SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(a) OF THE SECURITIES
EXCHANGE ACT OF 1934
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[ ] Preliminary Proxy Statement Confidential, for Use of the
[X] Definitive Proxy Statement Commission Only (as permitted
[ ] Definitive Additional Materials by Rule 14a-6(e)(2)) [ ]
[ ] Soliciting Material Pursuant to Rule 14a-11(c) or Rule 14a-12
FAUQUIER BANKSHARES, INC.
(Name of Registrant as Specified in its Charter)
N/A
(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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FAUQUIER BANKSHARES, INC.
10 COURTHOUSE SQUARE
WARRENTON, VIRGINIA 20186
April 12, 2001
Fellow Shareholders:
You are cordially invited to attend the Annual Meeting of Shareholders (the
"Annual Meeting") of Fauquier Bankshares, Inc. (the "Company"), the holding
company for The Fauquier Bank (the "Bank"), to be held on May 15, 2001, at 11:00
a.m., Eastern Time, at The Fauquier Springs Country Club, Springs Road,
Warrenton, Virginia.
The attached Notice of Annual Meeting and Proxy Statement describe the formal
business to be transacted at the Annual Meeting. Directors and officers of
Fauquier Bankshares, Inc., as well as a representative of Yount, Hyde & Barbour,
P.C., the Company's independent auditors, will be present at the Annual Meeting
to respond to any questions that shareholders may have regarding the business to
be transacted. Detailed information relating to the Company's activities and
operating performance is contained in our 2000 Annual Report, which is also
enclosed.
YOUR VOTE IS IMPORTANT. WHETHER OR NOT YOU EXPECT TO ATTEND, PLEASE SIGN, DATE
AND RETURN THE ENCLOSED PROXY CARD PROMPTLY IN THE POSTAGE-PAID ENVELOPE
PROVIDED SO THAT YOUR SHARES WILL BE REPRESENTED. IF YOUR SHARES ARE HELD IN THE
NAME OF A BROKER OR OTHER NOMINEE, YOU SHOULD INSTRUCT YOUR BROKER OR NOMINEE
HOW TO VOTE ON YOUR BEHALF, OR, IF YOU PLAN TO ATTEND THE MEETING, BRING WITH
YOU A PROXY OR LETTER FROM YOUR BROKER OR NOMINEE TO CONFIRM YOUR OWNERSHIP OF
SHARES.
On behalf of the Board of Directors and all of the employees of the Company and
the Bank, I thank you for your continued interest and support.
Sincerely yours,
/s/ C. Hunton Tiffany
C. Hunton Tiffany
Chairman
President/CEO
FAUQUIER BANKSHARES, INC.
10 COURTHOUSE SQUARE
WARRENTON, VIRGINIA 20186
(540) 347-2700
----------------------------------
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD TUESDAY, MAY 15, 2001
----------------------------------
Warrenton, Virginia
April 12, 2001
To the Shareholders of Fauquier Bankshares, Inc.:
NOTICE is hereby given that the ANNUAL MEETING OF SHAREHOLDERS OF FAUQUIER
BANKSHARES, INC. (the "Company") will be held at THE FAUQUIER SPRINGS COUNTRY
CLUB, SPRINGS ROAD, WARRENTON, VIRGINIA, ON TUESDAY, MAY 15, 2001, AT 11:00
O'CLOCK A.M., for the following purposes:
1. To elect the Class II members of the Board of Directors to serve
until the third succeeding Annual Meeting of Shareholders of the
Company subsequent to this Annual Meeting, i.e. until 2004, and until
their successors are duly elected and qualify.
2. To ratify the appointment of Yount, Hyde & Barbour, P.C. as the
Company's independent public accountants to audit the books of the
Company and its subsidiary for the current year.
3. To transact such other business as may properly come before the
Meeting or any adjournments thereof, including whether or not to
adjourn the Meeting.
The Board of Directors has fixed the close of business on March 26, 2001, as the
record date for determining Shareholders entitled to notice of, and to vote at,
the Meeting.
A copy of the Annual Report of the Company for the year ended December 31, 2000,
a form of Proxy and a Proxy Statement accompany this Notice.
IT IS IMPORTANT THAT YOUR STOCK BE REPRESENTED AT THE MEETING. WHETHER OR NOT
YOU ARE EXPECTING TO BE PRESENT IN PERSON, PLEASE COMPLETE, SIGN, DATE, AND
PROMPTLY MAIL THE ENCLOSED PROXY. IF YOU ARE PRESENT AT THE MEETING, YOU MAY, IF
YOU WISH, WITHDRAW YOUR PROXY AND VOTE YOUR SHARES PERSONALLY. ANY SHAREHOLDER
GIVING A PROXY HAS THE RIGHT TO REVOKE IT AT ANY TIME BEFORE IT IS EXERCISED, IF
HE WISHES, BY WRITTEN NOTICE TO THE SECRETARY THE COMPANY. A RETURN ENVELOPE IS
ENCLOSED FOR YOUR CONVENIENCE THAT REQUIRES NO POSTAGE IF MAILED WITHIN THE
UNITED STATES.
IF YOUR SHARES ARE HELD IN A BROKERAGE ACCOUNT OR BY A BANK OR OTHER NOMINEE,
YOU ARE CONSIDERED THE BENEFICIAL OWNER OF SHARES "HELD IN STREET NAME," AND
THESE PROXY MATERIALS ARE BEING FORWARDED TO YOU BY YOUR BROKER OR NOMINEE. YOUR
NAME DOES NOT APPEAR ON THE REGISTER OF SHAREHOLDERS AND, IN ORDER TO BE
ADMITTED TO THE MEETING, YOU MUST BRING A PROXY OR LETTER SHOWING THAT YOU ARE
THE BENEFICIAL OWNER OF THE SHARES. UNLESS YOU HAVE OBTAINED A PROXY FROM YOUR
BROKER OR NOMINEE, YOU WILL NOT BE ABLE TO VOTE AT THE MEETING AND SHOULD
INSTRUCT YOUR BROKER OR NOMINEE HOW TO VOTE ON YOUR BEHALF.
FAUQUIER BANKSHARES, INC.
By Order of the Board of Directors
/s/ H. Frances Stringfellow
H. Frances Stringfellow, Secretary
FAUQUIER BANKSHARES, INC.
10 COURTHOUSE SQUARE
WARRENTON, VIRGINIA 20186
(540) 347-2700
PROXY STATEMENT
SOLICITATION AND VOTING OF PROXIES
This proxy statement is furnished in connection with the solicitation of proxies
by the Board of Directors of Fauquier Bankshares, Inc. (the "Company") for use
at the Annual Meeting of Shareholders to be held at THE FAUQUIER SPRINGS COUNTRY
CLUB, SPRINGS ROAD, WARRENTON, VIRGINIA, ON TUESDAY, MAY 15, 2001 AT 11:00
O'CLOCK A.M., and at any adjournments thereof.
The cost of solicitation will be borne by the Company. Additional solicitations
may be made by letter, e-mail, telephone or telefax by the Company or by its
directors or regular employees, without additional compensation therefor.
The Company began mailing this Proxy Statement and the form of Proxy solicited
hereby to its Shareholders on or about April 12, 2001.
Any proxy given pursuant to this solicitation may be revoked by the person
executing it at any time prior to its exercise by submitting a written notice of
revocation to the Secretary of the Company or a properly-executed proxy bearing
a later date, or by attending the meeting and voting in person.
Other than the matters set forth on the attached Notice of Annual Meeting of
Shareholders, the Board of Directors knows of no additional 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 adjournment
thereof, including whether or not to adjourn the Annual Meeting.
VOTING SECURITIES
As of March 26, 2001, the record date fixed for the determination of
Shareholders entitled to notice of, and to vote at, the Annual Meeting, there
were 1,709,377 outstanding shares of Common Stock, which is the only class of
stock of the Company. Each such share of Common Stock is entitled to one vote.
Shares of stock represented by valid proxies received pursuant to this
solicitation, and not revoked before they are exercised, will be voted as
specified therein. If no specification is made, signed proxy cards will be voted
for the election of each of the nominees for director named in this Proxy
Statement and in favor of the ratification of the appointment of Yount, Hyde and
Barbour, P.C. as the Company's independent auditors.
The presence, in person or by proxy, of the holders of at least a majority of
the total number of shares of Common Stock entitled to vote is necessary to
constitute a quorum at the Annual Meeting. In the event that there are not
sufficient votes for a quorum, or to approve or ratify any matter being
presented at the time of the Annual Meeting, the Annual Meeting may be adjourned
in order to permit further solicitation of proxies.
As to the election of directors, the form of Proxy being provided by the Board
of Directors enables a shareholder to vote "FOR" the election of the nominees
proposed by the Board of Directors or to "WITHHOLD AUTHORITY" to vote for one or
more of the nominees being proposed. Under Virginia law, directors are elected
by a plurality of votes cast, without regard to either broker non-votes or
proxies as to which authority to vote for one or more of the nominees being
proposed is withheld.
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SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
No person or entity is known to the Company to be the beneficial owner of more
than five percent (5%) of the Company's Common Stock.
The following table sets forth, as of March 26, 2001, the number and percentage
of shares of Company Common Stock held by each director and nominee of the
Company, the executive officers named in the Summary Compensation Table, and all
directors and executive officers of the Company and The Fauquier Bank (the
"Bank") as a group who are the beneficial owners of any Company Common Stock.
AMOUNT AND NATURE OF BENEFICIAL OWNERSHIP
-----------------------------------------
NON-EMPLOYEE
NAME OF COMMON DIRECTOR STOCK PERCENT
BENEFICIAL OWNER(S) STOCK OPTIONS* OF CLASS
------------------- ----- -------- --------
Randy K. Ferrell 14,100 .82%
Alexander G. Green, Jr. 67,400 (1) 6,600 4.31%
Stanley C. Haworth 38,540 (2) 6,600 2.63%
John J. Norman, Jr. 600 3,360 .23%
Douglas C. Larson 1,560 (3) 5,600 .42%
C. H. Lawrence, Jr. 16,043 6,600 1.32%
D. Harcourt Lees, Jr. 11,200 (4) 6,600 1.04%
Randolph T. Minter 800 5,600 .37%
B. S. Montgomery 9,332 (5) 6,600 .93%
H. P. Neale 20,824 (6) 6,600 1.60%
Pat H. Nevill 9,440 (7) 6,600 .93%
Henry M. Ross 10,200 (8) 6,600 .98%
Gary R. Shook 1,230 (9) .07%
H. Frances Stringfellow 6,096 (10) 1,867 .47%
C. Hunton Tiffany 20,706 (11) 1.21%
All directors and executive
officers as a group (17 persons): 228,071 69,227 16.72%
*Number of Shares that have been granted, are vested and could be exercised and
issued to Directors within 60 days, pursuant to the Non-Employee Director Stock
Option Plan for 1995-1999, and the Amended and Restated Omnibus Stock Ownership
and Long Term Incentive Plan effective January 1, 2000.
All shares of Common Stock indicated in the above table are subject to the sole
investment and voting power of the identified director and officer, except as
otherwise set forth in the footnotes below.
(1) Includes 2,720 shares held jointly with Alexander G. Green, III, his
son; 2,720 shares held jointly with Courtenay G. Mullen, his
daughter; and 2,720 shares held jointly with Mary Blake Green, his
daughter. Mr. Green shares voting and investment power with each of
his children.
(2) Includes 32,740 shares held jointly with Mildred W. Haworth, his
wife, over which he shares voting and investment power.
(3) Includes 1,000 shares held jointly with Edith J. Larson, his mother,
over which he shares voting and investment power.
(4) Includes 1,600 shares owned by Eleanor T. Lees Estate.
(5) Includes 5,188 shares held jointly with Patty M. Montgomery, his
wife, over which he shares voting and investment power.
(6) Includes 9,808 shares owned by Fontaine G. Neale, his wife, over
which he shares voting and investment power.
(7) Includes 800 shares owned jointly with H.T.A. Nevill, her husband,
over which she shares voting and investment power; 6,000 shares owned
by H. T. A. Nevill, as to which shares she disclaims beneficial
ownership; and 2,200 shares over which Mr. Nevill has voting power,
as to which shares she disclaims beneficial ownership.
3
(8) Includes 800 shares held jointly with Lois B. Ross, his wife, over
which he shares voting and investment power; and 100 shares held by
Lois B. Ross, as to which shares he disclaims beneficial ownership.
(9) Includes 140 shares held by Ann Rodman Shook, his wife, as Custodian
for their children, as to which shares he disclaims beneficial
ownership.
(10) Includes 2,588 shares owned jointly with Dallas F. Stringfellow, her
husband, over which she shares voting and investment power; and 700
shares owned by Dallas F. Stringfellow, as to which shares she
disclaims beneficial ownership.
(11) Includes 14,306 shares owned by Susanne J. McC. Tiffany, his wife, as
to which shares he disclaims beneficial ownership.
The Company is not aware of any definitive arrangement that may operate at a
subsequent date to effect a change in control of the Company.
ELECTION OF CLASS II DIRECTORS
The Company's Articles of Incorporation provide that the Board of Directors of
the Company is classified into three classes. Only the terms of office of the
Class II directors expire this year, and only nominees to fill the vacancies
created by the expiration of such terms will be considered at the Annual
Meeting. The Class III directors serve until 2002, and the Class I directors
serve until 2003.
The four (4) individuals listed immediately below are proposed for election as
Class II directors. These individuals shall hold office until the third
succeeding Annual Meeting of the shareholders of the Company subsequent to this
Annual Meeting, i.e. until 2004, and until their successors shall have been
elected and shall qualify.
POSITION HELD WITH COMPANY
AND/OR PRINCIPAL OCCUPATIONS FIRST YEAR
AND DIRECTORSHIPS DURING THE AS DIRECTOR
NAME PAST FIVE YEARS OF COMPANY AGE
---- ---------------------------- ----------- ---
Stanley C. Haworth Auctioneer; President, Warrenton 1984 76
Nurseries; Director of the Bank
since 1971.
Harold Paul Neale Farming; Director of the Bank 1984 79
since 1971.
Brian S. Montgomery President, Warrenton Foreign Car, 1990 48
Inc.; President, Montgomery Auto
Parts; Director of the Bank since 1990.
Pat H. Nevill Secretary-Treasurer, The Stable Door, 1993 54
Inc.; Director of the Bank since 1993.
The Board recommends that the stockholders vote in favor of the above nominees
as Class II directors. The Board of Directors has no reason to believe that any
of the above nominees will be unable to serve as a director. However, if any
should be unable for any reason to accept the nomination or election, it is the
intention of the persons named in the enclosed form of Proxy to vote those
proxies authorizing them to vote for the election of directors for the election
of such other person or persons as the Board of Directors may in its discretion
recommend.
The Class III and Class I directors, whose terms expire in 2002 and 2003,
respectively, and the information with respect to them, are as follows:
4
POSITION HELD WITH COMPANY
AND/OR PRINCIPAL OCCUPATIONS FIRST YEAR
AND DIRECTORSHIPS DURING THE AS DIRECTOR
NAME PAST FIVE YEARS OF COMPANY AGE
---- ---------------------------- ----------- ---
CLASS III
Alexander G. Green, Jr. Retired Postmaster, Merchant, 1984 84
and Farmer; Director of the
Bank since 1950.
Douglas C. Larson Vice President, Piedmont 1996 54
Environmental Council; Director
of the Bank since 1996.
D. Harcourt Lees, Jr. Chairman, D. H. Lees & Co., Inc. 1984 79
(Insurance); President, D. H. Lees
Real Estate; Director of the Bank
since 1954.
Randolph T. Minter President, Moser Funeral Home; 1996 41
President, Bright View Cemetery, Inc.;
Director of the Bank since 1996.
H. Frances Stringfellow Administrative Consultant as Independent 1999 62
Contractor with Bank since June 1999;
Employee/Officer of Bank 1986-May 1999;
Secretary of the Company since 1991,
Director of the Bank since 2000.
CLASS I
C. H. Lawrence, Jr. Business Development Consultant as 1984 56
Independent Contractor with
the Bank; Chairman of the Board
of the Bank 1996-'97; President, Country
Chevrolet, Inc., 1976-'97; Director of the
Bank since 1980.
Henry M. Ross President, Ross Industrial Develop 1984 73
Corp., President, Greenwich Corp.,
Vice Chairman of the Board of the Bank;
Director of the Bank since 1976.
C. Hunton Tiffany Chairman of the Board of the 1984 61
Company and Bank; President
Fauquier Bank Services, Inc.;
President of the Company since
1984; President of the Bank since
1982; Director of the Bank since 1974.
John J. Norman, Jr. Vice President, Associate 1998 38
Broker, Norman Realty, Inc.;
Director of the Bank since 1998.
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MEETINGS AND COMMITTEES OF THE BOARD OF DIRECTORS
During the year ended December 31, 2000, the Board of Directors of the Company
held nine meetings. All directors were in attendance at 96% of the meetings.
Each director attended at least 75% of the aggregate of: (1) the number of Board
meetings held during the period in which he or she has been a director and (2)
the number of meetings of all committees on which he or she served (held during
the periods in which he or she served).
The Board has an Audit Committee, which makes recommendations to the Board as it
deems appropriate, including recommendations as to the appointment of
independent auditors. The Audit Committee had four official meetings and several
informal discussions in fiscal 2000. The Audit Committee Charter is attached as
Appendix A hereto and the Audit Committee Report is set forth below.
The Board does not have a Compensation Committee as all executive compensation
is paid by the Company's wholly-owned subsidiary, The Fauquier Bank. The Bank's
Board, however, has a Compensation and Benefits Committee, which approves the
policies under which compensation is awarded to the subsidiary's Chief Executive
Officer and to its other executive officers and oversees the administration of
executive compensation programs. The Compensation and Benefits Committee had one
official meeting and several informal discussions during fiscal 2000. The
Company Board of Directors adopted the actions taken by the Compensation
Committee and the Report of the Committee. The Report of the Committee is
included below.
The Board has a Committee on Board Governance, which is responsible for
evaluating the Board's structure, personnel and processes and makes
recommendations to the full Board regarding nominations of individuals for
election to the Board of Directors. The Committee will consider nominations
submitted by shareholders, along with biographical and business experience
information, to the Chief Executive Officer. During 2000, the Committee held no
official meetings and the nominees for Class II members of the Board of
Directors were considered and determined by the entire Board at its meetings.
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE. Pursuant to Section
16(a) of the Securities Exchange Act of 1934, officers, directors and beneficial
owners of more than 10% of the Company's Common Stock are required to file
reports on Forms 3, 4 and 5 with the Securities and Exchange Commission to
report their beneficial ownership of the Company's Common Stock as well as
certain changes in such beneficial ownership. Based upon the Company's review of
such reports, Rosanne T. Gorkowski and Eric P. Graap, as a result of being named
Executive Officers of the Bank on December 21, 2000, filed Form 3, Initial
Statement of Beneficial Ownership of Securities. The forms, due on December 31,
2000, were filed on February 14, 2001. A Form 5, Annual Statement of Beneficial
Ownership of Securities, due on February 10, 2000, was filed by Director Stanley
C. Haworth, on February 14, 2001, and reflected the acquisition of 1,274 shares
of Common Stock acquired as a partial distribution of his contributions to the
Director's Deferred Compensation Plan. On the same Form 5, he also reported
disposition on December 21, 2000 of 1,200 shares of the 1,274 shares in the form
of gifts to his children. Forms 5 due on March 14, 2000, from Executive Officers
C. Hunton Tiffany (11,992 options), Randy K. Ferrell (2,966 options), and Gary
R. Shook (2,966 options), were filed on March 14, 2001 reflecting Stock Options
granted on August 19, 1999, vesting on August 18, 2002. Apart from the
foregoing, to the Company's knowledge, no officer, director or more than 10%
beneficial owner failed to file required reports on Forms 3, 4 or 5 on a timely
basis during the fiscal year ended December 31, 2000.
REMUNERATION AND OTHER TRANSACTIONS WITH MANAGEMENT
DIRECTORS' COMPENSATION
-----------------------
MEETING FEES. Non-Employee Directors of the Company receive a fee of $200 for
each Board and Committee meeting attended. Non-Employee Directors of the Bank
receive a fee of $500 for each Board meeting and $200 for each Committee meeting
attended. However, no Director may receive fees for more than two meetings held
in any one day.
DIRECTOR DEFERRED COMPENSATION PLAN. Effective April 1, 1995, the Board approved
and established a Director Deferred Compensation Plan (the "Deferred
Compensation Plan"). This plan provides that any non-employee director of the
Company or the Bank may elect to defer receipt of all or any portion of his or
her compensation as a director. A participating Director may elect to have
amounts deferred under the Deferred Compensation Plan held in a deferred cash
account credited on a quarterly basis with interest equal to the highest rate
offered by the Bank at the end of the preceding quarter. Alternatively, a
participant may elect to have a deferred stock account in which deferred amounts
are treated as if invested in the Company's Common Stock at the fair market
value on the date of deferral. The value of a
6
stock account will increase and decrease based upon the fair market value of an
equivalent number of shares of Common Stock. In addition, the deferred amounts
deemed invested in Common Stock will be credited with dividends on an equivalent
number of shares. Amounts considered invested in the Company's Common Stock are
paid, at the election of the director, either in cash or in whole shares of the
Common Stock and cash in lieu of fractional shares. Directors may elect to
receive amounts contributed to their respective accounts in one or up to five
installments. The Company may establish a trust to hold amounts deferred and
which accumulate under the plan. The purpose of the Deferred Compensation Plan
is to give the non-employee directors the option of deferring current taxation
on directors' fee income.
NON-EMPLOYEE DIRECTOR STOCK OPTION PLAN. The Board established, effective April
1, 1995, a Non-Employee Director Stock Option Plan (the "Option Plan"). The five
year term of the Option Plan expired in 1999. Under the Option Plan each
Director who is not an employee of the Company or its subsidiary received an
option grant covering 1,120 shares of Company Common Stock on April 1 of each
year during the five year term of the Option Plan. The first grant under the
Option Plan was made on May 1, 1995. The exercise price of awards was fixed at
the fair market value of the shares on the date the option was granted. During
the term of the Option Plan, a total of 61,600 shares of Common Stock could be
granted. The options granted under the Option Plan were exercisable six months
from the date of grant except in the case of death or disability. Options that
were not exercisable at the time a director's services on the Board terminates
for reasons other than death, disability or retirement in accordance with the
Company's policy will be forfeited. The purpose of the Option Plan was to
promote a greater identity of interest between non-employee directors and the
Company's shareholders by increasing each participant's proprietary interest in
the Company through the award of options to purchase Company Common Stock.
THE OMNIBUS STOCK OWNERSHIP AND LONG TERM INCENTIVE PLAN ("THE OMNIBUS PLAN"):
Effective January 1, 2000, the Omnibus Plan established in 1998 for employees
was amended and restated to include non-employee directors. The Omnibus Plan has
a ten-year term and the first grant was made May 23, 2000. The exercise price of
awards is fixed at the fair market value of the shares on the date the option is
granted. During the term of the Omnibus Plan, a total of 90,000 options for
shares of common stock may be granted to non-employee directors. The Omnibus
Plan provides for an annual issuance of 1,867 options to non-employee directors
during their initial three-year term to achieve a total share holding of 5,600.
The annual issuance of options to non-employee directors subsequent to their
initial three-year term requires Board action each year with a recommended level
of 1,000 options per non-employee director per year. The options are not
exercisable for six months from the date of grant except in the case of death or
disability.
A total of 60,480 options for shares of Common Stock were granted during the
five year term of the Option Plan of 1995. There are 56,000 options under that
Option Plan remaining available to be exercised. Under the Omnibus Plan, the
first grants to non-employee directors were made on May 23, 2000. 14,347 options
were granted at an exercise price of $16.25. None had been exercised as of
December 31, All options have been restated giving retroactive effect to stock
splits.
EXECUTIVE COMPENSATION
----------------------
REPORT OF COMPENSATION AND BENEFITS COMMITTEE. The following report of the
Compensation and Benefits Committee of the Board of Directors of The Fauquier
Bank provides information with respect to the compensation paid to The Fauquier
Bank's Chief Executive Officer, C. Hunton Tiffany and to its other executive
officers, Randy K. Ferrell, Rosanne T. Gorkowski, Eric P. Graap and Gary R.
Shook.
The Fauquier Bank executive compensation program is administered by the
Compensation and Benefits Committee (the "Committee") of the Board of Directors
of The Fauquier Bank. The Committee is comprised of the individuals listed
below, each of whom is a non-employee director of the Bank and the Company. The
Fauquier Bank compensation program for executive officers consists of some or
all of the following elements: base salary; performance-based cash rewards under
the Management Incentive Plan (the "Incentive Plan"); annual grants of options
under the 1998 Omnibus Stock Incentive Plan as amended and restated effective
January 1, 2000 (the "1998 Plan"); annual matching contributions under The
Fauquier Bank Employees 401(k) Savings Plan (the "Bank Savings Plan"), Split
Dollar Insurance, automobile allowance, and Supplemental Executive Retirement
Plans (SERP).
The Fauquier Bank executive compensation program is designed to enable the Bank
to attract, retain and reward executive officers. The Committee intends to keep
compensation levels competitive with a representative sample of the Bank's peer
institutions. The peer group used by the Committee includes other community
banks of similar size located in Virginia. The Committee's strategy is to
maintain a structure within the executive compensation program that strengthens
the link between executive compensation, The Fauquier Bank's performance,
individual performance of the executive officers and shareholder interests.
7
The following sections of this Report describe the compensation program for
executive officers in effect in 2000.
BASE SALARY. The base salary paid to The Fauquier Bank's Chief Executive
Officer, Hunton Tiffany, is determined by the Committee. The Committee
establishes performance thresholds or other measures that directly relate his
base salary to operating performance and a review of the range of salaries
earned by CEOs within a representative peer group, although there is no
predetermined point within such range at which the Committee targets the salary.
Mr. Tiffany's 2000 salary was at the midpoint of the range of salaries paid to
the Chief Executive Officers of the Bank's peer group. The Committee believes
that Mr. Tiffany's 2000 base salary is appropriate in relation to the Bank's
performance and consistent with the salaries earned by executives of the Bank's
peer group.
The base salaries paid to the Bank's other executive officers Randy Ferrell,
Rosanne Gorkowski, Eric Graap and Gary Shook are determined by the CEO. The CEO
manages executive salaries in relation to the salaries paid to executives in
peer institutions, giving effect to operating performance, their relative
contributions, and experience of each executive. In determining base salary, the
CEO utilizes a computer based model, developed by the Bank's outside
consultants, for computing salary increases based on performance reviews. The
Committee believes that the base salaries paid to the Executive Officers gave
fair consideration to their individual contributions in 2000 and are competitive
with the Bank's peer group.
INCENTIVE COMPENSATION. The Management Incentive Plan is recommended by the
Committee and approved by the Bank's Board of Directors. The Committee
determines the CEO's incentive compensation. The CEO manages the incentive
compensation awards for executive officers of The Fauquier Bank based on each
executive officer's achievement of his or her individual performance objectives.
These objectives are tied to measurements directly related to corporate
strategic objectives. These actions reflect a commitment to maintaining a strong
incentive compensation plan that is directly related to maximizing long-term
shareholder value.
For performance during 2000, The Fauquier Bank awarded cash incentive
compensation under the Management Incentive Plan totaling $139,154 for the
president and executive officers. The incentive compensation awards granted to
Mr. Tiffany, Mr. Ferrell, Ms. Gorkowski and Mr. Shook were based solely upon The
Fauquier Bank's performance as measured by the corporate objectives. Mr. Graap
joined the Bank on November 27, 2000 and was not eligible for incentive
compensation. Each of the executive officers met the performance objectives
established for him or her for 2000.
STOCK OPTIONS. The Committee awards stock options to executive officers as a
long-term incentive to align the executives' interest with those of other
shareholders and to encourage significant stock ownership. Under the 1998
Omnibus Plan (amended and restated effective January 1, 2000 to include
non-employee directors), the Committee grants to selected key employees options
to purchase The Company's Common Stock at a price equal to the fair market value
of The Company's Common Stock on the date of grant. Employees selected under the
1998 Omnibus Plan are those key employees who, in the judgment of the committee,
are in a position to materially affect the overall success of The Fauquier Bank
and its subsidiaries by reason of the nature and extent of their duties.
In 2000, pursuant to the 1998 Omnibus Plan, the Committee granted options for
25,501 shares of The Company's Common Stock to employees of The Fauquier Bank,
including options for 14,769 shares granted to Mr. Tiffany, and 5,366 shares
granted each to Mr. Ferrell and Mr. Shook. The Committee has not adopted any
objective criterion that relates the level of options granted to the executive
officers to performance of The Fauquier Bank or the individuals. In awarding the
grant to the executives, the Committee considered numerous factors, including
The Fauquier Bank's operating performance, each executive's prior contributions
and potential to contribute in the future and practices within the Bank's peer
group with respect to granting options, although none of these factors was
individually determinative.
The stock options granted under the 1998 Omnibus Plan to employees generally
become exercisable on the third anniversary of the date of grant. The option
recipients, including Mr. Tiffany, will receive value from these grants only to
the extent that the price of The Company's Common Stock exceeds the grant price.
MATCHING CONTRIBUTIONS. The Bank 401K Savings Plan is a voluntary defined
contribution benefit plan designed to provide additional incentive and
retirement security for eligible employees of the Bank. All Bank employees over
the age of 18 are eligible to participate in the Bank Savings Plan. The
executive officers of The Fauquier Bank
8
participate in the Bank Savings Plan on the same basis as all other eligible
employees of the Bank. Under the Bank Savings Plan, each eligible employee of
the Bank may elect to contribute on a pre-tax basis to the Bank Savings Plan 2%
to 15 % of his or her compensation, subject to certain limitations that may
lower the maximum contributions of more highly compensated participants.
The Board of Directors determines each year whether to match employee
contributions based on the previous year's profitability. In 2000, the Fauquier
Bank matched fifty cents ($.50) on each dollar contributed by an employee up to
six percent (6%) of that employee's contribution. For 2000, the Bank's matching
contributions to executives totaled $15,070, including $5,100 contributed to the
account of Hunton Tiffany, $3,660 contributed to the account of Randy Ferrell,
$2,224 contributed to the account of Rosanne Gorkowski and $4,086 contributed to
the account of Gary Shook.
SPLIT DOLLAR LIFE INSURANCE AGREEMENT. The Bank currently has a Split Dollar
Life Insurance Agreement with Mr. Ferrell, entered into on January 1, 1996. The
policy provides for a combined death benefit of $440,000 to be paid to named
beneficiaries, and the Bank is entitled to policy proceeds in excess of death
benefits. The Bank paid $5,608 for premiums in 2000 in connection with this
agreement.
SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN ("SERP"). In 2000, the Board of Directors
authorized the investment of a specially designed life insurance policy to be
carried as an asset of the Bank and be used to fund a supplemental retirement
plan for Mr. Tiffany. The initial investment of $749,000 was implemented on
August 10, 2000, and was split equally between Jefferson Pilot Life Insurance
and Southland Life Insurance Companies. At December 31, 2000, the approximate
cash surrender value was $767,741. The Board's objective was to supplement Mr.
Tiffany's expected retirement earnings under current plans to provide him with
approximately 70% of his annual income at the time of retirement. The expected
tax attributes, increases in cash value, and receipt of death benefits were
believed to make the life insurance investment an effective means of paying for,
or off-setting the cost of the SERP.
This report is submitted by the Compensation and Benefits Committee of the Board
of Directors of The Fauquier Bank.
COMPENSATION AND BENEFITS COMMITTEE:
Brian S. Montgomery, Chairman Stanley C. Haworth
Douglas C. Larson Randolph T. Minter
Pat H. Nevill
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION IN COMPENSATION
DECISIONS. The Compensation and Benefits Committee of The Fauquier Bank is
composed of outside, independent directors, none of whom was, during the fiscal
year 2000 or prior to that time, an employee or officer of the Company, the Bank
or subsidiaries.
SUMMARY COMPENSATION TABLE. The following table sets forth the remuneration
accrued or paid by the Company or The Fauquier Bank (the "Bank") during the
calendar years 2000, 1999, and 1998 for the Bank's Chief Executive Officer and
the two other executive officers who received total annual salary and bonus in
excess of $100,000 in the fiscal year ended December 31, 2000 (the "Named
Executive Officers").
Long Term
Compensation
Annual Compensation Awards
---------------------------------- ------------
Other
Annual Options/ All Other
Name and Salary Bonus(1) Compensation SARs(3) Compensation(4)
Principal Position Year $ $ (2)($) (#) ($)
---------------------- ------ ------ -------- ------------ ------------ ---
C. Hunton Tiffany 2000 178,017 68,756 -- 14,769 5,100
President & CEO 1999 169,621 53,371 -- 11,992 4,800
1998 156,400 37,195 -- 6,422 4,800
Randy K. Ferrell 2000 101,000 27,310 -- 5,366 9,268
EVP 1999 90,290 21,199 -- 2,966 8,868
1998 90,863 18,000 -- 2,557 8,987
Gary R. Shook
SVP 2000 101,000 27,310 -- 5,366 4,086
1999 90,290 21,199 -- 2,966 3,216
1998 89,775 18,000 -- 2,493 3,203
9
(1) Reflects Incentive Compensation.
(2) The dollar value of perquisites and other personal benefits for each of the
named executive officers was less than the established reporting thresholds.
(3) Reflects the number of Incentive Stock Options and Non-Qualified Stock
Options granted by the Board of Directors.
(4) Represents 401(k) Match paid by the Bank for the President; represents the
portion of split dollar life insurance premiums paid by the Bank on Mr.
Ferrell's behalf of $5,608 in 2000, $5,626 in 1999, and $5,711 in 1998; and a
401(k) Match paid by the Bank for Mr. Ferrell of $3,660 in 2000, $3,242 in 1999,
and $3,276 in 1998; and represents a 401(k) Match paid by the Bank for Mr.
Shook.
OMNIBUS STOCK OWNERSHIP AND LONG TERM INCENTIVE PLAN ("THE OMNIBUS PLAN"). On
May 23, 2000, the Board of Directors granted incentive stock options and
non-qualified options, which options, if exercised, would equal 25,501 shares of
common stock pursuant to the Omnibus Plan. The options have an exercise price of
$16.25 per share. Generally, the options are not exercisable until three years
from the date of grant and generally require continuous employment during the
period prior to exercise. The options will expire in no more than ten years
after the date of grant.
The following table provides certain information with respect to options granted
to the Named Executive Officers during the fiscal year ended December 31, 2000.
OPTIONS/SAR GRANTS IN 2000
Number of Percent of
Securities Total
underlying options/SARs Exercise or
Options/SARs granted to employees base price Expiration
Name Granted (#) in fiscal year ($/sh) Date 5%( ($) 10% ($)
---- ----------- -------------- ------ ---- ------- -------
C. Hunton Tiffany 14,769 57.92% $16.25 5-22-2010 150,932 382,492
Randy K. Ferrell 5,366 21.04% $16.25 5-22-2010 54,838 138,970
Gary R. Shook 5,366 21.04% $16.25 5-22-2010 54,838 138,970
The following table provides certain information with respect to the number of
shares of Common Stock represented by outstanding stock options held by the
Named Executive Officers at December 31, 2000. None of the options held by the
Named Executive Officers were exercisable during the year ended December 31,
2000.
NUMBER OF SECURITIES UNDERLYING
UNEXERCISED OPTIONS AT FISCAL YEAR END (#)
NAME EXERCISABLE UNEXERCISABLE
C. Hunton Tiffany 0 33,183
Randy K. Ferrell 0 10,889
Gary R. Shook 0 10,825
PENSION PLAN. The Bank has a non-contributory defined benefit plan which covers
substantially all employees of the Bank who are 21 years of age or older, who
have at least one year of service, and work a minimum of 1,000 hours per year.
The Plan's Normal Retirement Benefit formula is as follows:
(a) 1.35% of the Participant's final 5-year average compensation per
year of service up to 35 years plus
10
(b) 0.60% of the Participant's final 5-year average compensation, in
excess of his/her Covered Compensation Level, per year of service
up to 35 years.
For purposes of the Plan, "Covered Compensation Level" equals the average of the
last 35 years of the social security wage base at normal retirement. The Bank's
pension plan expense for the fiscal year ended December 31, 2000 was $46,707.
Cash benefits under the Plan generally commence on retirement, death or other
termination of employment and are payable in various forms, generally at the
Participant's election. The Plan is based on a straight life annuity assuming
full benefit at age 65, no offsets, and covered compensation of $35,400 for a
person age 65 in 2000. Compensation is currently limited to $170,000 by IRC
Regulation and includes all regular pay, overtime and regular bonuses.
PENSION PLAN TABLE
5 Year YEARS OF SERVICE
Average Salary 10 15 20 25 30 35
-------------- -- -- -- -- -- --
50,000 7,626 11,439 15,252 19,065 22,878 26,691
65,000 10,551 15,827 21,102 26,378 31,653 36,929
80,000 13,476 20,214 26,952 33,690 40,428 47,166
100,000 17,376 26,064 34,752 43,440 52,128 60,816
125,000 22,251 33,377 44,502 55,628 66,753 77,879
150,000 27,126 40,689 54,252 67,815 81,378 94,941
170,000 and 31,026 46,539 62,052 77,565 93,078 108,591
above
The monthly retirement benefit based on current compensation and assuming
retirement at age 65, as well as final average earnings and approximate years of
service as of October 1, 2000 for the named executive officers are as follows:
Monthly Benefit Final Average Years of
Name at 65 Earnings Service
---------------- -------------- -------------- ---------
C. Hunton Tiffany 8,768 160,000 36.00
Randy K. Ferrell 3,502 107,867 6.00
Gary R. Shook 5,012 104,793 6.00
RETIREMENT PLAN. The Bank has a defined contribution retirement plan under Code
Section 401(k) of the Internal Revenue Service covering employees who have
completed six months of service and who are at least 18 years of age. Under the
plan a participant may contribute an amount up to 15% of their covered
compensation for the year, subject to certain limitations. The Bank may also
make, but is not required to make, a discretionary matching contribution. The
amount of this matching contribution, if any, is determined on an annual basis
by the Board of Directors. The Bank made a contribution to the plan for the year
ended December 31, 2000 of $72,992.
INCENTIVE PLANS. No officer or director received remuneration other than as
stated above, in the form of bonus, profit-sharing, pension, retirement, options
or warrants to purchase stock or any other remuneration plan, for the year ended
December 31, 2000. An incentive compensation plan for 2000 was approved by the
Board of Directors to be shared by all employees of the Bank. An incentive pool
of $291,212 for 2000 was divided among all employees of the Bank. There are no
commission agreements between the Company or the Bank and their respective
directors or officers.
CHANGE OF CONTROL AGREEMENTS. The Fauquier Bank has entered into change of
control agreements with three Executive Officers. The change of control
agreements are intended to attract and retain experienced, well-qualified
executives who will advance the best interests of the Bank. The continued
success of the Bank and the Company depends to a significant degree on the
skills and competence of these executives.
The agreements become operative upon a change of control in the Bank. For
purposes of the agreements, a change of control of the Bank occurs if, (i) any
person, including a "group" as defined in Section 13(d)(3) of the Securities
Exchange Act of 1934 (but excluding any group of which the Executive is a
member), becomes the beneficial owner of securities of the Bank or of the
Company having 20% or more of the combined voting power of the then outstanding
Bank or Company securities that may be cast for the election of the Bank or
Company directors other than as a result of
11
an issuance of securities initiated by the Bank or Company, as long as the
majority of the Board of Directors approving the purchases is a majority at the
time the purchases are made; or (ii) as the direct or indirect result of, or in
connection with, a tender or exchange offer, a merger or other business
combination, a sale of assets, contested election, or any combination of these
events, the persons who were directors of the Bank or Company before such events
cease to constitute a majority of the Bank or Company's Board of Directors, or
any successor's board, within two years of the last of such transactions.
If, after a change of control occurs, an Executive's employment is terminated
within three (3) years, depending upon the Agreement, the Executive is entitled
to receive the payments specified in the agreements, unless such termination was
for Cause or the Executive terminates employment without Good Reason. "Cause"
means the Executive's gross negligence or willful misconduct, which is
detrimental to the best interests of the Bank's business operations. "Good
Reason" means (i) a material change in the Executive's functions, duties,
responsibilities, authority, benefits or perquisites, or relocation of the
Executive's principal place of employment, (ii) removal from or failure to
re-elect the Executive to a current position, (iii) a reduction of the
Executive's base salary or a failure to increase such salary in accordance with
cost-of-living increases, or (iv) the failure of any successor to assume and
agree to perform the agreements.
If an Executive is terminated not for Cause or terminates employment for Good
Reason: (i) the Bank is required to pay the Executive as compensation for
services rendered to the Bank a cash amount (subject to any applicable payroll
or other taxes required to be withheld) equal to 2.99 times the highest annual
compensation paid to the Executive by the Bank for any six months ending with
the Executive's termination; (ii) In addition to the benefits to which an
Executive is entitled under the retirement plans or programs, in effect, the
Bank is required to pay an Executive a cash amount equal to the actuarial
equivalent of the retirement pension to which the Executive would have been
entitled under the terms of such retirement plan or programs, without regard to
"vesting" thereunder, had the Executive accumulated three (3) additional years
of continuous service after termination at the Executive's base rate in effect
at the time of termination, reduced by the single sum actuarial equivalent of
any amounts to which the Executive is entitled pursuant to the provisions of
said retirement plans or programs; (iii) The Bank is required to maintain in
full force and effect, for the continued benefit of the Executive for a
three-year period after termination, all employee benefit plans and programs or
arrangements in which the Executive was entitled to participate immediately
prior to termination, or substantially similar programs if the Executive's
continued participation is not possible under the general terms and provisions
of such existing plans and programs; and (iv) All stock options granted to the
Executive under any of the Bank's stock option plans shall become immediately
exercisable with respect to all or any portion of the shares covered thereby
regardless of whether such options are otherwise exercisable. The Bank is
required to reimburse the Executive for any federal income tax liability
incurred by the Executive in connection with the exercise of such options which
would not have been incurred by the Executive in the absence of such options
becoming immediately available upon a change of control.
If any payment made or benefit provided to an Executive pursuant to the
Agreements would constitute an "excessive parachute payment" within the meaning
of Section 280G of the Internal Revenue Code of 1986, as amended and any
regulations thereunder, thereby resulting in a loss of an income tax deduction
by the Bank or the imposition of an excise tax on the Executive under Section
4999 of the Internal Revenue Code of 1986, as amended, then the payments
scheduled under the agreements will be reduced to one dollar less than the
maximum amount which may be paid without causing any such payment or benefit to
be nondeductible.
SPLIT DOLLAR LIFE INSURANCE AGREEMENT. On January 1, 1996, the Bank entered into
a Split Dollar Life Insurance Agreement with Mr. Ferrell pursuant to which the
Bank purchased two existing policies of insurance on Mr. Ferrell's life.
Pursuant to the agreement, the Bank pays a portion of the annual premium on the
insurance policies. The policies provide for a combined death benefit of
$440,000 to be paid to the beneficiaries named therein, and the Bank is entitled
to the total policy proceeds in excess of the death benefits. The Bank paid
$5,608 for premiums in 2000 in connection with this agreement.
SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN ("SERP"). In 2000, the Board of Directors
authorized the investment of a specially designed life insurance policy to be
carried as an asset of the Bank and be used to fund a supplemental retirement
plan for Mr. Tiffany. The initial investment of $749,000 was implemented on
August 10, 2000, and was split equally between Jefferson Pilot Life Insurance
and Southland Life Insurance Companies. At December 31, 2000, the approximate
cash surrender value was $767,741.
12
STOCK PERFORMANCE
The following graph shows a comparison of total stockholder return on the
Company's Common Stock based on its market price, assuming the reinvestment of
dividends, with the cumulative total returns for the companies on the NASDAQ
Stock Market (U.S.), and SNL Bank Stocks indices for the period beginning on
June 16, 1999, the date that the Company's Common Stock became registered
pursuant to the Securities Exchange Act of 1934, as amended, and ending on
December 31, 2000. We believe the company's performance is more accurately
compared to companies in the banking industry, rather than the NASDAQ Total U.S.
Index which includes companies in diverse industries with market capitalizations
many times the size of the Company's market capitalization.
The Stock performance graph also compares the Company's stock performance to the
SNL $250M-$500M Bank Index in addition to the SNL Bank Index, which was used in
last year's proxy statement. The SNL $250M-$500M Bank Index which includes the
Fauquier Bank, contains all banks and related holding companies from throughout
the Unites States with total assets of between $250 Million and $500 Million,
thus providing a larger and more appropriate measurement base to compare with
the Company's stock performance. We believe that a comparison of the Company's
stock performance to banks with similar assets is more accurate than a
comparison of banks of all asset sizes.
[PERFORMANCE GRAPH OMITTED]
FAUQUIER BANKSHARES, INC.
TOTAL RETURN PERFORMANCE
PERIOD ENDING
----------------------------------------------------
INDEX 06/16/99 06/30/99 12/31/99 06/30/00 12/31/00
--------------------------------------------------------------------------------
Faquier Bankshares, Inc. 100.00 98.03 94.79 88.12 78.77
NASDAQ - Total US* 100.00 107.01 162.10 158.20 97.55
SNL Bank Index 100.00 103.84 91.37 86.12 107.91
SNL $250M-$500M Bank Index 100.00 100.84 95.60 87.47 92.05
*Source: CRSP, Center for Resarch in Security Prices, Graduate School of
Business, The University of Chicago 2001.
Used with permission. All rights reserved. crsp.com.
13
RELATED PARTY TRANSACTIONS
The Bank has had, and may be expected to have in the future, banking
transactions in the ordinary course of business with executive officers,
directors, their immediate families and affiliated companies in which they are
principal stockholders. Such loans were made on substantially the same terms,
including interest rate and collateral, as those prevailing at the time for
comparable transactions with other persons and did not involve more than the
normal risk of collectability or present other unfavorable features. At December
31, 2000, these loans amounted to $4,788,426. During 2000, total principal
additions were $1,109,012 and total principal payments were $505,487.
INDEPENDENT CONTRACTOR AGREEMENTS. C. H. Lawrence, Jr., a non-employee director
of the Company and the Bank, continues to provide business development and
customer relations services to the Bank under an Independent Contractor
Agreement dated February 23, 1998, which contract is renewable annually. In
2000, compensation for his business development services amounted to $77,400.
H. Frances Stringfellow, a non-employee director of the Company, elected in June
1999, continues to serve as Corporate Secretary of the Company, and is a
consultant to the Bank and Company under an Independent Contractor Agreement
dated June 1, 1999, which contract is renewable annually. Ms. Stringfellow
manages the internal audit function, provides administrative and advisory
support to the Board of Directors and Committees of the Bank and Company, and
coordinates the strategic planning efforts. She retired as a Senior Vice
President and Secretary of the Bank on May 31, 1999. Compensation for her
contractual services in 2000 amounted to $49,500.
AUDIT COMMITTEE REPORT
The Audit Committee's Report to the Shareholders which follows was approved and
adopted by the Committee and by the Board of Directors on March 15, 2001.
The Audit Committee of the Board is responsible for providing independent,
objective oversight of the Company's accounting functions and internal controls.
The responsibilities include providing effective external audits of all
corporate subsidiaries by a suitable independent accountant, providing an
effective and efficient internal audit program to serve all subsidiaries in an
examining and advisory capacity, assisting the Board of Directors in fulfilling
its fiduciary responsibilities for financial reporting and internal accounting
and operations controls, and to act as an agent for the Board of Directors to
help insure the independence of internal and external auditors, the integrity of
management, and the adequacy of disclosures to stockholders.
The Company's management is responsible for preparing the Company's financial
statements. The Company's independent auditors are responsible for auditing the
financial statements. The activities of the Committee are in no way designed to
supersede or alter these traditional responsibilities. Except to the extent
required by the rules of the NASDAQ stock market, membership on the Committee
does not call for the professional training and technical skills generally
associated with career professionals in the field of accounting and auditing. In
addition, the Company's independent auditors and the independent internal
auditors have more available time and information than does the Committee.
Accordingly, the Committee's role does not provide any special assurances with
regard to the Company's financial statements, nor does it involve a professional
evaluation of the quality of the audits performed by the independent auditors.
In this context, the Audit Committee has reviewed and discussed the audited
2000 financial statements with management, and has discussed with the
independent auditors the matters required to be discussed by Statement on
Auditing Standards No. 61, Communication with Audit Committees.
The Committee has received and has discussed the written disclosures from the
independent auditors required by Independence Standards Board Standard No. 1,
Independence Discussions with Audit Committees, has considered the compatibility
of nonaudit services with the auditors' independence, and has discussed with the
auditors the auditor's independence.
14
Based on its review and discussions with the auditors, the Audit Committee
recommended, and the Board of Directors approved, that the audited financial
statements be included in the Company's Annual Report and on Form 10-K for 2000
for filing with the Securities and Exchange Commission.
The Audit Committee and the Board of Directors have developed a written charter
for the Audit Committee that is set forth in Exhibit A to this Proxy Statement.
Five of the six members of the Audit Committee are independent as defined by
NASD Marketplace Rule 4200(a)(14). H. Frances Stringfellow, having retired as an
employee of the Bank on May 31, 1999, does not meet the three year waiting
period for former employees. However, the Audit Committee and the Board of
Directors do not believe Ms. Stringfellow's former employment relationship
impairs her judgment as a member of the Committee. Moreover, the Board has
determined that Ms. Stringfellow's membership on the committee is required by
the best interests of the company and its shareholders in view of her long term
and intimate working knowledge of the Bank, its internal audits and relationship
with bank examiners.
AUDIT COMMITTEE:
Henry M. Ross, Chairman H. P. Neale
Stanley C. Haworth John J. Norman, Jr.
Douglas C. Larson H. Frances Stringfellow
RELATIONSHIP WITH INDEPENDENT PUBLIC ACCOUNTANTS
The Board of Directors of the Company selected Yount, Hyde & Barbour, P.C.,
independent public accountants to certify the Company's annual financial
statements for the year ending December 31, 2000. Yount, Hyde & Barbour, P.C.
has acted as the independent accountant for the Company since January 1, 1986.
Yount, Hyde & Barbour, P.C. has also acted as the independent accountant for The
Fauquier Bank (the "Bank"), the Company's wholly owned subsidiary, since January
1, 1986. A representative of Yount, Hyde & Barbour, P.C. is expected to be
present at the meeting with the opportunity of making a statement if he so
desires, and to respond to appropriate questions of the Shareholders.
In addition to the audit of the 2000 financial statements of the Company and the
Bank, Yount, Hyde & Barbour, P.C. performed non-audit related services for the
Bank, including the preparation of the Bank's income tax returns, tax planning,
and other accounting services including performing specific agreed upon
procedures as directed by the Bank's Internal Audit Coordinator. The retention
of Yount, Hyde & Barbour, P.C. to perform the audit-related services was
authorized by the Board of Directors of the Bank with the knowledge that they
also assisted in the preparation of the Bank's income tax returns, did tax
planning, and performed other accounting services.
AUDIT FEES. Yount, Hyde & Barbour, P.C.'s fees for our 2000 annual audit and
review of interim financial statements were $42,407.
FINANCIAL INFORMATION SYSTEMS DESIGN AND IMPLEMENTATION FEES. Yount, Hyde &
Barbour, P.C. did not render any professional services to us in 2000 with
respect to financial information systems design and implementation.
ALL OTHER FEES. Yount, Hyde & Barbour, P. C.'s fees for all other professional
services rendered to us during 2000 were $194,841.
RATIFICATION OF INDEPENDENT PUBLIC ACCOUNTANTS
The Board, upon the recommendation of the Audit Committee, has approved the
selection of the firm of Yount, Hyde & Barbour, P.C. as independent public
accountants to audit the books of the Corporation and its subsidiary for the
current year, to report on the consolidated statement of financial position and
related statement of earnings of the Company and its subsidiary, and to perform
such other appropriate accounting services as may be required by the Board. The
Board recommends that the stockholders vote in favor of ratifying and approving
the selection of Yount, Hyde & Barbour, P.C. for the purposes set forth above.
The company has been advised by Yount, Hyde & Barbour, P.C. that the firm did
not have any direct financial interest or any material indirect financial
interest in the Company and its subsidiary in 2000. Should the Stockholders vote
negatively, the Board will consider a change in auditors for the next year.
15
FINANCIAL STATEMENTS
Financial statements of the Company are contained in the Annual Report for the
year ended December 31, 2000 which accompanies the Proxy Statement. However, the
Annual Report and the financial statements contained therein are not to be
considered as part of this soliciting material. Upon request, the Company will
provide, at no cost to the shareholder, a copy of the Annual Report on Form
10-K, as filed with the U. S. Securities and Exchange Commission.
PROPOSALS FOR 2002 ANNUAL MEETING OF STOCKHOLDERS
The deadline for submitting shareholder proposals to be considered for inclusion
in the proxy statement and form of proxy relating to the 2002 Annual
Shareholders Meeting is on or before December 13, 2001. Any such proposal
received by the Company's principal executive offices after such date will be
considered untimely and may be excluded from the proxy statement and form of
proxy.
The deadline for submitting stockholder proposals to be presented at the 2002
annual meeting, but which will not be included in the proxy statement and form
of proxy relating to such meeting, is February 26, 2002. Any such proposal
received by the Company's principal executive offices after such date will be
considered untimely and the persons named in the proxy for such meeting may
exercise their discretionary voting power with respect to such proposal.
OTHER MATTERS
The Board of Directors is not aware of any other matters to come before the
Meeting. However, if any other matters properly come before the Meeting, it is
the intention of the persons named in the enclosed form of Proxy to vote said
Proxy in accordance with their judgment in such matters.
RETURN OF PROXIES
WHETHER OR NOT YOU EXPECT TO ATTEND THIS MEETING, PLEASE COMPLETE, DATE, SIGN
AND RETURN YOUR PROXY AS PROMPTLY AS POSSIBLE TO ASSURE REPRESENTATION OF YOUR
STOCK AND HELP ASSURE A QUORUM FOR THE MEETING. YOU MAY REVOKE YOUR PROXY AT ANY
TIME PRIOR TO ITS EXERCISE.
FAUQUIER BANKSHARES, INC.
By Order of the Board of Directors
/s/ C. Hunton Tiffany
C. Hunton Tiffany
Chairman
President/CEO
Warrenton, Virginia
April 12, 2001
16
FAUQUIER BANKSHARES, INC.
BOARD OF DIRECTORS
AUDIT COMMITTEE CHARTER
ADOPTED MAY 25, 2000
STATEMENT OF POLICY
A soundly conceived, effective Audit Committee is essential to the
management, operation, and financial reporting process of Fauquier Bankshares,
Inc. and its subsidiaries. The Audit Committee shall provide assistance to the
corporate directors in fulfilling their responsibilities to the shareholders,
potential shareholders, and investment community relating to corporate
accounting, reporting practices of the Company, and the quality and integrity of
the financial reports of the Company. In so doing, it is the responsibility of
the Audit Committee to maintain free and open means of communication between the
directors, the independent auditors, the internal auditors, and the financial
management of the Company.
ORGANIZATION
MEMBERS
There shall be a committee of the Board of Directors known as the Audit
Committee. This committee shall be composed of at least three (3) directors who
are independent of the management of the Company and its subsidiaries and are
free of any relationship that, in the opinion of the Board of Directors, would
interfere with their exercise of independent judgment as a committee member.
At the committee's discretion, management of the Company or its
subsidiaries may attend meetings of the Audit Committee, but this attendance
should be in a non-voting capacity.
Committee membership standards will be maintained in accordance with
applicable banking laws and regulations.
MEETINGS
The Audit Committee shall meet on a quarterly or four (4) times per
year basis. The Committee reserves the right to meet at other times as required
and/or to meet without members of management, internal audit, or the independent
accounting firm.
MINUTES
Minutes shall be prepared for all meetings of the Audit Committee to
document the committee's discharge of its responsibilities. The minutes shall
provide an accurate record of the proceedings, and shall be read and approved at
the next meeting of the Committee.
These Minutes of the Audit Committee actions shall be presented to the
Board of Directors at its next regular or special meeting.
AUTHORITY
The authority for the Audit Committee is derived from the full Board of
Directors of Fauquier Bankshares, Inc.
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The Audit Committee shall have the authority to retain special legal,
accounting or other consultants to advise the committee. The Audit Committee may
request any officer or employee of the Company or its subsidiaries or the
Company's outside counsel or independent auditor to attend a meeting of the
committee or to meet with any members of, or consultants to, the committee.
RESPONSIBILITIES
----------------
In fulfilling the stated role within the framework of the Audit
Committee's Statement of Policy, the primary, general responsibilities of the
Audit Committee will be as follows:
o to provide for an effective and efficient internal audit program to
serve all subsidiaries of the Company in an examining and advisory
capacity
o to provide for effective external audits of all corporate subsidiaries
by suitable independent accountants
o to assist the Board of Directors in fulfilling its fiduciary
responsibilities for financial reporting and internal accounting and
operations controls
o to act as an agent for the Board of Directors to help insure the
independence of internal auditors and independent auditors, the
integrity of management, and the adequacy of disclosures to
stockholders.
DUTIES
------
Specific duties of the Audit Committee, within the noted general
responsibilities, will include, but not be limited to the following items:
1. Review and reassess the adequacy of this Charter annually and submit it
to the Board of Directors for approval.
2. Review the annual audited financial statements with management,
including major issues regarding accounting and auditing principles and
practices as well as the adequacy of internal controls that could
significantly affect the Company's financial statements.
3. Review an analysis prepared by the independent auditors of significant
financial reporting issues and judgments made in connection with the
preparation of the Company's financial statements.
4. Based on the review and discussion noted in numbers 2 and 3 above,
recommend to the Board of Directors that the audited financial
statements be included in the Company's annual report on Form 10-K.
5. Meet periodically with management to review the Company's major
financial risk exposures and the steps management has taken to monitor
and consult such exposures.
6. Review major changes to the Company's auditing and accounting
principles and practices as suggested by the independent auditors,
internal auditors or management.
7. Recommend to the Board of Directors the appointment of an independent
auditor, which firm is ultimately accountable to the Audit Committee
and the Board of Directors.
8. Approve the terms of the engagement with the independent auditor.
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9. Receive periodic reports from the independent auditor regarding the
auditor's independence, discuss such reports with the auditor, and if
so determined by the Audit Committee, recommend that the Board of
Directors take appropriate action to insure the independence of the
auditor.
10. Review with the independent auditor any problems or difficulties the
auditor may have encountered and any management letter provided by the
auditor and the Company's response to that letter. Such review should
include any difficulties encountered in the course of the audit work,
including any restrictions on the scope of activities or access to
required information.
11. Evaluate the performance of the independent auditor and, if so
determined by the Audit Committee, recommend that the Board of
Directors replace the independent auditor.
12. Discuss with the independent auditor the matters required by the
Statement on Auditing Standards Number 61 relating to the conduct of
the audit.
13. Prior to the audit, review the independent auditor's planning and
staffing for the audit.
14. Supervise the internal audit program. Upon review of the adequacy of
the program, if determined necessary, direct changes to the scope of
the internal audit program.
15. Recommend to the Board of Directors the appointment or replacement of
the internal audit manager and the internal auditors.
16. Approve the internal audit responsibilities and the terms of engagement
of the internal audit manager and internal auditors.
17. Review the significant reports prepared by internal auditors and
management's responses, and discuss such reports with the internal
auditors to insure that appropriate corrective action is being taken.
18. Review with the Company's legal counsel legal matters that may have a
material impact on the financial statements, the Company's compliance
policies and any material reports or inquiries received from regulators
or governmental agencies.
While the Audit Committee has the responsibilities and powers set forth in
this Charter, it is not the duty of the Audit 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.
This is the responsibility of management and the independent auditor. Nor is it
the duty of the Audit Committee to conduct investigations, to resolve
disagreements, if any, between management and the independent auditor or to
assure compliance with laws and regulations and the Company's Code of Ethics.
* * * * * * * * *
EXHIBIT A
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