UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
SCHEDULE 14A
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 ss.240.14a-12
South Street Financial Corp.
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(Name of Registrant as Specified In Its Charter)
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(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(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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SOUTH STREET FINANCIAL CORP.
POST OFFICE BOX 489
155 WEST SOUTH STREET
ALBEMARLE, NORTH CAROLINA 28001
(704) 982-9184
NOTICE OF 2005 ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON MAY 23, 2005
NOTICE IS HEREBY GIVEN that the 2005 Annual Meeting of Stockholders (the
"Annual Meeting") of South Street Financial Corp. (the "Company") will be held
on May 23, 2005, at 4:00 p.m., Eastern Time, at the main office of the Company
at 155 West South Street, Albemarle, North Carolina.
THE PURPOSES OF THE ANNUAL MEETING ARE:
1. To elect six persons who will serve as directors of the Company for
one-year terms or until their successors are duly elected and
qualified;
2. To ratify the appointment by the Audit Committee of Dixon Hughes
PLLC as the independent auditor for the Company for the fiscal year
ending December 31, 2005; and
3. To transact such other business as may properly come before the
Annual Meeting or any adjournments thereof. The Company's Board of
Directors ("Board of Directors") is not aware of any other business
to be considered at the Annual Meeting.
The Board of Directors has established March 21, 2005, as the record date
for the determination of stockholders entitled to notice of and to vote at the
Annual Meeting and 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
--------------------
David L. Smith
Secretary
Albemarle, North Carolina
April 12, 2005
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.
SOUTH STREET FINANCIAL CORP.
Proxy Statement
2005 Annual Meeting of Stockholders
May 23, 2005
SOLICITATION, VOTING AND REVOCABILITY OF PROXIES
GENERAL
These proxy materials are delivered in connection with the solicitation by
South Street Financial Corp.'s (the "Company", "we" or "our") Board of Directors
of proxies to be voted at the 2005 Annual Meeting of Stockholders and at any
adjournment or postponement. You are invited to attend our Annual Meeting on May
23, 2005, at 4:00 p.m., Eastern Time, at the main office of the Company at 155
West South Street, Albemarle, North Carolina. This Proxy Statement and form of
proxy are being mailed starting April 12, 2005. The Company's telephone number
is (704) 982-9184.
REVOCABILITY OF PROXY
A proxy may be revoked at any time before its exercise by (1) written
notice to the Secretary of the Company, (2) timely delivery of a valid
later-dated proxy or (3) voting by ballot at the Annual Meeting. However, if you
are a beneficial owner of shares of the Company's outstanding 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 expenses of soliciting proxies. Proxies may be
solicited on our behalf in person or by telephone, facsimile transmission or by
telegram by the directors, officers and regular employees of the Company and its
wholly-owned savings bank subsidiary, Home Savings Bank of Albemarle, Inc.,
S.S.B. (the "Bank"). We have requested brokerage houses and nominees to forward
these proxy materials to the beneficial owners of shares held of record and,
upon request, we will reimburse them for their reasonable out-of-pocket
expenses.
VOTING AT THE ANNUAL MEETING
Regardless of how many shares of common stock you own, your vote is
important to us. 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 proxy holders to represent
those stockholders who cannot be present in person.
You are requested to vote by mail by completing, signing, dating and
returning the enclosed proxy card in the postage-paid envelope provided by the
Company. You may vote for, against, abstain or withhold authority to vote on
matters to come before the Annual Meeting. The designated proxy holders will
vote your shares in accordance with your instructions. If you sign and return a
proxy card without giving specific voting instructions, your shares will be
voted as follows:
- FOR the nominees for election to the Board of Directors named in
this Proxy Statement
- FOR ratification of the Audit Committee's selection of Dixon Hughes
PLLC, as the Company's independent auditor for the fiscal year
ending December 31, 2005
If instructions are given with respect to some but not all proposals, the proxy
holders will follow the instructions given and will vote FOR the proposals on
which no instructions are given. If matters not described in this Proxy
Statement are presented at the Annual Meeting, the proxy holders will use their
own judgment to determine how to vote your shares. We are not now aware of any
other matters to be presented except those described in the Proxy Statement. If
the Annual Meeting is adjourned, your common stock may be voted by the proxy
holders on the new meeting date as well, unless you have revoked your proxy
instructions.
You are entitled to vote your common stock if our records showed that you
held your shares as of March 21, 2005 (the "Record Date"). At the close of
business on the Record Date, a total of 3,047,886 shares of common stock were
outstanding and entitled to vote. Each share of common stock has 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 a majority of the
votes entitled to be cast by the stockholders entitled to vote at the Annual
Meeting is necessary to constitute a quorum. The Annual Meeting may be adjourned
in order to permit the further solicitation of proxies if there are an
insufficient number of stockholders present to constitute a quorum. Abstentions
and broker "non-votes" are counted as present and entitled to vote for purposes
of determining a quorum. A broker "non-vote" occurs when a nominee holding
shares for a beneficial owner does not vote on a particular proposal because the
nominee does not have discretionary voting power for that particular item and
has not received instructions from the beneficial owner.
VOTE REQUIRED FOR APPROVAL
A plurality of the votes cast is required for the election of directors.
As a result, those persons nominated for election as directors who receive the
largest number of votes will be elected directors. Abstentions and broker
"non-votes" are not counted for purposes of the election of directors. No
stockholder has the right to cumulatively vote his or her shares in the election
of directors.
The affirmative vote of a majority of the votes cast is required to
approve the Audit Committee's appointment of Dixon Hughes PLLC as the Company's
independent auditor for the fiscal year ending December 31, 2005. Abstentions
and broker "non-votes" are not counted for purposes of approving this matter.
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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 Company's 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
NAME AND ADDRESS BENEFICIAL OWNERSHIP(1) OF CLASS (2)
- ---------------- -------------------- ------------
Caldwell A. Holbrook, Jr. (3), (4), (5)
1700 Bellamy Circle 496,583 16.29%
Albemarle, NC 28001
Joel A. Huneycutt (4), (5), (6)
P. O. Box 167 517,149 16.96%
Locust, NC 28097
Douglas Dwight Stokes (4), (5), (7)
1009 Ridge Street 514,206 16.87%
Albemarle, NC 28001
Greg E. Underwood (4), (5)
500 North Fourth Street 493,900 16.20%
Albemarle, NC 28001
Carl M. Hill (8)
1415 Melchor Road 219,271 7.19%
Albemarle, NC 28001
J. Banks Garrison, Jr. (5)
1209 Belvedere Drive 462,394 15.17%
Albemarle, NC 28001
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(1) Voting and investment power is not shared unless otherwise indicated.
Also, 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 3,047,886 shares of common stock outstanding at the
Record Date, plus the number of shares that such individual has the right
to purchase pursuant to the options described in the footnotes below.
(3) Includes 3,434 shares for which Mr. Holbrook shares voting and investment
power with his spouse.
(4) Includes 22,482 shares underlying options that have vested or are
exercisable within 60 days under the Company's Stock Option Plan.
3
(5) Mr. Holbrook, Mr. Huneycutt, Mr. Stokes, Mr. Garrison and Mr. Underwood
serve as trustees of the Home Savings Bank of Albemarle, Inc., S.S.B.
Employee Stock Ownership Plan (the "ESOP"), which holds 461,674 shares of
the Company's common stock. The trustees of the ESOP share certain voting
and investment power of such shares.
(6) Includes 22,263 shares for which Mr. Huneycutt shares voting and
investment power with his spouse. This number also includes 1,737 shares
held by Mr. Huneycutt's spouse. Mr. Huneycutt disclaims beneficial
ownership of such shares.
(7) Includes 6,845 shares for which Mr. Stokes shares voting and investment
power with his spouse.
(8) This number includes 112,412 shares underlying options that have vested or
are exercisable within 60 days under the Stock Option Plan. The number
also includes 3,200 shares held by Mr. Hill's spouse. Mr. Hill disclaims
beneficial ownership of such shares.
4
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 of the Company (including nominees for re-election at the Annual
Meeting), each of the members of the board of directors of the Bank, each of the
named executive officers of the Company and the Bank, and the directors and all
executive officers of the Company and the Bank as a group.
AMOUNT AND NATURE OF PERCENTAGE
NAME AND ADDRESS BENEFICIAL OWNERSHIP(1) OF CLASS(2)
- ---------------- ----------------------- ----------
Caldwell A. Holbrook, Jr. (3), (4), (5)
Director 496,583 16.29%
1700 Bellamy Circle
Albemarle, NC 28001
Joel A. Huneycutt (4), (5), (6)
Director 517,149 16.96%
P. O. Box 167 Renee Ford Road
Locust, NC 28097
Douglas Dwight Stokes (4), (5), (7)
Director 514,206 16.87%
1009 Ridge Street
Albemarle, NC 28001
Greg E. Underwood (4), (5)
Director 493,900 16.20%
500 North Fourth Street
Albemarle, NC 28001
J. Banks Garrison, Jr. (5)
Director 462,394 15.17%
1209 Belvedere Drive
Albemarle, NC 28001
R. Ronald Swanner (8)
Director; President and Chief Executive Officer of the
Company; President and Chief Executive Officer of the Bank 108,923 3.57%
500 Muirfield Drive
Albemarle, NC 28001
Directors and all executive officers as a group 803,932 26.37%
(9 persons) (9), (10)
(1) Voting and investment power is not shared unless otherwise indicated.
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.
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(2) Based upon a total of 3,047,886 shares of the common stock outstanding at
the Record Date, plus the number of shares that such individual has the
right to purchase pursuant to the options described in the footnotes
hereto.
(3) Includes 3,434 shares for which Mr. Holbrook shares voting and investment
power with his spouse.
(4) Includes 22,482 shares underlying options that have vested or are
exercisable within 60 days under the Company's Stock Option Plan.
(5) Mr. Holbrook, Mr. Huneycutt, Mr. Stokes, Mr. Garrison and Mr. Underwood
serve as trustees of the Home Savings Bank of Albemarle, Inc., S.S.B.
Employee Stock Ownership Plan (the "ESOP"), which holds 461,674 shares of
the Company's common stock. The trustees of the ESOP share certain voting
and investment power of such shares.
(6) Includes 22,263 shares for which Mr. Huneycutt shares voting and
investment power with his spouse. This number also includes 1,737 shares
held by Mr. Huneycutt's spouse. Mr. Huneycutt disclaims beneficial
ownership of such shares.
(7) Includes 6,845 shares for which Mr. Stokes shares voting and investment
power with his spouse.
(8) Includes 10,000 shares for which Mr. Swanner shares voting and investment
power with his spouse. This number also includes 89,930 shares underlying
options that have vested or are exercisable within 60 days under the Stock
Option Plan.
(9) In addition to the directors and executive officers listed, includes (i)
Christopher F. Cranford, Treasurer and Chief Financial Officer of the Bank
and Treasurer and Chief Financial Officer of the Company, (ii) David L.
Smith, Executive Vice President of the Bank and Secretary of the Company,
and (iii) Cris D. Turner, Executive Vice President of the Bank and Vice
President of the Company.
(10) The 461,674 shares held by the ESOP for which the trustees, Messrs.
Holbrook, Huneycutt, Stokes, Garrison and Underwood, share voting and
investment power, and the 92,250 shares, in the aggregate, allocated under
the ESOP and held by the Bank's executive officers, have been included
only once in the total number of shares owned beneficially by the
directors and executive officers as a group. This number includes 204,685
shares underlying options that have vested or are exercisable within 60
days under the Stock Option Plan.
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Exchange Act requires the Company's executive
officers and directors, and persons who own more than 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,
2004, all of its executive officers and directors and greater than ten percent
beneficial owners complied with all applicable Section 16(a) filing
requirements.
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PROPOSAL 1
ELECTION OF DIRECTORS
GENERAL
The Articles of Incorporation of the Company provide that the number of
directors of the Company shall not be less than five nor more than 15. The exact
number of directors shall be fixed or changed from time to time by the Board of
Directors. The Board of Directors currently has fixed the size of the Board at
six members.
The Board of Directors has nominated the six persons named below for
election as directors for terms of one year or until their earlier death,
resignation, retirement, removal or disqualification or until their successors
are elected and qualified.
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 six nominees listed below as directors, unless authority to vote is
withheld or such proxies are revoked. Each of the nominees for election is
currently a member of the Board. 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 or to reduce the number of directors to be
elected at the Annual Meeting by the number of such persons unable or unwilling
to serve (subject to the requirements of the Company's Articles of
Incorporation). The present Board of Directors has no reason to believe that any
of the nominees named herein will be unable to serve if elected to office.
In order to be elected as a director, a nominee need only receive a
plurality of the votes cast. 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 cumulatively to vote his or her shares in
the election of directors.
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 and the Company.
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AGE ON DIRECTOR DIRECTOR OF
DECEMBER 31, PRINCIPAL OCCUPATION TERM OF BANK COMPANY
NAME 2004 DURING LAST FIVE YEARS EXPIRES SINCE SINCE
- ---- ---- ---------------------- ------- ------ -----
Caldwell A. Holbrook, Jr. 57 Partner, D.A. Holbrook & 2005 1985 1996
Sons, General Contractors
Joel A. Huneycutt 62 President, Locust Lumber 2005 1984 1996
Company, Inc.
Douglas Dwight Stokes 59 Owner and President, Stokes 2005 1988 1996
Construction Company
R. Ronald Swanner 56 President and Chief Executive 2005 1981 1996
Officer of the Bank since May
28, 2002; President and Chief
Executive Officer of the
Company since May 28, 2002;
President and Chief
Operating Officer of the
Bank prior to May 28, 2002;
Executive Vice President and
Secretary of the Company
prior to May 28, 2002
Greg E. Underwood 42 CPA in private practice; 2005 1995 1996
Owner, Carolina Oil Co. of
Albemarle, Inc. and Barefoot
Oil Co. of Albemarle, Inc.;
Secretary/Treasurer of
Southeastern Floral Corp.
J. Banks Garrison, Jr. 55 Vice President, South Central 2005 2002 2002
Oil Company
DIRECTOR ATTENDANCE AT ANNUAL MEETINGS
All the Board members attended the Company's 2004 annual meeting of
stockholders, which was held on May 17, 2004. Although it is customary for all
Board members to attend, the Company has no formal policy in place with regard
to Board members' attendance at its annual meeting of stockholders.
MEETINGS OF THE BOARD AND COMMITTEES OF THE BOARD
The Board of Directors of the Company is scheduled to meet quarterly and
may have additional meetings as needed. During fiscal year 2004, the Board of
Directors held five (5) 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, 2004.
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COMMITTEES OF THE COMPANY
In 2004, the Board of Directors of the Company had three standing
committees: the Audit Committee, the Corporate Governance and Nominating
Committee and the Proxy Committee.
AUDIT COMMITTEE. The Audit Committee, among other responsibilities:
- Appoints and retains South Street Financial Corp.'s and the Bank's
independent auditors;
- Reviews and approves the services of South Street Financial Corp.'s
and the Bank's independent auditors;
- Reviews the plan, scope and audit results of the internal auditors
and the independent auditors;
- Reviews the reports of bank regulatory authorities; and
- Reviews the annual and other reports to the Securities and Exchange
Commission and the annual report to South Street Financial Corp.'s
stockholders.
During 2004, the Audit Committee of the Board consisted of directors Greg E.
Underwood (chairman), Douglas Dwight Stokes and Joel A. Huneycutt. There were
three (3) meetings of the Audit Committee during the year ended December 31,
2004. In March 2005, director J. Banks Garrison, Jr. replaced Douglas Dwight
Stokes on the Committee.
CORPORATE GOVERNANCE AND NOMINATING COMMITTEE. In response to new corporate
governance requirements, the Board established this committee in February 2004.
The Corporate Governance and Nominating Committee consists of directors Caldwell
A. Holbrook, Jr., Joel A. Huneycutt and Greg E. Underwood. This committee serves
in the same capacity for the Bank's Board of Directors. The Committee
establishes corporate governance principles, evaluates qualifications and
candidates for positions on the Board of Directors, nominates new and
replacement members for the Board and recommends Board Committee composition. In
addition, the Committee facilitates an annual evaluation by Board members of the
Board and individual director performance.
PROXY COMMITTEE. The Company's Proxy Committee consists of directors Douglas
Dwight Stokes, Joel A. Huneycutt and Greg E. Underwood. The Proxy Committee is
responsible for voting proxies received from stock holders at the Company's
Annual Meeting.
MEETINGS OF THE BOARD OF THE BANK AND COMMITTEES OF THE BANK BOARD
All the members of the Board of Directors of the Company are also members
of the Board of Directors of the Bank. The Board of Directors of the Bank is
scheduled to meet monthly and may have additional meetings as needed. During
fiscal year 2004, the Bank Board of Directors held fifteen (15) 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, 2004.
COMMITTEES OF THE BANK
The Bank's Board of Directors has appointed three standing committees to
which certain responsibilities have been delegated - the Loan Committee, the
Audit Committee, and the Compensation Committee. The members of the Company's
Audit Committee also make up the Bank's Audit Committee.
9
COMPENSATION COMMITTEE. The Compensation Committee receives the recommendations
of the Chief Executive Officer for the compensation to be paid to other
executive officers, and after due deliberation determines the compensation of
such executive officers and the Chief Executive Officer. This process is
designed to ensure consistency throughout the executive compensation program.
The key elements of the executive compensation program consist of base salary,
annual cash incentive compensation, and stock option incentives.
The Compensation Committee consists of directors Joel A. Huneycutt,
Caldwell A. Holbrook, Jr. and Douglas Dwight Stokes. The Bank's Compensation
Committee also serves as the Company's Compensation Committee. The Bank's
Compensation Committee meets on an annual basis and met one time during the
fiscal year ended December 31, 2004. The Board of Directors has determined that
these directors are "independent" as defined in Rule 4200(a)(15) of the National
Association of Securities Dealers' (NASD) listing standards.
EXECUTIVE SESSIONS. In response to new NASDAQ corporate governance requirements,
the independent directors of the Company's Board, as defined in Rule 4200(a)(15)
of the NASD's listing standards, intend to meet at least twice a year in
"executive sessions" at which only independent directors may be present. The
independent directors will discuss important issues facing the Company and Bank,
such as financial results, executive compensation and corporate governance.
In addition, the Bank's Board of Directors appoints other committees of
its members to perform certain more limited functions from time to time.
REPORT OF THE AUDIT COMMITTEE
The Board of Directors has determined that the following members of the
Audit Committee are "independent" as defined in the currently applicable NASD
listing standards: Greg E. Underwood, Joel A. Huneycutt and J. Banks Garrison,
Jr. Beginning July 31, 2005 more stringent independence requirements will come
into effect for Audit Committee members.
On February 18, 2004, the Board of Directors of the Company adopted a
revised written charter for the Audit Committee. The charter is reviewed
annually, and amended as needed, by the Committee. The charter is attached to
this Proxy Statement as Appendix A.
All of the directors on the Audit Committee are required to be financially
literate, and at least one member must have accounting or related financial
management expertise. The Board of Directors has determined that Greg E.
Underwood, Chairman of the Audit Committee, qualifies as an "audit committee
financial expert" and is "independent" as defined under applicable SEC and NASD
rules and regulations. The Board's affirmative determination was based, among
other things, upon Mr. Underwood's extensive experience as a Certified Public
Accountant for over 20 years and his position as a CPA in private practice, as
well as his position, over the past 11 years, as the owner and president of both
Carolina Oil Company of Albemarle, Inc. and Barefoot Oil Company of Albemarle,
Inc.
The Audit Committee has reviewed and discussed the audited financial
statements with management of the Company and has discussed with the independent
auditors the matters required to be discussed by Statement on Auditing Standards
No. 61. In addition, the Committee has received the written disclosures and the
letter from the independent auditor required by Independence Standards Board
Standard No. 1, and has discussed with the independent auditor the independent
auditor's independence. Based upon these reviews and discussions, the Committee
recommended to the Board of Directors of the Company that the audited financial
statements be included in the Annual Report on Form 10-KSB for the
10
fiscal year ended December 31, 2004. The Audit Committee also reappointed the
independent auditors of South Street Financial Corp. and the Board of Directors
concurred in the recommendation.
Audit Committee
Greg E. Underwood
J. Banks Garrison, Jr.
Joel A. Huneycutt
REPORT OF THE CORPORATE GOVERNANCE AND NOMINATING COMMITTEE
The Company established a Corporate Governance and Nominating Committee in
February 2004, replacing the Nominating Committee. The committee's duties range
from establishing corporate governance policies to recommending Board committee
composition. The Corporate Governance and Nominating Committee's written charter
is not available at the Bank's website but is provided as Appendix B to this
Proxy Statement. The charter is also available upon written request to Home
Savings Bank, c/o David Smith, Post Office Box 489, Albemarle, North Carolina
28001.
The Company's Corporate Governance and Nominating Committee met two (2)
times during the fiscal year ended December 31, 2004. The Board of Directors has
determined that the members of the Corporate Governance and Nominating Committee
are "independent" as defined in Rule 4200(a)(15) of the NASD's listing
standards.
Process for Nominating Directors. The Nominating Committee reviews the
qualifications of, and approves and recommends to the Board, those individuals
to be nominated for positions on the Board and submitted to stockholders for
election at each Annual Meeting. The committee identifies director nominees from
various sources such as officers, directors, and stockholders and in 2004 did
not retain the services of any third party consultants to assist in identifying
and evaluating potential nominees. The committee will consider and evaluate a
director candidate recommended by a stockholder in the same manner as a
committee-recommended nominee.
The committee will assess all director nominees, taking into account
several factors including, but not limited to, issues such as the current needs
of the Board and the nominee's: (i) integrity, honesty and accountability; (ii)
successful leadership experience and strong business acumen; (iii)
forward-looking, strategic focus; (iv) collegiality; (v) independence and
absence of conflicts of interests; (vi) ability to devote necessary time to meet
director responsibilities; (vii) ability to commit to Bank stock ownership; and
(viii) previous experience on other company boards. Where appropriate, the
committee will ultimately recommend nominees that it believes will enhance the
Board's ability to manage and direct, in an effective manner, the affairs and
business of the Bank.
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,
11
including Mr. Swanner, receive a retainer of $2,500 per year and an additional
$600 per regular monthly board meeting attended. Mr. Stokes and Mr. Holbrook
receive an additional $300 per month for their service on the Loan Committee.
2003 BANK DIRECTOR SUPPLEMENTAL RETIREMENT PLAN. In February 2003, the
Bank adopted a non-tax qualified retirement plan for the members of the Board of
Directors called the Directors Supplemental Retirement Plan ("DSRP"). The
adopted plan replaces the 1985 and 1995 retirement payment agreements, which
were in place as of December 31, 2002, and provides an additional long-term care
policy. Through the purchase of life insurance policies, the Bank is able to
recover or offset the cost of providing benefits under the DSRP and the
long-term care policies. The DSRP is designed to provide a retirement and death
benefit to the directors and their beneficiaries after a director attains 65
years of age ("Normal Retirement Date"), subject to vesting requirements during
the directors' time of service.
In the case of a director's termination of service for any reason (other
than for cause), the director is 20 percent vested per year for each full year
of service after the first anniversary of the date of the director's initial
service, up to 100 percent. In the case of disability leading to termination of
service, the participant shall be 100 percent vested in their accrued liability
balance on the date of such disability. In the event of termination of service
following a change in control of the Company, the participant is entitled to a
lump sum payment of the amount in the participant's accrued liability account,
within 30 days after termination. In the event of the director's death, the
director's beneficiary will receive an endorsed split dollar death benefit in
the amount of 80 percent of the net at risk life insurance portion of the death
benefit. The DSRP has five participants, including R. Ronald Swanner, Caldwell
A. Holbrook, Jr., Joel A. Huneycutt, Douglas Dwight Stokes, and Greg E.
Underwood. Following the participant's Normal Retirement Date, the retirement
benefit will continue to accrue and be paid throughout the participant's life.
The Bank has purchased life insurance on the lives of its directors to
fund its obligations under the directors' retirement plan agreements described
above. Total expenses related to the above-described agreements were
approximately $12,638 for the fiscal year ended December 31, 2004. The Bank's
accrued liability for obligations under the plans amounted to $53,649 on
December 31, 2004.
2003 DIRECTOR DEFERRAL PLAN. In February 2003, the Bank adopted a non-tax
qualified retirement plan for the members of the Board of Directors called the
Directors Deferral Plan ("DDP"). The adopted plan replaces the deferred
compensation and retirement plans that were in place as of December 31, 2002.
Through the purchase of life insurance policies, the Bank is able to recover or
offset the cost of providing benefits under the DDP. The DDP is designed to
provide a retirement and death benefit to the directors and their beneficiaries
after a director attains 70 years of age ("Normal Retirement Date").
In the case of a director's termination of service for any reason (other
than for cause), the director is 100 percent vested in the liability account
balance. In the case of disability leading to termination of service, the
participant shall be 100 percent vested in the liability account balance on the
date of such disability. In the event of the director's death, the director's
beneficiary will receive an endorsed split dollar death benefit in the amount of
80 percent of the net at risk life insurance portion of the death benefit. In
the event of termination of service following a change in control of the
Company, the participant is entitled to a lump sum payment of the amount in the
participant's accrued liability account, within 30 days after termination. The
DDP has six participants, including R. Ronald Swanner, Caldwell A. Holbrook,
Jr., Joel A. Huneycutt, Douglas Dwight Stokes, Greg E. Underwood, and J. Banks
Garrison, Jr. Following the participant's Normal Retirement Date, the retirement
benefit will continue to accrue and be paid throughout the participant's life.
12
The Bank has purchased life insurance on the lives of its directors to
fund its obligations under the directors' deferral plan agreements described
above. Total expenses related to the above-described agreements were
approximately $40,284 for the fiscal year ended December 31, 2004. The Bank's
accrued liability for obligations under the plans amounted to $1,287,918 on
December 31, 2004.
STOCK OPTION PLAN. On October 15, 1997, the stockholders of the Company
approved the South Street Financial Corp. Stock Option Plan (the "Stock Option
Plan" or the "Plan"). The Company has reserved 449,650 shares of its common
stock for issuance upon the exercise of options that have been granted under the
Stock Option Plan. All directors, officers and employees of the Company, the
Bank, and any of the Bank's subsidiaries are eligible for participation in the
Plan. J. Banks Garrison, Jr. does not participate in the Stock Option Plan.
Options to purchase 449,650 shares of the common stock were granted on January
20, 1998. Of this amount, options to purchase 22,482 shares of the common stock
were granted to each non-employee director, options to purchase 89,931 shares
were granted to Mr. Swanner, and options to purchase 157,374 shares were granted
to other employees. Twenty-five percent of the aggregate number of options
granted to executive officers and employees of the Company and the Bank vested
and became exercisable on the date of grant and 25% of the aggregate number of
such options granted vested and became exercisable on each of the next three
annual anniversary dates thereafter. All options have now vested and are
nonforfeitable. No option has yet been exercised. Nonqualified stock options
granted to the nonemployee directors of the Company and the Bank vested
immediately and are nonforfeitable.
No cash consideration was paid for the options. The option exercise price
is $12.00, the fair market value of the common stock on the date of grant based
on the average high and low selling prices of the common stock on the Nasdaq
National Market ("Nasdaq"), as provided in the Plan. Based on the closing market
price per share paid on December 31, 2004, the fair market value of the common
stock underlying the options is $10.10 per share. The exercise price may be paid
in cash or cash equivalent or, if permitted by the Stock Option Committee, by
delivery of shares of common stock with a market value equal to the exercise
price.
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 options equal to the amount of dividends that 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 that result in a
reduction in the option exercise price.
In the event of a stock split, reverse stock split or stock dividend, the
number of shares of common stock under the Stock Option Plan, the number of
shares to which any option relates and the exercise price per share under any
option shall be adjusted to reflect such increase or decrease in the total
number of shares of common stock outstanding. In addition, in the event the
Company declares a special cash dividend or return of capital, the per share
exercise price of all previously granted options which remain unexercised as of
the date of such declaration may be adjusted to give effect to such special cash
dividend or return of capital.
PROCESS FOR COMMUNICATING WITH BOARD MEMBERS
The Company does not have a formal procedure for stockholder communication
with our Board of Directors. In general, our directors and executive officers
are easily accessible by telephone, postal mail or electronic mail. Any matter
intended for the Board, or for any individual member or members of the Board,
can be directed to Ronald Swanner, our Chief Executive Officer, or Christopher
Cranford, our
13
Chief Financial Officer, at the Company's following address with a request to
forward the same to the intended recipient: South Street Financial Corp., P.O.
Box 489, Albemarle, North Carolina 28001. Alternatively, stockholders may direct
correspondence to the Board, or any of its members, in care of the Company at
the Company's address above. All of these communications received will be
forwarded to the intended recipient unopened.
PROCESS FOR STOCKHOLDER NOMINATION OF DIRECTORS
According to the Company's Bylaws, any stockholder nomination of
candidates for election to the Board of Directors at the 2006 annual meeting
must be made in writing to the Company's Corporate Secretary not fewer than 50
days nor more than 90 days prior to the date of 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.
Stockholder nominations must contain the following information if known to
the nominating stockholder:
- the name and address of the stockholder who intends to make the
nomination and of the person or persons to be nominated;
- a representation that the nominating stockholder is a stockholder of
record of the Bank's stock entitled to vote at such meeting and
intends to appear in person or by proxy at the meeting to nominate
the person or persons specified in the notice;
- a description of all arrangements or understandings between the
stockholder and each nominee and any other person or persons (naming
such person or persons) pursuant to which the nomination or
nominations are to be made by the stockholder;
- such other information regarding each nominee proposed by such
stockholder as would be required to be included in a proxy statement
filed pursuant to the proxy rules of the Securities and Exchange
Commission, had the nominee been nominated, or intended to be
nominated, by the Board; and
- the consent of each nominee to serve as a director of the Bank if so
elected.
The Board of Directors of the Company may disregard any nominations that
do not comply with these requirements. Upon the instruction of the Board of
Directors of the Company, the vote inspector for the annual meeting may
disregard all votes cast for a nominee if the nomination does not comply with
these requirements. If you are interested in recommending a director candidate,
you may request a copy of the Bank's Bylaws by writing the Corporate Secretary
at the address set forth on the front page of this Proxy Statement.
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.
14
AGE ON POSITIONS AND
DECEMBER OCCUPATIONS DURING EMPLOYED BY EMPLOYED BY THE
NAME 31, 2003 LAST FIVE YEARS THE BANK SINCE COMPANY SINCE
- ----------------------- -------- ------------------------------ -------------- ----------------
R. Ronald Swanner 56 President and Chief Executive 1974 1996
Officer of the Bank since May
28, 2002; President and Chief
Executive Officer of the
Company since May 28, 2002;
President and Chief Operating
Officer of the Bank prior to
May 28, 2002; Executive Vice
President and Secretary of the
Company prior to May 28, 2002
Christopher F. Cranford 49 Chief Financial Officer and 1987 1996
Treasurer of the Bank; Chief
Financial Officer and
Treasurer of the Company since
May 28, 2002; Controller and
Treasurer of the Company prior
to May 28, 2002
David L. Smith 40 Executive Vice President of 1994 1996
the Bank since May 28, 2002;
Secretary of the Company since
May 28, 2002; Senior Vice
President of the Bank prior to
May 28, 2002
Cris D. Turner 48 Executive Vice President of 1998 1998
the Bank since May 28, 2002;
Vice President of the Company
since May 28, 2002; Senior
Vice President of the Bank
from December 1998 to May 28,
2000
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 year ended December 31, 2004
certain information as to the cash compensation received by and the amounts
accrued for the benefit of the current President and Chief Executive Officer of
the Bank and President and Chief Executive Officer of the Company, Mr. R. Ronald
Swanner. No other executive officer of the Bank had cash compensation during the
year ended December 31, 2004 that exceeded $100,000 for services rendered in all
capacities to the Bank.
15
LONG TERM ALL OTHER
ANNUAL COMPENSATION COMPENSATION AWARDS COMPENSATION
SECURITIES FROM
OPTIONS/STOCK
NAME AND RESTRICTED APPRECIATION
PRINCIPAL OTHER ANNUAL STOCK RIGHTS ("SARS")
POSITION YEAR SALARY(1) BONUS COMPENSATION(2) AWARDS (IN SHARES)
--------- ---- --------- ----- --------------- ------- -----------
R. Ronald Swanner
(Current CEO) 2004 $163,300 $10,752 - - - - - - - - - $103,374 (3)
2003 $153,280 $55,015 - - - - - - - - - $96,667 (4)
2002 $146,680 $45,560 - - - - - - - - - $57,102 (5)
- ----------
(1) In addition to salary, this amount also includes $9,700, $9,700 and $9,700
in directors' fees for Mr. Swanner for services on the Company's and the
Bank's board of directors for 2004, 2003 and 2002.
(2) Under the "Other Annual Compensation" category, perquisites (INCLUDING THE
USE OF A COMPANY CAR) for the fiscal years ended December 31, 2004, 2003
and 2002, did not exceed the lesser of $50,000 or 10% of salary and bonus
as reported for Mr. Swanner.
(3) Includes $49,734 accrued under supplemental income agreements established
for the benefit of Mr. Swanner. Such amounts accrued under the
supplemental income agreements have not been paid to Mr. Swanner. Also
includes imputed income totaling $4,933 relating to death benefits
provided under director and executive benefit plans through the use of
Bank owned life insurance. See "2003 Bank Director Supplemental Retirement
Plan," "2003 Director Deferral Plan" and "2003 Supplemental Executive
Retirement Plan." Also includes $48,706, the amount contributed by the
Bank for Mr. Swanner's benefit under the ESOP.
(4) Includes $36,034 accrued under supplemental income agreements established
for the benefit of Mr. Swanner. Such amounts accrued under the
supplemental income agreements have not been paid to Mr. Swanner. Also
includes imputed income totaling $5,109 relating to death benefits
provided under director and executive benefit plans through the use of
Bank owned life insurance. See "2003 Bank Director Supplemental Retirement
Plan," "2003 Director Deferral Plan" and "2003 Supplemental Executive
Retirement Plan." Also includes $55,524, the amount contributed by the
Bank for Mr. Swanner's benefit under the ESOP.
(5) Includes $12,724 accrued under supplemental income agreements established
for the benefit of Mr. Swanner. Such amounts accrued under the
supplemental income agreements have not been paid to Mr. Swanner. See
"2003 Bank Director Supplemental Retirement Plan," "2003 Director Deferral
Plan" and "2003 Supplemental Executive Retirement Plan." Also includes
$44,378, the amount contributed by the Bank for Mr. Swanner's benefit
under the ESOP.
16
AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION/SAR VALUES
NUMBER OF SECURITIES
SHARES UNDERLYING UNEXERCISED VALUE OF UNEXERCISED IN-THE-
ACQUIRED VALUE OPTIONS/SARS AT MONEY OPTIONS/SARS AT
NAME ON EXERCISE REALIZED FISCAL YEAR END(1) FISCAL YEAR END(2)
---- ----------- -------- ------------------ ------------------
EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
----------- ------------- ----------- -------------
R. Ronald Swanner 0 $0 89,931/89,931 0/0 $0 $0
- ----------
(1) All stock options were granted as of January 20, 1998, and were completely
vested on January 20, 2001.
(2) Dollar amounts shown represent the value of stock options held by Mr.
Swanner as of December 31, 2004. None of Mr. Swanner's options were
"in-the-money" at such date. An option is considered to be "in-the-money"
if the fair market value of the Company's common stock exceeds the
exercise or base price of the shares subject to the options as of the
fiscal year end (in this case December 31, 2004). At December 31, 2004,
the exercise price of the stock options was $12.00. On December 31, 2004,
the closing market price per share for the common stock as reported on
Nasdaq was $10.10.
RETIREMENT PLAN. The Bank maintains a non-contributory defined benefit
pension plan ("Pension Plan") for the benefit of all of its employees who have
completed one year of service and who are at least 21 years of age. Under the
Pension Plan, the Bank annually contributes an actuarially determined amount to
provide a benefit for each participant at retirement.
Participants are fully vested in amounts contributed to the Pension Plan
on their behalf by the Bank after completing five years of service. 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 Pension Plan is the later of (a) age 65 or
(b) the fifth anniversary of the date an employee first became a participant in
the Pension Plan ("Normal Retirement Age"). Subject to certain restrictions on
maximum benefits required by federal law, upon reaching Normal Retirement Age,
each participant will receive a retirement benefit in the form of a straight
life annuity, determined pursuant to a formula which takes into consideration a
participant's "final average compensation," years of service with the Bank and
the participant's expected benefits from Social Security. In general, for
purposes of the Pension Plan, a participant's "Final Average Compensation" is
defined as his average annual compensation for those five consecutive years in
the last ten calendar years immediately preceding Normal Retirement Age that
produce the highest average. The plan also offers early retirement to
participants who have completed 15 years of service and who are at least 55
years of age.
The following table shows the retirement benefit payable for a range of
compensation and years of service for a person who retires at Normal Retirement
Age. These are hypothetical benefits based upon the plan's normal benefit
formula.
17
EARNINGS CREDITED FOR
RETIREMENT BENEFITS YEARS OF SERVICE AT NORMAL RETIREMENT
- ------------------- -------------------------------------
15 20 25 30 35
-- -- -- -- --
$ 25,000 $ 4,688 $ 6,250 $ 7,813 $ 9,375 $10,938
$ 50,000 $ 9,502 $12,670 $15,837 $19,004 $22,172
$ 75,000 $16,627 $22,170 $27,712 $33,254 $38,797
$100,000 $23,752 $31,670 $39,587 $47,504 $55,422
$125,000 $30,877 $41,170 $51,462 $61,754 $72,047
$150,000 $38,002 $50,670 $63,337 $76,004 $88,672
The benefits listed above are annual amounts and are based on the
assumption that the participant is age 65.
2003 SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN. In February 2003, the Bank
adopted a non-tax qualified retirement plan for certain executives called the
Supplemental Executive Retirement Plan ("SERP") to supplement the benefits those
executives would receive under the Bank's pre-existing retirement plan. Through
the purchase of life insurance policies, the Bank is able to recover or offset
the cost of providing benefits under the SERP. The SERP is designed to provide a
retirement and death benefit to the executives and their beneficiaries at the
normal retirement date, as determined by the Bank's Board of Directors, subject
to vesting requirements during the executives' time of employment. The SERP
supersedes any pre-existing supplemental income agreements the Bank may have had
with executives as of December 31, 2002.
In the case of an executive's termination of employment for any reason
(other than for cause), the executive is 5 percent vested per year (up to a
maximum of 80 percent) for each full year of employment by the Bank from the
date of initial Bank employment, for executives less than 60 years of age.
Executives employed by the Bank over the age of 60 are fully vested. The normal
retirement age under the SERP is 65. Those executives over the age of 60 who opt
for early retirement will have their annual benefits reduced by 10% for every
full year remaining prior to normal retirement age. In the event of an
executive's death, the executive's beneficiary will receive a split dollar death
benefit in the amount of ninety five percent of the net at risk life insurance
portion of the death benefit.
In the event of termination of service following a change in control of
the Company, the executive is entitled to the benefits set forth in the SERP as
if he had been continuously employed by the Bank until normal retirement age.
The SERP has four participants, including R. Ronald Swanner, Christopher F.
Cranford, David L. Smith and Cris D. Turner. Following the participant's
retirement, the retirement benefit will continue to accrue and be paid
throughout the participant's life.
The Bank has purchased life insurance on the lives of the SERP
participants to fund its obligations under the agreements described above. Total
expenses related to those agreements were $75,528 for the fiscal year ended
December 31, 2004, and the Bank's accrued liability for plan obligations
amounted to $244,000 on December 31, 2004.
EMPLOYEE STOCK OWNERSHIP PLAN. The Bank has established the ESOP for
eligible employees of the Bank. Employees with 1,000 hours of employment in a
plan year and who have attained age 21 are
18
eligible to participate. The ESOP borrowed funds from the Company and used the
funds to purchase 359,720 of the shares of common stock issued in connection
with the Bank's conversion from a North Carolina-chartered mutual savings bank
to a North Carolina-chartered stock savings bank (the "Conversion").
Collateral for the Company's loan to the ESOP is the common stock
purchased by the ESOP. The loan will be repaid principally from the Bank's
discretionary contributions to the ESOP over a period of 15 years or less.
Dividends-other than special dividends-if any, paid on shares held by the ESOP
may also be used to reduce the loan. The Bank has not guaranteed the loan. On
January 8, 1998, the Company paid a $6.00 per share return of capital in the
form of a special dividend to its stockholders. As of September 30, 1999, the
ESOP had purchased 168,448 shares of common stock in the open market using funds
received as a special dividend in addition to the 359,720 shares purchased in
the Conversion and now holds, net of shares allocated or committed to be
allocated to participants' accounts, in the aggregate, 145,423 shares.
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.
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.
STOCK OPTION PLAN. See "Director Compensation - Stock Option Plan" for a
discussion of the executive officers' benefits under this plan.
EMPLOYMENT AGREEMENTS. In 1996 the Bank entered into an employment
agreement with R. Ronald Swanner in order to establish his duties and
compensation and to provide for his continued employment with the Bank. The
agreement provides for an initial term of employment of three years. Commencing
on the first anniversary date and continuing on each anniversary date
thereafter, following a performance evaluation of Mr. Swanner, the agreement may
be extended for an additional year. Each agreement provides that base salary
shall be reviewed by the board of directors of the Bank not less often than
annually. Under the terms of the agreements, Mr. Swanner's annual base salary
was $153,600 for the 2004 fiscal year. In addition, the employment agreements
provide for discretionary bonuses and participation in all other pension,
profit-sharing or retirement plans maintained by the Bank or by the Company for
the employee of the Bank, as well as fringe benefits normally associated with
such employee's office, including the use of a company car. The employment
agreement provides that Mr. Swanner may be terminated by the Bank for cause, as
defined in the agreement, and that he may
19
otherwise be terminated by the Bank (subject to vested rights) or the employee
may choose to terminate his employment. In the event of a change in control (as
defined below), the terms of each agreement shall be automatically extended for
three years from the date of the change of control, and the employee's base
salary shall be increased at least 6% annually.
The employment agreement provides that the nature of the employee'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.
CERTAIN INDEBTEDNESS AND TRANSACTIONS OF MANAGEMENT
The Bank makes loans to its executive officers and directors in the
ordinary course of its business. These loans are currently made on substantially
the same terms, including interest rates, collateral and repayment terms, as
those then prevailing for comparable transactions with nonaffiliated persons,
and do not involve more than the normal risk of collectibility or present any
other unfavorable features. Applicable regulations prohibit the Bank from making
loans to its executive officers and directors at terms more favorable than could
be obtained by non-executive employees at the Bank. The Bank's policy concerning
loans to executive officers and directors complies with such regulations.
Currently, no executive officer or director is indebted by any such loan to the
Bank.
In 2003, the Bank obtained the services of Stokes Construction Company,
which is owned by Director Douglas Dwight Stokes, for the purpose of resurfacing
the Bank's parking lot. The cost of the project was $70,838. The terms of this
transaction were approved in advance by the Bank's Board of Directors (with Mr.
Stokes abstaining from the Board's deliberations and decision to approve the
transaction).
In 2003, the Bank obtained the services of Gus Holbrook, General
Contractor, which is owned by Director Caldwell A. Holbrook, Jr., for the
purpose of renovating interior office space. The cost of the project was
$18,022. The terms of this transaction were approved in advance by the Bank's
Board of Directors (with Mr. Holbrook abstaining from the Board's deliberations
and decision to approve the transaction).
Aside from the transactions described above, there have been no reportable
transactions during the two most recent fiscal years nor are any reportable
transactions proposed as of the date of this Proxy Statement.
20
PROPOSAL 2
RATIFICATION OF APPOINTMENT OF INDEPENDENT AUDITOR
The Audit Committee of the Board of Directors has appointed Dixon Hughes
PLLC as the independent certified public accountants to audit the financial
statements of the Company and the Bank for the fiscal year ending December 31,
2005, subject to ratification by the Company's stockholders. Representatives of
Dixon Hughes are expected to attend the Annual Meeting and will be afforded an
opportunity to make a statement, if they so desire, and to respond to
appropriate questions from stockholders.
AUDIT FEES PAID TO INDEPENDENT AUDITOR
The following table represents fees for professional services rendered by
Dixon Hughes for the audit of the Bank's annual consolidated financial
statements for the years ended December 31, 2004 and 2003 and fees billed for
audit-related services, tax services and all other services rendered by Dixon
Hughes for each of those fiscal years.
YEAR ENDED DECEMBER 31,
---------------------------
2004 2003
------- -------
Audit Fees(1) $66,000 $67,000
Audit-Related Fees(2) $ 2,500 $ 2,500
Tax Fees(3) $ 5,000 $ 5,000
All Other Fees(4) $ 6,000 $ 0
Total Fees $79,500 $74,500
------- -------
- ----------
1 These are fees paid for professional services rendered for the audit of
the Company's annual consolidated financial statements and for the reviews
of the consolidated financial statements included in the Bank's quarterly
reports on Form 10-QSB, and for services normally provided in connection
with statutory or regulatory filings or engagements.
2 These are fees paid for assurance and related services that were
reasonably related to the performance of the audit or review of our
consolidated financial statements and that are not reported under "Audit
Fees" above, including fees related to collateral verification procedures
required by the Federal Home Loan Bank of Atlanta.
3 These are fees paid for professional services rendered for tax compliance,
tax planning and tax advice.
4 These are fees paid for permissible work performed by Dixon Hughes that
does not meet the above categories, consisting of internal audits
performed in the beginning of the fiscal year ending December 31, 2004.
After the beginning of the year, the Company subsequently engaged another,
independent audit firm for internal audits.
PRE-APPROVAL OF AUDIT AND PERMISSIBLE NON-AUDIT SERVICES
All audited-related services, tax services and other services rendered in
2004 and 2003 were pre-approved by the Audit Committee, which concluded that the
provision of those services by Dixon Hughes was compatible with the maintenance
of that firm's independence in the conduct of its auditing functions. The Audit
Committee's charter provides for pre-approval of all audit and non-audit
services to be provided by the Company's independent auditor. The charter
authorizes the Audit Committee to delegate to one or more of its members
pre-approval authority with respect to permitted services, provided that any
approvals using this procedure are presented to the Audit Committee at its next
scheduled meeting.
21
THE BOARD OF DIRECTORS RECOMMENDS THAT THE STOCKHOLDERS VOTE FOR
RATIFICATION OF THE APPOINTMENT OF DIXON HUGHES PLLC AS INDEPENDENT AUDITOR FOR
THE COMPANY AND THE BANK FOR THE FISCAL YEAR ENDING DECEMBER 31, 2005.
PROPOSALS FOR 2006 ANNUAL STOCKHOLDERS' MEETING
It is presently anticipated that the 2006 Annual Meeting of Stockholders
will be held in May of 2006. In order for stockholder 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 principal executive office not later
than December 13, 2005, and meet all other applicable requirements for inclusion
in the proxy statement.
In the alternative, a stockholder may commence his own proxy solicitation
subject to the SEC's rules on proxy solicitation and may present a proposal from
the floor at the 2006 Annual Meeting of Stockholders of the Company. In order to
do so, the stockholder must notify the Secretary of the Company in writing, at
the Company's principal executive office no later than February 26, 2006, of his
proposal. If the stockholder wants to stop the Company from voting proxies
(under the discretionary authority granted by the form of proxy to be solicited
by the Company for use at the 2006 Annual Meeting) on his proposal, the notice
must also state the stockholder's intent to solicit the required number of votes
for passage of his proposal and the stockholder must provide evidence to the
Company that the solicitation has occurred.
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, 2004,
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-KSB FILED BY THE COMPANY WITH THE SEC, INCLUDING THE FINANCIAL
STATEMENTS AND SCHEDULES THERETO, WILL BE PROVIDED FREE OF CHARGE TO THE
COMPANY'S STOCKHOLDERS UPON WRITTEN REQUEST DIRECTED TO: SOUTH STREET FINANCIAL
CORP., POST OFFICE BOX 489, 155 WEST SOUTH STREET, ALBEMARLE, NORTH CAROLINA
28001, ATTENTION: R. RONALD SWANNER.
By Order of the Board of Directors,
David L. Smith
Secretary
Albemarle, North Carolina
April 12, 2005
22
Appendix A
SOUTH STREET FINANCIAL CORP.
AUDIT COMMITTEE CHARTER
(Reviewed and Approved on February 18, 2004)
PURPOSE
The principal purpose of the Audit Committee is to assist the Board of
Directors of South Street Financial Corp. (together with its subsidiaries, the
"Company") in fulfilling its responsibility to oversee: (i) the integrity of the
Company's financial statements; (ii) the Company's financial reporting process;
(iii) the Company's systems of internal accounting and financial controls; (iv)
the performance of the Company's internal audit function and independent
auditors; (v) the independent auditors' qualifications and independence; and
(vi) the Company's compliance with its policies about ethical conduct and legal
and regulatory requirements. In so doing, it is the responsibility of the
Committee to maintain free and open communication between the Committee and each
of the independent auditors, the internal auditors, and management of the
Company.
In discharging its oversight role, the Committee is granted the authority
to investigate any matter brought to its attention with full access to all
books, records, facilities and personnel of the Company and the authority to
engage independent counsel and other advisers, as it determines necessary to
carry out its duties. The Company shall provide appropriate funding, as
determined by the Committee, for compensation to the independent auditors and to
any advisers, including independent counsel, that the Committee chooses to
engage.
The Committee shall review and reassess the adequacy of this Charter
annually and recommend any proposed changes to the Board for approval.
COMPOSITION
The Committee shall be comprised of no fewer than three members of the
Board. The members of the Committee shall be appointed by the Board and may be
replaced by the Board.
The Committee's members will meet the requirements of the applicable
listing standards of the stock exchange or inter-dealer market on which the
Company's common stock is listed or qualified for quotation ("Listing
Standards"). Accordingly, all members of the Committee shall be directors who:
o Have no relationship with the Company's management or with the
Company that may interfere with the exercise of their independent
judgment;
o Do not receive any consulting, advisory or other compensatory fee
from the Company, other than in the members' capacities as members
of the Board or any of its committees;
o Are not "affiliated persons" (as defined by applicable law or
regulation) of the Company, other than as members of the Board; and
23
o Are financially literate as required by applicable Listing
Standards.
In the event that regulations of the Securities and Exchange Commission
("SEC") impose more stringent requirements or are otherwise in conflict with the
Listing Standards, such regulations shall be controlling under this Charter. In
addition, at least one member of the Committee will have accounting or related
financial management expertise and, to the extent practicable, be an "audit
committee financial expert" (as that term is defined by the SEC) as determined
by the Board.
The Committee shall meet at least quarterly, or more frequently as
circumstances dictate. The Committee shall periodically meet separately with
each of the Company's management, internal auditors, and independent auditors to
discuss issues and concerns warranting Committee attention. The Committee may
delegate authority to any subcommittees created by it and composed of one or
more of its members or individuals when appropriate. Any such subcommittee or
individual acting under authority delegated by the Committee shall report any
actions taken to the Committee at its next scheduled meeting. The Committee
shall report regularly to the Board.
DUTIES AND RESPONSIBILITIES
The primary responsibility of the Committee is to oversee the Company's
financial reporting process on behalf of the Board and report the results of its
activities to the Board. While the Committee has the responsibilities and powers
set forth in this Charter, it is not the duty of the Committee to plan or
conduct audits or to determine that the Company's financial statements are
complete and accurate and are in accordance with generally accepted accounting
principles ("GAAP") and applicable rules and regulations. Management is
responsible for the preparation, presentation, and integrity of the Company's
financial statements and for the appropriateness of the accounting principles
and reporting policies that are used by the Company. The independent auditors
are responsible for auditing the Company's financial statements and for
reviewing the Company's unaudited interim financial statements.
The Committee, in carrying out its responsibilities, believes its policies
and procedures should remain flexible in order to best react to changing
conditions and circumstances. The Committee will take appropriate actions to set
the overall corporate "tone" for quality financial reporting, sound business
risk practices, and ethical behavior. The following shall be the principal
duties and responsibilities of the Committee. These are set forth as a guide
with the understanding that the Committee may supplement them as appropriate.
Financial Statement and Disclosure Matters
o The Committee shall review and discuss with management and the
independent auditors the annual audited financial statements, and
disclosures made in management's discussion and analysis, and
recommend to the Board whether the audited financial statements
should be included in the Company's Annual Report on Form 10-K or
10-KSB, as applicable from time to time, and the Annual Report to
Stockholders.
o The Committee shall review and discuss with management and the
independent auditors the Company's quarterly financial statements
prior to the filing of its
24
Quarterly Reports on Form 10-Q or 10-QSB, as applicable from time to
time, including the results of the independent auditors' reviews of
the quarterly financial statements.
o The Committee shall periodically review with management and the
independent auditors the quality, as well as acceptability, of the
Company's accounting policies, and discuss with the independent
auditors (i) how the Company's accounting policies compare with
those of companies within the industry in which the Company is a
participant and (ii) all alternative treatments of financial
information within GAAP that have been discussed by management with
the independent auditors, the ramifications of use of such
alternative disclosures and treatments and the treatments preferred
by the independent auditors.
o The Committee shall periodically discuss with the independent
auditors whether all material correcting adjustments identified by
the independent auditors in accordance with GAAP and applicable SEC
rules are reflected in the Company's financial statements.
o The Committee shall review with management and the independent
auditors any material financial or other arrangements of the Company
which are not reflected in the Company's financial statements and
any transactions or courses of dealing with third parties that are
significant in size or involve terms or other aspects that differ
from those that typically would be negotiated with independent
parties, and which arrangements or transactions are relevant to an
understanding of the Company's financial statements.
o The Committee shall discuss with management and the independent
auditors significant financial reporting issues and judgments made
in connection with the preparation of the Company's financial
statements, including (i) any significant changes in the Company's
selection or application of accounting principles, (ii) any material
issues as to the adequacy of the Company's internal controls, (iii)
the developments, selection and disclosure of critical accounting
policies, practices and estimates, and (iv) any analyses of the
effect of alternative accounting principles, assumptions, practices
or estimates on the Company's financial statements. Such discussions
also shall address why any practices, estimates or policies have not
been deemed critical.
o The Committee shall review and discuss with management the Company's
public disclosures with respect to earnings, including the use of
"pro forma" or "adjusted" non-GAAP information, as well as financial
information and earnings guidance provided to analysts, rating
agencies or other participants in the securities markets.
o The Committee shall discuss with management and the independent
auditors the effect of regulatory and accounting initiatives as well
as existing (or proposed) off-balance sheet structures on the
Company's financial statements.
25
o The Committee shall discuss with management the Company's major
financial risk exposures and the steps management has taken to
monitor and control such exposures, including the Company's risk
assessment and risk management policies.
o The Committee shall discuss with the independent auditors the
matters required to be discussed by Statement on Accounting
Standards No. 61 relating to the conduct of an audit of the
Company's annual financial statements and other similar matters. In
particular, the Committee shall discuss:
o The adoption of, or changes to, the Company's significant
auditing and accounting principles and practices as suggested
by the independent auditors, internal auditors or management.
o The management letter provided by the independent auditors and
the Company's response to that letter.
o The independent auditors' report on observations and
recommendations on internal controls, the schedule of material
adjustments and reclassifications proposed by the independent
auditors in connection with an audit (and any adjustments and
reclassifications not recorded), the independent auditors'
engagement letter and the independent auditors' independence
letter.
o Any difficulties encountered in the course of the audit work,
including any restrictions on the scope of activities or
access to requested information, and any significant
disagreements with management.
o The Committee shall prepare its report as required by SEC
regulations to be included in the Company's annual proxy statement.
Oversight of the Company's Relationship with the Independent Auditors
o The Committee shall be directly responsible for the appointment,
compensation, and oversight of the work of the independent auditors
in preparing or issuing any audit report or related work, including
resolution of any disagreements between management and the
independent auditors regarding financial reporting.
o The Committee shall approve the engagement of the independent
auditors and shall approve, in advance, all audit services and all
permitted non-audit services to be provided to the Company by the
independent auditors. The Committee may delegate pre-approval
authority to a member of the Committee. The decisions of any
Committee member to whom pre-approval authority is delegated must be
presented to the full Committee at its next scheduled meeting.
26
o On an annual basis, the Committee shall obtain from the independent
auditors and review a formal written statement delineating all
relationships between the independent auditors and the Company
consistent with Independence Standards Board Standard No. 1 and such
other requirements as may be established by the Public Company
Accounting Oversight Board, discuss with the independent auditors
any disclosed relationships and their impact on the independent
auditors' independence, and take appropriate action regarding the
independence of the independent auditors.
o At least annually, the Committee shall obtain and review a report by
the independent auditors describing:
o The independent auditors' internal quality control procedures;
o Any material issues raised by the most recent internal quality
control review, or peer review, of the internal auditor, or by
any inquiry or investigation by governmental or professional
authorities within the preceding five years respecting one or
more independent audits carried out by the independent
auditors, and any steps taken to address such issues; and
o All relationships between the independent auditors and the
Company.
o The Committee shall evaluate the qualifications, performance and
independence of the independent auditors, including considering
whether the independent auditors' quality controls are adequate and
the provision of permissible non-audit services is compatible with
maintaining the independent auditors' independence, while taking
into account the opinions of the Company's management and internal
auditors. The Committee shall present its conclusions to the Board
and, if so determined by the Committee, recommend that the Board
take additional action to satisfy itself of the qualifications,
performance and independence of the independent auditors.
o The Committee shall recommend to the Board policies for the
Company's hiring of employees or former employees of the independent
auditors of the Company.
o The Committee shall discuss with the internal auditors and the
independent auditors the overall scope and plans for their
respective audits, including the adequacy of staffing and
compensation.
o The Committee shall discuss with management, the internal auditors,
and the independent auditors the adequacy and effectiveness of the
accounting and financial controls, including the Company's policies
and procedures to assess, monitor, and manage business risk, and
legal and ethical compliance programs (e.g., Company's Code of
Business Conduct and Ethics).
27
Oversight of the Company's Internal Audit Function
o The Committee shall review the appointment and replacement of the
internal auditor.
o The Committee shall review all significant reports to management
prepared by the internal auditor and management's responses. The
Committee shall discuss with the independent auditors the internal
audit function, the internal auditors' responsibilities, budget and
staffing, and any recommended changes in the planned scope of the
internal audit.
o The Committee shall periodically (and at least annually) discuss
with management and the independent auditors the quality and
adequacy of the Company's internal controls and internal auditing
procedures, including any significant deficiencies in the design or
operation of those controls which could adversely affect the
Company's ability to record, process, summarize and report financial
data or the Company's ability to detect any fraud, whether or not
material, that involves management or other employees who have a
significant role in the Company's internal controls, and discuss
with the independent auditors how the Company's financial systems
and controls compare with industry practices.
o The Committee shall review annually management's most recent
assessment of the effectiveness of the Company's internal controls
and the independent auditors' report on management's assessment.
Compliance Oversight Responsibilities
o The Committee shall review and approve a Code of Business Conduct
and Ethics for senior financial and executive officers of the
Company in accordance with applicable SEC regulations and such Code
also shall be applicable to such other employees and agents of the
Company as the Board or the Committee determines.
o The Committee shall obtain reports from the Company's management,
internal auditor and independent auditors that the Company and its
affiliates are in conformity with applicable legal requirements and
the Company's Code of Business Conduct and Ethics. The Committee
shall advise the Board with respect to the Company's policies and
procedures regarding compliance with applicable laws and regulations
and with the Company's Code of Business Conduct and Ethics.
28
o The Committee shall review reports and disclosures of insider and
affiliated party transactions.
o The Committee shall establish procedures for (i) the receipt,
retention and treatment of complaints received by the Company
regarding accounting, internal accounting controls or auditing
matters and (ii) the confidential, anonymous submission by employees
of the Company and its subsidiary of concerns regarding questionable
accounting or auditing matters.
o The Committee shall discuss with the Company's general and other
counsel any legal matters that may have a material impact on the
financial statements or the Company's compliance policies.
o The Committee shall evaluate its performance at least annually to
determine whether it is functioning effectively.
29
Appendix B
CORPORATE GOVERNANCE AND NOMINATING COMMITTEE CHARTER
I. GENERAL
This Charter sets forth the authority and duties of the Corporate
Governance and Nominating Committee (the "Committee") of the Board of Directors
of South Street Financial Corp. (the "Company").
The Committee will identify and consider individuals qualified to become
members of the Board, recommend director nominees for the next annual meeting of
shareholders, and recommend to the Board the Corporate Governance Policies of
the Company. The Committee will also monitor the process to assess Board
effectiveness.
The Committee will report its activities to the Board on a regular basis
and make such recommendations as the Committee deems necessary or appropriate.
The Committee will have the resources and authority appropriate to
discharge its responsibilities, including authority to retain and terminate
search firms used to identify director candidates and to approve such search
firms' fees and other retention terms.
The Committee will have the authority to delegate to a subcommittee
consisting of one or more members of the Committee such of its duties and
responsibilities as it deems appropriate and advisable.
This charter will be published on the Company's Website, available in
written form upon request, and referenced in the Company's Annual Report.
The Committee will review and assess the adequacy of this charter annually
and recommend changes to the Board of Directors when necessary.
II. MEMBERSHIP
The Committee members will be appointed by the Board of Directors, and the
Chairman of the Committee will be designated by the Board.
Committee members will serve at the pleasure of the Board and may be
removed by the Board of Directors in its discretion.
The Committee will consist of three or more members, each of whom will
satisfy, as determined by the Board of Directors, the regulations of the
Securities and Exchange Commission and NASD Listing Standards, including those
with respect to independence.
The composition of the Committee and its independence will be reviewed
annually by the Board of Directors.
III. MEETINGS
The Committee will meet as often as appropriate to fulfill its duties and
responsibilities.
30
Minutes of meetings will be approved by the Committee and maintained.
The Committee may request any officer or employee of the Company, or the
Company's outside advisors, or any special counsel or advisors to attend a
meeting of the Committee or to meet with any members of, or consultants to, the
Committee.
IV. DUTIES AND RESPONSIBILITIES
The Committee will:
- Develop, recommend, and review annually the Board of
Directors' Corporate Governance Policies to comply with state
and federal laws and regulations and with the NASD Listing
Standards;
- Lead the search for qualified directors, review qualifications
of individuals suggested by shareholders and directors as
potential candidates, and identify nominees who are best
qualified. The criteria for selecting nominees for election as
directors of the Company shall include, but not be limited to,
experience, accomplishments, education, skills, and the
highest personal and professional integrity;
- Recommend to the Board of Directors the nominees to be
proposed by the Company for election as directors of the
Company at the annual meeting of shareholders, or to fill
vacancies on the Board of Directors;
- Review the Board of Directors' committee structure and
recommend to the Board for its approval directors to serve as
members of each committee. The Committee will review committee
composition annually and recommend new committee members, as
necessary;
- Review on an annual basis non-employee director compensation
and benefits and make recommendations to the Board on
appropriate compensation;
- Annually, oversee the evaluation of the Board and management;
and
- Annually, evaluate the performance of the Committee and submit
a written report to the Board of Directors; such evaluation
will include a review of accomplishments of the Committee
during the year, a comparison of performance to goals of the
Committee, and a determination of the adequacy of corporate
governance guidelines in light of developments during the
year.
February 18, 2004
31
[X] PLEASE MARK VOTES REVOCABLE PROXY
AS IN THIS EXAMPLE SOUTH STREET FINANCIAL CORP.
WITH- FOR ALL
FOR HOLD EXCEPT
ANNUAL MEETING OF STOCKHOLDERS 1. The approval of the election of the
MAY 23, 2005 following named directors: [ ] [ ] [ ]
4:00 PM J. Banks Garrison, Jr., Caldwell A.
Holbrook, Jr., Joel A. Huneycutt,
The undersigned hereby appoints the official Douglas Dwight Stokes, R. Ronald
proxy committee of South Street Financial Corp. Swanner and Greg E. Underwood will
(the "Company") comprised of Douglas D. Stokes, serve as directors of the Company until
Joel A. Huneycutt and Greg E. Underwood, each the 2006 Annual Meeting of Stockholders
with full power of substitution, to act as or until their successors are duly
attorneys and proxies for the undersigned and to elected and qualify
vote all shares of Common Stock of the Company
which the undersigned is entitled to vote only INSTRUCTION: TO WITHHOLD AUTHORITY TO VOTE FOR ANY INDIVIDUAL
at the Annual Meeting of Stockholders, to be held NOMINEE, MARK "FOR ALL EXCEPT" AND WRITE THAT NOMINEE'S NAME IN THE
at the office of the Company, 155 West South SPACE PROVIDED BELOW.
Street, Albemarle, North Carolina, on May 23,
2005 at 4:00 p.m. and at any and all adjournments ------------------------------------------------------------------------
thereof, as follows:
FOR AGAINST ABSTAIN
2. The ratification of Dixon Odom PLLC [ ] [ ] [ ]
as the independent auditor of the
Company for the year ending December 31,
2005.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" EACH OF THE LISTED
PROPOSALS.
If no instructions are given, the proxy will be voted FOR the nomi-
nees for election to the Board of Directors named in this Revocable
Proxy and for the ratification of the selection of Dixon Odom PLLC as
-------------- the independent auditor for the Company for the 2005 fiscal year. If
Please be sure to sign and date Date instructions are given with respect to one but not both proposals, such
this Proxy in the box below. instructions as are given will be followed and the proxy will be voted
- --------------------------------------------------- FOR the proposal on which no instructions are given.
- --Stockholder sign above---Co-holder (if any)------
sign above
- -------------------------------------------------------------------------------
DETACH ABOVE CARD, SIGN, DATE AND MAIL IN POSTAGE PAID ENVELOPE PROVIDED.
SOUTH STREET FINANCIAL CORP.
- -------------------------------------------------------------------------------
THIS PROXY IS SOLICITED BY THE BOARD OF DIRECTORS.
The above signed acknowledges receipt from the Company, prior to the
execution of this Proxy, of a Notice of Annual Meeting and of a Proxy Statement
dated April 7, 2005.
Please sign exactly as your name appears hereon. When signing as attorney,
executor, administrator, trustee or guardian, please give your full title. If
shares are held jointly, each holder may sign, but only one signature is
required.
PLEASE ACT PROMPTLY
SIGN, DATE & MAIL YOUR PROXY CARD TODAY
- -------------------------------------------------------------------------------
IF YOUR ADDRESS HAS CHANGED, PLEASE CORRECT THE ADDRESS IN THE SPACE PROVIDED
BELOW AND RETURN THIS PORTION WITH THE PROXY IN THE ENVELOPE PROVIDED.
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