SCHEDULE 14A
(Rule 14a-101)
Information Required in Proxy Statement
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the
Securities Exchange Act of 1934
(Amendment No. )
Filed by the Registrant [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 Rule 14a-
11(c) or Rule 14a-12
SOUTHERN FINANCIAL BANCORP, INC.
- --------------------------------------------------------------------------------
(Name of Registrant as Specified in Its Charter)
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if Other Than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
(1) Title of each class of securities to which transaction applies:
....................................................................
(2) Aggregate number of securities to which transaction applies:
....................................................................
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which
the filing fee is calculated and state how it was determined):
....................................................................
(4) Proposed maximum aggregate value of transaction:
....................................................................
(5) Total fee paid:
....................................................................
[ ] 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:
....................................................................
(2) Form, Schedule or Registration Statement no.:
....................................................................
(3) Filing Party:
....................................................................
(4) Date Filed:
....................................................................
[SOUTHERN FINANCIAL BANCORP, INC. LOGO]
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
29, 1999 at 2:00 p.m., at the Fauquier Springs Country Club, Springs Road,
Warrenton, Virginia 20186.
At the Meeting, three directors of the Company will be elected for a
term of three years, and one director will be elected for a term of two years.
Shareholders also will vote to ratify the designation of KPMG Peat Marwick LLP
as the Company's auditors for 1999 and to amend the Company's 1993 Stock Option
and Incentive Plan. 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,
/s/ Georgia S. Derrico
GEORGIA S. DERRICO
Chairman and
Chief Executive Officer
Warrenton, Virginia
March 23, 1999
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 $0.01 per share (the "Common Stock"), of Southern
Financial Bancorp, Inc. (the "Company") will be held at the Fauquier Springs
Country Club, Springs Road, Warrenton, Virginia, on April 29, 1999 at 2:00 p.m.,
for the following purposes:
1. To elect three 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 elect one director to serve on the Company's Board of
Directors for a term of two years, or until his successor
is elected and qualifies;
3. To ratify the designation by the Board of Directors of KPMG
Peat Marwick LLP as auditors for the fiscal year ending
December 31, 1999.
4. To approve an amendment to the Company's 1993 Stock Option
and Incentive Plan; and
5. To transact such other business as may properly come before
the meeting.
The Board of Directors has fixed the close of business on February 26,
1999 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
Mary F. Henward
Secretary
Warrenton, Virginia
March 23, 1999
________________________________________________________________________________
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.
________________________________________________________________________________
SOUTHERN FINANCIAL BANCORP, INC.
___________________
PROXY STATEMENT
___________________
ANNUAL MEETING OF SHAREHOLDERS
April 29, 1999
GENERAL INFORMATION
This Proxy Statement is furnished to holders of common stock, par value
$0.01 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 29, 1999 at 2:00 p.m. at the Fauquier Springs
Country Club, Springs Road, Warrenton, Virginia (the "Annual Meeting") and 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 23, 1999. 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 Maggie Bromenshenkel, Vice
President, 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 any adjournment
thereof and will not be used for any other meeting.
Only shareholders of record at the close of business on February 26,
1999 (the "Record Date") will be entitled to vote at the Annual Meeting. On the
Record Date, there were 1,603,220 shares of Common Stock issued and outstanding
and 252 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 478,502 shares
of Common Stock, or approximately 27.32% 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.
Three directors are to be elected at the Annual Meeting to serve for a term of
three years, and one director is to be elected to serve a term of two years.
Fred L. Bollerer and Alfonso G. Finocchiaro are being presented to shareholders
as nominees 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. Five other directors have been
elected to terms that end in either 2000 or 2001 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 the close of the tenth day following the day on which notice of the
meeting was mailed to shareholders.
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
-2-
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 BE ELECTED AS
DIRECTORS.
NOMINEES FOR ELECTION FOR TERM EXPIRING IN 2001
Year First
Name; Age; Principal Occupation for Past Five Years; Elected as
and Directorships in Public Corporations Director
Fred L. Bollerer 56, President and Chief Executive Officer of the Potomac --
Knowledge Way Project since January 1998; having been
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.
-3-
NOMINEES FOR ELECTION FOR TERM EXPIRING IN 2002
Year First
Name; Age; Principal Occupation for Past Five Years; Elected as
and Directorships in Public Corporations Director
Virginia Jenkins 51, Owner, V. Jenkins Interiors and Antiques. 1988
Michael P. Rucker 58, Executive with Caterpillar, Inc., a manufacturing 1991
company; Chairman of the Board, George H. Rucker Realty
Corp., a real estate development company.
Alfonso G. Finocchiaro 66, Former Executive Vice President, Regional General --
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 prior thereto.
INCUMBENT DIRECTORS SERVING FOR TERM EXPIRING IN 2000
Year First
Name; Age; Principal Occupation for Past Five Years; Elected as
and Directorships in Public Corporations Director
Neil J. Call 65, Executive Vice President, MacKenzie Partners, Inc., a 1986
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 56, 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 53, President and Chief Operating Officer of the Company 1986
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.
-4-
INCUMBENT DIRECTORS SERVING FOR TERM EXPIRING IN 2001
Year First
Name; Age; Principal Occupation for Past Five Years; Elected as
and Directorships in Public Corporations Director
Georgia S. Derrico 54, Chairman of the Board and Chief Executive Officer of 1986
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.
John L. Marcellus, Jr. 76, Retired President and Chairman of the Board, Oneida, 1986
Ltd., a silverware manufacturing company. Other
directorship: Kuhlman Corporation.
In 1998, each director attended at least 75% of the aggregate of (i)
the total number of meetings of the Board and (ii) the total number of meetings
of all committees of the Board on which the director then served. Eight meetings
of the Board were held during 1998.
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), Call and de Give, reports monthly 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 eight times during 1998.
The Asset/Liability Management Committee frequently discusses policy issues by
teleconference (see "Compensation of Executive Officers and Directors").
The Credit Committee has authority and responsibility to oversee the
prudent operation of the Company's lending function, including the ongoing
qualitative review of the loan portfolio. The Credit Committee, which consists
of Ms. Derrico and Messrs. Call (Chairman) and Rucker, is responsible for
reviewing all loans and approving loans above a certain minimum amount, and for
insuring the development and maintenance of sound credit policies and
procedures. The Credit Committee met in person five times during 1998. The
Credit Committee frequently discusses credit issues by teleconference (see
"Compensation of Executive Officers and Directors").
The Audit Committee assists the Board in fulfilling its fiduciary
responsibilities relating to corporate accounting and reporting practices of the
Company. The Audit Committee consists of Messrs. Call (Chairman) and Marcellus
and Ms. Jenkins and met two times during 1998.
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. Call and Marcellus (Chairman) and Ms. Jenkins and
met three times during 1998.
-5-
Executive Directors Who Are Not Directors
William H. Lagos, 48, joined the Bank in 1986 as Vice President. In
1993, he was promoted to Senior Vice President of Operations; in 1996, he became
Senior Vice President/Controller.
Linda W. Sandridge, 46, joined the Bank in 1987. In 1995, she was
promoted to Vice President/Commercial Lending.
Laura L. Vergot, 41, joined the Bank in 1989. In 1995, she was promoted
to Vice President/Branch Development; in 1997, she was promoted to Senior Vice
President/Branch Development.
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.
The Company has one loan outstanding to a member of executive
management in an amount in excess of $60,000:
Type Year Original Balance as of Interest Rate at
Borrower Of Loan Made Loan Balance December 31, 1998 December 31, 1998
-------- ------- ---- ------------ ----------------- -----------------
William H. Lagos One Year 1987 $138,000 $110,611.26 5.375%
Adjustable
-6-
STOCK OWNERSHIP
The following table lists each person (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, was the
beneficial owner of more than 5% of the outstanding voting shares of the
Company, as of January 29, 1999.
Name and Address of Number of Percent
Title of Class Beneficial Owners Shares(1) of Class
- -------------- ----------------- --------- --------
Common Stock Georgia S. Derrico(2) 165,545(3) 9.89%
R. Roderick Porter
2954 Burrland Lane
The Plains, Virginia 20198
Hovde Capital, L.L.C. 145,800(5) 9.15%
Financial Institution Partners II, L.P.
1629 Colonial Parkway
Inverness, Illinois 60067
Max C. Chapman 127,122 7.98%
Nomura Holding America
2 World Financial Center
Building B
New York, New York 10281-1198
Salem Investment Counselors, Inc. 126,372(6) 7.93%
P. O. Box 25427
Winston-Salem, North Carolina 27114-5427
Value Partners, Ltd. 117,289(4) 7.36%
Fisher Ewing Partners
Richard W. Fisher
Timothy G. Ewing
2200 Ross Avenue, Suite 4600
West Dallas, Texas 75201
David G. Booth(7) 94,607(8) 5.94%
Jane Marvel Garnett
24 Monroe Place #9A
Brooklyn, New York 11201
Michael P. Rucker 80,396(9) 5.04%
1003 W. Centennial Drive
Peoria, Illinois 61614-5976
____________________
(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.
-7-
(2) Georgia S. Derrico and R. Roderick Porter are married to each other.
(3) Includes (a) 78,689 shares owned individually by Ms. Derrico over which
she has sole voting and investment power and 86,856 shares that Ms.
Derrico may acquire pursuant to the exercise of stock options; and (b)
20,202 shares of Common Stock and 4,039 shares of convertible preferred
stock owned individually by Mr. Porter over which he has sole investment
power. Ms. Derrico and Mr. Porter disclaim beneficial ownership of each
other's shares.
(4) Value Partners, Ltd., as managed by Fisher Capital Management,
beneficially owns 117,289 shares. Fisher Ewing Partners may be deemed to
have sole voting and investment power over all such shares.
(5) Hovde Capital, L.L.C. is the General Partner of Financial Institution
Partners II, L.P., which beneficially owns 145,800 shares. Hovde Capital,
L.L.C. and Financial Institution Partners II, L.P. may be deemed to have
shared voting and investment powers over all such shares.
(6) Salem Investment Counselors, Inc. beneficially owns 126,372 shares and may
be deemed to have sole voting and investment power over all such shares.
(7) David G. Booth and Jane Marvel Garnett are married to each other.
(8) Includes 1,028 shares owned by Mr. Booth and 94,607 shares owned by Ms.
Garnett. The Company makes no representation as to whether Mr. Booth and
Ms. Garnett share voting or investment power with respect to their shares.
(9) Includes 11,627 shares of Common Stock and 991 shares of convertible
preferred stock owned by Michael Rucker, 5,973 shares of Common Stock and
2,402 shares of convertible preferred stock owned by Derek Rucker, 8,378
shares of Common Stock owned by Lucy Jones, 5,025 shares of Common Stock
owned by Susan Jones Cooper, 4,832 shares of Common Stock owned by David
Dodrill and 37,755 shares of Common Stock owned by Rucker Realty and
persons associated with Rucker Realty. The Company makes no representation
as to whether any of these persons, individually or in any combination,
share voting or investment power with any other or with Rucker Realty with
respect to their shares.
The following table sets forth as of January 29, 1999 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.
Number of Number of
Shares with Shares with
Sole Voting Shared Voting
and and
Investment Investment Total Number Percent of
Name of Beneficial Owner Power(1) Power of Shares Class
- ------------------------ -------- ----- --------- -----
Fred L. Bollerer 2,000 -0- 2,000 *(4)
Neil J. Call 41,291 -0- 41,291(2) 2.52
David de Give 76,259 2,330 78,589 4.82
Georgia S. Derrico 165,545 24,241 189,786(3) 11.34
-8-
Number of Number of
Shares with Shares with
Sole Voting Shared Voting
and and
Investment Investment Total Number Percent of
Name of Beneficial Owner Power(1) Power of Shares Class
- ------------------------ -------- ----- --------- -----
Alfonso G. Finocchiaro 3,188 -0- 3,188 *(4)
Virginia Jenkins 2,263 -0- 2,263 *(4)
John L. Marcellus 15,168 640 15,808(5) *(4)
R. Roderick Porter 24,241 165,545 189,786(3) 11.34
Michael P. Rucker 12,752 67,644 80,396(6) 5.04
William H. Lagos 38,290 534 38,824 2.42
Linda Sandridge 16,379 -0- 16,379 *(4)
Laura L. Vergot 15,088 78 15,166 *(4)
Current Directors and Officers as a
Group (10 persons) 407,276 261,012 478,502 27.32
________________
(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 sixty days after December 31, 1998, pursuant to the Company's 1993
Stock Option and Incentive Plan, as amended: Mr. de Give: 43,403 shares;
Ms. Derrico: 92,016 shares; Mr. Lagos: 21,802 shares; Ms. Sandridge:
15,717 shares; Ms. Vergot: 13,298 shares; Mr. Porter: 10,000; and the
directors and officers as a group: 196,236 shares.
(2) Includes 33,331 shares of Common Stock and 7,009 shares of convertible
preferred stock.
(3) Includes (a) 78,689 shares owned individually by Ms. Derrico over which
she has sole voting and investment power and 76,856 shares that Ms.
Derrico may acquire pursuant to the exercise of stock options; and (b)
20,202 shares of Common Stock and 4,039 shares of convertible preferred
stock owned individually by Mr. Porter over which he has sole investment
power. Ms. Derrico and Mr. Porter disclaim beneficial ownership of each
other's shares.
(4) Mr. Bollerer, Mr. Finocchiaro, Ms. Jenkins, Mr. Marcellus, Ms. Sandridge
and Ms. Vergot own less than 1% of the outstanding shares of Common Stock.
(5) Includes 13,427 shares of Common Stock and 2,221 shares of convertible
preferred stock.
(6) Includes 11,627 shares of Common Stock and 991 shares of convertible
preferred stock owned by Michael Rucker, 5,973 shares of Common Stock and
2,402 shares of convertible preferred stock owned by Derek Rucker, 8,378
shares of Common Stock owned by Lucy Jones, 5,025 shares of Common Stock
owned by Susan Jones Cooper, 4,832 shares of Common Stock owned by David
Dodrill and 37,755 shares of Common Stock owned by Rucker Realty and
persons associated with Rucker Realty. The Company makes no representation
as to whether any of these persons, individually or in any combination,
share voting or investment power with any other or with Rucker Realty with
respect to their shares.
-9-
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, 1998, 1997 and 1996.
SUMMARY COMPENSATION TABLE
Long-Term
Compen-
Annual Compensation sation
------------------- ------
Securities
Underlying
Name and Other Annual Options All Other
Principal Position Year Salary Bonus Compensation(1) (#) Compensation(2)
- ------------------ ---- ------ ----- --------------- --- ---------------
Georgia S. Derrico 1998 $193,226 $200,000 -- 10,000 $4,800
Chairman of the Board 1997 175,000 175,000 -- 10,000 4,500
and Chief Executive 1996 175,000 132,500 -- 22,003 4,500
Officer
R. Roderick Porter (3) 1998 $100,000 -- -- 10,000 $2,505
President and Chief
Operating Officer
William H. Lagos 1998 $91,589 $25,000 -- 5,000 $1,200
Senior Vice President 1997 87,125 12,500 -- 8,000 2,913
and Controller 1996(4) 51,875 25,000 -- 8,802 500
_____________________
(1) None of the named executive officers received Other Annual Compensation in
excess of the lesser of $50,000 or 10% of combined salary and bonus for
the years indicated.
(2) The amounts set forth in this column constitute contributions to the
Company's 401(k) Plan.
(3) Mr. Porter joined the Company on April 1, 1998.
(4) Mr. Lagos did not work for the Company from June 1, 1996 through November
30, 1996.
Option Grants in Last Fiscal Year
The following table sets forth for the year ended December 31, 1998,
the grants of stock options to the named executive officers:
-10-
OPTION GRANTS IN YEAR ENDED DECEMBER 31, 1998
Potential Realizable
Value at Assumed
Annual Rates of
Stock Price
Appreciation for
Individual Grants(1) Option Term
------------------------------------------------------------- -----------
Percent of
Number of Total Options
Securities Granted to
Underlying Employees in Exercise or
Options Fiscal Year Base Price Expiration
Name Granted (#) (%)(2) ($/Share) Date 5% ($) 10% ($)
- ---- ----------- ------ --------- ---- ------ -------
Georgia S. Derrico 10,000 19.61 21.25 1/22/08 346,140 551,170
R.Roderick Porter 10,000 19.61 26.00 4/23/08 423,513 674,373
David de Give 3,000 5.88 21.25 1/22/08 103,842 165,351
William H. Lagos 5,000 9.80 21.25 1/22/08 173,070 275,585
Linda Sandridge 3,000 5.88 21.25 1/22/08 103,842 165,351
Laura L. Vergot 3,000 5.88 21.25 1/22/08 78,180 124,500
______________________
(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 January 22,
1999 and April 23, 1999.
(2) Options to purchase 34,000 shares of Common Stock were granted to
employees during the year ended December 31, 1998.
Option Exercises in Last Fiscal Year
Set forth in the table below is information concerning each exercise of
stock option during the fiscal year ended December 31, 1998 by each of the named
executive officers and the year end value of unexercised options.
-11-
AGGREGATED OPTION EXERCISES IN YEAR ENDED DECEMBER 31, 1998
AND FISCAL YEAR END OPTION VALUES
Number of
Securities Underlying Value of Unexercised
Unexercised Options In-The-Money Options
at December 31, 1998 (#)(1) at December 31, 1998 ($)(2)
--------------------------- ---------------------------
Shares
Acquired on Value
Name Exercise (#) Realized ($) Exercisable Unexercisable Exercisable Unexercisable
- ---- ------------ ------------ ----------- ------------- ----------- -------------
Georgia S. Derrico 4,840 58,128 86,856 10,000 917,690 -- (3)
R. Roderick Porter -- -- 10,000 -- -- (3)
David de Give -- -- 40,403 3,000 416,829 -- (3)
William H. Lagos -- -- 16,802 5,000 128,335 -- (3)
Linda Sandridge -- -- 12,717 3,000 133,091 -- (3)
Laura L. Vergot -- -- 10,298 3,000 100,911 -- (3)
________________________
(1) Each of these Options relates to Common Stock.
(2) These values are based on $21.00, the closing price of Common Stock on
December 31, 1998.
(3) None of unexercisable options held by the named executive officers were
in-the-money as of December 31, 1998.
Employment Agreements
The Company entered into an employment agreement with Ms. Derrico in
1996 for a term of three years with automatic one-year extensions. If, during
the term of the agreement, there is a change in control of the Company and
within 12 months thereafter Ms. Derrico's employment is terminated for good
reason (as provided in the agreement) or on account of disability (as provided
in the agreement), Ms. Derrico shall be entitled to receive severance pay equal
to three times the sum of her annual base salary at its highest rate during the
preceding 12 months and her highest annual bonus during the three preceding
calendar years. The term "change in control" as used in Ms. Derrico's agreement
shall refer generally to (i) the acquisition of 25% or more of the voting
securities of the Company by any "person" (within the definition of Section
13(d) of the Exchange Act), (ii) the acquisition of 10% or more of the voting
securities of the Company by any such person if the Board has made a
determination that such acquisition constitutes or will constitute control of
the Company, (iii) the approval by the Company's shareholders of an agreement to
merge or consolidate with another corporation if the directors who constitute
the Board six months prior to such approval cease to constitute a majority
during the period therefrom and ending two years after such approval, and (iv)
the sale by the Company of 80% or more of its assets to any such person.
The Company entered into an employment agreement with Mr. Lagos in 1997
for a term of 18 months with automatic one-year extensions. If, during the term
of the agreement, Mr. Lagos' employment is terminated in connection with or
subsequent to a change of control of the Company by (i) the Company other than
for cause or as a result of Mr. Lagos' death, disability or retirement, or (ii)
Mr.
-12-
Lagos for good reason (as provided in the agreement), Mr. Lagos shall be
entitled to receive severance pay equal to 150% of the total cash compensation
paid to him during the previous 12 months. The term "change in control" as used
in his agreement shall refer generally to (i) the acquisition of 40% or more of
the voting securities of the Company by any "person" or "group" (within the
definition of Section 13(d) and 14(d) of the Exchange Act), (ii) a change in the
composition of the Board to less than a majority of incumbent directors (as
defined in the agreement), or (iii) the approval by the Company's shareholders
of either a business combination with any other person or group, other than a
merger or consolidation that would result in the Common Stock outstanding
immediately prior thereto representing at least 50% of the Common Stock of the
surviving entity outstanding immediately thereafter, or a plan of liquidation or
sale or disposition of all or substantially all of the Company's assets.
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. Directors are not compensated for meetings conducted by
teleconference. 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.
APPROVAL OF AN AMENDMENT TO
1993 STOCK OPTION AND INCENTIVE PLAN
General
On August 18, 1993, the Board of the Company approved the 1993 Stock
Option and Incentive Plan (the "Stock Option Plan"), which was submitted to and
approved by the Company's shareholders on September 29, 1993. 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. The principal features of the Stock Option Plan, as amended, are
summarized below.
The Stock Option Plan initially authorized the issuance of up to
100,000 shares of Common Stock to assist the Company in recruiting and retaining
key management personnel. On January 30, 1995, the Company effected a
four-for-three stock split, and on August 16, 1995 and August 16, 1996, the
Company effected 10% stock dividends. In addition, on April 24, 1997, the
Company's shareholders approved an amendment to the number of shares issuable
under the Stock Option Plan. Accounting for these adjustments, the Stock Option
Plan currently authorizes the issuance of up to 261,000 shares of Common Stock.
Of this amount, options to purchase 240,613 shares have been granted and 20,387
shares remain available for grants and awards under the Stock Option Plan.
The Stock Option Plan will permit the award of shares of Restricted
Stock, Incentive Stock Options and Non-Qualified Stock Options to eligible
officers and key employees 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 to the Stock Option Plan
On February 2, 1999, the Board resolved that the Stock Option Plan be
amended to increase the number of shares of Common Stock currently reserved for
issuance by 150,000, subject to shareholder
-13-
approval. As a result, the Stock Option Plan, as so amended, reserves 411,000
shares of Common Stock for issuance.
As of Jan 31, 1999, the market value of the 150,000 additional shares
that will be issuable under the Stock Option Plan, as amended, was $3,057,000.
Except for increasing the number of shares issuable, the Stock Option Plan has
not been amended. The benefits receivable by employees of the Company under the
Stock Option Plan, as amended, are not determinable. For the year ended December
31, 1998, 34,000, options were granted under the Stock Option Plan. Individual
grants to the named executive officers are shown in the Summary Compensation
Table.
Administration
The Stock Option Plan is administered by the Committee, which shall be
composed of three or more disinterested directors. The members of the Committee
are ineligible to receive awards under the Stock Option Plan. 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, has contributed significantly or can be expected to
contribute significantly to the profits or growth of the Company or a subsidiary
is eligible to participate in the Stock Option Plan. Directors of the Company
who are employees may also participate in the Stock Option Plan.
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 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 provisions of the Stock Option Plan providing for
proportional adjustments in the event of various changes in the capitalization
of the Company, no more than 411,000 shares of authorized but unissued Common
Stock may be issued pursuant to the Stock Option Plan. Under the Stock Option
Plan, options to purchase 269,014 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 award 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 for ISOs will not, in any event, be less
than 100
-14-
percent of the fair market value of Common Stock on the date that the Option is
granted; (2) the term of the Option will be fixed by the Committee, but the
maximum period in which an ISO may be exercised shall not, in any event, exceed
ten years from the date that the ISO is granted; (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 an 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
shares of Common Stock, which will be valued at the fair market value of such
shares on the date preceding 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) the
Committee may elect to cash out all or part of the portion of any Option to be
exercised by a participant by payment in cash or Common Stock of an amount
determined in accordance with the Plan.
Restricted Stock
The Committee may authorize the award of Restricted Stock to a
participant. 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, 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.
Change of Control
At the discretion of 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 and 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 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 20% 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.
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
-15-
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 29, 2003. Options and Restricted Stock awards granted before
September 29, 2003, shall remain valid in accordance with their terms.
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
income on receipt or exercise of an ISO so long as he or she has been an
employee of the Company or its subsidiaries from the date that the Option was
granted until three months before the date of exercise; 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 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.
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 that 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
-16-
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 TO 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 Peat Marwick LLP, Certified Public
Accountants, as the Company's independent auditors for the fiscal year ending
December 31, 1999, subject to shareholder ratification. A representative of KPMG
Peat Marwick 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 Peat Marwick 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
Securities and Exchange Commission 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 Peat Marwick LLP as its
independent accountants as of June 26, 1997 to replace Arthur Anderson LLP, who
was terminated as independent auditors for the Company. Arthur Anderson LLP's
reports on the Company's financial statements for the last two years of Arthur
Anderson LLP's engagement did not contain an adverse opinion or a disclaimer of
opinion, and were not modified as to uncertainty, audit scope, or accounting
principles. In addition, there was no disagreement with Arthur Anderson LLP on
any matter of accounting principles or practices, financial statement
disclosure, or auditing scope or procedure, which disagreement, if not resolved
to the satisfaction of Arthur Anderson LLP, would have caused it to make a
reference to the subject matter of the disagreement in connection with its
report.
Prior to June 26, 1997, the Company did not consult with KPMG Peat
Marwick LLP on items which (i) were or should have been subject to SAS 50 or
(ii) concern the subject matter of a disagreement or reportable event with the
former auditor as described in Item 304(a)(2) of Regulation S-K under the
Exchange Act.
-17-
FINANCIAL STATEMENTS
A copy of the Company's Annual Report on Form 10-K for the period ended
December 31, 1998, to be filed with the Securities and Exchange Commission, 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:
Maggie Bromenshenkel
Shareholder Relations
Southern Financial Bancorp, Inc.
37 E. Main Street
Warrenton, Virginia 20186
PROPOSALS FOR 2000 ANNUAL MEETING
Any shareholder desiring to make a proposal to be acted upon at the
2000 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 23, 1999, as required by the regulations of the Securities and Exchange
Commission, in order for the proposal to be considered for inclusion in the
Company's proxy statement. The Company anticipates holding the 1999 Annual
Meeting on April 28, 2000.
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
Mary F. Henward
Secretary
-18-
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 Mary F. Henward, Georgia S. Derrico, and
William H. Lagos 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 "Corporation") held of record by the undersigned on
February 26, 1999 at the Annual Meeting of Shareholders to be held on April 29,
1999 or any adjournment thereof.
The Board of Directors recommends a vote FOR each of the following
Proposals:
1. To elect three 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)
Virginia Jenkins, Michael P. Rucker, Alfonso G. Finocchiaro
2. To elect one director for a two-year term.
_ _
|_| FOR the nominee |_| WITHHOLD AUTHORITY to
listed below vote for the nominee
Fred L. Bollerer
3. To ratify the designation of KPMG Peat Marwick, LLP as the Corporation's
auditors for the fiscal year ending December 31, 1999.
_ _ _
|_| FOR |_| AGAINST |_| ABSTAIN
4. To amend the 1993 Stock Option Plan to increase the number of shares
reserved for issuance thereunder by 150,000.
_ _ _
|_| FOR |_| AGAINST |_| ABSTAIN
5. 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 2 and FOR Proposals 3 and 4.
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: _________________, 1999 ________________________________________
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