def14a
SCHEDULE 14A
(Rule 14a-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the
Securities
Exchange Act of 1934 (Amendment No. )
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Filed by the
Registrantþ
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Filed by a Party other than the
Registranto
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Check the appropriate box:
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o Preliminary
Proxy Statement
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o Confidential,
for Use of the Commission Only (as permitted by
Rule 14a-6(e)(2))
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þ Definitive
Proxy Statement
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o Definitive
Additional Materials
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o Soliciting
Material Pursuant to Rule 14a-11(c) or Rule 14a-12
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Fauquier Bankshares, Inc.
(Name of Registrant as Specified in Its Charter)
(Name of Person(s) Filing Proxy Statement if other than the
Registrant)
Payment of Filing Fee (Check the appropriate box):
þ No fee required.
o Fee computed on table
below per Exchange Act Rules 14a-6(i)(1) and 0-11.
(1) Title of each class of securities to which transaction
applies:
(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): |
(4) Proposed maximum aggregate value of transaction:
(5) Total fee paid:
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Fee paid previously with preliminary materials. |
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Check box if any part of the fee is offset as provided by
Exchange Act Rule 0-11(a)(2) and identify the filing for
which the offsetting fee was paid previously. Identify the
previous filing by registration statement number, or the form or
schedule and the date of its filing. |
(1) Amount previously paid:
(2) Form, schedule or registration statement no.:
(3) Filing party:
(4) Date filed:
Fauquier Bankshares, Inc.
10 Courthouse Square
Warrenton, Virginia 20186
April 18, 2008
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 20, 2008, at 11:00 a.m., Eastern Time, at The Fauquier Springs Country Club,
Springs Road, Warrenton, Virginia.
The enclosed Notice of Annual Meeting and proxy statement describe the formal business to be
transacted at the Annual Meeting. Directors and officers of the Company, as well as a
representative of Smith Elliott Kearns & Company, LLC, the Companys independent accountants, 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 Companys activities and
operating performance is contained in our 2007 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 and wish
to vote in person, 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.
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Sincerely yours, |
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C. H. Lawrence, Jr. |
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Chairman |
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Fauquier Bankshares, Inc. |
Fauquier Bankshares, Inc.
10 Courthouse Square
Warrenton, Virginia 20186
(540) 347-2700
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
To Be Held Tuesday, May 20, 2008
Warrenton, Virginia
April 18, 2008
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 20, 2008, at 11:00 a.m., Eastern Time (the Annual Meeting), for the following
purposes:
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To elect three Class III directors to serve until the 2011 Annual Meeting of
Shareholders of the Company or until their successors are duly elected and qualify. |
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To ratify the selection of Smith Elliott Kearns & Company, LLC as the Companys
independent public accountants to audit the books of the Company and its subsidiary for
the current year. |
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To transact such other business as may properly come before the Annual Meeting
or any adjournments thereof, including whether or not to adjourn the Annual Meeting. |
The Board of Directors has fixed the close of business on March 21, 2008, as the record date for
determining shareholders entitled to notice of, and to vote at, the Annual Meeting.
A copy of the annual report of the Company for the year ended December 31, 2007, a proxy card and a
proxy statement accompany this notice.
It is important that your shares be represented at the meeting. Whether or not you expect to be
present in person, please complete, sign, date, and promptly mail the enclosed proxy card.
A return envelope is enclosed for your convenience that requires no postage if mailed within the
United States. 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 by providing written notice to the Secretary of the Company.
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.
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Fauquier Bankshares, Inc. |
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By Order of the Board of Directors |
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Edna T. Brannan, 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 (the Annual Meeting) to be held at The Fauquier Springs Country Club, Springs Road,
Warrenton, Virginia, on Tuesday, May 20, 2008 at 11:00 a.m., Eastern Time, and at any adjournments
thereof.
The cost of proxy solicitation will be borne by the Company. Additional solicitations may be made
by letter, e-mail, telephone or facsimile by the Company or by its directors or regular employees,
without additional compensation.
The Company began mailing this proxy statement and the form of proxy solicited hereby to its
shareholders on or about April 18, 2008.
Any proxy given pursuant to this solicitation may be revoked by the person executing it at any time
prior to its exercise by submitting to the Secretary of the Company a written notice of revocation
or a properly-executed proxy bearing a later date, or by attending the Annual Meeting and voting in
person. Proxies will extend to, and will be voted at, any properly adjourned session of the Annual
Meeting.
VOTING SECURITIES
As of March 21, 2008, the record date fixed for the determination of shareholders entitled to
notice of, and to vote at, the Annual Meeting, there were 3,568,308 outstanding shares of common
stock, which is the only class of stock of the Company. Each share of common stock is entitled to
one vote on each matter to be voted upon at the Annual Meeting. 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, shares represented by signed
proxy cards will be voted for the election of each of the nominees for director named in this proxy
statement and for the ratification of the selection of Smith Elliott Kearns & Company, LLC (Smith
Elliott) as the Companys independent public accountants.
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 proxy card 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,
if a quorum is present, the nominees receiving the greatest number of affirmative votes cast at the
Annual Meeting will be elected directors; therefore, votes withheld will have no effect. Approval
of any other matter requires that the matter receive more votes FOR than votes AGAINST the
matter. Thus, although abstentions and broker non-votes (shares held by customers which may not be
voted on certain matters because the broker has not received specific instructions from the
customers) are counted for purposes of determining the presence or absence of a quorum for the
transaction of business at the meeting, they are generally not counted for purposes of determining
whether a matter has been approved, and therefore have no effect.
1
PROPOSAL ONE:
ELECTION OF CLASS III DIRECTORS
The Companys articles of incorporation provide that the Board of Directors of the Company is
classified into three classes (I, II and III), with one class being elected every year for a term
of three years. In addition, under Virginia law, a director appointed to the Board of Directors in
between meetings of the shareholders must stand for election at the next annual meeting of
shareholders. The Board of Directors currently consists of ten directors. Mr. Green, who retired
from the Board in 2005, continued to attend Board meetings in a non-voting capacity and received
fees for meetings attended as director emeritus during 2007. The terms of office of the Class III
directors expire this year.
Messrs. Larson and Minter and Mrs. Stringfellow, each of whom currently serves as a Class III
director, are proposed for election as Class III directors. If elected, these individuals shall
hold office until the 2011 Annual Meeting and until their successors shall have been elected and
shall qualify.
Certain information is set forth below concerning the three nominees for election at the 2008
Annual Meeting, as well as the other Class I and II directors who will continue in office until the
2009 and 2010 Annual Meetings, respectively.
Nominees for Election at 2008 Annual Meeting
Class III (To Serve Until the 2011 Annual Meeting)
Douglas C. Larson, 61, has been a director of the Company and a director of the Bank since 1996.
Mr. Larson has been Vice President of the Piedmont Environmental Council since December 2000. The
Piedmont Environmental Council is a non-profit organization working to promote and protect the
natural resources, the rural economy, the history and the beauty of the nine county Piedmont
region. From 1977 through November 2000, he served in various capacities at the Airlie Foundation,
a conference and research center in Fauquier County, Virginia.
Randolph T. Minter, 48, has been a director of the Company and a director of the Bank since 1996.
Mr. Minter has been President and owner of Moser Funeral Home, Inc. since 1986, having worked prior
to that time in various positions at the funeral home since 1980. He also has owned and operated
Bright View Cemetery, Inc. in Fauquier County, Virginia since 1990.
H. Frances Stringfellow, 69, has been a director of the Company since 1999 and a director of the
Bank since 2000. Ms. Stringfellow served as Secretary of the Company from 1991 to May 2004. She
was an independent contractor administrative consultant to the Bank from June 1999 through December
2002, focusing on internal audit and strategic planning support. Ms. Stringfellow was employed by
the Bank and served in various executive and other positions from 1986 until she retired as Senior
Vice President, Administrative Services, in May 1999.
Directors Continuing in Office After 2008 Annual Meeting
Class I (Terms Expire in 2009)
John B. Adams, Jr., 63, has been a director of the Company since 2003 and a director of the Bank
since 2002. He was elected Vice Chairman of the Bank in January 2004. Mr. Adams was President and
Chief Executive Officer of A. Smith Bowman Distillery from 1989 through October 2003. Mr. Adams
serves as President and Chief Executive Officer of Bowman Companies, primarily a family real estate
holding
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company, and is a director of Universal Corporation, a publicly traded company headquartered in
Richmond, Virginia.
C. H. Lawrence, Jr., 63, has been a director of the Company since 1984 and a director of the Bank
since 1980. He has been Chairman of the Company and of the Bank since June 2006. Mr. Lawrence is a
consultant and has been an independent contractor with the Bank since February 1998. He was owner
and general manager of Country Chevrolet, Inc. from 1976 to 1997. Mr. Lawrence served as Chairman
of the Bank from March 1996 to March 1997.
John J. Norman, Jr., 45, has been a director of the Company and a director of the Bank since 1998.
Mr. Norman has served as President and Principal Broker of Norman Realty, Inc., a commercial real
estate sales and leasing brokerage in Manassas, Virginia since June 2001. He served as Vice
President and Associate Broker for Norman Realty, Inc. from 1991 to June 2001, and as a sales agent
of the company from 1989 to 1991. Mr. Norman founded Norman Property Services in 1993, and Blueline
Conservation Incentives, LLC in 2005, and serves as president of both organizations.
Class II (Term Expires in 2010)
Randy K. Ferrell, 57, has been a director of the Company since 2003 and a director of the Bank
since 2002. He has been President of the Company since May 2003 and Chief Executive Officer since
June 2004. He has been Chief Executive Officer of the Bank since June 2003 and President of the
Bank since 2002. He served as Senior Vice President of the Company from 1994 to May 2003. Mr.
Ferrell was Chief Operating Officer of the Bank from 2002 to June 2003, Executive Vice President of
the Bank, Commercial and Retail Banking and Management Information Systems from 2001 to 2002, and
Senior Vice President, Commercial Lending from 1994 to 2001.
Brian S. Montgomery, 55, has been a director of the Company and a director of the Bank since 1990.
Mr. Montgomery has been owner and President of Warrenton Foreign Car, Inc. located in Warrenton,
Virginia, since 1972.
P. Kurtis Rodgers, 40, has been a director of the Company and a director of the Bank since March
2007. Mr. Rodgers is President and Chief Operating Officer of S.W. Rodgers Co., Inc., a heavy
highway site contractor headquartered in Gainesville, Virginia that operates throughout Virginia.
Prior to his appointment as President and Chief Operating Officer in 1998, Mr. Rodgers served in a
variety of capacities within S.W. Rodgers Co., Inc.
Sterling T. Strange, III, 47, has been a director of the Company and the Bank since March 2007. Mr.
Strange is President and Chief Executive Officer of The Solution Design Group, Inc., an information
technology consulting firm to the transportation industry located in Warrenton, Virginia and
Orlando, Florida. Prior to establishing The Solution Design Group in 2004, Mr. Strange founded
Decision Support Technologies, Inc., which was sold to Air-Transport IT Services, where he served
as Executive Vice President and Chief Solutions Officer beginning in 2002.
The Board recommends that the shareholders vote FOR the above nominees as directors. The persons
named in the proxy will vote for the election of the above nominees unless authority is withheld.
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 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.
3
MEETINGS AND COMMITTEES OF THE BOARD OF DIRECTORS
Independence. A majority of the directors are independent directors as defined by the listing
standards of the NASDAQ Stock Market LLC (NASDAQ), and the Board of Directors has determined that
these independent directors have no relationships with the Company that would interfere with the
exercise of their independent judgment in carrying out the responsibilities of a director. The
independent directors are Messrs. Adams, Larson, Lawrence, Minter, Montgomery, Norman, Rodgers,
Strange and Ms. Stringfellow. In determining the independence of the directors, the Board
considered the following relationships that Mr. Lawrence and Mr. Norman have with the Company: (i)
Mr. Lawrence serves as a consultant to the Bank and is paid for this service pursuant to an
arrangement described on page 9; and (ii) Norman Realty, Inc., of which Mr. Norman serves as
President, has been engaged by the Bank to scout potential sites for future branches and would
receive a sales commission from the seller of any property purchased by the Bank under this
engagement. After considering these relationships, the Board concluded that Messrs. Lawrence and
Norman are both independent.
Shareholder Communications with the Board of Directors. Any shareholder who wishes to contact the
Board of Directors or any of its members may do so by writing to Fauquier Bankshares, Inc., Board
of Directors, c/o Secretary, 10 Courthouse Square, Warrenton, Virginia 20186. The Secretary of the
Company will promptly forward all such communications to the specified addressees. Communications
may also be directed to the Board of Directors through our website: www.fauquierbank.com, under
Contact Us. Emails sent through our website clearly addressed to the Board of Directors or to a
specific director will be forwarded by our webmaster as indicated.
Meetings and Attendance. During the year ended December 31, 2007, the Board of Directors held
twelve 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.
The Company has not adopted a formal policy on Board members attendance at our annual meetings of
shareholders, although all Board members are encouraged to attend. All Board members attended our
2007 Annual Meeting of Shareholders.
Audit Committee. The Board has an Audit Committee, composed entirely of directors who satisfy the
independence and financial literacy requirements for audit committee members under the NASDAQ
listing standards and applicable Securities and Exchange Commission (SEC) regulations. In
addition, at least one member of the Audit Committee has past employment experience in finance or
accounting or comparable experience which results in the individuals financial sophistication.
The Audit Committee is responsible for the appointment, compensation and oversight of the work
performed by the Companys independent registered public accounting firm. The Audit Committee held
ten official meetings and several informal discussions in fiscal 2007. The Audit Committee report
is set forth below. The current members of the Audit Committee are Messrs. Adams, Larson, Strange
and Ms. Stringfellow. The Board of Directors has determined that Ms. Stringfellow qualifies as the
audit committee financial expert as defined by SEC regulations and has designated her as the
Companys Audit Committee Financial Expert. The Audit Committee operates pursuant to a written
charter, which is posted on the Banks website: www.fauquierbank.com under Investor Relations
Corporate Governance. The committee reviews and reassesses the charter annually and recommends
any changes to the Board for approval.
Compensation and Benefits Committee. The Company has a Compensation and Benefits Committee, whose
function is to aid the full Board of Directors of the Company in meeting its overall
responsibilities with regard to the oversight and determination of executive compensation. The
committee, composed entirely of directors who satisfy the independence requirements for
compensation committee members under the
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NASDAQ listing standards, held seven official meetings and several informal discussions in fiscal
2007. The current members of the Companys Compensation and Benefits Committee are Messrs. Larson,
Lawrence, Minter, Montgomery and Rodgers. These same directors serve as the Banks Compensation
and Benefits Committee, whose function is to aid the Board of Directors of the Bank in meeting its
overall responsibilities with regard to the oversight and determination of executive compensation.
The Banks Compensation and Benefits Committee held seven official meetings and several informal
discussions during fiscal 2007.
The Compensation and Benefits Committees operate pursuant to written charters, which are posted on
the Banks website: www.fauquierbank.com under Investor Relations Corporate Governance. The
Committees review and reassess the charters annually and recommend any changes to the Board for
approval.
Board Governance and Nominating Committee. The responsibilities of the Board Governance and
Nominating Committee include the evaluation of the Boards structure, personnel and processes,
along with the responsibility for making recommendations to the full Board regarding nominations of
individuals for election to the Board of Directors. The committee is composed entirely of directors
who satisfy the independence requirements for nominating committee members under the NASDAQ listing
standards. The members of the Board Governance and Nominating Committee are Messrs. Adams,
Lawrence, Norman, Rodgers and Ms. Stringfellow. The committee held five official meetings in 2007
and several informal discussions. The committee operates pursuant to a written charter, which is
posted on the Banks website: www.fauquierbank.com under Investor Relations Corporate
Governance. The committee reviews and reassesses the charter annually and recommends any changes
to the Board for approval.
Qualifications for consideration as a director nominee may vary according to the particular areas
of expertise being sought as a complement to the existing Board composition. The committee
generally reviews a potential candidates background, experience and abilities, the contributions
the individual could be expected to make to the collective functioning of the Board and the needs
of the Board at the time. During 2005, the Board adopted Corporate Governance Guidelines for the
Company, which outline certain specific criteria that the Board seeks to attract, which include (i)
a commitment to the Companys purpose and to all stakeholders equally; (ii) informed, mature and
practical judgment developed as a result of management or policy-making experience; (iii) business
acumen, with an appreciation of the major issues facing a company of comparable size and
sophistication; (iv) financial literacy in reading and understanding key performance reports; (v)
integrity and an absence of conflicts of interest; (vi) visionary thinking and strategic planning
expertise; (vii) ability to influence others; (viii) strong organizational and self-management
skills; (ix) being independent according to NASDAQ listing standards; (x) having sufficient time to
prepare and meet Board commitments; and (xi) meeting age limit requirements.
The Board Governance and Nominating Committee will consider candidates for directors proposed by
shareholders. The committee has no formal procedures for shareholders to submit candidates for
consideration, and, until otherwise determined, will accept written submissions that include the
name, address and telephone number of the proposed nominee, along with a brief statement of the
candidates qualifications to serve as a director. All such shareholder recommendations should be
submitted to the attention of the Chairman, Board Governance and Nominating Committee, Fauquier
Bankshares, Inc., 10 Courthouse Square, Warrenton, Virginia 20186, and must be received no later
than January 15, 2009 in order to be considered for the next annual election of directors. Any
candidates submitted by a shareholder are reviewed and considered in the same manner as all other
candidates. The current nominees for Class III members of the Board of Directors were approved on
the recommendation of the Board Governance and Nominating Committee.
In addition, in accordance with the bylaws of the Company, any shareholder entitled to vote in the
election of directors generally may directly nominate one or more persons for election as directors
at an Annual Meeting if the shareholder gives written notice of his or her intent to make such
nomination. In accordance with the Companys bylaws, a shareholder nomination must include (i) the
name and address of the shareholder who intends to make the nomination and of the person(s) to be
nominated, (ii) a
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representation that the shareholder is an owner of common stock of the Company, entitled to vote,
and intends to appear at the Annual Meeting (in person or by proxy) to nominate the individual(s)
specified in the notice, (iii) a description of all arrangements or understandings between the
shareholder and each nominee for director pursuant to which the nomination(s) are made by the
shareholder, (iv) such other information regarding such nominee proposed by the shareholder as
required in the proxy rules of the SEC including the amount and nature of each nominees beneficial
ownership, age and principal occupation for the past five years, and (v) the written consent of
each nominee to serve as a director of the Company if so elected. All such nominations for the 2009
Annual Meeting must be in proper written form and received by the Secretary of the Company by March
19, 2009, provided that such notice shall not be required to be given more than 90 days prior to
the 2009 Annual Meeting.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Pursuant to Section 16(a) of the Securities Exchange Act of 1934 (the Exchange Act), officers,
directors and beneficial owners of more than 10% of the Companys common stock are required to file
reports on Forms 3, 4 and 5 with the SEC to report their beneficial ownership of the Companys
common stock as well as certain changes in such beneficial ownership. Based solely upon the
Companys review of such reports, the Company reports that there was one late filing during the
fiscal year ending December 31, 2007. Mr. Montgomery reported one transaction on Form 4 late
during 2007. The Company also wishes to disclose a late filing with respect to the fiscal year
ended December 31, 2006. Mr. Green, a director, reported one transaction on Form 4 late during
2006.
6
DIRECTORS COMPENSATION
Fiscal 2007
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Change in |
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Pension Value |
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Non- |
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and |
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Equity |
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Nonqualified |
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Fees Earned |
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Incentive |
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Deferred |
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or Paid in |
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Option |
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Plan |
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Compensation |
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All Other |
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Cash 2 |
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Awards 3, 4 |
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Awards |
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Compensation |
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Earnings |
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Compensation |
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Total |
Name 1 |
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($) |
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($) |
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($) |
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($) |
Lawrence Jr., C.H. |
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47,100 |
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8,327 |
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13,500 |
5 |
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68,927 |
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Chairman of the Board |
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Adams Jr., John B. |
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28,800 |
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8,327 |
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37,127 |
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Green, Alexander 6 |
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1,300 |
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1,300 |
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Haworth, Stanley C. |
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7,600 |
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4,904 |
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12,504 |
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Larson, Douglas C. |
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27,900 |
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8,327 |
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36,227 |
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Minter, Randolph T. |
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29,400 |
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8,327 |
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37,727 |
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Montgomery, Brian S. |
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31,300 |
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8,327 |
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39,627 |
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Neale, H. Paul |
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6,800 |
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4,904 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
11,704 |
|
Nevill, Pat H. |
|
|
9,300 |
|
|
|
4,904 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
14,204 |
|
Norman Jr., John J. |
|
|
20,800 |
|
|
|
8,327 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
29,127 |
|
Rodgers, P. Kurt |
|
|
16,700 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
16,700 |
|
Strange, Sterling T. |
|
|
19,200 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
19,200 |
|
Stringfellow, H. Frances |
|
|
27,700 |
|
|
|
8,327 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
36,027 |
|
Tiffany, C. Hunton7 |
|
|
300 |
8 |
|
|
2,371 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
30,585 |
8 |
|
|
33,256 |
|
|
|
|
(1) |
|
Randy K. Ferrell, the Companys President and Chief Executive Officer is not included in this
table as he is an executive of the Company and thus receives no compensation for his services
as a director. The compensation received by Mr. Ferrell as an executive of the Company is
shown in the Summary Compensation Table on page 19. |
|
(2) |
|
Because each Company director also serves on the Banks board of directors, the amounts
reported in this table reflect compensation for board service paid by the Company and the
Bank. |
|
(3) |
|
Reflects the dollar amount recognized in the fiscal year for financial statement reporting
purposes in accordance with SFAS No. 123(R) for restricted stock awards granted during 2005,
2006, and 2007 under the Omnibus Plan. As of December 31, 2007, each non-executive director
held the following shares of restricted stock: Mr. Montgomery: 999; Mr. Adams: 999; Mr.
Haworth: 558; Mr. Lawrence: 999; Mr. Larson: 999; Mr. Minter: 999; Mr. Neale: 558; Ms. Nevill:
558; Mr. Norman: 999; Ms. Stringfellow: 999; and Mr. Tiffany: 282. |
|
(4) |
|
Each non-executive director received an award of 441 shares of restricted stock on February
15, 2007 under the Omnibus Plan, which shares vest on February 15, 2010. The grant date fair
value of |
7
|
|
|
|
|
each restricted stock award to the non-executive directors for 2007, computed in
accordance with SFAS No. 123(R), was $25.40 per share or $3,423 per director. Assumptions
used in the
calculation of these amounts are included in Note 14 to the Companys audited financial
statements for the fiscal year ended December 31, 2007 included in the Companys Annual Report
on Form 10-K filed with the SEC on March 14, 2008. |
|
(5) |
|
As discussed below, Mr. Lawrence performs specific duties for the Bank on a part-time basis
in addition to his duties as a director of the Company and the Bank. Mr. Lawrences
compensation for these part-time services is $500 for each half day and $1,000 for each full
day of services provided to the Bank. During 2007, compensation to Mr. Lawrence for these
services totaled $13,500, which compensation is in addition to the compensation Mr. Lawrence
receives as a director of the Company and the Bank. |
|
(6) |
|
Mr. Green is retired from the Board of Directors, but continued to attend Board meetings in a
non-voting capacity and received fees for meetings attended as director emeritus during 2007. |
|
(7) |
|
Mr. Tiffany retired from the Companys Board on January 15, 2007. |
|
(8) |
|
Includes cash compensation paid to Mr. Tiffany in 2007 as a non-employee director and
Chairman of the Companys and the Banks Boards of Directors prior to his retirement as well
as $30,585 in payments received from the Tiffany SERP explained in the -Supplemental
Retirement Plan for C. Hunton Tiffany section below. |
Retainer and Meeting Fees. Non-employee directors of the Bank received an annual retainer of
$5,000 for Bank board service during 2007. In 2007, non-employee directors of the Company received
a fee of $300 for each Company Board and committee meeting attended (except that Committee Chairmen
for the Audit, Compensation and Benefits and Board Governance and Nominating Committees received
$400 for each Company committee meeting they chaired) and non-employee directors of the Bank
received a fee of $500 for each Bank Board meeting and $300 for each Bank committee meeting
attended.
Effective March 31, 2007, based on the recommendation of the Compensation and Benefits Committee in
light of the increased demands of time, responsibility and liability on board members and a
continuing increase in non-employee director compensation in the financial institutions industry,
the Board made the following changes to director compensation. In addition to the annual retainer
for Bank board service of $5,000, each non-employee director will also receive an annual retainer
for Company board service of $3,000, and annual retainers will be pro-rated at one half for any
director who will not serve after the annual meeting of shareholders. Non-employee directors of
the Company will receive a fee of $800 for each joint meeting of the Company and Bank Boards
attended.
Director Deferred Compensation Plan. The Company has a Director Deferred Compensation Plan (the
Deferred Compensation Plan), pursuant to which 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 Companys
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 Companys common
stock are paid, at the election of the director, either in cash or in whole shares of common stock
and cash in lieu of fractional shares. Directors may elect to receive amounts contributed to their
respective accounts through up to five installment payments. 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.
8
Non-Employee Director Stock Option Plan. The Company had a Non-Employee Director Stock Option Plan
(the Director Option Plan) that expired in 1999. Under the Director Option Plan, each director
who was not an employee of the Company or the Bank received an option grant covering 2,240 shares
of Company common stock on April 1 of each year during the five-year term of the Director Option
Plan. The first grant under the Director Option Plan was made on May 1, 1995. During the term of
the Director Option Plan, a total of 120,960 options were granted under the plan. There are 29,620
options under the Director Option Plan remaining available to be exercised. The exercise price of
awards was fixed at the fair market value of the shares on the date the option was granted. The
options granted under the plan became exercisable six months from the date of grant except in the
case of death or disability. Options that are not exercisable at the time a directors service on
the Board terminates for reasons other than death, disability or retirement in accordance with the
Companys policy are forfeited. The purpose of the Director Option Plan was to promote a greater
identity of interest between non-employee directors and the Companys shareholders by increasing
each non-employee directors proprietary interest in the Company through the award of options to
purchase Company common stock.
Omnibus Stock Ownership and Long-Term Incentive Plan. The Company has an Omnibus Stock Ownership
and Long-Term Incentive Plan (the Omnibus Plan), which was established in 1998 for employees and
amended and restated in 2000 to include non-employee directors. 180,000 shares of stock were
reserved for awards to non-employee directors during the term of the plan, which expires in 2010.
The first grant to non-employee directors was made on May 23, 2000. Under the Omnibus Plan,
non-qualified options to acquire shares of Company common stock, restricted stock, stock
appreciation rights, and/or units may be granted from time to time to non-employee directors of the
Company and of any of its subsidiaries.
During 2000, 2001 and 2002, non-employee directors received awards of options under the Omnibus
Plan. During 2003, no equity awards were granted to non-employee directors under the plan. In
2004, the Company began granting restricted stock to non-employee directors under the plan instead
of options. For 2007, non-employee directors received restricted stock awards equal in value to
40% of the restricted stock incentive earned by management under the 2007 Management Incentive Plan
divided by the number of directors eligible for the awards. The Compensation and Benefits
Committee determined the dollar amount earned in relation to the Management Incentive Plan and then
determined the number of restricted shares to award by dividing that amount by the closing price of
the Companys common stock on the day prior to such determination. Only directors continuing in
office after the 2007 Annual Meeting were eligible to receive restricted stock awards. On February
15, 2007, 441 shares of restricted stock were awarded to each non-employee director continuing in
office after the 2007 Annual Meeting under the Omnibus Plan. These shares vest on February 15,
2010.
In February 2008, the Compensation and Benefits Committee recommended, and the Board approved,
de-linking the calculation of non-employee directors restricted stock grant from the Management
Incentive Plan as described above. Beginning in 2009, restricted stock grants will be calculated
by dividing $8,500, the average restricted stock grant awarded in 2004 through 2007, by the closing
price of the Companys common stock on the day prior to the day the Compensation Committee makes
the determination. This approach was chosen because it is more consistent with shareholders
long-term interest and increases director ownership of Company shares.
Consulting Agreement with C. H. Lawrence, Jr. Pursuant to a written agreement dated April 16,
2007, Mr. Lawrence performs specific duties for the Bank on a part-time basis in addition to his
duties as a director of the Company. These duties include business development, and planning and
conducting various sales training classes for Bank employees such as Establishing Customer
Relationships for Managers and Customer Sales Representatives, Building a Winning Sales Team,
and Developing Teller Excellence. Mr. Lawrences compensation for these part-time services is
$500 for each half day and $1,000 for each full day of services provided to the Bank. During 2007,
compensation to Mr. Lawrence for these services totaled $13,500, which compensation is in addition
to the compensation Mr. Lawrence receives as a director of the
9
Company. This agreement is in
effect through December 31, 2008. Either party may terminate the agreement at any time.
Supplemental Retirement Plan for C. Hunton Tiffany. Former Director Tiffany receives payments
under a supplemental retirement plan (the Tiffany SERP) that was created to supplement his
retirement income following his retirement from his position as Chief Executive Officer of the
Company and the Bank. 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 to be used to fund the
Tiffany SERP. The initial investment of $749,000 was implemented on August 10, 2000, and was split
equally between Lincoln National (formerly Jefferson Pilot Life Insurance) and ING Group, aka Life
of Denver (formerly Southland Life Insurance Companies). At December 31, 2007, the approximate cash
surrender value was $1,041,954. Mr. Tiffany began receiving payments from this SERP in July 2004.
The Boards objective was to supplement Mr. Tiffanys expected retirement earnings under
then-existing 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 Tiffany SERP. For 2007, Mr. Tiffany received payments from this plan
totaling $30,585.
EXECUTIVE COMPENSATION
Compensation Discussion and Analysis
Compensation Philosophy. The Company strives to be an organization where work is satisfying to our
staff and where knowledgeable and skillful associates can work in a challenging and rewarding
atmosphere. Achievement of these goals is critical to the Companys ability to provide quality
products and services to its clients, as well as provide reasonable return to its shareholders.
The Company considers compensation an integral part of this strategy. The compensation system must
support the achievement of these goals by making a significant contribution to the achievement of
strategy and objectives at an acceptable level of compensation and ongoing development of the
organization and its human resources.
The Companys compensation system is designed to result in the achievement of the Companys
objectives. To this end, the compensation system is designed to: (i) attract people whose
qualifications clearly meet or exceed the minimum education, experience and skills specified for
each job; (ii) attract those who are willing to be held accountable for results; (iii) retain those
who achieve the high level of results expected; (iv) motivate people to seek additional
accountability; take reasonable risks and achieve greater than expected results; (v) differentiate
between the performers and those who do not want to be accountable or fail to achieve results.
Overview of Compensation Program. The Companys Compensation and Benefits Committee (the
Committee) approves the Companys compensation philosophy, strategy and policy. Although
executive compensation is primarily paid by the Bank, the Committee develops Company goals and
objectives relevant to the compensation of the Chief Executive Officer and the Companys other
executive officers, including developing annual and long-term performance objectives for the Chief
Executive Officer for joint approval by the Boards of the Company and the Bank, and developing and
approving annual and long-term performance objectives for the executive officers other than the
Chief Executive Officer.
With the assistance of the Bank and Company Boards, the Committee evaluates the performance of the
executive officers and sets their annual compensation, including annual salary, cash and equity
incentive awards, and other direct or indirect benefits. The Chief Executive Officer makes
recommendations regarding compensation with respect to the other executive officers, although the
Committee makes the final decision. The Committee also annually approves compensation structures,
job values, compensation budgets and distribution guidelines of the Bank with the Board of
Directors approval. In addition to the
10
Chief Executive Officer, Human Resources Department
personnel periodically attend Committee meetings and make presentations to the Committee on
compensation and benefits
matters. The Committee meets in executive session, without the CEO, when discussing CEO
compensation.
Finally, the Committee is responsible for reviewing the competitiveness of the Companys executive
compensation programs to ensure (i) the attraction and retention of senior management; (ii) the
motivation of senior management to achieve the Companys business objectives; and (iii) the
alignment of the interests of key leadership with the long-term interests of the Companys
shareholders.
The Companys only executive officers during 2007 are the Chief Executive Officer, Chief Operating
Officer, and Chief Financial Officer, who are referred to throughout this discussion as the named
executive officers or NEOs.
Establishing Executive Compensation. We compensate our senior management, including our NEOs,
through a mix of base salary, cash and equity incentive compensation, perquisites and benefits
designed to be competitive with our peer financial institutions. Cash and equity incentive awards
to senior management are made pursuant to our Management Incentive Plan, which is designed to
reward company-wide performance through tying awards to selected performance goals including return
on equity, loan growth, and deposit growth. We want to provide our NEOs with a level of assured
cash compensation in the form of base salary as well as cash and equity opportunities in the form
of incentive compensation that will help recruit, retain and reward competent and effective
executive talent, and at the same time align senior managements interests with the long-term
interests of our stockholders.
The compensation planning process consists of annually establishing an overall executive
compensation package and then allocating that compensation among base salary, and cash and equity
incentives under the Management Incentive Plan. In order to recruit and retain top executive
talent whom we expect to provide performance that will create and sustain long-term value for our
stockholders, we intentionally pay overall compensation that is slightly higher than that paid by
most of our peer companies. Our base salaries are comparable with the base salaries paid by most
of our peer companies for comparable positions. We generally offer higher at-risk (or incentive)
compensation components in the form of cash and equity incentive compensation under our Management
Incentive Plan, and incentive compensation comprises a large portion of our total compensation.
As in previous years, for 2007 the Committee engaged an outside compensation consultant,
L. R. Webber and Associates, to recommend the design of our Management Incentive Plan, and to
perform an analysis of the compensation of our NEOs, other senior management, and non-employee
directors compared to other financial institutions to assist in establishing the total compensation
package for our senior management team. The consultant prepared this competitive market analysis
after reviewing information from: (i) the L. R. Webber Associates, Inc. Regional Salary/Benefits
Survey, which included information about financial institutions of comparable asset size and
performance levels in Virginia, Northern Virginia and Pennsylvania; (ii) the SNL Securities
Executive Compensation Survey (SNL), which concentrated on publicly-traded financial services
companies of comparable asset size located in Maryland, North Carolina, Pennsylvania, and Virginia;
and (iii) the 2006 Virginia Bankers Association Salary, Benefits, and Director Compensation Survey,
which provided information about Virginia banks by region and asset size. In preparing this
analysis, the consultant focused on base salaries of the NEOs at these companies, the weighting of
the cash and equity incentive compensation relative to base salaries, and the performance measures
used by these companies to determine executive compensation. The consultant also projected base
salary ranges for 2007 for these companies.
The consultant presented this competitive market analysis to the Committee at its meeting at the
beginning of the year, so the Committee could refer to the information in determining base salary
changes for 2007 and determine the performance goals and types of awards to be granted under the
Management Incentive Plan. For setting 2007 NEO compensation, the Committee focused more heavily on
the
11
executive compensation paid by the companies in the L. R. Webber Associates, Inc. Regional
Salary/Benefits Survey.
Decisions regarding the base salaries for the NEOs are generally made at the Committees first
meeting following the availability of the Companys financial results for the prior year. In
addition to referring to the consultants peer analysis, the Committee uses the prior year
financial results to evaluate the NEOs performance against his individual performance plan for the
prior year. In determining the Chief Financial Officers and the Chief Operating Officers base
salary, the Committee also considers the recommendation of the Chief Executive Officer.
Generally at this meeting, the Committee also determines the extent to which the cash and equity
incentive awards under the Management Incentive Plan for the prior year were earned by measuring
actual outcomes against the pre-determined performance goals. The Committee sets the performance
goals for the Management Incentive Plan for the current year at its next meeting. The performance
goals are made as early as practicable in the year in order to maximize the time period for the
incentives associated with the awards to be achieved. The Committees schedule is determined
several months in advance, and the proximity of the granting of any equity awards to announcements
of earnings or other market events is coincidental.
The Chief Executive Officer attends these Committee meetings, although the Chief Executive Officer
is not present during deliberations or voting concerning his own compensation. The Committee seeks
the Chief Executive Officers input regarding the performance evaluation and compensation
recommendations for the Chief Financial Officer and the Chief Operating Officer. The Chief
Executive Officer sets base salaries and makes cash incentive awards to non-executive officer
senior management within specific guidelines established by the Committee. The Committee does not
delegate authority to the Chief Executive Officer with respect to equity awards of any kind.
The Compensation Committee engaged the services of Pearl Meyer & Partners in September 2007 as
outside compensation consultants to assist in the annual establishment of an overall executive
compensation package beginning in 2008.
Base Salaries. Based on an evaluation of their personal performance against their individual
performance plans for 2006, reference to the competitive market analysis provided by the
compensation consultant and a review of the Companys overall performance in 2006, the Committee
set the base salary for the Chief Executive Officer for 2007 at $235,645 and for the Chief
Financial Officer for 2007 at $154,000. Both of these 2007 base salaries were increased from 2006,
reflecting the Committees determination that the Company and each NEO had performed well in 2006.
The Chief Operating Officer was hired on January 1, 2007 at an annualized salary of $150,000.
Management Incentive Plan. Our practice is to award incentive compensation based on satisfactory
completion of pre-determined Company performance objectives. Cash and equity incentive awards to
senior management are made pursuant to our Management Incentive Plan, which is designed to reward
the achievement of company-wide performance through the tying of awards to selected performance
measures such as net income, return on average equity, net loan growth, transaction deposit growth,
and approved tactical action plans. The Committee recommends Company performance goals and award
payouts under the Management Incentive Plan for approval by the Board of Directors. The Committee
has the discretion to increase or decrease cash or equity awards earned under the Management
Incentive Plan with approval by the Board of Directors.
The Committee reviewed the Companys strategic objectives for 2007 and chose factors relative to
the primary objectives, weighting each factor in the order of priority. The NEOs performance
goals for 2007 were based on the following four measures of the Companys 2007 performance: return
on average equity (weighting: 70%), net loan growth (weighting: 5%), transaction deposit growth
(weighting: 15%), and tactical action plans (weighting: 10%). The four performance criteria were
measured against the
12
Companys actual budget for 2007, which the Company considers confidential
strategic information and does not publicly disclose for competitive reasons. The performance
goals were also scaled so that a
recipient could receive part of an award in the event that a portion of the targeted goals were
achieved. The Committee believes these performance goals are in line with incentives offered to
comparable financial institutions and were fair, equitable and competitive for senior management.
The overall Company performance goal included a threshold of 75%, which meant that if Company
performance was below 75% of the overall target on the four measures, no incentive awards would be
paid under the Management Incentive Plan for 2007.
The Committee used these performance goals to determine incentive awards earned under the
Management Incentive Plan for 2007 performance. During 2007, 82.01% of the overall target for 2007
was achieved by the NEOs; thus the amounts awarded were based on 82.01% of the 2007 potential
incentive.
Cash Incentive Compensation. Consistent with our approach for allocating overall compensation, and
as provided in his employment agreement, the Chief Executive Officers target cash payout under the
Management Incentive Plan for 2007 was set at 40% of base salary based upon 100% attainment of the
Companys budgeted return on average equity, loan growth, and deposit growth goals for 2007. The
Chief Operating Officers target cash payout under the Management Incentive Plan for 2007 was set
at 30% of base salary based upon 100% attainment of the same company goals. The Chief Financial
Officers target cash payout under the Management Incentive Plan for 2007 was set at 25% of base
salary based upon 100% attainment of the same Company goals. Consistent with the purpose of
rewarding strong Company performance, there was no maximum amount that could be earned under these
award formulas. There was, however, a minimum level of performance required to earn any portion of
this cash incentive award. No cash incentive award would be earned for Company performance of less
than 75% of the overall 2007 budgeted amount. Cash incentive payouts for the Chief Executive
Officer, Chief Operating Officer, and Chief Financial Officer under the Management Incentive Plan
for 2007 were $77,292, $36,900, and $31,570, respectively, which reflected Company performance of
82.01% of the targeted budget level for 2007. These cash awards were paid in February 2008 and are
reflected in the non-equity incentive plan compensation column of the Summary Compensation Table
on page 19.
Equity Incentive Compensation. We grant equity awards under our Omnibus Stock Ownership and
Long-Term Incentive Plan adopted in 1998 and amended and restated in 2000. Prior to 2003, the
Company awarded stock options to senior management as a long-term incentive to align the NEOs
interests with other stockholders and to encourage stock ownership. In 2003, no equity awards were
granted to senior management. In 2004, after determining that grants of restricted stock would
generally be more effective than grants of stock options at aligning the interests of the grantees
with those of the Companys stockholders, the Committee, with Board approval, began to utilize
restricted stock grants in lieu of stock options. Our restricted stock grants are both
performance-based and time-based. Restricted stock is only awarded to the extent the Company
has achieved the specified performance goals for the year. Once awarded the restricted stock has
time-based vesting.
Under the Management Incentive Plan, the NEOs receive an equity award consisting of restricted
stock equal in value to 90% of the cash incentive award earned under the plan for the year. The
Committee determines the dollar amount of the cash incentive earned under the Management Incentive
Plan, and then determines the number of restricted shares earned by dividing that amount by the
closing price of the Companys common stock on the day prior to such determination. For our Chief
Executive Officer, Chief Operating Officer, and Chief Financial Officer, the restricted stock
grants totaled $69,562, $33,210, and $28,413, respectively, earned for 2007, which were determined
and granted on February 14, 2008. The amounts reflect applying the 90% factor to the cash
incentive award earned for the same year. The restricted stock vests in full on the third
anniversary date of grant, if the NEO remains in the Banks employ. The Committee selected a
cliff-vesting approach to maximize the retention value of these grants.
13
401(k) Savings Plan. To encourage saving for retirement and as a retention tool, the Bank maintains
a defined contribution 401(k) retirement plan covering employees who have completed 250 hours of
service within three months of hire or one year of service if 250 hours is not completed within
three months of hire and who are at least 18 years of age (the 401(k) Savings Plan). Under the
plan, participants may contribute an amount up the IRS maximum amount of their covered compensation
for the year. 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 Banks Board of Directors. Although the Company match is discretionary, a match of 50% of the
first 6% of employee deferrals has been granted consistently in recent years.
Pension Plan. The Bank also maintains a non-contributory defined benefit plan (the Pension 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 plans normal
retirement benefit formula is as follows: (i) 1.35% of the participants highest consecutive 5-year
average compensation per year of service up to 35 years, plus (ii) 0.60% of the participants
highest consecutive 5-year average compensation, in excess of his/her covered compensation level,
per year of service up to 35 years. For purposes of the Pension Plan, covered compensation level
equals the average of the last 35 years of the social security wage base at normal retirement.
Cash benefits under the plan generally commence on retirement, death or other termination of
employment and are payable in various forms, generally at the participants election. The plan is
based on a straight life annuity assuming full benefit at age 65, no offsets, and covered
compensation of $53,820 for a person age 65 in 2007. Compensation that may be taken into account
for purposes of the Pension Plan is currently limited to $225,000 by Internal Revenue Code
regulations and includes all regular pay, overtime and regular bonuses.
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, 2007 for the NEOs
is as follows: Mr. Ferrell: $4,849; Mr. Frederick $600; and Mr. Graap: $2,251. The Company
provides this benefit in addition to the 401(k) Savings Plan to help ensure a comprehensive
retirement benefit for employees. The present value of accumulated benefits payable to each of the
NEOs, including the number of years of service credited to each NEO, under the Pension Plan is
reported in the Pension Benefits table on page 22.
On December 20, 2007, the Companys Board of Directors approved the termination of the defined
benefit pension plan effective on December 31, 2009, and the Board approved to replace the defined
benefit pension plan with an enhanced 401(k) plan effective January 1, 2010.
Supplemental Executive Retirement Plan. In 2005, the Company adopted a Supplemental Executive
Retirement Plan for executives (the Executive SERP), which is a supplemental benefit plan
designed to ensure that participants will have, upon retirement from the Company or its
subsidiaries participating in the plan, retirement benefits targeted at 70% (prorated if the
participant has fewer than 10 years of benefit service) of base salary and incentive pay when added
together with benefits provided through social security, the Pension Plan and employer
contributions to the 401(k) Savings Plan. A participants employee contributions to the 401(k)
Savings Plan are not taken into account in determining the 70% and thus will increase the total
retirement benefits available to the participant.
The Company adopted this plan to provide consistent retirement benefits as a percent of final
compensation for individuals whose retirement compensation under the Pension Plan is limited by
maximums imposed on the plan by law. Employees eligible to participate in the Executive SERP
include Messrs. Ferrell, Frederick, and Graap and are individuals designated by the Board of
Directors as plan participants and are generally employees whose retirement compensation under the
Pension Plan is less than 70% of final compensation as a result of the maximums imposed by law or
because the executive has not had a long enough tenure with the Company to receive a full Pension
Plan payout. Subject to certain specified forfeiture events (termination of employment for cause,
pre-change-in-control competition, or unauthorized disclosure of confidential information), an
eligible employee will have a vested and non-
14
forfeitable right in his or her supplemental
retirement benefits under the Executive SERP upon the first of the following events to occur while
he or she is an active participant in the Executive SERP: (1) the
participant meets the age and service requirements for early retirement under the Executive SERP
(60 years of age with 10 years of vesting service); (2) the participant reaches his or her normal
retirement date (65 years of age); (3) the participant retires on a disability retirement date
(first day of the month following the date participant retires as a result of a disability); or
(4) a change in control of the Company or the Bank.
Supplemental retirement benefits are payable under the Executive SERP for 180 months (15 years),
with the amount payable reduced actuarially in the event payment begins before the participant
reaches his or her normal retirement date. If the participant dies before receiving monthly
payments for 180 months, the remaining monthly benefits will be paid to the participants
beneficiary until the Executive SERP has made a total of 180 monthly payments to the participant
and his or her beneficiary. In addition, the Executive SERP provides a pre-retirement death benefit
payable for 15 years to the participants beneficiary, with the amount payable reduced actuarially
in the event payment begins before the participant reaches his or her normal retirement date.
The present value of accumulated benefits payable to each of the NEOs, including the number of
years of service credited to each NEO, under the Executive SERP is reported in the Pension Benefits
table on page 22.
Employment Agreement With Chief Executive Officer. We entered into an employment agreement with
Mr. Ferrell effective as of January 19, 2005 with an initial term until December 31, 2008. The
Committee determined an employment agreement with Mr. Ferrell was appropriate because it clarifies
the terms of Mr. Ferrells employment and ensures that the Company and the Bank are protected by
non-compete, non-solicitation and non-disclosure provisions in the event Mr. Ferrell ceases
employment with us. In addition, the Committee believes an employment agreement is necessary to
attract and retain a qualified Chief Executive Officer in our industry. The agreement provides for
successive, automatic one-year extensions beginning on December 31, 2008, unless any party gives
written notice of non-extension at least 90 days prior to December 31. Under the agreement,
Mr. Ferrell serves as the Chief Executive Officer of the Company and the Bank during the term of
the contract at an annual base salary of not less than $206,000 per year. The agreement provides
that Mr. Ferrell is eligible to participate in the Management Incentive Plan, with targeted
performance levels for the Company to be established by the Committee or the Board. Achievement of
the targeted corporate performance levels will normally result in an annual cash bonus payment to
Mr. Ferrell, which will normally equal 40% of his then current annual base salary. The agreement
also provides that Mr. Ferrell will receive, subject to annual approval of the Committee or the
Board, an annual equity award equal in value up to 90% of Mr. Ferrells cash incentive award earned
for the year. The agreement also provides that Mr. Ferrell is eligible to participate in any
employee benefit or incentive plans that are provided to senior management, including group
medical, disability and life insurance, paid time off and retirement.
Employment Agreement With Chief Operating Officer. We entered into an employment agreement with
Mr. Frederick effective as of April 2, 2007 with an initial term until December 31, 2008. The
Committee determined an employment agreement with Mr. Frederick was appropriate because it
clarifies the terms of Mr. Fredericks employment and ensures that the Company and the Bank are
protected by non-compete, non-solicitation and non-disclosure provisions in the event Mr. Frederick
ceases employment with us. In addition, the Committee believes an employment agreement is
necessary to attract and retain a qualified Chief Operating Officer in our industry. The agreement
provides for successive, automatic one-year extensions beginning on December 31, 2008, unless any
party gives written notice of non-extension at least 90 days prior to December 31. Under the
agreement, Mr. Frederick serves as the Chief Operating Officer of the Company and the Bank during
the term of the contract at an annual base salary of not less than $150,000 per year. The agreement
provides that Mr. Frederick is eligible to participate in the Management Incentive Plan, with
targeted performance levels for the Company to be established by the Committee or the Board.
Achievement of the targeted corporate performance levels will normally result
15
in an annual cash
bonus payment to Mr. Frederick, which will normally equal 30% of his then current annual base
salary. The agreement also provides that Mr. Frederick will receive, subject to annual
approval of the Committee or the Board, an annual equity award equal in value up to 90% of
Mr. Fredericks annual cash bonus award earned for the year. The agreement also provides that
Mr. Frederick is eligible to participate in any employee benefit or incentive plans that are
provided to senior management, including group medical, disability and life insurance, paid time
off and retirement.
Change in Control Agreements. Our senior management and other employees have contributed
significantly to the success of the Company, and we believe that it is important to protect them in
the event of a change in control. Further, it is our belief that the interests of stockholders
will be best served if the interests of our senior management are aligned with theirs, and
providing change in control benefits should eliminate, or at least reduce, the reluctance of senior
management to pursue potential change in control transactions that may be in the best interests of
shareholders, and should keep senior management focused on operating the Company during any period
of uncertainty associated with a change in control. Mr. Ferrell and Mr. Frederick have a change in
control provision in their respective employment agreements, and Mr. Graap has a change in control
agreement. The cash components of the change in control benefits for each of Messrs. Ferrell,
Frederick, and Graap relate to the executives highest base salary and annual bonus paid during the
six months preceding the termination following the change in control.
Our change in control benefits are double trigger, which means that the benefits under them are
payable only if the executives employment is terminated other than for cause, death, disability or
retirement or the executive resigns for good reason within three years after a change in control.
In the event of a termination following a change in control, we also continue health and other
insurance benefits for three years corresponding to termination benefits and immediately vest all
unvested stock options. In addition, terminated executives would be entitled to receive any
benefits that they otherwise would have been entitled to receive under our 401(k) Savings Plan,
Pension Plan and Executive SERP, although in most cases those benefits are not increased or
accelerated. We believe that these levels of benefits are consistent with the general practice
among our peers, although we have not conducted a study to confirm this. We have determined that a
gross-up payment to make an executive whole for any golden parachute excise tax is not currently
appropriate.
If any payment made or benefit provided to the executive officer pursuant to an employment
agreement or a change in control agreement would constitute an excess parachute payment within
the meaning of Section 280G of the Internal Revenue Code, thereby resulting in a loss of an income
tax deduction by the Company or the imposition of an excise tax on the executive officer under
Section 4999 of the Internal Revenue Code, the payments scheduled under the agreements (i) in the
case of Mr. Ferrell and Mr. Frederick will only be reduced to prevent such imposition of federal
excise tax, regardless of the loss of an income tax deduction by the Company, unless the net
after-tax benefit Mr. Ferrell and/or Mr. Frederick will receive without the reduction is $25,000
more than the net after-tax benefit he would receive with the reduction; and (ii) in the case of
Mr. Graap, 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.
More information regarding Mr. Ferrells and Mr. Fredericks employment agreements and Mr. Graaps
change in control agreement is provided under Potential Payments Upon Termination or Change in
Control on pages 23 30.
16
Perquisites and Other Benefits. The Committee annually reviews the perquisites that our senior
management receives. The primary perquisites for the named executive officers are the reimbursement
for financial planning and executive physicals, personal use of a golf or social club for which the
Company pays 50% of the dues, survivor income benefit, and a supplemental short-term disability
plan, plus an automobile allowance for the Chief Executive Officer and Chief Operating Officer and
split-dollar life insurance for the Chief Executive Officer. We provide the reimbursement for
financial planning because we believe that good financial planning by experts reduces the amount of
time and attention that senior management must spend on that topic and maximizes the net financial
reward to the employee of the compensation received from the Company. We provide the club
membership benefit because we believe it is important for our senior management to have an
appropriate entertainment forum for customers and opportunity for interaction with their
communities. We provide the supplemental short-term disability plan and executive physical
reimbursement as part of our overall health benefit package for senior management. The Company
entered into a split-dollar life insurance agreement with the Chief Executive Officer that provides
for a death benefit to named beneficiaries, and the Company is entitled to policy proceeds in
excess of death benefits. As reflected in the Summary Compensation Table on page 19, the cost to
the Company of these benefits aggregated $66,680 in 2007 for the NEOs.
Senior management participates in the Companys other benefit plans on the same terms as other
employees. These plans include medical and dental insurance, life insurance, short-term disability,
long-term disability, long-term care and discounts on the Banks products.
Deductibility of Compensation. The Committee considered the deductibility of executive
compensation under Section 162(m) of the Internal Revenue Code. Under this provision, a
publicly-held corporation is not permitted to deduct compensation in excess of $1 million per year
paid to the CEO or any one of the named executive officers except to the extent the compensation
was performance-based under plans meeting certain tax code requirements. The Committee notes that
the Company does not currently face the loss of this deduction for executive compensation. The
Committee nevertheless determined that, in reviewing the design of and administering the executive
compensation program, it will continue in the future to preserve the Companys tax deductions for
executive compensation unless this goal conflicts with the primary objectives of the Companys
compensation program.
Stock Ownership Guidelines. Other than Virginia banking laws that require our directors to own a
certain amount of our common stock, we do not have stock ownership requirements for our directors
or NEOs, although we encourage our directors and NEOs to own stock in the Company, and as a group
our directors and NEOs beneficially own approximately 6.75% of our outstanding stock. In addition,
our Chief Executive Officer owns approximately 1.39% of our outstanding stock. In order to remain
competitive, we have used other retention tools such as the pension plan and cliff-vesting equity
awards discussed above.
Compensation for Non-Employee Directors. The Committee is also responsible for recommending
non-employee director compensation to the Board of Directors each year. In making these
recommendations, the Committee receives advice from the compensation consultant and reviews the
competitive market company director compensation analysis, which is prepared by the consultant on
the same basis as the executive compensation analysis. The Committee also reviews research on
director compensation from SNL, the Virginia Bankers Association and Bank Director magazine.
Compensation Committee Interlocks and Insider Participation. The Committee is composed of outside,
independent directors, none of whom was, during the fiscal year 2007, an officer or employee of the
Company, the Bank or their subsidiaries. Ms. Stringfellow, who served on the committee until June
2007, was employed by the Bank and served in various executive and other positions from 1986 until
she retired as Senior Vice President, Administrative Services, in May 1999.
17
Compensation and Benefits Committee Report
The Compensation and Benefits Committee of the Company has reviewed and discussed the Compensation
Discussion and Analysis required by Item 402(b) of Regulation S-K with management and, based on
such review and discussions, the Compensation and Benefits Committee recommended to the Board that
the Compensation Discussion and Analysis be included in this proxy statement.
COMPENSATION AND BENEFITS COMMITTEE
Randolph T. Minter, Chair
C. H. Lawrence, Jr.
Douglas C. Larson
Brian S. Montgomery
P. Kurtis Rodgers
18
Summary Compensation Table
The following table summarizes the total compensation of the Companys Chief Executive Officer,
Chief Operating Officer, and Chief Financial Officer, for the years ended December 31, 2007 and
2006. The Company did not have any other executive officers during 2007. No compensation expense
was recorded in 2007 with respect to stock options awarded to or held by the NEOs.
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Change in |
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Pension Value |
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and |
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Nonqualified |
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Non-Equity |
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Deferred |
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Incentive Plan |
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Compensation |
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All Other |
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Name and |
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|
Salary |
|
Stock Awards |
|
Compensation |
|
Earnings |
|
Compensation |
|
Total |
Principal Position |
|
Year |
|
($) |
|
($)1 |
|
($) |
|
($)2 |
|
($) |
|
($) |
Randy K. Ferrell |
|
|
2007 |
|
|
|
235,645 |
|
|
|
68,427 |
|
|
|
77,292 |
|
|
|
151,279 |
|
|
|
36,923 |
3 |
|
|
569,566 |
|
President & Chief
Executive Officer |
|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2006 |
|
|
|
221,000 |
|
|
|
64,872 |
|
|
|
74,168 |
|
|
|
103,720 |
|
|
|
34,686 |
|
|
|
498,446 |
|
Gregory D. Frederick |
|
|
2007 |
|
|
|
150,000 |
|
|
|
|
|
|
|
36,900 |
|
|
|
9,454 |
|
|
|
15,904 |
4 |
|
|
212,258 |
|
Chief Operating
Officer |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2006 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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|
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|
|
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|
|
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Eric P. Graap |
|
|
2007 |
|
|
|
154,000 |
|
|
|
27,573 |
|
|
|
31,570 |
|
|
|
44,548 |
|
|
|
13,853 |
5 |
|
|
271,544 |
|
Chief Financial
Officer |
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|
|
|
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|
|
|
|
|
2006 |
|
|
|
142,000 |
|
|
|
27,283 |
|
|
|
29,785 |
|
|
|
31,376 |
|
|
|
13,098 |
|
|
|
243,542 |
|
|
|
|
(1) |
|
The amounts in this column reflect the dollar amount recognized for financial statement
reporting purposes for the fiscal year ended December 31, 2007, in accordance with SFAS
123(R), of stock awards pursuant to the Management Incentive Plan and thus may include amounts
from awards granted in and prior to 2007. Assumptions made in the calculation of these
amounts are included in Note 14 to the Companys audited financial statements for the fiscal
year ended December 31, 2007 included in the Companys Annual Report on Form 10-K filed with
the SEC on March 14, 2008. |
|
(2) |
|
The amounts in this column reflect the combined change in value of each NEOs accumulated
benefit under the Pension Plan and the Executive SERP. Mr. Ferrells change in accumulated
benefit reflects a $49,654 increase with respect to the Pension Plan and a $101,625 increase
with respect to the Executive SERP. Mr. Fredericks change in accumulated benefit reflects a
$7,965 increase with respect to the Pension Plan and a $1,489 increase with respect to the
Executive SERP. Mr. Graaps change in accumulated benefit reflects a $25,719 increase with
respect to the Pension Plan and a $18,829 increase with respect to the Executive SERP. |
|
(3) |
|
These amounts consist of: split dollar life insurance premiums of $3,372; an automobile
allowance of $7,200 and related tax gross-up with respect to this benefit of $4,200; club dues
reimbursements of $815; tax planning and physical exam reimbursements of $2,000; supplemental
long-term disability plan premiums paid by the Company of $4,507; a 401(k) Savings Plan
company match of $6,893; and $7,936 in cumulative dividends Mr. Ferrell received during 2007
on his restricted stock. The incremental cost of Mr. Ferrells personal use of his club
membership is comprised of the portion of club dues and costs for the membership that are paid
by the Company multiplied by the percentage of time (30%) that he used the club for personal
rather than business use. |
19
|
|
|
(4) |
|
These amounts consist of: an automobile allowance of $8,400 and related tax gross-up with
respect to this benefit of $3,053; and a 401(k) Savings Plan company match of $4,451. Mr.
Frederick is not currently covered under the supplemental long-term disability plan. |
|
(5) |
|
These amounts consist of: club dues reimbursements of $2,110; tax planning and physical exam
reimbursements of $925; supplemental long-term disability plan premiums paid by the Company of
$2,376; a 401(k) Savings Plan company match of $5,641; and $2,801 in cumulative dividends Mr.
Graap received during 2007 on his restricted stock. |
Grants of Plan-Based Awards
Fiscal 2007
The following table summarizes certain information with respect to incentive-based cash and equity
awards granted to the NEOs during the year ended December 31, 2007 under the Management Incentive
Plan and reflects the amounts that could have been paid under each such award. No option or other
stock awards were made to the NEOs for the year ended December 31, 2007.
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Grant Date Fair |
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Estimated Possible Payouts Under |
|
Estimated Possible Payouts Under |
|
Value of Stock |
|
|
|
|
|
|
Non-Equity Incentive Plan Awards1 |
|
Equity Incentive Plan Awards2 |
|
and Option |
|
|
Grant |
|
Threshold |
|
Target |
|
Maximum |
|
Threshold |
|
Target |
|
Maximum |
|
Awards3 |
Name |
|
Date |
|
($) |
|
($) |
|
($) |
|
($) |
|
($) |
|
($) |
|
($) |
Randy K. Ferrell |
|
|
|
|
|
|
70,694 |
|
|
|
94,258 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2/15/07 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
59,670 |
|
|
|
79,560 |
|
|
|
|
|
|
|
66,751 |
|
Gregory D. Frederick |
|
|
|
|
|
|
33,750 |
|
|
|
45,000 |
|
|
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|
|
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2/15/07 |
|
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|
|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Eric P. Graap |
|
|
|
|
|
|
28,875 |
|
|
|
38,500 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2/15/07 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
23,963 |
|
|
|
31,950 |
|
|
|
|
|
|
|
26,807 |
|
|
|
|
(1) |
|
The amounts in these columns reflect the target and minimum (threshold) payment levels under
the award, as originally granted in March 2007, with the minimum being 75% of the target
amount shown. There is no maximum payout level. All of these amounts are percentages of the
individuals 2007 salary. The actual amount earned by each NEO under the 2007 Management
Incentive Plan was determined by the Compensation and Benefits Committee on January 24, 2008
and paid shortly thereafter and is reported as 2007 non-equity incentive plan compensation
in the Summary Compensation Table on page 19. |
|
(2) |
|
Under the Management Incentive Plan, the NEOs receive an equity award consisting of
restricted stock equal in value to 90% of the cash incentive award earned under the Management
Incentive Plan. The amounts shown in these columns reflect the minimum value of shares of
restricted stock and the target value of shares of restricted stock that could have been
earned based on achievement under the cash incentive component of the Management Incentive
Plan for 2006 as established in March 2006. The number of restricted shares ultimately earned
is determined by dividing the dollar amount earned by the closing price of the Companys
common stock on the date prior to determination. The restricted stock vests in full on the
third anniversary of the grant date. Dividends on the restricted stock are distributed at the
same time and rate as dividends on the Companys unrestricted stock. |
20
|
|
|
(3) |
|
The number of restricted shares earned by each NEO for 2006 under these equity incentive plan
awards was determined by the Committee on February 15, 2007 after the conclusion of the 2006
performance period, by dividing the dollar amounts earned by the closing price of the
Companys common stock on the date prior to determination. The fair values of the shares
awarded are reflected as of that February 15, 2007 grant date. |
Outstanding Equity Awards at 2007 Fiscal Year-End
The following table includes certain information with respect to the value of all previously
awarded unexercised options and unvested restricted stock awards held by the NEOs at December 31,
2007. Mr. Ferrell exercised 8,756 shares of stock options during 2007 and has no more outstanding
stock options. Neither Mr. Frederick nor Mr. Graap own any unexercised options.
|
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|
|
|
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|
|
Stock Awards |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Incentive Plan |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Awards: |
|
|
|
|
|
|
|
|
|
|
Equity Incentive |
|
Market or |
|
|
|
|
|
|
|
|
|
|
Plan Awards: |
|
Payout Value |
|
|
Number of |
|
|
|
|
|
Number of |
|
of Unearned |
|
|
Shares or |
|
Market Value |
|
Unearned |
|
Shares, Units |
|
|
Units of |
|
of Shares or |
|
Shares, Units or |
|
or Other |
|
|
Stock That |
|
Units of Stock |
|
Other Rights |
|
Rights That |
|
|
Have Not |
|
That Have Not |
|
That Have Not |
|
Have Not |
|
|
Vested |
|
Vested |
|
Vested |
|
Vested |
Name |
|
(#) |
|
($) 4 |
|
(#) |
|
($) |
Randy K. Ferrell |
|
|
2,628 |
1 |
|
|
44,807 |
|
|
|
|
|
|
|
|
|
|
|
|
2,965 |
2 |
|
|
50,553 |
|
|
|
|
|
|
|
|
|
|
|
|
2,746 |
3 |
|
|
46,819 |
|
|
|
|
|
|
|
|
|
|
Gregory D. Frederick |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Eric P. Graap |
|
|
1,055 |
1 |
|
|
17,988 |
|
|
|
|
|
|
|
|
|
|
|
|
1,142 |
2 |
|
|
19,471 |
|
|
|
|
|
|
|
|
|
|
|
|
1,163 |
3 |
|
|
19,829 |
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
These shares of restricted stock were awarded on February 15, 2007 under the Omnibus Plan and
vest in full on the third anniversary of the grant date. |
|
(2) |
|
These shares of restricted stock were awarded on March 16, 2006 under the Omnibus Plan and
vest in full on the third anniversary of the grant date. |
|
(3) |
|
These shares of restricted stock were awarded on February 17, 2005 under the Omnibus Plan and
vest in full on the third anniversary of the grant date. |
|
(4) |
|
The amounts in this column equal the number of shares of restricted stock held multiplied by
the stocks closing price of $17.05 per share on December 31, 2007. |
21
Pension Benefits
Fiscal 2007
The following table shows the present value of accumulated benefits payable to each of the NEOs,
including the number of years of service credited to each NEO, under each of the Pension Plan and
the Executive SERP, determined using interest rate and mortality rate assumptions consistent with
those used in the Companys financial statements.
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|
|
|
|
|
|
|
|
Present Value of |
|
Payments |
|
|
|
|
|
|
Number of Years |
|
Accumulated |
|
During Last Fiscal |
|
|
|
|
|
|
Credited Service 1 |
|
Benefit 2 |
|
Year |
Name |
|
Plan Name |
|
(#) |
|
($) |
|
($) |
Randy K. Ferrell |
|
Pension Plan |
|
|
13 |
|
|
|
282,619 |
|
|
|
|
|
|
|
Executive SERP |
|
|
13.25 |
|
|
|
281,384 |
|
|
|
|
|
Gregory D. Frederick |
|
Pension Plan |
|
|
1 |
|
|
|
7,965 |
|
|
|
|
|
|
|
Executive SERP |
|
|
1 |
|
|
|
1,489 |
|
|
|
|
|
Eric P. Graap |
|
Pension Plan |
|
|
7 |
|
|
|
98,937 |
|
|
|
|
|
|
|
Executive SERP |
|
|
7.0833 |
|
|
|
53,774 |
|
|
|
|
|
|
|
|
(1) |
|
Service calculation for the Executive SERP is calculated as continuous service credited
during or before the NEO was last was an eligible employee. One year means the passage of 12
months. Years of benefit service are measured in and benefits calculated on, whole years and
whole months. Vesting under the Pension Plan is calculated by years of benefit services, or
a plan year during which employees are credited with at least 1,000 hours of service. |
|
(2) |
|
The present values of accumulated benefits for the NEOs under the Pension Plan and Executive
SERP are based on service and earnings (base salary and bonus) for the period through December
31, 2007. The present value has been calculated assuming each will remain in service until
age 60, the age at which retirement may occur without any reduction in benefits, and that the
benefit is payable under the available forms of annuity consistent with the assumptions as
described in Note 9 to the Companys audited financial statements in its Annual Report on Form
10-K, for the year ended December 31, 2007, filed with the SEC on March 14, 2008. As
described in such note, the interest assumption is 6%. Because none of the NEOs had reached
age 60 as of December 31, 2007, none are currently entitled to receive the amount of benefit
reflected in the table for the Executive SERP because such amounts are not yet vested. |
|
(3) |
|
The material terms of the Pension Plan are described on page 14 of this proxy statement and
the material assumptions applied in determining the present values of the current accrued
benefits are described in Note 9 of the Companys audited financial statements for the fiscal
year ended December 31, 2007 included in the Companys Annual Report on Form 10-K filed with
the SEC on March 14, 2008. The material terms of the Executive SERP are described on page 14
of this proxy statement and the material assumptions applied in determining the present values
of the current accrued benefits are described in Note 9 of the Companys audited financial
statements for the fiscal year ended December 31, 2007 included in the Companys Annual Report
on Form 10-K filed with the SEC on March 14, 2008. |
22
Potential Payments Upon Termination or Change in Control
The section below describes the payments that may be made to the NEOs upon certain
termination events or upon a change of control of the Company.
Employment and Change in Control Agreements. The Company has entered into employment agreements
with Mr. Ferrell and Mr. Frederick. In the event Mr. Ferrells or Mr. Fredericks employment is
terminated, they will be entitled to receive their earned but unpaid compensation and any other
benefits to which they may be entitled pursuant to any plan, program or arrangement of the Company
or which are due as a matter of law. Depending on the circumstances, they may be entitled to
additional compensation or benefits under their employment agreements as described below.
In the event Mr. Ferrells employment is terminated prior to a change in control of the Company by
the Company without cause (as defined in the agreement) or by Mr. Ferrell for good reason (as
defined in the agreement), he will also receive (1) a lump sum payment of a prorated annual bonus
paid for the portion of the year up to termination based on the most recent prior years bonus; (2)
an amount equal to two times the average of his annual bonuses paid for the last two calendar years
preceding the calendar year of termination of employment (Annual Incentive); (3) payment at
regular payroll intervals of his annual base salary for a period of 24 months from the date of
termination; (4) all health and welfare plan and program coverage for Mr. Ferrell and his spouses
and dependents in effect at the time of termination for a period of 24 months from the date of
termination or, if such continuation of coverage is not feasible, substantially identical benefits
through an alternative arrangement or a lump sum equal to 1.4 times the estimated cost of
maintaining such coverage; and (5) automatic acceleration of vesting in all equity compensation
awards granted to Mr. Ferrell, so that such equity compensation awards will be immediately
exercisable and fully vested as of the date of termination, with at least 90 days to exercise any
stock options, stock appreciation rights or similar awards.
The terms of Mr. Fredericks employment agreement are substantially the same as described above for
Mr. Ferrell, except that adjustments will be made with respect to the payments and benefits
referenced in clauses (2) through (4) in the above paragraph. With respect to the Annual Incentive
payment referenced in (2) above, Mr. Frederick will receive (i) an amount equal to the product of
(a) two times the average annual incentive payments made for the last two calendar years preceding
the calendar year of his termination multiplied by (b) his service fraction (a fraction, the
numerator of which is the number of whole calendar months during which Mr. Frederick has been
employed by the Bank through the date of termination and the denominator of which is 24). With
respect to the annual base salary payments referenced in (3) above, Mr. Frederick will receive his
annual base salary for a period of the lesser of 24 months or the number of whole calendar months
during which he was employed by the Bank through the date of termination. With respect to the
health and welfare plans referenced in (4) above, Mr. Frederick will receive coverage for a period
of the lesser of 24 months or the number of whole calendar months during which he was employed by
the Bank through the date of termination. Mr. Frederick was not granted any equity compensation
awards on or prior to December 31, 2007.
If Mr. Ferrells or Mr. Fredericks employment ends due to their death prior to a change in
control, the Company will continue to pay their respective base salary for three months following
the month of their death to their designated beneficiary.
If Mr. Ferrells or Mr. Fredericks employment ends due to his termination by the Company for
cause, or if they resign their position without good reason or, prior to a change in control of the
Company, they are terminated as a result of their incapacity, they will not be entitled to any
additional compensation, bonus or benefits under the agreements.
Under the agreements, Mr. Ferrell and Mr. Frederick agree that during the 24-month period following
their termination for any reason other than termination without cause or for good reason within the
three
23
years following a change in control of the Company, they will not compete against the Company,
solicit employees from the Company, or interfere with the Companys customer relationships.
In the event of a change in control of the Company, Mr. Ferrell and Mr. Frederick are guaranteed
employment for three years following the change in control, their outstanding equity compensation
awards will become automatically vested and exercisable, the Company will reimburse them for any
federal income tax liability incurred by them by such vesting, and the Company, in the discretion
of the non-employee directors, may cancel any or all of Mr. Ferrells and Mr. Fredericks
outstanding stock options, stock appreciation rights and similar awards for a cash payment equal to
the aggregate spread between the average exercise price of the awards and the higher of (i) the
average closing price of the Companys common stock for the 30 business day period preceding the
public announcement of the change in control, or (ii) the highest price per share paid in
connection with the change in control.
During the three year guaranteed term of employment for Mr. Ferrell and the two year guaranteed
term of employment for Mr. Frederick following a change in control, their respective base salary
(with a Consumer Price Index inflation adjustment), annual bonus opportunity, incentive, savings
and retirement benefit rights opportunities, health and welfare coverage (including that of his
family), fringe benefits and vacation may not be less than the most favorable of such compensation,
rights and benefits provided at any time during the 12 months before the change in control.
If Mr. Ferrells or Mr. Fredericks employment ends due to their death within three years after a
change in control, the Company will pay to their respective designated beneficiaries a lump sum
equal to their base salary for three months and will provide their respective spouses and other
dependents with continued health and welfare plan and program coverage for 36 months following the
date of death or, if such continuation of coverage is not feasible, substantially identical
benefits through an alternative arrangement or a lump sum equal to 1.4 times the estimated cost of
maintaining such coverage.
If Mr. Ferrells or Mr. Fredericks employment ends due to their incapacity within three years
after a change in control, the Company will pay them a lump sum equal to their respective base
salary for three months and will provide them, their respective spouses and other dependents with
continued health and welfare plan and program coverage for 36 months following the date of
termination or, if such continuation of coverage is not feasible, substantially identical benefits
through an alternative arrangement or a lump sum equal to 1.4 times the estimated cost of
maintaining such coverage.
The agreement provides for enhanced severance payments and certain other benefits if, within three
years following a change in control Mr. Ferrell or Mr. Frederick (i) are terminated involuntarily
without cause and not as a result of death, incapacity or normal retirement, or (ii) terminates his
employment voluntarily for good reason (which includes for this purpose Mr. Ferrells or Mr.
Fredericks right to voluntarily terminate the agreement during the 90 days following the change of
control or during the 90 days following the first anniversary thereof). Change in control is
defined generally to include (i) an acquisition of 20% or more of the Companys voting stock, or
(ii) certain changes in the composition of the Companys Board of Directors as the direct or
indirect result of, or in connection with, a tender or exchange offer, a merger or other business
combination, sale of assets, contested election, or any combination of these events.
In the event of such termination without cause or for good reason following a change in control,
Mr. Ferrell or Mr. Frederick will be entitled to: (1) a lump sum payment of a prorated annual bonus
paid for the portion of the year up to termination based on the most recent prior years bonus;
(2) a payment in a lump sum or in six monthly installments, at Mr. Ferrells or Mr. Fredericks
option, of an amount equal to 2.99 times his highest annual salary and bonus paid during the six
months prior to the termination; (3) continuation for a period of 36 months following their
termination of all health and welfare plan and program coverage for Mr. Ferrell or Mr. Frederick,
their respective spouses and dependents in effect at the time of termination or, if such
continuation of coverage is not feasible, substantially identical benefits through an alternative
arrangement or a lump sum equal to 1.4 times the estimated cost of maintaining
24
such coverage; (4) continuation for a period of 36 months from the date of termination of
participation in the Companys employee retirement benefit plans and programs or, if such continued
participation is not feasible, an annual cash payment during the 36 months of the value of the
retirement benefit accrual which is not provided through the retirement plans; and (5) automatic
acceleration of vesting in all equity compensation awards granted to Mr. Ferrell or Mr. Frederick,
so that such equity compensation awards will be immediately exercisable and fully vested as of the
date of termination, with at least 90 days to exercise any stock options, stock appreciation rights
or similar awards.
Under certain circumstances, the total amount payable to Mr. Ferrell or Mr. Frederick may exceed
the maximum amount that may be paid without the imposition of a federal excise tax on them, and if
the amount payable to either would result in the imposition of a federal excise tax, the payments
and benefits provided to them will be reduced to prevent such imposition of a federal excise tax,
unless the net after-tax benefit they would receive without the reduction is $25,000 more than the
net after-tax benefit they would receive with the reduction. Payment or benefits provided to or for
the benefit of Mr. Ferrell or Mr. Frederick will also be reduced to the extent necessary to comply
with any golden parachute and indemnification payment limitations and prohibitions of applicable
banking law.
The Bank has also entered into a change of control agreement with Mr. Graap. The agreement becomes
operative upon a change of control in the Bank, with change of control having a substantially
similar definition as in Mr. Ferrells agreement. If, after a change of control occurs, Mr.
Graaps employment is terminated within three years, he is entitled to receive the payments
specified in the agreement, unless such termination was for cause (as defined in the agreement)
or Mr. Graap terminates employment without good reason (as defined in the agreement).
If Mr. Graap is terminated other than for cause or terminates employment for good reason, the Bank
is required (i) to pay Mr. Graap, in a lump sum or in six monthly installments, at Mr. Graaps
option, 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 him by the Bank for any six months ending with Mr. Graaps termination; (ii) in addition to
the benefits to which Mr. Graap is entitled under the retirement plans or programs in effect on the
date of termination, to pay a cash amount equal to the actuarial equivalent of the retirement
pension to which he would have been entitled under the terms of such retirement plans or programs,
without regard to vesting thereunder, had he accumulated three additional years of continuous
service after termination at his base rate in effect at the time of termination, reduced by the
single sum actuarial equivalent of any amounts to which Mr. Graap is entitled pursuant to the
provisions of the retirement plans or programs; and (iii) to maintain, for the continued benefit of
Mr. Graap for a three-year period after termination, all employee benefit plans and programs or
arrangements in which he was entitled to participate immediately prior to termination, or
substantially similar benefits if his continued participation is not possible under the general
terms and provisions of such existing plans and programs. In addition, all stock options granted to
Mr. Graap under any of the Banks stock option plans shall become immediately exercisable with
respect to all or any portion of the shares covered thereby. The Bank is required to reimburse Mr.
Graap for any federal income tax liability incurred by him in connection with the exercise of such
options that would not have been incurred by him in the absence of such options becoming
immediately available upon a change of control.
If any payment made or benefit provided to Mr. Graap pursuant to the change in control agreement
would constitute an excess parachute payment within the meaning of Section 280G of the Internal
Revenue Code, thereby resulting in a loss of an income tax deduction by the Bank or the imposition
of an excise tax on the executive officer under Section 4999 of the Internal Revenue Code, 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.
Equity Awards. Our restricted stock grants normally vest on the third anniversary of the date of
grant. In addition to any equity vesting provisions contained in Mr. Ferrells or Mr. Fredericks
employment
25
agreements or Mr. Graaps change in control agreement, under the terms of their restricted stock
agreements, early vesting of their restricted stock will occur earlier upon any of the following
events: (i) the occurrence of a change in control (as defined in the Omnibus Plan), (ii) the
executives death while an employee, (iii) the executives disability (as defined in the award
agreement) while an employee, (iv) the executives retirement (as defined in the Omnibus Plan), or
(v) the termination of the executives employment by the Company or a subsidiary other than for
just cause (as defined in the Omnibus Plan) under circumstances where the plan committee provides
for special vesting rules or restrictions and waives the otherwise applicable automatic forfeiture
on cessation of employment.
Each stock option normally becomes exercisable on or about the third anniversary of its date of
grant. In addition to any accelerated vesting contained in Mr. Ferrells or Mr. Fredericks
employment agreements or Mr. Graaps change in control agreement, the plan committee may accelerate
the date on which an option becomes exercisable to any date prior to the occurrence of a change in
control (as defined in the Omnibus Plan). Once an option becomes exercisable, it remains
exercisable for the balance of its term, except that the option will terminate on the earlier of
(1) 90 days after the option holder ceases to be an eligible employee (as defined in the Omnibus
Plan) for any reason other than death, disability (as defined in the option agreement) or just
cause (as defined in the Omnibus Plan), (2) one year after the option holder ceases to be an
eligible employee due to disability or (3) immediately if the option holder ceases to be an
eligible employee due to just cause. If a change in control occurs, the option will terminate if
no provision has been made for it to be assumed by or exchanged for new option rights with a
successor to the Company.
Executive SERP. The benefits payable to the NEOs under the Executive SERP upon termination are
described on page 14.
Executive Split-Dollar Life Insurance. The Bank has entered into an Executive Split-Dollar Life
Insurance agreement with Mr. Ferrell which provides him with a life insurance benefit pursuant to
life insurance owned by the Bank. The Bank pays a portion of the annual premium, and Mr. Ferrell
pays the portion of the annual premium that relates to the term life insurance value of his
coverage. Mr. Ferrells beneficiary is entitled to a stated death benefit of $325,000 where Mr.
Ferrell dies when covered under the agreement prior to its termination and the Bank is entitled to
the return of the full amount of its premium payments.
The ongoing premium payment arrangement will end by roll-out at a certain point (i.e., by splitting
the insurance into one policy for the Bank and one policy for Mr. Ferrell). Roll-out will occur on
the first policy anniversary on which (i) the Bank can retain a policy with cash surrender value
equal to the Banks aggregate net premium payments and with the death benefits at least equal to
that amount as would be provided by a single premium equal to the aggregate net premium payments,
and (ii) Mr. Ferrell can retain a policy with death benefits at least equal to his stated death
benefit with no loans and with no further out of pocket premium payments required to maintain that
death benefit based on the dividend schedule in effect on the roll-out date.
The agreement will terminate on the termination of Mr. Ferrells employment other than by reason of
death or disability (unless he is treated by the Bank as an active employee for purposes of the
arrangement after termination of employment), voluntary termination of the agreement by Mr.
Ferrell, or cessation of the Banks business or the bankruptcy, receivership or dissolution of the
Bank (unless the Banks business is continued by a successor corporation or business entity).
However, termination of the split dollar insurance program by the Bank is not considered a
termination of Mr. Ferrells agreement.
If the agreement is terminated because of Mr. Ferrells termination of employment for cause (as
defined in the agreement), he will forfeit all rights and will not be permitted to effectuate a
roll-out at any time.
If the agreement is terminated because of Mr. Ferrells termination of employment for a reason
other than cause, retirement (as defined in the agreement), or disability (as defined in the
agreement), or voluntary termination of the agreement by Mr. Ferrell, at the next insurance policy
anniversary date after his
26
termination of employment (or a future policy anniversary date as allowed by the Bank), Mr. Ferrell
has the right to purchase all of the Banks interest in the insurance free and clear of all liens,
claims or encumbrances (including any loans) for cash, by paying to the Bank an amount equal to the
Banks aggregate net premium payments. If the agreement is terminated because of the cessation of
the Banks business or the bankruptcy, receivership or dissolution of the Bank, at the next
insurance policy anniversary date after his termination of employment (or a future policy
anniversary date as allowed by the Bank), Mr. Ferrell has the right to purchase all of the Banks
interest in the insurance free and clear of all liens, claims or encumbrances (including any loans)
for cash, by paying to the Bank an amount equal to the sum of the Banks aggregate net premium
payments and the cash surrender value of the insurance. Mr. Ferrell may direct the Bank to borrow
against the cash value of the insurance or surrender any portion of the insurance and may then
purchase the insurance, subject to any such policy loan, for an amount equal to the Banks
aggregate net premium payments less such borrowed or cashed-in values. Alternatively, at its
option, the Bank may divide the insurance so that the Bank can retain the portion of the insurance
having a total cash value equal to the Banks aggregate net premium payments and Mr. Ferrell can
retain the balance of the insurance and the paid-up additions on the insurance.
As of December 27, 2007, one of two life insurance policies which comprise the Executive
Split-Dollar Life Insurance agreement was eligible for roll-out. The Compensation Committee
decided in February 2008 to obtain the recoverable amount of $43,994 by electing to surrender paid
up additions to the policy rather than retaining a key man policy with a death benefit of $23,000
and a cash value of $10,000. Although the rate of return on the underlying cash value was
competitive from a percentage standpoint the administrative costs of retaining the policy were
considered too high.
Executive Survivor Income. The Company maintains an Executive Survivor Income arrangement which
provides a covered executives beneficiary with a lump sum benefit (equal to $75,000 in the case of
Mr. Ferrell and $75,000 in the case of Mr. Graap) if either the executive dies prior to terminating
employment or (ii) if the executive dies after termination of employment due to disability (as
defined in the arrangement), attaining early retirement (which requires attainment of age 55 with
10 years of service) or normal retirement age (65), or if the Company terminates the executives
employment without cause (as defined in the arrangement) or the executives terminates his or her
employment for good reason (as defined in the arrangement) within two years after the Companys
change in control (as defined in the arrangement). Mr. Frederick is not currently covered under
an Executive Survivor Income arrangement because these purchases preceded his hiring.
The following table shows the estimated payments for the NEOs upon the following termination events
or upon a change of control of the Company, based on following assumptions:
|
|
|
The table assumes each termination event or the change in control occurred on December
31, 2007, and assumes a stock price of $17.05, which was the Companys closing stock price
on December 31, 2007. |
|
|
|
|
The amounts reflected in the following table are estimates, as the actual amounts to be
paid to an NEO can only be determined at the time of termination or change in control. |
|
|
|
|
In any case where a choice of payment is permitted, the table assumes all amounts were
paid in a lump sum. |
|
|
|
|
Except as noted in the table below, at termination, an NEO is entitled to receive all
amounts accrued and vested under our 401(k) Savings Plan and Pension Plan according to the
same terms as other employees participating in those plans, which benefits are not shown in
the table below. |
|
|
|
|
An NEO is entitled to receive amounts earned during his term of employment regardless of
the manner in which the NEOs employment is terminated. These amounts include base salary,
unused vacation pay, and vested stock or option awards. These amounts are not shown in the
table below. |
27
|
|
|
Except as provided in Mr. Ferrells and Mr. Fredericks employment agreements or Mr.
Graaps change in control agreement, an employee generally must be employed by the Company
or the Bank on December 31, 2007 in order to receive any cash or equity award under the
Management Incentive Plan for 2007. In the event a termination occurs on an earlier date,
the Committee has the discretion to award the employee an annual cash incentive under the
plan. Discretionary annual cash compensation payments would not typically be awarded in
the event of termination by the Company for cause or termination by Mr. Graap without good
reason. For Mr. Graap, the table below assumes that the full amount of the annual cash
bonus earned under the Management Incentive Plan for 2007 was awarded to him in all other
non-change in control cases. |
|
|
|
The NEOs did not hold any unvested stock options at December 31, 2007, which means they
would not have received any benefit from the accelerated vesting of stock options at
December 31, 2007. |
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Termination with no Change in Control |
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|
Termination with Change in Control |
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Termina- |
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Termina- |
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Termina- |
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Termina- |
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tion by |
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tion by |
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tion by |
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tion by |
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Company |
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Company |
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Company |
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Company for Cause |
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without |
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for Cause |
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without |
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or |
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Cause or |
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or |
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Change in |
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Cause or |
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Resigna- |
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Resignation of |
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Resigna- |
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Resigna- |
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Control |
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Resigna- |
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tion of |
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Executive for |
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tion of |
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tion of |
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with or |
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tion of |
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Executive |
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Other than Good |
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Executive Benefits and |
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Executive |
|
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Executive |
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without |
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Executive |
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without |
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Reason |
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Payments Upon |
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Disability |
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for Good |
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without |
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Termination |
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for Good |
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Good |
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including |
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Termination |
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Death |
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1 |
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Reason |
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Good Reason |
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Retirement |
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2 |
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Death |
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Disability |
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Reason 3 |
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Reason |
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Retirement |
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Randy K. Ferrell
Chief Executive Officer |
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Compensation: |
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Base Salary |
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$ |
58,911 |
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|
|
|
|
|
|
|
|
$ |
58,911 |
|
|
$ |
58,911 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-Term Incentive: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Restricted Stock
Vesting |
|
|
142,180 |
|
|
$ |
142,180 |
|
|
$ |
142,180 |
|
|
|
|
|
|
$ |
142,180 |
|
|
$ |
142,180 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Tax Liability due
to Vesting |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
45,498 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accelerated Vesting |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
97,944 |
4 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Benefits and
Perquisites: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Severance: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Base Salary
Continuation |
|
|
|
|
|
|
|
|
|
|
471,290 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
704,579 |
|
|
|
|
|
|
|
|
|
Current Year
Prorated Bonus |
|
|
77,292 |
|
|
|
77,292 |
|
|
|
77,292 |
|
|
|
|
|
|
|
77,292 |
|
|
|
|
|
|
|
77,292 |
|
|
|
77,292 |
|
|
|
77,292 |
|
|
|
|
|
|
$ |
77,292 |
|
Bonus Continuation |
|
|
|
|
|
|
|
|
|
|
151,460 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Health and Welfare
Coverage |
|
|
|
|
|
|
|
|
|
|
29,390 |
5 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
24,192 |
5 |
|
|
44,084 |
5 |
|
|
44,084 |
5 |
|
|
|
|
|
|
|
|
Long-Term Disability |
|
|
|
|
|
|
147 |
|
|
|
9,014 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
147 |
|
|
|
13,521 |
|
|
|
|
|
|
|
|
|
Executive Split
Dollar Insurance |
|
|
|
6 |
|
|
|
|
|
|
3,252 |
7 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6 |
|
|
3,252 |
7 |
|
|
3,252 |
7 |
|
|
|
|
|
|
|
|
Executive Survivor
Income |
|
|
75,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
75,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Enhanced Retirement
Program Benefits |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
127,895 |
8 |
|
|
|
|
|
|
|
|
Executive SERP |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
236,326 |
|
|
|
236,326 |
|
|
|
236,326 |
|
|
|
|
|
|
|
236,326 |
|
Total Value |
|
$ |
353,383 |
|
|
$ |
219,619 |
|
|
$ |
883,878 |
|
|
|
|
|
|
$ |
219,472 |
|
|
$ |
285,622 |
|
|
$ |
471,721 |
|
|
$ |
420,286 |
|
|
$ |
1,206,950 |
|
|
|
|
|
|
$ |
313,618 |
|
28
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Termination with no Change in Control |
|
|
|
|
|
Termination with Change in Control |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Termina- |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Termina- |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Termina- |
|
tion by |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Termina- |
|
tion by |
|
|
|
|
|
|
|
|
|
|
|
|
tion by |
|
Company |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
tion by |
|
Company |
|
|
|
|
|
|
|
|
|
|
|
|
Company |
|
for Cause |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Company |
|
for Cause |
|
|
|
|
|
|
|
|
|
|
|
|
without |
|
or |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
without |
|
or |
|
Resignation |
|
|
|
|
|
|
|
|
|
|
Cause or |
|
Resigna- |
|
|
|
|
|
Change in |
|
|
|
|
|
|
|
|
|
Cause or |
|
Resigna- |
|
of Executive |
|
|
|
|
|
|
|
|
|
|
Resigna- |
|
tion of |
|
|
|
|
|
Control |
|
|
|
|
|
|
|
|
|
Resigna- |
|
tion of |
|
for Other |
|
|
|
|
|
|
|
|
|
|
tion of |
|
Executive |
|
|
|
|
|
with or |
|
|
|
|
|
|
|
|
|
tion of |
|
Executive |
|
than Good |
Executive Benefits and |
|
|
|
|
|
|
|
|
|
Executive |
|
without |
|
|
|
|
|
without |
|
|
|
|
|
|
|
|
|
Executive |
|
without |
|
Reason |
Payments Upon |
|
|
|
|
|
|
|
|
|
for Good |
|
Good |
|
|
|
|
|
Termination |
|
|
|
|
|
|
|
|
|
for Good |
|
Good |
|
including |
Termination |
|
Death |
|
Disability 1 |
|
Reason |
|
Reason |
|
Retirement |
|
2 |
|
Death |
|
Disability |
|
Reason 3 |
|
Reason |
|
Retirement |
Greg D. Frederick Chief Operating Officer |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Compensation: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Base Salary |
|
$ |
37,500 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
37,500 |
|
|
$ |
37,500 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-Term Incentive: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Restricted Stock Vesting |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Tax Liability due to Vesting |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accelerated Vesting |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Benefits and Perquisites: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Severance: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Base Salary Continuation |
|
|
|
|
|
|
|
|
|
$ |
150,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
448,500 |
|
|
|
|
|
|
|
|
|
Current Year Prorated Bonus |
|
|
36,900 |
|
|
$ |
36,900 |
|
|
|
36,900 |
|
|
|
|
|
|
$ |
36,900 |
|
|
|
|
|
|
|
36,900 |
|
|
|
36,900 |
|
|
|
36,900 |
|
|
|
|
|
|
$ |
36,900 |
|
Incentive Compensation Continuation |
|
|
|
|
|
|
|
|
|
|
36,900 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Health and Welfare Coverage |
|
|
|
|
|
|
|
|
|
|
17,266 |
5 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
28,818 |
5 |
|
|
51,800 |
5 |
|
|
51,800 |
5 |
|
|
|
|
|
|
|
|
Long-Term Disability |
|
|
|
|
|
|
173 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
173 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Executive Split Dollar Insurance |
|
|
|
6 |
|
|
|
|
|
|
|
7 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6 |
|
|
|
7 |
|
|
|
7 |
|
|
|
|
|
|
|
|
Executive Survivor Income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Enhanced Retirement Program Benefits |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
35,656 |
8 |
|
|
|
|
|
|
|
|
Executive SERP |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
13,609 |
|
|
|
13,609 |
|
|
|
13,609 |
|
|
|
|
|
|
|
|
|
Total Value |
|
$ |
74,400 |
|
|
$ |
37,073 |
|
|
$ |
241,067 |
|
|
|
|
|
|
$ |
36,900 |
|
|
|
|
|
|
$ |
116,827 |
|
|
$ |
139,982 |
|
|
$ |
586,465 |
|
|
|
|
|
|
$ |
36,900 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Eric P. Graap Chief Financial Officer |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Compensation: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Annual Incentive |
|
$ |
31,570 |
|
|
$ |
37,570 |
|
|
$ |
31,570 |
|
|
|
|
|
|
$ |
31,570 |
|
|
|
|
|
|
$ |
31,570 |
|
|
$ |
31,570 |
|
|
|
|
|
|
|
|
|
|
$ |
31,570 |
|
Long-Term Incentive: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Restricted Stock Vesting |
|
|
57,288 |
|
|
|
57,288 |
|
|
|
57,288 |
|
|
|
|
|
|
|
57,288 |
|
|
$ |
57,288 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Tax Liability due to Vesting |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Benefits and Perquisites: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Severance: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Base Salary Continuation |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
460,460 |
|
|
|
|
|
|
|
|
|
Current Year Prorated Bonus |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
31,570 |
|
|
|
|
|
|
|
|
|
Bonus Continuation |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Health and Welfare Coverage |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
48,687 |
5 |
|
|
|
|
|
|
|
|
Long-Term Disability |
|
|
|
|
|
|
105 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
105 |
|
|
|
7,128 |
|
|
|
|
|
|
|
|
|
Executive Survivor Income |
|
|
75,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
75,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Enhanced Retirement Program Benefits |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
81,035 |
8 |
|
|
|
|
|
|
|
|
Executive SERP |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
107,442 |
|
|
|
107,442 |
|
|
|
107,442 |
|
|
|
|
|
|
|
107,442 |
|
Total Value |
|
$ |
163,858 |
|
|
$ |
88,963 |
|
|
$ |
88,858 |
|
|
|
|
|
|
$ |
88,858 |
|
|
$ |
57,288 |
|
|
$ |
214,012 |
|
|
$ |
220,152 |
|
|
$ |
655,287 |
|
|
|
|
|
|
$ |
319,012 |
|
29
|
|
|
(1) |
|
Assumes disability continues through retirement age (65). |
|
(2) |
|
These benefits are received upon a change in control whether or not the NEO is terminated in
connection with the change in control. |
|
(3) |
|
These amounts may be reduced in order to avoid excess parachute payments under Section 280G
of the Internal Revenue Code, in accordance with the executives agreement. |
|
(4) |
|
Assumes the non-employee directors exercised their discretion under Mr. Ferrells employment
agreement to fully vest his outstanding restricted stock grants based on $17.15, which was the
average closing price of the Companys common stock for the 30 business day period prior to
December 31, 2007. |
|
(5) |
|
Represents the Companys premium payments for continued health and welfare coverage. |
|
(6) |
|
Death benefits received by Mr. Ferrells beneficiaries under the term life insurance value of
his coverage under the split-dollar life insurance policy would have come from premiums paid
by Mr. Ferrell, and the Bank would have received the full amount of the premium payments. |
|
(7) |
|
Represents the Banks portions of the premium payments for two years after termination. |
|
(8) |
|
Represents value of three additional years of credited service under the Pension Plan. |
RELATED PARTY TRANSACTIONS
Pursuant to our Code of Business Conduct and Ethics, all directors and employees (including our
Named Executive Officers) are prohibited from having any direct or indirect financial or other
participation in any business that competes with, supplies goods or services to, or is a customer
of the Company or the Bank. Our Chief Executive Officer implements our Code of Business Conduct
and Ethics and is responsible for overseeing compliance with the Code of Business Conduct and
Ethics.
On March 15, 2007, our Board of Directors adopted a formal policy with respect to related party
transactions that governs the review, approval or ratification of covered related party
transactions. Our Audit Committee manages this policy. The policy generally provides that we may
enter into a related party transaction only if the Audit Committee approves or ratifies such
transaction in accordance with the guidelines set forth in the policy and if the transaction is on
terms comparable to those that could be obtained in arms length dealings with an unrelated third
party; or the transaction involves compensation approved by our Compensation and Benefits
Committee.
In the event our management determines to recommend a related party transaction to the Audit
Committee, the transaction must be presented to the Audit Committee for approval. After review,
the Audit Committee will approve or disapprove such transaction and at each subsequently scheduled
Audit Committee meeting, our management will update the Audit Committee as to any material change
to the proposed related party transaction. The Audit Committee approves only those related party
transactions that are in, or are not inconsistent with, the best interests of the Company and its
shareholders, as the Audit Committee determines in good faith.
30
For purposes of this policy, related party is (i) any person who is, or at any time since the
beginning of our last fiscal year was, a director or executive officer of us or a nominee to become
a director, (ii) any person known to own more than 5% of our common stock, (iii) any immediate
family member of any of the foregoing persons, which means any child, stepchild, parent,
stepparent, spouse, sibling, mother-in-law, father-in-law, son-in-law, daughter-in-law, brother-in-law, or sister-in-law of a person in
(i) or (ii) and any person (other than a tenant or employee) sharing the household of a person in
(i) or (ii), and (iv) any firm, corporation or other entity in which any of the foregoing persons
is employed or is a general partner or principal or in a similar position or in which such person
has a 5% or greater beneficial ownership interest.
A related party transaction is a transaction, arrangement or relationship (or any series of
similar transactions, arrangements or relationships) in which we were, are or will be a participant
and the amount involved exceeds $120,000 and in which any related party had, has or will have a
direct or indirect material interest. For purposes of determining whether a transaction is a
related party transaction, the Audit Committee relies upon Item 404 of Regulation S-K, promulgated
under the Exchange Act, except that any loan or other relationship approved by the Board in
accordance with Regulation O, and which is not disclosed as non-accrual, past due, restructured or
a potential problem loan, is not reviewed by the Audit Committee under this policy.
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 shareholders. 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, 2007, these loans amounted to $4,322,116.
During 2007, total principal additions were $11,106 and total principal payments were $532,418.
Also during 2007, principal was reduced by an additional $22,812 to adjust for individuals who were
affiliates in 2006, but not in 2007.
A discussion of Mr. Lawrences consulting arrangement with the Bank is provided under Directors
Compensation above.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth, as of March 21, 2008, the number and percentage of shares of
Company common stock beneficially held by persons known by the Company to be the owners of more
than five percent (5%) of the Companys common stock.
|
|
|
|
|
|
|
|
|
Name and Address |
|
Amount and Nature of |
|
Percent |
of Beneficial Owner |
|
Beneficial Ownership |
|
of Class |
Royce & Associates, LLC |
|
|
332,900 |
(1) |
|
|
9.41 |
% |
New York, NY |
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Based on Schedule 13G/A filed with the SEC on January 28, 2008 by Royce & Associates,
LLC (Royce), stating that as of December 31, 2007, Royce was the beneficial owner of
332,900 shares of Company common stock and had sole voting power and sole investment power
with respect to all 332,900 shares. |
31
The following table sets forth, as of March 21,2008, the number and percentage of shares of Company
common stock held by each director and nominee for director of the Company, each of the NEOs, and
all directors and executive officers of the Company as a group. The business address of each
beneficial owner is c/o Fauquier Bankshares, Inc., 10 Courthouse Square, Warrenton, Virginia 20186.
|
|
|
|
|
|
|
|
|
Name of |
|
Amount and Nature of |
|
Percent |
Beneficial Owner(s) |
|
Beneficial Ownership |
|
of Class |
John B. Adams, Jr. |
|
|
10,008 |
|
|
|
* |
|
Randy K. Ferrell |
|
|
49,668 |
(1) |
|
|
1.39 |
% |
Gregory D. Frederick |
|
|
3,376 |
|
|
|
* |
|
Eric P. Graap |
|
|
16,256 |
(2) |
|
|
|
|
Douglas C. Larson |
|
|
19,243 |
(3) |
|
|
* |
|
C. H. Lawrence, Jr. |
|
|
51,209 |
(4) |
|
|
1.43 |
% |
Randolph T. Minter |
|
|
19,434 |
(5) |
|
|
* |
|
Brian S. Montgomery |
|
|
35,547 |
(6) |
|
|
1.00 |
% |
John J. Norman, Jr. |
|
|
7,668 |
(7) |
|
|
* |
|
P. Kurtis Rodgers |
|
|
1,625 |
|
|
|
* |
|
Sterling T. Strange, III |
|
|
1,375 |
|
|
|
* |
|
H. Frances Stringfellow |
|
|
25,315 |
(8) |
|
|
* |
|
All directors and executive
officers as a group (12
persons): |
|
|
240,724 |
|
|
|
6.66 |
% |
|
|
|
* |
|
Percentage ownership is less than one percent of the outstanding shares of common stock. |
For purposes of this table, beneficial ownership has been determined in accordance with the
provisions of Rule 13d-3 of the Exchange Act under which, in general, a person is deemed to be the
beneficial owner of a security if he or she has or shares the power to vote or direct the voting of
the security or the power to dispose of or direct the disposition of the security, or if he or she
has the right to acquire beneficial ownership of the security within 60 days. All shares of common
stock indicated in the above table are subject to the sole investment and voting power of the
identified director or officer, except as otherwise set forth in the footnotes below, except that
shares of restricted stock over which the individual has sole voting power but does not have
investment power until such shares vest are not specifically identified.
|
|
|
(1) |
|
Includes 11,232 shares held jointly with his wife, Carole W. Ferrell, over
which he shares voting and investment power. |
|
(2) |
|
Includes 5,911 shares owned by Barbara C. Graap, his wife, as to which shares
he disclaims beneficial ownership. Also includes 56 shares held jointly with Barbara
C. Graap, his wife, over which he shares voting and investment power. |
|
(3) |
|
Includes 6,720 shares held jointly with Eliza C. Larson, his wife, over which
he shares voting and investment power; and 8,480 shares that could be acquired within
60 days through the exercise of stock options. |
|
(4) |
|
Includes 6,000 shares that could be acquired within 60 days through the
exercise of stock options |
|
(5) |
|
Includes 10,720 shares that could be acquired within 60 days through the
exercise of stock options. |
|
(6) |
|
Includes 10,376 shares held jointly with Patty M. Montgomery, his wife, over
which he shares voting and investment power; and 6,000 shares that could be acquired
within 60 days through the exercise of stock options. |
|
(7) |
|
Includes 3,000 shares that could be acquired within 60 days through the
exercise of stock options. |
|
(8) |
|
Includes 6,176 shares owned jointly with Dallas F. Stringfellow, her husband,
over which she shares voting and investment power; 1,400 shares owned by
Dallas F. Stringfellow, as to which shares she disclaims beneficial ownership; and
10,200 shares that could be acquired within 60 days through the exercise of stock
options. |
32
The Company is not aware of any arrangement that may operate at a subsequent date to effect a
change in control of the Company.
AUDIT COMMITTEE REPORT
The Audit Committee of the Board is responsible for providing independent, objective oversight of
the Companys accounting functions and internal controls. The Committees responsibilities include
providing for effective external audits of all corporate subsidiaries by a suitable independent
accountant, providing for 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 ensure the independence of
internal and external auditors, the integrity of management, and the adequacy of disclosures to
shareholders.
The Companys management is responsible for preparing the Companys financial statements. The
Companys independent accountants are responsible for auditing the financial statements. The
Committees responsibility is to monitor and oversee these processes.
In this context, the Audit Committee has reviewed and discussed the audited 2007 financial
statements with management, and has discussed with the independent accountants the matters required
to be discussed by Public Company Accounting Oversight Board Auditing Standard AU Section 380
Communication with Audit Committees, and Rule 2-07 of Regulation S-X promulgated by the
SEC, as modified or supplemented, including their judgments about the quality, not just the
acceptability, of the Companys accounting principles and underlying estimates in the Companys
consolidated financial statements; all critical accounting policies and practices to be used; all
alternative treatments within generally accepted accounting principles for policies and practices
related to material terms that have been discussed with management of the Company; and other
material written communication between the independent accountants and management of the Company,
such as any management letter or schedule of unadjusted differences.
The Audit Committee has received and has discussed the written disclosures and the letter from the
independent accountants required by Independence Standards Board Standard No. 1, Independence
Discussions with Audit Committees, has considered the compatibility of non-audit services with the
independent accountants independence, and has discussed with the accountants the accountants
independence.
Based on its review and discussions with the auditors and management, the Audit Committee
recommended, and the Board of Directors approved, that the audited financial statements be included
in the Companys 2007 Annual Report and in the Companys Form 10-K for 2007 filed with the
Securities and Exchange Commission.
The four members of the Audit Committee are independent as defined by the NASDAQ listing standards
and applicable SEC regulations.
|
|
|
|
|
Audit Committee: |
|
|
|
John B. Adams, Jr.
|
|
Douglas C. Larson |
|
Sterling T. Strange
|
|
H. Frances Stringfellow, Chairman |
33
PRINCIPAL ACCOUNTANT FEES
The following table presents the fees for professional audit services rendered by Smith Elliott
Kearns & Company, LLC for the audit of the Companys annual financial statements for the years
ended December 31, 2007 and 2006 and fees billed for other services rendered by Smith Elliott
during those periods. All services reflected in the following fee table for 2007 and 2006 were
pre-approved in accordance with the policy of the Audit Committee of the Board of Directors.
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, |
|
|
2006 |
|
2007 |
|
Audit fees1 |
|
$ |
49,495 |
|
|
$ |
68,470 |
|
Audit-related fees2 |
|
|
15,510 |
|
|
$ |
11,950 |
|
Tax fees3 |
|
|
1,470 |
|
|
|
|
|
All other fees |
|
|
|
|
|
|
|
|
|
|
|
$ |
66,475 |
|
|
$ |
80,420 |
|
|
|
|
|
(1) |
|
For 2007, includes amounts billed through December 31, 2007, and additional amounts estimated
to be billed for the 2007 audit. |
|
(2) |
|
Audit related fees for 2006 and 2007 consist of fees billed for the annual ERISA audits of
the Companys benefit plans. |
|
(3) |
|
Tax fees for 2006 consist of fees billed for assistance with W-2 filing requirements for
salaries, wages and benefits. |
The Audit Committee considers the provision of all of the above services to be compatible with
maintaining the independence of Smith Elliott, the Companys independent registered public
accounting firm.
PRE-APPROVAL POLICIES
Pursuant to the terms of the Companys Audit Committee Charter, the Audit Committee is responsible
for the appointment, compensation and oversight of the work performed by the Companys independent
public accountants. The Audit Committee, or a designated member of the Audit Committee, must
pre-approve all audit (including audit-related) and non-audit services performed by the Companys
independent registered public accounting firm in order to assure that the provisions of such
services does not impair the accountants independence. The Audit Committee has delegated interim
pre-approval authority to Ms. Stringfellow, Chairman of the Audit Committee. Any interim
pre-approval of permitted non-audit services is required to be reported to the Audit Committee at
its next scheduled meeting. The Audit Committee does not delegate its responsibilities to
pre-approve services performed by the independent accountant to management.
PROPOSAL TWO:
RATIFICATION OF INDEPENDENT PUBLIC ACCOUNTANTS
The Audit Committee has selected the firm of Smith Elliott Kearns & Company, LLC as the Companys
independent registered public accounting firm to audit the books of the Company and the Bank for
the current year, to report on the consolidated statement of financial position and related
statement of earnings of the Company and the Bank, and to perform such other appropriate accounting
services as may
34
be required by the Audit Committee. Smith Elliott audited the books of the Company and the Bank
for 2007. A representative of Smith Elliott is expected to be present at the Annual Meeting and
will be given the opportunity to make a statement if he so desires, and to respond to appropriate
questions of the shareholders.
The Audit Committee and the Board of Directors recommends that the shareholders vote FOR
ratifying the selection of Smith Elliott Kearns & Company, LLC for the purposes set forth above.
The Company has been advised by Smith Elliott that the firm did not have any direct financial
interest or any material indirect financial interest in the Company or the Bank in 2007. Should
the shareholders vote AGAINST ratification, the Audit Committee will consider a change in
accountants for the next year.
ANNUAL REPORT ON FORM 10-K
Financial statements of the Company are contained in the Annual Report for the year ended
December 31, 2007, which accompanies this proxy statement. Upon written request sent to Fauquier
Bankshares, Inc., c/o Secretary, 10 Courthouse Square, Warrenton, Virginia 20186, the Company will
provide, at no cost to the shareholder, a copy of the Companys Form 10-K for the year ended
December 31, 2007, including the financial statements, as filed with the SEC.
PROPOSALS FOR 2009 ANNUAL MEETING OF SHAREHOLDERS
The deadline for submitting shareholder proposals to be considered for inclusion in the proxy
statement and form of proxy relating to the 2009 Annual Meeting of Shareholders is December 19,
2008. Any such proposal received at the Companys 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 shareholder proposals (other than director nominations by shareholders)
to be presented at the 2009 Annual Meeting of Shareholders, but which will not be included in the
proxy statement and form of proxy relating to such meeting, is February 17, 2009. Any such proposal
received by the Companys 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 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.
35
RETURN OF PROXIES
Whether or not you expect to attend this Annual Meeting, please complete, date, sign and return
your proxy card as promptly as possible to assure representation of your shares and help assure a
quorum for the Annual Meeting. You may revoke your proxy at any time prior to its exercise.
|
|
|
|
|
Fauquier Bankshares, Inc. |
|
|
|
|
|
By Order of the Board of Directors |
|
|
|
|
|
|
|
|
C. H. Lawrence, Jr. |
|
|
Chairman |
Warrenton, Virginia
April 18, 2008
36
ANNUAL MEETING OF SHAREHOLDERS OF
FAUQUIER BANKSHARES, INC.
May 20, 2008
Please date, sign and mail
your proxy card in the
envelope provided as soon
as possible.
â Please detach along perforated line and mail in the envelope provided. â
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR EACH OF THE PROPOSALS PRESENTED.
PLEASE SIGN, DATE AND RETURN PROMPTLY IN THE ENCLOSED ENVELOPE. PLEASE MARK YOUR VOTE IN
BLUE OR BLACK INK AS SHOWN HERE x
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
FOR
|
|
AGAINST
|
|
ABSTAIN |
1. |
The election as directors of all nominees listed (except as marked to the contrary below):
|
|
|
2. |
|
The ratification of the selection of Smith Elliott Kearns & Company, LLC,
as independent public accountants for the Company for 2008.
|
|
o |
|
o |
|
o |
o |
|
|
CLASS III NOMINEES: |
|
|
|
|
|
|
|
|
|
FOR ALL NOMINEES |
¡ |
Douglas C. Larson |
|
|
|
|
|
|
|
|
|
¡
¡ |
Randolph T. Minter H. Frances Stringfellow |
|
|
|
|
This proxy is revocable and will be voted in the manner directed by the undersigned shareholder.
If no direction is made, this proxy will be voted FOR all director nominees in Proposal One and FOR Proposal Two.
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 business to be presented at the Annual Meeting. |
o |
|
WITHHOLD AUTHORITY |
|
|
|
|
|
FOR ALL NOMINEES
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
o |
|
FOR ALL EXCEPT
|
|
|
|
|
|
|
|
(See Instructions below)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The undersigned acknowledges receipt from the Company prior to the execution of this proxy of a Notice of Annual Meeting of Shareholders and Proxy Statement dated April 18, 2008 and of the 2007 Annual Report to Shareholders. |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
INSTRUCTION:
To withhold authority to vote for any individual nominee(s), mark
FOR ALL EXCEPT and fill in the circle next to each
nominee for whom you wish to withhold authority, as shown here:
=
|
|
|
PLEASE COMPLETE, DATE, SIGN,
AND MAIL THIS PROXY PROMPTLY IN THE ENCLOSED POSTAGE-PAID ENVELOPE. |
|
|
|
|
|
|
|
|
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|
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|
|
|
|
|
|
|
|
|
|
|
|
|
To change the address on your account, please check the box
at right and indicate your new address in the address space
above. Please note that changes to the registered name(s)
on the account may not be submitted
via this method.
|
o |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Signature of Shareholder
|
|
|
|
Date:
|
|
|
|
Signature of Shareholder
|
|
|
|
Date:
|
|
|
|
|
|
|
|
|
|
|
|
Note:
|
|
Please sign exactly as your name or names appear on this Proxy. When shares are held jointly, each holder should sign. When signing as executor, administrator, attorney, trustee or guardian, please give full
title as such. If the signer is a corporation, please sign full corporate name by duly authorized officer, giving full title as such. If signer is a partnership, please sign in partnership name by authorized person.
|
|
|
REVOCABLE PROXY
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS OF
FAUQUIER BANKSHARES, INC.
ANNUAL MEETING OF SHAREHOLDERS
May 20, 2008, 11:00 a.m. Eastern Time
The undersigned hereby appoints John B. Adams, Jr., Brian S. Montgomery and Sterling T.
Strange, III and each of them (with full power to act without the others) to act as proxy for the
undersigned, and to vote all shares of Common Stock of Fauquier Bankshares, Inc. (the Company)
which the undersigned is entitled to vote at the Annual Meeting of Shareholders, to be held on May
20, 2008, 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.
(Continued and to be marked on the other side.)