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.
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(Name of Registrant as Specified in its Charter)
N/A
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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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[ ] 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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FAUQUIER BANKSHARES, INC.
10 COURTHOUSE SQUARE
WARRENTON, VIRGINIA 20186
April 19, 2002
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 21, 2002, 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 2001 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,
C. Hunton Tiffany
Chairman, President
and Chief Executive Officer
1
FAUQUIER BANKSHARES, INC.
10 COURTHOUSE SQUARE
WARRENTON, VIRGINIA 20186
(540) 347-2700
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NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD TUESDAY, MAY 21, 2002
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Warrenton, Virginia
April 19, 2002
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 21, 2002, AT 11:00
A.M., EASTERN TIME, for the following purposes:
1. To elect the Class III 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 2005, 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 April 10, 2002, 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, 2001,
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 OF 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
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 21, 2002 AT 11:00 A.M.,
EASTERN TIME, 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 19, 2002.
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 April 10, 2002, the record date fixed for the determination of
Shareholders entitled to notice of, and to vote at, the Annual Meeting, there
were 1,655,296 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 &
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.
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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.
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 April 10, 2002, 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.
The business address of each beneficial owner is in c/o Fauquier Bankshares,
Inc., 10 Courthouse Square, Warrenton, Virginia 20186.
AMOUNT AND NATURE OF BENEFICIAL OWNERSHIP
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NAME OF COMMON STOCK PERCENT
BENEFICIAL OWNER(S) STOCK OPTIONS* OF CLASS
------------------- ----- ------- --------
Randy K. Ferrell 14,485 2,557 1.03%
Rosanne T. Gorkowski 1,255 (1) -- 0.08%
Eric P. Graap 1,000 -- 0.06%
Alexander G. Green, Jr. 68,400 (2) 7,600 4.57%
Stanley C. Haworth 39,900 (3) 7,600 2.86%
John J. Norman, Jr. 1,000 5,600 0.40%
Douglas C. Larson 1,560 (4) 6,600 0.49%
C. H. Lawrence, Jr. 16,043 7,600 1.42%
D. Harcourt Lees, Jr. 11,200 7,600 1.13%
Randolph T. Minter 800 6,600 0.45%
B. S. Montgomery 9,332 (5) 7,600 1.02%
H. P. Neale 22,424 (6) 6,480 1.74%
Pat H. Nevill 9,440 (7) 7,600 1.02%
Henry M. Ross 13,140 (8) 7,600 1.25%
Gary R. Shook 730 (9) 2,493 0.19%
H. Frances Stringfellow 6,096 (10) 3,734 0.59%
C. Hunton Tiffany 20,981 (11) 4,761 1.56%
All directors and executive officers as a group (17
persons): 237,786 92,025 18.88%
*Number of Shares that have been granted, are vested and could be exercised and
issued within 60 days, pursuant to the Non-Employee Director Stock Option Plan
for 1995-1999, the Omnibus Stock Ownership and Long Term Incentive Plan
effective January 1, 1998, 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 1,255 shares held jointly with John P. Gorkowski, her
husband, over which she shares voting power and investment power.
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(2) 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.
(3) Includes 32,740 shares held jointly with Mildred W. Haworth, his
wife, over which he shares voting and investment power.
(4) Includes 1,000 shares held jointly with Edith J. Larson, his
mother, over which he shares voting and investment power.
(5) Includes 5,188 shares held jointly with Patty M. Montgomery, his
wife, over which he shares voting and investment power.
(6) Includes 10,288 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.
(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 210 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 14,581 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 III 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 III 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 I directors serve until 2003, and the Class II directors
serve until 2004.
The five (5) individuals listed immediately below are proposed for election as
Class III 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 2005, and until their successors shall have been
elected and shall qualify.
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POSITION HELD WITH COMPANY AND/OR PRINCIPAL FIRST YEAR
OCCUPATIONS AND DIRECTORSHIPS AS DIRECTOR
NAME DURING THE PAST FIVE YEARS OF COMPANY AGE
---- -------------------------- ---------- ---
Alexander G. Green, Jr. Retired Postmaster, Merchant, and Farmer; 1984 85
Director of the Bank since 1950.
Douglas C. Larson Vice President, Piedmont Environmental Council; 1996 55
Director of the Bank since 1996.
D. Harcourt Lees, Jr. Chairman, D. H. Lees & Co., Inc. (Insurance); 1984 80
President, D. H. Lees Real Estate; Director of
the Bank since 1954.
Randolph T. Minter President, Moser Funeral Home; President, Bright 1996 42
View Cemetery, Inc.; Director of the Bank since
1996.
H. Frances Stringfellow Administrative Consultant as Independent 1999 63
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.
The Board recommends that the stockholders vote in favor of the above nominees
as Class III 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 I and Class II directors, whose terms expire in 2003 and 2004,
respectively, and the information with respect to them, are as follows:
CLASS I
POSITION HELD WITH COMPANY AND/OR PRINCIPAL FIRST YEAR
OCCUPATIONS AND DIRECTORSHIPS AS DIRECTOR
NAME DURING THE PAST FIVE YEARS OF COMPANY AGE
---- -------------------------- ---------- ---
C. H. Lawrence, Jr. Business Development Consultant as Independent 1984 57
Contractor with the Bank; Chairman of the Board
of the Bank 1996-1997; President, Country
Chevrolet, Inc., 1976-1997; Director of the Bank
since 1980.
Henry M. Ross President, Ross Industrial Development Corp.; 1984 74
President, Greenwich Corp.; Vice Chairman of the
Board of the Bank; Director of the Bank since
1976.
C. Hunton Tiffany Chairman and Chief Executive Officer of the Board 1984 62
of the Company and Bank; President of the Company
since1984; President of the Bank 1982 - Jan. 2002;
Director of the Bank since 1974.
John J. Norman, Jr. President, Principal Broker, Norman Realty, Inc.; 1998 39
Director of the Bank since 1998.
5
CLASS II
POSITION HELD WITH COMPANY AND/OR PRINCIPAL FIRST YEAR
OCCUPATIONS AND DIRECTORSHIPS AS DIRECTOR
NAME DURING THE PAST FIVE YEARS OF COMPANY AGE
---- -------------------------- ---------- ---
Stanley C. Haworth Auctioneer; President, Warrenton Nurseries; 1984 77
Director of the Bank since 1971.
Harold Paul Neale Farming; Director of the Bank since 1971. 1984 80
Brian S. Montgomery President, Warrenton Foreign Car, Inc.; 1990 49
President, Montgomery Auto Parts; Director of the
Bank since 1990.
Pat H. Nevill Secretary-Treasurer, The Stable Door, Inc.; 1993 55
Director of the Bank since 1993.
MEETINGS AND COMMITTEES OF THE BOARD OF DIRECTORS
During the year ended December 31, 2001, the Board of Directors of the Company
held sixteen 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 2001. 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 two
official meetings and several informal discussions during fiscal 2001. 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 2001, the Committee held no
official meetings and the nominees for Class III 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 filed Form 5, Annual Statement of Beneficial
Ownership of Securities, on February 7, 2002. This Form 5 reflected the
acquisition of 645 shares of Common Stock on November 20, 2001 which were due to
be reported on December 10, 2001. C. Hunton Tiffany's wife, Susanne J. McC.
Tiffany, filed Form 4, Statement of Changes in Beneficial Ownership, on April
10, 2002 reflecting the acquisition of 150 shares of Common Stock on February 8,
2001 and the acquisition of 50 shares of Common Stock on April 12, 2001, which
were due to be reported on March 9, 2001 and May 10, 2001, respectively. Apart
6
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, 2001.
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 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 and 60,480 shares of Common Stock were granted under the Option Plan.
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 exercisable
six months from the date of grant except in the case of death or disability.
7
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 53,760 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 in 2000, and 14,107 options were
granted at an exercise price of $16.13 in 2001. None had been exercised as of
December 31, 2001. 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 (the "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.
The following sections of this Report describe the compensation program for
executive officers in effect in 2001.
BASE SALARY. The base salary paid to The Fauquier Bank's Chief Executive
Officer, C. 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 Chief Executive Officers within a representative peer group, although
there is no predetermined point within such range at which the Committee targets
the salary. Mr. Tiffany's 2001 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 2001 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 President, Randy Ferrell, is determined by
the Chief Executive Officer. The President determines the base salaries paid to
the other executive officers. The Chief Executive Officer and the President
manage 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,
they utilize 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 2001 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 Chief Executive Officer's incentive compensation. The Chief
Executive Officer and President manage the incentive compensation awards for
executive officers of The Fauquier Bank based on each executive officer's
achievement of his or her individual performance
8
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 2001, The Fauquier Bank awarded cash incentive
compensation under the Management Incentive Plan totaling $205,632 for the Chief
Executive Officer and executive officers. The incentive compensation awards
granted to Mr. Tiffany, Mr. Ferrell, Ms. Gorkowski, Mr. Graap and Mr. Shook were
based solely upon The Fauquier Bank's performance as measured by the corporate
objectives. Each of the executive officers met the performance objectives
established for him or her for 2001.
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, the Committee grants to selected key employees options to purchase
Common Stock at a price equal to the fair market value of the 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 2001, pursuant to the 1998 Omnibus Plan, the Committee granted options for
28,189 shares of Common Stock to employees of The Fauquier Bank, including
options for 10,874 shares granted to Mr. Tiffany, 5,029 granted to Mr. Ferrell,
4,510 granted to Mr. Shook, 4,672 granted to Mr. Graap, and 3,104 granted to Ms.
Gorkowski. 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 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 2001, The Fauquier
Bank matched fifty cents ($0.50) on each dollar contributed by an employee up to
six percent (6%) of that employee's contribution. For 2001, the Bank's matching
contributions to executives totaled $16,636 including $5,100 contributed to the
account of C. Hunton Tiffany, $4,533 contributed to the account of Randy
Ferrell, $2,850 contributed to the account of Rosanne Gorkowski, $1,334
contributed to the account of Eric Graap and $2,819 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 $5,471 for premiums in 2001 in connection with this
agreement.
SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN ("SERP"). In 2001, 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
9
August 10, 2000, and was split equally between Jefferson Pilot Life Insurance
and Southland Life Insurance Companies. At December 31, 2001, the approximate
cash surrender value was $805,770. 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 2001 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 2001, 2000, and 1999 for the Bank's Chief Executive Officer and
the four other executive officers who received total annual salary and bonus in
excess of $100,000 in the fiscal year ended December 31, 2001 (the "Named
Executive Officers").
LONG TERM
COMPENSATION
ANNUAL COMPENSATION AWARDS
----------------------------------------------- ----------------
SECURITIES
OTHER UNDERLYING
ANNUAL OPTIONS/ ALL OTHER
NAME AND SALARY BONUS (1) COMPENSATION SARS (3) COMPENSATION (4)
PRINCIPAL POSITION YEAR $ ($) (2) ($) (#) ($)
---------------------------- ------- ---------- ------------- ---------------- ---------------- -------------------
C. Hunton Tiffany 2001 190,389 76,871 -- 10,874 5,100
Chief Executive Officer 2000 178,017 68,756 -- 14,769 5,100
1999 169,621 53,371 -- 11,992 4,800
Randy K. Ferrell 2001 130,000 45,961 -- 5,029 10,004
President/Chief Operating 2000 101,000 27,310 -- 5,366 9,268
Officer 1999 90,290 21,199 -- 2,966 8,868
Gary R. Shook 2001 116,000 30,533 -- 4,570 2,819
Senior Vice President 2000 101,000 27,310 -- 5,366 4,086
1999 90,290 21,199 -- 2,966 3,216
Eric P. Graap 2001 97,000 30,533 -- 4,672 1,334
Senior Vice President/
Chief Financial Officer
(5)
Rosanne T. Gorkowski, 2001 79,250 21,733 -- 3,104 2,850
Senior Vice President (5)
----------------------------
(1) Reflects Incentive Compensation.
10
(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 Mr. Tiffany; represents the
portion of split dollar life insurance premiums paid by the Bank on Mr.
Ferrell's behalf of $5,471 in 2001, $5,608 in 2000, and $5,626 in 1999; and
a 401(k) match paid by the Bank for Mr. Ferrell of $4,533 in 2001, $3,660 in
2000, and $3,242 in 1999; and represents a 401(k) match paid by the Bank for
Mr. Shook, Mr. Graap and Ms. Gorkowski.
(5) Mr. Graap was named Senior Vice President and Chief Financial Officer of the
Company and the Bank, and Ms. Gorkowski was named Senior Vice President of
the Company and the Bank on December 19, 2000.
OMNIBUS STOCK OWNERSHIP AND LONG TERM INCENTIVE PLAN ("THE OMNIBUS PLAN"). On
February 15, 2001, the Board of Directors granted incentive stock options and
non-qualified options, which options, if exercised, would equal 28,189 shares of
common stock pursuant to the Omnibus Plan. The options have an exercise price of
$16.13 per share. Generally, the options are not exercisable until three years
from the date of grant and generally require continuous employment during the
period prior to exercise. The options will expire in no more than ten years
after the date of grant.
The following table provides certain information with respect to options granted
to the Named Executive Officers during the fiscal year ended December 31, 2001.
OPTIONS/SAR GRANTS IN 2001
Potential Realizable
Value at Assumed Annual
Number of Percent of Total Rates of Stock Price
Securities Options/SARs Appreciation for
underlying granted to Exercise or Option Term
Options/SARs employees base price Expiration ---------------------------
Name Granted (#) in fiscal year ($/sh) Date 5% ($) 10% ($)
---- ----------- -------------- ------ ---- ------ -------
C. Hunton Tiffany 10,874 38.57% $16.13 02/15/2011 $ 110,262 $279,462
Randy K. Ferrell 5,029 18.08% $16.13 02/15/2011 $ 50,994 $129,245
Gary R. Shook 4,510 16.00% $16.13 02/15/2011 $ 45,731 $115,907
Eric P. Graap 4,672 16.57% $16.13 02/15/2011 $ 47,374 $120,070
Rosanne T. Gorkowski 3,104 11.01% $16.13 02/15/2011 $ 31,487 $ 79,795
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, 2001. 9,811 options held by the Named
Executive Officers were exercisable during the year ended December 31, 2001.
None had been exercised at year-end.
NUMBER OF SECURITIES UNDERLYING
UNEXERCISED OPTIONS AT FISCAL YEAR END (#)
NAME EXERCISABLE UNEXERCISABLE
---- ----------- -------------
C. Hunton Tiffany 4,761 39,296
Randy K. Ferrell 2,557 13,361
Gary R. Shook 2,493 12,842
Eric P. Graap 0 4,672
Rosanne T. Gorkowski 0 3,104
11
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
(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, 2001 was $297,908.
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 $37,212 for a
person age 65 in 2001. Compensation is currently limited to $170,000 by IRC
Regulation and includes all regular pay, overtime and regular bonuses.
PENSION PLAN TABLE
5 Year
Average -
Salary YEARS OF SERVICE
- - - - - -
10 15 20 25 30 35
50,000 7,517 11,276 15,035 18,793 22,552 26,310
65,000 10,442 15,663 20,885 26,106 31,327 36,548
80,000 13,367 20,051 26,735 33,418 40,102 46,785
100,000 17,267 25,901 34,535 43,168 51,802 60,435
125,000 22,142 33,213 44,285 55,356 66,427 77,498
150,000 27,017 40,526 54,035 67,543 81,052 94,560
170,000 30,917 46,376 61,835 77,293 92,752 108,210
and 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, 2001 for the named executive officers are as follows:
Monthly Benefit Final Average Years of
Name at 65 Earnings Service
------------------------------ ---------------------- ---------------------- ----------------
C. Hunton Tiffany $8,872 $164,000 37.00
Randy K. Ferrell 4,509 118,323 7.00
Gary R. Shook 6,026 114,705 7.00
Eric P. Graap 2,388 107,821 1.00
Rosanne T. Gorkowski 1,383 83,764 2.00
RETIREMENT PLAN. The Bank has a defined contribution retirement plan under
Section 401(k) of the Internal Revenue Code of 1986, as amended, 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
12
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, 2001 of $74,880.
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, 2001. An incentive compensation plan for 2001 was approved by the
Board of Directors to be shared by all employees of the Bank. An incentive pool
of $301,333 for 2001 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 five 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 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
13
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
$5,471 for premiums in 2001 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, 2001, the approximate
cash surrender value was $805,770.
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, 2001. 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. The SNL
$250M-$500M Bank Index which includes The Fauquier Bank, contains all banks and
related holding companies from throughout the United 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.
14
PERIOD ENDING
---------------------------------------------------------------------------------
INDEX 06/16/99 06/30/99 12/31/99 06/30/00 12/31/00 06/30/01 12/31/01
------------------------------------------------------------------------------------------------------------------
Fauquier Bankshares, Inc. 100.00 98.76 95.64 90.60 82.76 117.23 140.16
NASDAQ - Total US* 100.00 107.01 162.10 158.24 97.50 85.78 77.37
SNL $250M-$500M Bank Index 100.00 103.84 95.60 87.47 92.05 118.66 130.77
*Source: CRSP, Center for Research in Security Prices, Graduate School of Business, The University of Chicago 2002.
Used with permission. All rights reserved. crsp.com.
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, 2001, these loans amounted to $4,652,519. During 2001, total principal
additions were $717,750 and total principal payments were $853,657.
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
2001, compensation for his business development services amounted to $77,400.
15
H. Frances Stringfellow, a non-employee director of the Company and the Bank,
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 on May 31,
1999. Compensation for her contractual services in 2001 amounted to $42,900.
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 22, 2002.
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 2001
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 non audit services with the auditors' independence, and has discussed with
the auditors the auditor's independence.
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 2001
for filing with the Securities and Exchange Commission.
The Audit Committee and the Board of Directors has a written charter for the
Audit Committee that is reviewed annually. A copy was provided in the Proxy
material for year-end 2000.
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
16
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, 2001. 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
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 2001 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, as is compatible with
maintaining the accountants' independence.
AUDIT FEES. Yount, Hyde & Barbour, P.C.'s fees for our 2001 annual audit and
review of interim financial statements were $40,825.
FINANCIAL INFORMATION SYSTEMS DESIGN AND IMPLEMENTATION FEES. Yount, Hyde &
Barbour, P.C. did not render any professional services to us in 2001 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 2001 were $72,057.
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 2001. Should the Stockholders vote
negatively, the Board will consider a change in auditors for the next year.
17
FINANCIAL STATEMENTS
Financial statements of the Company are contained in the Annual Report for the
year ended December 31, 2001 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 2003 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 2003 Annual
Shareholders Meeting is on or before December 13, 2002. 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 2003
annual meeting, but which will not be included in the proxy statement and form
of proxy relating to such meeting, is February 26, 2003. 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
C. Hunton Tiffany
Chairman and Chief Executive Officer
Warrenton, Virginia
April 19, 2002
18
REVOCABLE PROXY - THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
OF FAUQUIER BANKSHERS, INC. ANNUAL MEETING OF SHAREHOLDER
MAY 21, 2002, 11:00 A.M. EASTER TIME
The undersigned hereby appoints C. H. Lawrence, Jr., John J. Norman, Jr., and
Henry M. Ross and each of them (with full power to act without the other) to act
as proxy for the undersigned and to vote all shares of Common Stock of Fauquier
Bankshares, Inc. (the "Company") when the undersigned is entitled to vote only
at the Annual Meeting of Shareholders to be held on May 21, 2002, at 11:00 a.m.
Eastern Time at the Fauquier Springs Country Club, Springs Road, Warrenton,
Virginia, and at any adjournments thereof, as set forth on the reverse side.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE
"FOR" EACH OF THE PROPOSALS PRESENTED.
The undersigned acknowledges receipt from the
Company prior to the execution of this proxy
of a Notice of Annual Meeting Shareholders
and Proxy Statement dated April 19, 2002 and
of the Annual Report to Shareholders.
Dated:____________________________, 2002.
_________________________________________
Signature(s)
NOTE: Please sign exactly as your name appears on this card. When as attorney,
executor, administrator, trusteee or guardian, please give your full title. If
shares are held jointly, each holder may sign but only one signature is
required.
PLEASE COMPLETE, DATE, SIGN AND MAIL THIS PROXY PROMPTLY IN THE ENCLOSED
POSTAGE-PAID ENVELOPE. (CONTINUED, AND TO BE MARKED ON THE OTHER SIDE)
1. The election as directors of all nominees listed
(except as marked to the contrary below).
A.G. Green, Jr., D.C. Larson, D.H. Lees, Jr., R.T. Minter and VOTE
H.F. Stringfellow FOR WITHHELD
[ ] [ ]
INSTRUCTION: To withhold your vote for any individual nominee,
write that nominee's name on the line provided below.
______________________________________________________________
2. The ratification of the selection of Yount, Hyde & Barbour, P.C., as FOR AGAINST ABSTAIN
independent public accountants for the corporation for 2002. [ ] [ ] [ ]
THIS PROXY IS REVOCABLE AND WILL BE VOTED AS DIRECTED, BUT IF NO
INSTRUCTIONS ARE SPECIFIED, THIS PROXY WILL BE VOTED FOR EACH OF THE PROPOSALS
LISTED. IF ANY OTHER BUSINESS IS PRESENTED AT THE ANNUAL MEETING, INCLUDING
WHETHER OR NOT TO ADJOURN THE MEETING, THIS PROXY WILL BE VOTED BY THE PROXY
HOLDERS IN THEIR BEST JUDGMENT. AT THE PRESENT TIME, THE PROXY HOLDERS KNOW OF
NO OTHER BUISNESS TO BE PRESENTED AT THE ANNUAL MEETING.