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
Virginia Financial Group, 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)
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[_] Fee paid previously with preliminary materials.
[_] Check box if any part of the fee is offset as provided by Exchange
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was paid previously. Identify the previous filing by registration statement
number, or the Form or Schedule and the date of its filing.
[LOGO]
VIRGINIA
FINANCIAL
GROUP, INC.
24 South Augusta Street 102 S. Main Street
P.O. Box 1309 P.O. Box 71
Staunton, Virginia 24402 Culpeper, Virginia 22701
Dear Fellow Shareholders:
You are cordially invited to attend the 2002 Annual Meeting of Shareholders
of Virginia Financial Group, Inc. The meeting will be held on Wednesday, April
17, 2002, at 10:00 a.m. at the Doubletree Hotel, Charlottesville, Virginia. The
accompanying Notice and Proxy Statement describe the matters to be presented at
the meeting. Enclosed is our Annual Report to Shareholders that will be reviewed
at the Annual Meeting.
Please complete, sign, date, and return the enclosed proxy card as soon as
possible. Whether or not you will be able to attend the Annual Meeting, it is
important that your shares be represented and your vote recorded. The proxy may
be revoked at any time before it is voted at the Annual Meeting.
We appreciate your continuing loyalty and support of Virginia Financial
Group, Inc. and its affiliated companies.
Sincerely,
/s/ Harry V. Boney, Jr.
Harry V. Boney, Jr.
Chairman of the Board
/s/ O. R. (Ed) Barham, Jr.
O. R. (Ed) Barham, Jr.
President & Chief Executive Officer
March 22, 2002
[LOGO]
VIRGINIA
FINANCIAL
GROUP, INC.
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
To Be Held April 17, 2002
To Our Shareholders:
The Annual Meeting of Shareholders of Virginia Financial Group, Inc.
will be held on Wednesday, April 17, 2002, at 10:00 a.m. at the Doubletree
Hotel, U.S. Highway 29, Charlottesville, Virginia, for the following purposes:
1. To elect five (5) directors to serve until the 2005 Annual
Meeting of Shareholders, or until their successors are elected and
qualified;
2. To ratify the appointment of Yount, Hyde & Barbour, P.C., as
external auditors for the fiscal year ending December 31, 2002;
and
3. To transact such other business as may properly come before the
meeting.
Shareholders of record at the close of business on March 18, 2002, will
be entitled to notice of, and to vote at, the Annual Meeting and any
adjournments thereof.
By Order of the Board of Directors,
/s/ Fred D. Bowers
Fred D. Bowers
Secretary
March 22, 2002
IMPORTANT NOTICE
Please complete, sign, date, and return the enclosed proxy card in the
--------------------------------
accompanying postage-paid envelope so that your shares will be represented at
the meeting. Shareholders attending the meeting may personally vote on all
matters which are considered, in which event the signed proxies are revoked.
VIRGINIA FINANCIAL GROUP, INC.
24 South Augusta Street
Post Office Box 1309
Staunton, Virginia 24402-1309
102 South Main Street
Post Office Box 71
Culpeper, Virginia 22701
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PROXY STATEMENT FOR
ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD APRIL 17, 2002
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GENERAL INFORMATION
The enclosed proxy is solicited by and on behalf of the Board of
Directors of Virginia Financial Group, Inc. (the "Company") for the Annual
Meeting of Shareholders of the Company (the "Annual Meeting") to be held on
Wednesday, April 17, 2002, at 10:00 a.m. at the Doubletree Hotel,
Charlottesville, Virginia, for the purposes set forth in the accompanying Notice
of Annual Meeting. The approximate mailing date of this Proxy Statement and
accompanying proxy is March 22, 2002.
This is the first Proxy Statement delivered on behalf of Virginia
Financial Group, Inc., following the January 18, 2002 completion of the merger
of Virginia Commonwealth Financial Corporation with and into Virginia Financial
Corporation, under the new name "Virginia Financial Group, Inc." (the "Merger").
All current references made herein to the Company refer to Virginia Financial
Group, Inc. All references made herein to the Company with respect to time
periods prior to January 18, 2002 refer to Virginia Financial Corporation
("Virginia Financial") before the Merger. All references made herein to Virginia
Commonwealth Financial Corporation ("Virginia Commonwealth") refer to Virginia
Commonwealth before the Merger.
Revocation and Voting of Proxies
Execution of a proxy will not affect a shareholder's right to attend
the Annual Meeting and to vote in person. Any shareholder who has executed and
returned a proxy may revoke it at any time before the proxy is exercised by
submitting a written notice of revocation or a duly executed proxy bearing a
later date to the Company at its office located at 102 South Main Street, P.O.
Box 71, Culpeper, Virginia 22701. Shareholders also may revoke their proxies by
attending the Annual Meeting and voting in person. Proxies will extend to and
will be voted according to their terms at any adjourned session of the Annual
Meeting.
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Voting Rights of Shareholders
Only shareholders of record at the close of business on March 18, 2002
are entitled to notice of and to vote at the Annual Meeting or any adjournment
thereof. As of the close of business on the record date, 7,286,299 shares of
Company common stock, par value $5.00 per share, were outstanding and entitled
to vote at the Annual Meeting. The Company has no other class of stock
outstanding.
Each share of Company common stock entitles the holder thereof to one
vote upon each matter to be voted upon at the Annual Meeting. Shareholders of
the Company are not entitled to cumulative voting rights. The presence, in
person or by proxy, of a majority of the votes entitled to be cast will
constitute a quorum for the transaction of business at the Annual Meeting.
With regard to the election of directors, votes may be cast in favor or
withheld. If a quorum is present, the nominees receiving the greatest number of
the votes cast (even if less than a majority) will be elected directors;
therefore, votes withheld will have no effect. The ratification of Yount, Hyde &
Barbour, P.C. as the Company's external auditors requires the affirmative vote
of a majority of the shares cast on the matter. Thus, although abstentions and
broker non-votes (shares held by customers which may not be voted on certain
matters because the broker has not received specific instructions from the
customers) are counted for purposes of determining the presence or absence of a
quorum for the transaction of business, they are generally not counted for
purposes of determining whether such a proposal has been approved, and therefore
have no effect.
Solicitation of Proxies
The expenses of soliciting proxies will be borne by the Company.
Proxies are being solicited by mail, and also may be solicited by directors,
officers, employees and agents of the Company in person, by telephone, or by
mail. Officers, directors and employees of the Company will not receive special
compensation for their solicitation activities. The Company may reimburse banks,
brokerage firms, and other custodians, nominees, and fiduciaries for their
reasonable expenses in sending proxy materials to beneficial owners of Company
common stock.
Principal Holders of Capital Stock
The following table sets forth certain information, as of March 18,
2002, about the beneficial ownership of the Company's common stock for each
director, director nominee, certain executive officers and for all directors,
director nominees, and executive officers of the Company as a group. To the
Company's knowledge, no shareholder of the Company owns 5% or more of the
Company's outstanding common stock.
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Number of Shares Percentage of Common Stock
Name Beneficially Owned/(1)/ Outstanding
- ---- ----------------------- -----------
Directors
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Lee S. Baker 22,156/(2)/ *
O.R. Barham, Jr. 23,367/(3)/ *
Benham M. Black 19,672/(4)/ *
Harry V. Boney, Jr. 18,640/(5)/ *
Fred D. Bowers 9,100/(6)/ *
E. Page Butler 25,000/(7)/ *
Gregory L. Fisher 2,156 *
Taylor E. Gore 9,764 *
Christopher M. Hallberg 12,106 *
Jan S. Hoover 1,100/(8)/ *
W. Robert Jebson 7,857/(11)/ *
Martin F. Lightsey 1,050 *
Presley W. Moore, Jr. 7,912/(9)//(10)/ *
H. Wayne Parrish 11,002 *
James S. Quarforth 800 *
Thomas F. Williams, Jr. 18,753/(12)/ *
Non-Director Executive Officer
- ------------------------------
Jeffrey W. Farrar 7,852/(3)/ *
All directors and executive officers as
a group (17 persons) 198,287 2.7%
* Represents less than 1% of the total outstanding shares of the Company's
common stock.
(1) For purposes of this table, beneficial ownership has been determined in
accordance with the provision of Rule 13d-3 of the Securities Exchange
Act of 1934 under which, in general, a person is deemed to be the
beneficial owner of a security if he or she has or shares the power to
vote or direct the voting of the security or the power to dispose of or
direct the disposition of the security, or has the right to acquire
beneficial ownership of the security within 60 days.
(2) Includes 17,192 shares registered in the name of corporations and 1,000
shares registered in Mr. Baker's spouse's name, as to which shares Mr.
Baker disclaims beneficial ownership.
(3) Includes 13,850 shares and 5,656 shares for Mr. Barham and Mr. Farrar,
respectively, that are subject to presently exercisable options.
(4) Includes 18,358 shares registered in the name of a trustee. Also
includes 200 shares registered in Mr. Black's spouse's name, as to
which shares Mr. Black disclaims beneficial ownership. In addition, Mr.
Black is a trustee of P.W. Moore Trust U/A, which owns 2% of the voting
common stock and 100% of the nonvoting common stock of Mocomp, Inc.
("Mocomp"), which, in turn, owns 279,672 shares of the Company's common
stock. Mr. Black also is one of five directors of Mocomp. Mr. Black
refrains from voting as a Mocomp director on any matter relating to the
Company. Mr. Black does not have any ownership interest in the P.W.
Moore Trust U/A and does not own any shares of Mocomp. Mr. Black
disclaims beneficial ownership of the shares of Company common stock
held directly by Mocomp and indirectly by P.W. Moore Trust U/A, and
none of those shares are reflected in this table.
(5) Includes 300 shares registered in Mr. Boney's spouse's name and 15,500
shares registered in the name of trustees, as to which shares Mr. Boney
disclaims beneficial ownership.
(6) Includes 8,100 shares registered in Mr. Bowers' spouse's name, as to
which shares Mr. Bowers disclaims beneficial ownership.
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(7) Includes 1,265 shares that are subject to presently exercisable stock
options. Also includes 6,999 shares held in the name of corporations
and 434 shares held in Mr. Butler's spouse's name.
(8) Includes 300 shares registered in Ms. Hoover's child's name, as to
which shares Ms. Hoover disclaims beneficial ownership.
(9) Includes 800 shares registered in Mr. Moore's spouse's name and 3,500
shares registered in the name of Moore Brothers Company Incorporated,
of which Mr. Moore is President.
(10) Mr. Moore is a trustee of P.W. Moore Trust U/A, which owns 2% of the
voting common stock and 100% of the nonvoting common stock of Mocomp,
Inc. ("Mocomp"), which, in turn, owns 279,672 shares of the Company's
common stock. Mr. Moore also is one of five directors of Mocomp. Mr.
Moore refrains from voting as a Mocomp director on any matter relating
to the Company. Mr. Moore disclaims beneficial ownership of the shares
of Company common stock held directly by Mocomp and indirectly by P.W.
Moore Trust U/A, and none of those shares are reflected in this table.
(11) Includes 753 shares registered in Mr. Jebson's spouse's name, as to
which shares Mr. Jebson disclaims beneficial ownership.
(12) Includes 5,004 shares registered in Mr. Williams' spouse's name, as to
which shares Mr. Williams disclaims beneficial ownership.
PROPOSAL ONE
ELECTION OF DIRECTORS
The Board of Directors of the Company is divided into three classes of
directors (Class I, Class II and Class III). The term of office for the Class I
directors will expire at the Annual Meeting. The first five persons in the table
below, all of whom currently serve as Class I directors of the Company, will be
nominated to serve as Class I directors. If elected, the Class I directors will
serve for a term of three years until the 2005 Annual Meeting, or until their
successors are duly elected and qualify.
The persons named in the proxy will vote for the election of the
nominees named below unless authority is withheld. If any of the persons named
below is unavailable to serve for any reason, an event which the Board of
Directors does not anticipate, proxies will be voted for the remaining nominees
and such other person or persons as the Board of Directors may designate. In the
alternative, the Board may reduce the size of a class of directors to the number
of remaining nominees, if any, for whom the proxies will be voted.
The following table sets forth certain information concerning the
nominees for election at the Annual Meeting as directors, as well as certain
information about the remaining Class II and Class III directors, who will
continue in office after the Annual Meeting until the 2003 and 2004 Annual
Meetings, respectively. The Board of Directors recommends that the shareholders
vote FOR election of the directors who have been nominated.
NOMINEES FOR ELECTION
CLASS I DIRECTORS
(To Serve until 2005 Annual Meeting)
Name of Director Age and Principal Occupation During Past Five Years
---------------- ---------------------------------------------------
E. Page Butler Mr. Butler, 54, is the President of Butler
Construction of Va., Inc., a commercial construction
company located in Spotsylvania, Virginia. He has
served as a director of Virginia Commonwealth since
1996. (2)
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Gregory L. Fisher Mr. Fisher, 52, is the President of Eddins Ford,
Inc., an automobile dealership in Madison, Virginia.
He has served as a director of the Company since
1992. (2)
Christopher M. Hallberg Mr. Hallberg, 52, is the owner of Hallberg and
O'Malley Financial Group, Inc., a financial services
advisory firm located in Fredericksburg, Virginia.
He has served as a director of the Company since
1988. (2)
Martin F. Lightsey Mr. Lightsey, 59, is the President and Chief
Executive Officer of Specialty Blades, Inc., a
specialty blades manufacturer in Staunton, Virginia.
He has served as a director of the Company since
1995. (3)
James S. Quarforth Mr. Quarforth, 47, is Chairman of the Board and Chief
Executive Officer of nTelos, Inc., a wireless
services provider and a publicly traded company
headquartered in Waynesboro, Virginia. He has served
as a director of the Company since 1995. (3)
CLASS II DIRECTORS
(Term Expiring 2003 Annual Meeting of Shareholders)
Name of Director Age and Principal Occupation During Past Five Years
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Harry V. Boney, Jr. Mr. Boney, 68, is Chairman of the Board of the
Company. He has served as President of Planters Bank
& Trust Company of Virginia, Inc. ("Planters Bank &
Trust") since February 2001. Mr. Boney previously
served as President and Chief Executive Officer of
Virginia Financial and President of Planters Bank &
Trust from January 1976 to December 1997. In February
2001, the Board of Directors of Virginia Financial
requested that he return to serve the Company in his
current capacities. He has served as a director of
the Company since 1975. (1)(3)
Fred D. Bowers Mr. Bowers, 65, is Secretary of the Company. Mr.
Bowers retired from Planters Bank & Trust in 2000,
after serving as its Executive Vice President and
Chief Financial Officer. Mr. Bowers has served as a
director of the Company since 2001. (3)
Taylor E. Gore Mr. Gore, 63, is Executive Vice President and General
Manager of Culpeper Farmers' Co-op, Inc., Culpeper,
Virginia. He has served as a director of the Company
since 1975. (2)
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Jan S. Hoover Ms. Hoover, 45, is Vice President and Treasurer of
Arehart Associates, Ltd., an accounting services and
financial consulting company. She has served as a
director of the Company since 1995. (3)
W. Robert Jebson, Jr. Mr. Jebson, 68, is the President of Environmental
Systems Services, Ltd., an environmental services
company located in Culpeper, Virginia. He has served
as a director of the Company since 1990. (2)
H. Wayne Parrish Mr. Parrish, 58, is President and General Manager of
Allmans BBQ, Inc., a restaurant holding company
located in Fredericksburg, Virginia. He is also a
certified real estate appraiser. Mr. Parrish has
served as a director of the Company since 1988. (2)
CLASS III DIRECTORS
(Term Expiring 2004 Annual Meeting of Shareholders)
Name of Director Age and Principal Occupation During Past Five Years
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Lee S. Baker Mr. Baker, 51, is Vice Chairman of the Board of
Planters Bank & Trust. He is also the owner and
manager of Staunton Tractor, Inc., Staunton,
Virginia. Mr. Baker has served as a director of the
Company since 1984. (1)(3)
O. R. Barham, Jr. Mr. Barham, 51, is President and Chief Executive
Officer of the Company. Prior to January 18, 2002,
he served as President and Chief Executive Officer
of Virginia Commonwealth since 1998. Prior to 1998,
until he attained his current positions, Mr. Barham
served as President and Chief Executive Officer of
Second National Financial Corporation and Second
Bank & Trust. He has served as a director of the
Company since 1996. (2)
Benham M. Black Mr. Black, 66, is a partner in the law firm of
Black, Noland & Read, P.L.C., Staunton, Virginia. He
has served as a director of the Company since 1969.
(1)(3)
Presley W. Moore, Jr. Mr. Moore, 60, is Chairman of Moore Brothers Co.,
Inc., a commercial construction company. He has
served as a director of the Company since 2001. (3)
Thomas F. Williams, Jr. Mr. Williams, 63, is a partner in the law firm of
Franklin, Williams and Cowan in Fredericksburg,
Virginia. He has served as a director of the Company
since 1988. (2)
____________________
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(1) Includes term as a director of Planters Bank & Trust Company of Virginia
before it formed Virginia Financial Corporation in 1997 as a one-bank
holding company.
(2) Includes term as a director of Virginia Commonwealth Financial
Corporation before it became Virginia Financial Group, Inc. on January
18, 2002.
(3) Includes term as a director of Virginia Financial Corporation before it
became Virginia Financial Group, Inc. on January 18, 2002.
Board of Directors and Committees
The Company's Board of Directors met monthly in 2001. In 2001, all
directors with the exception of Mr. Quarforth attended at least 75% of the
regular, special, or committee meetings of the Board of Directors, which he or
she was required to attend. Mr. Quarforth attended 62.5% of the regular, special
or committee meetings he was required to attend.
Virginia Financial's Audit Committee during 2001 was comprised of Messrs.
Baker, Hoover and Quarforth. The principal responsibilities of the committee are
to ensure that the Board receives objective information regarding policies,
procedures, and activities with respect to auditing, accounting, internal
controls, financial reporting, regulatory matters, and such other activities as
may be directed by the Board. The committee met four times in 2001.
The Audit Committee of the newly formed Virginia Financial Group, Inc.
consists of Messrs. Black, Fisher, Hoover, Parrish (Chairman) and Quarforth, and
also includes Chuck K. Gyory and Thomas Y. Welch, who act as affiliate bank
representatives on the Audit Committee.
The Company has established an Executive Committee consisting of Messrs.
Barham, Boney (Chairman), Gore (Vice-Chairman) and Lightsey. This committee is
authorized, between meetings of the Board, to perform duties and exercise
certain authorities of the Board.
Virginia Financial had a standing Personnel Committee at its Planters Bank
& Trust Company affiliate during 2001, consisting of Messrs. Baker, Boney,
Cochran, Hoover and Stegall. This committee reviewed employee benefit plans and
the level of compensation for each officer and director of the affiliate. This
committee met two times during 2001. The Company has established a Personnel and
Compensation Committee consisting of Messrs. Baker, Bowers (Chairman), Butler
and Williams. This committee reviews employee benefit plans and the level of
compensation for each officer and director of the Company.
Virginia Financial had a standing Trust Committee during 2001 consisting of
Messrs. Hoover, Lightsey and Moore. This committee met once during 2001. The
Company has established a Trust Committee consisting of Messrs. Hallberg,
Hoover, Jebson, Lightsey, Moore and Parrish.
The Company has established a Corporate Governance Committee responsible
for review and establishment of corporate governance and policy. This committee
consists of Messrs. Barham, Black, Bowers, Fisher, Quarforth and Williams.
The Board of Directors has no separate nominating committee. The entire
Board makes nominations and considers the qualifications of any candidates for
membership on the Board. In its capacity as the nominating committee, the Board
will accept for consideration shareholder nominations for directors if made in
writing. In accordance with the Company's bylaws, a shareholder nomination must
include sufficient background information with respect to the nominee and
sufficient identification of the nominating shareholder, as well as the
nominee's
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written consent. To be considered for the 2003 Annual Meeting of Shareholders,
nominations must be received by the Company's Secretary at 102 South Main
Street, P.O. Box 71, Culpeper, Virginia 22701 by November 22, 2002.
There are no family relationships among any of the Company's directors or
executive officers and, with the exception of Mr. Quarforth, none of the
directors serves as a director of any other company with a class of securities
registered under Section 12 of the Securities Exchange Act of 1934. Mr.
Quarforth is the Chairman of the Board of Directors and Chief Executive Officer
of nTelos, Inc., a publicly-traded company headquartered in Waynesboro,
Virginia.
Compliance with Section 16(a) of the Securities Exchange Act of 1934
Pursuant to Section 16(a) of the Securities Exchange Act of 1934, as
amended (the "Exchange Act"), directors and executive officers of the Company
are required to file reports with the Securities and Exchange Commission
indicating their holdings of and transactions in the Company's equity
securities. To the Company's knowledge, based solely on a review of the copies
of such reports furnished to the Company and written representations that no
other reports were required, the Company's directors and executive officers
filed in a timely manner all reports required to be filed by them during the
fiscal year ended December 31, 2001.
EXECUTIVE COMPENSATION
Summary of Cash and Certain Other Compensation. The following table shows
the cash compensation paid to Harry V. Boney, Jr., Chairman of the Board, Mr. O.
R. Barham, Jr., President and Chief Executive Officer of the Company, and Mr.
Jeffrey W. Farrar, Executive Vice President and Chief Financial Officer of the
Company, during 2001, 2000, and 1999.
SUMMARY COMPENSATION TABLE
Long Term
Annual Compensation Compensation Awards
----------------------------- ------------------------
Other Restricted Securities
Name and Annual Stock Underlying All Other
Principal Position Year Salary Bonus Compensation Awards($)/(2)/ Options(#)/(3)/ Compensation /(1)/
------------------ ---- ------ ----- ------------ --------- ---------- ------------
O.R. Barham, Jr. 2001 $190,000 $ -- -- $ -- -- $24,668
President/Chief 2000 180,000 -- -- 31,122 9,624 30,770
Executive Officer 1999 170,000 -- -- -- -- 23,045
Harry V. Boney, Jr. 2001 176,129 16,278 -- -- -- 17,739
Chairman and CEO 2000 -- -- -- -- -- --
1999 -- -- -- -- -- --
Jeffrey W. Farrar 2001 100,000 -- -- -- -- 10,213
Executive Vice 2000 93,000 5,000 -- 12,600 3,930 12,253
President/CFO 1999 86,000 -- -- -- -- 11,993
(1) "All Other Compensation" for 2001 consisted of the following:
Barham Boney Farrar
------ ----- ------
401(k) Plan matching contributions $ -- $17,739 $ 2,055
Company profit sharing plans 15,168 -- 8,158
Deferred compensation contribution 9,500 -- --
------- ------- -------
$24,668 $17,739 $10,213
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(2) At December 31, 2001, Mr. Barham held 1,482 shares of Virginia
Commonwealth restricted stock, having an aggregate value of $42,237,
and Mr. Farrar held 600 shares of Virginia Commonwealth restricted
stock having an aggregate value of $17,100. In connection with the
Merger, effective, January 18, 2002, these shares became unrestricted
and were converted into 2,133 shares and 863 shares of Virginia
Financial Group, Inc. for Messrs. Barham and Farrar, respectively.
These post-January 18, 2002 holdings are included in the beneficial
ownership amounts reported for Messrs. Barham and Farrar in the chart
under "Principal Holders of Capital Stock" on page 3 of this Proxy
Statement.
(3) The stock option awards granted to Messrs. Barham and Farrar in 2000
were for options to purchase shares of Virginia Commonwealth. In
connection with the Merger, effective, January 18, 2002, these stock
options vested completely and were converted into immediately
exercisable options to purchase 13,850 shares and 5,656 shares of
Virginia Financial Group, Inc. for Messrs. Barham and Farrar,
respectively. These post-January 18, 2002 holdings are included in the
beneficial ownership amounts reported for Messrs. Barham and Farrar in
the table under "Principal Holders of Capital Stock" on page 3 of this
Proxy Statement, and are referenced more specifically in footnote (3)
to that table.
FISCAL YEAR-END OPTION VALUES /(1)/
Number of Securities Underlying Value of Unexercised
Unexercised Options In-the-Money Options
at FY-End (#) at FY-End ($)
Name Exercisable/Unexercisable/(2)/ Exercisable/Unexercisable/(2)/
---- ------------------------- -------------------------
O.R. Barham, Jr. 3,208/6,416 $24,060/$48,120
Harry V. Boney, Jr. -- --
Jeffrey W. Farrar 1,310/2,620 $9,825/$19,650
(1) There were no stock option grants to these executive officers in 2001.
(2) The stock options held by Messrs. Barham and Farrar at December 31,
2001, were options to purchase shares of Virginia Commonwealth. In
connection with the Merger, effective, January 18, 2002, these stock
options vested completely and were converted into immediately
exercisable options to purchase 13,850 shares and 5,656 shares of
Virginia Financial Group, Inc. at an exercise price of $14.59 per share
for Messrs. Barham and Farrar, respectively. At January 18, 2002, the
values of these unexercised in-the-money options were $99,166/$0 and
$40,497/$0 for Messrs. Barham and Farrar, respectively.
Employment Agreements
In anticipation of the Merger, an Ad Hoc Committee was formed to
consider new employment agreements for Messrs. Boney, Barham and Farrar. Members
of this committee included Messrs. Gore and Parrish from the Virginia
Commonwealth Board of Directors and Messrs. Lightsey and Quarforth from the
Virginia Financial Board of Directors. The committee engaged an independent
compensation specialist to assist in structuring the employment agreements, and
its members were empowered by their respective boards to act on behalf of their
boards within the compensation parameters established by their boards. The Ad
Hoc Committee met seven times during 2001.
Following the work of the Ad Hoc Committee, the Company entered into
employment agreements with Messrs. Barham, Boney and Farrar in connection with
the Merger, which was consummated on January 18, 2002. The contracts are for
three year terms and automatically renew for one year at the end of the term,
except for Mr. Boney's agreement, which expires in 2004. Each of the contracts
provides base pay, opportunities to earn incentive bonuses based on standards
set by the Board, incentive stock options, health insurance and other benefits,
such as a
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car or vehicle allowance, country club dues, and reimbursement for costs of
attending professional meetings. Mr. Boney's contract is based on the assumption
that, as Chairman, he will work no more than 20 hours per week on average. In
addition, these employment agreements provide for three year's continued
employment in the event of a change in control of the Company.
Employee Benefit Plans
Effective January 18, 2002, Virginia Commonwealth merged with and into
Virginia Financial under the new name Virginia Financial Group, Inc. (the
"Merger"). Prior to the Merger, Virginia Commonwealth and Virginia Financial and
several of their affiliates each maintained various tax qualified and
non-qualified employee benefit plans for their employees. Except as noted
otherwise below, since the Merger, the Company has maintained these plans -- as
separate plans -- for the employees of the former Virginia Commonwealth (and its
affiliates) and the former Virginia Financial (and its affiliates),
respectively. Except with respect to the Company's new incentive stock option
plan, as of the date of this Proxy Statement, none of the plans described below
have been combined to cover employees from both former companies. Any employees
hired by the Company's affiliates after January 18, 2002, participate in the
plans provided by the company that formerly owned the particular affiliate. For
example, a person hired by Second Bank & Trust after January 18, 2002, would be
eligible to participate in the benefit plans formerly offered by Virginia
Commonwealth, but not the benefit plans formerly offered by Virginia Financial.
Such a person would be included in the term "former Virginia Commonwealth
employees" below.
The Company has a new incentive stock option plan under which options for
the purchase of the Company's stock, stock appreciation rights and restricted
stock may be granted to key employees and directors of either former company.
The plan has reserved for issuance 750,000 shares of the Company's common stock.
The plan requires that options be granted at an exercise price equal to 100% of
the fair market value of the common stock on the date of grant.
For former Virginia Financial employees, the Company has a defined
contribution retirement plan which covers certain full-time salaried employees.
Contributions are at the discretion of the Board of Directors.
For former Virginia Commonwealth employees, the Company has a
noncontributory pension plan which conforms to the Employee Retirement Income
Security Act of 1974 ("ERISA"). The amount of benefits payable under the plan is
determined by an employee's period of credited service. The amount of normal
retirement benefit will be determined based on a Pension Equity Credit formula.
The employee receives credits based on age and years of service. The plan
provides for early retirement for participants with five years of credited
service and the attainment of age 55. A participant who terminates employment
with two or more years of credited service will be entitled to a benefit. The
benefits are payable in single or joint/survivor annuities, as well as a lump
sum payment upon retirement or separation of service.
- 10 -
The following table shows the estimated annual benefits payable upon
retirement based on the specified remuneration and years of credited service
classifications, assuming continuation of the present plan and retirement on
January 1, 2001, at age 65 (normal retirement date):
PENSION PLAN TABLE
Average Years of Service
Compensation 10 15 20 25
------------ -- -- -- --
$ 10,000 $ 1,264 $ 1,669 $ 1,973 $ 2,200
25,000 3,160 4,173 4,933 5,500
50,000 6,320 8,346 9,866 11,000
75,000 9,480 12,520 14,799 16,500
100,000 12,640 16,693 19,732 22,000
125,000 15,800 20,866 24,665 27,500
150,000 18,960 25,039 29,598 32,999
175,000 22,120 29,212 34,531 38,499
200,000 25,280 33,385 39,464 43,999
For former Virginia Commonwealth employees, the Company has a 401(k)
Savings Plan. The plan's primary purpose is to allow employees to save for
retirement on a pre-tax basis. The plan provides for matching contributions by
the Company equal to 50% of the first 6% of salary reduction contributions made
by the employee. The plan also provides for discretionary contributions to be
made by the Company and allocated to participant accounts in proportion to the
participant's compensation.
Virginia Commonwealth maintained an Employee Stock Ownership Plan ("ESOP")
under section 4975(e)(7) of the Internal Revenue Code. Funds contributed by
Virginia Commonwealth to the plan were allocated to participants in the plan in
the ratio which the compensation of each participant bore to the total
compensation of all the participants. Effective January 1, 2000, the ESOP plan
assets were frozen, and no future Company contributions are anticipated.
For former Virginia Commonwealth directors, the Company has a Non-Qualified
Directors Deferred Compensation Plan. This plan allows for the deferral of
pre-tax income associated with payment of director fees. Directors may elect to
defer all or a portion of their annual directors fees under this plan. If so
elected, monthly board fees are contributed directly to a trust with various
investment options, and are held until such time the director is entitled to
receive a distribution.
For former Virginia Commonwealth executive officers, the Company has a
Non-Qualified Executive Deferred Compensation Plan for key employees. Pursuant
to the plan, the President and any other employees of the Company or its
affiliates selected by the Board of Directors may defer receipt of a certain
amount of pre-tax income and cash incentive compensation, for a period of not
less than three years or until retirement, subject to termination of employment
or certain other events, including an imminent change in control. The Company
may elect to make matching contributions from time to time at the Board's
discretion.
The Company's Second Bank & Trust affiliate has a profit sharing plan under
which employees of the bank receive compensation directly related to the
profitability of the bank. Compensation under the plan is calculated and
approved by the board of directors of the bank.
- 11 -
The Company's Virginia Heartland Bank affiliate entered into supplemental
retirement agreements with the bank's former Chairman and President which
provide benefits payable over fifteen years to begin at age sixty and
sixty-five, respectively. The agreements call for Virginia Heartland Bank to pay
each $45,000 for fifteen years upon retirement.
The Company's Caroline Savings Bank affiliate has a profit sharing plan
covering all eligible employees. Contributions are at the discretion of the
bank's board of directors.
Compensation of Directors
During 2001, independent directors were paid an annual retainer of $2,423
and regular monthly fees of $392. Directors were also paid $135 for each
committee meeting attended. Effective January 2002, directors of the Company
receive a monthly fee of $1,000 for serving on the Board of Directors, and are
paid $200 for each committee meeting they attend.
Interest of Management and Board in Certain Transactions
As of December 31, 2001, borrowings from the Company by all policy-making
officers, directors, their immediate families, and affiliated companies in which
they are shareholders amounted to approximately $1.46 million. This amount
represented 2.7% of the total equity capital and .27% of the total assets of the
Company as of December 31, 2001. These loans were made in the ordinary course of
the Company's business, on the same terms, including interest rates and
collateral, as those prevailing at the same time for comparable transactions
with others, and do not involve greater than normal risks of collectibility. The
Company expects to have similar banking transactions with directors, officers,
principal shareholders and their associates in the future.
During the year 2001, the Company paid $75,827 for legal services to the
firm of Black, Noland and Read, P.L.C. of which Mr. Black is a member.
Compensation Committee Interlocks and Insider Participation
None of the members of the respective board's of Virginia Financial or
Virginia Commonwealth and no member of the Board of Directors of the Company
responsible for executive compensation has served as an officer or employee of
the Company or any of its affiliates, except for Harry V. Boney, Jr. Mr. Boney
was appointed interim President of the Company in February, 2001, and effective
December, 2001 became Chairman of the Board. No director has participated in the
incentive plans described above, or was at any time within one year prior to his
appointment eligible to participate in such incentive plans.
Report on Executive Compensation
The board of directors of each respective subsidiary bank, in conjunction
with the Company's Board of Directors, has furnished the following report on
executive compensation.
The Board of Directors has developed and implemented compensation policies
and plans which seek to enhance the profitability of the Company and maximize
shareholder value by aligning closely the financial interests of its senior
officers with those of its shareholders. These policies are designed to provide
competitive levels of compensation to attract and retain corporate officers and
key employees with outstanding abilities and to motivate them to perform to the
full extent of their abilities. The policies provide for both annual salaries
and participation in an incentive compensation plan with all other employees of
the Company.
- 12 -
The Board of Directors approves base salaries at levels competitive with
amounts paid to senior executives with comparable qualifications, experience and
responsibilities after comparing salary ranges of similar sized banks as
provided by the VBA Salary Survey of Virginia Banks and other compensation
surveys. The annual and incentive compensation is also closely tied to the
Company's success in achieving significant financial performance goals.
The Board of Directors approves the Chief Executive's annual salary based
on the compensation data from selected peer banks, the Board's assessment of
past performance and its expectation as to future contributions in leading the
Company. In addition to these internal measures of performance, the Board of
Directors also reviews the financial performance of the Company in relation to
peer group averages and predetermined goals set by the Board of Directors. The
Board uses a subjective approach in its evaluation of these factors and,
therefore, does not rely on a formula or weights of specific factors.
Audit Committee Report
The Audit Committee of the Board of Directors (the "Committee"), which
consists entirely of directors who meet the independence requirements of Rule
4200(a)(15) of the National Association of Securities Dealers' listing
standards, has furnished the following report:
The role and responsibilities of the Audit Committee are set forth in a
written Charter adopted by the Board of Directors. The Audit Committee reviews
and reassesses the Charter annually and recommends any changes to the Board for
approval.
The Audit Committee's responsibilities fall into three broad categories:
(1) The Committee is charged with monitoring the preparation of
quarterly and annual financial reports prepared by the Company's
management, including discussion with management and the Company's
outside auditors about financial statements, key accounting
practices and reporting.
(2) The Committee is responsible for matters concerning the
relationship between the Company and its independent auditors,
including evaluation of independence, recommending their
appointment or removal, reviewing the scope of their audit services
and related fees, as well as any other services being provided to
the Company.
(3) The Committee oversees management's implementation of effective
systems of internal controls, including review of policies relating
to legal and regulatory compliance, ethics and conflicts of
interests, and review of the activities and recommendations of the
Company's internal auditing program.
In this context, the Committee met and held discussions with management and
the Company's independent auditors. Management represented to the Committee that
the Company's consolidated financial statements were prepared in accordance with
accounting principles generally accepted in the United States, and the Committee
reviewed and discussed the consolidated financial statements with management and
the independent auditors. The Committee also discussed with the independent
auditors the matters required to be discussed by Statement on Auditing Standards
No. 61 (Communication with Audit Committees).
- 13 -
In addition, the Committee discussed with the independent auditors the
auditors' independence from the Company and its management, and the independent
auditors provided to the Committee the written disclosures and letter required
by the Independence Standards Board Standard No. 1 (Independence Discussions
with Audit Committees).
The Committee also discussed with the Company's internal and
independent auditors the overall scope and plans for their respective audits.
The Committee met with the internal and independent auditors, with and without
management present, to discuss the results of their examinations, the
evaluations of the Company's internal controls, and the overall quality of the
Company's financial reporting.
The following fees were paid to Yount, Hyde & Barbour, P.C., the
Company's Certified Public Accountants, for services provided for the fiscal
year ended December 31, 2001:
On behalf of: Virginia Financial Virginia Commonwealth Total
------------------ --------------------- -----
Audit Fees: $47,653 $65,287 $112,940
Financial Information Systems
Design and Implementation: -- -- --
Services
Other Fees /(1)/: 51,264 34,227 85,491
------ ------ ------
Total: $98,917 $99,514 $198,431
(1) "Other fees" consisted primarily of fees for services rendered in
connection with the Merger, Trust exam, IP review and other
miscellaneous accounting services.
The Committee has considered the provision of such services by Yount,
Hyde & Barbour, P.C. and has determined that the provision of these services to
the Company is compatible with maintaining the independence of the Company's
external auditors.
Based on the reviews and discussions referred to above, the Committee
recommended to the Board of Directors, and the Board of Directors has approved,
that the audited financial statements be included in the Company's Annual Report
on Form 10-K for the year ended December 31, 2001, for filing with the
Securities and Exchange Commission.
H. Wayne Parrish, Chairman; Audit Committee
Benham M. Black
Gregory L. Fisher
Taylor E. Gore
Chuck K. Gyory
James S. Quarforth
Thomas Y. Welch
- 14 -
STOCK PERFORMANCE GRAPH
The following graph compares the Company's shareholder return with the
return of certain indices for the period beginning January 1, 1996 and for the
following five years ending December 31, 2001. The Company's stock performance
is compared to the NASDAQ Stock Index and the Carson Medlin Independent Bank
Index.
VIRGINIA FINANCIAL GROUP, INC.
FIVE YEAR PERFORMANCE INDEX
[GRAPH]
1996 1997 1998 1999 2000 2001
---- ---- ---- ---- ---- ----
VIRGINIA FINANCIAL GROUP, INC. 100 115 138 167 135 112
INDEPENDENT BANK INDEX 100 148 154 140 139 165
NASDAQ INDEX 100 122 173 321 193 153
Shares of the Company's common stock traded on the OTC Bulletin Board
during this period, and thus were not traded on a national or regional exchange.
Trading was generally as a result of private negotiation. Accordingly, this
graph is not necessarily indicative of how the Company's common stock would have
performed if it had traded on an exchange for the entire period. On January 22,
2002, the Company's common stock began trading on the Nasdaq National Market,
and currently trades under the trading symbol VFGI.
- 15 -
PROPOSAL TWO
RATIFICATION OF SELECTION OF EXTERNAL AUDITORS
The Board of Directors has appointed Yount, Hyde & Barbour, P.C., as
the external auditors for the Company for the fiscal year ending December 31,
2002. Yount, Hyde & Barbour, P.C. rendered audit services to the Company during
2001. These services consisted primarily of the examination and audit of the
financial statements of the Company, tax reporting assistance, and other audit
and accounting matters. Representatives of Yount, Hyde & Barbour, P.C. are
expected to attend the Annual Meeting and will have the opportunity to make a
statement and to answer questions if they desire to do so. The Board of
Directors recommends that the shareholders vote FOR the appointment of Yount,
Hyde & Barbour, P.C.
2003 ANNUAL MEETING OF SHAREHOLDERS
In accordance with the Company's bylaws, the Company need not include
an otherwise appropriate shareholder proposal in its proxy statement or form of
proxy for the 2003 Annual Meeting unless the proposal is received in writing by
the Company's Secretary at its office at 102 South Main Street, P.O. Box 71,
Culpeper, Virginia 22701 on or before November 22, 2002. In addition, if a
shareholder intends to present a proposal for action at the 2003 Annual Meeting,
the shareholder must notify the Company of this intention on or before November
22, 2002.
ANNUAL REPORTS TO SHAREHOLDERS
The Company's Annual Report for the year ended December 31, 2001, which
includes the Company's Form 10-K filed with the Securities and Exchange
Commission, and audited financial statements of the Company prepared in
conformity with generally accepted accounting principles, are included herein. A
copy of the Annual Report will be sent, without charge, to any shareholder upon
written request to: Jeffrey W. Farrar, Executive Vice President & Chief
Financial Officer, at 102 South Main Street, P. O. Box 71, Culpeper, Virginia
22701.
OTHER MATTERS
Management knows of no other business to be brought before the Annual
Meeting. Should any other business properly be presented for action at the
meeting, the shares represented by the enclosed proxy will be voted by the
persons named therein in accordance with their best judgment and in the best
interests of the Company.
- 16 -
[X] Please mark your votes
as in this example.
FORM OF REVOCABLE PROXY
VIRGINIA FINANCIAL GROUP, INC.
ANNUAL MEETING OF SHAREHOLDERS
April 17, 2002
This Proxy is solicited on behalf of the Board of Directors.
The undersigned shareholder of Virginia Financial Group, Inc. (the Company)
hereby appoints O.R. Barham, Jr., Harry V. Boney, Jr. and Taylor E. Gore,
jointly and severally as proxies, with full power to act alone, and with full
power of substitution to represent the undersigned, and to vote all shares of
the Company standing in the name of the undersigned as of March 18, 2002, at the
Annual Meeting of Shareholders to be held Wednesday, April 17, 2002, at 10:00
a.m. at the Doubletree Hotel, U.S. Highway 29, Charlottesville, Virginia, or any
adjournments thereof, on each of the following matters:
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 the election of all director nominees and FOR approval of Proposal
Two. If any other matter shall be brought before the meeting, the shares
represented by this proxy will be voted in the discretion of the proxy agents.
(Continued and to be signed on Reverse Side)
Annual Meeting of Shareholders
VIRGINIA FINANCIAL GROUP, INC.
April 17, 2002
Please Detach and Mail in the Envelope Provided
1. To elect five (5) Class I directors to serve until the 2005 Annual Meeting of
Shareholders, or until their successors are elected and qualified, as instructed
below.
Nominees:
--------
E. Page Butler
Gregory L. Fisher
Christopher M. Hallberg
Martin F. Lightsey
James S. Quarforth
[_] FOR all nominees [_] WITHHELD from all [_] FOR all nominees
nominees EXCEPT
(Instruction: To withhold authority to vote for any individual nominee, mark
"For All Nominees Except" and write that nominee's name on the space provided
below.)
- ---------------------------------------
2. To ratify the appointment of Yount, Hyde & Barbour, P.C., as external
auditors for the fiscal year ending December 31, 2002.
[_] FOR [_] AGAINST [_] ABSTAIN
3. To transact such other business as may properly come before the Annual
Meeting or any adjournment thereof.
Signature _____________________________________ Dated: _______________ , 2002
NOTE: Please sign your name(s) exactly as shown imprinted hereon. When shares
are held by joint tenants, both should sign. When signing as attorney, executor,
administrator, trustee, or guardian, please give full title as such. If a
corporation, please sign full corporate name by President or other authorized
officer. If a partnership, please sign in partnership name by authorized person.
[_] Please check this box if you plan to attend the meeting.
PLEASE ACT PROMPTLY
SIGN, DATE AND MAIL YOUR PROXY CARD TODAY