Harbourton Letterhead
April 9, 2002
To our shareholders:
We are pleased to invite you to attend the annual meeting of shareholders
of Harbourton Financial Corporation to be held on Tuesday May 7, 2002 at 9:30
a.m. at the Bank of America, Mezzanine Level, 8300 Greensboro Drive, McLean
Virginia 22102.
The enclosed Notice of Annual Meeting of Shareholders and Proxy Statement
provide details of business to be conducted at this meeting.
The Board of Directors and Management appreciate your ongoing support and
hope you will be able to attend the upcoming shareholders meeting.
Sincerely,
David W. Campbell J. Kenneth McLendon
Chairman of the Board President
HARBOURTON FINANCIAL CORPORATION
8180 Greensboro Drive
McLean, VA 22102
--------------------------------
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
To be Held on May 7, 2002
The Annual Meeting of Shareholders of Harbourton Financial Corporation will be
held at the Bank of America, Mezzanine Level, 8300 Greensboro Drive, McLean, VA
22102, at 9:30 a.m., Eastern Daylight Time, on May 7, 2002, for the following
purposes:
1. The election of five directors, named in the accompanying Proxy Statement,
to serve as the Board of Directors of the Company for a term of one year or
until their respective successors are elected and qualified;
2. The approval of an amendment to the Company's 2000 Stock Option Plan
("Option Plan") to increase the number of shares covered by the Option Plan
by 750,000 shares to 1,200,000 shares;
3. The ratification of the selection of Arthur Andersen, LLP as independent
auditors for the year ending December 31, 2002; and
4. To transact such other business as may properly come before the meeting.
Except with respect to procedural matters incident to the conduct of the
meeting, management is not aware of any other such business.
Shareholders of record of the Company as of the close of business on April 2,
2002 are entitled to notice of, and to vote at, the Annual Meeting or any
adjournment thereof.
BY ORDER OF THE BOARD OF DIRECTORS
Paula M. Morgan
Secretary
McLean, Virginia
April 9, 2002
YOU ARE CORDIALLY INVITED TO ATTEND THE ANNUAL MEETING. IT IS IMPORTANT THAT
YOUR SHARES BE REPRESENTED REGARDLESS OF THE NUMBER YOU OWN. EVEN IF YOU PLAN TO
BE PRESENT, YOU ARE URGED TO PROMPTLY COMPLETE, SIGN, DATE AND RETURN THE
ENCLOSED PROXY IN THE ENVELOPE PROVIDED. IF YOU ATTEND THE MEETING, YOU MAY VOTE
EITHER IN PERSON OR BY PROXY. YOU MAY REVOKE ANY PROXY GIVEN BY YOU IN WRITING
OR IN PERSON AT ANY TIME BEFORE THE EXERCISE THEREOF.
HARBOURTON FINANCIAL CORPORATION
PROXY STATEMENT
ANNUAL MEETING OF SHAREHOLDERS
May 7, 2002
The enclosed proxy is solicited by the Board of Directors of Harbourton
Financial Corporation (the "Company") for use at the Annual Meeting of
Shareholders to be held at the Bank of America, Mezzanine Level, 8300 Greensboro
Drive, McLean, VA 22102, at 9:30 a.m. on May 7, 2002, and at any adjournment
thereof (the "Annual Meeting"). This proxy is first being sent to shareholders
on April 9, 2002.
At the Annual Meeting, shareholders will be asked to consider and vote upon
three proposals:
1. The election of five directors to serve for a term of one year or until their
respective successors are elected and qualified ("Proposal 1");
2. The approval of an amendment to the Company's 2000 Stock Option Plan ("Option
Plan") to increase the number of shares covered by the Option Plan by 750,000
shares to 1,200,000 shares ("Proposal 2"); and
3. The ratification of the selection of Arthur Andersen, LLP as independent
auditors for the year ending December 31, 2001 ("Proposal 3").
In addition to solicitation by mail, officers, directors and employees of the
Company may solicit proxies by telephone, facsimile, and telegraph or in person.
None of these persons will receive additional compensation for such solicitation
but will be reimbursed for actual expenses in connection therewith. Expenses in
connection with the solicitation of proxies, including the reasonable expenses
of brokers, fiduciaries and other nominees in forwarding proxy material, will be
borne by the Company.
VOTING OF PROXIES
Each holder of the Company's common stock of record as of the close of business
on the record date, April 2, 2002, is entitled to vote in person or by proxy on
all matters to be voted upon at the Annual Meeting. As of the record date, the
Company had 15,184,164 shares of common stock outstanding; each of which shares
is entitled to one vote.
1
If a proxy in the accompanying form is properly executed and returned to the
Company in time for the Annual Meeting and is not revoked prior to the time it
is exercised, the shares represented by the proxy will be voted in accordance
with the directions specified therein for the matters listed on the proxy card.
Unless the proxy specifies otherwise, proxies will be voted FOR each Proposal
and otherwise in the discretion of the proxy holders as to any other matter that
may come before the Annual Meeting.
Any shareholder giving a proxy has the power to revoke it at any time before it
is exercised by (1) filing with the Secretary of the Company written notice
thereof, delivered to Harbourton Financial Corporation, 8180 Greensboro Drive,
Suite 525, McLean, VA 22102; (2) submitting a duly executed proxy bearing a
later date; or (3) appearing at the Annual Meeting 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.
Directors are elected by a plurality of the votes cast with a quorum present. A
quorum consists of shareholders representing, either in person or by proxy, a
majority of the outstanding common stock entitled to vote at the meeting.
Abstentions are considered in determining the presence of a quorum but will not
affect the plurality vote required for the election of directors. Under rules of
the New York Stock Exchange applicable to broker-dealers, each of the three
proposals is considered a "discretionary" item upon which brokerage firms may
vote in their discretion on behalf of their clients if such clients have not
furnished voting instructions and for which there will not be "broker
non-votes."
The proposal to approve of an amendment to the Company's 2000 Stock Option Plan
("Option Plan") to increase the number of shares covered by the Option Plan by
750,000 shares to 1,200,000, requires the affirmative vote of the holders of at
least a majority of the shares of the Company's common stock present in person
or represented by proxy at the Annual Meeting. Because of the required vote,
abstentions will have the same effect as a vote against the proposal to amend
the Option Plan.
2
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth, as of April 2, 2002, the amount of common stock
of the Company beneficially owned by: (1) each person known to the Company to be
the beneficial owner of more than 5% of the aggregate shares of the Company's
outstanding common stock, (2) each director of the Company, (3) each of the
named executive officers in the Summary Compensation Table below, and (4) all
executive officers and directors as a group.
- ---------------------------------------------------------------------- ------------------------------ ------------------------------
Common Shares Percent of
Name Beneficially Owned Common Shares
- ---------------------------------------------------------------------- ------------------------------ ------------------------------
1) Beneficial owners of more than 5% of the
Company's outstanding common stock:
Timothy G. Ewing, Ewing and Partners, Value Partners, Ltd., Endurance
Partners (Q.P) L.P, Endurance Partners L.P. (1, 2)
4514 Cole Avenue, Suite 808, Dallas, Texas 75205 13,031,763 85.7%
- ---------------------------------------------------------------------- ------------------------------ ------------------------------
(2) Directors:
Timothy G. Ewing (1,2) 13,031,763 85.7%
J. Kenneth McLendon (3) 435,026 2.8%
David W. Campbell (4) 119,100 0.8%
William H. Savage (5) 108,885 0.7%
Geoffrey B. Baker (6) 15,000 0.1%
- ---------------------------------------------------------------------- ------------------------------ ------------------------------
(3) Executive officers who are not directors:
James M. Cluett (7) 69,620 0.5%
Paula M. Morgan - -
- ---------------------------------------------------------------------- ------------------------------ ------------------------------
(4) All Executive Officers and Directors 13,779,394 89.2%
as a Group (7 persons):
- ---------------------------------------------------------------------- ------------------------------ ------------------------------
- --------
1 Ewing & Partners, a Texas general partnership, is the general partner of
Value Partners, Ltd. ("Value Partners"). Timothy G. Ewing is the general
partner and the managing partner of Ewing & Partners. In addition, Ewing
Asset Management, L.L.C., a Texas limited liability company ("EAM"), holds
a 1% general partnership interest in Ewing & Partners. Mr. Ewing is the
manager and 100% owner of EAM. Endurance Partners L.P. ("EPLP") and
Endurance Partners (Q.P.) L.P., ("EPQP") are Texas limited partnerships.
Endurance General, a Texas limited partnership, acts as general partner of
both EPLP and EPQP. The general partner of Endurance General is EAM. Ewing
and Partners acts as manager of EPLP and EPQP and manages their
investments. The principal place of business for Ewing & Partners, EAM, Mr.
Ewing, EPLP, EPQP and Value Partners is the address shown in the table.
2 Includes 12,868,263 shares owned by Value Partners, 7,783 shares by
Endurance Partners (Q.P.) L.P., 4,717 shares owned by Endurance Partners
L.P., 136,000 shares owned personally by Timothy G. Ewing and 15,000 shares
that may be acquired by Mr. Ewing upon the exercise of stock options.
3 Includes 117,500 shares that may be acquired upon the exercise of stock
options.
4 Includes 37,500 shares that may be acquired upon the exercise of stock
options.
5 Includes 15,000 shares that may be acquired upon the exercise of stock
options, and 15,385 shares that are currently convertible from the
Company's Convertible Subordinated Notes due in September 2003.
6 Includes 15,000 shares that may be acquired upon the exercise of stock
options.
7 Includes 45,000 shares that may be acquired upon the exercise of stock
options.
3
The amounts in the table are based on filings or other information furnished by
the respective individuals or entities. Under applicable regulations, shares are
deemed to be beneficially owned by a person if he directly or indirectly has or
shares the power to vote or dispose of the shares, whether or not he has any
economic interest in the shares. Unless otherwise indicated, the named
beneficial owner has sole voting and dispositive power with respect to the
shares. Under applicable regulations, a person is deemed to have beneficial
ownership of any shares of common stock which may be acquired within 60 days of
April 2, 2002 pursuant to the exercise of outstanding stock options or
convertible notes. Shares of common stock owned by such person or group are
deemed to be outstanding for the purpose of computing the percentage of
outstanding common stock owned by such person or group, but not deemed
outstanding for the purpose of computing the percentage of common stock owned by
any other person or group.
Change of Control and Recent Acquisition
On October 26, 2000, an aggregate principal amount of $4,331,000 of the
Company's 10% Convertible Subordinated Notes due September 30, 2003 (the
"Notes"), together with $578,970 of accrued but unpaid interest at a negotiated
default rate of 12.5% simple interest, were converted into 5,168,388 shares of
newly issued common stock. The remaining $266,000 of Notes were brought current.
Value Partners held Notes with a principal balance of $4,197,000 and received
5,008,481 shares of common stock as a result of the Notes conversion.
Immediately following the Notes conversion, Value Partners held a total of
5,676,849 shares of common stock, representing 74.0% of the then currently
outstanding shares. As a result, Value Partners is now deemed to be in control
of the Company.
On November 30, 2000, the Company issued 7,516,160 shares of its common stock in
connection with the acquisition of Harbourton Financial Corporation
("Harbourton"). Value Partners owned 95.7% of the outstanding common stock of
Harbourton. Value Partners received 7,191,414 shares of Harbourton common stock
and $2,024,220.38 in cash for its shares of Harbourton common stock in
connection with the merger of Harbourton into the Company on November 30, 2000
(the "Merger"). Immediately following the Merger, Value Partners beneficially
owned a total of 12,868,263 shares of common stock, representing 84.7% of the
issued and outstanding shares. Subsequent to November 30, 2000, Mr. Ewing, a
general partner of Ewing & Partners (which is the general partner of Value
Partners) purchased additional shares of common stock.
The Company anticipates that Value Partners will vote all of its shares in favor
of each of Proposals 1, 2 and 3, which will ensure that each of the Proposals is
approved by the requisite vote.
INFORMATION WITH RESPECT TO NOMINEES FOR DIRECTORS AND EXECUTIVE OFFICERS
Proposal One
Election of Directors
Section 4.3 of the Company's Bylaws provides that the number of directors shall
be six or such lesser or higher number as the Board of Directors shall fix. The
Board of Directors has fixed that number at five for purposes of the Annual
Meeting. There is only one class of directors, and all the current directors
will be candidates for election at the Annual Meeting.
Directors of the Company are elected to serve until the next annual meeting of
the shareholders of the Company and until their respective successors are
elected and qualified.
4
There are no arrangements or understandings between the Company and any person
pursuant to which such person has been elected or nominated as a director, and
no director or nominee for director is related to any other director, nominee
for director or executive officer of the Company by blood, marriage or adoption.
Unless otherwise directed, each proxy executed and returned by a shareholder
will be voted for the election of the nominees for director listed below. If any
person named as a nominee should be unable or unwilling to stand for election at
the time of the Annual Meeting, the proxies will nominate and vote for any
replacement nominee or nominees recommended by the Board of Directors. At this
time, the Board of Directors knows of no reason why any of the nominees listed
below may not be able to serve as a director if elected.
Director
Name Age Principal Occupation and Other Directorships Since
---- --- -------------------------------------------- -----
Geoffrey B. Baker 52 Private investor and since 1983 a partner in Baker & Donaldson, a private investment 2001
firm. Previously, he served as Legislative Director to U.S. Senator Lowell P.
Weicker, Jr., and as counsel to the U.S. Senate Committee on Commerce, Science, and
Transportation. A graduate of Stanford University and of Georgetown University Law
Center, he has served on public and private corporate boards and currently serves as
Chairman of the Governing Board of St. Albans School, Washington, D.C.
David W. Campbell 55 Chairman of the Company since 1998, Interim CEO of the Company from June 1998 to 1995
January 1999, and from September through November 2000. Chairman, Director and CEO of
Dominion Savings Bank in Front Royal, VA from January through August 2000. President
and Chief Operating Officer and Director of Southern Financial Bancorp, Inc., and
Southern Financial Bank in Warrenton, VA from April 1996 to June 1997; President and
Chief Executive Officer of Ameribanc Savings Bank ("ASB") in Annandale, VA (June 1990
through March 1995); Executive Vice President and Chief Operating Officer of ASB (1984
through June 1990); also, a director of ASB (1988 through March 1995); served as a
Trustee of the Ameribanc Investors Group, a savings and loan holding company
headquartered in Annandale, VA, from 1992 to March 1995.
Timothy G. Ewing 41 Managing partner of Ewing & Partners, the manager and general partner of Value 2000
Partners, Ltd., a private investment partnership since 1989, and manager of Endurance
Partners L.P. and Endurance Partners (Q.P.) L.P., private investment partnerships
since 2001. Vice-chairman of the board of directors of First Fidelity Bancorp, Inc. in
Irvine, CA, and board member of Cherokee, Inc. in Van Nuys, CA. Member of the board of
trusteees of the Baylor Health Care System Foundation in Dallas, TX and the governing
board of the Dallas Museum of Natural History, trustee of The Dallas Opera, and serves
on the Council of Advisors to the Department of Chemical Engineering at Princeton
University. Mr. Ewing is a Chartered Financial Analyst.
J. Kenneth McLendon 52 President and Chief Executive Officer of the Company since November 2000. President, 2000
CEO, and director of the predecessor Company from August 1996 through November 2000.
President of American Mortgage Partners and McLean Partners from January 1989 through
August 1996. President, CEO and Director of Congressional Mortgage Corporation from
January 1980 through January 1989.
5
Director
Name Age Principal Occupation and Other Directorships Since
---- --- -------------------------------------------- -----
William H. Savage 69 Chairman of Island Preservation Partnership, developer of a 1,200 acre private, 1996
oceanfront retreat near Charleston, SC; President and Director of Richards United
Corporation, a real estate investment company based in Alexandria, Virginia, and
Chairman of Orchids Dominicana, S.A., Santo Domingo, D.R., which propagates and
cultivates orchid plants for the U.S. market. From 1994 to 1995, he was a Director of
Jefferson Federal Savings Bank in Warrenton, VA. Prior to 1990, he was the Chief
Executive Officer and Trustee of Ameribanc Investors Group, headquartered in
Annandale, VA.
Executive Officers Who Are Not Directors
The following table sets forth certain information with respect to the current
executive officers of the Company that are not directors. There are no
arrangements or understandings between the Company and any such person pursuant
to which such person was elected an executive officer of the Company, and no
such officer is related to any director or officer of the Company by blood,
marriage or adoption.
Name Age Principal Occupation During the Past Five Years
---- --- -----------------------------------------------
James M. Cluett 55 Senior Vice President of the Company since November 1996, including service with
Harbourton prior to November 30, 2000. From 1990 through 1996, President of JMC
Real Estate Services Corporation, a real estate asset company representing the
equity interest in the development, financing and marketing of residential
communities totaling more than 1,800 residential units and $320 million in sales
revenue. Between 1985 and 1990, Senior Executive Officer for the National
Housing Partnership (NHP), Washington, D.C., and President of NHP Joint
Ventures, Inc. and NCHP Development Corporation, two NHP affiliates,
representing equity interest in more than 25 residential projects in New York,
New Jersey, Maryland, California, Arizona and Florida grossing over $550 million
in real estate sales. From 1976 to 1985, CEO of Empire State Thrift Service
Corporation, a wholly owned subsidiary of seven New York savings banks, engaged
in real estate development and mortgage banking. Between 1970 and 1976, he rose
to Senior Mortgage Officer and Vice President with Marine Midland Bank,
underwriting and servicing a $100 million commercial and residential loan
portfolio.
Paula M. Morgan 45 Senior Vice President of the Company since August 1996, including service with
Harbourton prior to November 30, 2000. Responsible for all operational aspects
including accounting, construction loan administration, servicing and investor
reporting. Prior to August 1996 with Loyola Federal Savings Bank (now Suntrust Bank)
for over 20 years, most recently Vice President/Controller responsible for the
regulatory and public financial accounting, reporting for the subsidiary corporations
and the Commercial Construction Department including development and implementation
of all accounting policies and procedures and their impact upon operations,
underwriting and origination of real estate loans and equity investments of its
service corporation, including the evaluation of risk, review of market
conditions, negotiation of proper loan structure and presentation of formal loan
request to Loan Committee. BS in Accounting/Business Management from the
University of Maryland, College Park. Ms. Morgan is a Certified Public
Accountant and a member of the Maryland Association of Certified Public
Accountants and the American Institute of CPA's.
6
Board and Committee Meetings
The Board of Directors held 8 telephonic or in person meetings (exclusive of
committee meetings) during the preceding fiscal year. In addition, the Board of
Directors has established four committees whose functions and current members
are noted below. The Audit Committee, Compensation Committee, Nominating
Committee, and the Executive Committee (collectively, the "Board Committees")
are committees of the Board of Directors and consist solely of members of the
Board of Directors. Each current director attended 75% or more of the aggregate
number of meetings of the Board of Directors and Board Committees on which he
served that were held during such period.
Executive Committee. The Executive Committee currently consists of Messrs.
McLendon, Campbell, and Ewing, and was formed November 21, 2000. It did not meet
during 2001. The Executive Committee has the authority between meetings of the
Board of Directors to take action with respect to a variety of matters delegated
by the Board of Directors that are considered to be in the ordinary course of
the Company's business and to take all actions with respect to the management of
the Company's business that require action of the Board of Directors, except
with respect to certain matters that by law and the provisions of the Company's
Certificate of Incorporation must be approved by the Board of Directors.
Compensation Committee. The Compensation Committee consists of nonemployee
directors Ewing, Savage and Baker, who do not participate in the executive
management programs. The Compensation Committee establishes the compensation
policies used in determining compensation of all executive officers, including
members of the Board of Directors who are employees of the Company, and approves
the terms of employment and compensation agreements. The Compensation Committee
also administers the Company's 2000 Stock Option Plan. The Compensation
Committee met once during 2001.
Audit Committee. The Audit Committee currently consists of directors Savage,
Ewing and Baker. Each is a director who is not employed by the Company or
affiliated with management. This committee is responsible for reviewing and
helping to ensure the integrity of the Company's financial statements. Among
other matters, the Audit Committee, with management and independent and internal
auditors, reviews the adequacy of the Company's internal accounting controls
that could significantly affect the Company's financial statements, reviews with
the Company's independent accountants the scope of their audit, their report and
their recommendations, and recommends the selection of the Company's independent
accountants. The Audit Committee held one meeting during 2001.
Nominating Committee. The Nominating Committee consists of all of the members of
the Board of Directors. The Nominating Committee considers and makes nominations
to the Board of Directors and the Board Committees. The Nominating Committee met
once during 2001.
Compensation Committee Report
The Committee reviews the base salaries and benefits of the executive officers
of the Company annually. Each executive officer's base salary is determined
based upon the individual's effectiveness in the performance of their duties,
level of responsibility and experience and consideration of peer averages for
comparable positions. Although the base salary is intended to be competitive in
the market place, it is not intended to provide the maximum levels of
compensation for the executive officers. The Committee has established a bonus
incentive program designed to align the interest of the executive officers with
the shareholders of the Company. The plan provides additional incentives to the
executive officers for the attainment of specific goals for the Company and
includes discretionary authority for the Committee to award additional
incentives based on superior performance.
7
The plan is targeted to achieving a specified after tax return on equity. The
Committee awarded stock options to three executive officers during 2001. The
stock option program enables the recipients to benefit from appreciation in
value of the common stock of the Company.
Compensation Committee
Timothy G. Ewing, Chairman
William H. Savage
Geoffrey B. Baker
Audit Committee Report
The members of the Audit Committee (the "Committee") have been appointed by the
Board of Directors (the "Board"). The Committee is governed by a charter which
has been approved and adopted by the Board and is reviewed and reassessed
annually by the Committee. The Committee is comprised of three directors, who
meet the independence and experience requirements of the Nasdaq Stock Market,
Inc. The Committee assists the Board in monitoring (1) the integrity of the
financial statements of the Company, (2) the compliance by the Company with
legal and regulatory requirements and (3) the independence and performance of
the Company's internal and external auditors. Management is responsible for the
preparation and integrity of the Company's financial statements. The Committee
reviewed the Company's audited financial statements for the year ended December
31, 2001 and met with both management and the Company's external auditors to
discuss those financial statements. Management and the external auditors have
represented to the Committee that the financial statements were prepared in
accordance with generally accepted accounting principles. The Committee has
received from and discussed with the external auditors their written disclosure
and letter regarding their independence from the Company as required by
Independence Standards Board Standard No. 1. The Committee also discussed with
the external auditors any matters required to be discussed by Statement on
Auditing Standards No. 61. Based upon these reviews and discussions, the
Committee has recommended to the Board that the audited financial statements be
included in the Company's Annual Report on Form 10-KSB for the year ended
December 31, 2001.
Audit Committee
William H. Savage, Chairman
Timothy G. Ewing
Geoffrey B. Baker
Compensation of Directors
Beginning February 2001, directors who are not either officers of the Company or
being paid a salary by the Company receive a fee of $2,000 per board meeting
attended in person, plus reimbursement for their expenses associated with
attending those meetings. Directors who are not either officers of the Company
or being paid a salary by the Company also may receive a fee of $500 per board
meeting attended by conference telephone call. The foregoing fees also apply to
meetings of committees of the Board of Directors, unless such meetings are
combined with a full board meeting, in which case no additional fees are paid.
Directors who are either officers of the Company or being paid a salary by the
Company receive no other compensation for serving as directors, but are
reimbursed for out-of-pocket expenses related to attending board or committee
meetings.
8
EXECUTIVE COMPENSATION
Summary Compensation Table
The following table provides certain summary information concerning compensation
paid or accrued by the Company for the years ended December 31, 2001, 2000 and
1999, to or on behalf of the Company's Chief Executive Officer and each
executive officer of the Company whose total compensation exceeded $100,000 for
the year ended December 31, 2001.
- ------------------------------------------------------------------------------------------------------------------------------------
Summary Compensation Table
- ------------------------------------------------------------------------------------------------------------------------------------
Long Term
Annual Compensation Compensation Awards
---------------------------------------------------------------------------
Securities
Restricted Underlying All Other
Salary Bonus Other Stock Award Options/ SARs Compensation
Name and Principal Position(s) Year ($) ($) $ ($) # ($)
- ------------------------------------------------------------------------------------------------------------------------------------
J. Kenneth McLendon 2001 182,500 150,000 6,000 (3) - 235,000 8,920 (5)
Director, President, CEO 2000 11,538 (1) 41,000 500 (3) - - 330 (6)
David W. Campbell 2001 147,500 (4) - - - 75,000 900 (7)
Director and Chairman of the 2000 23,192 (2) - - 25,500 - 22,500 (8)
Board of Directors 1999 83,032 - - - - 12,500 (8)
James M. Cluett 2001 128,000 76,800 6,000 (3) - 90,000 2,363 (7)
Senior Vice President 2000 9,846 (1) - 500 (3) - - -
Paula M. Morgan 2001 72,800 36,400 - - - 1,862 (7)
Secretary/Treasurer and CFO 2000 5,600 (1) - - - - -
Senior Vice President
C. Fred Jackson 2001 189,761 - 14,500 (4) - - 4,525 (7)
2000 171,907 - - - - 4,578 (7)
1999 178,500 - - - - 5,355 (7)
- ----------------------
1. Represents the period November 30, 2000 through December 31, 2000.
2. Includes $3,500 of directors fees.
3. Automobile allowance.
4. Auto allowance, including payment for prior years.
5. Includes $5,250 of Company contribution to 401(k) plan and $3,670 for
premium on Company paid life insurance.
6. Company paid life insurance.
7. Company contribution to the 401(k) plan.
8. Represents consulting fees.
9
Stock Options
The following table provides information relating to option grants made in 2001
under the 2000 Stock Option Plan to the individuals named in the Summary
Compensation Table;
Stock Option Grants In The Last Fiscal Year
- --------------------------------------------------------------------------------------------------------------------------------
Number of Securities
underlying options Percent of total Exercise Black-Scholes Grant
granted options granted to Price Expiration Date Value
Executive Officer employees in 2001 ($/Sh) (1) Date ($) (1) (2)
- ---------------------------------------------------------------------------------------------------------------------------------
J. Kenneth McLendon 235,000 58.8% 1.00 12/31/08 121,312
David W. Campbell 75,000 18.8% 1.00 12/31/08 38,717
James M. Cluett 90,000 22.5% 1.00 12/31/08 46,460
Paula M. Morgan - - - - -
C. Fred Jackson - - - - -
- -----------------------------------------
(1) Exercise price is established as $1.00 through December 31, 2001, after
which the exercise price increases 5% annually.
(2) The values shown for the options reflect application of the Black-Scholes
pricing model using (a) interest rate of 5.28%, (b) 5 year volatility of
122.7%, (c) option life of 3 years, and (d) dividend yield of zero.
The following table presents information concerning options held at December 31,
2001 under the 2000 Stock Option Plan. No options were exercised by the named
individuals during 2001.
- -----------------------------------------------------------------------------------------------------------------------
Number of Securities Underlying Unexercised Value of Unexercised
Options/SARs at Fiscal Year End (#) In-the Money Options/SARs
Name at Fiscal Year End ($) (1)
- ---- ----------------- ------------------------ --------------------- -------------------
Exercisable Unexercisable Exercisable Unexercisable
- --------------------------------------------- ------------------------ --------------------- -------------------
J. Kenneth McLendon 117,500 117,500 - -
David W. Campbell 37,500 37,500 - -
James M. Cluett 45,000 45,000 - -
Paula M. Morgan - - - -
C. Fred Jackson - - - -
- -----------------------------------------
(1) Based on a market price of $0.72 at December 31, 2001 and an exercise price
of $1.00.
The options granted in 2001 are "incentive stock options" under Section 422 of
the Internal Revenue Code of 1986.
10
Employment Agreements
The Company is currently party to employment agreements with Messrs. McLendon
and Cluett. The following sets forth their principal terms.
The agreement with J. Kenneth McLendon dated October 24, 2000 initially ends on
December 31, 2002. Commencing January 1, 2002, the agreement's term is extended
one day at the end of every day during the term, unless either party shall
notify the other of its intention to stop such extensions, in which case the
closing date of the term shall be one year from the date of such notice. The
agreement provides Mr. McLendon with a base salary of $150,000 and an annual
bonus predicated upon achieving mutually agreed earnings targets, provides for
the payment of premiums on $1 million of life insurance payable to beneficiaries
chosen by Mr. McLendon, obligates the Company to provide Mr. McLendon with an
automobile allowance of $500 per month, requires the Company to include Mr.
McLendon in any benefit plans generally made available to employees, and
provides for certain death and disability benefits. The agreement contains
confidentiality and non-compete provisions and provides reimbursement of bona
fide business expenses. In addition, if Mr. McLendon's employment is terminated
either by the Company or by Mr. McLendon for Good Reason (as defined in the
agreement), for other than death, disability or cause or following certain
adverse actions subsequent to a Business Combination or Change of Control, then
Mr. McLendon will receive severance equal to (1) a lump sum payment equal to the
greater of his salary for the remainder of the agreement term or for one year,
(2) any declared but unpaid bonus plus a prorated bonus for the year of
termination and (3) various fringe benefits, including his automobile allowance,
for one year. For purposes of this agreement, "Business Combination" shall mean
(a) a merger, consolidation or any other business combination of the Company
with any non-affiliated party, (b) the disposition of all or substantially all
of the securities, business or assets of the Company or (c) a joint venture,
reorganization or other transaction (or series of transactions) as a result of
which all or substantially all of the business or assets of the Company are
transferred, with or without a Change of Control, or any other similar corporate
combination or transaction (or series of related transactions). For purposes of
this agreement, a "Change of Control" shall mean a transaction (or series of
transactions) or other event (or series of events) that results in the
acquisition of a controlling interest in the Company by a person or entity (or
group of persons and/or entities) that did not have a controlling interest prior
to such transaction (or series of transactions) or event (or series of events).
As used in the preceding sentence, the term "controlling interest" means
possession, directly or indirectly, of power to direct or cause the direction of
management or policies (whether through ownership of voting securities, by
contract or otherwise); provided that, in any event, any person or entity (or
group of persons and/or entities) which beneficially acquires, directly or
indirectly, 25% or more (in number of votes) of the securities having ordinary
voting power for the election of directors of the Company shall be conclusively
presumed to have a controlling interest in the Company. "Good Reason" is defined
in this agreement to include (1) any material breach of the agreement by the
Company, including failure to elect or re-elect Mr. McLendon as a director, (2)
failure to obtain the agreement of any successor to perform the agreement in the
event of a Business Combination or Change in Control in which the Company is not
the surviving entity, and (3) following a Business Combination or Change in
Control, the assignment of duties inconsistent with the employee's position or
any reduction in the employee's authority or direct support. The Company assumed
this agreement in connection with the acquisition of Harbourton. The merger of
Harbourton into the Company did not constitute a Business Combination or Change
in Control under this employment agreement.
11
The Company's employment agreement with James M. Cluett, the Company's Senior
Vice President, is dated October 24, 2000 and initially ends on December 31,
2002. Commencing January 1, 2002 the agreement's term is extended one day at the
end of every day during the term, unless either party shall notify the other of
its intention to stop such extensions, in which case the closing date of the
term shall be one year from the date of such notice. The agreement provides Mr.
Cluett with a base salary of $128,000 and an annual bonus predicated upon
achieving mutually agreed earnings targets, obligates the Company to provide Mr.
Cluett with an automobile allowance of $500 per month, requires the Company to
include Mr. Cluett in any benefit plans generally made available to employees,
and provides for certain death and disability benefits. The agreement contains
confidentiality and non-compete provisions and provides reimbursement of bona
fide business expenses. In addition, if Mr. Cluett's employment is terminated
either by the Company or by Mr. Cluett for Good Reason (as defined in the
agreement), for other than death, disability or cause or following certain
adverse actions subsequent to a Business Combination or Change of Control, then
Mr. Cluett will receive severance equal to (1) a lump sum payment equal the
greater of his salary for the remainder of the agreement term or for one year,
(2) any declared but unpaid bonus plus a bonus for the year of termination and
(3) various fringe benefits, including his automobile allowance, for one year.
For purposes of this agreement, the terms Business Combination and Change of
Control are similar to those for Mr. McLendon. "Good Reason" is defined in this
agreement to include (1) any material breach of the agreement by the Company,
(2) failure to obtain the agreement of any successor to perform the agreement in
the event of a Business Combination or Change in Control in which the Company is
not the surviving entity, and (3) following a Business Combination or Change in
Control, the assignment of duties inconsistent with the employee's position or
any reduction in the employee's authority or direct support. The Company assumed
this agreement in connection with the acquisition of Harbourton. The merger of
Harbourton into the Company did not constitute a Business Combination or Change
in Control under this employment agreement.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934 ("1934 Act") requires the
Company's officers and directors, and persons who own more than ten percent of
its Common Stock, to file reports of ownership and changes in ownership with the
Securities and Exchange Commission (the "Commission"). Officers, directors and
greater than ten percent stockholders are required by the Commission to furnish
the Company with copies of all Section 16(a) forms that they file.
Based solely on its review of the copies of such forms received by it, and
written representations from certain reporting persons, the Company believes
that all Section 16(a) filing requirements applicable to its officers, directors
and greater than ten percent stockholders were complied with during 2001, except
that Mr. Campbell reported the purchase of 3,000 shares late.
12
Proposal Two
PROPOSAL TO AMEND THE 2000 STOCK OPTION PLAN
Proposed Amendment
The shareholders of the Company approved the 2000 Stock Option Plan
("Option Plan") at the Company's 2000 annual shareholders' meeting. The Option
Plan currently covers 450,000 shares of Common Stock, and there are currently
445,000 outstanding stock options. The only proposed change to the Option Plan
is to increase the number of shares covered by the Option Plan from 450,000 to
1,200,000 shares.
The Board of Directors believes that the proposed increase in the number of
shares is appropriate in light of the significant increase in the total number
of issued and outstanding shares. Subsequent to shareholder approval of the
Option Plan, the Company issued 5,168,388 shares in exchange for convertible
subordinated notes and 7,516,160 shares in connection with the acquisition of
Harbourton Financial Corp. on November 30, 2000. If approved by shareholders,
the 1,200,000 shares that would be available under the Option Plan will
represent 7.9% of the 15,184,164 shares of Common Stock currently issued and
outstanding. The proposed increase of 750,000 shares represents 4.9% of the
currently issued and outstanding shares.
Description of the Option Plan
The following description of the Option Plan is a summary of its terms and
is qualified in its entirety by reference to the Option Plan, a copy of which is
available upon written request to Paula M. Morgan, Secretary/Treasurer,
Harbourton Financial Corporation, 8180 Greensboro Drive, McLean, Virginia 22107.
General. The Option Plan is designed to attract and retain qualified
personnel in key positions, provide directors, officers and key employees with a
proprietary interest in the Company and as an incentive to contribute to the
success of the Company, and reward key employees for outstanding performance.
The Option Plan provides for the grant of incentive stock options intended to
comply with the requirements of Section 422 of the Internal Revenue Code of
1986, as amended ("Code") ("incentive stock options"), non-qualified or
compensatory stock options and stock appreciation rights (collectively
"Awards"). Awards are available for grant to directors and key employees of the
Company and any of its subsidiaries, except that non-employee directors are
eligible to receive only awards of non-qualified stock options.
Administration. The Option Plan is administered and interpreted by a
committee of the Board of Directors ("Committee") that is comprised solely of
two or more non-employee directors. The members of the Committee currently
consist of Messrs. Ewing, Savage and Baker.
Stock Options. Under the Option Plan, the Board of Directors or the
Committee determines which officers, key employees and non-employee directors
will be granted options, whether such options will be incentive or compensatory
options (in the case of options granted to employees), the number of shares
subject to each option, the exercise price of each option and whether such
options may be exercised by delivering other shares of Common Stock. The per
share exercise price of both an incentive stock option and a compensatory option
shall be at least equal to the fair market value of a share of Common Stock on
the date the option is granted (or 110% of fair market value in the case of
incentive stock options granted to any employees who own more than 10% of the
outstanding Common Stock).
13
All options granted to participants under the Option Plan become vested and
exercisable at the rate, to the extent and subject to such limitations as may be
specified by the Board or the Committee. Notwithstanding the foregoing, no
vesting shall occur on or after a participant's employment or service with the
Company, including service as a non-employee director, is terminated. Unless the
Committee or Board of Directors specifically states otherwise at the time an
option is granted, all options granted to participants become vested and
exercisable in full on the date an optionee terminates his employment or service
with the Company or a subsidiary company or service as a non-employee director
because of his death, disability or retirement. In addition, all outstanding
options become immediately vested and exercisable in full in the event that
there is a change in control of the Company, as defined in the Option Plan.
Each stock option or portion thereof shall be exercisable at any time on or
after it vests and is exercisable until the earlier of ten years after its date
of grant or six months after the date on which the optionee's employment or
service terminates, unless extended by the Committee or the Board of Directors
to a period not to exceed five years from such termination. Unless specifically
provided otherwise, (1) if an optionee terminates his employment or service with
the Company as a result of disability or retirement without having fully
exercised his options, the optionee shall have three years following his
termination due to disability or retirement (or such longer period as may
otherwise be provided) to exercise such options, and (2) if an optionee
terminates his employment or service with the Company following a change in
control of the Company without having fully exercised his options, the optionee
shall have the right to exercise such options during the remainder of the
original term of the option. However, failure to exercise incentive stock
options within three months after the date on which the optionee's employment
terminates may result in adverse tax consequences to the optionee. If an
optionee dies while serving as an employee or a non-employee director or
terminates employment or service as a result of disability or retirement and
dies without having fully exercised his options, the optionee's executors,
administrators, legatees or distributees of his estate shall have the right to
exercise such options during the one-year period following his death. In no
event shall any option be exercisable more than ten years from the date it was
granted.
Stock options are generally non-transferable except by will or the laws of
descent and distribution, and during an optionee's lifetime, are exercisable
only by such optionee or his guardian or legal representative. Notwithstanding
the foregoing, an optionee who holds non-qualified options may transfer such
options to his or her spouse, lineal ascendants, lineal descendants, or to a
duly established trust for the benefit of one or more of these individuals.
Options so transferred may thereafter be transferred only to the optionee who
originally received the grant or to an individual or trust to whom the optionee
could have initially transferred the option. Options which are so transferred
shall be exercisable by the transferee according to the same terms and
conditions as applied to the optionee.
Payment for shares purchased upon the exercise of options may be made (1)
in cash or by check, (2) by delivery of a properly executed exercise notice,
together with irrevocable instructions to a broker to sell the shares and then
to properly deliver to the Company the amount of sale proceeds to pay the
exercise price, all in accordance with applicable laws and regulations, or (3)
if permitted by the Committee or the Board, by delivering shares of Common Stock
(including shares acquired pursuant to the exercise of an option) with a fair
market value equal to the total option price of the shares being acquired
pursuant to the option, by withholding some of the shares of Common Stock which
are being purchased upon exercise of an option, or any combination of the
foregoing. With respect to subclause (3) in the preceding sentence, the shares
of Common Stock delivered to pay the purchase price must have either been (a)
purchased in open market transactions or (b) issued by the Company pursuant to a
plan thereof, in each case more than six months prior to the exercise date of
the option.
14
If the fair market value of a share of Common Stock at the time of exercise
is greater than the exercise price per share, the ability to pay the option
exercise price with currently owned shares would enable the optionee to acquire
a number of shares of Common Stock upon exercise of the Option which is greater
than the number of shares delivered as payment for the exercise price. In
addition, an optionee can exercise his or her option in whole or in part and
then deliver the shares acquired upon such exercise (if permitted by the
Committee or the Board) as payment for the exercise price of all or part of his
options. Again, if the fair market value of a share of Common Stock at the time
of exercise is greater than the exercise price per share, this feature would
enable the optionee to either (1) reduce the amount of cash required to receive
a fixed number of shares upon exercise of the option or (2) receive a greater
number of shares upon exercise of the option for the same amount of cash that
would have otherwise been used. Because options may be exercised in part from
time to time, the ability to deliver Common Stock as payment of the exercise
price could enable the optionee to turn a relatively small number of shares into
a large number of shares. In addition, an optionee who is a non-employee
director or an executive officer can elect, with the Committee's concurrence, to
defer the recognition of ordinary income resulting from the exercise of any
compensatory option not transferred under the terms of the Option Plan. Such
deferral must comply with the provisions of the Option Plan and other
requirements as may be established by the Board of Directors.
Stock Appreciation Rights. Under the Option Plan, the Board of Directors or
the Committee is authorized to grant rights to optionees ("stock appreciation
rights") under which an optionee may surrender any exercisable incentive stock
option or compensatory stock option or part thereof in return for payment by the
Company to the optionee of cash or Common Stock, or a combination thereof, in an
amount equal to the excess of the fair market value of the shares of Common
Stock subject to the option over the option price of such shares. Stock
appreciation rights may be granted concurrently with the stock options to which
they relate or, with respect to compensatory options, at any time thereafter
which is prior to the exercise or expiration of such options. The proceeds of
the exercise of a stock appreciation right may also be deferred as provided by
the provisions of the Option Plan.
Number of Shares Covered by the Option Plan. The number of shares of Common
Stock reserved for future issuance pursuant to the Option Plan is 450,000
shares, or 3.0% of the total shares of Common Stock currently issued and
outstanding. The number of shares covered by the Option Plan will increase to
1,200,000 shares, representing 7.9% of the issued and outstanding Common Stock,
if the proposal is approved by shareholders.
In the event of a stock split, subdivision, stock dividend or any other
capital adjustment, then (a) the number of shares of Common Stock under the
Option Plan, (b) the number of shares to which any Award relates, and (c) the
exercise price per share under any option or stock appreciation right shall each
be adjusted to reflect such increase or decrease in the total number of shares
of Common Stock outstanding or such capital adjustment.
15
Options Outstanding. Of the 450,000 shares available for grant under the
Option Plan, the Committee has granted options for 445,000 shares. As a result,
there are currently only 5,000 shares available for future grant. No stock
options were granted under the Option Plan in 2000, and no stock appreciation
rights have been granted to date. The following table shows the number of
options granted in 2001 and the first quarter of 2002 to the persons and groups
indicated.
- --------------------------------------------------------------------------------
Options Granted in
------------------------------------------------------
First quarter
2001(1) of 2002(2)
- --------------------------------------------------------------------------------
J. Kenneth McLendon 235,000 --
David W. Campbell 75,000 --
James M. Cluett 90,000 --
Paula M. Morgan -- --
C. Fred Jackson(3) -- --
------- ------
All current executive officers
as a group (4 persons) 400,000 --
All current non-employee
directors as a group
(three persons) -- 45,000
All employees who are not
executive officers as a
group (25 persons) -- --
------- ------
Total options granted 400,000 45,000
======= ======
- ---------------------
(1) The options granted in 2001 have an exercise price of $1.00 per share,
through December 31, 2001, and increase 5% annually thereafter.
(2) The options granted during the quarter ended March 31, 2002 have an
exercise price of $1.13per share through December 31, 2002, and thereafter,
increase 5% annually.
(3) Mr. Jackson's employment ended on January 10, 2002 when his agreement
expired.
New Awards to be Granted. The Company anticipates that, following the
receipt of shareholder approval of the proposed increase in the number of
available shares, additional Awards will be granted to eligible directors,
executive officers and possibly other employees as part of the Company's overall
compensation strategy. However, no specific determinations have been made
regarding the timing of any such future grants, the individual recipients or the
specific amounts of such grants.
The Company has a total of 29 employees and three non-employee directors
who may be entitled to receive Awards under the Option Plan. The closing price
for the Common Stock was $0.82 per share on April 2, 2002.
Amendment and Termination of the Option Plan. The Board of Directors may at
any time terminate or amend the Option Plan with respect to any shares of Common
Stock as to which Awards have not been granted, subject to any required
shareholder approval or any shareholder approval which the Board may deem to be
advisable. The Board of Directors may not, without the consent of the holder of
an Award, alter or impair any Award previously granted or awarded under the
Option Plan except as specifically authorized by the Option Plan.
16
Unless sooner terminated, the Option Plan shall continue in effect for a
period of ten years from June 13, 2000, the date the Option Plan was originally
adopted by the Board of Directors. Termination of the Option Plan shall not
affect any previously granted Awards. Federal Income Tax Consequences
Under current provisions of the Code, the federal income tax treatment of
incentive stock options and compensatory stock options is different. With
respect to incentive stock options, an optionee who meets certain holding period
requirements will not recognize income at the time the option is granted or at
the time the option is exercised, and a federal income tax deduction generally
will not be available to the Company at any time as a result of such grant or
exercise. With respect to compensatory stock options, the difference between the
fair market value on the date of exercise and the option exercise price
generally will be treated as compensation income upon exercise, and the Company
will be entitled to a deduction in the amount of income so recognized by the
optionee. Upon the exercise of a stock appreciation right, the holder will
realize income for federal income tax purposes equal to the amount received by
him, whether in cash, shares of stock or both, and the Company will be entitled
to a deduction for federal income tax purposes in the same amount.
Section 162(m) of the Code generally limits the deduction for certain
compensation in excess of $1.0 million per year paid by a publicly traded
corporation to its chief executive officer and the four other most highly
compensated executive officers ("covered executives"). Certain types of
compensation, including compensation based on performance goals, are excluded
from the $1.0 million deduction limitation. In order for compensation to qualify
for this exception, (1) it must be paid solely on account of the attainment of
one or more pre-established, objective performance goals; (2) the performance
goal must be established by a compensation committee consisting solely of two or
more outside directors, as defined; (3) the material terms under which the
compensation is to be paid, including performance goals, must be disclosed to,
and approved by, stockholders in a separate vote prior to payment; and (4) prior
to payment, the compensation committee must certify that the performance goals
and any other material terms were in fact satisfied (the "Certification
Requirement").
Treasury regulations provide that compensation attributable to a stock
option or stock appreciation right is deemed to satisfy the requirement that
compensation be paid solely on account of the attainment of one or more
performance goals if: (1) the grant is made by a compensation committee
consisting solely of two or more outside directors, as defined; (2) the plan
under which the option or stock appreciation right is granted states the maximum
number of shares with respect to which options or stock appreciation rights may
be granted during a specified period to any employee; and (3) under the terms of
the option or stock appreciation right, the amount of compensation the employee
could receive is based solely on an increase in the value of the stock after the
date of grant or award. The Certification Requirement is not necessary if these
other requirements are satisfied.
The Option Plan has been designed to meet the requirements of Section
162(m) of the Code and, as a result, the Company believes that compensation
attributable to stock options and stock appreciation rights granted under the
Option Plan in accordance with the foregoing requirements will be fully
deductible under Section 162(m) of the Code. The Company also does not expect
the compensation for its covered executives to exceed the $1.0 million
threshold. The Board of Directors believes that the likelihood of any impact on
the Company from the deduction limitation contained in Section 162(m) of the
Code is remote at this time.
The above description of tax consequences under federal law is necessarily
general in nature and does not purport to be complete. Moreover, statutory
provisions are subject to change, as are their interpretations, and their
application may vary in individual circumstances. Finally, the consequences
under applicable state and local income tax laws may not be the same as under
the federal income tax laws.
17
Accounting Treatment
Stock appreciation rights will, in most cases, require a charge against the
earnings of the Company each year representing appreciation in the value of such
rights over periods in which they become exercisable. Such charge is based on
the difference between the exercise price specified in the related option and
the current market price of the Common Stock. In the event of a decline in the
market price of the Common Stock subsequent to a charge against earnings related
to the estimated costs of stock appreciation rights, a reversal of prior charges
is made in the amount of such decline (but not to exceed aggregate prior
charges).
Neither the grant nor the exercise of an incentive stock option or a
non-qualified stock option under the Option Plan currently requires any charge
against earnings under generally accepted accounting principles. Statement of
Financial Accounting Standards ("SFAS") No. 123, "Accounting for Stock-Based
Compensation," establishes financial accounting and reporting standards for
stock-based employee compensation plans. This Statement defines a fair value
method of accounting for an employee stock option or similar equity instrument
and encourages all entities to adopt that method of accounting for all of their
employee stock compensation plans. However, it also allows an entity to continue
to measure compensation cost for those plans using the intrinsic value method of
accounting prescribed by APB Opinion No. 25, "Accounting for Stock Issued to
Employees." Under the fair value method, compensation cost is measured at the
grant date based on the value of the award and is recognized over the service
period, which is usually the vesting period. Under the intrinsic value method,
compensation cost is the excess, if any, of the quoted market price of the stock
at the grant date or other measurement date over the amount an employee must pay
to acquire the stock. The Company currently uses the intrinsic value method, and
pro forma disclosure is included in the footnotes to the Company's financial
statements to show what net income and earnings per share would have been if the
fair value method had been utilized. If the Company elects to utilize the fair
value method, its net income and earnings per share may be adversely affected.
Shareholder Approval
The number of shares available under the Option Plan will not be increased
unless the proposal to amend the Option Plan is approved by shareholders.
Shareholder approval of the Option Plan will also satisfy the requirements of
the Internal Revenue Code.
The Board of Directors recommends that shareholders vote FOR the amendment
of the 2000 Stock Option Plan.
18
Proposal Three
INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
The Board of Directors of the Company has appointed Arthur Andersen, LLP as
independent auditors for the year ending December 31, 2002. Representatives of
Arthur Andersen, LLP are expected to be present at the Annual Meeting to respond
to appropriate questions and will have an opportunity to make a statement if
they desire to do so. Arthur Andersen has advised the Company that neither that
firm nor any of its associates has any relationship with the Company or its
subsidiaries other than the usual relationship that exists between independent
certified public accountants and clients. In determining whether to appoint
Arthur Andersen as the Company's auditors, the Company's Audit Committee
considered whether the provision of services, other than auditing services, by
Arthur Anderson is compatible with maintaining the auditor's independence. In
addition to performing auditing services, the Company's auditors performed tax
compliance and consultation and accounting consultation services for the Company
in 2001. The Audit Committee believes that Arthur Andersen's performance of
these other services is compatible with maintaining the auditor's independence.
Audit Fees
The aggregate amount of fees billed by Arthur Andersen for its audit of our
annual financial statements for 2001 and for its reviews of our unaudited
interim financial statements included in reports filed by the Company under the
1934 Act during 2001 was $69,999.
Financial Information Systems Design and Implementation
The Company did not engage or pay any fees to Arthur Andersen with respect to
the provision of financial information systems design and implementation
services during 2001.
All Other Fees
The aggregate amount of fees billed by Arthur Andersen for all other services
rendered to us during 2001 was $48,700 for tax compliance and consultation and
$13,250 for accounting consultation services.
SHAREHOLDER PROPOSALS
Any proposal which a shareholder wishes to have included in the proxy materials
of the Company relating to the next annual meeting of shareholders of the
Company, which is scheduled to be held in May 2003, must be received at the
principal executive offices of the Company, 8180 Greensboro Drive, Suite 525,
McLean, VA 22102, Attention: Corporate Secretary, no later than December 10 ,
2002, which date is 120 days prior to the anniversary date of the mailing of
this proxy statement. If such proposal is in compliance with all of the
requirements of Rule 14a-8 under the 1934 Act, it will be included in the proxy
statement and set forth on the form of proxy issued for such annual meeting of
shareholders. It is urged that any such proposals be sent by certified mail,
return receipt requested.
19
ANNUAL REPORTS
A copy of the Company's Annual Report on Form 10-KSB for the year ended December
31, 2001 accompanies this Proxy Statement. The Form 10-KSB includes a list of
the exhibits that have been filed with the Securities and Exchange Commission
under the 1934 Act. The Form 10-KSB is not part of the proxy solicitation
materials.
OTHER MATTERS
Each proxy solicited hereby also confers discretionary authority on the Board of
Directors of the Company to vote the proxy with respect to the approval of the
minutes of the last meeting of shareholders, the election of any person as a
director if the nominee is unable to serve or for good cause will not serve,
matters incident to the conduct of the meeting, and upon such other matters as
may properly come before the Annual Meeting. Management is not aware of any
business that may properly come before the Annual Meeting other than those
matters described above in this Proxy Statement. However, if any other matters
should properly come before the Annual Meeting, it is intended that the proxies
solicited hereby will be voted with respect to those other matters in accordance
with the judgment of the persons voting the proxies.
PLEASE PROMPTLY SIGN, DATE AND RETURN YOUR PROXY IN
---------------------------------------------------
THE ENCLOSED POSTAGE PAID ENVELOPE.
-----------------------------------
20
HARBOURTON FINANCIAL CORPORATION REVOCABLE PROXY
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS OF HARBOURTON
FINANCIAL CORPORATION FOR USE ONLY AT THE ANNUAL MEETING OF SHAREHOLDERS TO
BE HELD ON MAY 7, 2002 AND AT ANY ADJOURNMENT THEREOF.
The undersigned hereby appoints the Board of Directors of the Company, or any
successors thereto, as proxies, with full powers of substitution, to vote the
shares of the undersigned at the Annual Meeting of Shareholders of the Company
to be held at the Bank of America, 8300 Greensboro Drive, McLean, VA 22102 on
May 7, 2002 at 9:30 a.m., Eastern Time, or at any adjournment thereof, with all
the powers that the undersigned would possess if personally present, as follows:
1. Election of Directors
/ / FOR all nominees listed below / / WITHHOLD authority to
(except as marked to the vote for all nominees
contrary below) listed below
Nominees for one-year term: Geoffrey B. Baker, David W. Campbell, Timothy. G.
Ewing, J. Kenneth McLendon, William H. Savage
To withhold authority to vote for some but not all of the nominees, write the
name of the nominee(s) in the space provided below:
- --------------------------------------------------------------------------------
2. Approval of the amendment to the Company's 2000 Stock Option Plan to increase
the number of shares covered by the Option Plan by 750,000 shares to 1,200,000
shares.
/ / FOR / / AGAINST / / ABSTAIN
3. Ratification of the appointment of Arthur Andersen, LLP as independent
auditors for the year ending December 31, 2002.
/ / FOR / / AGAINST / / ABSTAIN
The Board of Directors recommends that you vote FOR the Board of Directors'
nominees and FOR each of the proposals listed above. Shares of common stock of
the Company will be voted as specified. If no specification is made, shares will
be voted for the election of the Board of Directors' nominees to the Board of
Directors, FOR proposals 2 and 3 and otherwise at the discretion of the proxies.
This proxy may not be voted for any person who is not a nominee of the Board of
Directors of the Company. This proxy may be revoked at any time before it is
exercised.
21
The undersigned hereby acknowledges receipt of the Notice of Annual Meeting of
Shareholders of Harbourton Financial Corporation called for May 7, 2002, a Proxy
Statement for the Annual Meeting and the 2001 Annual Report on Form 10-KSB.
PLEASE MARK, SIGN, DATE AND PROMPTLY RETURN THIS PROXY CARD USING THE ENCLOSED
ENVELOPE.
Dated: ___________________________, 2002
Signature(s)
_________________________________________
_________________________________________
_________________________________________
Please sign exactly as your name(s) appear on this Proxy. Only one signature is
required in the case of a joint account. When signing in a representative
capacity, please give title.
22