UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
SCHEDULE 14A
Proxy Statement Pursuant to Section 14(a) of the Securities Exchange Act of 1934
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Soliciting Material Pursuant to §240.14a-12
Four Oaks Fincorp, Inc.
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Four Oaks Fincorp, Inc.
April 2, 2007
Dear Shareholder:
Accompanying this letter is the Notice of Annual Meeting, Proxy Statement, Summary 2006 Annual Report to Shareholders and proxy for Four Oaks Fincorp, Inc.’s Annual Meeting.Whether or not you plan to attend the meeting in person, please submit voting instructions for your shares promptly using the directions on your proxy card to vote by one of the followingmethods: (1) by telephone, by calling the toll-free telephone number printed on your proxy card; (2) over the Internet, by accessing the website address printed on your proxy card; or (3) by marking, dating and signing your proxy card and returning it in the accompanying postage-paid envelope.If you do attend, you can revoke your proxy and vote in person.
The Annual Meeting will begin at 7:00 p.m. on Monday, April 23, 2007, in the cafeteria of Four Oaks Elementary School, located at 180 West Hatcher Street, Four Oaks, North Carolina. At the Annual Meeting, our shareholders will elect the board of directors for the coming year and transact any other business properly brought before the meeting.
In compliance with applicable regulations, our company’s financial statements and other required disclosures are presented in the Annual Report on Form 10-K, a copy of which follows the Proxy Statement, and which reflects our company’s financial condition as of December 31, 2006.
As mentioned above, we also have included a Summary 2006 Annual Report to Shareholders that contains additional information about our company, including a financial summary, a letter from me to our shareholders, and selected financial data.
As always, we hope to see you at the Annual Meeting, and please remember to vote your shares as directed on your proxy card provided as soon as possible.
Sincerely yours,
/s/ Ayden R. Lee, Jr.
Ayden R. Lee, Jr.
Chairman, President, and
Chief Executive Officer
FOUR OAKS FINCORP, INC.
6114 US 301 South
Four Oaks, North Carolina 27524
_____________________________________________________________________
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
April 23, 2007
_____________________________________________________________________
You are cordially invited to attend the Annual Meeting of Shareholders of Four Oaks Fincorp, Inc., which will be held on Monday, April 23, 2007 at 7:00 p.m., local time, in the cafeteria of Four Oaks Elementary School, located at 180 West Hatcher Street, Four Oaks, North Carolina,for the following purposes:
(1)
To elect the persons listed in the accompanying Proxy Statement to the board of directors of Four Oaks Fincorp, Inc.; and
(2)
To transact such other business as may properly come before the meeting or any adjournments thereof.
Shareholders of record at the close of business on March 5, 2007 are entitled to notice of and to vote at the Annual Meeting and any and all adjournments thereof.
A copy of the Annual Report on Form 10-K, containing financial statements of Four Oaks Fincorp, Inc., for the year ended December 31, 2006, is enclosed herewith.
YOUR VOTE IS VERY IMPORTANT. A PROXY CARD IS ENCLOSED FOR THE CONVENIENCE OF THOSE SHAREHOLDERS WHO DO NOT PLAN TO ATTEND THE ANNUAL MEETING IN PERSON BUT DESIRE TO HAVE THEIR SHARES VOTED. IF YOU DO NOT PLAN TO ATTEND THE ANNUAL MEETING, PLEASE COMPLETE AND RETURN THE PROXY CARD AS SOON AS POSSIBLE IN THE ENVELOPE PROVIDED FOR THAT PURPOSE, OR VOTE VIA THE INTERNET OR TELEPHONE AS PROVIDED ON THE PROXY CARD. IF YOU RETURN YOUR CARD OR VOTE OVER THE INTERNET OR TELEPHONE AND LATER DECIDE TO ATTEND THE ANNUAL MEETING IN PERSON OR FOR ANY OTHER REASON DESIRE TO REVOKE YOUR PROXY, YOU MAY DO SO AT ANY TIME BEFORE YOUR PROXY IS VOTED.
By Order of the board of directors
/s/ Ayden R. Lee, Jr.
Ayden R. Lee, Jr.
Chairman, President, and
Chief Executive Officer
April 2, 2007
FOUR OAKS FINCORP, INC.
6114 US 301 South
Four Oaks, North Carolina 27524
PROXY STATEMENT
This Proxy Statement, accompanying proxy card, Notice of Annual Meeting of Shareholders, and Summary 2006 Annual Report to Shareholders are being mailed to shareholders on or about April 2, 2007 by Four Oaks Fincorp, Inc. in connection with the solicitation of proxies for use at the Annual Meeting of Shareholders to be held in the cafeteria of Four Oaks Elementary School, located at 180 West Hatcher Street, Four Oaks, North Carolina on Monday, April 23, 2007 at 7:00 p.m., local time, and at all adjournments thereof. All expenses incurred in connection with this solicitation will be paid by us. In addition to solicitation by mail, certain of our officers, directors, and regular employees, who will receive no additional compensation for their services, may solicit proxies by telephone, personal communication, or other means.
ANNUAL MEETING
Purposes of the Annual Meeting
The principal purposes of the annual meeting are to: (1) elect eight (8) nominees to our board of directors; and (2) transact such other business as may properly come before the annual meeting or any adjournments thereof. Our board of directors knows of no matters other than those stated above to be brought before the annual meeting or any adjournments thereof. Nonetheless, the proxyholders named on the enclosed proxy card may vote in accordance with the instructions of the board of directors or, in the absence thereof, in accordance with their discretion, on any other matter properly presented for action of which the board of directors is not now aware.
How You Can Vote
You may vote shares by proxy or in person using one of the following methods:
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Voting by Telephone. You may vote using the directions on your proxy card by calling the toll-free telephone number printed on the card. The deadline for voting by telephone is Monday, April 23, 2007, at 3:00 a.m. Eastern time. If you vote by telephone you need not return your proxy card.
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Voting by Internet. You may vote over the Internet using the directions on your proxy card by accessing the website address printed on the card. The deadline for voting over the Internet is Monday, April 23, 2007 at 3:00 a.m. Eastern time. If you vote over the Internet you need not return your proxy card.
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Voting by Proxy Card. You may vote by completing and returning your signed proxy card. To vote using your proxy card, please mark, date and sign the card and return it by mail in the accompanying postage-paid envelope. You should mail your signed proxy card sufficiently in advance for it to be received by Friday, April 20, 2007.
Proxies
Any proxy given pursuant to this solicitation may be revoked by the person giving it at any time before it is exercised. Proxies may be revoked by:
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filing a written notice of revocation with our corporate secretary;
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duly executing a subsequent proxy and filing it with our corporate secretary before the revoked proxy is exercised;
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timely submitting new voting instructions by telephone or over the Internet as described above; or
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attending the annual meeting and voting in person.
If the proxy card is signed and returned, but voting directions are not made, the proxy will be voted in favor of the proposals set forth in the accompanying “Notice of Annual Meeting of Shareholders.”
Record Date
Our board of directors has fixed the close of business on March 5, 2007 as the record date for determination of shareholders entitled to receive notice of and to vote at the annual meeting and all adjournments thereof. As of the close of business on March 5, 2007, we had 5,606,677 shares of common stock outstanding.
Voting Rights
On all matters to come before the Annual Meeting, each holder of common stock will be entitled to one vote for each share held. Shareholders do not have the right to vote cumulatively in electing directors.
How You Can Vote Shares Held by a Broker or Other Nominee
If your shares are held by a broker, bank, custodian or other nominee, you may have received a voting instruction form with this Proxy Statement instead of a proxy card. The voting
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instruction form is provided on behalf of the broker or other nominee to permit you to give directions to the broker or nominee on how to vote your shares. Please refer to the voting instruction form or contact the broker or nominee to determine the voting methods available to you.
SECURITY OWNERSHIP OF MANAGEMENT
AND CERTAIN BENEFICIALOWNERS
The following table sets forth certain information as of March 5, 2007 regarding shares of our common stock beneficially owned by: (i) each director; (ii) each director nominee; (iii) each executive officer named in the Summary Compensation Table in this Proxy Statement; and (iv) all directors and executive officers as a group. The business address for each of the persons listed below is 6114 US 301 South, Four Oaks, North Carolina 27524. Except as otherwise indicated, the persons listed below have sole voting and investment power with respect to all shares of our common stock owned by them, except to the extent that such power may be shared with a spouse. Fractional share amounts are rounded off to the nearest whole number.
Name of Beneficial Owner | Amount and Nature ofBeneficial Ownership(1) | Percent of Class (1) |
Ayden R. Lee, Jr.(2) | 152,578 | 2.7% |
Paula Canaday Bowman(3) | 67,121 | 1.2% |
William J. Edwards(4) | 31,818 | * |
Warren L. Grimes(5) | 21,357 | * |
Percy Y. Lee(6) | 56,289 | 1.0% |
Dr. R. Max Raynor, Jr.(7) | 4,473 | * |
Clifton L. Painter(8) | 46,742 | * |
William Ashley Turner(9) | 294,655 | 5.3% |
Nancy S. Wise(10) | 5,236 | * |
W. Leon Hiatt, III(11) | 27,119 | * |
Jeff. D. Pope(12) | 18,124 | * |
Michael A. Weeks(13) | 4,016 | * |
All Directors and Executive Officers as a Group (12 persons) | 729,528 | 13.0% |
_________________
*Less than 1%
(1)
Based upon 5,606,677 shares of common stock outstanding on March 5, 2007. The securities “beneficially owned” by an individual are determined in accordance with the definition of “beneficial ownership” set forth in the regulations of the Securities and Exchange Commission. Accordingly, they may include securities owned by or for, among others, the spouse and/or minor children of the individual and any other relative who resides in the home of such individual, as well as other securities as to which the individual has or shares voting or investment power or has the right to acquire under outstanding stock options within 60 days of March 5, 2007. Beneficial ownership may be disclaimed as to certain of the securities.
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(2)
Includes 19,062 shares subject to stock options which are exercisable within 60 days of March 5, 2007, and 29,750 shares owned by Mr. Lee’s spouse who has sole voting and investment power with respect to such shares.
(3)
Includes 1,428 shares subject to stock options which are exercisable within 60 days of March 5, 2007, and 243 shares owned by Ms. Bowman’s spouse who has sole voting and investment power with respect to such shares.
(4)
Includes 1,428 shares subject to stock options which are exercisable within 60 days of March 5, 2007, 2,440 shares owned by Mr. Edward’s spouse who has sole voting and investment power with respect to such shares, and 176 shares held in Mr. Edward’s name as custodian for his granddaughter.
(5)
Includes 1,428 shares subject to stock options which are exercisable within 60 days of March 5, 2007, 8,916.1138 shares owned jointly with Mr. Grimes’ spouse, and 1,806.0102 shares owned by Mr. Grimes’ spouse who has sole voting and investment power with respect to such shares.
(6)
Includes 1,428 shares subject to stock options which are exercisable within 60 days of March 5, 2007, and 38,112.3769 shares owned jointly with Mr. Lee’s spouse.
(7)
Includes 375 shares subject to stock options which are exercisable within 60 days of March 5, 2007.
(8)
Includes 9,936 shares subject to stock options which are exercisable within 60 days of March 5, 2007,
3,195 shares owned by Mr. Painter’s spouse who has sole voting and investment power with respect to such shares, and 547 shares owned by a child who resides in Mr. Painter’s home.
(9)
Includes 1,428 shares subject to stock options which are exercisable within 60 days of March 5, 2007, 290,790.7751 shares owned jointly with Mr. Turner’s spouse, and 851.8604 shares owned by Mr. Turner’s spouse who has sole voting and investment power with respect to such shares.
(10)
Includes 2,469 shares subject to stock options which are exercisable within 60 days of March 5, 2007,
1.000 share owned jointly with Ms. Wise’s spouse, 45.5505 shares owned by Ms. Wise’s spouse who has sole voting and investment power with respect to such shares, and 48.1114 shares owned by a minor child who resides in Ms. Wise’s home.
(11)
Includes 9,361 shares subject to stock options which are exercisable within 60 days of March 5, 2007, 130.0936 shares owned by Mr. Hiatt’s spouse who has sole voting and investment power with respect to such shares, and 1,602.0939 shares owned by minor children who reside in Mr. Hiatt’s home.
(12)
Includes 8,481 shares subject to stock options which are exercisable within 60 days of March 5, 2007.
(13)
Includes 375 shares subject to stock options which are exercisable within 60 days of March 5, 2007.
The following table sets forth certain information as of March 5, 2007 regarding any person who is known to us to be the beneficial owner of more than five percent (5%) of our common stock.
Name and Address of Beneficial Owner | Amount and Nature ofBeneficial Ownership | Percent of Class |
|
|
|
William Ashley Turner and Debra C. Turner, Joint Tenants with right of survivorship 181 Cleveland Crossing Garner, North Carolina 27529 | 294,655 | 5.3% |
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INFORMATION ABOUT OUR BOARD OF DIRECTORS
General
Our board of directors oversees our business and affairs and monitors the performance of management. In accordance with traditional corporate governance principles, our board of directors does not involve itself in day-to-day operations. Instead, directors keep themselves informed through, among other things, discussions with our Chief Executive Officer, other key executives and principal external advisers (legal counsel, outside auditors, investment bankers, and other consultants), reading reports and other materials that are provided to them, and by participating in board and committee meetings. Our directors are elected annually and hold office for a period of one year or until their successors are duly elected and qualified. Our board of directors, in its business judgment, has made an affirmative determination that each of Paula Canaday Bowman, William J. Edwards, Warren L. Grimes, Percy Y. Lee, Dr . R. Max Raynor, Jr., William Ashley Turner, Michael A. Weeks and Merwin S. Canaday who served as a director through the end of 2006 meet the definition of “independent director” as that term is defined in the Nasdaq Marketplace Rules.
There are no material proceedings to which any of our directors or executive officers, or any of their associates, is a party adverse to us or has a material interest adverse to us.
To our knowledge, none of our directors or executive officers has been convicted in a criminal proceeding during the last five years (excluding traffic violations or similar misdemeanors), and none of our directors or executive officers was a party to any judicial or administrative proceeding during the last five years (except for any matters that were dismissed without sanction or settlement) that resulted in a judgment, decree, or final order enjoining the person from future violations of, or prohibiting activities subject to, federal or state securities laws, or a finding of any violation of federal or state securities laws.
Director Compensation
For 2007, our directors, except Mr. Lee who is not paid a director’s fee, will be paid fees of $1,225.00 per month. In addition, for each board committee meeting attended, the committee chairman will be paid $350.00 and the other directors will be paid $300.00 each. For information concerning our 2006 board compensation, please see the discussion under “Executive Compensation—2006 Director Compensation” below.
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Board of Directors Meetings
During the last fiscal year, our board of directors met twelve (12) times. Each incumbent director attended seventy-five percent (75%) or more of the aggregate of the total number of board of directors meetings and the total number of meetings held by all committees of the board of directors on which he or she served. Our independent directors have resolved to hold meetings, separate from management, at least four a year.
We do not have a stated policy regarding director attendance at our annual meeting of shareholders, but encourage our directors to attend each annual meeting of shareholders. At last year’s annual meeting of shareholders, held on April 24, 2006, eight (8) directors were present and in attendance.
Board Committees
Our board of directors has three standing committees: the audit committee, the compensation committee, and the corporate governance and nominating committee.
Audit Committee. The audit committee is composed of Warren L. Grimes (chairman), William J. Edwards, and Michael A. Weeks and operates under a written charter, which the board reviews and reassesses annually. The committee operates pursuant to a charter that is available on our website athttp://www.fouroaksbank.com in the “Investor Info” section under the listing for governance documents, or free of charge upon written request to the attention of the Corporate Secretary, Four Oaks Fincorp, Inc., P.O. Box 309, Four Oaks, North Carolina 27524. Our board of directors, in its business judgment, has made an affirmative determination that each member of the audit committee meets the definition of “independent director” as that term is defined by Nasdaq Marketplace Rules and SEC rules, including the special independence requirements applicable to audit committee members. In add ition, one member of our audit committee has past financial experience resulting in his financial sophistication as required by Nasdaq Marketplace Rules.
The board of directors has determined that none of the members of its audit committee meet the definition of “audit committee financial expert” as that term is defined under the Securities Exchange Act of 1934, as amended (the “Exchange Act”). The members of the audit committee receive directly or have access to extensive information from reviews and examinations by our internal auditor, independent accountant, and various banking regulatory agencies that have jurisdiction over our company and our subsidiaries. The board believes that the present members of the audit committee have sufficient knowledge and experience in financial matters to effectively perform their duties. We recognize that having a person who possesses all of the attributes of an audit committee financial expert may be a valuable addition
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to our board of directors and continue to consider whether and how best to attract such an expert to serve on the board.
The audit committee was established by our board of directors for the purpose of overseeing our accounting and financial reporting processes and audits of our financial statements. The audit committee reviews the results and scope of the annual audit and other services provided by our independent accountant. The audit committee also reviews our financial statements and audit letters provided by our independent accountant. Finally, the audit committee is responsible for reviewing our systems of internal control over financial reporting with management and the independent registered public accountants. The audit committee is responsible for hiring and setting the compensation of the independent accountant. The audit committee met fourteen (14) times during 2006.
Compensation Committee. The compensation committee is composed of Warren L. Grimes (chairman), Paula Canaday Bowman, and Dr. R. Max Raynor, Jr., each of whom the board, in its business judgment, has determined meets the definition of “independent director” as that term is defined by the Nasdaq Marketplace Rules. The compensation committee is responsible for the approval of compensation arrangements for our officers and the review of our compensation plans and policies. During 2006, the compensation committee met four (4) times. The committee operates pursuant to a charter that is available on our website athttp://www.fouroaksbank.com in the “Investor Info” section under the listing for governance documents, or free of charge upon written request to the attention of the Corporate Secretary, Four Oaks Fincorp, Inc., P.O. Box 309, Four Oaks, North Carolina 27524. The compen sation committee may not delegate its authority to other persons under its charter. For more information regarding our compensation committee’s processes and procedures please see “Executive Compensation - Compensation Discussion and Analysis – Compensation Committee – Composition and Responsibility” below.
Corporate Governance and Nominating Committee.The members of our corporate governance and nominating committee are Dr. R. Max Raynor, Jr. (chairman), Paula Canaday Bowman, Warren L. Grimes, and William Ashley Turner, each of whom the board has determined, in its business judgment, meets the definition of "independent director" as that term is defined by the Nasdaq Marketplace Rules. The committee operates pursuant to a charter that is available on our website athttp://www.fouroaksbank.com in the "Investor Info" section under the listing for governance documents, or free of charge upon written request to the attention of the Corporate Secretary, Four Oaks Fincorp, Inc., P.O. Box 309, Four Oaks, North Carolina 27524. Pursuant to the committee's charter, the board has delegated certain responsibilities to the committee regarding nominations and criteria for proposing or re commending proposed nominees for election and re-election to the board.
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To be considered by our corporate governance and nominating committee, a director nominee must have certain minimum qualifications, including the ability to read and understand basic financial statements, business experience, relevant industry knowledge, high moral character, meeting certain stock ownership requirements, having their primary banking relationship with us, meeting certain age requirements, and the willingness to devote sufficient time to attend meetings and participate effectively on the board. In identifying, evaluating, and recommending nominees for director, the committee considers diversity, age, skills, representation within our market areas, potential conflicts of interest, and such other factors as it deems appropriate, given the needs of the board and our company, to maintain a balance of knowledge, experience, and capability. The committee may retain recruiting professionals to assist in identifying and eval uating candidates for director nominees. During 2006, the corporate governance and nominating committee met seven (7) times.
The corporate governance and nominating committee will consider, in the same manner and based on the same qualifications as its own nominations, shareholder nominations for directors. To be considered, a shareholder nomination must be sent to the Corporate Secretary, Four Oaks Fincorp, Inc., P.O. Box 309, Four Oaks, North Carolina 27524. The nomination must be received no later than the close of business on the 90th day prior to the first anniversary of the preceding year’s annual meeting, and it must contain enough information regarding the nominee to permit the committee to assess the relevant qualifications of the nominee, such as biographical profile, list of affiliated companies, and potential conflicts of interest.
Shareholder Communications
Our shareholders may communicate directly with the members of the board of directors or the individual chairmen of standing board committees by writing directly to those individuals at the following address: Four Oaks Fincorp, Inc., P.O. Box 309, Four Oaks, North Carolina 27524. Our general policy is to forward, and not to intentionally screen, any mail received at our corporate office that is sent directly to an individual unless we believe the communication may pose a security risk.
Code of Ethics
Our board of directors has adopted a codeof ethics (our “Code of Ethics”) that applies to our principal executive officer, principal financial officer, principal accounting officer or controller, and persons performing similar functions. A copy of our Code of Ethics is available athttp://www.fouroaksbank.com in the “Investor Info” section under the listing for governance documents, or free of charge upon written request to the attention of the Corporate Secretary, Four Oaks Fincorp, Inc., P.O. Box 309, Four Oaks, North Carolina 27524 ((919) 963-2177).
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ELECTION OF DIRECTORS
The following table and accompanying biographies provide information on our nominees for election to the board of directors:
Name | Age | Year FirstElected | Positions and Offices with our Company & Business Experience During Past Five (5) Years |
|
|
|
|
Ayden R. Lee, Jr. | 58 | 1983 | Chairman of the Board of Directors; Chief Executive Officer, and President of Four Oaks Fincorp, Inc. and Four Oaks Bank & Trust Company |
Dr. R. Max Raynor, Jr. | 49 | 2000 | Director of Four Oaks Fincorp, Inc. and Four Oaks Bank & Trust Company; Chairman of our Corporate Governance and Nominating Committee; Owner of Professional Eye Care, with locations in Benson, North Carolina, Roseboro, North Carolina, and Clinton, North Carolina |
Paula Canaday Bowman | 58 | 1989 | Director of Four Oaks Fincorp, Inc. and Four Oaks Bank & Trust Company; Director of Benson Area Medical Center |
William J. Edwards | 63 | 1990 | Director of Four Oaks Fincorp, Inc. and Four Oaks Bank & Trust Company; President, Co-owner, Chief Executive Officer, and Chairman of the Board of Edwards Food Stores |
Percy Y. Lee | 66 | 1992 | Director of Four Oaks Fincorp, Inc. and Four Oaks Bank & Trust Company; President of T.R. Lee Oil Co.; Senior Partner of Lee Brother’s Rental; Owner of SouthBend MHP |
Warren L. Grimes | 58 | 1992 | Director of Four Oaks Fincorp, Inc. and Four Oaks Bank & Trust Company; Chairman of our Compensation Committee and Audit Committee; Executive Director of Smithfield Housing Authority; General Partner in Reedy Creek Direct Marketing Associates; Chief Financial Officer and Director of Reedy Creek Technologies, Inc. |
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William Ashley Turner | 54 | 2001 | Director of Four Oaks Fincorp, Inc. and Four Oaks Bank & Trust Company; Owner and President of Ashley Turner Enterprises, Inc., Ashley Turner Building Co., Inc., Ashley Turner Homes, Inc., Sugarmill Ventures, Inc., and Sand Castle Building Co., Inc; Owner and Manager of Ashley Turner Development Co., LLC, Import Market, LLC, and Furniture House, LLC; Owner of Ashley Turner Rentals, LLC, Ashley Turner Commercial Property, LLC, and Turner Building Supply; Member, Board of Trustees for Pitt Memorial Hospital Foundation, Inc. and University Health Systems Foundation of Eastern Carolina |
Michael A. Weeks | 55 | 2006 | Director of Four Oaks Fincorp, Inc. and Four Oaks Bank & Trust Company; Co-owner and President of Weeks Turner Architecture, P.A., Phelps Farm, Inc., and Four Weeks, Inc.; Co-owner and Manager of PPPV, LLC, Atlantic Park, LLC, Weeks & Sherron, LLC, PTW Properties, LLC, Weeks Sherron & Turner, LLC, Serwee Associates, LLC, South Main Associates, LLC, Durant Business Center, LLC, Lake Wheeler Mobile Estates, LLC, Knightdale Business Partners, LLC, Weeks Associates, LLC, Tryon Theater, LLC, APMW, LLC, and Manns Chapel Properties, LLC |
The number constituting our board of directors must be at least five (5), but not more than twenty-one (21). The number of directors within this variable range may be fixed or changed from time to time by our shareholders or our board of directors. Our board of directors has set the number of directors at eight (8). The members of our board of directors are elected by our shareholders to serve one (1) year terms.
All of our directors and executive officers hold office until the next annual meeting or until their successors are elected and qualified. Our board of directors has no reason to believe that the persons named above as nominees will be unable or will decline to serve as a director if elected. However, in the event of death or disqualification of any nominee or refusal or inability of any nominee to serve, it is the intention of the proxyholders to vote for the election of such other person or persons as the proxyholders determine in their discretion; but in no circumstance will the proxy be voted for more than eight (8) nominees. Properly executed and returned proxies, unless revoked, will be voted as directed by the shareholder or, in the absence of such direction, will be voted in favor of the election of the recommended nominees.
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Pursuant to North Carolina law, the eight (8) candidates who receive the highest number of votes will be elected as directors. Abstentions and broker non-votes are counted for purposes of determining the presence or absence of a quorum for the transaction of business, but are not counted in the election of directors and will not be included in determining which candidates received the highest number of votes.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE “FOR” ALL OF THE NOMINEES FOR ELECTION AS DIRECTORS.
Audit Committee Report
As described above, the audit committee of our board of directors is composed of Warren L. Grimes (chairman), William J. Edwards, and Michael A. Weeks and operates under a written charter adopted by the board of directors. The committee operates pursuant to a charter that is available on our website athttp://www.fouroaksbank.com in the “Investor Info” section under the listing for governance documents.
The members of the audit committee are not professionally engaged in the practice of auditing or accounting nor are they experts in the fields of accounting or auditing, including in respect of auditor independence. Management is responsible for our internal control over financial reporting and the financial reporting process, including the presentation and integrity of our financial statements. Our independent accountant is responsible for performing an independent audit of our consolidated financial statements in accordance with auditing standards generally accepted in the United States of America and to issue a report thereon. The audit committee’s responsibility is to monitor and oversee these processes. The audit committee also hires and sets the compensation for our independent accountant. Members of the audit committee rely without independent verification on the information provided to them and on representations of ma nagement and our independent accountant.
Accordingly, the audit committee’s oversight does not provide an independent basis to determine that management has maintained appropriate accounting and financial reporting principles or appropriate internal controls and procedures designed to assure compliance with accounting standards and applicable laws and regulations. Furthermore, the audit committee’s considerations and discussions referred to below do not assure that the audit of our financial statements has been carried out in accordance with auditing standards generally accepted in the United States of America, that our financial statements are presented in accordance with accounting principles generally accepted in the United States, or that our auditors are in fact “independent.”
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In this context, the audit committee has met and held discussions with our management, who represented to the audit committee that our consolidated financial statements were prepared in accordance with accounting principles generally accepted in the United States of America. The audit committee has reviewed and discussed the consolidated financial statements with both management and the independent accountant. The audit committee also discussed with the independent accountant matters required to be discussed by Statement on Auditing Standards No. 61 (Communication with Audit Committees). Our independent accountant also provided to the audit committee the written disclosures required by Independence Standards Board Standard No. 1 (Independence Discussions with Audit Committees), and the audit committee has considered whether the provision of audit and other non-audit services (set forth under “Audit Firm Fee Summary” below ) is compatible with maintaining the accountants’ independence and has discussed with the independent accountant its independence.
Based upon the audit committee’s discussions with management and the independent accountant and the audit committee’s review of our consolidated financial statements, representations of management, and the report of the independent accountant to the audit committee, and subject to the limitations on the role and responsibility of the audit committee referred to above and the audit committee charter, the audit committee recommended that our board of directors include the audited consolidated financial statements in our Annual Report on Form 10-K for the fiscal year ended December 31, 2006 filed with the Securities and Exchange Commission.
Audit Committee
Warren L. Grimes (chairman)
William J. Edwards
Michael A. Weeks
EXECUTIVE COMPENSATION
Compensation Discussion and Analysis
Compensation Committee — Composition and Responsibility
Each member of the compensation committee is an independent director as that term is defined in the Nasdaq Marketplace Rules. There are currently three directors who serve on the compensation committee: Warren L. Grimes (chairman), Paula Canaday Bowman, and Dr. R. Max Raynor, Jr.
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The compensation committee has two primary responsibilities: (i) assisting the board in carrying out its responsibilities in determining the compensation of our CEO and executive officers; and (ii) establishing compensation policies that will attract and retain qualified personnel through an overall level of compensation that is comparable to, and competitive with, others in the industry and in particular, peer financial institutions. The compensation committee, subject to the provisions of our Employee Stock Option Plan also has authority in its discretion to determine the employees to whom stock options shall be granted, the number of shares to be granted to each employee, and the time or times at which options should be granted. The CEO makes recommendations to the compensation committee about equity awards to our employees (other than the CEO).
The CEO reviews the performance of our executive officers (other than the CEO) and, based on that review, the CEO makes recommendations to the compensation committee about the compensation of executive officers (other than the CEO). The CEO does not participate in any deliberations or approvals by the compensation committee with respect to his own compensation. The compensation committee approves all compensation decisions involving the CEO and our other executive officers.
In 2006, the compensation committee engaged Matthews, Young and Associates, which is a consultant that assisted the compensation committee in determining base salary ranges and for market based review of annual merit programs and salary range changes. This consulting firm assisted the compensation committee with recommendations for equity compensation and other compensation matters. The recommendations were presented and approved by the Compensation Committee in January, 2007.
Compensation Philosophy
Our compensation philosophy rests on two principles: (i) total compensation should vary with our performance in achieving financial and non-financial objectives; and (ii) long-term incentive compensation should be closely aligned with the interests of shareholders. We have therefore adopted a “pay for performance” approach that we believe offers a competitive total rewards package to help create value for our shareholders by focusing on the following performance factors: fee income, loan growth, deposit growth, net income, and net interest spread. In designing compensation programs, and making individual recommendations or decisions, the compensation committee attempts to align the interest of executive officers and shareholders; attract, retain, and motivate high-performing employees in the most cost-efficient manner; and create a high-performance work culture.
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Our compensation program reflects a mix of stable and at risk compensation, designed to fairly reward executive officers and align their interests with those of shareholders in an efficient manner. Each element of our compensation program is intended to provide employees with a pay opportunity that is externally competitive and that recognizes individual contributions.
Peer Groups and Benchmarks
To ensure that total executive compensation and its elements are appropriately targeted for both actual performance results and competitive positioning, the compensation committee periodically reviews executive officer total compensation.Specifically, for three of the named executive positions, Matthews, Young and Associates gathered survey data for the following peer groups:
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(10) North Carolina Financial Institutions with assets of $400 million to $1 billion
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(50) Southeast United States Financial Institutions with regression assets of $500 million to $700 million
·
(31) United States Community Banks with assets of $500 million to $699 million
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(49) United States Financial Institutions with assets of $500 million to $1 billion
In 2006, our compensation committee engaged Matthews, Young and Associates, a compensation consulting practice. They audited and updated the existing base salary compensation system, including: 1) pricing approximately 20 benchmark positions to create a new, more functional salary structure; 2) evaluating and valuing non-benchmarked positions in comparison to benchmarked positions; 3) creating a systematic approach for merit/performance increase determination tying more compensation to performance of the company; and 4) delivering an automated-spreadsheet based salary budgeting model for use in.
Executive Compensation — Elements
Our executive compensation program has four primary components:base salary, annual cash incentive compensation, long-term equity-based compensation, and benefits. The compensation committee strives to balance short-term and long-term company performance and shareholder returns in establishing performance criteria. The compensation committee evaluates executive compensation against these performance criteria and competitive executive pay practices before determining changes in base salary, the amount of any incentive payments, stock option awards, and other benefits.
•
Base salaries are intended to be competitive relative to similar positions at peer institutions in order to provide us with the ability to pay base salaries that will attract and retain employees with a broad, proven track record of performance.
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•
Our variable annual cash incentive pay plan is designed to provide competitive cash payment opportunity based on our overall financial performance. The opportunity for a more significant award increases when we achieve higher levels of performance.
•
Our long-term equity-based compensation incentive plan is generally made available to selected groups of individuals, including our executive officers, in the form of stock options. Equity awards have the potential to grow in value over time and seek to reward executives for performance that maximizes long term shareholder returns.
•
To remain competitive in the market for a high caliber management team and to ensure stability and continuity in its leadership, we provide our CEO and other named executive officers certain other fringe benefits, such as retirement programs, medical plans, life and disability insurance, use of company owned automobiles, and employment agreements. The compensation committee periodically reviews fringe benefits made available to executive officers to ensure that they are in line with market practice.
Base salary represents the fixed component of our executive compensation program. Base salaries are set within ranges, which are targeted around the competitive norm for similar executive positions in peer companies in our industry. Individual salaries may be above or below the competitive norm, depending on the executive’s experience and performance.
The base salary for the CEO and other executive officers of the company is determined by the compensation committee. The CEO makes recommendations to the compensation committee for base salaries for our other executive officers. Factors considered by compensation committee in determining the compensation of the company’s executive officers are the company’s performance and the individual’s performance. Another factor is the salary level for the position compared to other financial companies with which we compete.
In February 2006, the compensation committee established the 2006 base salary amounts for our named executive officers as follows: Mr. Lee $226,236; Ms. Wise $120,607; Mr. Painter $136,078; Mr. Hiatt $120,098; and Mr. Pope $119,914. In February 2007, the compensation committee established the 2007 base salary amounts for our named executive officers as follows: Mr. Lee $250,246; Ms. Wise $133,405; Mr. Painter $147,889; Mr. Hiatt $132,842 and Mr. Pope $136,082. The compensation committee considered and weighed all of the factors described above in determining the increases in 2007 base salaries over 2006 base salaries.
Annual Cash Incentive Compensation
On February 16, 2006, the compensation committee approved our 2006 Bonus Plan (the “Plan”). The Plan is designed to align the interests of our named executive officers with the
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interests of its shareholders by linking bonus amounts directly to our performance. Named executive officers are eligible to receive cash bonuses under the Plan based on our:
·
fee income;
·
average loan balances;
·
average deposit balances;
·
net interest spread; and
·
net income
Targets for these five areas were set for fiscal 2006, and our named executive officers were eligible for bonuses based on four tier target levels set by the compensation committee. Actual bonus payments therefore varied depending on our actual fee income, average loan balance, average deposit balance, net interest spread and net income at the end of fiscal 2006. In addition, the compensation committee has the discretion to award cash bonuses or otherwise increase, reduce or eliminate cash bonuses that would otherwise be payable under the Plan in its sole discretion.
The Plan is administered by the compensation committee. All determinations regarding the achievement of any performance goals and the amount of any individual award are made by the compensation committee. These determinations need not be uniform and may be made selectively among persons who receive, or who are eligible to receive, an award.
In February 2007, the board approved payments to the CEO and the executive officers under the Plan in the amounts set forth below in the summary compensation table. These payments were based on the achievement of the following tier target levels (with tier one representing the maximum payout level and tier four representing the minimum payout level):
·
Fee income: Tier 3
·
Average loan balances: Tier 3
·
Average deposit balances: Tier 3
·
Net interest spread: Tier 3
·
Net income: Tier 3
For 2006, the actual tier levels achieved for each area under the 2006 Plan were as follows:
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Fee income: Tier 1
·
Average loan balances: Tier 3
·
Average deposit balances: Tier 3
·
Net interest spread: Tier 3
·
Net income: Tier 1
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Based upon the achievement of these target levels, the board awarded cash awards for 2006 performance to the named executives as follows: Mr. Lee $49,450; Ms. Wise $24,725; Mr. Painter $24,725; Mr. Hiatt $24,725; and Mr. Pope $24,725. The board did not approve any discretionary cash bonuses for fiscal 2006 under the Plan. In addition, the board awarded each named executive officer a $200 cash Christmas bonus. This bonus was not made pursuant to the Plan.
The committee also approved the 2007 Bonus Plan based on 2007 tiers for the same factors and with the same structure as described above for 2006. However, the committee increased each 2007 dollar tier for each area over the 2006 dollar tiers to reflect expected company performance in each area for 2007. The 2007 Bonus Plan does not specify when bonus grants will be made, although the compensation committee intends that the bonus grants will be submitted to the board for approval in February 2008 as it did for fiscal year 2006 bonuses.
Equity Compensation
The determination of the size of any long term equity compensation grant is made based on competitive factors and the attainment of strategic long term objectives. Equity compensation serves to link the total compensation of executive officers to the performance of our common stock. In 2006, after reviewing our historic approach to long-term, equity-based compensation opportunities, peer practices, and considering other pertinent factors, such as FAS 123R regarding the accounting for equity based awards, the compensation committee,
•
Determined that the level of stock option awards to executive officers was in-line with the competition; and
•
Recommended that we maintain the level of awards of stock options to executive officers.
Neither our board nor our compensation committee sets any performance levels (minimum, target, maximum or otherwise) for equity compensation grants or is required to grant options to our named executive officers under our Nonqualified Stock Option Plan. Rather grants of options under our Nonqualified Stock Option Plan are made completely at the discretion of the board or the compensation committee after a fiscal year is ended based upon the actual performance of our common stock. Historically, the board has granted options during its annual February meeting following the end of a fiscal year.
On February 26, 2007, in recognition of 2006 performance the board granted our named executive officers options to purchase stock at a price based on a valuation by an independent appraisal firm with one year vesting and expiring in four years under our Nonqualified Stock Option Plan as follows: Mr. Lee 4,000; Ms. Wise 2,000; Mr. Painter 2,100; Mr. Hiatt 2,000; and Mr. Pope 2,000.
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Benefits
Nonqualified Employee Stock Purchase and Bonus Plan.
The Employee Stock Purchase and Bonus Plan (the “Purchase Plan”) is a voluntary plan that enables the full-time employees of the company and its subsidiaries to purchase shares of our common stock. The Purchase Plan is administered by our compensation committee, which has broad discretionary authority to administer the Purchase Plan. The committee may amend or terminate the Purchase Plan at any time. Once each year, participants in the Purchase Plan may purchase up to five percent (5%) of their compensation, with a maximum purchase amount of $1,000 per year. We match, in cash, fifty percent (50%) of the amount of each participant’s purchase, up to $500. This benefit is available to all employees who were actively employed on the last day of the prior year.
Nonqualified Retirement Plans for Chief Executive Officer.
The objective of our nonqualified retirement plan is to provide supplemental retirement benefits to our CEO, Ayden R. Lee, Jr., to encourage him to remain as an employee and to reward him for contributing materially to our success. The actuarially determined present values of Mr. Lee’s retirement benefits as of the end of last year are reported in the table below entitled “Pension Benefits.”
Qualified Retirement Plans for Executive Officers.
We sponsor the Four Oaks Bank & Trust Company Retirement Plan, which is a contributory profit-sharing plan in effect for substantially all employees. Participants may make voluntary contributions resulting in salary deferrals in accordance with section 401(k) of the Internal Revenue Code. The plan provides for employee contributions as a percentage of their annual salary up to the limit allowed by the Internal Revenue Service. We typically contribute matching funds of twenty-five percent (25%) of the first six percent (6%) of pre-tax salary contributed by each participant; however, contributions under the plan are made at the discretion of our board.
We also sponsor an employee stock ownership plan (“ESOP”) that makes the employees of a company, owners of stock in the company. The Four Oaks Bank & Trust Company’s Employee Stock Ownership Trust is available to full-time employees at least 21 years of age after six months of service. Contributions are voluntary by the company and employees cannot contribute. Stock issued is purchased on the open market and we do not issue new shares in conjunction with the plan. Voluntary contributions are determined by our board annually based on our performance and are allocated to employees based on annual compensation. These plans apply to all qualified employees, including the named executive officers.
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Employment and Severance Compensation Agreements
We have entered into employment agreements and severance compensation agreements with the CEO and the named executive officers to ensure the continuity of executive leadership, to clarify the roles and responsibilities of executives, and to make explicit the terms and conditions of executive employment. Language concerning a change of control of us, and terms of compensation in that event, are included in these agreements consistent with what the compensation committee believes to be best industry practices, taking the current environment of consolidation within the financial services industry into account. The change of control language in the severance compensation agreements is designed to ensure that executives devote their full energy and attention to the best long-term interests of the shareholders in the event that business conditions or external factors make consideration of a change of control appropriate.
The employment agreements provide named executive officers a base annual salary that may be increased at the discretion of the board, provide for additional benefits applicable to executive personnel and participation in the various benefit programs provided by us for all salaried employees, including group life insurance, sick leave and disability, retirement plans and medical insurance programs. Each employment agreement provides for termination by us for “cause” (as defined in the agreement) at any time.
The severance compensation agreements with each of our named executive officers provide each of them with severance pay benefits in the event of a “change in control.” The purpose of the compensation agreements is to recognize the services and contributions of our named executive officers as key employees and the uncertainties relating to continual employment, reduced employee benefits, management changes, and relocations in the event of a change in control. Under each of the severance compensation agreements, in the event a change in control (as defined in the agreement) occurs and the named executive officers’ employment, as the case may be, is “terminated” (as defined in the agreement), he or she will be entitled to receive a cash severance payment equal to two (2) years’ salary, in the case of Mr. Lee, Mr. Painter, Ms. Wise, Mr. Hiatt, or Mr. Pope, based upon his or her then most recent annua l compensation and the amount of his or her most recent annual bonus at the time of termination. In addition, each named executive officer will be entitled to all life insurance, health, accidental death and dismemberment, and disability plans or programs in which he or she is entitled to participate immediately prior to termination for two (2) years, in the case of Mr. Lee, Mr. Painter, Ms. Wise, Mr. Hiatt, or Mr. Pope, after the date of his or her termination or unless and until he or she obtains other full-time employment.
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Tax and Accounting Implications
SFAS No. 123(R).
Beginning on January 1, 2006, we began accounting for stock-based payments in accordance with the requirements of SFAS No. 123(R).
Internal Revenue Code Section 162(m).
Section162(m) of the Internal Revenue Code generally does not allow a tax deduction to public companies for compensation in excess of $1 million paid to any named executive officer unless such compensation is paid pursuant to a qualified performance-based compensation plan. We do not currently maintain any qualified performance-based compensation plans but our compensation committee will re-evaluate the status of our compensation plans if any of our total compensation packages for named executive officers nears $1 million.
Compensation Committee Interlocks and Insider Participation
The Compensation Committee is comprised of Warren L. Grimes (chairman), Paula Canaday Bowman, and Dr. R. Max Raynor, Jr., none of whom were officers or employees of the company or any of the company’s subsidiaries or had any relationship requiring disclosure by the company under Item 404 of the SEC’s Regulation S-K during or prior to 2006.
Compensation Committee Report
The Compensation Committee of the Company has reviewed and discussed the Compensation Discussion and Analysis required by Item 402(b) of Regulation S-K with management, and based on such review and discussions, the Compensation Committee recommended to the Company’s Board of Directors that the Compensation Discussion and Analysis be included in this Proxy Statement on Schedule 14A.
Warren L. Grimes (chairman)
Paula Canaday Bowman
Dr. R. Max Raynor, Jr.
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2006 Summary Compensation Table
The following table shows the annual and long-term compensation paid to, or accrued by us for, our Chief Executive Officer, our Chief Financial Officer, and our next three most highly compensated executive officers for services rendered to us during the fiscal year ended December 31, 2006. We refer to the persons identified on the table below as our “named executive officers.”
Name and Principal Position | Year | Salary ($) | Bonus ($) | Option awards ($)(1) | Non-equity incentive plan compensation ($)(2) | Change in pension value and nonqualified deferred compensation earnings ($)(3) | All other compensation ($)(4) | Total ($) |
Ayden R. Lee, Jr., Chairman, Chief Executive Officer and President | 2006 | $226,236 | $200 | $19,074 | $49,450 | $43,829 | $12,077 (5) | $350,866 |
Nancy S. Wise, Executive Vice President, Chief Financial Officer | 2006 | $120,607 | $200 | $ 9,415 | $24,725 | - | $ 8,810 (6) | $163,757 |
Clifton L. Painter, Senior Executive Vice President, Chief Operating Officer | 2006 | $136,078 | $200 | $ 9,892 | $24,725 | - | $10,547 (7) | $181,442 |
W. Leon Hiatt, III Executive Vice President, Chief Administrative Officer | 2006 | $120,098 | $200 | $ 9,415 | $24,725 |
| $11,220 (8) | $165,658 |
Jeff D. Pope, Executive Vice President, Branch Administrator | 2006 | $119,914 | $200 | $ 9,415 | $24,725 | - | $11,217 (9) | $165,471 |
(1)
The amounts reflect the dollar amount recognized for financial statement reporting purposes for the fiscal year ended December 31, 2006, in accordance with SFAS No. 123(R) of awards pursuant to the Nonqualified Stock Option Program and thus include amounts from awards granted in 2006. Assumptions used in the calculation of this amount for fiscal year ended December 31, 2006 are included in Note A of our audited financial statements for the fiscal year ended December 31, 2006, included in our annual report on Form 10-K filed with the SEC on March 15, 2007.
(2)
These amounts are the cash awards to the named executive officers under our 2006 Bonus Plan, as discussed in the Compensation Discussion and Analysis section of this report. These cash awards were earned as of December 31, 2006, but paid out in February 2007.
(3)
The amount reflects the actuarial increase in the present value under our SERP for Mr. Lee.
(4)
The amounts shown reflect for each named executive officer:
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·
contributions by us to each named executive officer under our Four Oaks Bank & Trust Company Retirement Plan;
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contributions by us under the Employee Stock Ownership Plan; and
·
the value attributable to term life insurance premiums paid by us.
(5)
Includes $2,846 in contributions under our Four Oaks Bank & Trust Company Retirement Plan, $8,800 in contributions under our Employee Stock Ownership Plan and $431 in life insurance premiums paid by us on behalf of the named executive officer.
(6)
Includes $526 in contributions under our Four Oaks Bank & Trust Company Retirement Plan, $7,890 in contributions under our Employee Stock Ownership Plan and $394 life insurance premiums paid by us on behalf of the named executive officer.
(7)
Includes $2,267 in contributions under our Four Oaks Bank & Trust Company Retirement Plan, $7,849 in contributions under our Employee Stock Ownership Plan and $431 in life insurance premiums paid by us on behalf of the named executive officer.
(8)
Includes $2,027 in contributions under our Four Oaks Bank & Trust Company Retirement Plan, $8,800 in contributions under our Employee Stock Ownership Plan and $393 in life insurance premiums paid by us on behalf of the named executive officer.
(9)
Includes $2,025 in contributions under our Four Oaks Bank & Trust Company Retirement Plan, $8,800 in contributions under our Employee Stock Ownership Plan and $392 in life insurance premiums paid by us on behalf of the named executive officer.
2006 Grants of Plan-Based Awards
(1)
Under our 2006 Bonus Plan there were five target areas for measurement of performance: fee income, average loan balance, average deposit balance, net interest spread and net income. Within each target area there were four performance tiers, and the target tier for each target area for 2006 was as follows (with tier one representing the maximum payout level and tier four representing the minimum payout level): fee income – tier 3, average loan balance – tier 3, average deposit balance– tier 3, net interest spread – tier 3, and net income – tier 3. For 2006, the actual tier level achieved for each area under the 2006 Plan were as follows: fee income – tier 1, average loan balance – tier 3, average deposit balance– tier 3, net interest spread – tier 3,and net income – tier 1. Payments under
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the threshold column are calculated based on the assumption that none of the tiers in any of the five target areas is met. Payments under the target column are calculated based on the assumption that the target tier in all five target areas is met. Payments under the maximum column are calculated based on the assumption that tier one in all five target areas is met.
(2)
Neither our board nor our compensation committee sets any performance levels (minimum, target, maximum or otherwise) for equity compensation grants or is required to grant options to our named executive officers under our Nonqualified Stock Option Plan. Rather grants of options under our Nonqualified Stock Option Plan are made completely at the discretion of the board or the compensation committee after a fiscal year is ended based upon the actual performance of our common stock. Historically, the board has granted options during its annual February meeting following the end of a fiscal year
(3)
All options shown were granted under our Nonqualified Stock Option Plan on February 21, 2006. Option grants to named executive officers are made completely at the discretion of our board and/or compensation committee. The options all have one year vesting periods and expire four years after the date of grant on the earlier of February 21, 2010 or 15 months after termination of the recipient’s employment, except in cases of death or disability. All options may be exercised to purchase vested shares only. Upon termination of employment all options are forfeited with respect to any shares not then vested, except in cases of death or disability. Upon a merger in which we are not the surviving corporation, or a liquidation or a sale of substantially all of our assets, outstanding options will become fully vested and exercisable and, to the extent not exercised, will terminate upon the effective date of such a tra nsaction.
(4)
We utilized the Black-Scholes option pricing methodology to estimate the hypothetical grant date present value for these stock option grants. We used the following assumptions in calculating the grant date present value for these grants: (a) an expected option term of four years; (b) an interest rate of 4.7%, (c) a dividend yield of 1.5%, and (d) volatility of 20.7%.
2006 Outstanding Equity Awards at Fiscal Year-End
| Option Awards | ||||
Name | Number of securities underlying unexercised options (#) Exercisable | Number of securities underlying unexercised options (#) Unexercisable | Equity incentive plan awards: Number of securities underlying unexercised unearned options (#) | Option exercise price ($/Sh) | Option expiration date |
Ayden R. Lee, Jr., | - 6,250 (2) 7,812 (3) | 5,000 (1) - - | - - - | $18.40 $14.56 $11.26 | 2/21/2010 2/22/2009 2/23/2008 |
Nancy S. Wise | - | 2,468 (1) | - | $18.40 | 2/21/2010 |
Clifton L. Painter | - 3,242 (2) 4,101 (3) 5,126 (4) | 2,593 (1) - - - | - - - - | $18.40 $14.56 $11.26 $ 9.22 | 2/21/2010 2/22/2009 2/23/2008 2/28/2007 |
W. Leon Hiatt, III | - 3,085 (2) 3,808 (3) | 2,468 (1) - - | - - - | $18.40 $14.56 $11.26 | 2/21/2010 2/22/2009 2/23/2008 |
Jeff D. Pope | - 3,085 (2) 2,928 (3) | 2,468 (1) - - | - - - | $18.40 $14.56 $11.26 | 2/21/2010 2/22/2009 2/23/2008 |
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(1)
Option was granted on February 21, 2006 pursuant to our Nonqualified Stock Option Plan. This option has a one year vesting period and expires four years after the date of grant.
(2)
Option was granted on February 22, 2005 pursuant to our Nonqualified Stock Option Plan. This option is fully vested and exercisable and expires four years after the date of grant.
(3)
Option was granted on February 23, 2004 pursuant to our Nonqualified Stock Option Plan. This option is fully vested and exercisable and expires four years after the date of grant.
(4)
Option was granted on February 28, 2003 pursuant to our Nonqualified Stock Option Plan. This option is fully vested and exercisable and expires four years after the date of grant.
All of the options listed above expire on the earlier of the date indicated in the option expiration date column or 15 months after termination of the recipient’s employment, except in cases of death or disability. Options may be exercised to purchase vested shares only. Upon termination of employment, all options are forfeited with respect to any shares not then vested, except in cases of death or disability. Upon a merger in which we are not the surviving corporation, or a liquidation or a sale of substantially all of our assets, outstanding options will become fully vested and exercisable and, to the extent not exercised, will terminate upon the effective date of such a transaction.
2006 Option Exercises and Stock Vested
| Option awards | |
Name | Number of Shares Acquired on Exercise (#) | Value Realized on Exercise ($) (1) |
Ayden R. Lee, Jr. | 9,765 (2) | $158,974 |
Nancy S. Wise | 6,892 (3) | $ 60,920 |
Clifton L. Painter | 5,248 (4) | $ 44,341 |
W. Leon Hiatt, III | 9,397 (5) | $116,670 |
Jeff D. Pope | 5,127 (6) | $ 93,330 |
(1)
The value realized is based upon the difference between the exercise price of the option and the fair market value of our common stock at the exercise date. The fair market value of our common stock is the purchase price, as determined by our board of directors, for purchases of our common stock at the end of the last completed fiscal quarter under our Dividend Reinvestment and Stock Purchase Plan. The dividend reinvestment purchase price is determined once each quarter by our board based on the most recent annual appraisal conducted by an independent appraisal firm, as adjusted for recent trading activity.
(2)
On November 28, 2006, Mr. Lee exercised options to purchase a total of 9,765 shares of our common stock for an exercise price of $9.22. The fair market value of our common stock on November 28, 2006 was determined to be $25.50.
(3)
On March 21, 2006, Mrs. Wise exercised options to purchase a total of 3,807 shares of our common stock for an exercise price of $11.26. The fair market value of our common stock on March 21, 2006 was determined to be $18.40. On December 18, 2006, Mrs. Wise exercised options to
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purchase a total of 3,085 shares of our common stock for an exercise price of $14.56. The fair market value of our common stock on December 18, 2006 was determined to be $25.50.
(4)
On February 1, 2006, Mr. Painter exercised options to purchase a total of 5,248 shares of our common stock for an exercise price of $8.19. The fair market value of our common stock on February 1, 2006 was determined to be $16.64.
(5)
On February 16, 2006, Mr. Hiatt exercised options to purchase a total of 4,637 shares of our common stock for an exercise price of $8.19. The fair market value of our common stock on February 16, 2006 was determined to be $16.64. On December 11, 2006, Mr. Hiatt exercised options to purchase a total of 4,760 shares of our common stock for an exercise price of $9.22. The fair market value of our common stock on December 11, 2006 was determined to be $25.50.
(6)
On December 14, 2006, Mr. Pope exercised options to purchase a total of 2,197 shares of our common stock for an exercise price of $4.73. On December 14, 2006, Mr. Pope exercised options to purchase a total of 2,929 shares of our common stock for an exercise price of $9.22. On December 14, 2006, Mr. Pope exercised options to purchase a total of 1 share of our common stock for an exercise price of $11.26. The fair market value of our common stock on December 14, 2006 was determined to be $25.50
2006 Pension Benefits
Name (a) | Plan Name (b) | Number of Years Credited Service (#) (c) | Present Value of Accumulated Benefit ($) (d) | Payments During Last Fiscal Year ($) (e) |
Ayden R. Lee, Jr. | Supplemental Executive Retirement Plan | N/A | $165,779 | - |
The present value shown in the SERP in the table above is based on benefits earned as of December 31, 2006 under the terms of the SERP for Mr. Lee and was calculated using discount rate and mortality rate assumptions consistent with those used in our financial statements regarding the SERP. Our subsidiary, Four Oaks Bank & Trust Company, adopted the SERP, which provides that upon Mr. Lee’s retirement from the bank, the bank will provide him with supplemental annual payments for the remainder of his life. The purpose of the SERP is to encourage Mr. Lee to remain as an employee of the bank and to reward him for contributing materially to the success of the bank. Under the SERP, the bank will be obligated to pay Mr. Lee an annual payment upon his retirement in an amount which, when added to Mr. Lee’s 401(k) benefits (based on future estimated amounts) and social security benefits (based on future estimated amounts), will ensure Mr. Lee a total annual retirement benefit equal to seventy-five percent (75%) of his Average Annual Compensation (as defined in the SERP) on the date of his retirement. Depending upon Mr. Lee’s age at retirement, the annual payment as a percentage of Mr. Lee’s fully vested retirement benefit will vary (from fifty-eight percent (58%) of fully vested retirement benefit at age fifty-five (55) to one hundred percent (100%) at age sixty-two (62)). The annual payments,
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which we are obligated to pay Mr. Lee each year after his retirement, are subject to certain limitations, including a maximum limit of fifty thousand dollars ($50,000) per year. In the event of a change of control (as defined in the SERP) of Four Oaks Fincorp, Inc. and termination of Mr. Lee’s employment within twenty-four (24) months thereafter (for any reason, except termination by the bank for cause), Mr. Lee will be entitled to receive a lump sum cash payment equal to the actuarial equivalence of the greater of (i) the amount he would have been entitled to had he retired on such date or (ii) the amount of his pro rata fully vested benefit under the SERP as of such date.
Pursuant to Mr. Lee’s arrangement, if he continues in his position as previously stated and retires at the normal retirement age of 65, the estimated annual pension amount payable under the SERP, but prior to offsets and any deductions, if any, would be $232,724.
Upon early retirement on or after Mr. Lee’s early retirement age but prior to his normal retirement date, we shall pay, in lieu of a normal retirement benefit, pay Mr. Lee as an annual supplemental retirement benefit a certain percentage of the normal retirement benefit under the SERP, to be determined as follows:
Age of Retirement | Early Retirement Benefit as a Percentage of Normal Retirement |
55 | 58% |
56 | 64% |
57 | 70% |
58 | 76% |
59 | 82% |
60 | 88% |
61 | 94% |
62 or older | 100% |
Potential Payments upon Termination or Change-in-Control
Severance Compensation Agreements
As described in the “Compensation Discussion and Analysis” section above, we have severance compensation agreements with each named executive officer. Termination entitling each executive to the cash severance payment pursuant to these agreements includes: (1) a termination after a determination by the CEO or the board of the bank that the executive is no longer a key executive employee and termination of the severance compensation agreement and notice to the executive to this effect; (2) termination in the event of illness or other disability incapacitating the executive from performing his or her duties for six (6) consecutive months as determined in good faith by the CEO, board of the bank or a committee of the board; or (3) termination upon a change of control, unless such reason is for cause or because of the
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executive’s disability or death. For purposes of these agreements, a “change in control” means one or more of the following occurrences:
·
A corporation, person or group acting in concert as described in Section 14(d)(2) of the Exchange Act, holds or acquires beneficial ownership within the meaning of Rule 13d-3 promulgated under the Exchange Act of a number of shares of voting capital stock of the bank which constitutes either (i) more than fifty percent (50%) of the shares which voted in the election of directors of the bank at the shareholders’ meeting immediately preceding such determination, or (ii) more than thirty-three percent (33%) of the bank’s then outstanding shares entitled to vote.
·
A merger or consolidation to which the bank is a party (other than a pro forma transaction for a purpose such as changing the state of incorporation or name of the Bank), if either (i) the bank is not the surviving corporation, or (ii) the directors of the bank immediately before the merger or consolidation constitute less than a majority of the board or the surviving corporation; provided, however, the occurrence described in clause (i) shall not constitute a change in control if the holders of the bank’s voting capital stock immediately before the merger or consolidation have the same proportional ownership of voting capital stock of the surviving corporation immediately after the merger or consolidation.
·
All or substantially all of the assets of the bank are sold, leased, or disposed of in one transaction or a series of related transaction.
·
An agreement, plan, contract, or other arrangement is entered into providing for any occurrence which would constitute a change in control.
Each agreement provides that if the executive’s employment is terminated under one of the conditions specified above, he or she would be entitled to receive a lump-sum, cash severance payment based upon a multiple of his or her salary. In addition, for a period of time after the date of termination as set forth in each agreement, or unless and until the executive obtains other full-time employment, each executive shall be entitled to participate in all life insurance, health (medical and dental), accidental death and dismemberment and disability plans or programs in which the executive is entitled to participate immediately prior to the date of termination (“Benefits”).
The following table provides the payments that each named executive officer would have received in connection with such a severance termination as of December 31, 2006:
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Name | Multiple of Salary | Lump Sum Payment | Value of Benefits (1) | Total Value of Payments |
Ayden R. Lee, Jr. | 2X | $452,472 | $10,011 | $462,483 |
Nancy S. Wise | 2X | $241,214 | $ 9,937 | $251,151 |
Clifton L. Painter | 2X | $272,156 | $10,011 | $282,167 |
W. Leon Hiatt, III | 1.5X | $180,148 | $ 7,450 | $187,598 |
Jeff D. Pope | 2X | $239,827 | $ 9,933 | $249,760 |
(1)
The value of the Benefits is comprised of benefits from life insurance, accidental death and disability insurance, and health and dental insurance premiums paid by us in 2006 and calculated based on twenty-four (24) months of coverage for each of Mr. Lee, Ms. Wise, Mr. Painter and Mr. Pope and eighteen (18) months of coverage for Mr. Hiatt as per each of their severance compensation agreements.
Non-Qualified Stock Option Plan
Our Non-Qualified Stock Option Plan and the stock option agreements with each named executive officer provide the following:
·
In the event of any termination of a named executive officer’s employment that is either for cause or voluntary on the part of the officer and without our written consent, the options held by such officer immediately terminate.
·
In the event that: (1) we are liquidated, (2) we merge or consolidate with another entity and are not the surviving or resulting corporation (an “Acceleration Event”), or (3) we sell all or substantially all of our assets, the vesting period accelerates for options held by all named executive officers and such options are treated as fully vested immediately prior to such Acceleration Event. The named executive officers then have the right to exercise the fully vested options before the effective date of the Acceleration Event and to the extent not exercised before the effective date of the Acceleration Event such options terminate.
·
In the event that the named executive officer’s employment shall otherwise terminate (except by reason of his death), such officer may exercise his or her options (to the extent vested) at any time within fifteen (15) months after such termination but not more than four years after the date of the option grant. In the event that a named executive officer shall die while employed by the Company or within fifteen (15) months after the termination of employment, any legatee by will, `personal representative or distribute of the options may exercise the officer’s options (to the extent vested) at any time within
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fifteen (15) months after his or her death but not more than four years after the date of the option grant.
The table below sets forth the cash payment each named executive officer would have received as of December 29, 2006 for his or her unvested options, calculated based on the following assumptions: (1) an Acceleration Event occurred as of December 29, 2006, accelerating the vesting of each named executive officer’s unvested options, (2) each named executive officer fully exercised all such options immediately prior to the Acceleration Event for shares of our common stock, and (3) each named executive officer sold or otherwise surrendered the resulting shares underlying such options for consideration in connection with the Acceleration Event in an amount equal to $26.75 per share, which was the closing price of our stock on Nasdaq on December 29, 2006.
Name | Number of Shares of Common Stock Underlying of Unvested Options as of December 29, 2006 | Estimated Cash Payment Related to Exercise of Unvested Options in Connection with an Acceleration Event as of December 29, 2006 |
Ayden R. Lee, Jr. | 5,000 | $41,750 |
Nancy S. Wise | 2,468 | $20,608 |
Clifton L. Painter | 2,593 | $21,652 |
W. Leon Hiatt, III | 2,468 | $20,608 |
Jeff D. Pope | 2,468 | $20,608 |
Cash Bonus Plan
Neither our 2006 nor our 2007 Bonus Plan address the impact of termination of an employee for any reason on the Bonus Plan.
SERP
Pursuant to Mr. Lee’s SERP in the event of a change of control of the company and termination of Mr. Lee’s employment within twenty-four (24) months thereafter (for any reason, except termination by the bank for cause), Mr. Lee will be entitled to receive a lump sum cash payment equal to the actuarial equivalence of the greater of (i) the amount he would have been entitled to had he retired on such date or (ii) the amount of his pro rata fully vested benefit under the SERP as of such date. In connection with such a termination of Mr. Lee’s employment as of December 31, 2006, he would have been entitled to a lump sum cash payment of $158,365 under the SERP.
Death Benefits
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Upon the death of an executive, he or she is entitled to the life and accidental death and dismemberment insurance proceeds available through our benefit plans, which as of December 31, 2006 was valued at $250,000 for Mr. Lee, $241,214 for Ms. Wise, $250,000 for Mr. Painter, $240,197 for Mr. Hiatt and $239,827 for Mr. Pope.
2006 Director Compensation
We use a combination of cash and option awards to attract and retain qualified candidates to serve on our board of directors. In setting director compensation, we consider the significant amount of time directors expend in fulfilling their duties to us as well as the skill-level required.
In 2006, the chairman of our board of directors was paid a fee of $1,250.00 per month. Other non-management directors, except Mr. Lee who is not paid a director’s fee, were paid fees of $1,050.00 per month. In addition, non-management directors were each paid $175.00 for each board committee meeting they attended. During 2006, all of the non-management directors other than Mr. Lee were paid a discretionary cash Christmas bonus of $200.00.
The table below summarizes the compensation paid by us to non-employee Directors for the fiscal year ended December 31, 2006.
Name (1) | Fees Earned or Paid in Cash ($) | Option Awards ($) (2) | “All Other Compensation ($) (3) | Total ($) |
M.S. Canaday | $21,125 | $1,430 | $200 | $22,755 |
Paula Canaday Bowman | $14,700 | $1,430 | $200 | $16,330 |
William J. Edwards | $18,725 | $1,430 | $200 | $20,355 |
Warren L. Grimes | $17,325 | $1,430 | $200 | $18,955 |
Percy Y. Lee | $16,100 | $1,430 | $200 | $17,730 |
Dr. R. Max Raynor, Jr. | $14,875 | $1,430 | $200 | $16,505 |
William Ashley Turner | $13,475 | $1,430 | $200 | $15,105 |
Michael A. Weeks | $13,475 | $1,430 | $200 | $15,105 |
(1)
Ayden R. Lee, Jr., our Chairman, President, and Chief Executive Officer, is not included in the table as he is an employee and thus receive no compensation for his services as Director. The compensation received by Mr. Lee as our employee is shown in the Summary Compensation Table that appears earlier in this proxy statement.
(2)
Reflects the dollar amount recognized for financial statement reporting purposes for the fiscal year ended December 31, 2006 in accordance with FAS 123(R), and thus includes amounts from awards granted in and prior to 2006. As of December 31, 2006, each Director has the following number of options outstanding: M.S Canaday: 2,160; Paula Canaday Bowman: 2,160; William J. Edwards: 2,160; Warren L. Grimes: 2,160; Percy Y. Lee: 2,160; Dr. R. Max Raynor, Jr.: 375; William Ashley Turner: 2,160, Michael A. Weeks: 375.
(3)
Reflects a discretionary cash bonus of $200.00 for each director.
Equity Compensation Plan Information
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We maintain a Nonqualified Stock Option Plan and an Employee Stock Purchase and Bonus Plan. Neither of these plans are required to be, or has been, approved by our shareholders. The following table sets forth aggregate information regarding our Nonqualified Stock Option Plan and Employee Stock Purchase and Bonus Plan in effect as of December 31, 2006:
| (a) | (b) | (c) |
Plan Category | Number of securities to be issued upon exercise of outstanding options | Weighted-average exercise price of outstanding options | Number of securities Remaining available for future issuance under equity compensation plans (excluding securities reflected in column (a)) (1) |
Equity compensation plans approved by security holders | N/A | N/A | N/A |
Equity compensation plans not approved by security holders | 161,190 | $13.26 | 513,056 |
|
|
|
|
Total | 161,190 | $13.26 | 513,056 |
________________________
(1)
Includes shares of our common stock remaining available for future issuance under the following compensation plans in the amounts indicated as of December 31, 2006: Nonqualified Stock Option Plan —418,555 shares; and Employee Stock Purchase and Bonus Plan — 94,501 shares.
Nonqualified Stock Option Plan
The Nonqualified Stock Option Plan (the “Option Plan”) provides for grants of nonqualified stock options to officers and directors of our company and its subsidiaries. The Option Plan is administered by the Compensation Committee of our board of directors, which has broad discretionary authority to administer the Option Plan. The board of directors may amend or terminate the Option Plan at any time, but no amendment or termination of the Option Plan may adversely affect the rights of optionees under prior awards without the optionees’ approval.
The Option Plan provides that the exercise price and number of shares subject to outstanding options will be appropriately adjusted upon a stock split, stock dividend, recapitalization, combination, consolidation, or similar transaction involving a change in our capitalization. Upon a merger in which we are not the surviving corporation, or a liquidation or a sale of substantially all of our assets, outstanding options will become fully vested and exercisable and, to the extent not exercised, will terminate upon the effective date of such a transaction.
As of March 5, 2007, 1,220,703 shares had been reserved for issuance under the Option Plan. As of March 5, 2007, there were 161,300 outstanding stock options, and 381,155 shares
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remained available for future grants. During 2006, options to purchase 41,750 shares of our common stock were granted at an average exercise price of $18.40 per share.
Employee Stock Purchase and Bonus Plan
The Employee Stock Purchase and Bonus Plan (the “Purchase Plan”) is a voluntary plan that enables full-time employees of our company and its subsidiaries to purchase shares of our common stock. The Purchase Plan is administered by the Compensation Committee of our board of directors, which has broad discretionary authority to administer the Purchase Plan. The board of directors may amend or terminate the Purchase Plan at any time. The Purchase Plan is not intended to be qualified as an employee stock purchase plan under Section 423 of the Internal Revenue Code of 1986, as amended.
Once a year, participants in the Purchase Plan may purchase our common stock at fair market value equal to five percent (5%) of their compensation, up to $1,000. We match in cash fifty percent (50%) of the amount of each participant’s purchase, up to $500. After we withhold for income and employment taxes, participants use the balance of our matching grant to purchase shares of our common stock.
The Purchase Plan will terminate upon a merger in which we are not the surviving corporation, or a liquidation or a sale of substantially all of our assets. The Purchase Plan provides that the number of shares reserved for issuance thereunder will be appropriately adjusted upon a stock split, stock dividend, recapitalization, combination, consolidation, or similar transaction involving a change in our capitalization.
As of March 5, 2007, 244,140 shares of our common stock had been reserved for issuance under the Purchase Plan, and 149,639 shares had been purchased. During 2006, 7,776 shares were purchased under the Purchase Plan.
Certain Transactions
Certain of our directors and executive officers are customers of, and borrowers from, Four Oaks Bank & Trust Company in the ordinary course of business. From January 1, 2006 to December 31, 2006, loans outstanding to our directors and executive officers and their associates as a group amounted to a maximum of approximately $7,254,000 or 14.71% of the equity capital of the bank. All outstanding loans and commitments included in such transactions are made substantially on the same terms, including rate and collateral, as those prevailing at the time in comparable transactions with other customers. In the opinion of management, these loans do not involve more than normal risk of collectibility or contain other unfavorable features.
We had no transactions with related persons in 2006 required to be disclosed under Item 404(a) of Regulation S-K of the Exchange Act, and there are no such transactions currently
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proposed for 2007. It is understood, however, that certain relationships or transactions may arise that would be deemed acceptable and appropriate upon full disclosure of the transaction, following review and approval by the audit committee to ensure there is a legitimate business reason for the transaction and that the terms of the transaction are no less favorable to us than could be obtained from an unrelated person. Therefore, our board of directors has adopted the Policy and Procedures with Respect to Related Person Transactions, which is implemented through the audit committee and is designed to regularly monitor the appropriateness of any significant transactions with related persons. The policy applies to any transaction required to be disclosed under Item 404(a) of Regulation S-K in which (1) we are a participant, (2) any related person (as defined in Item 404(a) of Regulation S-K) has a direct or indirect material interest an d (3) the amount involved exceeds $120,000. Our policy requires notification to our corporate secretary prior the consummation of any related person transaction regardless of whether the related person has a material interest, describing the related person’s interest in the transaction, the material facts of the transaction, the benefits to us of the transaction, the availability of other sources of comparable products or services, and an assessment of whether the transaction is on terms that are comparable to the terms available to an unrelated third party or employees generally. The corporate secretary then evaluates the proposed transaction and, if she determines that it is a related person transaction, submits the transaction to the audit committee for approval. The audit committee considers all of the relevant facts and circumstances available to it including (if applicable) but not limited to:
·
The benefits to us.
·
The impact on a director’s independence in the event the related person is a director, an immediate family member of a director or an entity in which a director is a partner, shareholder or executive officer.
·
The availability of other sources for comparable products or services.
·
The terms of the transaction.
·
The terms available to unrelated third parties or to employees generally.
No member of the audit committee shall participate in any review, consideration or approval of any related person transaction with respect to which such member or any of his or her immediate family members is the related person. The audit committee approves only those related person transactions that are in, or are consistent with, the best interests of the company and our shareholders, as the audit committee determines in good faith. If the transaction has already been consummated, the audit committee will undergo the same analysis as it does with a proposed transaction, and if it determines that the consummated transaction is a related person transaction, it will evaluate whether the consummated related person transaction should be ratified, amended, terminated or rescinded and whether any disciplinary action is appropriate.
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Section 16(a) Beneficial Ownership Reporting Compliance
Section 16(a) of the Securities Exchange Act of 1934, as amended, requires our officers, directors, and persons who own more than ten percent (10%) of our equity securities to file reports of ownership and changes in ownership with the Securities and Exchange Commission. Officers, directors, and ten percent (10%) shareholders are required by SEC regulations to furnish us with copies of all Section 16(a) reports they file. Based solely on a review of the report forms that were filed with the Securities and Exchange Commission, we believe that during the fiscal year ended December 31, 2006, all Section 16(a) filing requirements applicable to our officers, directors, and ten percent (10%) shareholders were satisfied.
Audit Firm Fee Summary
During the fiscal years ended December 31, 2006 and 2005, we retained out independent accountant, Dixon Hughes PLLC, to provide services in the following categories and amounts:
| 2006 | 2005 | ||
| $ | %(1) | $ | %(1) |
Audit Fees (2) | $ 94,694 |
| $ 66,000 |
|
Audit-Related Fees (3) | 57,330 | 0% | 22,830 | 0% |
Tax Fees (4) | 11,851 | 0% | 6,500 | 0% |
All Other Fees (5) | 15,880 | 0% | -- | 0% |
|
|
|
|
|
TOTAL | $ 179,755 |
| $ 95,330 |
|
(1)
Percentage of the services (if any) for which pre-approval was waived by the Audit Committee with respect to audit-related fees, tax fees and all other fees.
(2)
“Audit Fees” are fees for professional services billed or expected to be billed by Dixon Hughes PLLC for the audit of our annual financial statements, for the reviews of quarterly reports on Form 10-Q, and for services provided in connection with statutory and regulatory filings or engagements.
(3)
“Audit-Related Fees” are fees billed for assurance and related services performed by Dixon Hughes PLLC that are reasonably related to the performance of the audit or review of our financial statements, and are not reported above under “Audit Fees”. These services include: accounting and reporting consultations, other attestation services including Federal Home Loan Bank collateral verification procedures, and employee benefit plan audits.
(4)
“Tax Fees” are fees billed for professional services performed by Dixon Hughes PLLC with respect to tax compliance, tax advice, and tax planning.
(5)
“All Other Fees” are fees billed for other permissible work performed by Dixon Hughes PLLC that does not meet the above category descriptions.
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Our audit committee has considered the compatibility of the non-audit services performed by and fess paid to Dixon Hughes PLLC in fiscal year 2006 and fiscal year 2005 and determined that such services and fees were compatible with the independence of the public accountants. During fiscal year 2006, Dixon Hughes PLLC did not utilize any personnel in connection with the audit other than its full-time, permanent employees.
Policy for Approval of Audit and Non-Audit Services.Before we engage an accountant for any audit or permissible non-audit service, we are required to obtain the approval of our audit committee. In determining whether to approve a particular audit or permitted non-audit service, out audit committee considers, among other things, whether such service is consistent with maintaining the independence of the independent public accountant. Out audit committee also considers whether the independent accountant is best positioned to provide the most effective and efficient services to us and whether the service might by expected to enhance our ability to manage or control risk or improve audit quality. All audit fees, audit-related fees, tax fees, and all other fees expended in 2006 and 2005 were pre-approved by the audit committee.
ADDITIONAL INFORMATION
A copy of our Annual Report on Form 10-K for the fiscal year ended December 31, 2006, including the financial statements and schedules thereto, as filed with the SEC will be furnished on written request, without charge to any of our shareholders. Such requests should be addressed to Wanda J. Blow, Four Oaks Fincorp, Inc., P.O. Box 309, Four Oaks, North Carolina 27524 ((919) 963-2177).
SUBMISSION OF SHAREHOLDER PROPOSALS FOR 2007 ANNUAL MEETING
Any proposals that shareholders intend to present for a vote of shareholders at the 2008 Annual Meeting of Shareholders, and that such shareholders desire to have included in our proxy statement and form of proxy relating to that meeting, must be sent to our principal executive office, marked to the attention of Ayden R. Lee, Jr., and received at such office on or before December 4, 2007 (120 calendar days prior to the anniversary of the date of this proxy statement). Proposals received after December 4, 2007 will not be considered for inclusion in our proxy materials for our 2008 annual meeting. A determination as to whether we will oppose inclusion of any proposal in our proxy statement and form of proxy will be made on a case-by-case basis in accordance with our judgment and the rules and regulations promulgated by the SEC.
In addition, if a shareholder intends to present a matter for a vote at the 2008 annual meeting, other than by submitting a proposal for inclusion in our proxy statement for that meeting, the shareholder must give timely notice in accordance with SEC rules. To be timely, a shareholder’s notice must be sent to our principal executive office, marked to the attention of Ayden R. Lee, Jr., and received at such office on or before February 18, 2008 (45 calendar days prior to the anniversary of the mailing date of this proxy statement). Such notice should set forth: (a) as to each
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matter the shareholder proposes to bring before the meeting, a brief description of the business desired to be brought before the meeting and the reasons for conducting such business at the meeting; and (b) the name and record address of the shareholder, the class and number of shares of our capital stock that is beneficially owned by the shareholder, and any material interest of the shareholder in such business. For notices that are not timely filed, we retain discretion to vote proxies we receive. For notices that are timely filed, we retain discretion to vote proxies we receive provided: (i) we include in our proxy statement advice on the nature of the proposal and how we intend to exercise our voting discretion; and (ii) the proponent fails to (x) provide us with a written statement, on or before February 18, 2008, that the proponent intends to deliver a proxy statement and form of proxy to holders of at least the percentage of our voting shares required under applicable law to carry the proposal, (y) include the same statement in its proxy materials filed with the SEC, and (z) immediately after soliciting the percentage of shareholders required to carry the proposal, provide us with a statement from any solicitor, or other person with knowledge, that the necessary steps have been taken to deliver a proxy statement and form of proxy to holders of such percentage of shares.
OTHER MATTERS; DISCRETIONARY AUTHORITY
As of the date of this proxy statement, we know of no business that will be presented for consideration at the annual meeting other than the items referred to above. The enclosed proxy confers discretionary authority to vote with respect to any and all of the following matters that may come before the annual meeting: (i) matters for which we did not receive timely notice; (ii) approval of the minutes of a prior meeting of shareholders, if such approval does not amount to ratification of the action taken at the meeting; (iii) the election of any person to any office for which a bona fide nominee is named in this proxy statement and such nominee is unable to serve or for good cause will not serve; (iv) any proposal omitted from this proxy statement and the form of proxy pursuant to Rule 14a-8 or Rule 14a-9 under the Securities Exchange Act of 1934, as amended; and (v) matters incidental to the conduct of the annual meeting. If any su ch matters come before the annual meeting, the proxy agents named in the accompanying proxy card will vote in accordance with their judgment.
All shareholders are encouraged to sign, date, and return their proxy submitted with this proxy statement as soon as possible in the envelope provided. If a shareholder attends the annual meeting, then he or she may revoke his or her proxy and vote in person.
By Order of the board of directors
April 2, 2007
Ayden R. Lee, Jr.
Chairman, President, and
Chief Executive Officer
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