option exercise prior to reflect the effect of
the payment of any nonrecurring dividend, return of capital or other such
distribution on the market value of the Common Stock. It is expected that
options granted under the Stock Option Plan will have a term of ten years and
will not be transferable except upon death.
The Stock Option Plan provides that the Company's Board of Directors shall
have the discretionary authority to authorize cash payments to the holders of
unexercised, vested or unvested options equal to the amount of dividends which
would have been paid on shares subject to options if the options had been
exercised. No such payment may be made in connection with dividends or other
distributions which resulted in a reduction in the option exercise price as set
forth above. If an optionee receives such a cash payment with respect to any
unvested option, and if such option is later forfeited, the optionee must repay
such cash payment.
It is expected that incentive stock options will be granted to employees of
the Company and the Bank and that such options will become vested and
nonforfeitable in five equal increments, with 20% becoming vested on the date of
the grant and 20% becoming vested at the end of each year of employment
thereafter, so that the options would be completely vested at the end of four
years employment after the date of the grant. Options would become
automatically vested upon death, disability and retirement and would become
vested if an optionee's employment terminates for any reason, voluntarily or
involuntarily, after a change in control of the Company or the Bank. If an
employee optionee ceases to be an employee of the Company or the Bank, or one of
their subsidiaries, prior to satisfaction of the applicable vesting
requirements, unvested options would be forfeited and would be available for
subsequent grants under the Stock Option Plan. Provided that the option
expiration date is not sooner, vested incentive stock options granted to
employees would continue to be exercisable for 12 months after termination of
employment due to disability and for three months after any other termination
due to reasons other than death or retirement. Options would be
21
fully exercisable after death until the option expiration date. Incentive stock
options would be fully exercisable after retirement until the option expiration
date, but any option exercised more than three months after retirement may
become a non-qualified stock option. It is expected that non-qualified stock
options granted to non-employees will be immediately vested and nonforfeitable.
It is expected that options granted to non-employees will continue to be fully
exercisable, until the option expiration date, after the optionee ceases to
serve the Company and Bank, and after the optionee's death, disability or
retirement.
Upon exercise, the option exercise price is payable (i) by cash or check,
(ii) in the discretion of the Stock Option Plan Committee, by delivery of shares
of Common Stock having a fair market value equal to the aggregate exercise price
or (iii) by a combination of (i) and (ii).
It is expected that options granted under the Stock Option Plan will be
granted in tandem with stock appreciation rights, pursuant to which optionees
will have the right to surrender exercisable options in exchange for payment by
the Company of an amount equal to the excess of the market value of shares of
Common Stock subject to the surrendered options over the exercise price of the
surrendered options. In the discretion of the Stock Option Plan Committee, this
payment may be made in cash or in shares of Common Stock or partly in cash and
partly in Common Stock. Stock appreciation rights shall terminate upon the
exercise of the options to which they are attached. Stock appreciation rights
will be subject to the same vesting and termination provisions as are applicable
to the stock options to which they are attached.
Subject to rights of existing Optionees, the Stock Option Plan may be
terminated or amended by the Board of Directors of the Company at any time,
subject to applicable regulatory requirements and any required stockholder
approval.
All directors and employees of the Company, the Bank and their subsidiaries
and certain advisors and consultants of the Company, the Bank and their
subsidiaries are eligible for participation in the Stock Option Plan. The Stock
Option Plan Committee, in its sole discretion, will determine those who may
participate after taking into consideration the nature of services rendered, the
contribution to the success of the Company, the Bank and their subsidiaries, and
such other factors as the Stock Option Plan Committee deems relevant. It is
expected that all options authorized under the Stock Option Plan will be granted
to employees and existing directors (including Ms. Shore, who is retiring as a
director but who is expected to serve as an advisor after the Annual Meeting).
Therefore, only forfeited options would be subject to allocation later, unless
the Stock Option Plan is amended. At this time, approximately 21 persons would
be eligible to participate under the Stock Option Plan.
Upon stockholder approval of the Stock Option Plan, it is expected that
options will be granted to existing directors and employees of the Company and
the Bank as set forth in the table on page 25.
The Board of Directors recommends a vote FOR approval of the Stone Street
---
Bancorp., Inc. Stock Option Plan.
22
PROPOSAL 4
APPROVAL OF MOCKSVILLE SAVINGS BANK, INC., SSB
MANAGEMENT RECOGNITION PLAN
The Board of Directors of the Company and the Bank have adopted and desire
to establish the Mocksville Savings Bank, Inc., SSB Management Recognition Plan
("MRP") in order to encourage the continued service of directors, employees and
servants of the Company and the Bank, to provide incentives for their
performance and to reward past performance to the companies.
The Company's and the Bank's intention to adopt the MRP was described in
the Prospectus. As was the case with the Stock Option Plan discussed under
Proposal 3, the MRP as described in the Prospectus contained certain provisions
that were required by the FDIC. Because the MRP has not been submitted for
stockholder approval until more than one year after the Conversion, the FDIC
rules are not applicable, and some provisions of the proposed MRP differ from
those described in the Prospectus, including a possible shorter vesting schedule
and accelerated vesting upon a "change in control" of the Company or the Bank.
The aggregate number of shares to be issued pursuant to the MRP (4% of the
number of shares issued in the Conversion) is as was described in the
Prospectus. As described in the Prospectus, the Company and Bank anticipate that
existing nonemployee directors will be awarded 30% of the restricted shares
under the MRP and that executive officers will be awarded 50% of the restricted
shares.
The MRP will be effective only upon stockholder approval. Upon approval,
the Company and the Bank expect to make restricted stock awards of 73,002 shares
of the Common Stock. The following is a summary of the material provisions of
the MRP. It is qualified in its entirety by the provisions of the MRP, which is
attached to this Proxy Statement as Appendix B.
The MRP serves as a means of providing the directors, officers, employees
and other servants with an ownership interest in the Company in a manner
designed to encourage such persons to continue their service to the Company and
the Bank, to provide performance incentives and reward past performance. Upon
stockholder approval, the MRP will be administered by a committee of nonemployee
directors of the Bank's Board of Directors (the "MRP Committee"). All
directors, officers, and employees of the Bank and its subsidiaries and certain
advisors and consultants of the Bank and its subsidiaries are eligible for
participation in the MRP. The MRP Committee, in its sole discretion, will
determine who will participate in the MRP. It is expected that all grants
authorized under the MRP will be made to officers, employees and existing
directors of the Bank (including Ms. Shore, who is retiring as a director but
who is expected to serve as an advisor after the Annual Meeting). Therefore,
only forfeited shares would be subject to allocation later, unless the plan is
amended. At this time, approximately 21 persons would be eligible to
participate in the MRP.
The Bank expects the shares awarded under the MRP either to be purchased on
the open market or issued from authorized but unissued shares of Common Stock.
To the extent that authorized but unissued shares are used to fund the MRP, the
interests of existing shareholders will be diluted. Shares issued under the MRP
will be issued at no cost to recipients.
After the grant of shares under the MRP, recipients will be entitled to
vote such shares and receive all dividends and cash distributions with respect
thereto. It is expected that shares awarded will vest and
23
become nonforfeitable at a rate of 20% on the date of the award and 20% on each
subsequent anniversary date, so that the shares would be completely vested at
the end of four years service after the date of award. Shares awarded would
become automatically vested and nonforfeitable upon death or disability and
would become vested if a recipient's service or employment terminates for any
reason, voluntarily or involuntarily, after a change in control of the Company
or the Bank. If a recipient ceases to be a director, employee or other servant
of the Bank or one of its subsidiaries (whichever position resulted in the
grant) prior to satisfaction of the vesting requirements, unvested shares would
be forfeited and would be available for subsequent grants under the MRP.
Recipients of grants under the MRP who fail to satisfy applicable vesting
requirements would be required to repay any dividends or other cash
distributions previously received with respect to forfeited shares.
The MRP may be amended, terminated or suspended by the Board of Directors
of the Bank at any time, subject to the rights of recipients and subject to
applicable regulatory requirements and any required stockholder approvals.
If the MRP is approved, the recipients of stock grants will be required to
recognize ordinary income equal to the fair market value of the restricted
Common Stock granted as such shares become vested and nonforfeitable.
Recipients may elect to accelerate the recognition of income to the time of the
award, notwithstanding the vesting schedule, pursuant to Section 83 of the Code.
The Company will be able to deduct as a compensation expense for tax purposes
the same amounts recognized as income by recipients in the year in which such
amounts are included in income.
The following table shows the options which are expected to be issued upon
stockholder approval of the Stock Option Plan and the shares of restricted stock
which are expected to be awarded upon stockholder approval of the MRP:
24
STOCK OPTION PLAN MANAGEMENT RECOGNITION PLAN/1/
----------------- --------------------------------
NUMBER OF SHARES
SUBJECT TO STOCK DOLLAR
NAME AND POSITION OPTIONS NUMBER OF SHARES VALUE
- --------------------------- ----------------- --------------------- ---------
Non-Employee Directors
- ---------------------------
Robert B. Hall 6,843 2,738 $ 74,268
William F. Junker 6,843 2,738 $ 74,268
Donald G. Bowles 6,843 2,738 $ 74,268
J. Roy Harris 6,843 2,738 $ 74,268
Claude R. Horn 6,843 2,738 $ 74,268
George W. Martin 6,843 2,738 $ 74,268
Lois C. Shore 6,843 2,738 $ 74,268
Ronald H. Vogler 6,843 2,738 $ 74,268
------ ------ --------
Total (8 persons) 54,744 21,904 $594,146
====== ====== ========
Executive Officers
- ------------------
J. Charles Dunn 45,626 18,249 $495,004
Allen W. Carter 27,376 10,949 $296,992
Marjorie D. Foster 18,251 7,300 $198,013
------ ------ --------
Total (3 persons) 91,253 36,498 $990,008
====== ====== ========
Other employees of the Bank 36,501 14,600 $396,025
who are not Executive
Officers (10 persons)
Associates of Executive 0 0 0
Officers and Directors
- ----------------------------
/1/ Assumes a value per share of Common Stock equal to $27 1/8, which was the
closing price paid per share for the Common Stock on March 3, 1997. This
valuation is without regard to the restrictions on the shares of Common
Stock awarded under the MRP.
25
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR APPROVAL OF THE MOCKSVILLE SAVINGS
---
BANK, INC., SSB MANAGEMENT RECOGNITION PLAN.
INTEREST OF CERTAIN PERSONS IN MATTERS TO BE ACTED UPON
Stockholders are being asked to approve the Stock Option Plan and MRP. As
set forth above, the Stock Option Plan and MRP will not be effective without the
required stockholder approval. The executive officers and the members of the
Boards of Directors of the Company and the Bank, all of whom are stockholders
and who, as a group, have voting control over 135,211 shares (7.41%) of the
Common Stock (excluding shares held in the ESOP), will be participants of these
plans. In addition, the Trustees of the ESOP and employee recipients of
allocated shares under the ESOP have voting control over the 130,400 shares
(7.15%) of the outstanding Common Stock. See "PROPOSAL 3 - APPROVAL OF STONE
STREET BANCORP, INC. STOCK OPTION PLAN" and "PROPOSAL 4 - APPROVAL OF THE
MOCKSVILLE SAVINGS BANK, INC. SSB MANAGEMENT RECOGNITION PLAN."
26
PROPOSALS FOR 1998 ANNUAL STOCKHOLDERS' MEETING
It is presently anticipated that the 1998 Annual Meeting of Stockholders
will be held in April of 1998. In order for shareholder proposals to be
included in the proxy materials for that meeting, such proposals must be
received by the Secretary of the Company at the Company's executive office not
later than November 14, 1997, and meet all other applicable requirements for
inclusion therein.
The Company's bylaws provide that, in order to be eligible for
consideration at the annual meeting of stockholders, all nominations of
directors, other than those made by the Company's Board of Directors, must be
made in writing and must be delivered to the Secretary of the Company not less
than 50 days nor more than 90 days prior to the meeting at which such
nominations will be made; provided, however, if less than 21 days notice of the
meeting is given to stockholders, such nominations must be delivered to the
Secretary of the Company not later than the close of business on the seventh day
following the day on which the notice of meeting was mailed.
OTHER MATTERS
Management knows of no other matters to be presented for consideration at
the Annual Meeting or any adjournments thereof. If any other matters shall
properly come before the Annual Meeting, it is intended that the proxy holders
named in the enclosed form of proxy will vote the shares represented thereby in
accordance with their judgment, pursuant to the discretionary authority granted
therein.
MISCELLANEOUS
The Annual Report of the Company for the year ended December 31, 1996,
which includes financial statements audited and reported upon by the Company's
independent auditor, is being mailed along with this Proxy Statement; however,
it is not intended that the Annual Report be a part of this Proxy Statement or a
solicitation of proxies.
THE FORM 10-K FILED BY THE COMPANY WITH THE SEC, INCLUDING THE FINANCIAL
STATEMENTS AND SCHEDULES THERETO, WILL BE PROVIDED FREE OF CHARGE TO ANY OF THE
COMPANY'S STOCKHOLDERS UPON WRITTEN REQUEST DIRECTED TO: STONE STREET BANCORP,
INC., 232 SOUTH MAIN STREET, MOCKSVILLE, NORTH CAROLINA 27028, ATTENTION:
MARJORIE D. FOSTER.
By Order of the Board of Directors,
J. Charles Dunn
President
Mocksville, North Carolina
March 14, 1997
27
APPENDIX A
----------
STONE STREET BANCORP, INC.
STOCK OPTION PLAN
THIS IS THE STOCK OPTION PLAN ("Plan") of Stone Street Bancorp, Inc. (the
"Corporation"), a North Carolina corporation, with its principal office in
Mocksville, Davie County, North Carolina, adopted by the Board of Directors of
the Corporation and effective upon the approval of the Plan by the shareholders
of the Corporation, under which options may be granted from time to time to
eligible directors and employees of the Corporation, Mocksville Savings Bank,
Inc., SSB (the "Bank") and of any corporation or other entity of which either
the Corporation or the Bank owns, directly or indirectly, not less than fifty
percent (50%) of any class of equity securities (a "Subsidiary"), to purchase
shares of common stock of the Corporation ("Common Stock"), subject to the
provisions set forth below:
1. PURPOSE OF THE PLAN. The purpose of the Plan is to aid the
-------------------
Corporation, the Bank and any Subsidiary in attracting and retaining capable
directors and employees and to provide a long range incentive for directors,
employees and others to remain in the management and service of the Corporation,
the Bank or any Subsidiary, to perform at increasing levels of effectiveness and
to acquire a permanent stake in the Corporation with the interest and outlook of
an owner. These objectives will be promoted through the granting of options to
acquire shares of Common Stock pursuant to the terms of this Plan.
2. ADMINISTRATION. The Plan shall be administered by a committee (the
--------------
"Committee"), which shall consist of not less than two members of the Board of
Directors of the Corporation (the "Board") who are "Non-Employee Directors" as
defined in Rule 16b-3(b)(3) of the Rules and Regulations under the Securities
Act of 1934 (the "Exchange Act"). Members of the Committee shall serve at the
pleasure of the Board. In the absence at any time of a duly appointed
Committee, this Plan shall be administered by the Board. The Committee may
designate any officers or employees of the Corporation, the Bank or any
Subsidiary to assist in the administration of the Plan and to execute documents
on behalf of the Committee and perform such other ministerial duties as may be
delegated to them by the Committee.
Subject to the provisions of the Plan, the determinations or the
interpretation and construction of any provision of the Plan by the Committee
shall be final and conclusive upon all persons affected thereby. By way of
illustration and not of limitation, the Committee shall have the discretion (a)
to construe and interpret the Plan and all options granted hereunder and to
determine the terms and provisions (and amendments thereof) of the options
granted under the Plan (which need not be identical); (b) to define the terms
used in the Plan and in the options granted hereunder; (c) to prescribe, amend
and rescind the rules and regulations relating to the Plan; (d) to determine the
individuals to whom and the time or times at which such options shall be
granted, the number of shares to be subject to each option, the option price,
and the determination of leaves of absence which may be granted to participants
without constituting a termination of their employment for the purposes of the
Plan; and (e) to make all other determinations necessary or advisable for the
administration of the Plan.
It shall be in the discretion of the Committee to grant options which
qualify as "incentive stock options," as that term is defined in Section 422 of
the Internal Revenue Code of 1986, as amended ("Incentive Stock Options") or
which do not qualify as Incentive Stock Options ("Nonqualified Stock Options")
(herein referred to collectively as "Options;" however, whenever reference is
specifically made only to "Incentive Stock Options" or "Nonqualified Stock
Options," such reference shall be deemed to be made to the exclusion of the
other). Any options granted which fail to satisfy the requirements for
Incentive Stock Options shall become Nonqualified Stock Options.
3. STOCK AVAILABLE FOR OPTIONS. In the discretion of the Committee, the
---------------------------
stock to be subject to Options under the Plan shall be authorized but unissued
shares of Common Stock which are issued directly to optionees upon exercise of
options and/or shares of Common Stock which are acquired by the Plan or the
Corporation in the open market. The total number of shares of Common Stock for
which Options may be granted under the Plan is 182,505 shares, which is ten
percent (10%) of the total number of shares of Common Stock issued by the
Corporation in connection with the conversion of the Bank from a North Carolina
mutual savings bank to a North Carolina stock savings bank on March 29, 1996
(the "Conversion"). Such number of shares is subject to any capital adjustments
as provided in Section 16. In the event that an Option granted under the Plan
is forfeited, released, expires or is terminated unexercised as to any shares
covered thereby, such shares thereafter shall be available for the granting of
Options under the Plan; however, if the forfeiture, expiration, release or
termination date of an Option is beyond the term of existence of the Plan as
described in Section 21, then any shares covered by forfeited, unexercised,
released or terminated options shall not reactivate the existence of the Plan
and therefore may not be available for additional grants under the Plan. The
Corporation, during the term of the Plan, will reserve and keep available a
number of shares of Common Stock sufficient to satisfy the requirements of the
Plan. In the discretion of the Committee, the shares of Common Stock necessary
to be delivered to satisfy exercised options may be from authorized and unissued
shares of Common Stock or may be purchased in the open market.
4. ELIGIBILITY. Options shall be granted only to individuals who meet all
-----------
of the following eligibility requirements:
(a) Such individual must be (i) an employee or a member of the Board of
Directors of the Corporation, the Bank or a Subsidiary or (ii) a person
serving as an advisor or consultant to the Corporation, the Bank or a
Subsidiary or member of a committee appointed by the Board of Directors of
the Corporation or the Bank (a "corporate consultant"). For this purpose,
an individual shall be considered to be an "employee" only if there exists
between the Corporation, the Bank or a Subsidiary and the individual the
legal and bona fide relationship of employer and employee. In determining
whether such relationship exists, the regulations of the United States
Treasury Department relating to the determination of such relationship for
the purpose of collection of income tax at the source on wages shall be
applied.
(b) Such individual must have such knowledge and experience in
financial and business matters that he or she is capable of evaluating the
merits and risks of the investment involved in the exercise of the Options.
2
(c) Such individual, being otherwise eligible under this Section 4,
shall have been selected by the Committee as a person to whom an Option
shall be granted under the Plan.
In determining the directors and employees to whom Options shall be granted
and the number of shares to be covered by each Option, the Committee shall take
into account the nature of the services rendered by respective directors,
employees and corporate consultants, their present and potential contributions
to the success of the Corporation, the Bank and any Subsidiary and such other
factors as the Committee shall deem relevant. A director, employee or
corporate consultant who has been granted an Option under the Plan may be
granted an additional Option or Options under the Plan if the Committee shall so
determine.
If, pursuant to the terms of the Plan, it is necessary that the percentage
of stock ownership of any individual be determined, stock ownership in the
Corporation or of a related corporation which is owned (directly or indirectly)
by or for such individual's brothers and sisters (whether by the whole or half
blood), spouse, ancestors, and lineal descendants or by or for any corporation,
partnership, estate or trust of which such employee is a shareholder, partner or
beneficiary shall be considered as owned by such director or employee.
5. OPTION AGREEMENT Such Options shall be granted after the date the Plan
----------------
is approved by the Corporation's shareholders and after execution by the
optionee of a Stock Option Grant and Agreement (the "Option Agreement") in the
form attached hereto as Exhibit A, as modified by the Committee to the extent it
deems such modification to be necessary or desirable. Such Options shall be
granted with the intention that they will be Nonqualified Stock Options or
Incentive Stock Options as denominated in the Option Agreement. Any Option
granted with the intention that it will be an Incentive Stock Option but which
fails to satisfy a requirement for Incentive Stock Options shall continue to be
valid and shall be treated as a Nonqualified Stock Option.
6. OPTION PRICE.
------------
(a) The option price of each Option granted under the Plan shall be not
less than one hundred percent (100%) of the market value of the stock on
the date of grant of the Option. In the case of incentive stock options
granted to a shareholder who owns stock possessing more than 10 percent
(10%) of the total combined voting power of all classes of stock of the
Corporation, the Bank or a Subsidiary (a "ten percent shareholder"), the
option price of each Option granted under the Plan shall not be less than
one hundred and ten percent (110%) of the market value of the stock on the
date of grant of the Option. If the Common Stock is listed on a national
securities exchange (including for this purpose the Nasdaq Stock Market,
Inc. National Market) on the date in question, then the market value per
share shall be not less than the average of the highest and lowest selling
price on such exchange on such date, or if there were no sales on such
date, then the market price per share shall be equal to the average between
the bid and asked price on such date. If the Common Stock is traded
otherwise than on a national securities exchange (including for this
purpose the Nasdaq Stock Market, Inc. National Market) on the date in
question, then the market price per share shall be equal to the average
between the bid and asked price on such date, or, if there is no bid
3
and asked price on such date, then on the next prior business day on which
there was a bid and asked price. If no such bid and asked price is
available, then the market value per share shall be its fair market value
as determined by the Committee, in its sole and absolute discretion. The
Committee shall maintain a written record of its method of determining such
value.
(b) The option price shall be payable to the Corporation either (i) in
cash or by check, bank draft or money order payable to the order of the
Corporation, or (ii) at the discretion of the Committee, through the
delivery of shares of the common stock of the Corporation owned by the
optionee with a market value (determined in a manner consistent with (i)
above) equal to the option price, or (iii) at the discretion of the
Committee by a combination of (i) and (ii) above. No shares shall be
delivered until full payment has been made.
7. EXPIRATION OF OPTIONS. The Committee shall determine the expiration
---------------------
date or dates of each Option, but such expiration date shall be not later than
ten (10) years after the date such Option is granted. In the event an Incentive
Stock Option is granted to a ten percent shareholder, the expiration date or
dates of each Option shall be not later than five (5) years after the date such
Option is granted. The Committee, in its discretion, may extend the expiration
date or dates of an Option after such date was originally set; however, such
expiration date may not exceed the maximum expiration date described in this
Section 7.
8. TERMS AND CONDITIONS OF OPTIONS.
-------------------------------
(a) All Options must be granted within ten (10) years of the Effective
Date of this Plan as defined in Section 20.
(b) The Committee may grant Options which are intended to be Incentive
Stock Options and Nonqualified Stock Options, either separately or jointly,
to an eligible employee.
(c) The grant of Options shall be evidenced by a written instrument (an
Option Agreement) containing terms and conditions established by the
Committee consistent with the provisions of this Plan.
(d) Not less than 100 shares may be purchased at any one time unless
the number purchased is the total number at that time purchasable under the
Plan.
(e) The recipient of an Option shall have no rights as a shareholder
with respect to any shares covered by his Option until payment in full by
him for the shares being purchased. No adjustment shall be made for
dividends (ordinary or extraordinary, whether in cash, securities or other
property) or distributions or other rights for which the record date is
prior to the date such stock is fully paid for, except as provided in
Section 16.
(f) The aggregate fair market value of the stock (determined as of the
time the Option is granted) with respect to which Incentive Stock Options
are exercisable for the first
4
time by any participant during any calendar year (under all benefit plans
of the Corporation, the Bank or any Subsidiary, if applicable) shall not
exceed $100,000; provided, however, that such $100,000 limit of this
subsection (f) shall not apply to the grant of Nonqualified Stock Options.
The Committee may grant Options which are exercisable in excess of the
foregoing limitations, in which case Options granted which are exercisable
in excess of such limitation shall be Nonqualified Stock Options.
(g) All stock obtained pursuant to an option which qualifies as an
Incentive Stock Option shall be held in escrow for a period which ends on
the later of (i) two (2) years from the date of the granting of the Option
or (ii) one (1) year after the transfer of the stock pursuant to the
exercise of the Option. The stock shall be held by the Corporation or its
designee. The employee who has exercised the Option shall during such
holding period have all rights of a shareholder, including but not limited
to the rights to vote, receive dividends and sell the stock. The sole
purpose of the escrow is to inform the Corporation of a disqualifying
disposition of the stock within the meaning of Section 422 of the Internal
Revenue Code of 1986, as amended, and it shall be administered solely for
that purpose.
9. EXERCISE OF OPTIONS.
-------------------
(a) Unless otherwise set forth in the Option Agreement, all Options
granted to an optionee by virtue of his position as a nonemployee director
of the Corporation or the Bank or corporate consultant (as stated in the
Option Agreement) shall be fully vested, exercisable and nonforfeitable
immediately at the time of the grant.
(b) Options granted to an optionee by virtue of his position as an
employee (as stated in the Option Agreement) shall become vested and
exercisable at the times, at the rate and subject to such limitations as
may be set forth in the Option Agreement executed in connection therewith;
provided, however, that all outstanding and nonforfeited options shall be
exercisable, if not sooner, on the day prior to the expiration date
thereof.
Notwithstanding the foregoing, Options shall become exercisable with
respect to all of the shares subject thereto upon the optionee's death,
retirement or disability within the meaning of Section 22(e)(3) of the
Internal Revenue Code of 1986, as amended, and in the event of a change in
control as set forth in Section 13 of this Plan.
Any right to exercise Options in annual installments shall be cumulative
and any vested installments may be exercised, in whole or in part, at the
election of the optionee. The exercise of any Option must be evidenced by
written notice to the Corporation that the optionee intends to exercise his
Option.
In no event shall an Option be deemed granted by the Corporation or
exercisable by a recipient prior to the mutual execution by the Corporation
and the recipient of an Option Agreement which comports with the
requirements of Section 5 and Section 8(c).
5
(c) The inability of the Corporation or Bank to obtain approval from
any regulatory body or authority deemed by counsel to be necessary to the
lawful issuance and sale of any shares of Common Stock hereunder shall
relieve the Corporation and the Bank of any liability in respect of the
non-issuance or sale of such shares. As a condition to the exercise of an
option, the Corporation may require the person exercising the Option to
make such representations and warranties as may be necessary to assure the
availability of an exemption from the registration requirements of federal
or state securities laws.
(d) The Committee shall have the discretionary authority to impose in
the Option Agreements such restrictions on shares of Common Stock as it may
deem appropriate or desirable, including but not limited to the authority
to impose a right of first refusal or to establish repurchase rights or
both of these restrictions.
(e) Notwithstanding anything to the contrary herein, an optionee
receiving the grant of an Option by virtue of his or her position as a
director, corporate consultant or as an employee of the Corporation, the
Bank or a Subsidiary (as stated in the Option Agreement), shall be required
to exercise his or her Options within the periods set forth in Sections 10,
11 and 12 below.
10. TERMINATION OF EMPLOYMENT - EXCEPT BY DISABILITY, RETIREMENT OR DEATH.
---------------------------------------------------------------------
If any optionee receiving the grant of an Option by virtue of his position as a
director or corporate consultant (as stated in the Option Agreement) ceases to
be a director or corporate consultant of at least one of the Corporation, the
Bank or any Subsidiary for any reason other than death, retirement (as defined
in Section 11) or disability (as defined in Section 11) or if any optionee
receiving the grant of an Option by virtue of his position as an employee (as
stated in the Option Agreement) ceases to be an employee of at least one of the
Corporation, the Bank and any Subsidiary for any reason other than death,
retirement (as defined in Section 11) or disability (as defined in Section 11),
he may, (i) at any time within three (3) months after his date of termination,
but not later than the date of expiration of the Option, exercise any Option
designated in the Option Agreement as an Incentive Stock Option and (ii) at any
time prior to the date of expiration of the Option, exercise any option
designated in the Option Agreement as a Nonqualified Stock Option. However, in
either such event the optionee may exercise any Option only to the extent it was
vested and he or she was entitled to exercise the Option on the date of
termination. Any Options or portions of Options of terminated optionees not so
exercised shall terminate and be forfeited.
11. TERMINATION OF EMPLOYMENT - DISABILITY OR RETIREMENT. If any optionee
----------------------------------------------------
receiving the grant of an Option by virtue of his position as a director or
corporate consultant (as stated in the Option Agreement) ceases to be a director
or corporate consultant of at least one of the Corporation, the Bank or any
Subsidiary due to his becoming disabled within the meaning of Section 22(e)(3)
of the Internal Revenue Code of 1986, as amended, or if any employee receiving
the grant of an Option by virtue of his position as an employee (as stated in
the Option Agreement) ceases to be employed by at least one of the Corporation,
the Bank and any Subsidiary due to his becoming disabled within the meaning of
Section 22(e)(3) of the Internal Revenue Code of 1986, as amended, all unvested
and forfeitable Options of such optionee shall immediately become vested and
nonforfeitable and he may, (i) at any time within 12 months after his date of
termination,
6
but not later than the date of expiration of the Option, exercise any option
designated in the Option Agreement as an Incentive Stock Option with respect to
all shares subject thereto and (ii) at any time prior to the date of expiration
of the Option, exercise any Option designated in the Option Agreement as a
Nonqualified Stock Option with respect to all shares subject thereto. Any
portions of Options of optionees who are terminated because they become disabled
which are not so exercised shall terminate.
If any optionee receiving the grant of an Option by virtue of his position
as a director or corporate consultant (as stated in the Option Agreement) ceases
to be a director or corporate consultant of at least one of the Corporation, the
Bank or any Subsidiary due to his retirement, or if any employee receiving the
grant of an Option by virtue of his position as an employee (as stated in the
Option Agreement) ceases to be employed by at least one of the Corporation, the
Bank and any Subsidiary due to his retirement, all unvested and forfeitable
Options of such optionee shall immediately become vested and nonforfeitable and
he may, at any time prior to the date of expiration of the Option, exercise such
Option; provided, however, that if the Option is exercised more than three
months after such retirement, the Option may be treated as a Nonqualified Stock
Option. Any portions of Options of retired directors, corporate consultants or
employees not so exercised shall terminate. For purposes of this Plan, the term
"retirement," as it relates to any optionee receiving a grant of an Option as a
result of his or her position as an employee of the Corporation, the Bank or any
Subsidiary, shall mean (i) the termination of the optionee's employment under
conditions which would constitute retirement under any tax qualified retirement
plan maintained by the Corporation, the Bank or a Subsidiary, or (ii)
termination of employment after attaining age 65. The term "retirement," as it
relates to any optionee receiving a grant of an Option as a result of his or her
position as a director or corporate consultant, shall mean the cessation of
membership on such board of directors or cessation of the relationship creating
the corporate consultant status (i) with the approval of such board of
directors, at any time after such optionee reaches age 65, or (ii) at the
election of the optionee at any time after not less than twenty-five (25) years
of service as a member of the such board of directors and/or as a corporate
consultant, as applicable.
12. TERMINATION OF EMPLOYMENT - DEATH. If an optionee receiving the grant
---------------------------------
of an option by virtue of his position as a director or corporate consultant (as
stated in the Option Agreement) dies while a director or corporate consultant of
the Corporation, the Bank or any Subsidiary or if any employee receiving the
grant of an option by virtue of his position as an employee (as stated in the
Option Agreement) dies while in the employment of the Corporation, the Bank or a
Subsidiary, all unvested and forfeitable Options of such optionee shall
immediately become vested and nonforfeitable and the person or persons to whom
the Option is transferred by will or by the laws of descent and distribution may
exercise the Option at any time until the term of the Option has expired, with
respect to all shares subject thereto, to the same extent and upon the same
terms and conditions the optionee would have been entitled to do so had he
lived. Any Options or portions of options of deceased directors or employees
not so exercised shall terminate.
13. CHANGE IN CONTROL. In the event that an optionee ceases to be an
-----------------
employee, a director or corporate consultant of the Corporation, the Bank or a
Subsidiary (which position resulted in his or her receipt of an option pursuant
to this Plan) for any reason after the occurrence of a "change in control" and
prior to the time that all shares allocated to him or her would be 100%
7
vested, nonforfeitable and exercisable in accordance with Sections 9 and 10
above, then, notwithstanding Sections 9 and 10 above, all Options granted to
such optionee shall immediately become fully vested and nonforfeitable. For
purposes of this Plan, a "change in control" shall mean (i) a change in control
of a nature that would be required to be reported by the Corporation in response
to Item 1 of the Current Report on Form 8-K, as in effect on the date hereof,
pursuant to Section 13 or 15(d) of the Exchange Act; (ii) such time as any
"person" (as such 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 Corporation or Bank
representing 25 percent or more of the combined voting power of the outstanding
Common Stock of the Corporation or outstanding common stock of the Bank, as
applicable; or (iii) individuals who constitute the Board or the board of
directors of the Bank on the date hereof (the "Incumbent Board" and "Incumbent
Bank Board," respectively) 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 Incumbent Bank Board, as
applicable, or whose nomination for election by the Corporation's or Bank's
shareholders was approved by the Corporation's or Bank's Board of Directors or
Nominating Committee, shall be considered as though he or she were a member of
the Incumbent Board or Incumbent Bank Board, as applicable; or (iv) either the
Corporation or the Bank consolidates or merges with or into another corporation,
association or entity or is otherwise reorganized, where neither the Corporation
nor the Bank, respectively, is the surviving corporation in such transaction; or
(v) all or substantially all of the assets of either the Corporation or the Bank
are sold or otherwise transferred to or are acquired by any other entity or
group.
As set forth in Section 10, in the event of such a termination after a
change in control, the Optionee must exercise any Incentive Stock Options within
three (3) months after his date of termination and may exercise any Nonqualified
Stock Options at any time prior to the date of expiration of the Option.
14. STOCK APPRECIATION RIGHTS.
-------------------------
(a) General Terms and Conditions. The Committee may, but shall not be
obligated to, grant rights to optionees to surrender an exercisable Option,
or any portion thereof, in consideration for the payment by the Corporation
of an amount equal to the excess of the market value (determined as set
forth in Section 6 above) of the shares of Common Stock subject to the
Option, or portion thereof, surrendered over the exercise price of the
Option with respect to such shares (any such authorized surrender and
payment being hereinafter referred to as a "Stock Appreciation Right").
Such payment, at the discretion of the Committee, may be made in shares of
Common Stock valued at the then market value thereof (determined as set
forth in Section 6 above), or in cash, or partly in cash and partly in
shares of Common Stock.
The terms and conditions set with respect to a Stock Appreciation
Right may include (without limitation), subject to other provisions of this
Section 14 and this Plan, the period during which, date by which or event
upon which the Stock Appreciation Right may be exercised (which shall be on
the same terms as the
8
Option to which is related); the method for valuing shares of Common Stock
for purposes of this Section 14; a ceiling on the amount of consideration
which the Corporation may pay in connection with exercise of the Stock
Appreciation Right; and arrangements for income tax withholding. The
Committee shall have complete discretion to determine whether, when and to
whom Stock Appreciation Rights may be granted.
(b) Time Limitations. A Stock Appreciation Right may be exercised only
within the period, if any, within which the Option to which it relates may
be exercised. Notwithstanding the foregoing, any election by an optionee to
exercise Stock Appreciation Rights shall be made during the period
beginning on the third business day following the release for publication
of quarterly or annual financial information required to be prepared and
disseminated by the Corporation pursuant to the requirements of the
Exchange Act and ending on the twelfth business day following such date.
The required release of information shall be deemed to have been satisfied
when the specified financial data appears on or in a wire service,
financial news service or newspaper of general circulation or is otherwise
first made publicly available.
(c) Effects of Exercise of Stock Appreciation Rights or Options. Upon
the exercise of a Stock Appreciation Right, the number of shares of Common
Stock available under the Option to which it relates shall decrease by a
number equal to the number of shares for which the Stock Appreciation Right
was exercised. Upon the exercise of an Option, any related Stock
Appreciation Right shall terminate as to any number of shares of Common
Stock subject to the Stock Appreciation Right that exceeds the total number
of shares for which the Option remains unexercised.
(d) Time of Grant. A Stock Appreciation Right granted in connection
with an Incentive Stock Option must be granted concurrently with the Option
to which is relates, while a Stock Appreciation Right granted in connection
with a Nonqualified Stock Option may be granted concurrently with the
Option to which it relates or at any time thereafter prior to the exercise
or expiration of such Option. No optionee shall have any Stock Appreciation
Rights unless (i) in the case of Incentive Stock Options and Nonqualified
Stock Options, the Stock Option Agreement shall so state or (ii) in the
case of Nonqualified Stock Options, the Committee shall have executed an
amendment to the Stock Option Agreement so stating.
(e) Non-Transferable. A Stock Appreciation Right may not be
transferred or assigned except in connection with a transfer of the Option
to which it relates.
15. RESTRICTIONS ON TRANSFER. An Option granted under this Plan may not
------------------------
be transferred except by will or the laws of descent and distribution and,
during the lifetime of the optionee to whom it was granted, may be exercised
only by such optionee.
9
16. CAPITAL ADJUSTMENTS AFFECTING COMMON STOCK.
------------------------------------------
(a) If the outstanding shares of Common Stock of the Corporation are
increased, decreased, changed into or exchanged for a different number or
kind of shares or other securities of the Corporation or another entity as
a result of a recapitalization, reclassification, stock dividend, stock
split, amendment to the Corporation's Certificate of Incorporation, reverse
stock split, merger or consolidation, an appropriate adjustment shall be
made in the number and/or kind of securities allocated to the Options and
Stock Appreciation Rights previously and subsequently granted under the
Plan, without change in the aggregate purchase price applicable to the
unexercised portion of the outstanding Options but with a corresponding
adjustment in the price for each share or other unit of any security
covered by the Options.
(b) In the event that the Corporation shall declare and pay any
dividend with respect to the Common Stock (other than a dividend payable in
shares of the Corporation's Common Stock or a regular quarterly cash
dividend), including a dividend which results in a nontaxable return of
capital to the holders of shares of Common Stock for federal income tax
purposes, or otherwise than by dividend makes distribution of property to
the holders of its shares of Common Stock, the Committee, in its discretion
applied uniformly to all outstanding Options, may adjust the exercise price
per share of outstanding Options in such a manner as the Committee may
determine to be necessary to reflect the effect of the dividend or other
distribution on the fair market value of a share of Common Stock.
(c) To the extent that the foregoing adjustments described in Sections
16(a) and (b) above relate to particular Options or to particular stock or
securities of the Corporation subject to Option under this Plan, such
adjustments shall be made by the Committee, whose determination in that
respect shall be final and conclusive.
(d) The grant of an Option or Stock Appreciation Right pursuant to
this Plan shall not affect in any way the right or power of the Corporation
to make adjustments, reclassifications, reorganizations or changes of its
capital or business structure or to merge or to consolidate or to dissolve,
liquidate or sell, or transfer all or any part of its business or assets.
(e) No fractional shares of stock shall be issued under the Plan for
any such adjustment.
(f) Any adjustment made pursuant to this Section 16, shall be made, to
the extent practicable, in such manner as not to constitute a modification
of any outstanding Incentive Stock Options within the meaning of Section
424(h) of the Internal Revenue Code of 1986, as amended.
17. INVESTMENT PURPOSE. At the discretion of the Committee, any Option
------------------
Agreement may provide that the optionee shall, by accepting the Option,
represent and agree, for himself and his transferees by will or the laws of
descent and distribution, that all shares of stock
10
purchased upon the exercise of the Option will be acquired for investment and
not for resale or distribution, and that upon each exercise of any portion of an
Option, the person entitled to exercise the same shall furnish evidence of such
facts which is satisfactory to the Corporation. Certificates for shares of stock
acquired under the Plan may be issued bearing such restrictive legends as the
Corporation and its counsel may deem necessary to ensure that the optionee is
not an "underwriter" within the meaning of the regulations of the Securities
Exchange Commission.
18. APPLICATION OF FUNDS. The proceeds received by the Corporation from
--------------------
the sale of Common Stock pursuant to Options will be used for general corporate
purposes.
19. NO OBLIGATION TO EXERCISE. The granting of an Option or Stock
-------------------------
Appreciation Right shall impose no obligation upon the optionee to exercise such
Option or Stock Appreciation Right.
20. EFFECTIVE DATE OF PLAN. The Plan will become effective upon the
----------------------
approval of the Plan by the shareholders of the Corporation and receipt of any
necessary regulatory approvals.
21. TERM OF PLAN. Options and Stock Appreciation Rights may be granted
------------
pursuant to this Plan from time to time within ten (10) years from the effective
date of the Plan.
22. TIME OF GRANTING OF OPTIONS. Nothing contained in the Plan or in any
---------------------------
resolution adopted or to be adopted by the Committee or the shareholders of the
Corporation and no action taken by the Committee shall constitute the granting
of any Option or Stock Appreciation Right hereunder. The granting of an Option
and Stock Appreciation Right pursuant to the Plan shall take place only when an
Option Agreement shall have been duly executed and delivered by and on behalf of
the Corporation at the direction of the Committee.
23. CASH PAYMENTS. At the time of the payment of any dividend or other
distribution with respect to the Common Stock, in the absolute discretion of,
and upon direction of the Board, the Corporation shall cause to be paid to
existing directors, corporate consultants and employees of the Corporation, the
Bank or any Subsidiary who hold nonforfeited, unexercised Options under this
Plan, regardless of whether or not such Options are vested and nonforfeitable, a
cash amount equal to the number of shares of Common Stock subject to
nonforfeited, unexercised options held by such optionee multiplied by the amount
of any dividends or other distributions paid per share of Common Stock
outstanding. The Board shall have the discretion to approve cash payments at
the time of some dividends or distributions but not others. Notwithstanding the
foregoing, no amounts shall be paid to optionees pursuant to this Section 23
with respect to any dividend or distribution if at the time of such dividend or
distribution, the exercise price of the Options shall have been reduced pursuant
to Section 16(b) above.
If any director, corporate consultant or employee of the Corporation, the
Board or any Subsidiary shall receive any cash payment from the Company, the
Board or any Subsidiary pursuant to this Section 23 with respect to an Option
which is not vested and exercisable, and if such Option shall be forfeited, then
within 30 days after the effective date of such forfeiture, the optionee shall
pay to the Corporation, the Bank or the Subsidiary (as applicable) an amount
equal to the cash
11
payment received by such optionee with respect to such forfeited Option. In the
alternative, at the option of the Corporation, the Bank or the Subsidiary (as
applicable) the amount to be repaid may be withheld from the final compensation
payable to the optionee.
24. WITHHOLDING TAXES. Whenever the Corporation proposes or is required
-----------------
to cause to be issued or transferred shares of stock, cash or other assets
pursuant to this Plan, the Corporation shall have the right to require the
optionee to remit to the Corporation an amount sufficient to satisfy any
Federal, state and/or local withholding tax requirements prior to the issuance
of any certificate or certificates for such shares or delivery of such cash or
other assets. Alternatively, the Corporation may issue or transfer such shares
of stock or make other distributions of cash or other assets net of the number
of shares or other amounts sufficient to satisfy the withholding tax
requirements. For withholding tax purposes, the shares of stock, cash and other
assets to be distributed shall be valued on the date the withholding obligation
is incurred.
25. TERMINATION AND AMENDMENT. The Board may at any time alter, suspend,
-------------------------
terminate or discontinue the Plan, subject to any applicable regulatory
requirements and any required stockholder approval or any stockholder approval
which the Board may deem advisable for any reason, such as for the purpose of
obtaining or retaining any statutory or regulatory benefits under tax,
securities or other laws or satisfying applicable stock exchange or quotation
system listing requirements. The Board may not, without the consent of the
holder of an Option or Stock Appreciation Right previously granted, make any
alteration which would deprive the optionee of his rights with respect thereto.
26. CAPTIONS AND HEADINGS; GENDER AND NUMBER. Captions and paragraph
----------------------------------------
headings used herein are for convenience only, do not modify or affect the
meaning of any provision herein, are not a part, and shall not serve as a basis
for interpretation or construction of, this Plan. As used herein, the masculine
gender shall include the feminine and neuter, and the singular number shall
include the plural, and vice versa, whenever such meanings are appropriate.
27. COST OF PLAN; EXCULPATION AND INDEMNIFICATION. All costs and expenses
---------------------------------------------
incurred in the operation and administration of the Plan shall be borne by the
Corporation, the Bank and the Subsidiaries. In connection with this Plan, no
member of the Board, no member of the Board of Directors of the Bank, and no
member of the Board of Directors of any Subsidiary, and no member of the
Committee shall be personally liable for any act or omission to act, nor for any
mistake in judgment made in good faith, unless arising out of, or resulting
from, such person's own bad faith, willful misconduct or criminal acts. To the
extent permitted by applicable law and regulation, the Corporation shall
indemnify, defend and hold harmless the members of the Board, the members of the
Board of Directors of the Bank and the members of the Board of Directors of any
Subsidiary, and members of the Committee, and each other officer or employee of
the Bank, the Corporation or of any Subsidiary to whom any power or duty
relating to the administration or interpretation of this Plan may be assigned or
delegated, from and against any and all liabilities (including any amount paid
in settlement of a claim with the approval of the Board), and any costs or
expenses (including counsel fees) incurred by such persons arising out of or as
a result of, any act or omission to act, in connection with the performance of
such person's duties, responsibilities and
12
obligations under this Plan, other than such liabilities, costs, and expenses as
may arise out of, or result from the bad faith, willful misconduct or criminal
acts of such persons.
28. GOVERNING LAW. Without regard to the principles of conflicts of laws,
-------------
the laws of the State of North Carolina shall govern and control the validity,
interpretation, performance, and enforcement of this Plan.
29. INSPECTION OF PLAN. A copy of this Plan, and any amendments thereto,
------------------
shall be maintained by the Secretary of the Corporation and shall be shown to
any proper person making inquiry about it.
30. OTHER PROVISIONS. The Option Agreements authorized under this Plan
----------------
shall contain such other provisions not inconsistent with the foregoing,
including, without limitation, increased restrictions upon the exercise of
options, as the Committee may deem advisable.
13
EXHIBIT A
---------
STOCK OPTION GRANT AND AGREEMENT
THIS STOCK OPTION GRANT AND AGREEMENT ("Agreement"), being made according
to and subject to the terms and conditions of the STOCK OPTION PLAN of Stone
Street Bancorp, Inc. ("Plan"), a copy of which is attached hereto as Annex A and
is hereby incorporated by reference and made a part of this Agreement, is herein
executed and effective the _______ day of _______________, _____, between Stone
Street Bancorp, Inc. (the "Corporation") and ____________________ ("Optionee"):
1. Grant. As of the above date, the Corporation hereby grants to the
-----
Optionee (applicable provisions are marked):
[_] an Incentive Stock Option [as that term is defined in Section 422
of the Internal Revenue Code of 1986, as amended (the "Code")] to
purchase ________ shares of Common Stock of the Corporation at the
price stated in this Agreement;
[_] a Nonqualified Stock Option to purchase __________ shares of
Common Stock of the Corporation at the price stated in this Agreement.
The Optionee [_] shall [_] shall not have Stock Appreciation Rights in
connection with the Options granted hereby, in accordance with
Section 14 of the Plan.
The Option(s) and any Stock Appreciation Rights granted under this
section and as described in this Agreement is (are) in all respects
subject to and conditioned by the terms, definitions, and provisions
of this Agreement and of the Plan. Capitalized terms in this Agreement
which are not otherwise defined but which are defined in the Plan
shall have the same meaning given to those terms in the Plan.
The Optionee has been granted Options under the Plan as a result of
the Optionee's position as a [_] director [_] employee [_] corporate
consultant of the Corporation, the Bank or a Subsidiary.
2. Price. The Option price is $_____________ for each share.
-----
3. Exercise of Option. The Option(s) granted under this Agreement shall
------------------
be exercisable pursuant to the terms and conditions of the Plan and as
set forth below:
(a) Right to Exercise: In addition to the terms and conditions
-----------------
imposed on the Optionee's right to exercise his Options and any Stock
Appreciation Rights imposed in the Plan, the following terms and
conditions are applicable:
----------------------------------------------------------------------
----------------------------------------------------------------------
(b) [_] (Marked if applicable) Annual Installments: Subject to the
-------------------
terms and conditions of the Plan, the Incentive Stock Options can be
exercised in annual installments as follows:
shares beginning on , 19
------------------ -------------- --
shares beginning on , 19
------------------ -------------- --
shares beginning on , 19
------------------ -------------- --
shares beginning on , 19
------------------ -------------- --
shares beginning on , 19
------------------ -------------- --
Subject to the terms and conditions of the Plan, the Nonqualified
Options can be exercised in annual installments as follows:
shares beginning on , 19
------------------ -------------- --
shares beginning on , 19
------------------ -------------- --
shares beginning on , 19
------------------ -------------- --
shares beginning on , 19
------------------ -------------- --
shares beginning on , 19
------------------ -------------- --
The right to exercise the Option(s) in annual installments shall be
cumulative. In addition, the option(s) shall be exercisable upon
disability, death, retirement and a change in control as set forth in
the Plan.
(c) [_] (Marked if applicable) Immediate Vesting: Subject to the
-----------------
terms and conditions of the Plan, all of the Options are vested,
nonforfeitable and exercisable.
(d) Method of Exercise: The Options and any Stock Appreciation
------------------
Rights granted under this Agreement shall be exercisable by a written
notice to the Secretary of the Corporation which shall:
(1) State the election to exercise the Option or the election
to surrender an exercisable Option and exercise Stock
Appreciation Rights, the number of shares in respect of which
the Option or Stock
2
Appreciation Right is being exercised, the person in whose name
any stock certificate or certificates for such shares of Common
Stock is to be registered or to whom any cash is to be paid, his
or her address, and social security number;
(2) Contain any such representation and agreements as to
Optionee's investment intent with respect to shares of Common
Stock as may be required by the Committee;
(3) Be signed by the person entitled to exercise the Option
and, if the Option is being exercised by any person or persons
other than the Optionee, be accompanied by proof, satisfactory
to the Corporation, of the right of such person or persons to
exercise the Option or Stock Appreciation Rights in accordance
with the Plan; and
(4) Be accompanied by payment of the purchase price of any
shares with respect to which the Option is being exercised which
payment shall be in form acceptable to the Committee pursuant to
Section 6(b) of the Plan.
(e) Representations and Warranties: In order to exercise an Option
------------------------------
or Stock Appreciation Right, the person exercising the Option or Stock
Appreciation Right must make the representations and warranties to the
Corporation as may be required by any applicable law or regulation, or
as may otherwise be required pursuant to the Plan.
(f) Approvals. In order for an Option or Stock Appreciation Right to
---------
be exercised, all filings and approvals required by applicable law and
regulations or pursuant to the Plan must have been made and obtained.
4. Non-transferability. Neither any Option nor any Stock Appreciation
-------------------
Rights may be transferred in any manner otherwise than by will or the
laws of descent and distribution and such Option and any Stock
Appreciation Rights may be exercised during the life of the Optionee
only by him or her.
5. Investment Purpose. This Option and any Stock Appreciation Rights may
------------------
not be exercised if the issuance of shares or payment of cash upon
such
3
exercise would constitute a violation of any applicable federal or
state securities law or other law or valid regulation.
6. Expiration. This Option and any corresponding Stock Appreciation
----------
Rights shall expire on _____________, _________.
7. Escrow. All stock purchased pursuant to an Incentive Stock Option
------
shall be held in escrow for a period which ends on the later of
(i) two (2) years from the date of the granting of the option or
(ii) one (1) year after the transfer of the stock pursuant to the
exercise of the Option. The stock shall be held by the Corporation or
its designee. The Optionee who has exercised the Option shall have all
rights of a stockholder, including, but not limited to, the rights to
vote, receive dividends and sell the stock. The sole purpose of the
escrow is to inform the Corporation of a disqualifying disposition of
the stock within the meaning of Section 422 of the Code, and it shall
be administered solely for this purpose.
8. Repayment of Cash Payments. If the Optionee hereunder forfeits any
--------------------------
Options pursuant to the Plan, the Optionee shall, within 30 days after
the effective date of such forfeiture, pay the Corporation, the Bank
or a Subsidiary (as applicable) an amount equal to the cash payments
received by the Optionee from the Corporation, the Bank or any
Subsidiary with respect to such forfeited Options pursuant to
Section 23 of the Plan. In the alternative, at the option of the
Corporation, the Bank or a Subsidiary, the amount to be repaid may be
withheld by the Corporation, the Bank or a Subsidiary from the final
compensation or fees payable to the Optionee. Each acceptance by an
Optionee of cash payments pursuant to such Section 23 with respect to
Options still subject to forfeiture shall constitute a reaffirmation
of the agreements set forth in this paragraph 8.
9. Tax Withholding. All stock, cash and other assets distributed pursuant
---------------
to this Agreement shall be subject to applicable federal, state and
local withholding for taxes. The Optionee expressly acknowledges and
agrees to such withholding. The Optionee acknowledges and agrees to
the tax withholding provisions which are set forth in the Plan.
10. Resolution of Disputes. Any dispute or disagreement which should arise
----------------------
under, or as a result of, or in any way relate to, the interpretation,
construction, or application of this Agreement or the Plan will be
determined by the Committee designated in Section 2 of the Plan. Any
determination made by such Committee shall be final, binding, and
conclusive for all purposes.
11. Construction Controlled by Plan. The Options and any corresponding
-------------------------------
Stock Appreciation Rights evidenced hereby shall be subject to all of
the
4
requirements, conditions and provisions of the Plan. This Agreement
shall be construed so as to be consistent with the Plan; and the
provisions of the Plan shall be deemed to be controlling in the event
that any provision should appear to be inconsistent therewith.
12. Severability. Whenever possible, each provision of this Agreement
------------
shall be interpreted in such a manner as to be valid and enforceable
under applicable law, but if any provision of this Agreement is
determined to be unenforceable, invalid or illegal, the validity of
any other provision or part thereof shall not be affected thereby and
this Agreement shall continue to be binding on the parties hereto as
if such unenforceable, invalid or illegal provision or part thereof
had not been included herein.
13. Modification of Agreement; Waiver. This Agreement may be modified,
---------------------------------
amended, suspended or terminated, and any terms, representations or
conditions may be waived, but only by a written instrument signed by
each of the parties hereto and only subject to the limitations set
forth in the Plan. No waiver hereunder shall constitute a waiver with
respect to any subsequent occurrence or other transaction hereunder or
of any other provision.
14. Captions and Headings; Gender and Number. Captions and paragraph
----------------------------------------
headings used herein are for convenience only, do not modify or affect
the meaning of any provision herein, are not a part, and shall not
serve as a basis for interpretation or construction, of this
Agreement. As used herein, the masculine gender shall include the
feminine and neuter, and the singular number shall include the plural,
and vice versa, whenever such meanings are appropriate.
15. Governing Law; Venue and Jurisdiction. Without regard to the
-------------------------------------
principles of conflicts of laws, the laws of the State of North
Carolina shall govern and control the validity, interpretation,
performance, and enforcement of this Agreement.
16. Binding Effect. This Agreement shall be binding upon and shall inure
--------------
to the benefit of the Corporation, and its successors and assigns, and
shall be binding upon and inure to the benefit of the Optionee, and
his or her heirs, legatees, personal representative, executor,
administrator and permitted assigns.
17. Entire Agreement. This Agreement and the Plan constitute and embody
----------------
the entire understanding and agreement of the parties hereto and,
except as otherwise provided hereunder, there are no other agreements
or understandings, written or oral, in effect between the parties
hereto relating to the matters addressed herein.
5
18. Counterparts. This Agreement may be executed in any number of
------------
counterparts, each of which when executed and delivered shall be
deemed an original, but all of which taken together shall constitute
one and the same instrument.
IN WITNESS WHEREOF, the parties have set their hands and seals the day and
year first above written.
ATTEST: STONE STREET BANCORP, INC.
By:
- ------------------------------- ----------------------------------
(Corporate Seal) President
-------------------
OPTIONEE:
(SEAL) -------------------------------------
6
APPENDIX B
----------
MOCKSVILLE SAVINGS BANK, INC., SSB
MANAGEMENT RECOGNITION PLAN
Mocksville Savings Bank, Inc., SSB, a North Carolina chartered savings bank
(the "Bank"), does herein set forth the terms of its Management Recognition Plan
(the "Plan").
1. Purpose of this Plan. The purpose of this Plan is to provide to the
--------------------
directors, officers, employees and other servants (the "Participants") of the
Bank and of any corporation or other entity of which the Bank owns, directly or
indirectly, not less than fifty percent (50%) of any class of the equity
securities thereof (a "Subsidiary"), an ownership interest in the Bank's parent
holding company, Stone Street Bancorp, Inc. (the "Corporation") by making awards
(hereinafter referred to as "Awards" or singularly, "Award") of shares of common
stock of the Corporation (the "Common Stock"). The Board of Directors of the
Bank (the "Board") and the Board of Directors of the Corporation believe that
participation in the ownership of the Corporation will induce Participants to
continue to serve the Bank or any Subsidiary as directors, officers and/or
employees and encourage them to contribute to the future growth and profits of
the Bank and the Corporation. In addition, the existence of this Plan will make
it possible for the Bank and its Subsidiaries to attract capable individuals to
serve as directors, officers and servants of the Bank and its Subsidiaries. The
Board believes that the existence of this Plan will provide incentives to the
directors, officers and employees of the Bank and any Subsidiaries which will
contribute materially to the success of such companies.
2. Administration of this Plan.
---------------------------
(a) This Plan shall be administered by a committee of the Board (the
"Committee") which shall consist of not less than two non-employee members of
the Board who are "Non-Employee Directors" as defined in Rule 16 b-3(b)(3) of
the Rules and Regulations under the Securities Exchange Act of 1934 (the
"Exchange Act"). In the absence of a duly appointed Committee, the Plan shall
be administered by the Board. The Committee shall have full power and authority
to construe, interpret and administer this Plan. All actions, decisions,
determinations, or interpretations of the Committee shall be final, conclusive,
and binding upon all parties. Members of the Committee shall serve at the
pleasure of the Board.
(b) The Committee shall decide (i) to whom Awards shall be made under
this Plan, (ii) the number of shares of Common Stock subject to each award,
(iii) the number of additional shares, if any, to be purchased or allocated for
the purposes of this Plan, (iv) the determination of leaves of absence which may
be granted to Participants without constituting a termination of their
employment for purposes of the Plan and (v) such additional terms and conditions
for Awards as the Committee shall deem appropriate, including, without
limitation, any determinations as to the restrictions or conditions on transfer
of shares of Common Stock that are necessary or appropriate to satisfy all
applicable securities laws, rules, regulations, and listing requirements.
(c) The Committee may designate any officers or employees of the Bank
or of any Subsidiary to assist in the administration of this Plan. The Committee
may authorize such individuals
to execute documents on its behalf and may delegate to them such other
ministerial and limited discretionary duties as the Committee may see fit.
(d) Any unallocated, undistributed or forfeited shares of Common
Stock held under this Plan shall be held by ________________________,
_____________________ and ____________________ (the "Trustees") and any
successor or successors who from time to time may be appointed by the Board.
3. Shares of Common Stock Available Under the Plan. The Plan shall
-----------------------------------------------
acquire 73,002 shares of Common Stock of the Corporation, which is equal to four
percent (4%) of the shares of Common Stock issued in connection with the
conversion of the Bank from a North Carolina chartered mutual savings bank to a
North Carolina chartered stock savings bank on March 29, 1996 (the
"Conversion"). Such shares of Common Stock may be purchased by the Plan in the
open market, or, subject to approval of the Board of Directors of the
Corporation, may be acquired through the issuance by the Corporation to the Plan
of authorized but unissued shares of Common Stock on such terms as may be
approved by the Committee and the Board of Directors of the Corporation. Such
shares (the "Plan Shares") shall be held by the Trustees until they have been
awarded and distributed pursuant to the terms of this Plan.
4. Eligibility. The Participants in this Plan to whom Awards may be made
-----------
shall be the following: (i) members of the Board and members of the Board of
Directors of any Subsidiary, (ii) such officers and employees of the Bank and/or
of any Subsidiary, and (iii) such advisors and consultants of the Bank and/or
any Subsidiary and such members of committees appointed by the Board ("corporate
consultants") as may be designated by the Board.
5. Stock Grant Agreement. Subject to the provisions of paragraph 7
---------------------
hereof, effective after this Plan is approved by the shareholders of the
Corporation, the Plan Shares shall be awarded and distributed to Participants.
Awards of Plan Shares under this Plan shall be effective upon execution and
delivery of the Stock Grant Agreement described in paragraph 7 (the "Stock Grant
Agreement").
6. Vesting of Shares.
-----------------
(a) Shares granted under this Plan shall vest and the right of a
Participant to the Plan Shares shall be nonforfeitable as determined by the
Committee and as set forth in the Stock Grant Agreement.
(b) In determining the number of shares vested under any applicable
vesting schedule, a Participant shall not receive fractional shares. If the
product resulting from multiplying the vested percentage times the allocated
shares results in a fractional share, then a Participant's vested right shall be
rounded down to the nearest whole number of shares.
(c) In the event any Participant shall no longer be either a
director, an employee or corporate consultant of the Bank or any Subsidiary for
any reason, other than as provided in subparagraphs 6(d) and 6(e) below, and
such Participant does not have a 100% vested interest in his or her shares under
the Plan, then any shares which are not vested, based upon the applicable
schedule set
2
forth in the Store Grant Agreement, shall be forfeited and, provided this Plan
has not terminated pursuant to paragraph 18 below, shall be available again for
Awards to Participants as may be determined by the Committee.
(d) In the event that a Participant shall no longer be an employee, a
director or corporate consultant of the Bank or any Subsidiary because of such
Participant's disability or death, prior to the date when all shares allocated
to him or her would be 100% vested in accordance with the schedule set forth in
the Stock Grant Agreement, then, notwithstanding such vesting schedule, all
shares allocated to such Participant shall immediately become fully vested and
nonforfeitable. For purposes of this Plan, the term "disability" shall be
defined in the same manner as such term is defined in Section 22(e)(3) of the
Internal Revenue Code of 1986, as amended (the "Code").
(e) In the event that a Participant ceases to be an employee, a
director or corporate consultant of the Bank or a Subsidiary for any reason
after the occurrence of a "change in control" and prior to the time that all
shares allocated to him or her would be 100% vested in accordance with the
schedule set forth in the Stock Grant Agreement, then, notwithstanding such
vesting schedule, all shares allocated to such Participant shall immediately
become fully vested and nonforfeitable. For purposes of this Plan, a "change in
control" shall mean (i) a change in control of a nature that would be required
to be reported by the Corporation in response to Item 1 of the Current Report on
Form 8-K, as in effect on the date hereof, pursuant to Section 13 or 15(d) of
the Exchange Act; (ii) such time as any "person" (as such 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 Corporation or Bank representing 25 percent or
more of the combined voting power of the outstanding Common Stock of the
Corporation or outstanding common stock of the Bank, as applicable; or (iii)
individuals who constitute the board of directors of the Corporation or the
Board on the date hereof (the "Incumbent Board" and "Incumbent Bank Board,"
respectively) 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 Incumbent Bank Board, as applicable, or whose
nomination for election by the Corporation's or Bank's shareholders was approved
by the Corporation's or Bank's Board of Directors or Nominating Committee, shall
be considered as though he or she were a member of the Incumbent Board or
Incumbent Bank Board, as applicable; or (iv) either the Corporation or the Bank
consolidates or merges with or into another corporation, association or entity
or is otherwise reorganized, where neither the Corporation nor the Bank,
respectively, is the surviving corporation in such transaction; or (v) all or
substantially all of the assets of either the Corporation or the Bank are sold
or otherwise transferred to or are acquired by any other entity or group.
7. Action Required of Participants.
-------------------------------
(a) If required by the Committee, each Participant receiving an Award
of shares under this Plan shall represent to and agree with the Corporation, the
Bank, the Committee and the Trustees (i) that he is acquiring such shares on his
own behalf as an investment and not with a present intention of distribution or
re-sale and (ii) that there shall be placed upon the certificates representing
such shares a legend setting forth these representations and agreements or a
reference there to. Such shares shall be transferable thereafter only if the
proposed transfer shall be permissible under this Plan
3
and if, in the opinion of counsel for the Corporation, such transfer shall at
such time be in compliance with all applicable federal and state securities laws
and regulations.
(b) Each Participant receiving an Award of Plan Shares under this
Plan shall deliver to the Bank a Stock Grant Agreement, substantially in the
form attached hereto as Exhibit A, modified as the Committee deems necessary or
desirable, which shall be signed by such Participant.
8. Restrictions.
------------
(a) Plan Shares subject to an award made under this Plan shall
forthwith, after the Participant makes any representations required by paragraph
7 hereof, be issued in a certificate or certificates for such shares which shall
be prepared in the name of such Participant or any transferee permitted by
paragraph 12(a) (a "Permitted Transferee"). Such Participant or transferee shall
thereupon be a shareholder with respect to all of the shares represented by such
certificate or certificates and shall have all of the rights of a shareholder
with respect to all of such shares, including the right to vote such shares and
to receive all dividends and other distributions with respect thereto subject to
possible forfeiture as set forth in paragraph 6 and subject to the provisions of
paragraph 10 hereof.
(b) Certificates of stock representing shares subject to an Award
made under this Plan shall be imprinted with a legend to the effect that the
shares represented are subject to restrictions on transfer and potential
forfeiture in accordance with the terms of the Stock Grant Agreement and this
Plan, and the transfer agent for Common Stock shall be instructed to that effect
with respect to such shares. In aid of such restrictions, the Participant or
Permitted Transferee shall, immediately upon receipt of the certificate or
certificates, deposit such certificate or certificates together with a stock
power or other instrument of transfer, appropriately endorsed in blank, with the
Trustees or with such other escrow agent as may be designated by the Trustees,
with the expenses of any such escrow arrangement to be borne by the Bank.
(c) In addition, all Plan Shares which are awarded with respect to
Participants who are directors or executive officers of the Bank, without the
written consent of the Administrator of the Savings Institutions Division of the
North Carolina Department of Commerce, may not be sold during a period of one
year following the effective date of the Conversion, except upon death of the
director or executive officer. Certificates of stock representing Plan Shares
awarded during such one year period with respect to Participants who are
directors and executive officers of the Bank (including those transferred to
Permitted Transferees) shall be imprinted with a legend to that effect, and the
transfer agent for such Plan Shares shall be instructed to that effect with
respect to such shares.
(d) In the event that, as the result of a stock split or stock
dividend or combination of shares or any other change or exchange for other
securities by reclassification, reorganization, merger, consolidation,
recapitalization, or otherwise, a Participant or Permitted Transferee shall, as
the owner of the shares subject to an Award made under this Plan and subject to
the restrictions hereunder, be entitled to new or additional or different shares
of Common Stock or other securities, the certificate or certificates for, or
other evidence of, such new or additional or different shares or other
securities, together with a stock power or other instrument of transfer
appropriately endorsed, shall also be imprinted with one or more legends as
provided in subparagraph 8(b) and 8(c) above and deposited by
4
such Participant or Permitted Transferee with the Trustees, and all provisions
of this Plan relating to vesting, restrictions and lapse of restrictions herein
set forth shall thereupon be applicable to such new or additional or different
shares or other securities to the extent applicable to the shares with respect
to which they were distributed; provided, however, that if a Participant or
Permitted Transferee should receive rights, warrants or fractional interests in
respect of any of such shares then being held under the terms of this Plan, such
rights or warrants may be held, exercised, sold or otherwise disposed of, and
such fractional interests may be settled, by such Participant or Permitted
Transferee free and clear of the restrictions herein set forth.
(e) The restriction to which shares subject to an Award made under
this Plan shall be subject is that if the directorship or employment of the
Participant with respect to whom an Award is made (whichever position resulted
in the Award, as set forth in the Stock Grant Agreement) should be terminated
for any reason during the "restricted period" (as defined in subparagraph 12(b)
hereof), except as otherwise specifically provided in paragraph 6 hereof, the
Participant's or Permitted Transferee's interest in the shares issued under this
Plan shall be forfeited.
9. Effect of Award on Status of Participant. The fact that an Award is
----------------------------------------
made to a Participant under this Plan shall not confer on such Participant any
right to continued service on the Board or on the Board of Directors of any
Subsidiary, nor any right to continued employment with the Bank or any
Subsidiary; nor shall it limit the right of the Bank, the Corporation, or any
Subsidiary to remove such Participant from any such boards, or to terminate his
or her employment at any time.
10. Voting Rights; Dividends; Other Distributions. After an Award of Plan
---------------------------------------------
Shares to a Participant or Permitted Transferee, the Participant or Permitted
Transferee shall have the full power to vote all of the Plan Shares held by the
Trustees in his name from time to time and shall be entitled to receive all cash
dividends or other distributions declared upon or paid with respect to any such
Plan Shares held by the Trustees in his name from time to time. All shares of
Common Stock or other securities, including but not limited to stock dividends,
issued in respect of such Plan Shares or in substitution thereof, whether by the
Corporation or by another issuer, shall be held by the Trustees and shall be
subject to all terms and conditions of this Plan and shall be redelivered to a
Participant or Permitted Transferee or delivered as instructed by the Committee
under the same circumstances as the shares with respect to, or in substitution
for, which they were issued; provided, however, that if a Participant or
Permitted Transferee should receive rights, warrants or fractional interests in
respect of any of the shares held by the Trustees in his name, such rights or
warrants may be held, exercised, sold or otherwise disposed of, and such
fractional interests may be settled, by such Participants or Permitted
Transferees free and clear of the restrictions herein set forth.
Notwithstanding the foregoing, if a Participant or Permitted
Transferee hereunder forfeits any Plan Shares pursuant to the terms of this
Plan, the Participant or Permitted Transferee, as applicable, shall, within 30
days after the effective date of such forfeiture, pay the Corporation an amount
equal to the dividends or other distributions received by such Participant or
Permitted Transferee with respect to such forfeited Plan Shares. In the
alternative, at the option of the Bank or a Subsidiary, the amount to be repaid
may be withheld by the Bank or Subsidiary from the final compensation or fees
payable to the Participant.
5
11. Adjustment Upon Changes in Capitalization; Dissolution or Liquidation.
---------------------------------------------------------------------
In the event of a change in the number or type of shares of Common Stock
outstanding, or in the event shares of Common Stock are decreased, changed into
or exchanged for securities of a different entity, by reason of a
reclassification, recapitalization, reorganization, other similar capital
adjustment; by reason of a merger or consolidation of the Corporation; by reason
of the sale by the Corporation of all or a substantial portion of its assets; or
by reason of the occurrence of any other event which could affect the
implementation of this Plan and the realization of its objectives, the number or
kind of shares subject to Awards which have occurred, or could occur, under this
Plan shall be proportionately and equitably adjusted by the Committee.
12. Non-Transferability.
-------------------
(a) Any shares subject to an Award made under this Plan shall not be
sold, exchanged, transferred, pledged, hypothecated or otherwise disposed of
during the "restricted period." Nothing herein shall preclude a Participant from
making a gift of any such shares to a spouse, child, stepchild, grandchild,
parent or sibling, or legal dependent of such Participant, to a trust of which
the beneficiary or beneficiaries of the trust shall be either a person
designated herein or such Participant, or to a civic or charitable organization
designated by the Participant; provided, however, that any such shares so given
by a Participant shall remain subject to the restrictions, obligations and
conditions set forth in this Plan, including, but not limited to, the escrow
provisions set forth in paragraph 8(b). In addition, such shares may be tendered
in response to a tender offer for or a request or invitation to tenders of
greater than fifty percent (50%) of the outstanding Common Stock and may be
surrendered in a merger, consolidation or share exchange involving the
Corporation; provided, however, in each case, that except as otherwise provided
herein, the securities or other consideration received in exchange therefor
shall thereafter be subject to the restrictions and conditions set forth in this
Plan, including, but not limited to, the escrow provisions set forth in
paragraph 8(b).
(b) The term "restricted period" with respect to shares subject to an
Award made under this Plan shall be the period commencing on the date of making
such Award of such shares to a Participant and ending on the date on which such
shares are no longer subject to forfeiture as provided in paragraph 6 hereof.
The date of making an Award shall be the date of execution by a Participant of a
Stock Grant Agreement in the form referred to in subparagraph 7(b) hereof.
13. Impact of Award on Other Benefits of Participant. The value of any
------------------------------------------------
Award, either on the date of the Award or at the time such shares become vested,
shall not be includable as compensation or earnings for purposes of any other
benefit plan offered by the Bank, the Corporation or any Subsidiary other than
any qualified employee benefit plan which provides that such value shall be
included as compensation or earnings for purposes of such plan.
14. Corporate Action. The making of an Award under this Plan shall not
----------------
affect in any way the right or power of the Corporation or its shareholders or
the Bank or its shareholders or any Subsidiary or its shareholders to make or
authorize any adjustment, recapitalization, reorganization, or other change in
the Corporation's, the Bank's or any Subsidiary's capital structure or its
business, or any merger or consolidation of the Corporation, the Bank or any
Subsidiary, or the issuance of any bonds, debentures, preferred or other capital
stock or rights with respect thereto, or the dissolution or liquidation
6
of the Corporation, the Bank or any Subsidiary, or any sale or transfer of all
or any part of the Corporation's, the Bank's or any Subsidiary's assets or
business.
15. Tax Withholding. The Trustees, the Corporation, the Bank and any
---------------
Subsidiary shall have the right to require any Participant or Permitted
Transferee to remit to the Corporation, the Bank or any Subsidiary an amount
sufficient to satisfy any Federal, state and/or local withholding tax
requirements prior to the delivery or release of any certificate or certificates
for Plan Shares or delivery of any cash or other assets with respect to Plan
Shares or otherwise pursuant to this Plan. Alternatively, the Trustee,
Corporation, Bank and any Subsidiary may deliver or release Shares or make other
distributions of cash or other assets net of the number of shares or cash
sufficient to satisfy the withholding tax requirements. For withholding tax
purposes, the shares of stock, cash and other assets to be distributed shall be
valued on the date the withholding obligation is incurred.
16. Exculpation and Indemnification. In connection with this Plan, no
-------------------------------
member of the Board, no member of the Board of Directors of the Corporation, no
member of the Committee and no Trustee shall be personally liable for any act or
omission to act in his capacity as a member of the Board, the Board of Directors
of the Corporation or the Committee or as a Trustee, nor for any mistake in
judgment made in good faith, unless arising out of, or resulting from, such
person's own bad faith, willful misconduct, or criminal acts. To the extent
permitted by applicable law and regulation, the Bank shall indemnify, defend and
hold harmless the members of the Board, the members of the Board of Directors of
the Corporation, the members of the Board of Directors of any Subsidiary, the
Committee and each Trustee and each other officer or employee of the Bank, the
Corporation or of any Subsidiary to whom any duty or power relating to the
administration or interpretation of this Plan may be assigned or delegated, from
and against any and all liabilities (including any amount paid in settlement of
a claim with the approval of the Board) and any costs or expenses (including
counsel fees) incurred by such persons arising out of, or as a result of, any
act or omission to act in connection with the performance of such person's
duties, responsibilities, and obligations under this Plan, other than such
liabilities, costs, and expenses as may arise out of, or result from, the bad
faith, willful misconduct, or criminal acts of such persons.
17. Amendment and Modification of this Plan. The Board may at any time,
---------------------------------------
and from time to time, amend or modify this Plan (including the form of Stock
Grant Agreement) in any respect, subject to any applicable regulatory
requirements and any required stockholder approval or any stockholder approval
which the Board may deem advisable for any reason, such as for the purpose of
obtaining or retaining any statutory or regulatory benefits under tax,
securities or other laws or satisfying applicable stock exchange or quotation
system listing requirements. However, any amendment or modification of this Plan
shall not in any manner affect any Award of shares theretofore made to a
Participant under this Plan without the consent of such Participant or any
Permitted Transferee of such Participant.
18. Termination and Expiration of this Plan. This Plan may be abandoned,
---------------------------------------
suspended, or terminated, in whole or in part, at any time by the Board;
provided, however, that abandonment, suspension, or termination of this Plan
shall not affect any Award theretofore made under this Plan. Unless sooner
terminated, this Plan shall terminate at the close of business on the day that
is the tenth (10th) anniversary of the date of approval of the Plan by the
shareholders of the Corporation; and no
7
Award of shares may be made under this Plan thereafter. Such termination shall
not effect any Award of shares theretofore made. In the event that the Board
terminates this Plan in whole, any shares held by the Trustees pursuant to
paragraph 2(d) which have not been allocated to eligible Participants, together
with any other assets held by the Trustees in their capacities as such, shall
revert to the Bank.
19. Effective Date. This Plan has been adopted by the Board to be
--------------
effective as of the date of approval of the Plan by the shareholders of the
Corporation.
20. Captions and Headings; Gender and Number. Captions and paragraph
----------------------------------------
headings used herein are for convenience only, do not modify or affect the
meaning of any provision herein, are not a part hereof, and shall not serve as a
basis for interpretation or construction of this Plan. As used herein, the
masculine gender shall include the feminine and neuter, and the singular number
shall include the plural, and vice versa, whenever such meanings are
appropriate.
21. Expenses of Administration of Plan. All costs and expenses incurred
----------------------------------
in the operation and administration of this Plan shall be borne by the Bank or
by a Subsidiary.
22. Governing Law. Without regard to the principles of conflicts of laws,
-------------
the laws of the State of North Carolina shall govern and control the validity,
interpretation, performance, and enforcement of this Plan.
23. Inspection of Plan. A copy of this Plan, and any amendments thereto,
------------------
shall be maintained by the Secretary of the Bank and shall be shown to any
proper person making inquiry about it.
8
EXHIBIT A
STATE OF NORTH CAROLINA
COUNTY OF DAVIE
STOCK GRANT AGREEMENT
THIS STOCK GRANT AGREEMENT (the "Agreement") is made and entered into as of
the ____ of ___________________, _______ (the "Effective Date"), by and among
Mocksville Savings Bank, Inc., SSB (the "Bank"), a North Carolina corporation,
_______________________ (the "Participant") and ______________________,
___________________ and ____________________ (the "Trustees").
WHEREAS, a Management Recognition Plan (the "Plan") was adopted by the
Board of Directors of the Bank (the "Bank") and approved by the Board of
Directors and by the shareholders of Stone Street Bancorp, Inc., the holding
company of the Bank (the "Corporation").
WHEREAS, it has been determined that it is desirable and in the best
interest of the Bank to make an award (the "Award") of certain shares of the
Common Stock of the Corporation, under the Plan, to the Participant, subject to
certain restrictions as specified below; and
WHEREAS, capitalized terms not otherwise defined herein shall have the same
meaning given to such terms in the Plan.
NOW, THEREFORE, the Parties agree as follows:
1. Date of Award. The date of making the Award under this Agreement is
-------------
the _____ day of _________________, ______. This Award has been made in
recognition of the Participant's status and service as a ____________________ of
_____________________________________________. The Participant is ____ or _____
is not a director or executive officer of the Bank.
2. Receipt by Participant. The Participant acknowledges receipt of
----------------------
________________________________ (__________) shares of Common Stock (the
"Restricted Stock"), and agrees to the execution of stock powers or such other
transfer authorizations as the Committee shall request, in blank, covering the
Restricted Stock to be held by the Trustees until the Restricted Stock becomes
vested and nonforfeitable pursuant to the Plan and this Agreement.
3. Investment Representation and Transfer Restrictions.
---------------------------------------------------
(a) Investment Representation. Participant makes and agrees to the
-------------------------
investment representation, if any, attached hereto as Annex A, and the Committee
may cause a legend to be placed on any certificate representing any of the
shares of Restricted Stock to make appropriate reference to such representation.
(b) Securities Law and Regulations. The Participant agrees that the
------------------------------
Restricted Stock shall be subject to such stop-transfer orders and other
restrictions as the Committee may deem advisable
under the rules, regulations, and other requirements of the Securities and
Exchange Commission, any stock exchange or interdealer quotation system upon
which the Common Stock is then listed and any other applicable federal or state
securities laws, rules or regulations, and the Committee may cause a legend or
legends to be placed on any certificate representing any of the shares of
Restricted Stock to make appropriate reference to such restrictions.
(c) Other Transfer Restrictions. (Intentionally omitted.)
---------------------------
4. Receipt by the Trustees. The Trustees acknowledge receipt from the
-----------------------
Participant of the Restricted Stock, registered in the name of the Participant,
and acknowledge receipt of stock powers executed in blank by the Participant
covering all of the Restricted Stock. The Restricted Stock shall be held by the
Trustees and distributed or transferred in accordance with the Plan and as set
forth herein.
5. Vesting and Delivery of Restricted Stock by the Trustees.
--------------------------------------------------------
(a) Periodic Vesting. Restricted Stock shall vest and become
----------------
nonforfeitable as follows (applicable provision is marked):
(i) [_] (Marked if applicable) Annual Installments: Shares of
-------------------
Restricted Stock shall become vested and nonforfeitable in annual
installments as follows:
__________________ shares on ______________, 19__
__________________ shares on ______________, 19__
__________________ shares on ______________, 19__
__________________ shares on ______________, 19__
__________________ shares on ______________, 19__
In addition, shares of Restricted Stock shall become vested and
nonforfeitable upon disability, death, and a change in control
as set forth in the Plan.
(ii) [_] (Marked if applicable) Immediate Vesting: Subject to the terms
-----------------
and conditions of the Plan, all of the shares of Restricted Stock are
vested, nonforfeitable and exercisable.
(b) Delivery of Restricted Stock to the Participant. After (I) the date
-----------------------------------------------
on which shares of Restricted Stock have become vested as provided in this
Agreement and in the Plan, the Committee shall instruct the Trustees to deliver
to the Participant, the Participant's designee, such other person as shall have
been designated as Participant's beneficiary in accordance with this Agreement,
or any other permitted recipient pursuant to the Plan, as applicable,
certificates representing the shares of Restricted Stock which have become
vested and nonforfeitable, as the Committee shall determine, free from any
restrictions imposed by this Agreement other than such restrictions and
conditions as may be deemed necessary by the Committee pursuant to paragraph 3
above.
2
(c) Delivery of Forfeited Restricted Stock. If the Restricted Shares,
--------------------------------------
or any of them, are forfeited pursuant to the Plan, the Board shall instruct the
Trustees concerning the disposition of such forfeited shares. Thereafter such
forfeited shares shall cease to be subject to this Agreement.
6. Repayment of Dividends. If the Participant hereunder forfeits any
----------------------
shares of Restricted Stock pursuant to the Plan, the Participant shall, within
30 days after the effective date of such forfeiture, pay the Corporation an
amount equal to the dividends and other distributions received by the
Participant with respect to forfeited shares of Restricted Stock as set forth in
the Plan. In the alternative, at the option of the Bank or a Subsidiary, the
amount to be repaid may be withheld by the Bank or Subsidiary from the final
compensation or fees payable to the Participant. Each acceptance by a
Participant of dividends with respect to Restricted Shares still subject to
forfeiture shall constitute a reaffirmation of the agreements set forth in this
paragraph 6.
7. Designation of Beneficiary. The Participant hereby designates the
--------------------------
person(s) described on Annex B as the beneficiary or beneficiaries who shall be
entitled to receive the Restricted Stock, if any, distributable to the
Participant upon his death. The Participant may, from time to time, revoke or
change his beneficiary designation without the consent of any prior beneficiary,
if any, by filing a new designation with the Committee. The last such
designation received by the Committee shall be controlling; provided, however,
that no designation, or change or revocation thereof, shall be effective unless
received by the Committee prior to the Participant's death, and in no event
shall it be effective as of a date prior to such receipt.
If no such beneficiary designation is in effect at the time of the
Participant's death, or if no designated beneficiary survives the Participant,
or if such designation conflicts with law, the Participant's estate shall be
deemed to have been designated his beneficiary and shall receive the Restricted
Stock, if any, distributable to the Participant upon his death. If the
Committee is in doubt as to the right of any person to receive such
distribution, the Committee may direct the Trustees to retain the Restricted
Stock, without liability for any interest in respect thereof, until the rights
thereto are determined, or the Committee may direct the transfer of such
Restricted Stock into any court of appropriate jurisdiction and such transfer
shall be deemed a complete discharge of the obligations of the Bank, the
Corporation, the Committee and Trustees hereunder.
8. Effect of Award on Status of Participant. The fact that an Award has
----------------------------------------
been made to the Participant under this Plan shall not confer on the Participant
any right to continued service on the Board, on the board of directors of the
Corporation or on the board of directors of any Subsidiary, nor to continued
employment with the Bank, the Corporation or any Subsidiary; nor shall it limit
the right of the Bank, the Corporation or of any Subsidiary to remove the
Participant from any such boards, or to terminate his employment at any time
without prior notice.
9. Impact of Award on Other Benefits of Participant. The value of the
------------------------------------------------
Restricted Stock on the date of the Award or at the time the Restricted Stock
becomes vested, shall not be includable as compensation or earnings for purposes
of any other benefit plan offered by the Bank, the Corporation or any Subsidiary
other than any qualified employee benefit plan which provides that such value
shall be included as compensation or earnings for purposes of such plan.
3
10. Tax Withholding. All Restricted Stock distributed pursuant to this
---------------
Agreement shall be subject to applicable federal, state and local withholding
for taxes. The Participant expressly acknowledges and agrees to such
withholding without regard to whether the Restricted Stock may then be sold or
otherwise transferred by the Participant. The Participant acknowledges and
agrees to the tax withholding provisions which are set forth in the Plan.
11. Notices. Any notices or other communications required or permitted to
-------
be given under this Agreement shall be in writing and shall be deemed to have
been sufficiently given if delivered personally or three business days after
deposit in the United States mail by Certified Mail, return receipt requested,
properly addressed and postage prepaid, if to the Bank, the Committee or the
Trustees at the Bank's principal office address at 232 South Main Street,
Mocksville, North Carolina 27028; and, if to the Participant, at his last
address appearing on the books of the Bank. The Bank and the Participant may
change their address or addresses by giving written notice of such change as
provided herein. Any notice or other communication hereunder shall be deemed to
have been given on the date actually delivered or as of the third (3rd) business
day following the date mailed as set forth above, as the case may be.
12. Construction Controlled by Plan. The Plan, a copy of which is
-------------------------------
attached hereto as Annex C, is incorporated herein by reference. The Award of
Restricted Shares shall be subject to the terms and conditions of the Plan, and
the Participant hereby assumes and agrees to comply with all of the obligations
imposed upon the Participant in the Plan. This Agreement shall be construed so
as to be consistent with the Plan; and the provisions of the Plan shall be
deemed to be controlling in the event that any provision hereof should appear to
be inconsistent therewith.
13. Severability. Whenever possible, each provision of this Agreement
------------
shall be interpreted in such a manner as to be valid and enforceable under
applicable law, but if any provision of this Agreement is determined to be
unenforceable, invalid or illegal, the validity of any other provision or part
thereof shall not be affected thereby and this Agreement shall continue to be
binding on the parties hereto as if such unenforceable, invalid or illegal
provision or part thereof had not been included herein.
14. Governing Law. Without regard to the principles of conflicts of laws,
-------------
the laws of the State of North Carolina shall govern and control the validity,
interpretation, performance, and enforcement of this Agreement.
15. Modification of Agreement; Waiver. This Agreement may be modified,
---------------------------------
amended, suspended or terminated, and any terms, representations or conditions
may be waived, but only by a written instrument signed by each of the parties
hereto or their successors in interest. No waiver hereunder shall constitute a
waiver with respect to any subsequent occurrence or other transaction hereunder
or of any other provision hereof.
16. Binding Effect. This Agreement shall be binding upon and shall inure
--------------
to the benefit of the parties hereto, and their respective heirs, legatees,
personal representatives, executors, and administrators, successors and assigns.
4
17. Entire Agreement. This Agreement and the Plan constitute and embody
----------------
the entire understanding and agreement of the parties hereto and, except as
otherwise provided hereunder, there are no other agreements or understandings,
written or oral, in effect between the parties hereto relating to the matters
addressed herein.
18. Counterparts. This Agreement may be executed in any number of
------------
counterparts, each of which when executed and delivered shall be deemed an
original, but all of which taken together shall constitute one and the same
instrument.
19. Substitution of Trustee. In the event any new trustee is substituted
-----------------------
for any Trustee pursuant to the Plan, such substitute trustee shall also be
substituted as a Trustee hereunder.
IN WITNESS WHEREOF, the Bank has caused this instrument to be executed in
its corporate name by its President, or one of its Vice Presidents, and attested
by its Secretary or one of its Assistant Secretaries, and its corporate seal to
be hereto affixed, all by, authority of its Board of Directors first duly given;
and each individual party hereto has hereunto set his hand and adopted as his
seal the typewritten word "SEAL" appearing beside his name, all done this the
day and year first above written.
MOCKSVILLE SAVINGS BANK, INC., SSB
By:
--------------------------------------
President
----------------
ATTEST:
- ----------------------------------
Secretary
- ------------------
[Corporate Seal]
PARTICIPANT
(SEAL)
-----------------------------------
(SEAL)
-----------------------------------
TRUSTEE
(SEAL)
-----------------------------------
TRUSTEE
(SEAL)
-----------------------------------
TRUSTEE
5
ANNEX A
Investment Representation
-------------------------
ANNEX B
Management Recognition Plan
---------------------------
Beneficiary Designation Form
----------------------------
As Beneficiary to receive any shares of stock distributable on my behalf
pursuant to the Mocksville Savings Bank, Inc., SSB Management Recognition Plan,
I hereby designate the following:
Name Address Relationship
Primary Beneficiary:
----------------------------------------------------------
----------------------------------------------------------
----------------------------------------------------------
Contingent Beneficiary:
(if any) ----------------------------------------------------------
----------------------------------------------------------
----------------------------------------------------------
If more than one primary beneficiary is named, shares will be paid in equal
shares to surviving primary beneficiaries. Should the contingent beneficiaries
be eligible to receive the benefits (i.e., all primary beneficiaries are
deceased), such benefits will be paid in equal shares to such surviving
contingent beneficiaries.
Name of Spouse if not given above:
----------------------------------------------
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Witness Participant
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Date
ANNEX C
Management Recognition Plan
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[X] PLEASE MARK VOTES REVOCABLE PROXY
AS IN THIS EXAMPLE STONE STREET BANCORP, INC.
ANNUAL MEETING OF STOCKHOLDERS
APRIL 15, 1997
4:00 p.m.
The undersigned hereby appoints the official proxy committee consisting of the
Board of Directors of Stone Street Bancorp, Inc. (the "Company"), to act as
attorney and proxy for the undersigned, and to vote all shares of Common Stock
of the Company which the undersigned is entitled to vote only at the Annual
Meeting of Stockholders, to be held at the offices of the Company, 232 South
Main Street, Mocksville, North Carolina, on April 15, 1997, at 4:00 p.m. and at
any and all adjournments thereof, as follows:
1. The approval of the election of the following named directors:
With- For All
For hold Except
[_] [_] [_]
(a) J. Charles Dunn, J. Roy Harris, and Claude R. Horn, Jr., who will serve as
directors of the Company until the 1998 Annual Meeting of Stockholders or
until their successors are duly elected and qualify;
(b) Robert B. Hall, Donald G. Bowles, and Ronald H. Vogler, who will serve as
directors of the Company until the 1999 Annual Meeting of Stockholders or
until their successors are duly elected and qualify; and
(c) William F. Junker, George W. Martin, and Terry L. Bralley, who will serve as
directors of the Company until the 2000 Annual Meeting of Stockholders or
until their successors are duly elected and qualify;
INSTRUCTION: To withhold authority to vote for any individual nominee, mark "For
All Except" and write that nominee's name in the space provided below.
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For Against Abstain
2. The ratification of Weir Smith Jones Miller &
Elliott, Certified Public Accountants, as the
independent auditors of the Company for
the year ending December 31, 1997. [_] [_] [_]
3. The approval of the Stone Street Bancorp,
Inc. Stock Option Plan. [_] [_] [_]
4. The approval of the Mocksville Savings
Bank, Inc., SSB Management Recognition
Plan. [_] [_] [_]
PLEASE CHECK BOX IF YOU PLAN TO ATTEND
THE ANNUAL MEETING. [_]
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" EACH OF THE LISTED PROPOSALS.
____________________
Please be sure to sign and date Date
this Proxy in the box below.
______________________________________________________________
___Stockholder sign above_______Co-holder (if any sign above__
. Detach above card, sign, date and mail in postage paid envelope provided .
STONE STREET BANCORP, INC.
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THIS PROXY IS SOLICITED BY THE BOARD OF DIRECTORS.
If no instructions are given, the Proxy will be voted for the nominees
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for election to the Board of Directors named in this Revocable Proxy and for the
other three proposals described above. If instructions are given with respect to
some but not all proposals, such instructions as are given will be followed and
the Proxy will be voted for the proposals on which no instructions are given. If
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any other business is presented at the Annual Meeting, this Proxy will be voted
as determined, in its discretion, by the Board of Directors of Stone Street
Bancorp, Inc. At the present time, the Board of Directors knows of no other
matters to be presented at the Annual Meeting.
The above signed acknowledges receipt from the Company, prior to the
execution of this Proxy, of a Notice of the Meeting and a Proxy Statement dated
March 14, 1997.
Please sign exactly as your name appears on this proxy card. When signing
as attorney, executor, administrator, trustee or guardian, please give your
full title. If shares are held jointly, each holder should sign.
PLEASE ACT PROMPTLY
SIGN, DATE & MAIL YOUR PROXY CARD TODAY
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