defc14a
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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. _ )
Filed by the Registrant þ
Filed by a Party other than the Registrant o
Check the appropriate box:
|
|
|
o
Preliminary Proxy Statement
|
|
o Confidential, for Use of the Commission Only (as |
|
|
permitted by Rule 14a-6(e)(2)) |
þ Definitive Proxy Statement |
|
|
o Definitive Additional Materials |
|
|
o Soliciting Material Pursuant to §240.14a-12 |
|
|
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: |
|
|
|
|
|
|
|
|
|
|
|
(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: |
|
|
|
|
|
|
|
|
|
o
|
|
Fee paid previously with preliminary materials. |
|
|
|
o
|
|
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 20, 2009
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 19, 2009, at 9:30 a.m., Eastern Time, at Poplar Springs Inn Spa, Rogues Road,
Casanova, 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 2008 Annual Report and 2008 Form 10-K, both which are
also enclosed.
Your vote is important. Whether or not you expect
to attend the Annual Meeting, we urge you to vote and submit your proxy by telephone, the Internet or mail as
promptly as possible to ensure the presence of a quorum for the meeting. For additional instructions on voting
by telephone or the Internet, please refer to your WHITE proxy card. To vote and submit your proxy by mail, please
complete, sign and date the enclosed WHITE proxy card and return it in the enclosed postage prepaid envelope.
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.
Sincerely yours,
C. H. Lawrence, Jr.
Chairman
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 19, 2009
Warrenton, Virginia
April 20, 2009
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 Poplar Springs Inn Spa, Rogues Road, Casanova, Virginia, on Tuesday,
May 19, 2009, at 9:30 a.m., Eastern Time (the Annual Meeting), for the following purposes:
|
1. |
|
To elect four Class I directors to serve until the 2012 Annual Meeting of
Shareholders of the Company and two Class III directors to serve until the 2011 Annual
Meeting of the Shareholders of the Company, or until their successors are duly elected
and qualify. |
|
|
2. |
|
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. |
|
|
3. |
|
To approve an amendment to the Companys Articles of Incorporation to authorize
2,000,000 shares of preferred stock. |
|
|
4. |
|
To approve an amendment to the Companys Articles of Incorporation to revise
the Article relating to indemnification. |
|
|
5. |
|
To approve the Fauquier Bankshares, Inc. Stock Incentive Plan. |
|
|
|
6. |
|
To transact such other business as may properly come before the Annual Meeting
or any adjournments thereof. |
|
The Board of Directors has fixed the close of business on March 13, 2009, 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, 2008, a copy of the
Companys 2008 Form 10-K, a WHITE 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 submit your proxy by telephone, the Internet or mail as promptly as
possible. For additional instructions on voting by telephone or the Internet, please refer to your WHITE proxy card.
If you wish to vote by mail 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 you have any questions or need assistance in voting your shares, please call or contact our
proxy solicitor, Regan & Associates, Inc., which is assisting the Company, toll-free at
(800)737-3426.
If your shares are held in a brokerage account or by a bank or other nominee, you are considered
the beneficial owner of shares held in street name, and these proxy materials are being forwarded
to you by your broker or nominee. Your name does not appear on the register of shareholders and in
order to be admitted to the meeting, you must bring a proxy or letter showing that you are the
beneficial owner of the shares. Unless you have obtained a proxy from your broker
or nominee, you will not be able to vote at the meeting and should instruct your broker or nominee
how to vote on your behalf.
Fauquier Bankshares, Inc.
By Order of the Board of Directors
Edna T. Brannan, Secretary
Fauquier Bankshares, Inc.
10 Courthouse Square
Warrenton, Virginia 20186
(540) 347-2700
PROXY STATEMENT
GENERAL
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 Poplar Springs Inn Spa, Rogues Road, Casanova,
Virginia, on Tuesday, May 19, 2009 at 9:30 a.m., Eastern Time, and at any adjournments thereof.
The Company began mailing this proxy statement and the form of proxy solicited hereby to its
shareholders on or about April 23, 2009.
VOTING SECURITIES
As of March 13, 2009, the record date fixed for the determination of shareholders entitled to
notice of, and to vote at, the Annual Meeting, there were 3,592,057 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 WHITE proxy cards
will be voted for the election of each of the nominees for director
named in this proxy statement beginning on page 2,
for the ratification of the selection of Smith Elliott Kearns & Company, LLC (Smith Elliott) as
the Companys independent public accountants, for the proposed amendments to the Companys articles
of incorporation and for the approval of the Fauquier Bankshares, Inc. Stock Incentive Plan.
The Company has received a notice from William E. Sudduth, a shareholder, of his intent to nominate
two individuals for election to the Board of Directors at the Annual Meeting. On April 8, 2009, a
group consisting of Mr. Sudduth, the two individuals he intends to nominate, and three other
individuals filed preliminary proxy materials with the Securities and Exchange Commission (the
SEC) indicating their intention to solicit proxies in support of their two director nominees and
in opposition to the Companys proposal to approve an amendment to its Articles of Incorporation to
authorize 2,000,000 shares of preferred stock. On January 28, 2009, the Board Governance and Nominating Committee considered the two nominees
proposed by Mr. Sudduth for potential director nominees and determined not to include the
individuals in the slate of director nominees for election to the Board of Directors at the Annual
Meeting. See Meetings and Committees of the Board of Directors Board Governance and Nominating
Committee on page 4 and Other Matters on page 41 of this proxy statement for more
information.
Nominations
by this group have NOT been endorsed by the Companys Board of
Directors. The Company strongly urges you not to sign any
proxy cards sent to you by this group. We urge you to vote the WHITE proxy card
only, and to discard any other proxy card you may receive.
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.
Shares for which a holder has elected to abstain or to withhold the proxies authority to
vote will count toward a quorum, but will not be included in determining the number of votes cast with respect to such matters.
Under the rules that govern brokers and nominees who have record ownership of shares that are held
in street name for account holders, brokers and nominees do NOT have discretion to vote shares on
non-routine matters, such as contested director elections. If a broker or nominee has not received
voting instructions from an account holder and does not have discretionary authority to vote shares
on a particular item, a broker non-vote occurs. If you do not give your broker specific
instructions, your shares may be treated as broker non-votes and may not be voted on the matters
described in this proxy statement, although they will count for purposes of determining whether a
quorum exists.
SOLICITATION AND VOTING OF PROXIES
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.
The cost
of this proxy solicitation will be borne by the
Company. The Company will pay the costs of its effort in soliciting and obtaining
proxies, specific to our proxy, including the cost of reimbursing
banks and brokers for forwarding proxy materials to shareholders.
Proxies may be solicited, (i) without extra
compensation, by the Companys directors, officers and
employees, and (ii) without any compensation, by H. Frances Stringfellow, a retired director of the Company,
by mail, electronic mail, telephone, fax or
personal interviews. The Company has engaged Regan & Associates, Inc. to assist it in the distribution and
solicitation of proxies for a fee of $40,000. The Companys expenses related to the solicitation in excess of those normally spent for an annual
meeting with an uncontested director election and excluding salaries and wages of the Companys
regular employees and officers are expected to be approximately
$200,000, of which
approximately $75,000 has been spent to date. Appendix A sets forth information relating
to the Companys directors, director nominees, officers and
employees, and retired director H. Frances Stringfellow, which
individuals are considered
participants in the solicitation under the rules of the SEC by reason of their position as
directors or director nominees or because they may be soliciting proxies on the Companys behalf.
1
PROPOSAL ONE:
ELECTION OF CLASS I and 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 twelve directors. The terms of office of
the Class I directors expire this year.
The proxy holders will cast votes on the WHITE proxy cards received by them, unless
otherwise specified, FOR the election of the four Class 1 nominees named below, each of whom
currently serves as a Class I director, to serve a three year term and the two Class III nominees
named below to serve a two year term. Mr. Lawrence currently serves as a Class I director. The term of all Class I directors expires at
the Annual Meeting. In view of Mr. Lawrences announced plans to retire effective December 31,
2009 and in accordance with the Companys bylaws and Virginia law, the Board Governance and
Nominating Committee elected to move Mr. Lawrence to a different class with a shorter term.
Accordingly, the committee has included Mr. Lawrence as a nominee for election as a Class III
director, the term of which class will expire at the 2011 annual meeting. In addition, including
Mr. Lawrence as a nominee for election as a Class III director created equal sized classes, with
four directors in each class. Mr. Graap was appointed to the
Board of Directors effective January 1, 2009 to
fill the vacancy created by the retirement, effective as of the same
date, of H. Frances
Stringfellow as a Class III director.
Certain
information is set forth below concerning the Boards nominees for election at the 2009 Annual
Meeting, as well as the other current Class II and III directors who will continue in office until
the 2010 and 2011 Annual Meetings, respectively.
Nominees for Election at 2009 Annual Meeting
Class I (To Serve Until the 2012 Annual Meeting)
John B. Adams, Jr., 64, 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 company, and is a director of Universal Corporation, a publicly traded company
headquartered in Richmond, Virginia.
John J. Norman, Jr., 46, 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.
Randolph D. Frostick, 52, has been a director of the Company and a director of the Bank since
January 2009. He is Vice President and a Shareholder of Vanderpool, Frostick and Nishanian, P.C.,
a law firm located in Manassas, Virginia, which focuses primarily on civil litigation, business,
employment, and real estate transactions, financing, land use and development. Mr. Frostick joined
the firm in 1987. He also serves his community through numerous civic
and business organizations, including the Prince William County Greater Manassas Chamber of Commerce, the Manassas Rotary Club and Historic Manassas, Inc. Mr. Frostick has been a resident of Fauquier County since 1987.
Jay B. Keyser, 52, has been a director of the Company and a director of the Bank since January
2009. He is the Chief Executive Officer of William A. Hazel Inc., a site construction company
headquartered in Chantilly, Virginia, where he has served for over 19 years in various capacities,
including Chief Financial Officer and Executive Vice President. He received his CPA certification
in 1982 and is a member of the American Institute of Certified Public Accountants and the Virginia
Society of CPAs.
Class III (To Serve Until the 2011 Annual Meeting)
C. H. Lawrence, Jr., 64, 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
2
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.
Eric P.
Graap, 56, now in his 30th year in banking, has been a director of the Company and a director of the Bank since January
2009. He has served as Executive Vice President of the Company and the Bank since May 2007, and was
Senior Vice President of the Company and the Bank from November 2000 to May 2007. He has been the
Chief Financial Officer of the Company and the Bank since 2000. Mr. Graap spent thirteen years as Chief Financial Officer for the Community Preservation
Corporation, a non-profit mortgage banking company in New York City, and Crestmont Financial Corp.,
a $1.6 billion publicly-held financial institution in central New Jersey. He has served as board
president and treasurer of the Piedmont Symphony Orchestra and director and treasurer of The
Fauquier Community Action Committee and their Head Start/Bright Stars programs. Mr. Graap has been
a resident of Fauquier County since 2000.
Directors Continuing in Office After 2009 Annual Meeting
Class II (Term Expires in 2010)
Randy K. Ferrell, 58, 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, 56, 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, 41, 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, 48, 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.
Class III (Term Expires in 2011)
Douglas C. Larson, 62, 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, 49, 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.
3
The Board recommends that the shareholders vote FOR the above nominees as directors.
The proxy holders will cast votes on the WHITE proxy cards received by them, unless
otherwise specified, FOR the election of the four Class I nominees and two Class III nominees named
herein as directors. The Board of Directors has no reason to believe that any of the above nominees will be
unable to serve as a director. Each of the nominees has consented to
be named in this proxy statement and to serve if elected.
Under Virginia law and the Companys bylaws, in a contested election directors are elected by a
plurality of the votes cast by the shares entitled to vote at a meeting at which a quorum is
present. Because the Company has received notice that a shareholder plans to nominate two
candidates for election to the Board, one nominee for Class I and one nominee for Class III, we
expect the number of nominees for each class for election at the Annual Meeting will exceed the number of
directors to be elected at the Annual Meeting. This means that the four nominees for Class I
receiving the highest number of affirmative votes cast for Class I nominees at the Annual Meeting
will be elected as directors for Class I, and the two nominees for Class III receiving the highest
number of affirmative votes cast for Class III nominees at the Annual Meeting will be elected as
directors for Class III. Unless indicated otherwise by your WHITE proxy card, if you
return a validly executed WHITE proxy card or vote the WHITE proxy card by
telephone or Internet, your shares will be voted FOR the four Class I and two Class III nominees
named in this proxy statement. Only votes cast for a nominee will be counted. As a result,
abstentions and broker non-votes will have no effect on the director election since only votes
FOR a nominee will be counted.
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, Frostick, Keyser, Larson, Lawrence, Minter, Montgomery,
Norman, Rodgers, and Strange.. 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, 2008, the Board of Directors held
fourteen meetings. Each director attended at least 75% of the aggregate of: (i) the number of
Board meetings held during the period in which he or she has been a director and (ii) 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
2008 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
seven official meetings and several informal discussions in 2008. The Audit Committee report is
set forth below. The current members of the Audit Committee are Messrs. Adams, Larson, Strange and
Norman. The Board of Directors has determined that Messrs Norman and Strange qualify as the audit
committee financial experts as defined by SEC regulations and has designated them as the Companys
Audit Committee Financial Experts. The Audit Committee operates pursuant to a written charter,
which is posted on the Banks website:
4
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 NASDAQ listing standards, held seven official meetings and
several informal discussions in 2008. The current members of the Companys Compensation and
Benefits Committee are Messrs. Keyser, 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 2008.
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,
Frostick, Lawrence, Norman and Rodgers. The committee held six official meetings in 2008 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. The Board has 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 November 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 I and Class III
5
members of the Board of Directors were approved on the recommendation of the Board Governance and
Nominating Committee.
The Company received a letter, dated January 15, 2009, from Preston Pulliam, a shareholder,
requesting that the Board Governance and Nominating Committee of the Board of Directors consider
under the procedures described above the following individuals as candidates for nomination as
directors at the Annual Meeting: Charles Robinson Porter, C. Hunton Tiffany, and David M. van
Roijen.
As described above, the Board Governance and Nominating Committee held six official meetings as
well as several informal discussions in 2008. On December 18, 2008, at a regularly scheduled Board
meeting, the committee recommended to the Board of Directors, and the Board approved, the
appointment of Messrs. Frostick, Graap, and Keyser as directors effective January 1, 2009. Under
Virginia law, a director appointed to the Companys Board between shareholder meetings is required
to be up for election at the next annual meeting of shareholders. Therefore, Messrs. Frostick,
Graap, and Keyser are standing for election at the Annual Meeting.
Notwithstanding that the Board had appointed three new directors as of January 1, 2009, all of whom
are required by Virginia law to stand for election at the Annual Meeting, and that there are three
incumbent directors who have served the Company and the Bank for many years and whose terms are
expiring at the Annual Meeting, the Board Governance and Nominating Committee met on January 28,
2009 and considered the candidates proposed by Mr. Pulliam under the procedures described above.
The committee determined not to include the individuals in the slate of director nominees for
election to the Board of Directors at the Annual Meeting.
With respect to Mr. van Roijen, the committee considered that (i) he has no significant involvement
in the business community in Fauquier County and (ii) he is not involved in any community or civic
organizations based in Fauquier County. The committee considers business and civic community
involvement in the market areas in which the Bank operates to be a qualification for becoming a
director of the Company.
Mr. Tiffany is well known to the committee and to the entire Board, having served the Company and
the Bank in a variety of management positions and as director until his January 2007 resignation
from the Board during the first year of a three year term. Mr. Tiffany, in his December 23, 2006
resignation letter to Mr. Lawrence (as Board Chairman), stated that in anticipation of an imminent
move to take on the agricultural life in a county outside the Banks primary market area, the time
is propitious for me to step down from the governing boards of Fauquier Bankshares, Inc. and its
subsidiary, The Fauquier Bank. The effective date of Mr. Tiffanys resignation was January 15,
2007, and a copy of his resignation letter was attached as Exhibit 99.1 to the Companys Current
Report on Form 8-K filed with the SEC on December 29, 2006. The Board Governance and Nominating
Committee determined that it would not be in the best interest of the Company for Mr. Tiffany to
rejoin the Board of Directors. As stated above, the committee considers active business community
involvement in the market areas in which the Bank operates to be a qualification for becoming a
director of the Company. The committee believes Mr. Tiffany does not meet such a qualification. In
addition, based on a provision in the Companys bylaws, Mr. Tiffany, if elected at the Annual
Meeting, would be able to serve as a director for only a single three year term. The committee
believes that it is critically important for directors to remain eligible to serve for a meaningful
period of time in order to build a knowledgeable and effective board, particularly in view of the
complex and rapidly changing nature of the financial services industry.
With respect to Mr. Porter, on February 2, 2009, he met with all members of the Board Governance
and Nominating Committee except for Mr. Frostick, as well as Messrs. Ferrell and Graap, the
Companys President and Chief Executive Officer and Executive Vice President and Chief Financial
Officer, respectively. After such meeting, at which the business and strategic direction of the
Company and the Bank were discussed in general, Mr. Porter informed the committee that he was
withdrawing his name for consideration as a director.
See Other Matters on page [___] for additional information on the proposal by William E. Sudduth
for the nomination of Messrs. Tiffany and van Roijen for election as directors at the Annual
Meeting.
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 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 2010 Annual Meeting must be in proper written form and
received by the Secretary of the Company by February 18, 2010. See Other Matters on page [___] for information on the proposal by William E. Sudduth under this
provision of the Companys bylaws for the nomination of Messrs. Tiffany and van Roijen for election
as directors at the Annual Meeting.
On January 15, 2009, the Board Governance and Nominating Committee recommended and the Board
approved Stock Ownership Guidelines for Directors and Named Executive Officers. The Board of
Directors considers ownership of Company stock by directors and executive officers to be important
to align the interests of such directors and executive officers with the Companys shareholders.
Accordingly, the Board established stock ownership guidelines to the effect that, prior to the
later of November 20, 2013, or five years after becoming a director, the chief executive officer or
other named executive officer in the Summary Compensation Table, all such directors and officers
shall attain minimum stock ownership of shares of Company stock in accordance with the table set
forth below, and maintain sufficient share ownership to meet this requirement so long as he or she
serves as a director or chief executive officer, or with respect to other named executive officers,
so long as he or she continues to be an other named executive officer. For the purposes of these
guidelines, the effective date of an officer becoming an other named executive officer is the date
of the Companys proxy statement in which the officer is named, and such officer shall continue to
be an other named executive officer until the proxy statement relating to the following years
annual meeting or until the other named executive officers employment terminates.
|
|
|
Position |
|
Share Ownership Requirement |
Chief Executive Officer
|
|
25,000 shares |
Other Named Executive Officer
|
|
15,000 shares |
Director
|
|
5,000 shares |
A major purpose of these guidelines is to strike a balance between the objectives of stock
ownership and individual financial planning. In the event that a directors or officers stock
ownership falls below the applicable share ownership requirement, the director or officer shall
have one year from such date to acquire a sufficient number of shares of Company common stock to
meet the applicable share ownership requirement. Directors and officers shall retain at least 50%
of shares of Company common stock received as direct stock grants, restricted stock grants or upon
exercise of options in consideration of service as director or officer of the Company until the
applicable share ownership requirement has been met. No additional retention is required
thereafter.
All shares owned outright and vested restricted stock shall be counted in determining compliance
with the share ownership requirements. Stock options (vested and unvested) and unvested restricted
stock shall not be counted.
6
As a
group, our directors and named executive officers beneficially owned approximately of our
outstanding stock, and our Chief Executive Officer owns approximately of our outstanding stock
as of March 13, 2009.
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 were twelve late filings during
the fiscal year ending December 31, 2008. The twelve Form 4 late filings were related to a
one-time restricted stock grant to all of the directors.
7
DIRECTOR COMPENSATION
Retainer and Meeting Fees. Non-employee directors of the Bank received an annual retainer of
$5,000 for Bank board service during 2008. Non-employee directors of the Company received an annual
retainer of $3,000 for Company board services during 2008. Annual retainers are pro-rated at one
half for any director who does not serve after the annual meeting of shareholders. In 2008,
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. Non-employee directors of the Company received a fee of
$800 for each joint meeting of the Company and the Bank Boards attended.
Non-Employee Director Stock Option Plan. The Company had a Non-Employee Director Stock Option Plan
(the Director Option Plan) that expired in 1999. 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. 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, options for 120,960 shares were granted under the plan. There
are options for 10,700 shares 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.
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. The Company reserved 180,000
shares of stock for awards to non-employee directors during the term of the plan, which expires on
December 31, 2009. 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.
In 2008, 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 2008 Annual Meeting were eligible to receive restricted stock awards. On February
14, 2008, 625 shares of restricted stock were awarded to each non-employee director continuing in
office after the 2008 Annual Meeting under the Omnibus Plan. These shares vest on February 14,
2011.
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.
8
The Omnibus Plan will terminate on December 31, 2009. The Company expects that it will continue
awarding restricted stock to its non-employees directors under a new equity plan, if the plan is
approved by shareholders at the Annual Meeting. See Proposal 5 Approval of the Fauquier
Bankshares, Inc. Stock Incentive Plan beginning on page 37.
Consulting Agreement with C. H. Lawrence, Jr. Pursuant to a written agreement, 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 2008, compensation to
Mr. Lawrence for these services totaled $14,000, which compensation is in addition to the
compensation Mr. Lawrence receives as a director of the Company. Either party may terminate the
agreement at any time.
The following table provides compensation information for the year ended December 31, 2008 for each
non-employee director.
Director Compensation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non- |
|
Pension Value |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity |
|
and |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Incentive |
|
Nonqualified |
|
|
|
|
|
|
Fees Earned |
|
|
|
|
|
|
|
|
|
Plan |
|
Deferred |
|
All Other |
|
|
|
|
or Paid in |
|
Stock |
|
Option |
|
Compen- |
|
Compensation |
|
Compen- |
|
|
|
|
Cash 2 |
|
Awards 3, 4 |
|
Awards |
|
sation |
|
Earnings |
|
sation |
|
Total |
Name 1 |
|
($) |
|
($) |
|
($) |
|
($) |
|
($) |
|
($) |
|
($) |
C. H. Lawrence, Jr.
Chairman of the Board |
|
|
48,700 |
|
|
|
9,634 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
14,000 |
5 |
|
|
72,334 |
|
John B. Adams, Jr. |
|
|
29,500 |
|
|
|
9,634 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
39,134 |
|
Douglas C. Larson |
|
|
31,600 |
|
|
|
9,634 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
41,234 |
|
Randolph T. Minter |
|
|
31,700 |
|
|
|
9,634 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
41,334 |
|
Brian S. Montgomery |
|
|
32,800 |
|
|
|
9,634 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
42,434 |
|
John J. Norman, Jr. |
|
|
21,200 |
|
|
|
9,634 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
30,834 |
|
P. Kurt Rodgers |
|
|
22,000 |
|
|
|
3,380 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
25,380 |
|
Sterling T. Strange |
|
|
21,100 |
|
|
|
3,380 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
24,480 |
|
H. Frances Stringfellow |
|
|
24,400 |
|
|
|
9,634 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
34,034 |
|
|
|
|
|
(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. |
9
|
|
|
(3) |
|
Reflects the dollar amount amortized and recognized in the fiscal year for financial
statement reporting purposes in accordance with Statement of Financial Accounting Standards
(SFAS) No. 123(R) for restricted stock awards granted during 2006, 2007, 2008 under the
Omnibus Plan. As of December 31, 2008, each non-executive director held the following shares
of restricted stock: Mr. Montgomery: 1,342; Mr. Adams: 1,342; Mr. Lawrence: 1,342; Mr. Larson:
1,342; Mr. Minter: 1,342; Mr. Norman: 1,342; Mr. Rodgers: 625; Mr. Strange: 625; and Ms.
Stringfellow: 1,342. 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,
2008 included in the Companys Annual Report on Form 10-K filed
with the SEC on March 16,
2009. |
|
(4) |
|
Each non-executive director received an award of 625 shares of restricted stock on February
14, 2008 under the Omnibus Plan, which shares vest on February 14, 2011. The grant date fair
value of each restricted stock award to the non-executive directors for 2008, computed in
accordance with SFAS No. 123(R), was $17.70 per share or $3,380 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, 2008 included in the Companys
Annual Report on Form 10-K filed with the SEC on March 16, 2009. |
|
(5) |
|
As discussed above, 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 2008, compensation to Mr. Lawrence for these
services totaled $14,000, which compensation is in addition to the compensation Mr. Lawrence
receives as a director of the Company and the Bank. |
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 a 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 employees whose
qualifications clearly meet or exceed the minimum education, experience and skills specified for
each job; (ii) attract individuals who are willing to be held accountable for results; (iii) retain
those who achieve the high level of results expected; (iv) motivate employees to seek additional
accountability; take reasonable risks and achieve greater than expected results; (v) differentiate
employees between those who perform 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.
10
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 Banks Board of
Directors approval. In addition to the 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 Chief Executive Officer, Chief Operating Officer, and Chief Financial Officer, are
referred to throughout this discussion as the named executive officers or NEOs.
Establishing Executive Compensation. The Company compensates our NEOs, including other members of
senior management, through a mix of base salary, cash and equity incentive compensation, and
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 core 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, 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 competitive with 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.
In September 2007, the Compensation Committee engaged the services of Pearl Meyer & Partners
(PM&P), an independent compensation consulting firm, to assist in the annual establishment of an
overall executive compensation package beginning in 2008. PM&P conducted a competitive market
assessment detailing the market positioning of the Companys senior executives (including the NEOs)
based on elements of compensation including base salaries, short-term incentives, and long-term
incentives. This assessment compared our senior executives to similar positions at comparable
financial institutions based on a peer group of publicly-traded banks as well as industry specific
survey market data. The peer group used in this assessment included 17 publicly-traded banks,
similar in asset size compared to the Company, and predominantly located in the greater Washington,
D.C. / northern Virginia area (see detailed listing below). Industry specific survey sources
included America Community Bankers, Amalfi Consulting (formerly Clark Consulting), and Watson
Wyatt; employing the appropriate asset size ($300M $800M) and regional data cuts, when available.
11
The following is a listing of the 17 publicly-traded peer group firms employed in the competitive
market assessment:
|
|
|
|
|
Abigail Adams National Bancorp, Inc.
|
|
Cecil Bancorp, Inc.
|
|
Gateway Financial Holdings |
Access National Corporation
|
|
Central Virginia Bankshares, Inc.
|
|
Middleburg Financial Corp. |
Alliance Bankshares Corporation
|
|
Eagle Bancorp, Inc.
|
|
Old Point Financial Corp. |
Annapolis Bancorp, Inc.
|
|
Eagle Financial Services, Inc.
|
|
Tri-County Financial Corp. |
C&F Financial Corporation
|
|
Eastern Virginia Bankshares, Inc.
|
|
Valley Financial Corporation |
Carrollton Bancorp
|
|
First National Corporation |
|
|
PM&P presented the competitive market assessment to the Committee at its meeting at the beginning
of 2008, so the Committee could refer to the information in determining base salary changes for
2008 and assess the competitiveness and structure of its short and long-term incentive plans. In
addition, PM&P provided assistance to the Committee throughout 2008 including assisting with
changes to the short and long-term incentive plan structures as well as with implementing stock
ownership guidelines.
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.
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.
Base Salaries. Based on an evaluation of the officers performance against their individual
performance plans for 2007, reference to the competitive market analysis provided by the
compensation consultant and a review of the Companys overall performance in 2007, the Committee
set the base salary for the Chief Executive Officer for 2008 at $250,000, for the Chief Operating
Officer for 2008 at $159,000 and for the Chief Financial Officer for 2008 at $166,000. These 2008
base salaries were increased from 2007, reflecting the Committees determination that the Company
and each NEO had performed well in 2007. In an effort to continue to align our executive
compensation with the interests of our shareholders, base salaries for the Chief Executive Officer,
the Chief Operating Officer, and the Chief Financial Officer did not increase from 2008 to 2009.
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
12
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 2008 and chose factors relative to
the primary objectives, weighting each factor in the order of priority. The NEOs performance
goals for 2008 were based on the following four measures of the Companys 2008 performance: return
on average equity (weighting: 70%), net loan growth (weighting: 10%), transaction deposit growth
(weighting: 10%), and strategic initiatives (weighting: 10%). The four performance criteria were
measured against the Companys actual budget for 2008, 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
70%, which meant that if Company performance was below 70% of the overall target on the four
measures, no incentive awards would be paid under the Management Incentive Plan for 2008.
The Committee used these performance goals to determine incentive awards earned under the
Management Incentive Plan for 2008 performance. During 2008, the target threshold was not met and
no incentive compensation was paid.
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 2008 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 2008. The
Chief Operating Officers and Chief Financial Officers target cash payout under the Management
Incentive Plan for 2008 was set at 30% of base salary based upon 100% attainment of the same
company goals. Consistent with the purpose of rewarding strong Company performance, the maximum
amount that could be earned under these award formulas was 150% of the target cash payout for
Company performance over 120%. There was also 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 resulting in less than 70% of the overall 2008 budgeted amount. No cash incentive
payouts for the Chief Executive Officer, Chief Operating Officer, and Chief Financial Officer under
the Management Incentive Plan for 2008 were paid because the target threshold was not met.
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
executives with those of the Companys shareholders, the Committee, with Board approval, began to
utilize restricted stock grants in lieu of stock options. Our restricted stock grants are
performance-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 three year
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. The restricted
stock vests in full on the third anniversary date of the grant, if the NEO remains in the Banks
employ. The Committee selected a cliff-vesting approach to maximize the retention value of these
grants. For our Chief Executive Officer, Chief Operating Officer, and Chief Financial Officer, no
awards were given for 2008 performance.
13
The Omnibus Plan will terminate on December 31, 2009. The Company expects that it will continue
making equity awards to its executive officers under a new equity plan, if the plan is approved by
shareholders at the Annual Meeting. See Proposal 5 Approval of the Fauquier Bankshares, Inc.
Stock Incentive Plan beginning on page 37.
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 $56,484 for a person age 65 in 2008. Compensation that may be taken into account
for purposes of the Pension Plan is currently limited to $230,000 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, 2008 for the NEOs
is as follows: Mr. Ferrell: $4,889; Mr. Frederick: $782; and Mr. Graap: $2,329. 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 21.
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% target 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
14
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-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 21.
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. In December 2008, the
employment agreement was amended to comply with the provisions of Section 409A of the Internal
Revenue Code. 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 2008. 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
15
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. In December 2008, the employment agreement was amended to
comply with the provisions of Section 409A of the Internal Revenue Code. 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 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 shareholders
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. In December 2008, the change of control agreement was amended to comply with the
provisions of Section 409A of the Internal Revenue Code. 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 excess parachute payment excise tax, within
the meaning of Section 280G of the Internal Revenue Code, 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, 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.
16
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 22 29.
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, health and welfare benefit, survivor income benefit, and a
supplemental 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 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, see Executive Split-Dollar Life Insurance on page 25.
As reflected in the Summary Compensation Table on page 19, the cost to the Company of these
benefits aggregated $68,852 in 2008 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 NEOs 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.
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 a
periodic basis. 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 2008, 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 and retired from the
Board on January 1, 2009.
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 |
|
|
|
|
Jay B. Keyser |
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, 2008, 2007
and 2006. The Company did not have any other executive officers during 2008. No compensation
expense was recorded in 2008 with respect to stock options awarded to or held by the NEOs.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pension Value |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
and |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nonqualified |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-Equity |
|
Deferred |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Incentive Plan |
|
Compensation |
|
All Other |
|
|
Name and |
|
|
|
|
|
Salary |
|
Stock Awards |
|
Compensation |
|
Earnings |
|
Compensation |
|
Total |
Principal Position |
|
Year |
|
($) |
|
($)1 |
|
($) |
|
($)2 |
|
($) |
|
($) |
Randy K. Ferrell
President & Chief
Executive Officer |
|
|
2008 |
|
|
|
250,000 |
|
|
|
70,374 |
|
|
|
0 |
|
|
|
281,685 |
|
|
|
35,271 |
3 |
|
|
637,330 |
|
|
|
|
2007 |
|
|
|
235,645 |
|
|
|
70,176 |
|
|
|
77,292 |
|
|
|
151,279 |
|
|
|
36,923 |
|
|
|
569,566 |
|
|
|
|
2006 |
|
|
|
221,000 |
|
|
|
64,872 |
|
|
|
74,168 |
|
|
|
103,720 |
|
|
|
34,686 |
|
|
|
498,446 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gregory D. Frederick
Chief Operating
Officer |
|
|
2008 |
|
|
|
159,000 |
|
|
|
10,146 |
|
|
|
0 |
|
|
|
40,484 |
|
|
|
20,495 |
4 |
|
|
230,125 |
|
|
|
|
2007 |
|
|
|
150,000 |
|
|
|
|
|
|
|
36,900 |
|
|
|
9,454 |
|
|
|
15,904 |
|
|
|
212,258 |
|
|
|
|
2006 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Eric P. Graap
Chief Financial
Officer |
|
|
2008 |
|
|
|
166,000 |
|
|
|
28,035 |
|
|
|
0 |
|
|
|
128,903 |
|
|
|
13,086 |
5 |
|
|
336,024 |
|
|
|
|
2007 |
|
|
|
154,000 |
|
|
|
28,365 |
|
|
|
31,570 |
|
|
|
44,548 |
|
|
|
13,853 |
|
|
|
271,544 |
|
|
|
|
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, 2008, in accordance with SFAS
123(R), of stock awards pursuant to the Management Incentive Plan and thus include amounts
from awards granted in 2005, 2006, 2007 and 2008. 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, 2008 included in the Companys Annual Report on Form 10-K filed
with the SEC on March 16, 2009. |
|
(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 $63,855 increase with respect to the Pension Plan and a $217,830 increase
with respect to the Executive SERP. Mr. Fredericks change in accumulated benefit reflects a
$14,013 increase with respect to the Pension Plan and a $26,471 increase with respect to the
Executive SERP. Mr. Graaps change in accumulated benefit reflects a $35,359 increase with
respect to the Pension Plan and a $93,544 increase with respect to the Executive SERP.
Because none of the NEOs had reached age 60 as of December 31, 2008, 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) |
|
These amounts consist of: split dollar life insurance premiums of $3,252; an automobile
allowance of $7,200 and related tax gross-up with respect to this benefit of $4,200; club dues
reimbursements of $1,116; tax planning and physical exam reimbursements of $655; supplemental
long-term disability plan premiums paid by the Company of $4,507; a 401(k) Savings Plan
company match of $6,959; and $7,382 in cumulative dividends Mr. Ferrell received during 2008
on his restricted |
19
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 (50%) that he used the club for personal rather than
business use.
(4) |
|
These amounts consist of: an automobile allowance of $8,400 and related tax gross-up with
respect to this benefit of $3,053; tax planning and physical exam reimbursements of $2,000; a
401(k) Savings Plan company match of $5,916; and $1,126 in cumulative dividends Mr. Frederick
received during 2008 on his restricted stock. Mr. Frederick is not currently covered under the
supplemental long-term disability plan. |
|
(5) |
|
These amounts consist of: club dues reimbursements of $2,110; health and welfare benefit of
$200; tax planning and physical exam reimbursements of $680; supplemental long-term disability
plan premiums paid by the Company of $889; a 401(k) Savings Plan company match of $5,963; and
$3,244 in cumulative dividends Mr. Graap received during 2008 on his restricted stock. |
Grants of Plan-Based Awards
Fiscal 2008
As indicated earlier in the discussion regarding Cash Incentive Compensation and Equity Incentive
Compensation, there were no incentive-based cash or equity awards granted to the NEOs for the year
ended December 31, 2008 under the Management Incentive Plan.
Outstanding Equity Awards at 2008 Fiscal Year-End
The following table includes certain information with respect to the value of all previously
awarded unexercised options and unvested restricted stock awards held by the NEOs at December 31,
2008. None of the NEOs own any unexercised options.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock Awards |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Incentive Plan |
|
|
|
|
|
|
|
|
|
|
Equity Incentive |
|
Awards: |
|
|
|
|
|
|
|
|
|
|
Plan Awards: |
|
Market or |
|
|
Number of |
|
|
|
|
|
Number of |
|
Payout Value |
|
|
Shares or |
|
Market Value |
|
Unearned |
|
of Unearned |
|
|
Units of |
|
of Shares or |
|
Shares, Units or |
|
Shares, Units |
|
|
Stock That |
|
Units of Stock |
|
Other Rights |
|
or Other Rights |
|
|
Have Not |
|
That Have Not |
|
That Have Not |
|
That Have Not |
|
|
Vested |
|
Vested |
|
Vested |
|
Vested |
Name |
|
(#) |
|
($) 4 |
|
(#) |
|
($) |
Randy K. Ferrell |
|
|
3,930 |
1 |
|
|
50,108 |
|
|
|
|
|
|
|
|
|
|
|
|
2,628 |
2 |
|
|
33,507 |
|
|
|
|
|
|
|
|
|
|
|
|
2,965 |
3 |
|
|
37,804 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gregory D. Frederick |
|
|
1,876 |
1 |
|
|
23,919 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Eric P. Graap |
|
|
1,605 |
1 |
|
|
20,464 |
|
|
|
|
|
|
|
|
|
|
|
|
1,055 |
2 |
|
|
13,451 |
|
|
|
|
|
|
|
|
|
|
|
|
1,142 |
3 |
|
|
14,561 |
|
|
|
|
|
|
|
|
|
20
|
|
|
(1) |
|
These shares of restricted stock were awarded on February 14, 2008 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 February 15, 2007 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 March 16, 2006 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 the Companys common stock of $12.75 per share on December 31,
2008. |
Pension Benefits
Fiscal 2008
The following table shows the present value of accumulated benefits payable to each of the NEOs,
including the number of years of service credited to each NEO, under each of the Pension Plan and
the Executive SERP, determined using interest rate and mortality rate assumptions consistent with
those used in the Companys financial statements.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Present Value of |
|
Payments |
|
|
|
|
Number of Years |
|
Accumulated |
|
During Last Fiscal |
|
|
|
|
Credited Service 1 |
|
Benefit 2 |
|
Year |
Name |
|
Plan Name |
|
(#) |
|
($) |
|
($) |
Randy K. Ferrell |
|
Pension Plan |
|
|
14 |
|
|
|
364,474 |
|
|
|
|
|
|
|
Executive SERP |
|
|
14.25 |
|
|
|
499,214 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gregory D. Frederick |
|
Pension Plan |
|
|
2 |
|
|
|
21,978 |
|
|
|
|
|
|
|
Executive SERP |
|
|
2 |
|
|
|
27,960 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Eric P. Graap |
|
Pension Plan |
|
|
8 |
|
|
|
134,296 |
|
|
|
|
|
|
|
Executive SERP |
|
|
8.0833 |
|
|
|
147,318 |
|
|
|
|
|
|
|
|
(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 cash incentive) for the period through December
31, 2008. 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, 2008, filed with the SEC
on March 16, 2009. As described
in such note, the interest assumption is 6%. Because none of the NEOs had reached age 60 as
of December 31, 2008, 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. |
21
|
|
|
(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, 2008 included in the Companys Annual Report on Form 10-K filed with
the SEC on March 16, 2009. The material terms of the Executive SERP are described on pages
14-15 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, 2008 included in the Companys
Annual Report on Form 10-K filed with the SEC on March 16, 2009. |
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 in 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.
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 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.
22
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 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 in
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 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
23
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 excess 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 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:
24
(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 pages 14-15.
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 $335,210 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 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
25
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 in control of the Company, based on following assumptions:
|
|
|
The table assumes each termination event or the change in control occurred on December
31, 2008, and assumes a stock price of $12.75, which was the Companys closing stock price
on December 31, 2008. |
|
|
|
|
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. |
|
|
|
|
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, 2008 in order to receive any cash or equity award under the
Management |
26
|
|
|
Incentive Plan for 2008. 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 2008 was awarded to him in all other non-change in control
cases. |
|
|
|
The NEOs did not hold any unvested stock options at December 31, 2008, which means they
would not have received any benefit from the accelerated vesting of stock options at
December 31, 2008. |
|
|
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 |
|
|
|
|
|
|
|
|
|
|
|
|
Cause or |
|
Resigna- |
|
|
|
|
|
Change in |
|
|
|
|
|
|
|
|
|
Cause or |
|
Resigna- |
|
|
|
|
|
|
|
|
|
|
|
|
Resigna- |
|
tion of |
|
|
|
|
|
Control |
|
|
|
|
|
|
|
|
|
Resigna- |
|
tion of |
|
Resignation of |
|
|
|
|
|
|
|
|
|
|
tion of |
|
Executive |
|
|
|
|
|
with or |
|
|
|
|
|
|
|
|
|
tion of |
|
Executive |
|
Executive for |
Executive Benefits and |
|
|
|
|
|
|
|
|
|
Executive |
|
without |
|
|
|
|
|
without |
|
|
|
|
|
|
|
|
|
Executive |
|
without |
|
Other than Good |
Payments Upon |
|
|
|
|
|
Disability |
|
for Good |
|
Good |
|
|
|
|
|
Termination |
|
|
|
|
|
|
|
|
|
for Good |
|
Good |
|
Reason including |
Termination |
|
Death |
|
1 |
|
Reason |
|
Reason |
|
Retirement |
|
2 |
|
Death |
|
Disability |
|
Reason 3 |
|
Reason |
|
Retirement |
Randy K. Ferrell Chief Executive Officer |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Compensation: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Base Salary |
|
$ |
62,500 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
62,500 |
|
|
$ |
62,500 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-Term Incentive: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Restricted Stock
Vesting |
|
|
121,418 |
|
|
$ |
121,418 |
|
|
$ |
121,418 |
|
|
|
|
|
|
$ |
121,418 |
|
|
$ |
121,418 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Tax Liability due
to Vesting |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
38,854 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Benefits and Perquisites: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Severance: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Base Salary
Continuation |
|
|
|
|
|
|
|
|
|
|
500,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
747,500 |
|
|
|
|
|
|
|
|
|
Current Year
Prorated Bonus |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Bonus Continuation |
|
|
|
|
|
|
|
|
|
|
77,292 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Health and Welfare
Coverage |
|
|
|
|
|
|
|
|
|
|
32,433 |
4 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
48,650 |
4 |
|
|
48,650 |
4 |
|
|
48,650 |
4 |
|
|
|
|
|
|
|
|
Long-Term Disability |
|
|
|
|
|
|
156 |
|
|
|
9,014 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
156 |
|
|
|
13,521 |
|
|
|
|
|
|
|
|
|
Executive Split
Dollar Insurance |
|
|
|
5 |
|
|
|
|
|
|
3,252 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5 |
|
|
3,252 |
|
|
|
3,252 |
|
|
|
|
|
|
|
|
|
Executive Survivor
Income |
|
|
75,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
75,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Enhanced Retirement
Program Benefits |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
154,6435 |
6 |
|
|
|
|
|
|
|
|
Executive SERP |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
255,064 |
|
|
|
255,064 |
|
|
|
255,064 |
|
|
|
|
|
|
|
255,064 |
|
Total Value |
|
$ |
258,918 |
|
|
$ |
121,574 |
|
|
$ |
743,409 |
|
|
|
|
|
|
$ |
121,418 |
|
|
$ |
160,272 |
|
|
$ |
441,214 |
|
|
$ |
369,895 |
|
|
$ |
1,222,630 |
|
|
|
|
|
|
$ |
255,064 |
|
27
|
|
|
|
|
|
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 |
|
|
|
|
|
|
|
|
|
|
|
|
Cause or |
|
Resigna- |
|
|
|
|
|
Change in |
|
|
|
|
|
|
|
|
|
Cause or |
|
Resigna- |
|
Resignation of |
|
|
|
|
|
|
|
|
|
|
Resigna- |
|
tion of |
|
|
|
|
|
Control |
|
|
|
|
|
|
|
|
|
Resigna- |
|
tion of |
|
Executive for |
|
|
|
|
|
|
|
|
|
|
tion of |
|
Executive |
|
|
|
|
|
with or |
|
|
|
|
|
|
|
|
|
tion of |
|
Executive |
|
Other than Good |
Executive Benefits |
|
|
|
|
|
|
|
|
|
Executive |
|
without |
|
|
|
|
|
without |
|
|
|
|
|
|
|
|
|
Executive |
|
without |
|
Reason |
and Payments Upon |
|
|
|
|
|
|
|
|
|
for Good |
|
Good |
|
|
|
|
|
Termination |
|
|
|
|
|
|
|
|
|
for Good |
|
Good |
|
including |
Termination |
|
Death |
|
Disability 1 |
|
Reason |
|
Reason |
|
Retirement |
|
2 |
|
Death |
|
Disability |
|
Reason3 |
|
Reason |
|
Retirement |
Greg D. Frederick Chief Operating Officer |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Compensation: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Base Salary |
|
$ |
39,750 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
39,750 |
|
|
$ |
39,750 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-Term Incentive: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Restricted
Stock Vesting |
|
$ |
23,919 |
|
|
$ |
23,919 |
|
|
$ |
23,919 |
|
|
|
|
|
|
$ |
23,919 |
|
|
$ |
23,919 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Tax Liability due
to Vesting |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
7,654 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Benefits and Perquisites: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Severance: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Base Salary
Continuation |
|
|
|
|
|
|
|
|
|
$ |
159,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
475,410 |
|
|
|
|
|
|
|
|
|
Current Year
Prorated Bonus |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Incentive
Compensation
Continuation |
|
|
|
|
|
|
|
|
|
|
18,450 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Health and
Welfare Coverage |
|
|
|
|
|
|
|
|
|
|
38,494 |
4 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
57,740 |
4 |
|
|
57,740 |
4 |
|
|
57,740 |
4 |
|
|
|
|
|
|
|
|
Long-Term Disability |
|
|
|
|
|
|
199 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
199 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Executive Split
Dollar Insurance |
|
|
|
5 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Executive Survivor
Income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Enhanced Retirement
Program Benefits |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
56,782 |
6 |
|
|
|
|
|
|
|
|
Executive SERP |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
203,379 |
|
|
|
203,379 |
|
|
|
203,379 |
|
|
|
|
|
|
|
|
|
Total Value |
|
$ |
63,669 |
|
|
$ |
24,118 |
|
|
$ |
239,863 |
|
|
|
|
|
|
$ |
23,919 |
|
|
$ |
31,573 |
|
|
$ |
300,869 |
|
|
$ |
301,068 |
|
|
$ |
793,311 |
|
|
|
|
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Eric P. Graap Chief Financial Officer |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Compensation: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Annual Incentive |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-Term Incentive: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Restricted Stock
Vesting |
|
|
48,476 |
|
|
|
48,476 |
|
|
|
48,476 |
|
|
|
|
|
|
|
48,476 |
|
|
|
48,476 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Tax Liability due
to Vesting |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Benefits and Perquisites: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Severance: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Base Salary
Continuation |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
496,340 |
|
|
|
|
|
|
|
|
|
Current Year
Prorated Bonus |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Bonus
Continuation |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Health and Welfare
Coverage |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
53,092 |
4 |
|
|
|
|
|
|
|
|
Long-Term Disability |
|
|
|
|
|
|
113 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
113 |
|
|
|
2,668 |
|
|
|
|
|
|
|
|
|
Executive Survivor
Income |
|
|
75,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
75,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Enhanced Retirement
Program Benefits |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
99,535 |
6 |
|
|
|
|
|
|
|
|
Executive SERP |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
176,183 |
|
|
|
176,183 |
|
|
|
176,183 |
|
|
|
|
|
|
|
176,183 |
|
Total Value |
|
$ |
123,476 |
|
|
$ |
48,589 |
|
|
$ |
48,476 |
|
|
|
|
|
|
$ |
48,476 |
|
|
$ |
48,476 |
|
|
$ |
251,183 |
|
|
$ |
176,296 |
|
|
$ |
827,818 |
|
|
|
|
|
|
$ |
176,183 |
|
28
|
|
|
(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) |
|
Represents the Companys premium payments for continued health and welfare coverage. |
|
(5) |
|
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. |
|
(6) |
|
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
NEOs) 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.
Our Board of Directors has 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.
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.
29
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, 2008, these loans amounted to $4,027,673.
During 2008, total principal additions were $293,487 and total principal payments were $429,711.
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 the most recent practicable date, 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 Beneficial |
|
Percent |
of Beneficial Owner |
|
Ownership |
|
of Class |
Royce & Associates, LLC |
|
|
327,667 |
(1) |
|
|
9.2 |
% |
New York, NY |
|
|
|
|
|
|
|
|
William E.
Sudduth, David M. van Roijen, |
|
|
261,119 |
(2) |
|
|
7.3 |
% |
C. Hunton
Tiffany, Peter P. van Roijen, Susanne M.
Tiffany, and Richard C. Stoker c/o David M. van Roijen 2014 Monacan Trail Road Charlottesville, VA |
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Based on a Schedule 13G/A filed with the SEC on January 23, 2009 by Royce & Associates,
LLC (Royce), stating that as of December 31, 2008, Royce was the beneficial owner of
327,667 shares of Company common stock and had sole voting power and sole investment power
with respect to all 327,667 shares. |
|
|
|
(2) |
|
Based on a Schedule 13D filed with the SEC on
April 7, 2009 by the group consisting of David M.
van Roijen, C. Hunton Tiffany, Peter P. van Roijen, Susanne M. Tiffany, William E. Sudduth and
Richard C. Stoker, the group was the beneficial owner of 261,119
shares of Company common stock. See Other
Matters on page 41 |
|
30
The following table sets forth, as of March 13, 2009, 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. |
|
|
11,530 |
|
|
|
* |
|
Randy K. Ferrell |
|
|
56,820 |
(1) |
|
|
1.57 |
% |
Gregory D. Frederick |
|
|
5,352 |
|
|
|
* |
|
Randolph D. Frostick |
|
|
1,270 |
|
|
|
* |
|
Eric P. Graap |
|
|
21,237 |
(2) |
|
|
* |
|
Jay B. Keyser |
|
|
1,845 |
(3) |
|
|
* |
|
Douglas C. Larson |
|
|
20,088 |
(4) |
|
|
* |
|
C. H. Lawrence, Jr. |
|
|
50,854 |
(5) |
|
|
1.40 |
% |
Randolph T. Minter |
|
|
20,907 |
(6) |
|
|
* |
|
Brian S. Montgomery |
|
|
36,392 |
(7) |
|
|
1.00 |
% |
John J. Norman, Jr. |
|
|
8,695 |
(8) |
|
|
* |
|
P. Kurtis Rodgers |
|
|
4,054 |
|
|
|
* |
|
Sterling T. Strange, III |
|
|
2,220 |
|
|
|
* |
|
All directors and executive
officers as a group (13
persons): |
|
|
241,267 |
|
|
|
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 7,074 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 1,000 shares held jointly with Angela L. Keyser, his wife, over which
he shares voting and investment power. |
|
(4) |
|
Includes 7,019 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. |
|
(5) |
|
Includes 6,000 shares that could be acquired within 60 days through the
exercise of stock options |
|
(6) |
|
Includes 6,240 shares that could be acquired within 60 days through the
exercise of stock options. |
|
(7) |
|
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. |
|
(8) |
|
Includes 3,000 shares that could be acquired within 60 days through the
exercise of stock options. |
31
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 2008 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 PCAOB Rule 3526, Communications with Audit Committees
Concerning Independence, 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 2008 Annual Report and in the Companys Form 10-K for 2008 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, Chairman |
|
|
Sterling T. Strange, III
|
|
John J. Norman, Jr. |
32
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, 2008 and 2007 and fees billed for other services rendered by Smith Elliott
during those periods. All services reflected in the following fee table for 2008 and 2007 were
pre-approved in accordance with the policy of the Audit Committee of the Board of Directors.
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, |
|
|
|
2007 |
|
|
2008 |
|
|
Audit fees |
|
$ |
68,470 |
|
|
$ |
69,850 |
|
Audit-related fees1 |
|
$ |
11,950 |
|
|
$ |
12,950 |
|
Tax fees |
|
|
|
|
|
|
|
|
All other fees |
|
|
|
|
|
|
|
|
|
|
|
$ |
80,420 |
|
|
$ |
82,800 |
|
|
|
|
|
(1) |
|
Audit-related fees for 2007 and 2008 consist of fees billed for the annual ERISA audits of
the Companys benefit plans. |
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 Mr. Larson, 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 be required by the Audit Committee. Smith Elliott audited the books of the Company
and the Bank for 2008. 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.
33
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. A
majority of the votes cast is required for the ratification of Smith Elliott for such purposes.
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 2008. Should
the shareholders vote AGAINST ratification, the Audit Committee will consider a change in
accountants for the next year.
PROPOSAL THREE:
APPROVAL OF AMENDMENT TO THE COMPANYS ARTICLES OF INCORPORATION TO
AUTHORIZE SHARES OF PREFERRED STOCK
The Board of Directors has approved, and recommends that our shareholders approve, an amendment to
the Companys articles of incorporation to authorize 2,000,000 shares of preferred stock. The
discussion below is qualified in its entirety by reference to the text of the proposed amendment to
the articles of incorporation attached to this proxy statement as
Appendix B.
Purposes and Effects of Authorizing Shares of Preferred Stock
Our Board of Directors has determined that it is advisable to amend the Companys articles of
incorporation to authorize the Company to issue up to 2,000,000 shares of preferred stock, in one
or more series, with each series having such rights and preferences as the Board may determine.
This type of class of securities is commonly referred to as blank check preferred stock.
If this proposal is approved, shares of the Companys preferred stock will be available for
issuance from time to time for such purposes and consideration as the Board of Directors may
approve. No further vote of shareholders will be required in connection with the authorization of
a series of preferred stock or the issuance of shares of such series, unless otherwise required by
applicable law.
The Company has no present plans to authorize any series of preferred stock or to issue any shares
within a series of preferred stock, including authorizing and issuing shares of preferred stock to the U.S.
Treasury (Treasury) under the Capital Purchase Program (the CPP) of the Treasurys Troubled Assets
Relief Program. Our Board of Directors has elected not to participate in the CPP, and therefore we currently do not have
any plans to issue any preferred shares to the Treasury if the amendment is approved..
In the event that our Board of Directors does authorize, designate and issue shares of preferred
stock, our Board may exercise its discretion in establishing the terms of such preferred stock. In
the exercise of such discretion, our Board may determine the voting rights, if any, of the series
of preferred stock being issued, which could include the right to vote separately or as a single
class with our common stock and/or other series of preferred stock; to have more or less voting
power per share than that possessed by our common stock or other series of preferred stock; and to
vote on certain specified matters presented to our shareholders or on all of such matters or upon
the occurrence of any specified event or condition. The issuance of shares of preferred stock with
certain rights, preferences and privileges senior to the common stock of the Company could diminish
the rights holders of common stock to receive dividends, if declared by the Board, and to receive
payments upon liquidation of the Company. Preferred stock authorized by our Board could be
redeemable or convertible into shares of any other class or series of our capital stock.
The Board of Directors believes the authorization of preferred stock is necessary to provide the
Company with the flexibility to act in the future with respect to financing programs, acquisitions,
stock splits and other corporate purposes (though no such specific activities are currently
contemplated) without the delay and expense associated with obtaining special shareholder approval
each time an opportunity requiring the issuance of shares of preferred stock may arise. Such a
delay might deny the Company of the flexibility that the Board views as important in facilitating
the effective use of the securities of our company.
34
The authorization of the preferred stock is not being proposed as a means of preventing or
dissuading a change in control or takeover of the Company. However, use of shares of preferred
stock for such a purpose is possible. Shares of authorized preferred stock, as well as shares of
our authorized but unissued common stock, for example, could be issued in an effort to dilute the
stock ownership and voting power of persons seeking to obtain control of the Company or could be
issued to purchasers who would support our Board of Directors in opposing a takeover proposal. In
addition, the existence of authority to issue preferred stock, as well as the issuance of a series
of the preferred stock, if approved, may have the effect of discouraging a challenge for control or
making it less likely that such a challenge, if attempted, would be successful.
The authorization of preferred stock pursuant to this proposal will have no dilutive effect upon
the proportionate voting power of our current shareholders. However, to the extent that shares of
preferred stock having voting rights are issued to persons other than our current shareholders, or
to current shareholders in different proportions, such issuance could have a dilutive effect.
None of our directors or executive officers has any financial or other personal interest in the
authorization of serial preferred stock pursuant to this proposal.
If the amendment described in this proposal is approved, the officers of the Company will be
directed to file with the Virginia State Corporation Commission articles of amendment to the
Companys articles of incorporation reflecting this amendment and any other amendments approved by
the shareholders and Board of Directors.
Vote Required
The amendment to the Companys articles of incorporation described above and as set forth in
Appendix B must be approved by the affirmative vote of more than two-thirds of all votes entitled
to be cast at the Annual Meeting. Abstentions and broker non-votes will have the same effect as
a vote against the proposal.
The Board of Directors recommends that the shareholders of the Company vote FOR approval of the
amendment to the articles of incorporation to authorize 2,000,000 shares of preferred stock.
PROPOSAL FOUR:
APPROVAL OF AMENDMENT TO THE COMPANYS ARTICLES OF INCORPORATION TO
REVISE THE ARTICLE RELATING TO INDEMNIFICATION
The Board of Directors has approved, and recommends that our shareholders approve, an amendment to
the Companys articles of incorporation to revise the article relating to indemnification. The
discussion below is qualified in its entirety by reference to the text of the proposed amendment to
the articles of incorporation attached to this proxy statement as
Appendix C.
Purposes of Revising the Article Relating to Indemnification
Under Virginia law, a corporation may offer to cover, and is sometimes required to cover, the
expenses of an employee, officer or director who is sued in the course of performing his or her
duties for the corporation. Before the Virginia Stock Corporation Act was amended in 2005, a
corporation had to determine whether the person seeking such indemnification was acting in good
faith with respect to the particular matter for which indemnification was sought. As amended,
however, the Virginia Stock Corporation Act no longer obligates a corporation to make a
determination about the persons conduct prior to the conclusion of the legal matter, provided that
the corporation obtains a written statement from the person indicating that he has a good faith
belief that he is entitled to indemnification and that he will repay the corporation if a court
determines otherwise.
35
The Board of Directors believes that amending the articles of incorporation to conform to changes
in the Virginia Stock Corporation Act will improve the Companys indemnification procedures. In
addition, the Company is operating in an increasingly competitive environment, and while we compete
for business, we also compete for talent. One important way to attract and retain a talented Board
of Directors and management team is to provide the maximum indemnification protection allowed under
Virginia law. Providing this protection will help the Company attract and retain experienced
directors and officers and motivate them to act in the Companys best interest without concern for
themselves. Accordingly, the Board has determined that it is appropriate to propose to the
shareholders the amendment described in this proposal.
The Proposed Amendment
The proposed amendment will largely rewrite the article on indemnification (Article 6). The
following summarizes the substantive changes. In subparagraph A, definitions of the terms
applicant, expenses, liability, party and proceeding have been added to group the
definitions in one place and to provide further explanation of terms used in the article.
Subparagraphs B, C, D, E, F and G have been added to eliminate the requirement that the Company
make a determination as to whether to permit indemnification prior to agreeing to advance legal
expenses. Those subparagraphs now provide that upon receipt of a written undertaking from the
party seeking indemnification stating that the person has a good faith belief that he is entitled
to indemnification under the article, and that the person will repay the Company if it is found
that his conduct was not in good faith, the Company shall advance or reimburse reasonable expenses.
Subparagraph H has been added to allow the Board of Directors, by majority vote of disinterested
directors, to cause the Company to indemnify or contract to indemnify any person not specified in
sections B or C of the article who may become a party to any proceeding because he is or was an
employee or agent of the Company or is or was serving at the request of the Company. Subparagraph
I was added to allow the Company to purchase and maintain insurance to cover the liability assumed
in accordance with the article. Subparagraph J was added clarify the meaning of references in the
article to directors, officers, employees and agents and to clarify that the indemnification under
the article is not exclusive of any other rights to which any person may be entitled. New
subparagraph K provides that each provision in the article is severable, so that if a court finds a
portion of the article to be invalid, the remaining portions of the article are not affected.
If the amendment described in this proposal is approved, the officers of the Company will be
directed to file with the Virginia State Corporation Commission articles of amendment to the
Companys articles of incorporation reflecting this amendment and any other amendments approved by
the shareholders and Board of Directors.
Vote Required
The amendment to the Companys articles of incorporation described above and as set forth in
Appendix C must be approved by the affirmative vote of more than two-thirds of all votes entitled
to be cast at the Annual Meeting. Abstentions and broker non-votes will have the same effect as
a vote against the proposal.
The Board of Directors recommends that the shareholders of the Company vote FOR approval of the
amendment to the articles of incorporation revising the article relating to indemnification.
36
PROPOSAL FIVE:
APPROVAL OF THE FAUQUIER BANKSHARES, INC. STOCK INCENTIVE PLAN
General
The Companys Board of Directors has adopted, subject to shareholder approval, the Fauquier
Bankshares, Inc. Stock Incentive Plan. The purpose of the plan is to promote the interests of the
Company and its shareholders by strengthening our ability to attract, motivate and retain employees
and directors upon whose judgment, initiative and efforts the financial success and growth of the
business of the Company and the Bank largely depend.
The plan
was adopted by the Board of Directors on March 19, 2009, and is effective such date,
subject to shareholder approval. The plan is to be used to grant restricted stock awards and stock
options in the form of incentive stock options and nonstatutory stock options, and other
stock-based awards to employees and directors of the Company (participants). The Company is
asking shareholders to approve the plan because the Omnibus Plan, the Companys existing stock
option plan, which was approved by shareholders in 1998, will be expiring on December 31, 2009.
Accordingly, no further grants will be made under that plan.
As adopted, the plan makes available up to 350,000 shares for issuance to participants under the
plan. No more than 200,000 shares may be issued in connection with any type of award other than
(i) stock appreciation rights (under the other stock-based awards provisions of the plan) or (ii)
incentive stock options, which are eligible for more favorable tax treatment.
The more significant features of the plan are described below. In order to aid your understanding,
the full text of the plan, as proposed for adoption and approval by shareholders, is provided in
Appendix D to this proxy statement. In addition, a copy is available online in the Companys proxy
statement as filed with the Securities and Exchange Commission. The SECs website address is
www.sec.gov.
The Board recommends that you approve the adoption of the Stock Incentive Plan. If the plan is
approved, the Company will terminate the Omnibus Plan and no shares of the Companys common stock
will be available for issuance thereunder, other than shares already subject to outstanding equity
awards under such plan.
Purpose
The purpose of the plan is to further the long-term stability and financial success of the Company
by attracting and retaining employees and directors through the use of stock incentives and other
rights that promote and recognize the financial success and growth of the Company. The Company
believes that ownership of Company stock will stimulate the efforts of those persons upon whose
judgment, interest and efforts the Company is and will be largely dependent for the successful
conduct of its business and will further the identification of those persons interests with the
interests of the Companys shareholders.
Administration
The plan will be administered by the Compensation and Benefits Committee of the Board of Directors.
The Committee has the power to select plan participants and to grant stock options, restricted
stock and other stock-based awards on terms the Committee considers appropriate; however, any award
made to a Committee member must be approved by the Board of Directors. In addition, the Committee
has the authority to interpret the plan, to adopt, amend or waive rules or regulations for the
plans administration, and to make all other determinations for administration of the plan.
37
Stock Options
Stock options granted under the plan may be incentive stock options or nonstatutory stock options.
A stock option entitles the participant to purchase shares of common stock at the option price.
The Committee will fix the option price at the time the stock option is granted, but the exercise
price cannot be less than 100% of the shares fair market value on the date of grant. The amount
of incentive stock options that may be exercisable for the first time in any calendar year is
limited to a $100,000 exercise price per participant. The option exercise price may be paid in
cash or with shares of common stock, or a combination of cash and common stock, if permitted under
the participants option agreement. Stock options may be exercised at such times and subject to
such conditions as may be prescribed by the Committee, provided they will not be exercisable after
ten years from the grant date.
Restricted Stock
The plan also permits the grant of stock awards (shares of common stock) to participants. A stock
award may be, but is not required to be, forfeitable or otherwise restricted until certain
conditions are satisfied. These conditions may include, for example, a requirement that the
participant complete a specified period of service or that certain objectives be achieved. Any
restriction imposed on a stock award will be determined by the Committee.
Other Stock-Based Awards
The plan permits the grant of other types of equity-based or equity-related awards to participants
in such amounts and subject to such terms and conditions as the Committee shall determine. These
awards may involve the transfer of actual shares to participants or payment in cash or otherwise of
amounts based on the value of shares of Company stock. The Committee will establish all
terms and conditions for any such award.
Transferability
In general, options and awards granted under the plan may not be assigned, transferred, pledged or
otherwise encumbered by a participant, other than by will or the laws of descent and distribution.
The plan permits the award of nonstatutory stock options that are transferable to immediate family
members, in accordance with applicable securities laws.
Shares Subject to the Plan
The plan makes available up to 350,000 shares for issuance to plan participants. The maximum
number of shares with respect to which stock options, restricted stock awards or other stock-based
awards may be granted in any calendar year to any participant is 35,000 shares. To date, no stock
options, restricted stock awards or other stock-based awards have been granted under the plan.
In general, if any stock option granted terminates, expires or lapses for any reason other than as
a result of being exercised, or if shares issued pursuant to the plan are forfeited, the common
stock subject to the forfeited stock option or restricted stock award will be available for further
stock options and restricted stock awards.
Certain Federal Income Tax Consequences
Stock options. Generally, no federal income tax liability is incurred by a participant at
the time a stock option is granted. If the stock option is an incentive stock option, no income
will be recognized upon the participants exercise of the stock option, provided holding periods required by the tax laws are satisfied. Income is recognized by a
participant when he or she disposes of shares acquired under an incentive stock option. The
exercise of a nonstatutory stock option generally
38
is a taxable event that requires the participant to recognize, as ordinary income, the difference
between the shares fair market value and the option exercise price.
The Company will be entitled to claim a federal business expense tax deduction on account of the
exercise of a nonstatutory stock option. The amount of the deduction is equal to the ordinary
income recognized by the participant. The Company generally will not be entitled to a federal
income tax deduction on account of the grant or exercise of an incentive stock option, but may
claim a federal income tax deduction on account of certain disqualifying dispositions of stock
acquired upon the exercise of an incentive stock option.
Restricted stock. Federal income tax is incurred on the award of restricted stock when the
stock first becomes transferable or is no longer subject to a substantial risk of forfeiture,
unless the recipient of the restricted stock makes a Section 83(b) election to have the grant taxed
as compensation income at fair market value on the date of grant. At that time, the employee
recognizes income equal to the fair market value of the common stock.
Other awards. Other equity-based awards under the plan generally will result in ordinary
income to the participant at the later of the time of delivery of cash, shares or other property,
or (in the absence of an appropriate election) the time that either the risk of forfeiture or
restriction on transferability lapses on previously delivered cash, shares or other property. The
Company generally would be entitled to a tax deduction equal to the amount recognized as ordinary
income by the participant in connection with an award.
Changes in Capitalization and Similar Changes
In the event of any change in the outstanding shares of common stock by reason of any stock
dividend, stock split, recapitalization or otherwise, the aggregate number of shares of common
stock reserved under the plan, and the terms, exercise price and number of shares of any
outstanding options or awards will be equitably adjusted by the Committee in its discretion to
preserve the benefits of the options or awards for plan participants. For instance, a two-for-one
stock split would double the number of shares reserved under the plan. Similarly, for outstanding
stock options it would double the number of shares covered by each stock option and reduce its
exercise price by one-half.
39
Securities Authorized for Issuance Under Equity Compensation Plans
The only equity compensation plan of the Company pursuant to which options, rights or warrants have
or may be granted is the Omnibus Stock Ownership and Long-Term Incentive Plan. The following table
summarizes information, as of December 31, 2008, relating to the Omnibus Plan.
Equity Compensation Plan Information
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, 2008 |
|
|
Number of Shares |
|
|
|
|
|
Number of Shares |
|
|
to be Issued Upon |
|
Weighted-Average |
|
Remaining Available |
|
|
Exercise |
|
Exercise Price of |
|
for Future Issuance |
|
|
of Outstanding |
|
Outstanding |
|
Under |
|
|
Options, Warrants |
|
Options, |
|
Equity Compensation |
|
|
and Rights |
|
Warrants and Rights |
|
Plans |
Equity compensation
plans approved by
shareholders |
|
|
66,480 |
|
|
$ |
9.84 |
|
|
|
242,294 |
(1) |
Equity compensation
plans not approved
by shareholders |
|
|
10,700 |
|
|
$ |
9.75 |
|
|
|
87,072 |
(2) |
Total |
|
|
77,180 |
|
|
$ |
9.83 |
|
|
|
329,366 |
|
|
|
|
(1) |
|
Consists of 242,294 shares available to be granted in the form of options, restricted stock
or stock appreciation rights under the Omnibus Stock Ownership and Long-Term Incentive Plan. |
|
(2) |
|
Includes no shares available to be granted under the Non-Employee Director Stock Option Plan
and 87,072 shares available to be granted under the Director Deferred Compensation Plan. |
Vote Required
The Fauquier Bankshares, Inc. Stock Incentive Plan will be approved by shareholders if the votes
cast in favor of the proposal exceed the votes opposing it.
The Board of Directors recommends that the shareholders of the Company vote FOR approval of the
Fauquier Bankshares, Inc. Stock Incentive Plan.
NOTICE OF INTERNET AVAILABILITY OF PROXY MATERIAL
The Notice
of Meeting, proxy material and WHITE proxy card are available at:
http://www.fauquierbank.com/InvestorRelations/documents
40
ANNUAL REPORT ON FORM 10-K
Financial statements of the Company are contained in the Form 10-K for the year ended
December 31, 2008, which accompanies this proxy statement.
PROPOSALS FOR 2010 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 2010 Annual Meeting of
Shareholders is December 20,
2009. 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 2010 Annual Meeting of Shareholders, but which will not be included in the
proxy statement and form of proxy relating to such meeting, is February 15, 2010. 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 Company received a notice from William E. Sudduth, a shareholder, of his intent to nominate
David van Roijen and C. Hunton Tiffany for election to the Board of Directors at the Annual
Meeting. Subsequently, a group of six individual shareholders of the Company, including Messrs.
Sudduth, van Roijen, and Tiffany, filed preliminary proxy materials with the SEC indicating their
intention to solicit proxies in support of the candidacies of Messrs. van Roijen and Tiffany and in opposition to the
Companys proposal to approve an amendment to its Articles of Incorporation to authorize 2,000,000 shares of preferred stock. The other members of the group include Susanne
M. Tiffany, Peter P. van Roijen, and Richard C. Stoker.
Nominations by this group have NOT been endorsed by the Companys Board of Directors. The Company
strongly urges shareholders NOT to sign any proxy card that you may receive from this group. If
you have previously signed a proxy card that may have been sent to you from this group, you may
change any vote you may have cast in favor of that groups nominees and vote in favor of the
Companys nominees by submitting a proxy by telephone or Internet, by signing, dating and returning
the enclosed WHITE proxy card in the postage-paid envelope or by voting by ballot.
The Company is not responsible for the accuracy of any information provided by or relating to this
group contained in any proxy solicitation materials filed or disseminated by the group or any other
statements that they may otherwise make.
See Meetings and Committees of the Board of Directors Board Governance and Nominating
Committee on page 41 for information concerning an earlier proposal from Preston Pulliam
requesting that the Board Governance and Nominating Committee consider C. Hunton Tiffany, David M.
van Roijen, and Charles Robinson Porter as candidates for nomination as directors at the Annual
Meeting. As explained in that section, the committee determined not to include these individuals
in the slate of director nominees for election to the Board of Directors at the Annual Meeting.
Except as
described in this proxy statement, the Board of Directors is not aware of any other matters to come before the Annual Meeting.
RETURN OF PROXIES
Whether or not you expect to attend the Annual Meeting, please submit your proxy by telephone, the Internet or mail as promptly as
possible to assure representation of your shares and help assure a quorum for the Annual Meeting. For additional instructions on voting
by telephone or the Internet, please refer to your proxy card. To vote and submit your proxy by mail, please complete,
sign and date the enclosed WHITE proxy card and return it in the enclosed postage prepaid envelope. 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 20, 2009
41
Appendix A
Information Concerning Participants in the Companys Solicitation of Proxies
Under
applicable Securities and Exchange Commission regulations, members of the Board of Directors,
certain of the Companys officers and employees, and former
director H. Frances Stringfellow are considered to be participants with
respect to the Companys solicitation of proxies in connection with the 2009 Annual Meeting.
Information concerning the participants is provided below.
Directors
and Former Director
The
directors and director nominees who are considered participants in the Companys solicitation
are John B. Adams, Jr., Randy K. Ferrell, Randolph D. Frostick, Eric P. Graap, Jay B. Keyser,
Douglas C. Larson, C. H. Lawrence, Jr., Randolph T. Minter, Brian S. Montgomery, John J. Norman,
Jr., P. Kurtis Rodgers, and Sterling T. Strange, III. Their principal occupations are set forth
under the section titled Proposal One: Election of Class I and Class III Directors in the proxy
statement. In addition, retired director H. Frances Stringfellow may assist with the Companys solicitation.
Ms. Stringfellow is retired and is not employed. The business address of each of these individuals for this purpose is Fauquier
Bankshares, Inc., 10 Courthouse Square, Warrenton, Virginia 20186.
Officers and Employees
The principal occupations of the Companys officers and employees who are considered to be
participants are provided below. The principal occupation refers to such persons position with
the Company and the Bank, and the business address for each person is Fauquier Bankshares, Inc., 10
Courthouse Square, Warrenton, Virginia 20186.
|
|
|
Name |
|
Principal Occupation |
Randy K. Ferrell
|
|
President and Chief Executive Officer of Fauquier Bankshares, Inc.
and The Fauquier Bank |
|
|
|
Gregory D. Frederick
|
|
Executive Vice President and Chief Executive Officer of Fauquier
Bankshares, Inc. |
|
|
|
Eric P. Graap
|
|
Executive Vice President and Chief Financial Officer of Fauquier
Bankshares, Inc. and The Fauquier Bank |
|
|
|
Edna T. Brannan
|
|
Corporate Secretary of Fauquier Bankshares, Inc. and The Fauquier Bank |
Information Regarding Ownership of the Companys Securities by Participants
The shares of Company common stock beneficially owned by each participant identified above (other
than Edna T. Brannan and H. Frances Stringfellow) are set forth
under the section titled Security Ownership of Certain
Beneficial Owners and Management in the proxy statement. Except as otherwise disclosed in the
proxy statement, each of the participants owns of record and beneficially the shares listed in that
table opposite such participants name. As of March 13, 2009, using the same assumptions and
definitions used in the above referenced section,
(i) Ms. Brannan owned of record and beneficially 5,661 shares of
Company common stock, including 4,961 shares of restricted stock, and
(ii) Ms. Stringfellow beneficially owned 25,315 shares of
Company common stock, including 10,200 shares of common stock
issuable upon the exercise of options exercisable within 60 days
after March 13, 2009. Ms. Stringfellows ownership includes 6,176 shares held jointly with her husband, over which she
shares voting and investment power.
A-1
Information Regarding Transactions in the Companys Securities by Participants
The following table sets forth all transactions that may be deemed purchases and sales of shares of
our common stock by the participants since April 13, 2007.
Except as described in this Appendix A or in the proxy
statement, shares of Company common stock owned of record by each participant are also beneficially
owned by such participant. Unless otherwise indicated, all transactions were in the public market
or pursuant to the Companys equity compensation plans and none of the purchase price or market
value of those shares is represented by funds borrowed or otherwise obtained for the purpose of
acquiring or holding such securities.
|
|
|
|
|
|
|
|
|
|
|
|
|
Name |
|
Date |
|
Number of Shares |
|
Transaction Type |
|
Description |
Brian S. Montgomery
|
|
1/24/08
|
|
|
4,480 |
|
|
|
4 |
|
|
Option Exercise |
Brian S. Montgomery
|
|
2/14/08
|
|
|
625 |
|
|
|
1 |
|
|
2008 Grant of Restricted |
Brian S. Montgomery
|
|
2/19/09
|
|
|
845 |
|
|
|
1 |
|
|
2009 Grant of Restricted |
C. H. Lawrence, Jr.
|
|
7/27/07
|
|
|
4,480 |
|
|
|
4 |
|
|
Option Exercise |
C. H. Lawrence, Jr.
|
|
2/14/08
|
|
|
625 |
|
|
|
1 |
|
|
2008 Grant of Restricted |
C. H. Lawrence, Jr.
|
|
5/23/08
|
|
|
1,200 |
|
|
|
6 |
|
|
Sale |
C. H. Lawrence, Jr.
|
|
2/19/09
|
|
|
845 |
|
|
|
1 |
|
|
2009 Grant of Restricted |
Douglas C. Larson
|
|
7/27/07
|
|
|
1,240 |
|
|
|
4 |
|
|
Option Exercise |
Douglas C. Larson
|
|
2/14/08
|
|
|
625 |
|
|
|
1 |
|
|
2008 Grant of Restricted |
Douglas C. Larson
|
|
3/19/08
|
|
|
1,000 |
|
|
|
4 |
|
|
Option Exercise |
Douglas C. Larson
|
|
2/19/09
|
|
|
845 |
|
|
|
1 |
|
|
2009 Grant of Restricted |
Douglas C. Larson
|
|
3/17/09
|
|
|
2,240 |
|
|
|
4 |
|
|
Option Exercise |
Edna Brannan
|
|
2/14/08
|
|
|
1,470 |
|
|
|
1 |
|
|
2008 Grant of Restricted |
Edna Brannan
|
|
2/19/09
|
|
|
1,491 |
|
|
|
1 |
|
|
2009 Grant of Restricted |
Eric P. Graap
|
|
5/30/07
|
|
|
500 |
|
|
|
2 |
|
|
Purchase |
Eric P. Graap
|
|
7/3/07
|
|
|
31 |
|
|
|
3 |
|
|
DRIP 2007 Q2 |
Eric P. Graap
|
|
8/31/07
|
|
|
298 |
|
|
|
2 |
|
|
Purchase |
Eric P. Graap
|
|
10/1/07
|
|
|
34 |
|
|
|
3 |
|
|
DRIP 2007 Q3 |
Eric P. Graap
|
|
11/1/07
|
|
|
500 |
|
|
|
2 |
|
|
Purchase |
Eric P. Graap
|
|
11/6/07
|
|
|
625 |
|
|
|
2 |
|
|
Purchase |
Eric P. Graap
|
|
1/2/08
|
|
|
41 |
|
|
|
3 |
|
|
DRIP 2007 Q4 |
Eric P. Graap
|
|
2/14/08
|
|
|
1,605 |
|
|
|
1 |
|
|
2008 Grant of Restricted |
Eric P. Graap
|
|
2/21/08
|
|
|
212 |
|
|
|
2 |
|
|
Purchase |
Eric P. Graap
|
|
2/25/08
|
|
|
25 |
|
|
|
2 |
|
|
Purchase |
Eric P. Graap
|
|
2/26/08
|
|
|
763 |
|
|
|
2 |
|
|
Purchase |
Eric P. Graap
|
|
3/19/08
|
|
|
1,163 |
|
|
|
7 |
|
|
Gift |
Eric P. Graap
|
|
4/1/08
|
|
|
58 |
|
|
|
3 |
|
|
DRIP 2008 Q1 |
Eric P. Graap
|
|
7/1/08
|
|
|
49 |
|
|
|
3 |
|
|
DRIP 2008 Q2 |
Eric P. Graap
|
|
10/1/08
|
|
|
55 |
|
|
|
3 |
|
|
DRIP 2008 Q3 |
Eric P. Graap
|
|
11/3/08
|
|
|
300 |
|
|
|
2 |
|
|
Purchase |
Eric P. Graap
|
|
11/6/08
|
|
|
2,200 |
|
|
|
2 |
|
|
Purchase |
Eric P. Graap
|
|
1/2/09
|
|
|
66 |
|
|
|
3 |
|
|
DRIP 2008 Q4 |
Eric P. Graap
|
|
2/19/09
|
|
|
2,063 |
|
|
|
1 |
|
|
2009 Grant of Restricted |
Eric P. Graap
|
|
2/23/09
|
|
|
190 |
|
|
|
2 |
|
|
Purchase |
H.
Frances Stringfellow
|
|
7/27/07
|
|
|
1,000 |
|
|
|
4 |
|
|
Option Exercise |
H.
Frances Stringfellow
|
|
2/21/08
|
|
|
625 |
|
|
|
1 |
|
|
2008 Grant of Restricted |
A-2
|
|
|
|
|
|
|
|
|
|
|
|
|
Name |
|
Date |
|
Number of Shares |
|
Transaction Type |
|
Description |
Gregory D. Frederick
|
|
05/07/07
|
|
|
500 |
|
|
|
2 |
|
|
Purchase |
Gregory D. Frederick
|
|
07/27/07
|
|
|
500 |
|
|
|
2 |
|
|
Purchase |
Gregory D. Frederick
|
|
11/30/07
|
|
|
500 |
|
|
|
2 |
|
|
Purchase |
Gregory D. Frederick
|
|
2/14/08
|
|
|
1,876 |
|
|
|
1 |
|
|
2008 Grant of Restricted |
Gregory D. Frederick
|
|
2/19/09
|
|
|
1,976 |
|
|
|
1 |
|
|
2009 Grant of Restricted |
Jay B. Keyser
|
|
12/31/08
|
|
|
1,000 |
|
|
|
2 |
|
|
Purchase |
Jay B. Keyser
|
|
2/19/09
|
|
|
845 |
|
|
|
1 |
|
|
2009 Grant of Restricted |
John B. Adams
|
|
7/3/07
|
|
|
9 |
|
|
|
3 |
|
|
DRIP 2007 Q2 |
John B. Adams
|
|
10/1/07
|
|
|
20 |
|
|
|
3 |
|
|
DRIP 2007 Q3 |
John B. Adams
|
|
1/2/08
|
|
|
12 |
|
|
|
3 |
|
|
DRIP 2007 Q4 |
John B. Adams
|
|
1/4/08
|
|
|
700 |
|
|
|
5 |
|
|
Gift |
John B. Adams
|
|
2/14/08
|
|
|
625 |
|
|
|
1 |
|
|
2008 Grant of Restricted |
John B. Adams
|
|
4/1/08
|
|
|
15 |
|
|
|
3 |
|
|
DRIP 2008 Q1 |
John B. Adams
|
|
5/1/08
|
|
|
104 |
|
|
|
2 |
|
|
Purchase |
John B. Adams
|
|
7/1/08
|
|
|
17 |
|
|
|
3 |
|
|
DRIP 2008 Q2 |
John B. Adams
|
|
10/1/08
|
|
|
19 |
|
|
|
3 |
|
|
DRIP 2008 Q3 |
John B. Adams
|
|
1/2/09
|
|
|
22 |
|
|
|
3 |
|
|
DRIP 2008 Q4 |
John B. Adams
|
|
2/18/09
|
|
|
400 |
|
|
|
2 |
|
|
Purchase |
John B. Adams
|
|
2/18/09
|
|
|
100 |
|
|
|
2 |
|
|
Purchase |
John B. Adams
|
|
2/19/09
|
|
|
845 |
|
|
|
1 |
|
|
2009 Grant of Restricted |
John J. Norman, Jr.
|
|
7/3/07
|
|
|
16 |
|
|
|
3 |
|
|
DRIP 2007 Q2 |
John J. Norman, Jr.
|
|
10/1/07
|
|
|
22 |
|
|
|
3 |
|
|
DRIP 2007 Q3 |
John J. Norman, Jr.
|
|
1/2/08
|
|
|
32 |
|
|
|
3 |
|
|
DRIP 2007 Q4 |
John J. Norman, Jr.
|
|
2/14/08
|
|
|
625 |
|
|
|
1 |
|
|
2008 Grant of Restricted |
John J. Norman, Jr.
|
|
4/1/08
|
|
|
39 |
|
|
|
3 |
|
|
DRIP 2008 Q1 |
John J. Norman, Jr.
|
|
7/1/08
|
|
|
42 |
|
|
|
3 |
|
|
DRIP 2008 Q2 |
John J. Norman, Jr.
|
|
10/1/08
|
|
|
47 |
|
|
|
3 |
|
|
DRIP 2008 Q3 |
John J. Norman, Jr.
|
|
1/2/09
|
|
|
56 |
|
|
|
3 |
|
|
DRIP 2008 Q4 |
John J. Norman, Jr.
|
|
2/19/09
|
|
|
845 |
|
|
|
1 |
|
|
2009 Grant of Restricted |
A-3
|
|
|
|
|
|
|
|
|
|
|
|
|
Name |
|
Date |
|
Number of Shares |
|
Transaction Type |
|
Description |
P. Kurtis Rodgers
|
|
10/25/07
|
|
|
143 |
|
|
|
2 |
|
|
Purchase |
P. Kurtis Rodgers
|
|
10/26/07
|
|
|
657 |
|
|
|
2 |
|
|
Purchase |
P. Kurtis Rodgers
|
|
2/14/08
|
|
|
625 |
|
|
|
1 |
|
|
2008 Grant of Restricted |
P. Kurtis Rodgers
|
|
8/29/08
|
|
|
1,000 |
|
|
|
2 |
|
|
Purchase |
P. Kurtis Rodgers
|
|
10/1/08
|
|
|
26 |
|
|
|
3 |
|
|
DRIP 2008 Q3 |
P. Kurtis Rodgers
|
|
1/2/09
|
|
|
28 |
|
|
|
3 |
|
|
DRIP 2008 Q4 |
P. Kurtis Rodgers
|
|
2/19/09
|
|
|
845 |
|
|
|
1 |
|
|
2009 Grant of Restricted |
P. Kurtis Rodgers
|
|
2/24/09
|
|
|
530 |
|
|
|
2 |
|
|
Purchase |
Randolph D. Frostick
|
|
1/2/09
|
|
|
425 |
|
|
|
2 |
|
|
Purchase |
Randolph D. Frostick
|
|
2/19/09
|
|
|
845 |
|
|
|
1 |
|
|
2009 Grant of Restricted |
Randolph T. Minter
|
|
7/3/07
|
|
|
68 |
|
|
|
3 |
|
|
DRIP 2007 Q2 |
Randolph T. Minter
|
|
10/1/07
|
|
|
74 |
|
|
|
3 |
|
|
DRIP 2007 Q3 |
Randolph T. Minter
|
|
1/2/08
|
|
|
89 |
|
|
|
3 |
|
|
DRIP 2007 Q4 |
Randolph T. Minter
|
|
2/14/08
|
|
|
625 |
|
|
|
1 |
|
|
2008 Grant of Restricted |
Randolph T. Minter
|
|
3/27/08
|
|
|
4,480 |
|
|
|
4 |
|
|
Option Exercise |
Randolph T. Minter
|
|
4/1/08
|
|
|
94 |
|
|
|
3 |
|
|
DRIP 2008 Q1 |
Randolph T. Minter
|
|
7/1/08
|
|
|
154 |
|
|
|
3 |
|
|
DRIP 2008 Q2 |
Randolph T. Minter
|
|
10/1/08
|
|
|
173 |
|
|
|
3 |
|
|
DRIP 2008 Q3 |
Randolph T. Minter
|
|
1/2/09
|
|
|
207 |
|
|
|
3 |
|
|
DRIP 2008 Q4 |
Randolph T. Minter
|
|
2/19/09
|
|
|
845 |
|
|
|
1 |
|
|
2009 Grant of Restricted |
Randy K. Ferrell
|
|
7/3/07
|
|
|
212 |
|
|
|
3 |
|
|
DRIP 2007 Q2 |
Randy K. Ferrell
|
|
8/29/07
|
|
|
8,756 |
|
|
|
4 |
|
|
Option Exercise |
Randy K. Ferrell
|
|
10/1/07
|
|
|
247 |
|
|
|
3 |
|
|
DRIP 2007 Q3 |
Randy K. Ferrell
|
|
1/2/08
|
|
|
288 |
|
|
|
3 |
|
|
DRIP 2007 Q4 |
Randy K. Ferrell
|
|
2/14/08
|
|
|
3,930 |
|
|
|
1 |
|
|
2008 Grant of Restricted |
Randy K. Ferrell
|
|
4/1/08
|
|
|
283 |
|
|
|
3 |
|
|
DRIP 2008 Q1 |
Randy K. Ferrell
|
|
5/23/08
|
|
|
1,500 |
|
|
|
2 |
|
|
Purchase |
Randy K. Ferrell
|
|
7/1/08
|
|
|
294 |
|
|
|
3 |
|
|
DRIP 2008 Q2 |
Randy K. Ferrell
|
|
10/1/08
|
|
|
346 |
|
|
|
3 |
|
|
DRIP 2008 Q3 |
Randy K. Ferrell
|
|
1/2/09
|
|
|
380 |
|
|
|
3 |
|
|
DRIP 2008 Q4 |
Randy K. Ferrell
|
|
2/19/09
|
|
|
4,349 |
|
|
|
1 |
|
|
2009 Grant of Restricted |
Sterling T. Strange, III
|
|
10/25/07
|
|
|
100 |
|
|
|
2 |
|
|
Purchase |
Sterling T. Strange, III
|
|
10/26/07
|
|
|
400 |
|
|
|
2 |
|
|
Purchase |
Sterling T. Strange, III
|
|
2/14/08
|
|
|
625 |
|
|
|
1 |
|
|
2008 Grant of Restricted |
Sterling T. Strange, III
|
|
2/19/09
|
|
|
845 |
|
|
|
1 |
|
|
2009 Grant of Restricted |
|
|
|
1 |
|
Acquisition: Restricted stock grant (time based) |
|
2 |
|
Acquisition: Open market purchase |
|
3 |
|
Acquisition: Purchase of common stock through dividend reinvestment plan |
|
4 |
|
Acquisition: Stock option exercise |
|
5 |
|
Acquisition: Gift of common stock |
|
6 |
|
Disposition: Open market sale |
|
7 |
|
Disposition: Gift of common stock |
A-4
Miscellaneous Information Concerning Participants
Except as described in this Appendix A or in the proxy statement, no associate of any person
identified above as a participant beneficially owns any shares of common stock or other securities
of the Company. Furthermore, except as described in this Appendix A or in the proxy statement, no
participant or any of his or her associates, is either a party to any transactions or series of
similar transactions since the beginning of the Companys last fiscal year, or any currently
proposed transaction or series of similar transactions, (i) in which the Company or any of its
subsidiaries was or is to be a party, (ii) in which the amount involved exceeds $120,000, or (iii)
in which any such person or any of his or her associates had or will have a direct or indirect
material interest.
Except as described in this Appendix A or in the proxy statement, no participant or any of his or
her associates has entered into any agreement or understanding with any person respecting any
future employment by the Company or its affiliates or any future transactions to which the Company
or any of its affiliates will or may be a party. Except as described in this Appendix A or in the
proxy statement, there are no contracts, arrangements or understandings by any of the participants
within the past year with any person with respect to any securities of the Company, including, but
not limited to, joint ventures, loan or option arrangements, puts or calls, guarantees against loss
or guarantees of profit, division of losses or profits, or the giving or withholding of proxies.
Except as described in this Appendix A or in the proxy statement, none of the participants owns
beneficially any securities of any subsidiary of the Company. Except as described in this Appendix
A or the proxy statement, no participant has any substantial interest, direct or indirect, by
security holdings or otherwise, in any matter to be acted upon at the Annual Meeting. There are no
material proceedings to which any participant or any associate of any such person is a party
adverse to the Company or any of its subsidiaries or has a material interest adverse to the Company
or any of its subsidiaries.
A-5
Appendix B
Proposed Amendment to the Companys Articles of Incorporation
to Authorize 2,000,000 Shares of Preferred Stock
Article 3 of the Companys Articles of Incorporation would be amended in its entirety as follows:
3. Authorized Stock. The total number of shares of capital stock that the
Corporation shall have authority to issue is 10,000,000, of which 8,000,000 shares shall be shares
of common stock, par value $3.13 per share (Common Stock), and 2,000,000 shares shall be shares
of preferred stock, par value $5.00 per share (Preferred Stock).
A. Common Stock. Subject to the rights of holders of Preferred Stock and subject to
any other provisions of these Articles of Incorporation or any amendment hereto, holders of Common
Stock shall be entitled to receive such dividends and other distributions in cash, stock or
property of the Corporation as may be declared by the Board of Directors from time to time.
B. Preferred Stock. Shares of Preferred Stock may be issued in one or more series.
Subject to applicable laws, and only by adoption of an amendment to these Articles of
Incorporation, the Board of Directors of the Corporation may determine the preferences, limitations
and relative rights of any series of Preferred Stock before the issuance of any shares of that
series. Such determination may include, without limitation, provisions with respect to voting
rights (including rights with respect to any transaction of a specified nature), redemption,
exchangeability, convertibility, distribution and preference on dissolution or otherwise. Each
series shall be appropriately designated by a distinguishing designation prior to the issuance of
any shares thereof. The Preferred Stock of all series shall have preferences, limitations and
relative rights identical with those of other shares of the same series and, except to the extent
otherwise provided in the description of the series, with those of shares of other series of the
same class.
B-1
Appendix C
Proposed Amendment to the Companys Articles of Incorporation
to Revise the Article Relating to Indemnification
Article 6 of the Companys Articles of Incorporation would be amended in its entirety as follows:
6. Indemnification.
A. In this Article:
applicant means the person seeking indemnification pursuant to this Article.
expenses includes counsel fees.
liability means the obligation to pay a judgment, settlement, penalty, fine, including any
excise tax assessed with respect to an employee benefit plan, or reasonable expenses incurred with
respect to a proceeding.
party includes an individual who was, is or is threatened to be made a named defendant or
respondent in a proceeding.
proceeding means any threatened, pending, or completed action, suit, or proceeding, whether
civil, criminal, administrative or investigative and whether formal or informal.
B. In any proceeding brought by or in the right of the Corporation or brought by or on behalf
of shareholders of the Corporation, no director or officer of the Corporation shall be liable to
the Corporation or its shareholders for monetary damages with respect to any transaction,
occurrence or course of conduct, whether prior or subsequent to the effective date of this Article,
except for liability resulting from such person having engaged in willful misconduct or a knowing
violation of the criminal law or any federal or state securities law.
C. The Corporation shall indemnify (i) any person who was or is a party to any proceeding,
including a proceeding brought by a shareholder in the right of the Corporation or brought by or on
behalf of shareholders of the Corporation, by reason of the fact that he or she is or was a
director or officer of the Corporation, or (ii) any director or officer who is or was serving at
the request of the Corporation as a director, trustee, partner or officer of another corporation,
partnership, joint venture, trust, employee benefit plan or other enterprise, against any liability
incurred by him or her in connection with such proceeding unless he or she engaged in willful
misconduct or a knowing violation of the criminal law. A person is considered to be serving an
employee benefit plan at the Corporations request if his or her duties to the Corporation also
impose duties on, or otherwise involve services by, him or her to the plan or to participants in or
beneficiaries of the plan. The Board of Directors is hereby empowered, by a majority vote of a
quorum of disinterested Directors, to enter into a contract to indemnify any director or officer in
respect of any proceedings arising from any act or omission, whether occurring before or after the
execution of such contract.
D. No amendment or repeal of this Article shall have any effect on the rights provided under
this Article with respect to any act or omission occurring prior to such amendment or repeal. The
Corporation shall promptly take all such actions, and make all such determinations, as shall be
necessary or
C-1
appropriate to comply with its obligation to make any indemnity under this Article and shall
promptly pay or reimburse all reasonable expenses, including attorneys fees, incurred by any
director or officer in connection with such actions and determinations or proceedings of any kind
arising therefrom.
E. The termination of any proceeding by judgment, order, settlement, conviction, or upon a
plea of nolo contendere or its equivalent, shall not of itself create a presumption that the
applicant did not meet the standard of conduct described in section B or C of this Article.
F. Any indemnification under section C of this Article (unless ordered by a court) shall be
made by the Corporation only as authorized in the specific case upon a determination that
indemnification of the applicant is proper in the circumstances because he or she has met the
applicable standard of conduct set forth in section C.
The determination shall be made:
(i) By the Board of Directors by a majority vote of a quorum consisting of Directors not at
the time parties to the proceeding;
(ii) If a quorum cannot be obtained under subsection (i) of this section, by majority vote of
a committee duly designated by the Board of Directors (in which designation Directors who are
parties may participate), consisting solely of two or more directors not at the time parties to the
proceeding;
(iii) By special legal counsel (which may include outside counsel regularly used by the
Corporation so long as such counsel is not involved in the proceedings in question):
(a) Selected by the Board of Directors or its committee in the manner prescribed in
subsection (i) or (ii) of this section; or
(b) If a quorum of the Board of Directors cannot be obtained under subsection (i) of
this section and a committee cannot be designated under subsection (ii) of this section,
selected by majority vote of the full Board of Directors, in which selection directors who
are parties may participate; or
(iv) By the shareholders, but shares owned by or voted under the control of directors who are
at the time parties to the proceeding may not be voted on the determination.
Any evaluation as to reasonableness of expenses shall be made in the same manner as the
determination that indemnification is appropriate, except that if the determination is made by
special legal counsel, such evaluation as to reasonableness of expenses shall be made by those
entitled under subsection (iii) of this section F to select counsel.
Notwithstanding the foregoing, in the event there has been a change in the composition of a
majority of the Board of Directors after the date of the alleged act or omission with respect to
which indemnification is claimed, any determination as to indemnification and advancement of
expenses with respect to any claim for indemnification made pursuant to this Article shall be made
by special legal counsel agreed upon by the Board of Directors and the applicant. If the Board of
Directors and the applicant are unable to agree upon such special legal counsel, the Board of
Directors and the applicant each shall select a nominee, and the nominees shall select such special
legal counsel.
G. (i) The Corporation shall pay for or reimburse the reasonable expenses incurred by any
applicant who is a party to a proceeding in advance of final disposition of the proceeding or
C-2
the making of any determination under section F of this Article if the applicant furnishes the
Corporation: (a) a written statement of his or her good faith belief that he or she has met the
standard of conduct described in section C of this Article; and (b) a written undertaking, executed
personally or on his or her behalf, to repay the advance if it is ultimately determined that he or
she did not meet such standard of conduct.
(ii) The undertaking required by paragraph (b) of subsection (i) of this section G shall be an
unlimited general obligation of the applicant but need not be secured and may be accepted without
reference to financial ability to make repayment.
(iii) Authorizations of payments under this section shall be made by the persons specified in
section F of this Article.
H. The Board of Directors is hereby empowered, by majority vote of a quorum consisting of
disinterested directors, to cause the Corporation to indemnify or contract to indemnify any person
not specified in section B or C of this Article who was, is or may become a party to any
proceeding, by reason of the fact that he or she is or was an employee or agent of the Corporation,
or is or was serving at the request of the Corporation as director, officer, employee or agent of
another corporation, partnership, joint venture, trust, employee benefit plan or other enterprise,
to the same extent as if such person were specified as one to whom indemnification is granted in
section C. The provisions of sections D through G of this Article shall be applicable to any
indemnification provided hereafter pursuant to this section H.
I. The Corporation may purchase and maintain insurance to indemnify it against the whole or
any portion of the liability assumed by it in accordance with this Article and may also procure
insurance, in such amounts as the Board of Directors may determine, on behalf of any person who is
or was a director, officer, employee or agent of the Corporation, or is or was serving at the
request of the Corporation as a director, officer, employee or agent of another corporation,
partnership, joint venture, trust, employee benefit plan or other enterprise, against any liability
asserted against or incurred by him or her in any such capacity or arising from his or her status
as such, whether or not the Corporation would have power to indemnify him or her against such
liability under the provisions of this Article.
J. Every reference herein to directors, officers, employees or agents shall include former
directors, officers, employees and agents and their respective heirs, executors and administrators.
The indemnification hereby provided and provided hereafter pursuant to the power hereby conferred
by this Article on the Board of Directors shall not be exclusive of any other rights to which any
person may be entitled, including any right under policies of insurance that may be purchased and
maintained by the Corporation or others, with respect to claims, issues or matters in relation to
which the Corporation would not have the power to indemnify such person under the provisions of
this Article. Such rights shall not prevent or restrict the power of the Corporation to make or
provide for any further indemnity, or provisions for determining entitlement to indemnity, pursuant
to one or more indemnification agreements, bylaws or other arrangements (including, without
limitation, creation of trust funds or security interests funded by letters of credit or other
means) approved by the Board of Directors (whether or not any of the directors of the Corporation
shall be a party to or beneficiary of any such agreements, bylaws or arrangements); provided,
however, that any provision of such agreements, bylaws or other arrangements shall not be effective
if and to the extent that it is determined to be contrary to this Article or applicable laws of the
Commonwealth of Virginia.
K. Each provision of this Article shall be severable, and an adverse determination as to any
such provision shall in no way affect the validity of any other provision.
C-3
Appendix D
Fauquier Bankshares, Inc.
Stock Incentive Plan
1. Purpose and Effective Date.
(a) The purpose of the Fauquier Bankshares, Inc. Stock Incentive Plan (the Plan) is to
further the long-term stability and financial success of the Company (as defined below) by
attracting and retaining personnel, including employees, directors and consultants, through the use
of stock incentives. The Company believes that ownership of Company Stock will stimulate the
efforts of those persons upon whose judgment, interest and efforts the Company is and will be
largely dependent for the successful conduct of its business and will further the identification of
those persons interests with the interests of the Companys shareholders. This Plan will
supersede and replace the Fauquier Bankshares, Inc. Omnibus Stock Ownership and Long Term Incentive
Plan, as amended and restated effective January 1, 2000, which expires December 31, 2009.
(b) The
Plan was adopted by the Board of Directors of the Company on March 19, 2009,
subject to the approval of the Plan by the Companys shareholders.
2. Certain Definitions. The following terms have the meanings indicated:
(a) Act. The Securities Exchange Act of 1934, as amended.
(b) Applicable Withholding Taxes. The aggregate amount of federal, state and local
income and payroll taxes that the Company is required to withhold (based on the minimum applicable
statutory withholding rates) in connection with any exercise of an Option or the award, lapse of
restrictions or payment with respect to Restricted Stock.
(c) Award. The award of an Option, Restricted Stock or Other Stock-Based Award under
the Plan.
(d) Board. The Board of Directors of the Company.
(e) Cause. Dishonesty, fraud, misconduct, gross incompetence, gross negligence,
breach of a material fiduciary duty, material breach of an agreement with the Company (including,
without limitation, any loyalty, noncompetition, non-solicitation, confidentiality and/or invention
assignment agreement), unauthorized use or disclosure of confidential information or trade secrets,
or conviction or confession of a crime punishable by law (except minor violations), in each case as
determined by the Committee, which determination shall be binding. Notwithstanding the foregoing,
if Cause is defined in an employment agreement between a Participant and the Company, Cause
shall have the meaning assigned to it in such agreement.
D-1
(f) Change in Control.
(i) The acquisition by any Person (as defined below) of beneficial ownership of
20% or more of the then outstanding shares of common stock of the Company;
(ii) Individuals who constitute the Board on the effective date of this Plan
(the Incumbent Board) cease to constitute a majority of the Board, provided that
any director whose nomination was approved by a vote of at least a majority of the
directors then comprising the Incumbent Board will be considered a member of the
Incumbent Board, but excluding any such individual whose initial assumption of
office is in connection with an actual or threatened election contest or actual or
threatened solicitation of proxies or consents by or on behalf of a person other
than the Board of directors of the Company, as such terms are used in Rules 14a-11
and 12 under the Act;
(iii) Approval by the shareholders of the Company and consummation of a
reorganization, merger, share exchange or consolidation (a Reorganization),
provided that shareholder approval of a Reorganization will not constitute a Change
in Control if, upon consummation of the Reorganization, each of the following
conditions is satisfied:
(I) no Person beneficially owns 50% or more of either (1) the then
outstanding shares of common stock or voting securities of the corporation
or other entity resulting from the transaction or (2) the combined voting
power of the then outstanding voting securities of such corporation or other
entity entitled to vote generally in the election of members of the board of
directors (or similar governing body); or
(II) at least a majority of the members of the board of directors (or
similar governing body) of the corporation or other entity resulting from
the Reorganization were members of the Incumbent Board at the time of the
execution of the initial agreement providing for the Reorganization; or
(iv) Approval by the shareholders of the Company of a complete liquidation or
dissolution of the Company, or of the sale or other disposition of all or
substantially all of the assets of the Company.
For purposes of this Section 2(f), Person means any individual, entity or
group (within the meaning of Section 13(d)(3) of the Act), other than any employee
benefit plan (or related trust) sponsored or maintained by the Company or any
affiliated company, and beneficial ownership has the meaning given the term in
Rule 13d-3 under the Act.
(g) Code. The Internal Revenue Code of 1986, as amended.
D-2
(h) Committee. The Committee appointed to administer the Plan pursuant to Plan
Section 15, or if no such Committee has been appointed, the Board.
(i) Company. Fauquier Bankshares, Inc., a Virginia corporation.
(j) Company Stock. Common stock of the Company. If the par value of the Company
Stock is changed, or in the event of a change in the capital structure of the Company (as provided
in Section 13), the shares resulting from such a change shall be deemed to be Company Stock within
the meaning of the Plan.
(k) Consultant. A person or entity rendering services to the Company who is not an
employee for purposes of employment tax withholding under the Code.
(l) Date of Grant. The effective date of an Award granted by the Committee.
(m) Disability or Disabled. As to an Incentive Stock Option, a Disability within the
meaning of Code Section 22(e)(3). As to all other Awards, the Committee shall determine whether a
Disability exists and such determination shall be conclusive.
(n) Fair Market Value.
(i) If the Company Stock is listed on any established stock exchange or quoted
on any established stock market system, its Fair Market Value shall be the closing
price for such stock on the Date of Grant as reported by such exchange or stock
market system, or, if there are no trades on such date, the value shall be
determined as of the last preceding day on which the Company Stock was traded.
(ii) If the Company Stock is not publicly traded, the Fair Market Value shall
be determined by the Committee using any reasonable method in good faith, provided
that the fair market value of Company Stock subject to an Incentive Stock Option
shall be determined in good faith within the meaning of Treasury Regulation §
1.422-2(e)(2).
(iii) Fair Market Value shall be determined as of the Date of Grant specified
in the Award.
(o) Incentive Stock Option. An Option intended to meet the requirements of, and
qualify for favorable federal income tax treatment under, Code Section 422.
(p) Nonstatutory Stock Option. An Option that does not meet the requirements of Code
Section 422, or that is otherwise not intended to be an Incentive Stock Option and is so
designated.
D-3
(q) Option. A right to purchase Company Stock granted under the Plan, at a price
determined in accordance with the Plan.
(r) Other Stock-Based Award. A right granted under Section 9.
(s) Participant. Any individual who is granted an Award under the Plan.
(t) Restricted Stock. Company Stock awarded upon the terms and subject to the
restrictions set forth in Section 8.
(u) Retirement. Means:
(i) the termination of an employees employment under conditions which would
constitute normal retirement or early retirement under any tax qualified
retirement plan maintained by the Company;
(ii) the termination of an employees employment after attaining age 65 (except
in the case of termination for Cause); or
(iii) the termination of a Non-Employee Directors service as a member of the
Board after attaining age 65.
(v) Rule 16b-3. Rule 16b-3 promulgated under the Act, including any corresponding
subsequent rule or any amendments to Rule 16b-3 enacted after the effective date of the Plan.
(w) 10% Shareholder. A person who owns, directly or indirectly and within the meaning
of Section 422 or 424 of the Code, stock possessing more than 10% of the total combined voting
power of all classes of stock of the Company or any parent or subsidiary of the Company. Indirect
ownership of stock shall be determined in accordance with Code Section 424(d).
3. General. Awards of Options or Restricted Stock may be granted under the Plan.
Options granted under the Plan may be Incentive Stock Options or Nonstatutory Stock Options.
4. Stock.
|
(a) |
|
Subject to Section 13 of the Plan, there shall be reserved for
issuance under the Plan an aggregate of 350,000 shares of Company Stock; which
may include authorized, but unissued, shares. Not more than 200,000 of such
shares shall be available as any type of awards other than Incentive Stock
Options or Stock Appreciation Rights. Shares allocable to Options granted
under the Plan that expire or otherwise terminate and shares that are forfeited
pursuant to restrictions on Restricted Stock awarded under the Plan may again
be subjected to an Award under this Plan. |
D-4
(b) The maximum number of shares with respect to which an Award may be granted in any calendar
year to any employee during such calendar year shall be 35,000 shares.
5. Eligibility.
(a) Any employee of, director of, or Consultant to the Company (including an employee of,
director of, or consultant to an affiliate of the Company) who, in the judgment of the Committee,
has contributed or can be expected to contribute to the profits or growth of the Company is
eligible to become a Participant. The Committee shall have the power and complete discretion, as
provided in Section 15, to select eligible Participants and to determine for each Participant the
terms, conditions and nature of the Award and the number of shares to be allocated as part of the
Award; provided, however, that any Award made to a member of the Committee must be approved by the
Board. The Committee is expressly authorized to make an Award to a Participant conditioned on the
surrender for cancellation of an existing Award.
(b) The grant of an Award shall not obligate the Company to pay an employee any particular
amount of remuneration, to continue the employment of the employee after the grant or to make
further grants to the employee at any time thereafter.
(c) Non-Employee Directors and Consultants shall not be eligible to receive the Award of an
Incentive Stock Option.
6. Stock Options.
(a) Grant. Whenever the Committee deems it appropriate to grant Options, notice shall be
given to the Participant stating the number of shares for which Options are granted, the exercise
price per share, whether the options are Incentive Stock Options or Nonstatutory Stock Options, and
the conditions to which the grant and exercise of the Options are subject. This notice, when duly
accepted in writing by the Participant, shall become a stock option agreement between the Company
and the Participant. A Participants stock option agreement shall set forth all restrictions on
disposition and transfer applicable to the Option shares.
(b) Exercise Price. The Committee shall establish the exercise price of Options. The
exercise price of an Option shall be not less than 100% of the Fair Market Value of such shares on
the Date of Grant, provided that if the Participant is a 10% Shareholder, the exercise price of an
Incentive Stock Option shall not be less than 110% of the Fair Market Value of such shares on the
Date of Grant.
(c) Term. The Committee shall establish the term of each Option in the Participants stock
option agreement. The term of an Incentive Stock Option shall not be longer than ten years from
the Date of Grant, except that an Incentive Stock Option granted to a 10% Shareholder shall not
have a term in excess of five years. No Option may be exercised after the expiration of its term
or, except as set forth in the Participants stock option agreement, after the termination of the
Participants employment.
D-5
(d) Time of Exercise.
(i) During Participants Employment. Options may be exercised during
their terms in whole or in part at such times as may be specified by the Committee
in the Participants stock option agreement. The Committee may impose such vesting
conditions and other requirements as the Committee deems appropriate, and the
Committee may include such provisions regarding a Change in Control as the Committee
deems appropriate.
(ii) After Participants Termination of Employment. The Committee
shall set forth in the Participants stock option agreement when, and under what
circumstances, an Option may be exercised after termination of the Participants
employment or period of service; provided that no Incentive Stock Option may be
exercised after the earlier of (a) (i) three months from the Participants
termination of employment with the Company for reasons other than Disability or
death, or (ii) one year from the Participants termination of employment on account
of Disability or death; or (b) the expiration of the Options term.
(iii) After Participants Death. If a Participant dies and if the
Participants stock option agreement provides that part or all of the Option may be
exercised after the Participants death, then such portion may be exercised by the
executor or administrator of the Participants estate during the time period
specified in the stock option agreement, but not later than the expiration of the
Options term.
(e) Limit on Exercise of Incentive Stock Options. An Incentive Stock Option, by its terms,
shall be exercisable in any calendar year only to the extent that the aggregate Fair Market Value
(determined at the Date of Grant) of the Company Stock with respect to which Incentive Stock
Options are exercisable by the Participant for the first time during the calendar year does not
exceed $100,000 (the Limitation Amount). Incentive Stock Options granted under the Plan and all
other plans of the Company and any parent or subsidiary of the Company shall be aggregated for
purposes of determining whether the Limitation Amount has been exceeded. The Board may impose such
conditions as it deems appropriate on an Incentive Stock Option to ensure that the foregoing
requirement is met. If Incentive Stock Options that first become exercisable in a calendar year
exceed the Limitation Amount, the excess Options will be treated as Nonstatutory Stock Options to
the extent permitted by law.
(f) Options Forfeited Upon Termination of Employment for Cause. If a Participants employment
or services is terminated by the Company for Cause, the Participants Options, both vested and
unvested, shall terminate as of the date of the misconduct, as determined by the Committee in its
sole discretion.
D-6
7. Method of Exercise of Options.
(a) Exercise. Options may be exercised by giving written notice of the exercise to the
Company, stating the Option being exercised and the number of shares the Participant has elected to
purchase under the Option.
(b) Payment. In no event shall any shares be issued pursuant to the exercise of an Option
until the Participant has made full payment for the shares of Company Stock (including payment of
the exercise price and any Applicable Withholding Taxes). Company Stock purchased upon the
exercise of an Option granted under the Plan shall be paid for as follows, provided that the
Committee may impose such limitations and restrictions on payments with shares of Company Stock as
the Committee, in its discretion, deems advisable:
(i) in cash or by check, payable to the order of the Company;
(ii) by delivery of Company Stock that the Participant has previously acquired
and owned (valued at Fair Market Value on the date of exercise), provided that such
method of payment is then permitted under applicable law and the Company Stock was
owned by the Participant at least six months prior to such delivery (or such longer
or shorter period of time required to avoid a charge to earnings for financial
accounting purposes);
(iii) by delivery of a properly executed exercise notice together with
irrevocable instructions to a creditworthy broker to deliver promptly to the
Company, from the sale or loan proceeds with respect to the sale of Company Stock or
a loan secured by Company Stock, the amount necessary to pay the exercise price and,
if required by the Committee, Applicable Withholding Taxes; or
(iv) by any combination of the above permitted forms of payment.
(c) Delivery of Shares. Upon the exercise of an Option in compliance with the provisions of
this section, the receipt by the Company of the payment for the shares of Company Stock so
acquired, and satisfaction of the provisions of this Section 7 of the Plan, the Company shall
deliver or cause to be delivered, within a reasonable time, to the Participant exercising the
Option, a certificate or certificates for the number of shares of Company Stock with respect to
which the Option is exercised. The shares of Company Stock shall be registered in the name of the
exercising Participant or in such name jointly with the Participant as the Participant may direct
in the written notice of exercise. The Company may place on any certificate representing Company
Stock issued upon the exercise of an Option any legend deemed desirable by the Companys counsel to
comply with federal or state securities laws. The Company may require of the Participant a
customary indication of his or her investment intent.
(d) Conditions on Delivery of Stock. The Company will not be obligated to deliver any shares
of Company Stock pursuant to the Plan or to remove restrictions from shares
D-7
previously delivered under the Plan until (i) all conditions of the Award have been met or
removed to the satisfaction of the Company, (ii) in the opinion of the Companys counsel, all other
legal matters in connection with the issuance and delivery of such shares have been satisfied,
including any applicable securities laws and any applicable stock exchange or stock market rules
and regulations, and (iii) the Participant has executed and delivered to the Company such
representations or agreements as the Company may consider appropriate to satisfy the requirements
of any applicable laws, rules, or regulations.
(e) Disqualifying Disposition. If a Participant disposes of shares acquired upon exercise of
an Incentive Stock Option within two (2) years from the date the Option is granted or within one
(1) year after the issuance of such shares to the Participant, the Participant shall notify the
Company of such disposition and provide information regarding the date of disposition, sale price,
number of shares disposed of, and any other information relating thereto that the Company may
reasonably request.
(f) Compliance with Rule 16b-3. Notwithstanding anything herein to the contrary, Awards shall
always be granted and exercised in such a manner as to conform to the provisions of Rule 16b-3.
8. Restricted Stock Awards.
(a) Grant. Whenever the Committee deems it appropriate to grant a Restricted Stock Award,
notice shall be given to the Participant stating the number of shares of Restricted Stock for which
the Award is granted, the Date of Grant, and the terms and conditions to which the Award is
subject. Certificates representing the shares shall be issued in the name of the Participant,
subject to the restrictions imposed by the Plan and the Committee. A Restricted Stock Award may be
made by the Committee in its discretion without cash consideration.
(b) Restrictions on Transferability and Vesting of Restricted Stock Awards. The Committee may
place such restrictions on the transferability and vesting of Restricted Stock as the Committee
deems appropriate, including restrictions relating to continued employment and financial
performance goals. Without limiting the foregoing, the Committee may provide performance or Change
in Control acceleration parameters under which all, or a portion, of the Restricted Stock will vest
on the Companys achievement of established performance objectives. Restricted Stock may not be
sold, assigned, transferred, disposed of, pledged, hypothecated or otherwise encumbered until the
restrictions on such shares shall have lapsed or shall have been removed pursuant to subsection (c)
below.
(c) Lapse of Restrictions on Transferability. The Committee shall establish as to each
Restricted Stock Award the terms and conditions upon which the restrictions on transferability set
forth in paragraph (b) above shall lapse. Such terms and conditions may include, without
limitation, the passage of time, the meeting of performance goals, the lapsing of such restrictions
as a result of the Disability, death or retirement of the Participant, or the occurrence of a
Change in Control.
D-8
(d) Rights of the Participant and Restrictions. A Participant shall hold shares of Restricted
Stock subject to the restrictions set forth in the Award agreement and in the Plan. In other
respects, the Participant shall have all the rights of a shareholder with respect to the shares of
Restricted Stock, including, but not limited to, the right to vote such shares and the right to
receive all cash dividends and other distributions paid thereon. Certificates representing
Restricted Stock shall bear a legend referring to the restrictions set forth in the Plan and the
Participants Award agreement. If stock dividends are declared on Restricted Stock, such stock
dividends or other distributions shall be subject to the same restrictions as the underlying shares
of Restricted Stock and shall be paid no later than 2 1/2 months after the end of the year in which
the underlying Restricted Stock vests.
9. Other Stock-Based Awards.
(a) The Committee is authorized to grant other types of equity-based or equity-related Awards
not otherwise described by the terms of the Plan (including the grant or offer for sale of
unrestricted shares of Company Stock) to Participants in such amounts and subject to such terms and
conditions as the Committee shall determine. Such Awards shall be referred to as Other
Stock-Based Awards. Each such Other Stock-Based Award may involve the transfer of actual shares
to Participants or payment in cash or otherwise of amounts based on the value of shares of Company
Stock. Awards under the Companys Long-Term Incentive Plan shall be allocated from Company Stock
reserved under Section 4(a) of this Plan.
(b) Each Other Stock-Based Award shall be expressed in terms of shares or units or an
equivalent measurement based on shares, as determined by the Committee. If the value of an Other
Stock-Based Award will be based on the appreciation of shares from an initial value determined as
of the date of grant, then such initial value shall not be less than the Fair Market Value of a
share on the date of grant of such Other Stock-Based Award.
10. Applicable Withholding Taxes. Each Participant shall agree, as a condition of
receiving an Award, to pay to the Company, or make arrangements satisfactory to the Company
regarding the payment of, all Applicable Withholding Taxes with respect to the Award. Until the
Applicable Withholding Taxes have been paid or arrangements satisfactory to the Company have been
made, no stock certificates (or, in the case of Restricted Stock, no stock certificates free of a
restrictive legend) shall be issued to the Participant. As an alternative to making a cash payment
to the Company to satisfy Applicable Withholding Tax obligations, the Committee may establish
procedures permitting the Participant to elect to (a) deliver shares of already owned Company Stock
or (b) have the Company retain that number of shares of Company Stock that would satisfy all or a
specified portion of the Applicable Withholding Taxes. Any such election shall be made only in
accordance with procedures established by the Committee to avoid a charge to earnings for financial
accounting purposes and in accordance with Rule 16b-3.
D-9
11. Nontransferability of Awards.
(a) In general, Awards, by their terms, shall not be transferable by the Participant except by
will or by the laws of descent and distribution or except as described below, without prior written
approval from the Committee. Options shall be exercisable, during the Participants lifetime, only
by the Participant or by his guardian or legal representative.
(b) Notwithstanding the provisions of (a) and subject to federal and state securities laws,
the Committee may on a case by case basis grant or amend Nonstatutory Stock Options that permit a
Participant to transfer the Options to one or more immediate family members, to a trust for the
benefit of immediate family members, or to a partnership, limited liability company, or other
entity the only partners, members, or interest-holders of which are among the Participants
immediate family members. Consideration may not be paid for the transfer of Options. The
transferee of an Option shall be subject to all conditions applicable to the Option prior to its
transfer. The agreement granting the Option shall set forth the transfer conditions and
restrictions. The Committee may impose on any transferable Option and on stock issued upon the
exercise of an Option such limitations and conditions as the Committee deems appropriate in its
sole discretion.
12. Termination, Modification, Change.
(a) If not sooner terminated by the Board, this Plan shall terminate at the close of business
on December 31, 2019. The Board may at any time terminate, suspend, or modify the Plan; provided
that the Board shall not, without stockholder approval, make any revision or amendment that would
cause the Plan to fail to comply with any requirement of applicable law, regulation, or rule if
such amendment were not approved by the stockholders of the Company including, (1) increasing the
total number of shares of Company Stock reserved for issuance pursuant to Awards granted under the
Plan (except pursuant to Section 13), (2) expanding the class of persons eligible to receive
Awards, or (3) materially increasing the benefits accruing to Participants under the Plan.
Notwithstanding the foregoing, the Board may unilaterally amend the Plan and Awards as it deems
appropriate to ensure compliance with Rule 16b-3 and to cause Incentive Stock Options to meet the
requirements of the Code and regulations thereunder.
(b) No Awards shall be made under the Plan after its termination, and no termination or
amendment of the Plan shall, without the consent of the Participant or his Beneficiary, adversely
affect a Participants rights under an Award previously granted to him, but it shall be
conclusively presumed that any adjustment to cause Incentive Stock Options to meet the requirements
of the Code and regulations thereunder or any adjustment pursuant to Section 13, does not adversely
affect any such right.
(c) Except in connection with a corporate transaction involving the Company (including,
without limitation, any stock dividend, stock split, extraordinary cash dividend, recapitalization,
reorganization, merger, consolidation, split-up, spin-off, combination, or exchange of shares), the
terms of outstanding Awards may not be amended to reduce the exercise price of outstanding Options
or Other Stock-Based Awards or cancel outstanding
D-10
Options or Other Stock-Based Awards in exchange for cash, other Awards or Options or Other
Stock-Based Awards with an exercise price that is less than the exercise price of the original
Options or Other Stock-Based Awards without shareholder approval.
13. Change in Capital Structure.
(a) In the event of a stock dividend, stock split or combination of shares, spin-off,
reorganization, recapitalization or merger in which the Company is the surviving corporation, or
other change in the Companys capital stock (including, but not limited to, the creation or
issuance to shareholders generally of rights, options or warrants for the purchase of common stock
or preferred stock of the Company), the number and kind of shares of stock or securities of the
Company to be issued under the Plan (under outstanding Awards and Awards to be granted in the
future), the exercise price of options, and other relevant provisions shall be appropriately
adjusted by the Committee, whose determination shall be binding on all persons. If the adjustment
would produce fractional shares with respect to any Award, the Committee may adjust appropriately
the number of shares covered by the Award so as to eliminate the fractional shares.
(b) In the event of a reorganization, recapitalization or merger in which the Company is the
surviving corporation, the result of which is that the Company becomes a majority owned subsidiary
of another entity (the Parent), then the Committee may take such actions with respect to Awards
as the Committee deems appropriate (whose determination shall be binding on all persons), including
without limitation causing any such Award then outstanding to be assumed, or new rights substituted
therefor, by the Parent.
(c) In the event the Company distributes to its stockholders a dividend, or sells or causes to
be sold to a person other than the Company or a subsidiary shares of stock in any corporation (a
Spinoff Company) which, immediately before the distribution or sale, was a majority owned
subsidiary of the Company, the Committee shall have the power, in its sole discretion, to make such
adjustments as the Committee deems appropriate. The Committee may make adjustments in the number
and kind of shares or other securities to be issued under the Plan (under outstanding Awards and
Awards to be granted in the future), the exercise price of Options, and other relevant provisions,
and, without limiting the foregoing, may substitute securities of a Spinoff Company for securities
of the Company. The Committee shall make such adjustments as it determines to be appropriate,
considering the economic effect of the distribution or sale on the interests of the Company s
shareholders and the Participants in the businesses operated by the Spinoff Company. The
Committees determination shall be binding on all persons. If the adjustment would produce
fractional shares with respect to any Award, the Committee may adjust appropriately the number of
shares covered by the Award so as to eliminate the fractional shares.
(d) Notwithstanding anything in the Plan to the contrary, the Committee may take the foregoing
actions without the consent of any Participant, and the Committees determination shall be
conclusive and binding on all persons for all purposes. The Committee shall make its
determinations consistent with Rule 16b-3 and the applicable provisions of the Code.
D-11
(e) To the extent required to avoid a charge to earnings for financial accounting purposes,
adjustments made by the Committee pursuant to this Section 13 to outstanding Awards shall be made
so that both (i) the aggregate intrinsic value of an Award immediately after the adjustment is not
greater than or less than the Awards aggregate intrinsic value before the adjustment and (ii) the
ratio of the exercise price per share to the market value per share is not reduced.
14. Change in Control. In the event of a Change in Control of the Company, the
Committee may take such actions with respect to Awards as the Committee deems appropriate. These
actions may include, but shall not be limited to, the following:
(a) At the time the Award is made, provide for the acceleration of the vesting schedule
relating to the exercise or realization of the Award so that the Award may be exercised or realized
in full on or before a date initially fixed by the Committee;
(b) Provide for the purchase or settlement of any such Award by the Company for any amount of
cash equal to the amount which could have been obtained upon the exercise of such Award or
realization of a Participants rights had such Award been currently exercisable or payable;
(c) Make adjustments to Awards then outstanding as the Committee deems appropriate to reflect
such Change in Control; provided, however, that to the extent required to avoid a charge to
earnings for financial accounting purposes, such adjustments shall be made so that both (i) the
aggregate intrinsic value of an Award immediately after the adjustment is not less than or greater
than the Awards aggregate intrinsic value before the Award and (ii) the ratio of the exercise
price per share to the market value per share is not reduced; or
(d) Cause any such Award then outstanding to be assumed, or new rights substituted therefore,
by the acquiring or surviving corporation in such Change in Control.
15. Administration of the Plan.
(a) The Plan shall be administered by the Committee, who shall be appointed by the Board. If
no Committee is appointed, the Plan shall be administered by the Board. To the extent required by
Rule 16b-3, all Awards shall be made by members of the Committee who are Non-Employee Directors
as that term is defined in Rule 16b-3, or by the Board. Awards that are intended to be
performance-based for purposes of Code Section 162(m) shall be made by the Committee, or
subcommittee of the Committee, comprised solely of two or more outside directors as that term is
defined for purposes of Code Section 162(m).
(b) Subject to the express provisions of the Plan, the Committee shall have full and final
authority to impose such limitations or conditions upon an Award as the Committee deems appropriate
to achieve the objectives of the Award and the Plan. Without limiting the foregoing and in
addition to the powers set forth elsewhere in the Plan, the Committee shall have the power and
complete discretion to determine (i) which eligible persons shall receive an Award
D-12
and the nature of the Award, (ii) the number of shares of Company Stock to be covered by each
Award, (iii) whether Options shall be Incentive Stock Options or Nonstatutory Stock Options,
(iv) the Fair Market Value of Company Stock, (v) the time or times when an Award shall be granted,
(vi) whether an Award shall become vested over a period of time, according to a performance-based
vesting schedule or otherwise, and when it shall be fully vested, (vii) the terms and conditions
under which restrictions imposed upon an Award shall lapse, (viii) to the extent permissible under
Code Section 409A, whether a Change in Control exists, (ix) factors relevant to the lapse of
restrictions on Restricted Stock or Options, (x) when Options may be exercised, (xi) whether to
approve a Participants election with respect to Applicable Withholding Taxes, (xii) conditions
relating to the length of time before disposition of Company Stock received in connection with an
Award is permitted, (xiii) notice provisions relating to the sale of Company Stock acquired under
the Plan, and (xiv) any additional requirements relating to Awards that the Committee deems
appropriate.
(c) The Committee shall have the power to amend the terms of previously granted Awards so long
as the terms as amended are consistent with the terms of the Plan and, where applicable, consistent
with the qualification of an Option as an Incentive Stock Option. The consent of the Participant
must be obtained with respect to any amendment that would adversely affect the Participants rights
under the Award, except that such consent shall not be required if such amendment is for the
purpose of complying with Rule 16b-3 or any requirement of the Code applicable to the Award.
(d) The Committee may adopt rules and regulations for carrying out the Plan. The Committee
shall have the express discretionary authority to construe and interpret the Plan and the Award
agreements, to resolve any ambiguities, to define any terms, and to make any other determinations
required by the Plan or an Award agreement. The interpretation and construction of any provisions
of the Plan or an Award agreement by the Committee shall be final and conclusive. The Committee
may consult with counsel, who may be counsel to the Company, and shall not incur any liability for
any action taken in good faith in reliance upon the advice of counsel.
(e) A majority of the members of the Committee shall constitute a quorum, and all actions of
the Committee shall be taken by a majority of the members present. Any action may be taken by a
written instrument signed by all of the members, and any action so taken shall be fully effective
as if it had been taken at a meeting.
16. Notice. All notices and other communications required or permitted to be given
under this Plan shall be in writing and shall be deemed to have been duly given if delivered
personally, electronically, or mailed first class, postage prepaid, as follows: (a) if to the
Company - at its principal business address to the attention of the Secretary; (b) if to any
Participant at the last address of the Participant known to the sender at the time the notice or
other communication is sent.
17. Compliance with Code Section 409A. To the extent applicable, this Plan is
intended to comply with Section 409A of the Code, and the Committee shall interpret and administer
the Plan in accordance therewith. In addition, any provision, including, without
D-13
limitation, any definition, in this Plan document that is determined to violate the requirements of
Section 409A of the Code shall be void and without effect and any provision, including, without
limitation, any definition, that is required to appear in this Plan document under Section 409A of
the Code that is not expressly set forth shall be deemed to be set forth herein, and the Plan shall
be administered in all respects as if such provisions were expressly set forth. In addition, the
timing of certain payment of benefits provided for under this Plan shall be revised as necessary
for compliance with Section 409A of the Code.
18. Interpretation and Governing Law. The terms of this Plan and Awards granted
pursuant to the Plan shall be governed, construed and administered in accordance with the laws of
the Commonwealth of Virginia, excluding any choice of law rules or principles that might otherwise
refer construction or interpretation of any provision of the Plan or an Agreement to the
substantive law of another jurisdiction. The Plan and Awards are subject to all present and future
applicable provisions of the Code and, to the extent applicable; they are subject to all present
and future rulings of the Securities and Exchange Commission with respect to Rule 16b-3. If any
provision of the Plan or an Award conflicts with any such Code provision or ruling, the Committee
shall cause the Plan to be amended, and shall modify the Award, so as to comply, or if for any
reason amendments cannot be made, that provision of the Plan or the Award shall be void and of no
effect.
IN
WITNESS WHEREOF, the Company has caused this Plan to be adopted this
19th day of March,
2009.
|
|
|
|
|
|
|
Fauquier Bankshares, Inc. |
|
|
|
|
|
|
|
By: |
|
/s/ C.H. Lawrence, Jr. |
|
|
|
|
|
|
|
|
|
|
|
|
Name:
|
|
C.H. Lawrence, Jr. |
|
|
|
|
|
|
|
Title:
|
|
Chairman |
D-14
ANNUAL MEETING OF SHAREHOLDERS OF
FAUQUIER BANKSHARES, INC.
May 19, 2009
PROXY VOTING INSTRUCTIONS
INTERNET - Access www.voteproxy.com and follow the on-screen instructions.
Have your proxy card available when you access the web page, and use the Company Number and Account Number shown on your proxy card.
TELEPHONE - Call toll-free 1-800-PROXIES
(1-800-776-9437) in the United States or 1-718-921-8500 from foreign countries from any touch-tone telephone and follow the instructions. Have your proxy
card available when you call and use the Company Number and Account Number shown on your proxy card.
Vote online/phone until 11:59 PM EST the day before the meeting.
MAIL - Sign, date and mail your proxy card in the envelope provided as soon as possible.
IN PERSON - You may vote your shares in person by attending the Annual Meeting.
|
|
|
|
|
|
|
COMPANY NUMBER |
|
|
|
|
|
ACCOUNT NUMBER |
|
|
|
|
|
|
|
|
|
|
|
NOTICE OF INTERNET AVAILABILITY OF PROXY MATERIAL: The Notice of meeting,
proxy statement and proxy card are available at http://www.fauquierbank.com/InvestorRelations/documents
ê
Please detach along perforated line and mail in the envelope provided
IF you are not voting via telephone or the Internet. ê
|
|
|
n 20630303030000000000 8 |
|
051909 |
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]
1. |
|
The election as directors of all nominees listed (except as marked to the contrary below): |
|
|
|
|
|
|
|
|
|
|
|
|
|
NOMINEES: |
|
|
o
|
|
FOR ALL NOMINEES
|
|
¡
¡
|
|
John B. Adams, Jr.
John J. Norman, Jr.
|
|
Class I
Class I |
o
|
|
WITHHOLD AUTHORITY
FOR ALL NOMINEES
|
|
¡
¡
|
|
Randolph D. Frostick
Jay B. Keyser
|
|
Class I
Class I |
o
|
|
FOR ALL EXCEPT (See instructions below)
|
|
¡
¡
|
|
C. H. Lawrence, Jr.
Eric P. Graap |
|
Class III
Class III |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
INSTRUCTIONS:
|
|
To withhold authority to vote for any
individual nominee(s), mark FOR ALL EXCEPT and fill in
the circle next to each nominee you wish to withhold, as
shown here: |
|
l |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
FOR |
|
AGAINST |
|
ABSTAIN |
2. |
|
The ratification of the selection of
Smith Elliott Kearns & Company, LLC, as independent public accountants for the Company for 2009.
|
|
o
|
|
o
|
|
o |
|
|
|
|
|
|
|
|
3. |
|
To approve an amendment to the Companys Articles of Incorporation to authorize 2,000,000 shares of preferred stock.
|
|
o
|
|
o
|
|
o |
|
|
|
|
|
|
|
|
|
|
|
|
4. |
|
To approve an amendment to the Companys Articles of Incorporation to revise the Article relating to indemnification.
|
|
o
|
|
o
|
|
o |
|
|
|
|
|
|
|
|
|
|
|
|
5. |
|
To approve the Fauquler Bankshares, Inc. Stock Incentive Plan.
|
|
o
|
|
o
|
|
o |
|
|
|
|
|
|
|
|
|
|
|
|
This proxy, when properly executed, 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 Proposals Two through Five.
Each of the proxies is authorized to vote in his discretion upon any other matters as may properly come before the meeting or any adjournment thereof.
|
|
|
|
|
|
|
|
|
|
|
|
|
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 20, 2009 and of the 2008 Annual Report of Shareholders.
|
|
|
|
|
|
|
|
|
|
|
|
|
PLEASE COMPLETE, DATE, SIGN, AND MAIL THIS PROXY PROMPTLY IN THE ENCLOSED POSTAGE-PAID ENVELOPE.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Signature of Shareholder |
|
|
|
Date: |
|
|
|
Signature of Shareholder |
|
|
|
Date: |
|
|
|
|
|
|
|
n |
|
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. |
n |
REVOCABLE PROXY
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS OF
FAUQUIER BANKSHARES, INC.
ANNUAL MEETING OF SHAREHOLDERS
May 19, 2009, 9:30 a.m. Eastern Time
The undersigned hereby appoints Douglas C. Larson,
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 19, 2009, at 9:30 a.m. Eastern Time, at Poplar Springs Inn Spa, Rogues Road, Casanova, Virginia, and at any adjournments thereof, as set forth on the reverse side.
(Continued and to be marked on the other side.)