UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934 (Amendment No. )
Filed by the Registrant [X]
Filed by a Party other than the Registrant [_]
Check the appropriate box:
[_] Preliminary Proxy Statement
[_] CONFIDENTIAL, FOR USE OF THE
COMMISSION ONLY (AS PERMITTED BY
RULE 14A-6(E)(2))
[X] Definitive Proxy Statement
[_] Definitive Additional Materials
[_] Soliciting Material Pursuant to Section 240.14a-11(c) or Section 240.14a-12
Southern Financial Bancorp, Inc
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(Name of Registrant as Specified In Its Charter)
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(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[_] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
(1) Title of each class of securities to which transaction applies:
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(2) Aggregate number of securities to which transaction applies:
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(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which
the filing fee is calculated and state how it was determined):
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(4) Proposed maximum aggregate value of transaction:
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(5) Total fee paid:
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[_] Fee paid previously with preliminary materials.
[_] Check box if any part of the fee is offset as provided by Exchange
Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee
was paid previously. Identify the previous filing by registration statement
number, or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
[LOGO APPEARS HERE]
SOUTHERN FINANCIAL BANCORP, INC.
Dear Shareholders:
You are cordially invited to attend the Annual Meeting of Shareholders of
Southern Financial Bancorp, Inc. (the "Company"), which will be held on April
26, 2001 at 2:00 p.m., at the Fauquier Springs Country Club, Springs Road,
Warrenton, Virginia 20186.
At the Meeting, four directors of the Company will be elected for a term of
three years. Shareholders also will vote to ratify a stock option program for
members of the Board of Directors and the designation of KPMG LLP as the
Company's auditors for the year 2001. Whether or not you plan to attend in
person, it is important that your shares be represented at the Meeting. Please
complete, sign, date and return promptly the enclosed form of proxy. If you
later decide to attend the Meeting and vote in person, or if you wish to revoke
your proxy for any reason prior to the vote at the Meeting, you may do so and
your proxy will have no further effect.
The Board of Directors and management of the Company appreciate your
continued support and look forward to seeing you at the Annual Meeting.
Sincerely yours,
Georgia S. Derrico
GEORGIA S. DERRICO
Chairman and
Chief Executive Officer
Warrenton, Virginia
March 26, 2001
SOUTHERN FINANCIAL BANCORP, INC.
37 E. Main Street
Warrenton, Virginia 20186
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
NOTICE IS HEREBY GIVEN that the Annual Meeting of the holders of shares of
Common Stock, par value $.01 per share, of Southern Financial Bancorp, Inc. (the
"Company"), will be held at the Fauquier Springs Country Club, Springs Road,
Warrenton, Virginia, on April 26, 2001 at 2:00 p.m., for the following purposes:
1. To elect four directors to serve on the Company's Board of Directors
for a term of three years, or until their successors are elected and
qualify;
2. To approve the amending and restating of the Company's 1993 Stock
Option Plan to include members of the Board of Directors and to
increase the number of shares authorized under the plan.
3. To ratify the designation by the Board of Directors of KPMG LLP as
auditors for the fiscal year ending December 31, 2001; and
4. To transact such other business as may properly come before the
meeting.
The Board of Directors has fixed the close of business on February 22, 2001
as the record date for the determination of shareholders entitled to notice of,
and to vote at, the Annual Meeting.
By Order of the Board of Directors
Richard Steele
Richard Steele
Secretary
Warrenton, Virginia
March 26, 2001
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YOU ARE CORDIALLY INVITED TO ATTEND THIS MEETING. IT IS IMPORTANT THAT YOUR
SHARES BE REPRESENTED REGARDLESS OF THE NUMBER THAT YOU OWN. EVEN IF YOU PLAN
TO BE PRESENT, YOU ARE URGED TO COMPLETE, SIGN, DATE AND RETURN THE ENCLOSED
PROXY PROMPTLY IN THE ENVELOPE PROVIDED. IF YOU ATTEND THIS MEETING, YOU MAY
VOTE EITHER IN PERSON OR BY YOUR PROXY. ANY PROXY GIVEN MAY BE REVOKED BY YOU
IN WRITING OR IN PERSON AT ANY TIME PRIOR TO THE EXERCISE THEREOF.
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SOUTHERN FINANCIAL BANCORP, INC.
___________________
PROXY STATEMENT
___________________
ANNUAL MEETING OF SHAREHOLDERS
April 26, 2001
GENERAL INFORMATION
This Proxy Statement is furnished to holders of common stock, par value
$.01 per share ("Common Stock"), of Southern Financial Bancorp, Inc. (the
"Company"), in connection with the solicitation of proxies by the Board of
Directors (the "Board") of the Company to be used at the Annual Meeting of
Shareholders to be held on April 26, 2001 at 2:00 p.m. at the Fauquier Springs
Country Club, Springs Road, Warrenton, Virginia (the "Annual Meeting"), and at
any adjournment thereof.
The principal executive offices of the Company are located at 37 E. Main
Street, Warrenton, Virginia 20186, telephone (540) 349-3900. The approximate
date on which this Proxy Statement, the accompanying proxy card and Annual
Report to Shareholders (which is not part of the Company's soliciting materials)
are being mailed to the Company's shareholders is March 26, 2001. The cost of
soliciting proxies will be borne by the Company.
The proxy solicited hereby, if properly signed and returned to the Company
and not revoked prior to its use, will be voted in accordance with the
instructions contained thereon. If no contrary instructions are given, each
proxy received will be voted "for" the proposals described herein. Any
shareholder giving a proxy has the power to revoke it at any time before it is
exercised by (i) filing written notice thereof with Shanna Banks, Shareholder
Relations, Southern Financial Bancorp, Inc., 37 E. Main Street, Warrenton,
Virginia 20186; (ii) submitting a duly executed proxy bearing a later date; or
(iii) appearing at the Annual Meeting or at any adjournment thereof and giving
the Secretary notice of his or her intention to vote in person. Proxies
solicited hereby may be exercised only at the Annual Meeting and at any
adjournment thereof and will not be used for any other meeting.
Only shareholders of record of Common Stock at the close of business on
February 22, 2001 (the "Record Date") will be entitled to vote at the Annual
Meeting. On the Record Date, there were 3,072,470 shares of Common Stock issued
and outstanding, of which 57,760 shares were owned by the Bank and due to be
canceled, and 648 record holders. Each share of Common Stock is entitled to one
vote at the Annual Meeting. The Company had 13,621 shares of preferred stock
issued and outstanding at the Record Date. Holders of preferred stock are not
entitled to notice of, or to vote at, the Annual Meeting.
As of the Record Date, directors and executive officers of the Company and
their affiliates, as a group, owned beneficially a total of 729,301 shares of
Common Stock, or approximately 23.7% of the shares of Common Stock outstanding
on such date. Directors and executive officers of the Company have indicated an
intention to vote their shares of Common Stock FOR the election of the nominees
set forth on the enclosed proxy.
A shareholder may abstain or (only with respect to the election of
directors) withhold his or her vote (collectively, "abstentions") with respect
to each item submitted for shareholder approval. Abstentions will be counted
for purposes of determining the existence of a quorum. Abstentions will be
counted as not voting in favor of the relevant item. Since the election of
directors is determined by a plurality vote, abstentions will not affect such
election.
A broker who holds shares in street name has the authority to vote on
certain items when it has not received instructions from the beneficial owner.
Except for certain items for which brokers are prohibited from exercising their
discretion, a broker is entitled to vote on matters put to shareholders without
instructions from the beneficial owner. Where brokers do not have or do not
exercise such discretion, the inability or failure to vote is referred to as a
broker non-vote. Under the circumstances where the broker is not permitted to
or does not exercise its discretion, assuming proper disclosure to the Company
of such inability to vote, broker non-votes will be counted for purposes of
determining the existence of a quorum, but also will be counted as not voting in
favor of the particular matter.
ELECTION OF DIRECTORS
The Company's Articles of Incorporation provide that the Board shall be
divided into three classes as nearly equal in number as possible. The members
of each class are to be elected for a term of three years and until their
successors are elected and qualify. One class of directors is elected annually.
Four directors are to be elected at the Annual Meeting to serve for a term of
three years. Barbara Fried, who was appointed to the Board in September 2000,
is being presented to the shareholders as a nominee for the first time.
The Board acts as a nominating committee for selecting the nominees for
election as directors. The nominating committee delivers written nominations to
the Secretary of the Company at least 20 days prior to the date of the Annual
Meeting. The Board has no reason to believe that any of the nominees will be
unavailable to serve as a director if elected. Eight other directors have been
elected to terms that end in either 2002 or 2003, as indicated below.
The Company's Bylaws provide, however, that shareholders entitled to vote
for the election of directors may name nominees for election to the Board.
Under the Company's Bylaws, notice of a proposed nomination meeting certain
specified requirements must be received by the Company not less than 60 nor more
than 90 days prior to any meeting of shareholders called for the election of
directors, provided in each case that, if fewer than 70 days' notice of the
meeting is given to shareholders, such written notice shall be received not
later than
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the close of the tenth day following the day on which notice of the meeting was
mailed to shareholders. Based upon an anticipated date of April 25, 2002 for the
2002 annual meeting of shareholders, the Company must receive any notice of a
proposed nomination no later than February 25, 2002 and no earlier than January
25, 2002.
The Company's Bylaws require that the shareholder's notice set forth as to
each nominee (i) the name, age, business address and residence address of such
nominee, (ii) the principal occupation or employment of such nominee, (iii) the
class and number of shares of the Company that are beneficially owned by such
nominee, and (iv) any other information relating to such nominee that is
required under federal securities laws to be disclosed in solicitations of
proxies for the election of directors, or is otherwise required (including,
without limitation, such nominee's written consent to being named in a proxy
statement as nominee and to serving as a director if elected). The Company's
Bylaws further require that the shareholder's notice set forth as to the
shareholder giving the notice (i) the name and address of such shareholder and
(ii) the class and amount of such shareholder's beneficial ownership of the
Company's capital stock. If the information supplied by the shareholder is
deficient in any material aspect or if the foregoing procedure is not followed,
the chairman of the Annual Meeting may determine that such shareholder's
nomination should not be brought before the Annual Meeting and that such nominee
shall not be eligible for election as a director of the Company.
Unless authority is withheld in the proxy, each proxy executed and returned
by a shareholder will be voted for the election of the nominees listed below.
Proxies distributed in conjunction herewith may not be voted for persons other
than the nominees named thereon. If any person named as nominee should be
unable or unwilling to stand for election at the time of the Annual Meeting, the
proxy holders will nominate and vote for a replacement nominee or nominees
recommended by the Board. At this time, the Board knows no reason why any of
the nominees listed below may not be able to serve as a director if elected.
The proxy also confers discretionary authority upon the persons named therein,
or their substitutes, with respect to any other matter that may properly come
before the meeting.
In the election of directors, those receiving the greatest number of votes
will be elected even if they do not receive a majority. Abstentions and broker
non-votes will not be considered a vote for, or a vote against, a director.
THE BOARD OF DIRECTORS RECOMMENDS THAT THE NOMINEES LISTED BELOW BE ELECTED
AS DIRECTORS.
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NOMINEES FOR ELECTION FOR TERM EXPIRING IN 2004
Year First
Name; Age; Principal Occupation for Past Five Years; Elected as
and Directorships in Public Corporations Director
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Fred L. Bollerer 58, Senior Advisor to the Morino Group having been 1999
President and Chief Executive Officer of the Potomac
Knowledge Way Project; President and Chief Executive
Officer of Riggs Bank, N.A. from 1993 to 1997; and
Chairman of the Board and Chief Executive Officer of
First American Bank of Virginia prior thereto.
Georgia S. Derrico 56, Chairman of the Board and Chief Executive Officer 1986
of the Company since 1986; having served as Senior
Vice President, Chief Administrative and Credit
Officer, Multinational Division, District Head of
Chemical Bank prior thereto. Other directorship:
Oneida Ltd.
Barbara J. Fried 65, Ms. Fried has been Chairman of the Fried 2000
Companies, Inc., a real estate development and
management company based in Springfield, Virginia,
since 1995. Ms. Fried was also Chairman of the Board
of First Savings Bank of Virginia.
Richard E. Smith 75, Retired Colonel, U.S. Marine Corps; CEO and 2000
Chairman, MANNA Financial Services, a
broker-dealer/investment advisory company founded by
him in 1961; and Owner, Reed Insurance Agency; having
served as a founding director and Chairman of the
Board for The Horizon Bank of Virginia, which merged
into Southern Financial Bank on October 1, 1999, from
1989 to 1999; having served as a director of Guaranty
Bank & Trust Co. and Riggs National Bank of Virginia.
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INCUMBENT DIRECTORS SERVING FOR TERM EXPIRING IN 2002
Year First
Name; Age; Principal Occupation for Past Five Years; Elected as
and Directorships in Public Corporations Director
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Alfonso G. Finocchiaro 68, Former Executive Vice President, Regional General 1999
Manager and CEO (Americas), Banco Portugues do
Atlantico from 1978 to 1997; having been President and
Chief Executive Officer of Connecticut Bank
International from 1977 to 1978; and Vice President of
Chemical Bank from 1966 to 1977.
Virginia Jenkins 53, Owner, V. Jenkins Interiors and Antiques. 1988
Michael P. Rucker 60, Executive with Caterpillar, Inc., a manufacturing 1991
company; Chairman of the Board, George H. Rucker
Realty Corp., a real estate development company.
Robert P. Warhurst 62, President and co-owner of Merrifield Garden Center 1999
in Merrifield and Fairfax, Virginia; having served as
a founding director of Horizon from 1989 to 1999.
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INCUMBENT DIRECTORS SERVING FOR TERM EXPIRING IN 2003
Year First
Name; Age; Principal Occupation for Past Five Years; Elected as
and Directorships in Public Corporations Director
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John C. Belotti 64, President and CEO, Bee & H Electric Company in 1999
Fairfax, Virginia; having served as a founding
director of Horizon from 1989 to 1999 and Vice
Chairman of the Board of Horizon from 1998 to 1999.
Neil J. Call 67, Executive Vice President, MacKenzie Partners, 1986
Inc., a New York financial consulting company, since
1990; having served as Executive Vice President, D.F.
King & Co., Inc. from 1986 to 1990; and Executive Vice
President, Finance, Gulf and Western Industries prior
thereto.
David de Give 58, Senior Vice President of the Company since 1992; 1986
having been a cattle breeder and private investor from
1989 to 1992; having served as President, Newmarket
Capital Corp., a mortgage company, from 1986 to 1989;
and Vice President in charge of U.S. Funding, Chemical
Bank, prior thereto.
R. Roderick Porter 55, President and Chief Operating Officer of the 1986
Company since April 1998; having been President, FX
Concepts, Ltd., an international money management
firm, from 1994 to 1998; having served as Managing
Director, West Capital, Inc., a real estate advising
firm, from 1992 to 1994; Chairman, Newmarket Capital
Corp., a mortgage company; and Principal of Morgan
Stanley prior thereto.
In 2000, each director attended at least 75% of the aggregate of (i) the
total number of meetings of the Board held during the period for which the
director was on the Board and (ii) the total number of meetings of all
committees of the Board on which the director then served. Twelve meetings of
the Board were held during 2000.
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Committees of the Board
The Asset/Liability Management Committee has authority for policy
formulation and administration of the Company's asset/liability management
policies. The Asset/Liability Management Committee, which consists of Ms.
Derrico and Messrs. Porter (Chairman), Belotti, de Give, Fried, and Smith
reports periodically to the Board on the interest sensitivity of the Company,
including an analysis of the duration of the Company's assets, liabilities and
contingent liabilities as well as the mortgage pipeline and a calculation of the
duration of the Company's equity. The Asset/Liability Management Committee met
once in 2000. The Asset/Liability Management Committee frequently discusses
policy issues at Board meetings.
The Audit Committee assists the Board in fulfilling its fiduciary
responsibilities relating to the corporate accounting and reporting practices of
the Company. The Audit Committee adopted a new charter in 2000 in order to
facilitate the implementation of the Blue Ribbon Committee recommendations. The
Blue Ribbon Committee was created in October 1998 by the New York Stock Exchange
and the National Association of Securities Dealers to improve board oversight of
the financial reporting process of public companies. In addition, the Audit
Committee function now includes loan review. The Audit committee consists of
Messrs. Call (Chairman), Bollerer, Finocchiaro, Marcellus, Rucker and Ms.
Jenkins. The Committee met four times in 2000.
The Compensation Committee reviews the performance of, and establishes the
compensation for, the executive officers of the Company. The Company's
executive compensation programs are designed to retain and reward executives
based upon (i) their individual performance and ability to lead the Company to
achieving its goals and (ii) the Company's performance. The Compensation
Committee consists of Messrs. Marcellus (Chairman), Finocchiaro (Co-Chairman),
Call, Warhurst and Ms. Jenkins. The Compensation Committee met two times in
2000.
Senior Officers of the Company
William Stevens, 56, joined the Bank in 1999 as Executive Vice
President/Risk Management. From 1991 to 1999, Mr. Stevens served as a Senior
Analyst in the Office of the Inspector General of the Federal Deposit Insurance
Corporation. Prior to that he was an Executive Vice President at Riggs Bank,
N.A. in Washington, D.C. where he managed the Bank's commercial real estate and
single family lending activities. Before that, Mr. Stevens was President and
COO of Anchor Mortgage Services, and he was a Senior Vice President at Chemical
Bank from 1983 to 1987.
Patricia Ferrick, 38, joined Southern Financial in 2000 as Senior Vice
President/Chief Financial Officer. Ms. Ferrick recently served as Managing
Director, Controller of National Cooperative Bank. Prior to that, she was Vice
President/Controller for First Commonwealth Savings Bank and its subsidiary,
James Madison Mortgage. Before that she served as Vice President, Controller for
NVR Savings Bank and she was an auditor at KPMG LLP from 1985 to 1989.
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Richard Steele, 53, joined the Bank in 1999 as Senior Vice President. From
1993 to 1999, Mr. Steele was Senior Vice President of FX Concepts, Inc., an
international money management firm based in New York City. From 1989 to 1993,
Mr. Steele was Director of Finance, Eli Lilly and Company, Geneva, Switzerland.
Prior to that Mr. Steele held various financial positions with Eli Lilly and
Company from 1969 to 1989.
Certain Relationships and Related Transactions
Georgia S. Derrico, Chairman of the Board and Chief Executive Officer and a
director of the Company, and R. Roderick Porter, President and Chief Operating
Officer and a director of the Company, are married to each other.
Some of the directors and officers of the Company are at present, as in the
past, customers of the Company, and the Company has had, and expects to have in
the future, banking transactions in the ordinary course of its business with
directors, officers, principal shareholders and their associates, on
substantially the same terms, including interest rates and collateral on loans,
as those prevailing at the same time for comparable transactions with others.
These transactions do not involve more than the normal risk of collectibility or
present other unfavorable features. The balance of loans to directors,
executive officers and their associates totaled $1,007,867.41 at December 31,
2000, or 1.9% of the Company's equity capital at that date.
STOCK OWNERSHIP
The following table lists those persons (including any "group" as that term
is used in Section 13(d)(3) of the Securities Exchange Act of 1934, as amended
(the "Exchange Act")) who, to the knowledge of the Company, were the beneficial
owners of more than 5% of the outstanding shares of Common Stock, as of December
31, 2000.
Name and Address of Number of Percent
Beneficial Owners Shares/(1)/ of Class
----------------- ----------- --------
Georgia S. Derrico/(2)/(3)/ 277,950 9.2%
R. Roderick Porter
2954 Burrland Lane
The Plains, Virginia 20171
________________
/(1)/ Except as otherwise indicated, includes shares held directly, as well as
shares held in retirement accounts or by certain family members or corporations
over which the named individuals may be deemed to have voting or investment
power.
/(2)/ Georgia S. Derrico and R. Roderick Porter are married to each other.
/(3)/ Includes (a) 73,538 shares owned individually by Ms. Derrico over which
she has sole voting and investment power and 104,836 shares that Ms. Derrico may
acquire pursuant to the exercise of stock options, (b) 4515 shares of Common
Stock and
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Name and Address of Number of Percent
Beneficial Owners Shares/(1)/ of Class
----------------- ----------- --------
Mark Fried /(4)/(5)/ 155,661 5.2%
Barbara J. Fried
6651 Loisdale Ct. Suite 900
Springfield, Virginia 22150
Financial Institution Partners II, L.P. /(6)/ 265,350 8.8%
Hovde Capital, L.L.C.
Eric D. Hovde
Steven D. Hovde
1824 Jefferson Place, N.W.
Washington, D.C. 20036
The following table sets forth as of December 31, 2000 the beneficial
ownership of Common Stock by all directors and nominees, each of the named
executive officers, and directors and executive officers of the Company as a
group. Unless otherwise indicated, each person listed below has sole voting and
investment power over all shares beneficially owned by such person.
Total Number
Name of Beneficial Owner of Shares /(1)/ Percent of Class
- ------------------------ --------------- ----------------
John C. Belotti 23,562 *
Fred L. Bollerer 3,000 *
Neil J. Call 42,900/(2)/ 1.4%
David de Give 88,416/(3)/ 2.9%
Georgia S. Derrico 277,950/(4)/ 9.2%
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2,509 shares of the Company's convertible preferred stock owned individually by
Mr. Porter over which he has sole investment power and 37,500 shares that Mr.
Porter may acquire pursuant to the exercise of stock options, and (c) 55,052
shares owned jointly by Ms. Derrico and Mr. Porter over which they have joint
investment power. Ms. Derrico and Mr. Porter disclaim beneficial ownership of
each other's shares.
/(4)/ Mark Fried and Barbara Fried are married to each other.
/(5)/ Includes 25,657 shares owned individually by Ms. Fried over which she
has sole voting and investment power and 130,004 shares owned individually by
Mr. Fried over which he has sole voting and investment power.
/(6)/ As reported in a Schedule 13D filed with the Securities and Exchange
Commission on November 22, 2000 by Financial Institution Partners II, L.P.,
Hovde Capital, L.L.C., Eric D. Hovde and Steven H. Hovde. According to the
Schedule 13D, Hovde Capital, L.L.C., as General Partner of Financial Institution
Partners II, L.P., and Eric D. Hovde and Steven D. Hovde, as managing members of
Hovde Capital, L.L.C., may be deemed to have shared voting and investment powers
over all such shares.
/(1)/ The amounts in this column include shares of Common Stock with respect to
which certain persons have the right to acquire beneficial ownership within 60
days after December 31, 2000 pursuant to the Company's 1993 Stock Option and
Incentive Plan, as amended: Mr. de Give: 49,403 shares; Ms. Derrico: 104,836
shares; Mr. Porter: 37,500 shares; Mr. Steele 4,000 shares; Mr. Stevens: 7,000
shares; and the directors and officers as a group: 202,739 shares.
/(2)/ Includes 38,546 shares of Common Stock and 4,354 shares of the Company's
convertible preferred stock.
/(3)/ Includes 2,469 shares owned by Mr. de Give's spouse over which she has
sole voting and investment power.
/(4)/ Includes (a) 73,538 shares owned individually by Ms. Derrico over which
she has sole voting and investment power and 104,836 shares that Ms. Derrico may
acquire pursuant to the exercise of stock options, (b) 4,515 shares of Common
Stock and
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Total Number
Name of Beneficial Owner of Shares /(1)/ Percent of Class
- ------------------------ --------------- ----------------
Barbara J. Fried 155,661/(7) 5.2%
Alfonso G. Finocchiaro 10,300
Virginia Jenkins 2,275 *
John L. Marcellus, Jr. 15,808/(5)/ *
R. Roderick Porter 277,950/(4)/ 9.2%
Michael P. Rucker 45,871/(6)/ 1.5%
Richard E. Smith 29,000 *
Richard P. Steele 8,152 *
William Stevens 7,500 *
Robert P. Warhurst 15,606 *
Directors and officers as a group
(15 persons) 726,001 24.1%
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2,509 shares of the Company's convertible preferred stock owned individually by
Mr. Porter over which he has sole investment power and 37,500 shares that Mr.
Porter may acquire pursuant to the exercise of stock options, and (c) 55,052
shares owned jointly by Ms. Derrico and Mr. Porter over which they have joint
investment power. Ms. Derrico and Mr. Porter disclaim beneficial ownership of
each other's shares.
/(4)/ Mark Fried and Barbara Fried are married to each other.
/(5)/ Includes 25,657 shares owned individually by Ms. Fried over which she
has sole voting and investment power and 130,004 shares owned individually by
Mr. Fried over which he has sole voting and investment power.
/(6)/ As reported in a Schedule 13D filed with the Securities and Exchange
Commission on November 22, 2000 by Financial Institution Partners II, L.P.,
Hovde Capital, L.L.C., Eric D. Hovde and Steven H. Hovde. According to the
Schedule 13D, Hovde Capital, L.L.C., as General Partner of Financial Institution
Partners II, L.P., and Eric D. Hovde and Steven D. Hovde, as managing members of
Hovde Capital, L.L.C., may be deemed to have shared voting and investment powers
over all such shares.
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SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Exchange Act requires the Company's directors and
executive officers, and any persons who own more than 10% of the outstanding
shares of Common Stock, to file with the Securities and Exchange Commission
("SEC") reports of ownership and changes in ownership of Common Stock. Officers
and directors are required by SEC regulations to furnish the Company with copies
of all Section 16(a) reports that they file. Based solely on review of the
copies of such reports furnished to the Company or written representation that
no other reports were required, the Company believes that, during fiscal year
2000, all filing requirements applicable to its executive officers and directors
were complied with.
COMPENSATION OF EXECUTIVE OFFICERS AND DIRECTORS
Summary Compensation
The following table presents information relating to total compensation of
the Chief Executive Officer and the other named executive officers of the
Company for the years ended December 31, 2000, 1999 and 1998.
SUMMARY COMPENSATION TABLE
Annual Compensation Long-Term Compensation
------------------- ----------------------
Securities
Name and Other Annual Underlying All Other
Principal Position Year Salary Bonus Compensation /(1)/ Options (#) Compensation/(2)/
- ------------------ ---- ------ ----- ------------------ ----------- -----------------
Georgia S. Derrico 2000 $225,000 $240,000 -- 12,500 $5,000
Chairman of the Board 1999 $195,000 $240,000 -- 10,000 $4,800
and Chief Executive 1998 193,226 200,000 -- 10,000 $4,800
Officer
R. Roderick Porter/(3)/ 2000 $195,000 $140,000 -- 12,500 $5,000
President and Chief 1999 175,000 72,000 -- 15,000 $4,800
Operating Officer 1998 100,000 10,000 $2,505
William Stevens/(4)/ 2000 $147,000 $ 5,000 --
Executive Vice President
Richard P. Steele/(4)/ 2000 $115,000 $ 30,000 -- 1,000
Senior Vice President
_____________________________
/(1)/ None of the named executive officers received Other Annual Compensation
in excess of the lesser of $50,000 or 10% of combined salary and bonus for the
years indicated.
/(2)/ The amounts set forth in this column constitute matching contributions
by the Company to the Company's 401(k) Plan.
/(3)/ Mr. Porter joined the Company on April 1, 1998.
/(4)/ Mr. Steele and Mr. Stevens joined the Company in 1999.
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Option Grants in Last Fiscal Year
The following table sets forth for the year ended December 31, 2000 the
grants of stock options to the named executive officers:
OPTION GRANTS IN YEAR ENDED DECEMBER 31, 2000
Potential Realizable
Value at Assumed Annual
Rates of Stock Price
Appreciation for
Individual Grants/(1)/ Option Term
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Percent of
Number of Total Options
Securities Granted to
Underlying Employees in Exercise or
Options Fiscal Year Base Price Expiration
Name Granted (#) (%)/(2)/ ($/Share) Date 5% ($) 10% ($)
- ---- ----------- -------- --------- ---- ------ --------
Georgia S. Derrico 12,500 25.4% 16.438 02/03/10 $334,750 $533,000
R. Roderick Porter 12,500 25.4% 16.438 02/03/10 $334,750 $533,000
Richard P. Steele 1,000 2.0% 16.438 02/03/10 $ 26,780 $ 42,640
______________________________
/(1)/ Stock options were awarded at the fair market value of the shares of
Common Stock at the date of award and are exercisable after February 3, 2001.
/(2)/ Options to purchase 49,250 shares of Common Stock were granted to the
Company's employees during the year ended December 31, 2000.
-12-
Option Exercises in Last Fiscal Year
The following table sets forth information concerning each exercise of
stock option during the fiscal year ended December 31, 2000 by each of the named
executive officers and the year end value of unexercised options.
AGGREGATED OPTION EXERCISES IN YEAR ENDED DECEMBER 31, 2000
AND FISCAL YEAR END OPTION VALUES
Number of
Securities Underlying Unexercised Value of Unexercised
Options In-The-Money Options
at December 31, 2000 (#)/(1)/ at December 31, 2000 ($)/(2)/
------------------------------- -------------------------------
Shares
Acquired on Value
Name Exercise (#) Realized ($) Exercisable Unexercisable Exercisable Unexercisable
- ---- ------------ ------------ ----------- ------------- ----------- -------------
Georgia S. Derrico 4,840 36,252 93,336 12,500 101,104 /(3)/
R. Roderick Porter 25,000 12,500 /(3)/ /(3)/
William Stevens 7,000
Richard P. Steele 3,000 1,000 /(3)/ /(3)/
Employment Agreements
Ms. Derrico has an employment agreement with the Company. The
agreement has an initial term of five years and can be extended for an
additional year three times, the first of which was on December 31, 2000. Ms.
Derrico's employment agreement provides that she will serve as the Chairman and
Chief Executive Officer of the Company at an annual base salary of $195,000.
Base salary increases and bonuses will be in the discretion of the Board. Under
the employment agreement, Ms. Derrico will be entitled to participate in
employee benefit plans, including the Company's stock option plans, on the same
basis as other employees of senior executive status. If the Company terminates
Ms. Derrico's employment without cause, or if Ms. Derrico resigns for "good
reason" during the contract term, she will be entitled to salary and benefits
for the remainder of the contract term and an amount equal to three times the
highest bonus paid to her during the three calendar years that precede the date
that her employment terminates. Under the employment agreement, "good reason"
entitling Ms. Derrico to resign includes a change or reduction in Ms. Derrico's
authority; a reduction in base salary, as the same
_______________________________
/(1)/ Each of these Options relates to Common Stock
/(2)/ These values are based on $12.75 the closing price of Common Stock on
December 31, 2000.
/(3)/ None of the indicated options held by the named executive officers were
in-the-money as of December 31, 2000.
-13-
may have been increased from time to time; the failure of the Company to provide
her with substantially the same fringe benefits that have been provided
heretofore; the failure of a successor corporation to assume the Company's
obligations under the employment agreement; a failure to nominate her for re-
election to the Board; or a material breach of the employment agreement by the
Company.
At any time after December 31, 2002, Ms. Derrico may resign and
continue to receive her salary for 60 months, provided she agrees to remain
Chairman of the Board and does not engage in any competitive business.
Under the employment agreement, Ms. Derrico would not be entitled to
any further compensation or benefits if the Company terminated the agreement for
cause. Cause includes personal dishonesty, incompetence, willful misconduct,
breach of fiduciary duty involving personal profit, intentional failure to
perform stated duties, willful violation of any law, rule or regulation (other
than traffic violations or similar offenses that have no material detrimental
effect on the Company) or final cease and desist order, or a material breach of
any provision of the employment agreement.
Compensation Committee Interlocks and Insider Participation
Members of the Compensation Committee are Messrs. Call, Finocchiaro (Co-
Chairman), Marcellus, (Chairman), Warhurst and Ms. Jenkins. No member of the
Compensation Committee is or has ever been an employee of Southern Financial
Bancorp. Furthermore, none of Southern Financial Bancorp's executive officers
has served on the board of directors of any company of which a Compensation
Committee member is an employee.
Compensation of Directors
Each member of the Board who was not an employee of the Company or any of
its subsidiaries is paid (i) $500 for attendance at each Board meeting and (ii)
$150 for attendance at each meeting of a committee of the Board of which he or
she is a member. The same rates apply for meetings attended by teleconferencing.
In addition, each director is paid an annual fee of $4,000. Employee members of
the Board are not paid separately for their service on the Board or its
committees.
Report of the Compensation Committee
The Compensation Committee of Southern Financial Bank, composed of five
non-employee directors has the responsibility for the review and approval of
salary and bonus recommendations made by management.
Salaries: The Compensation Committee reviews and approves annually salary
recommendations
-14-
made by management for executive officers. The Committee either approves or
makes adjustments to those recommendations. Base salaries are generally
competitive with the market based on peer group comparisons occasionally
provided by outside consultants.
Short-Term Incentive Payments: The Compensation Committee reviews and
approves bi-annually incentive awards for executive officers based upon
recommendations of management. The Committee either approves or makes
adjustments to those recommendations.
Long-Term Incentive Awards: The long-term incentive portion of executive
compensation is provided under the 1993 Stock Option Plan approved by the
shareholders in that year. The Plan was amended in 1999 and another amendment
will be presented for approval at the 2001 Shareholders Meeting.
Submitted by the members of the Committee:
John Marcellus (Chairman) Virginia Jenkins
Alfonso Finocchiaro (Co-Chairman) Bob Warhurst
Neil Call
AUDIT COMMITTEE REPORT
Southern Financial Bancorp has established an audit committee within the
Board of Directors. The audit committee has the responsibility, under delegated
authority from our Board of Directors, for providing independent, objective
oversight of Southern Financial Bancorp's accounting functions and internal
controls. The audit committee consists of six members. The Board of Directors
has determined that each of the six members is independent as defined by the
rules of the NASD and is able to read and understand fundamental financial
statements. The Board of Directors has also determined that at least one member
of the audit committee has past employment experience in finance and accounting.
The Board of Directors has reviewed, assessed the adequacy of, and approved the
audit committee charter. (Attached as Appendix A)
In fulfilling its oversight responsibilities and in connection with the
December 31, 2000 financial statements, the audit committee: (1) reviewed and
discussed the audited financial statements with management; (2) discussed with
the auditors the matters required by the Statement on Auditing Standards No. 61;
and (3) received and discussed with the auditors the matters required by
Independence Standards Board Statement No. 1. In reliance upon these reviews and
discussions, the audit committee recommended to the Board of Directors that the
audited financial statements be included in the Annual Report on Form 10-K filed
with the SEC.
-15-
Submitted by the numbers of the Committee:
Neil Call (Chairman) Virginia Jenkins
Fred Bollerer John Marcellus
Alfonso Finocchiaro Michael Rucker
The Board of Directors has also reviewed the following table of Audit Fees paid
to the principal auditor (KPMG).
Audit Fees for audit and review of financial statements and taxes:
2000 $ 84,600.00
1999 $ 79,000.00
1998 $ 59,100.00
Financial Information Systems Design and Implementation Fees:
2000 -0-
1999 -0-
1998 -0-
All Other Fees:
2000 $ 94,130.00
1999 $120,940.00
1998 $ 11,200.00
Performance Graph
The following graph compares the cumulative total return for the Company's
Common Stock to the NASDAQ Composite Index and the NASDAQ Bank Index for the
last five years. The Graph assumes $100 invested on 12/31/95 and shows the total
return assuming reinvestment of dividends through 12/31/2000.
-16-
Southern Financial Bancorp
Stock Price Performance
[December 31, 1995 - December 31, 2000]
[GRAPH]
Southern Financial Bancorporation
5 Year Stock Performance Analysis
--------------------------------------------------------------------------------------------
Southern Financial Bancorp NASDAQ Composite Index NASDAQ Bank Index
--------------------------------------------------------------------------------------------
Date Closing Southern Financial Closing NASDAQ Composite Closing NASDAQ
Price* Bancorp Price* Index Price* Bank Index
12/31/95 13 105/256 100.000 1052.14 100.000 1009.44 100.000
12/31/96 13 1/2 102.310 1291.03 123.030 1273.46 129.340
12/31/97 22 169.310 1570.35 150.260 2083.22 215.280
12/31/98 21 164.090 2192.69 210.630 1838 93.170
12/31/99 16 1/2 132.100 4069.31 391.960 1691.29 182.030
12/31/00 12 3/4 105.740 2470.52 238.410 1939.45 214.130
--------------------------------------------------------------------------------------------
*Total Return Close
-17-
APPROVAL OF THE AMENDED AND RESTATED
1993 STOCK OPTION AND INCENTIVE PLAN
General
On August 18, 1993, the Board of Southern Financial Federal Savings Bank
approved the 1993 Stock Option and Incentive Plan (the "Stock Option Plan"),
which was submitted to and approved by the shareholders of Southern Financial
Federal Savings Bank on September 29, 1993. The Stock Option Plan was
subsequently assumed by the Company after its formation. The Stock Option Plan
is intended to provide a means for selected key employees of the Company to
increase their personal financial interest in the Company, thereby stimulating
the efforts of these employees and strengthening their desire to remain with the
Company. References to the "Company" in this section will include any
subsidiary corporation (unless otherwise noted). The principal features of the
Stock Option Plan, as amended and restated, are summarized below.
The amended and restated Stock Option Plan will permit the award of shares
of Restricted Stock, Incentive Stock Options and Non-Qualified Stock Options
("Options") to eligible officers and key employees of the Company (including any
subsidiary corporation for this purpose) and will provide automatic Stock
Options for non-employee directors of the Company (excluding any subsidiary
corporation for this purpose) upon such terms as the Stock Option Committee (the
"Committee") of the Board may determine, consistent with the terms of the Stock
Option Plan.
Amendment and Restatement of the Stock Option Plan
On March 26, 2001, the Board resolved that the Stock Option Plan be amended
and restated to increase the number of shares of Common Stock currently reserved
for issuance by 70,000 and provide for automatic grants of stock options to non-
employee directors of the Company, subject to shareholder approval. As a
result, the Stock Option Plan, as so amended and restated, reserves 481,000
shares of common stock for issuance.
As of January 31, 2001, the market value of the 70,000 additional share
that will be issuable under the Stock Option Plan, as amended and restated, was
$1,260,010. For the year ended December 31, 2000, 47,750 options were granted
under the Stock Option Plan. Individual grants to the named executive officers
are shown in the Summary Compensation Table.
The following description of the Stock Option Plan as amended and restated
summarizes the principal features of the Stock Option Plan, as amended and
restated, and is qualified in its entirety by reference to the full text of the
Stock Option Plan, as amended and restated, a copy of which is attached hereto
as Appendix B.
-18-
Administration
The Stock Option Plan is administered by the Committee, which is composed
of three or more disinterested directors. The Committee has the sole
discretion, subject to certain limitations, to interpret the Stock Option Plan,
to select Stock Option Plan participants; to determine the type, size, terms and
conditions of awards under the Stock Option Plan; to authorize the grant of such
awards; and to adopt, amend and rescind rules relating to the Stock Option Plan.
All determinations of the Committee are conclusive. All expenses of
administering the Stock Option Plan will be borne by the Company.
Eligibility
Any officer or employee of the Company or its subsidiaries who, in the
judgment of the Committee can be expected to contribute significantly to the
successful performance or growth of the Company or a subsidiary is eligible to
participate in the Stock Option Plan. Non-employee directors of the Company are
eligible for automatic options.
Individual Agreements
The Committee has broad authority to fix the terms and conditions of the
individual agreements with participants. All awards granted under the Plan are
intended to comply with the applicable requirements of Rule 16b-3 promulgated
under the Securities Exchange Act of 1934 ("Exchange Act"), which exempts grants
and awards under qualifying employee benefit plans from certain "short-swing"
profit recovery provisions of the Exchange Act.
Shares Available
Subject to the provision of the Stock Option Plan providing for
proportional adjustments in the event of various changes in the capitalization
of the Company, no more than 481,000 shares of authorized but unissued common
stock may be issued pursuant to the Stock Option Plan. Under the Stock Option
Plan, options to purchase 325,363 shares of common stock have been granted. Any
shares of common stock subject to an Incentive Stock Option or Non-Qualified
Stock Option that are not issued prior to the expiration of such awards, or any
Restricted Stock awards that is forfeited, will again be available for award
under the Stock Option Plan.
Incentive Stock Options and Non-Qualified Stock Options ("Options")
The Committee may authorize the grant of either Incentive Stock Options
("ISOs"), as defined under Section 422 of the Internal Revenue Code of 1986, as
amended, or Non-Qualified Stock Options ("NQSOs"), which are subject to certain
terms and conditions including the following: (1) the option price per share
will be determined by the Committee but will not, in any event, be less than 100
percent (or 110 percent for any optionee owning more than 10% of the total
combined voting power of all classes of the Company's outstanding stock) of the
fair market value of common stock on the date that the Option is granted; (2)
the term of the Option
-19-
will be fixed by the Committee, but the maximum period in which an Option may be
exercised shall not, in any event, exceed ten years from the date that the
Option is granted (or five years for an ISO for any optionee owning more than
10% of the total combined voting power of all classes of the Company's
outstanding stock); (3) Options will not be transferable other than by will or
the laws of descent and distribution; (4) the purchase price of common stock
issued upon exercise of any Option will be paid in full to the Company at the
time of the exercise of the Option in cash or, at the discretion of the
Committee, by surrender to the Company of previously acquired share of common
stock, which will be valued at the fair market value of such shares on the date
that the Option is exercised; (5) an Option may expire upon termination of
employment or within a specified period of time after termination of employment
as provided by the Committee; (6) the aggregate fair market value (determined on
the date of grant) of the shares of common stock with respect to which ISOs are
exercisable for the first time by any individual during any calendar year shall
not exceed $100,000; and (7) only employees may receive ISOs.
Restricted Stock
The Committee may authorize the award of Restricted Stock to a participant
(other than a non-employee director). In the case of Restricted Stock, the
Committee may prescribe that the participant's rights in the Restricted Stock
shall be forfeited or otherwise restricted for a period of time set by the
Committee and/or until certain financial performance objectives are satisfied as
determined by the Committee in its sole discretion. During the period of
restriction, a participant will be entitled to beneficial ownership of the
Restricted Stock, including the right to receive dividends (unless the Committee
in its discretion provide for the accumulation thereof until the lapse of
applicable restrictions), warrants and rights and the right to vote the shares,
but will not be entitled to certificates representing the Restricted Stock or to
sell, transfer, assign, pledge or otherwise dispose of the shares.
Automatic Grants to Non-Employee Directors
Each non-employee director serving on the Board of the Company will receive
an automatic NQSO covering 1,000 share on the first business day after the first
meeting of the Board of Directors of the Company following each annual meeting
of stockholders of the Company. The Committee may reduce the number of shares
in the automatic grant for non-employee directors as it determines from time to
time. The Company currently has 10 non-employee directors.
The exercise price of automatic Option grants is 100% of fair market value
of the shares on the automatic grant date. Unless otherwise provided in the
governing agreement, each award of options becomes exercisable on the first
anniversary of the applicable automatic grant date. Except as otherwise
described, automatic awards to non-employee directors are subject to the same
terms and conditions as other awards made under the Stock Option Plan.
-20-
Change of Control
Unless otherwise provided by the Committee, in the event of a Change in
Control, any outstanding Option may become fully exercisable and vested to the
full extent of the original grant (provided that no Option granted to an officer
or director of the Company ever becomes exercisable within any six months of its
date of grant) and, if a participant continues service with the Company is
involuntarily terminated within 18 months after the Change in Control, any
restrictions applicable to Restricted Stock outstanding on the date of a Change
in Control shall lapse, such that the Restricted Stock becomes free of all
restrictions and fully vested, nonforfeited and transferable to the full extent
of the original grant. The Committee may also provide that under such
circumstances a participant may elect to receive, in exchange for shares that
were Restricted Stock, a cash payment equal to the fair market value of the
shares surrendered. Under the Stock Option Plan, a "Change of Control" shall be
deemed to have taken place (unless the Board adopts a resolution providing
otherwise prior to the occurrence of the following events) if: (i) a third
person, including a "group" as defined in Section 13(d) (3) of the Exchange Act
becomes the beneficial owner of shares of common stock having 25% or more of the
total number of votes that may be cast for the election of directors of the
Company, or (ii) as the result of, or in connection with, any cash or exchange
offer, merger or other business combination, sale of assets or contested
election, or any combination of the foregoing transactions (a "Transaction"),
the persons who were directors of the Company before the Transaction shall cease
to constitute a majority of the Board of the Company or any successor to the
Company, or (iii) the shareholders of the Company approve a transaction by which
the Company will cease to be an independently publicly owned entity or a sale or
other disposition of all or substantially all of the assets of the Company.
Amendment or Termination
The Board may amend or terminate the Stock Option Plan; however, no
amendment may become effective until shareholder approval is obtained if the
amendment (i) materially increases the aggregate number of shares that may be
issued pursuant to Options and Restricted Stock awards, (ii) materially
increases the benefits to participants under the Stock Option Plan, or (iii)
materially changes the requirements as to eligibility for participation in the
Stock Option Plan. No amendment shall, without a participant's consent,
adversely affect any rights of such participant under any Option or Restricted
Stock award outstanding at the time that such amendment is made. No amendment
shall be made if it would disqualify the Stock Option Plan from the exemption
provided by Rule 16b-3.
Duration of Plan
No Option or Restricted Stock award may be granted under this Plan after
September 28, 2003. Options and Restricted Stock awards granted before
September 29, 2003, shall remain valid in accordance with their terms.
-21-
Tax Status
Under current Federal income tax laws, the principal Federal tax
consequences to participants and to the Company of the grant and exercise of
Incentive Stock Options and Non-Qualified Stock Options or the award of
Restricted Stock and the lapse of restriction thereon, pursuant to the
provisions of the Stock Option Plan, are summarized below.
Incentive Stock Options. An employee will generally not recognize regular
taxable income on receipt or exercise of an ISO. However, the amount by which
the fair market value of the common stock at the time of exercise exceeds the
option price is a required adjustment for the purposes of the alternative
minimum tax applicable to the employee. If the employee holds the common stock
received upon exercise of the Option for one year after exercise (and for two
years from the date of grant of the Option), any difference between the amount
realized upon the disposition of the stock and the amount paid for the stock
will be treated as long-term capital gain (or loss, if applicable) to the
employee. If the employee exercises an ISO and satisfies these holding period
requirements, the Company may not deduct any amount in connection with the ISO.
In contrast, if an employee exercises an ISO but does not satisfy the
holding period requirements with respect to the common stock acquired on
exercise, the employee generally will recognize ordinary income in the year of
the disposition equal to the excess, if any, of the fair market value of the
common stock on the date of exercise over the option price; and any excess of
the amount realized on the disposition over the fair market value on the date of
exercise will be taxed as long-or short-term capital gain (as applicable). If,
however, the fair market value of the common stock on the date of disposition is
less than on the date of exercise, the employee will recognize ordinary income
equal only to the difference between the amount realized on disposition and the
option price. In either event, the Company will be entitled to deduct an amount
equal to the amount constituting ordinary income to the employee in the year of
the premature disposition.
Non-Qualified Stock Options. NQSOs granted under the Stock Option Plan are
not taxable to a participant at grant but result in taxation at exercise, at
which time the individual will recognize ordinary income in an amount equal to
the difference between the option exercise price and the fair market value of
the common stock on the exercise date. The Company will be entitled to deduct a
corresponding amount as a business expense in the year that the participant
recognizes this income.
-22-
Restricted Stock. A participant generally will not recognize taxable
income upon the award of Restricted Stock. Instead, ordinary income is
recognized at the time the restrictions lapse equal to the fair market value of
the Restricted Stock on the date. If the participant is also subject to the
provisions of Section 16(b) of the Exchange Act, recognition of income upon the
lapse of restrictions on the Restricted Stock may be further postponed until any
applicable Section 16(b) holdings periods or restrictions have lapsed. A
participant, however, may elect to be taxed at the time of the award of
Restricted Stock and, if this election is made, the participant will recognize
ordinary income equal to the fair market value of such stock at the time of the
award determined without regard to any of the restrictions thereon.
The Company will generally be entitled to a corresponding tax deduction at
the time that the participant recognizes ordinary income with respect to the
Restricted Stock.
THE BOARD OF DIRECTORS RECOMMENDS THAT THE SHAREHOLDERS VOTE IN FAVOR OF
THE AMENDMENT AND RESTATEMENT OF THE 1993 STOCK OPTION AND INCENTIVE PLAN, AN
AFFIRMATIVE VOTE OF A MAJORITY OF THE SHARES PRESENT IN PERSON OR REPRESENTED BY
PROXY AT THE ANNUAL MEETING IS REQUIRED FOR APPROVAL OF THIS PROPOSAL.
DESIGNATION OF AUDITORS
The Board has designated KPMG LLP, Certified Public Accountants, as the
Company's independent auditors for the fiscal year ending December 31, 2001,
subject to shareholder ratification. A representative of KPMG LLP is expected
to be present at the Annual Meeting, will have the opportunity to make a
statement if he or she desires to do so, and is expected to be available to
respond to appropriate questions.
The principal function of KPMG LLP is to audit the consolidated financial
statements of the Company and its subsidiaries and, in connection with that
audit, to review certain related filings with the SEC and to conduct limited
reviews of the financial statements included in each of the Company's quarterly
reports. The Company engaged the services of KPMG LLP as its independent
accountants as of June 26, 1997.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE PROPOSAL TO RATIFY THE
APPOINTMENT OF KPMG, LLP TO SERVE AS INDEPENDENT PUBLIC ACCOUNTANTS FOR THE
FISCAL YEAR ENDING DECEMBER 31, 2001.
-23-
FINANCIAL STATEMENTS
A copy of the Company's Annual Report on Form 10-K for the period ended
December 31, 2000, to be filed with the SEC, will be provided on written request
without charge to any shareholder whose proxy is being solicited by the Board.
The written request should be directed to:
Shareholder Relations
Southern Financial Bancorp, Inc.
37 E. Main Street
Warrenton, Virginia 20186
PROPOSALS FOR 2002 ANNUAL MEETING
Any shareholder desiring to make a proposal to be acted upon at the 2002
Annual Meeting of shareholders must present such proposal to the Company at its
principal office at 37 E. Main Street, Warrenton, Virginia, not later than
November 26, 2001, as required by the regulations of the SEC, in order for the
proposal to be considered for inclusion in the Company's proxy statement. The
Company anticipates holding the 2002 Annual Meeting on April 25, 2002.
OTHER MATTERS
The Board is not aware of any matters to be presented for action at the
meeting other than as set forth herein. However, if any other matters properly
come before the meeting, or any adjournment thereof, the person or persons
voting the proxies will vote them in accordance with their best judgment.
By Order of the Board of Directors
Richard Steele
Richard Steele
Secretary
-24-
[LOGO APPEAR HERE]
Appendix A
SOUTHERN FINANCIAL BANCORP
AUDIT COMMITTEE CHARTER
Mission Statement
The audit committee will assist the board of directors in fulfilling its
oversight responsibilities. The audit committee will review the financial
reporting process, the system of internal control, the audit process, and the
company's process for monitoring compliance with laws and regulations and with
the code of conduct. In performing its duties, the committee will maintain
effective working relationships with the board of directors, management and the
internal and external auditors. To effectively perform his or her role, each
committee member will obtain an understanding of the detailed responsibilities
of committee membership as well as the company's business, operations, and
risks.
Organization
. Committee will be made up of at least 3 outside independent directors
. The majority of the members must have an understanding of financial
reporting and controls in business;
. The committee will meet 4 times per year; and
. The chairperson will be appointed by the full board of directors and be
knowledgeable in accounting issues.
Overview of Internal Audit Committee Responsibilities
The function of the Audit Committee is oversight. The management of the Bank is
responsible for the preparation, presentation and integrity of the Corporation's
financial statements. Management is responsible for maintaining appropriate
accounting and financial reporting principles and policies and the internal
audit department is responsible for conducting reviews, including reviews of the
internal controls designed to assure compliance with policies, procedures and
processes of the Bank. The independent auditor is responsible for planning and
carrying out a proper audit and reviews, including reviews of the Bank's
quarterly financial statements prior to the filing of each quarterly report on
10-Q, and other procedures.
In fulfilling their responsibilities here under, it is recognized that members
of the Audit Committee are not full-time employees of the Bank and are not, and
do not represent themselves to be
-25-
accountants or auditors by profession or experts in the fields of accounting or
auditing. As such it is not the duty or responsibility of the Audit Committee or
its members to conduct "fieldwork" or other types of auditing or accounting
reviews or procedures, and each member of the Audit Committee shall be entitled
to rely on (i) the integrity of the persons or organizations within and outside
the Bank that it receives information from and (ii) the accuracy of the
financial and other information provided to the Audit Committee by such persons
or organizations absent actual knowledge to the contrary.
Roles and Responsibilities
Internal Control
. Evaluate whether management is setting the appropriate tone by
communicating the importance of internal control and ensuring that all
individuals possess an understanding of their roles and responsibilities;
. Gain an understanding of whether internal control recommendations made by
internal and external auditors have been implemented by management; and
. Ensure that the external auditors keep the audit committee informed about
fraud, illegal acts, deficiencies in internal control, and certain other
matters.
Financial Reporting
General
. Review significant accounting and reporting issues, including recent
professional and regulatory pronouncements, and understanding their impact
on the financial statements, and
. Ask management and the internal and external auditors about significant
risks and exposures and the plans to minimize such risks.
Annual Financial Statements
. Review the annual financial statements and determine whether they are
complete and consistent with the information known to committee members,
and assess whether the financial statements reflect appropriate accounting
principles;
. Pay particular attention to complex and/or unusual transactions;
. Focus on judgmental areas such as those involving valuation of assets and
liabilities, including the accounting for and disclosure of loan losses;
litigation reserves; and other commitments and contingencies;
. Meet with management and the external auditors to review the financial
statements and results of the audit;
. Consider management's handling of proposed audit adjustments identified by
the external auditors;
. Review the MD&A and other sections of the annual report before it s release
and consider whether the information is adequate and consistent with
members' knowledge about the company and its operations, and
. Ensure that the external auditors communicate certain required matters to
the committee.
Interim Financial Statements
-26-
. Be briefed on how management develops and summarizes quarterly financial
information and the extent to which external auditors review the
information;
. Ensure that the external auditors communicate certain required matters to
the committee.
Compliance with Laws and Regulations
. Review the effectiveness of the system for monitoring compliance with laws
and regulations and the results of management's investigation and follow-up
on any fraudulent acts or accounting irregularities;
. Periodically obtain updates from management regarding compliance;
. Be satisfied that all regulatory compliance matters have been considered in
the preparation of the financial statements; and
. Review the findings of any examinations by regulatory agencies.
Compliance with Code of Conduct
. Ensure that a code of conduct is formalized in writing and that all
employees are aware of it;
. Evaluate whether management is setting the appropriate tone by
communicating the importance of the code of conduct and the guidelines for
acceptable business practices;
. Review the program for monitoring compliance with the code of conduct; and
. Periodically obtain updates from management regarding compliance.
Internal Audit
. Review the activities and organizational structure of the internal audit
function;
. Review the qualifications of the internal audit function and concur on the
appointment or replacement of the director of internal audit; and
. Review the effectiveness of the internal audit function.
External Audit
. Review the external auditors' proposed audit scope and approach;
. Review the performance of the external auditors and recommend to the board
of directors the appointment or discharge of the external auditors; and
. Review and confirm the independence of the external auditors by reviewing
the nonaudit services provided and the auditors' assertion of their
independence in accordance with professional standards.
Other Responsibilities
. Meet with the external auditors, director of internal audit, and management
in separate executive sessions to discuss any matters that the committee or
these groups believe should be discussed privately;
. Ensure that significant findings and recommendations made by the internal
and external
-27-
auditors are received and discussed on a timely basis;
. If necessary, institute special investigations;
. Perform other oversight functions as requested by the full board;
. Review and update the charter on an annual basis; receive approval of
changes from the board.
Reporting
. Regularly update the board of directors about committee activities and make
appropriate recommendations.
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Appendix B
SOUTHERN FINANCIAL BANCORP, INC.
1993 STOCK OPTION AND INCENTIVE PLAN
(As Amended and Restated in 2001)
1. Plan Purpose. The purpose of the Plan is to promote the long-term
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interests of the Institution and its stockholders by providing a means for
attracting and retaining officers and key employees of the Institution and its
Affiliates and members of the Board of Directors of the Institution. It is
intended that designated Options granted pursuant to the provisions of this Plan
to persons employed on a full-time basis will qualify as Incentive Stock
Options. Options granted to persons who are not full-time employees will be
Non-Qualified Stock Options.
2. Definitions. The following definitions are applicable to the Plan:
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(a) "Affiliate" -- means any "parent corporation" or "subsidiary
corporation" of the Institution as such terms are defined in Section
424(e) and (f), respectively, of the Code.
(b) "Automatic Award Date" -- means the first business day after the
first meeting of the Board of Directors of the Institution following
each annual meeting of stockholders of the Institution during the term
of the Plan.
(c) "Automatic Option" -- means a Non-Qualified Stock Option
automatically granted to a Non-Employee Director pursuant to Section 6A hereof.
(d) "Award" -- means the grant of an Automatic Option, Incentive Stock
Option, Non-Qualified Stock Option, or Restricted Stock, or any combination
thereof, as provided in the Plan.
(e) "Code" - means the Internal Revenue Code of 1986, as amended.
(f) "Committee" - means the Committee referred to in Section 3 hereof.
(g) "Continuous Service" -- means (i) with respect to Automatic
Options awarded for service as a Director, continuous service as a Director or
(ii) in the case of all other Options, the absence of any interruption or
termination of service as an officer or employee of the Institution or an
Affiliate, except that when used with respect to persons granted an Incentive
Stock Option shall mean the absence of any interruption or termination of
service as a full-time employee of the Institution or an Affiliate. Service as
an officer or employee of the Institution or an Affiliate shall not be
considered interrupted in the case of sick leave, military leave or any other
leave of absence approved by the Institution or in the case of transfers between
payroll locations of the Institution or between payroll locations of the
Institution, its parent, its subsidiaries or its successor.
(h) "Disinterested Persons" -- means those Directors who are "non-
employee
directors" as defined in Rule 16b-3, as amended, under the Securities Exchange
Act of 1934.
(i) "Director" -- means any person who is a member of the Board of
Directors of the Institution.
(j) "Employee" -- means any person (other than a Non-Employee
Director), including an officer, who is employed by the Institution or any
Affiliate. The term "Employee" is not intended to include a person whose sole
position with respect to the Institution or any Affiliate is that of a Director.
(k) "Exercise Price" -- means the price per Share at which the Shares
subject to an Option may be purchased upon the exercise of such Option.
(l) "Incentive Stock Option" -- means an option to purchase Shares
granted by the Committee pursuant to Section 6 hereof which is subject to the
limitations and restrictions of Section 8 hereof and is intended to qualify
under Section 422 of the Code.
(m) "Institution" -- means Southern Financial Bancorp, Inc., a
Virginia corporation.
(n) "Market Value" -- means the average of the high and low quoted
sales price on the date in question (or, if there is no reported sale on such
date, on the last preceding date on which any reported sale occurred) of a Share
on the Composite Tape for the New York Stock Exchange--Listed Stocks, or, if on
such date the Shares are not quoted on the Composite Tape, on the New York Stock
Exchange, or, if the Shares are not listed or admitted to trading on such
Exchange, on the principal United States securities exchange registered under
the Securities Exchange Act of 1934 on which the Shares are listed or admitted
to trading, or, if the Shares are not listed or admitted to trading on any such
exchange, the mean between the closing high bid and low asked quotations with
respect to a Share on such date on the National Association of Securities
Dealers, Inc., Automated Quotations System, or any similar system then in use,
or, if no such quotations are available, the fair market value on such date of a
Share as the Committee shall determine.
(o) "Non-Employee Director" -- means an individual who is a Director
and who is not an employee of the Institution or any Affiliate on the applicable
Automatic Award Date.
(p) "Non-Qualified Stock Option" -- means an option to purchase Shares
granted by the Committee pursuant to Section 6 hereof or an option to purchase
Shares granted pursuant to Section 6A hereof, which options are not intended to
qualify under Section 422 of the Code.
(q) "Option" -- means an Incentive Stock Option or a Non-Qualified
Stock Option.
(r) "Participant" -- means any officer or key employee of the
Institution or any Affiliate who is selected by the Committee to receive an
Award and any Director who receives an Automatic Award.
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(s) "Plan" -- means the 1993 Stock Option and Incentive Plan of the
Institution.
(t) "Restricted Period" -- means the period of time selected by the
Committee for the purpose of determining when restrictions are in effect under
Section 9 hereof with respect to Restricted Stock awarded under the Plan.
(u) "Restricted Stock" -- means Shares which have been contingently
awarded to a Participant by the Committee subject to the restrictions referred
to in Section 9 hereof, so long as such restrictions are in effect.
(v) "Shares" -- means the shares of common stock, par value $.01 per
share, of the Institution.
3. Administration. The Plan shall be administered by a Committee
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consisting of three or more members, each of whom shall be a Disinterested
Person. The members of the Committee shall be appointed by the Board of
Directors of the Institution. Except as limited by the express provisions of the
Plan, the Committee shall have sole and complete authority and discretion to (i)
select Participants and grant Awards; (ii) determine the number of Shares to be
subject to types of Awards generally, as well as to individual Awards granted
under the Plan; (iii) determine the terms and conditions upon which Awards shall
be granted under the Plan; (iv) prescribe the form and terms of instruments
evidencing such grants; (v) establish from time to time regulations for the
administration of the Plan; (vii) interpret the Plan; and (vii) make all
determinations deemed necessary or advisable for the administration of the Plan.
The Committee may maintain, and update from time to time as appropriate, a list
designating persons as Disinterested Persons. The purpose of such list shall be
to evidence the status of such individuals as Disinterested Persons, and the
Board of Directors may appoint to the Committee any individual actually
qualifying as a Disinterested Person, regardless of whether identified as such
on said list.
A majority of the Committee shall constitute a quorum, and the acts of a
majority of the members present at any meeting at which a quorum is present, or
acts approved in writing by a majority of the Committee without a meeting, shall
be acts of the Committee.
4. Participants. The Committee may select from time to time Participants
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(other than Non-Employee Directors) in the Plan from those officers and key
employees (other than Disinterested Persons) of the Institution or its
Affiliates who, in the opinion of the Committee, have the capacity for
contributing in a substantial measure to the successful performance of the
Institution or its Affiliates.
Non-Employee Directors who receive Automatic Awards under the Plan pursuant
to Article 6A shall automatically be Participants.
5. Shares Subject to Plan. Subject to adjustment by the operation of
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Section 10 hereof, the maximum number of Shares with respect to which Awards may
be made under the Plan is 481,000. The Shares with respect to which Awards may
be made under the Plan may either be authorized and unissued shares or unissued
shares heretofore or hereafter reacquired and held as treasury shares. An Award
shall not be considered to have been made under the Plan with respect to any
Option which terminates or with respect to Restricted Stock which is forfeited,
and new Awards may be granted under the Plan with respect to the number of
Shares as to which such termination or
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forfeiture has occurred.
6. General Terms and Conditions of Options. The Committee shall have
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full and complete authority and discretion, except as expressly limited by the
Plan, to grant Options and to provide the terms and conditions (which need not
be identical among Participants) thereof. In particular, the Committee shall
prescribe the following terms and conditions: (i) the Exercise Price of any
Option, which shall not be less than the Market Value per Share at the date of
grant of such Option, (ii) the number of Shares subject to, and the expiration
date of, any Option, which expiration date shall not exceed ten years from the
date of grant, (iii) the manner, time and rate (cumulative or otherwise) of
exercise of such Option, provided, however, that except as otherwise specified
in the Plan, no Option shall be exercisable prior to the expiration of one year
from the date of grant, and (iv) the restrictions, if any, to be placed upon
such Option or upon Shares which may be issued upon exercise of such Option. The
Committee may, as a condition of granting any Option, require that a Participant
agree not to thereafter exercise one or more Options previously granted to such
Participant.
6A. Automatic Options. On each Automatic Award Date occurring after the
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effective date of this amendment and restatement of the Plan, each Non-Employee
Director will automatically receive an Award of an Automatic Option for 1,000
Shares, or such lesser number as the Committee may determine from time to time
for Non-Employee Directors as a whole or for any Non-Employees Directors.
The Exercise Price of Automatic Options shall be 100% of the Market Value
on the Automatic Award Date.
Unless otherwise provided by the Committee in the applicable instrument or
instruments evidencing the grant of Automatic Options, the expiration date of
each Automatic Option shall be ten years from its Automatic Award Date, and each
Automatic Option shall become exercisable on the first anniversary of its
Automatic Award Date, provided that an Automatic Option shall be immediately
exercisable to the extent otherwise specified in the Plan.
7. Exercise of Options.
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(a) An Option granted under the Plan shall be exercisable during the
lifetime of the Participant to whom such Option was granted only by such
Participant, and except as provided in paragraphs (c) and (d) of this Section 7,
no such Option may be exercised unless at the time such Participant exercises
such Option, such Participant has maintained Continuous Service since the date
of grant of such Option.
(b) To exercise an Option under the Plan, the Participant to whom such
Option was granted shall give written notice to the Institution in form
satisfactory to the Committee (and, if partial exercises have been permitted by
the Committee, by specifying the number of Shares with respect to which such
Participant elects to exercise such Option) together with full payment of the
Exercise Price, if any and to the extent required. The date of exercise shall
be the date on which such notice is received by the Institution. Payment, if any
is required, shall be made either (i) in cash (including check, bank draft or
money order) or (ii) if permitted by the Committee, by delivering (A) Shares
already owned by the Participant and having a fair market value equal to the
applicable
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Exercise Price, such fair market value to be determined in such appropriate
manner as may be provided by the Committee or as may be required in order to
comply with or to conform to requirements of any applicable laws or regulations,
or (B) a combination of cash and such Shares.
(c) If a Participant to whom an Option was granted shall cease to
maintain Continuous Service for any reason (including total and partial
disability and normal and early retirement, but excluding death and termination
of employment by the Institution or any Affiliate or service as a Director, as
the case may be, for cause) such Participant may but only within the period of
three months immediately succeeding such cessation of Continuous Service and in
no event after expiration date of such Option, exercise such Option to the
extent that such Participant was entitled to exercise such Option at the date of
such cessation, provided, however, that such right of exercise after cessation
of Continuous Service shall not be available to a Participant if the Committee
otherwise determines and so provides in the applicable instrument or instruments
evidencing the grant of such Option. If the Continuous Service of a Participant
to whom an Option was granted by the Institution is terminated for cause, all
rights under any Option of such Participant shall expire immediately upon the
giving to the Participant of notice of such termination.
(d) In the event of the death of a Participant while in the Continuous
Service of the Institution or an Affiliate or within the three month
period referred to in paragraph (c) of this Section 7, the person to
whom any Option held by the Participant at the time of his death is
transferred by will or by the laws of descent and distribution may
exercise such Option or right at any time within a period of one year
succeeding the date of death of such Participant, but only to the
extent such Participant was entitled to exercise such Option
immediately prior to his death and in no event later than ten years
from the date of grant of such Option. Following the death of any
Participant to whom an Option was granted under the Plan, the
Committee may, as an alternative means of settlement of such Option,
elect to pay to the person to whom such Option is transferred by will
or by the laws of descent and distribution the amount by which the
Market Value per Share on the date of exercise of such Option shall
exceed the Exercise Price of such Option, multiplied by the number of
Shares with respect to which such Option is properly exercised. Any
such settlement of an Option shall be considered an exercise of such
Option for all purposes of the Plan.
8. Incentive Stock Options. Incentive Stock Options may be granted only
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to Participants who are Employees. Any provision of the Plan to the contrary
notwithstanding, (i) no Incentive Stock Option shall be granted more than ten
years from the date the Plan is adopted by the Board of Directors of the
Institution and no Incentive Stock Option shall be exercisable more than ten
years from the date such Incentive Stock Option is granted, (ii) the Exercise
Price of any Incentive Stock Option shall not be less than the Market Value per
Share on the date such Incentive Stock Option is granted, (iii) any Incentive
Stock Option shall not be transferable by the Participant to whom such Incentive
Stock Option is granted other than by will or the laws of descent and
distribution and shall be exercisable during such Participant's lifetime only by
such Participant, (iv) no Incentive Stock Option shall be granted to any
individual who, at the time such Incentive Stock Option is granted, owns stock
possessing more than ten percent of the total combined voting power of all
classes of stock of the Institution or Affiliate unless the Exercise Price of
such Incentive Stock Option is at least 110 percent of the Market Value per
Share at the date of grant and such Incentive Stock Option
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is not exercisable after the expiration of five years from the date such
Incentive Stock Option is granted, and (v) the aggregate Market Value
(determined as of the time any Incentive Stock Option is granted) of the Shares
with respect to which Incentive Stock Options are exercisable for the first time
by a Participant in any calendar year shall not exceed $100,000.
9. Terms and Conditions of Restricted Stock. The Committee shall have
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full and complete authority, subject to the limitations of the Plan, to grant
awards of Restricted Stock to Participants other than Non-Employee Directors
and, in addition to the terms and conditions contained in paragraphs (a) through
(f) of this Section 9, to provide such other terms and conditions (which need
not be identical among Participants) in respect of such Awards, and the vesting
thereof, as the Committee shall determine and provide in the agreement referred
to in paragraph (d) of this Section 9.
(a) At the time of an award of Restricted Stock, the Committee shall
establish for each Participant a Restricted Period during which or at the
expiration of which, as the Committee shall determine and provide, in the
agreement referred to in paragraph (d) of this Section 9, the shares awarded and
Restricted Stock shall vest and subject to any other terms and conditions as the
Committee shall provide shares of Restricted Stock may not be sold, assigned,
transferred, pledged or otherwise encumbered by the Participant, except as
hereinafter provided, during the Restricted Period. Except for such
restrictions, and subject to paragraphs (c), (d) and (e) of this Section 9 and
Section 10 hereof, the Participant as owner of such shares shall have all the
rights of a stockholder including but not limited to the right to receive all
dividends paid on such shares and the right to vote such shares. The Committee
shall have the authority, in its discretion, to accelerate the time at which any
or all of the restrictions shall lapse with respect to any shares of Restricted
Stock prior to the expiration of the Restricted Period with respect thereto, or
to remove any or all of such restrictions, whenever it may determine that such
action is appropriate by reason of changes in applicable tax or other laws or
other changes in circumstances occurring after the commencement of such
Restricted Period.
(b) Except as provided in Section 12 hereof, if a Participant ceases
to maintain Continuous Service for any reason (other than death, total
or partial disability or normal or early retirement) unless the
Committee shall otherwise determine and provide in the agreement
referred to in paragraph (d) of this Section 9, all shares of
Restricted Stock theretofore awarded to such Participant and which at
the time of such termination of Continuous Service are subject to the
restrictions imposed by paragraph (a) of this Section 9 shall upon
such termination of Continuous Service be forfeited and returned to
the Institution. Unless the Committee shall have provided in the
agreement referred to in paragraph (d) of this Section 9 for a ratable
lapse of restrictions with respect to an award of shares of Restricted
Stock during the Restricted Period, if a Participant ceases to
maintain Continuous Service by reason of death, total or partial
disability or normal or early retirement, such portion of such shares
of Restricted Stock awarded to such Participant which at the time of
such termination of Continuous Service are subject to the restrictions
imposed by paragraph (a) of this Section 9 as shall be equal to the
portion of the Restricted Period with respect to such shares which
shall have elapsed at the time of such termination of Continuous
Service shall be free of restrictions and shall not be forfeited.
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(c) Each certificate issued in respect of shares of Restricted Stock
awarded under the Plan shall be registered in the name of the Participant and
deposited by the Participant, together with a stock power endorsed in blank,
with the Institution and shall bear the following (or a similar) legend:
"The transferability of this certificate and the shares of stock
represented hereby are subject to the terms and conditions (including
forfeiture) contained in the 1993 Stock Option and Incentive Plan of
Southern Financial Federal Bancorp, Inc. and an Agreement entered into
between the registered owner and Southern Financial Bancorp, Inc.
Copies of such Plan and Agreement are on file in the Office of the
Secretary of Southern Financial Bancorp, Inc., 37 E. Main Street,
Warrenton, Virginia 22186."
(d) At the time of an award of shares of Restricted Stock, the
Participant shall enter into an Agreement with the Institution in a
form specified by the Committee, agreeing to the terms and conditions
of the award and such other matters as the Committee shall in its sole
discretion determine.
(e) At the time of an award of shares of Restricted Stock, the
Committee may, in its discretion, determine that the payment to the Participant
of dividends declared or paid on such-shares by the Institution or specified
portion thereof, shall be deferred until the earlier to occur of (i) the lapsing
of the restrictions imposed under paragraph (a) of this Section 9 or (ii) the
forfeiture of such shares under paragraph (b) of this Section 9, and shall be
held by the Institution for the account of the Participant until such time. In
the event of such deferral, there shall be credited at the end of each year (or
portion thereof) interest on the amount of the account at the beginning of the
year at a rate per annum as the Committee, in its discretion, may determine.
Payment of deferred dividends, together with interest accrued thereon as
aforesaid, shall be made upon the earlier to occur of the events specified in
(i) and (ii) of the immediately preceding sentence.
(f) At the expiration of the restrictions imposed by paragraph (a) of
this Section 9, the Institution shall redeliver to the Participant (or where the
relevant provision of paragraph (b) of this Section 9 applies in the case of a
deceased Participant, to his legal representative, beneficiary or heir) the
certificate(s) of stock power deposited with its pursuant to paragraph (c) of
this Section 9 and the Shares represented by such certificate(s) shall be free
of the restrictions referred to in paragraph (a) of this Section 9.
10. Adjustments Upon Changes in Capitalization. In the event of any
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change in the outstanding Shares subsequent to the effective date of the Plan by
reason of any reorganization, recapitalization, stock split, stock dividend,
combination or exchange of shares, merger, consolidation or any change in the
corporate structure or Shares of the Institution, the maximum aggregate number
of class of shares as to which Awards may be granted under the Plan and the
number and class of shares with respect to which Awards theretofore have been
granted under the Plan shall be appropriately adjusted by the Committee, whose
determination shall be conclusive. Any shares of stock or other securities
received, as a result of any of the foregoing, by a Participant with respect to
Restricted Stock shall be subject to the same restrictions and the
certificate(s) or other instruments representing or evidencing such shares or
securities shall be legended and
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deposited with the Institution in the manner provided in Section 9 hereof.
11. Effect of Merger on Options. In the case of any merger, consolidation
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or combination of the Institution (other than a merger, consolidation or
combination in which the Institution is the continuing entity and which does not
result in the outstanding Shares being converted into or exchanged for different
securities, cash or other property, or any combination thereof), any Participant
to whom an Option has been granted under the Plan shall have the right (subject
to the provisions of the Plan and any limitation applicable to such Option),
thereafter and during the term of each such Option, to receive different
securities, cash or other property, or any combination thereof, any Participant
to whom an Option has been granted under the Plan shall have the right (subject
to the provisions of the Plan and any limitation applicable to such Option),
thereafter and during the term of each such Option, to receive upon exercise of
any Option an amount equal to the excess of the fair market value on the date of
such exercise of the securities, cash or other property, or combination thereof,
receivable upon such merger, consolidation or combination in respect of a Share
over the Exercise Price of such Option, multiplied by the number of Shares with
respect to which such Option shall have been exercised. Such amount may be
payable fully in cash, fully in one or more of the kind or kinds of property
payable in such merger, consolidation or combination, or partly in cash and
partly in one or more such kind or kinds of property, all in the discretion of
the Committee.
12. Effect of Change in Control. Each of the events specified in the
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following clauses (i) through (iii) of this Section 12 shall be deemed a "change
in control": (i) any third person, including a "group" as defined in Section
13(d) (3) of the Securities Exchange Act of 1934, shall become the beneficial
owner of shares of the Institution with respect to which 25% or more of the
total number of votes for the election of the Board of Directors of the
Institution may be cast, (ii) as a result of, or in connection with, any cash
tender offer, exchange offer, merger or other business combination, sale of
assets or contested election, or combination of the foregoing, the persons who
were directors of the Institution shall cease to constitute a majority of the
Board of Directors of the Institution or (iii) the shareholders of the
Institution shall approve an agreement providing either for a transaction in
which the Institution will cease to be an independent publicly owned entity or
for a sale or other disposition of all or substantially all the assets of the
Institution; provided, however, that the occurrence of any such events shall not
be deemed a "change in control" if, prior to such occurrence, a resolution
specifically approving such occurrence shall have been adopted by at least a
majority of the Board of Directors of the Institution. If the Continuous
Service of any Participant of the Institution or any Affiliate is involuntarily
terminated, for whatever reason, at any time within eighteen months after a
change in control, unless the Committee shall have otherwise provided in the
agreement referred to in paragraph (d) of Section 9 hereof, any Restricted
Period with respect to Restricted Stock theretofore awarded to such Participant
shall lapse upon such termination and all Shares awarded as Restricted Stock
shall become fully vested in the Participant to whom such Shares were awarded.
If a tender offer or exchange offer for Shares (other than such an offer by the
Institution) is commenced, or if the event specified in clause (iii) above shall
occur, unless the Committee shall have otherwise provided in the instrument
evidencing the grant of an Option, all Options theretofore granted and not fully
exercisable shall become exercisable in full upon the happening of such event
and shall remain so exercisable in accordance with their terms; provided,
however, that no Option shall be exercisable by a director or officer of the
Institution within six months of the date of grant of such Option and no Option
which has previously been exercised or otherwise terminated shall become
exercisable.
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13. Assignment and Transfers. No Award nor any right or interest of a
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Participant under the Plan in any instrument evidencing any Award under the Plan
may be assigned, encumbered or transferred except, in the event of the death of
a Participant, by will or the laws of descent and distribution.
14. Rights under the Plan. No officer, key employee or Non-Employee
---------------------
Director shall have a right to be selected as a Participant nor, having been so
selected, to be selected again as a Participant and no officer, employee, Non-
Employee Director or other person shall have any claim or right to be granted an
Award under the Plan or under any other incentive or similar plan of the
Institution or any Affiliate. Neither the Plan nor any action taken thereunder
shall be construed as giving any employee any right to be retained in the
employee of the Institution or any Affiliate or any Non-Employee Director to
continue to serve as a Director.
15. Delivery and Registration of Stock. The Institution's obligation to
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deliver Shares with respect to an Award shall, if the Committee so requests, be
conditioned upon the receipt of a representation as to the investment intention
of the Participant to whom such Shares are to be delivered, in such form as the
Committee shall determine to be necessary or advisable to comply with the
provision of the Securities Act of 1933 or any other Federal, state or local
securities legislation. It may be provided that any representation requirement
shall become inoperative upon a registration of the Shares or other action
eliminating the necessity of such representation under such Securities Act or
other securities legislation. The Institution shall not be required to deliver
any Shares under the Plan prior to (i) the admission of such shares to listing
on any stock exchange or system on which Shares may then be listed, and (ii) the
completion of such registration or other qualification of such Shares under any
state or Federal law, rule or regulation, as the Committee shall determine to be
necessary or advisable.
This Plan is intended to comply with Rule 16b-3 under the Securities
Exchange Act of 1934. Any provision of the Plan which is inconsistent with said
Rule shall, to the extent of such inconsistency, be inoperative and shall not
affect the validity of the remaining provisions of the Plan.
16. Withholding Tax. Upon the termination of the Restricted Period with
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respect to any shares of Restricted Stock (or at any such earlier time, if any,
that an election is made by the Participant under Section 83(b) of the Code, or
any successor provision thereto, to include the value of such shares in taxable
income), the Institution shall have the right to require the Participant or
other person receiving such shares to pay the Institution the amount of any
taxes which the Institution is required to withhold with respect to such shares
or, in lieu thereof, to retain, or sell without notice, a sufficient number of
shares held by it to cover the amount required to be withheld. The Institution
shall have the right to deduct from all dividends paid with respect to shares of
Restricted Stock the amount of any taxes which the Institution is required to
withhold with respect to such dividend payments.
Where a Participant or other person is entitled to receive Shares pursuant
to the exercise of an Option pursuant to the Plan, the Institution shall have
the right to require the Participant or such other person to pay the Institution
the amount of any taxes which the Institution is required to withhold with
respect to such Shares, or, in lieu thereof, to retain, or sell without notice,
a number of such Shares sufficient to cover the amount required to be withheld.
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17. Amendment or Termination. The Board of Directors of the Institution
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may amend, suspend or terminate the Plan or any portion thereof at any time, but
(except as provided in Section 10 hereof) no amendment shall be made without
approval of the stockholders of the Institution which shall (i) materially
increase the aggregate number of Shares with respect to which Awards may be made
under the Plan, (ii) materially increase the benefits accruing to Participants
under the Plan or (iii) change the class of persons eligible to participate in
the Plan; provided, however, that no such amendment, suspension or termination
shall impair the rights of any Participant, without his consent, in any Award
theretofore made pursuant to the Plan.
18. Effective Date and Term of Plan. The Plan became effective upon its
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adoption by the Board of Directors of Southern Financial Federal Savings Bank on
August 18, 1993, subject to ratification by vote of the holders of a majority of
the outstanding shares of the Institution entitled to vote on the adoption of
the Plan, which ratification occurred on September 29, 1993. It shall continue
in effect for a term of ten years from its effective date unless sooner
terminated under Section 17 hereof. The Plan was assumed by the Institution in
1995 in connection with its formation as a holding company for Southern
Financial Federal Savings Bank.
19. Effective Date of This Amendment and Restatement of Plan. This
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amendment and restatement of the Plan shall become effective upon its adoption
by the Board of Directors of the Institution and its approval by vote of the
holders of a majority of the outstanding shares of the Institution entitled to
vote on such approval.
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SOUTHERN FINANCIAL BANCORP, INC.
37 East Main Street
Warrenton, Virginia 20186
PROXY FOR ANNUAL MEETING OF SHAREHOLDERS
Proxy is Solicited by the Board of Directors
The undersigned hereby appoints R. Roderick Porter, Georgia S. Derrico, and
Richard P. Steele, jointly and severally, as proxies (and if the undersigned is
a proxy, as substitute), each with the power to act alone and to appoint his or
her substitute, and hereby authorizes each of them to represent the undersigned
and to vote, as designated below, all of the shares of Common Stock of Southern
Financial Bancorp, Inc. (the "Company") held of record by the undersigned on
February 22, 2001 at the Annual Meeting of Shareholders to be held on April 26,
2001 or any adjournment thereof.
The Board of Directors recommends a vote FOR each of the following
Proposals:
1. To elect four directors for a three-year term.
[_] For all nominees [_] WITHHOLD AUTHORITY to
listed below vote for all nominees
(except as marked to the contrary)
(INSTRUCTION: To withhold the authority to vote for any individual nominee,
strike a line through the nominee's name in the list below)
Fred L. Bollerer, Georgia S. Derrico, Barbara J. Fried, Richard E. Smith
2. To ratify the designation of KPMG LLP as the Company's auditors for
the fiscal year ending December 31, 2001.
[_] FOR [_] AGAINST [_] ABSTAIN
3. To amend and restate the 1993 Stock Option Plan to increase the number
of shares reserved for issuance thereunder by 70,000 and provide automatic
options to non-employee directors of the Company.
[_] FOR [_] AGAINST [_] ABSTAIN
4. In their discretion, the proxies are authorized to vote upon such
other business as may properly come before the meeting.
This proxy, when properly executed, will be voted in the manner directed
herein by the undersigned shareholder. If no direction is made, this proxy will
be voted FOR all nominees listed in Proposals 1 and FOR Proposals 2 and 3.
Please sign exactly as the name appears on the label. When shares are held
by joint tenants, both should sign. When signing as attorney, executor,
administrator, trustee, guardian or agent, please give full title as such. If a
corporation, please sign in full corporate name by president or other authorized
officer. If a partnership, please sign in partnership name by authorized
person.
Date: ___________________, 2001 __________________________________
Signature
Printed Name:
________________________________ __________________________________
Signature, if held jointly
Number of Shares: I plan to attend the meeting in
person:
[_] Yes
____________________ [_] No
Please mail this form in the enclosed envelope