SCHEDULE 14A INFORMATION
roxy Statement Pursuant to Section 14(a) of the Securities Exchange Act of 1934
Filed by the Registrant |X|
Filed by a Party other than the Registrant |_|
Check the appropriate box:
|X| Preliminary Proxy Statement
|_| Confidential, for use of the Commission Only (as permitted by
Rule 14a-6(e)(2))
|_| Definitive Proxy Statement
|_| Definitive Additional Materials
|_| Soliciting Material Pursuant to Rule 14a-11(c) or rule 14a-12
Four Oaks Fincorp, Inc.
(Name of Registrant as Specified In Its Charter)
Not Applicable
(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:
Four Oaks Fincorp, Inc.
____, 2004
Dear Shareholder:
Accompanying this letter is the Notice of Annual Meeting, Proxy
Statement, Summary 2003 Annual Report to Shareholders and proxy for Four Oaks
Fincorp, Inc.'s Annual Meeting. It is extremely important for you to complete,
sign, date, and return the enclosed proxy as soon as possible even if you plan
to attend the Annual Meeting in person. If you do attend, you can revoke your
proxy and vote in person.
The Annual Meeting will begin at 8:00 p.m. on _________, April __,
2004, at the main office of Four Oaks Bank & Trust Company, located at 6144 US
301 South, Four Oaks, North Carolina. At the Annual Meeting, the shareholders
will elect the board of directors for the coming year, vote on an amendment to
the Articles of Incorporation increasing the number of authorized shares of our
company's common stock from 5,000,000 shares to 10,000,000 shares, and transact
any other business properly brought before the meeting.
In compliance with applicable regulations, our company's financial
statements and other required disclosures are presented in its Annual Report on
Form 10-KSB, a copy of which follows the Proxy Statement, and which reflects our
company's financial condition as of December 31, 2003.
As mentioned above, we also have included a Summary 2003 Annual Report
to Shareholders that contains additional information about our company,
including a financial summary, a letter from me to our shareholders, and
selected financial data.
As always, we hope to see you at the Annual Meeting, and please
remember to complete, sign, and date the enclosed proxy and return it to Branch
Banking & Trust Company, Corporate Trust Department, in the envelope provided as
soon as possible.
Sincerely yours,
Ayden R. Lee, Jr.
Chief Executive Officer and
President
FOUR OAKS FINCORP, INC.
6114 US 301 South
Four Oaks, North Carolina 27524
---------------------------------------------------------------------
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
______ __, 2004
---------------------------------------------------------------------
You are cordially invited to attend the Annual Meeting of Shareholders
of Four Oaks Fincorp, Inc., which will be held on _________, April __, 2004 at
8:00 p.m., local time, at the main office of Four Oaks Bank & Trust Company,
located at 6144 US 301 South, Four Oaks, North Carolina, for the following
purposes:
(1) To elect the persons listed in the accompanying Proxy Statement to the
board of directors of Four Oaks Fincorp, Inc.;
(2) To approve an amendment to the Articles of Incorporation increasing the
number of authorized shares of our company's common stock from 5,000,000
shares to 10,000,000 shares; and
(3) To transact such other business as may properly come before the meeting
or any adjournments thereof.
Shareholders of record at the close of business on March 8, 2004 are
entitled to notice of and to vote at the Annual Meeting and any and all
adjournments thereof.
A copy of the Annual Report on Form 10-KSB, containing financial
statements of Four Oaks Fincorp, Inc., for the year ended December 31, 2003, is
enclosed herewith.
Your vote is very important. A proxy card is enclosed for the
convenience of those stockholders who do not plan to attend the Annual Meeting
in person but desire to have their shares voted. If you do not plan to attend
the Annual Meeting, please complete and return the proxy card as soon as
possible in the envelope provided for that purpose. If you return your card and
later decide to attend the Annual Meeting in person or for any other reason
desire to revoke your proxy, you may do so at any time before your proxy is
voted.
By Order of the board of directors
Ayden R. Lee, Jr.
Chief Executive Officer and
President
_____ _, 2004
FOUR OAKS FINCORP, INC.
6114 US 301 South
Four Oaks, North Carolina 27524
PROXY STATEMENT
This Proxy Statement, accompanying proxy card, Notice of Annual Meeting
of Shareholders, and the Summary 2003 Annual Report to Shareholders are being
furnished to shareholders on or about April 5, 2004 by the board of directors of
Four Oaks Fincorp, Inc. in connection with the solicitation of proxies for use
at the Annual Meeting of Shareholders to be held at the main office of Four Oaks
Bank & Trust Company, located at 6144 US 301 South, Four Oaks, North Carolina on
_________, April __, 2004 at 8:00 p.m., local time, and at all adjournments
thereof. All expenses incurred in connection with this solicitation will be paid
by us. In addition to solicitation by mail, certain of our officers, directors,
and regular employees, who will receive no additional compensation for their
services, may solicit proxies by telephone, personal communication, or other
means.
ANNUAL MEETING
Purposes of the Annual Meeting
The principal purposes of the annual meeting are to: (1) elect eight
(8) nominees to our board of directors; (2) approve an amendment to the Articles
of Incorporation increasing the number of authorized shares of our common stock
from 5,000,000 shares to 10,000,000 shares; and (3) to transact such other
business as may properly come before the annual meeting or any adjournments
thereof. Our board of directors knows of no matters other than those stated
above to be brought before the annual meeting or any adjournments thereof.
Nonetheless, the proxyholders named on the enclosed proxy card may vote in
accordance with the instructions of the board of directors or, in the absence
thereof, in accordance with their discretion, on any other matter properly
presented for action of which the board of directors is not now aware.
Proxies
Any proxy given pursuant to this solicitation may be revoked by the
person giving it at any time before it is exercised. Proxies may be revoked by:
o filing a written notice of revocation with our corporate secretary;
o duly executing a subsequent proxy and filing it with our corporate
secretary before the revoked proxy is exercised; or
o attending the annual meeting and voting in person.
If the proxy card is signed and returned, but voting directions are not
made, the proxy will be voted in favor of the proposals set forth in the
accompanying "Notice of Annual Meeting of Shareholders."
Record Date
Our board of directors has fixed the close of business on March 8, 2004
as the record date for determination of shareholders entitled to receive notice
of and to vote at the annual meeting and all adjournments thereof. As of the
close of business on March 8, 2004, we had 2,706,538 shares of common stock
outstanding.
Voting Rights
Except as otherwise provided by law, each holder of our common stock,
or their proxies, is entitled to one vote per share upon all matters voted upon
by shareholders. The North Carolina Business Corporation Act provides that with
respect to the election of directors, cumulative voting is not available to our
shareholders.
SECURITY OWNERSHIP OF MANAGEMENT
AND CERTAIN BENEFICIAL OWNERS
The following table sets forth certain information as of March 8, 2004
regarding shares of our common stock beneficially owned by: (i) each director;
(ii) each director nominee; (iii) each executive officer named in the Summary
Compensation Table in this proxy statement; and (iv) all directors and executive
officers as a group. Except as otherwise indicated, the persons listed below
have sole voting and investment power with respect to all shares of our common
stock owned by them, except to the extent that such power may be shared with a
spouse. Fractional share amounts are rounded off to the nearest whole number.
Name of
Beneficial Owner Shares Owned (1) Percent of Class (1)
---------------- ---------------- --------------------
M.S. Canaday(2) 59,809 2.2%
Ayden R. Lee, Jr.(3) 80,034 3.0%
Paula Canaday Bowman(4) 41,460 1.5%
William J. Edwards(5) 15,565 *
Warren L. Grimes(6) 10,122 *
Percy Y. Lee(7) 25,423 *
Dr. R. Max Raynor, Jr.(8) 1,312 *
Clifton L. Painter(9) 30,086 1.1%
William Ashley Turner(10) 158,593 5.9%
Nancy S. Wise(11) 7,940 *
W. Leon Hiatt, III(12) 13,305 *
All Directors and Executive Officers as a
Group (11 persons) 443,649 16.4%
- -----------------
*Less than 1%
(1) Based upon 2,706,538 shares of common stock outstanding on March 8, 2004.
The securities "beneficially owned" by an individual are determined in
accordance with the definition of "beneficial ownership" set forth in the
regulations of the Securities and Exchange Commission. Accordingly, they
may include securities owned by or for, among others, the spouse and/or
minor children of the individual and any other relative who resides in the
home of such individual, as well as other securities as to which the
individual has or shares voting or investment power or has the right to
acquire under outstanding stock options within 60 days of March 8, 2004.
Beneficial ownership may be disclaimed as to certain of the securities.
(2) Includes 1,125 shares subject to stock options which are exercisable within
60 days.
(3) Includes 15,000 shares subject to stock options which are exercisable
within 60 days, and 15,232 shares owned by Mr. Lee's spouse who has sole
voting and investment power with respect to these shares.
(4) Includes 1,125 shares subject to stock options which are exercisable within
60 days, and 125 shares owned by Ms. Bowman's spouse who has sole voting
and investment power with respect to these shares.
(5) Includes 1,125 shares subject to stock options which are exercisable within
60 days, 1,250 shares owned by Mr. Edward's spouse who has sole voting and
investment power with respect to these shares, and 91 shares held in his
name as custodian for his granddaughter.
(6) Includes 1,125 shares subject to stock options which are exercisable within
60 days, 4,363.949 shares owned jointly with Mr. Grimes' spouse, 990.459
owned by Mr. Grimes' spouse who has sole voting and investment power with
respect to these shares, and 12.696 shares owned by a non-minor child who
resides in the home.
(7) Includes 1,125 shares subject to stock options which are exercisable within
60 days, and 16,821.240 shares owned jointly with Mr. Lee's spouse.
(8) Includes 1,125 shares subject to stock options which are exercisable within
60 days.
(9) Includes 8,000 shares subject to stock options which are exercisable within
60 days, 1,636 shares owned by Mr. Painter's spouse who has sole voting and
investment power with respect to these shares, and 281 shares owned by a
minor child who resides in the home.
(10) Includes 750 shares subject to stock options which are exercisable within
60 days, 157,009.486 shares owned jointly with Mr. Turner's spouse, and
416.939 shares owned by Mr. Turner's spouse who has sole voting and
investment power with respect to these shares.
(11) Includes 7,375 shares subject to stock options which are exercisable within
60 days, 1.000 share owned jointly with Ms. Wise's spouse, 2.141 shares
owned by Ms. Wise's spouse who has sole voting and investment power with
respect to these shares, and 11.540 shares owned by minor children who
reside in the home.
(12) Includes 7,125 shares subject to stock options which are exercisable within
60 days, 63.673 shares owned by Mr. Hiatt's spouse who has sole voting and
investment power with respect to these shares, and 784.137 shares owned by
minor children who reside in the home.
The following table sets forth certain information as of March 8, 2004
regarding any person who is known to us to be the beneficial owner of more than
five percent (5%) of our common stock.
Name and Address of Amount and Nature of Beneficial
Beneficial Owner Ownership Percent of Class
William Ashley Turner and Debra C. Turner, Joint 158,593 5.9%
Tenants with right of survivorship
111 Aleah Court
Clayton, North Carolina 27520
INFORMATION ABOUT OUR BOARD OF DIRECTORS
General
Our board of directors oversees our business and affairs and monitors
the performance of management. In accordance with traditional corporate
governance principles, our board of directors does not involve itself in
day-to-day operations. Instead, directors keep themselves informed through,
among other things, discussions with our Chief Executive Officer, other key
executives and principal external advisers (legal counsel, outside auditors,
investment bankers, and other consultants), reading reports and other materials
that are provided to them, and by participating in board and committee meetings.
Our directors are elected annually and hold office for a period of one year or
until their successors are duly elected and qualified. Our board of directors,
in its business judgment, has made an affirmative determination that each of
Paula Canaday Bowman, Merwin S. Canaday, William J. Edwards, Warren L. Grimes,
Percy Y. Lee, Dr. R. Max Raynor, Jr., and William Ashley Turner meet the
definition of "independent director" as that term is defined in the Nasdaq
Marketplace Rules.
Two (2) of our directors are related to each other. Merwin S. Canaday
is Paula Canaday Bowman's uncle. There are no material proceedings to which any
of our directors or executive officers, or any of their associates, is a party
adverse to us or has a material interest adverse to us.
To our knowledge, none of our directors or executive officers has
been convicted in a criminal proceeding during the last five years (excluding
traffic violations or similar misdemeanors), and none of our directors or
executive officers was a party to any judicial or administrative proceeding
during the last five years (except for any matters that were dismissed without
sanction or settlement) that resulted in a judgment, decree, or final order
enjoining the person from future violations of, or prohibiting activities
subject to, federal or state securities laws, or a finding of any violation of
federal or state securities laws.
Director Compensation
The chairman of our board of directors is paid a fee of $1,100 per
month. Other directors, except Mr. Lee who is not paid a director's fee, are
paid fees of $900 per month. During 2003, all of the directors other than Mr.
Lee were paid a bonus of $850.
Board of Directors Meetings
During the last fiscal year, our board of directors met twelve (12)
times. Each incumbent director attended seventy-five percent (75%) or more of
the aggregate of the total number of board of directors meetings and the total
number of meetings held by all committees of the board of directors on which he
or she served. Going forward our independent directors have resolved to hold
meetings, separate from management, at least twice a year.
Policy on Attendance at Annual Meetings of Shareholders. We do not have
a stated policy, but encourage our directors to attend each annual meeting of
shareholders. At last year's annual meeting of shareholders, held on April 28,
2003, eight (8) directors were present and in attendance.
Board Committees
Our board of directors has three standing committees: the audit
committee, the compensation committee, and the corporate governance and
nominating committee.
Audit Committee. The audit committee is composed of Warren L. Grimes
(chairman), Merwin S. Canaday, and William J. Edwards and operates under a
written charter, which the board reviews and reassesses annually. A copy of the
proposed revisions to the audit committee charter is attached to this Proxy
Statement as Appendix A and is scheduled to be submitted to our board of
directors at their next monthly meeting for their consideration and approval.
The audit committee charter, as approved by our board, will be filed as an
exhibit to the definitive proxy statement. Our board of directors, in its
business judgment, has made an affirmative determination that each member of the
audit committee: (i) meets the definition of "independent directors" as that
term is defined by Nasdaq Marketplace Rules and the SEC rules; and (ii)
satisfies the applicable Nasdaq Marketplace Rules relating to financial
literacy. In addition, one member of our audit committee has past financial
experience resulting in his financial sophistication as required by Nasdaq
Marketplace Rules.
The board of directors has determined that none of the members of its
audit committee meet the definition of "audit committee financial expert" as
that term is defined under the Securities Exchange Act of 1934, as amended. The
members of the audit committee receive directly or have access to extensive
information from reviews and examinations by our internal auditor, independent
accountant, and various banking regulatory agencies that have jurisdiction over
our company and our subsidiaries. The board believes that the present members of
the audit committee have sufficient knowledge and experience in financial
matters to effectively perform their duties. We recognize that having a person
who possesses all of the attributes of an audit committee financial expert may
be a valuable addition to our board of directors and currently are evaluating
whether and how best to attract such an expert to serve on the board.
The audit committee reviews the results and scope of the annual audit
and other services provided by our independent accountant. The audit committee
also reviews our financial statements and audit letters provided by our
independent accountant. The audit committee is responsible for the hiring of the
independent accountant. The audit committee met ten (10) times during 2003.
Compensation Committee. The compensation committee is composed of
Warren L. Grimes (chairman), Paula Canaday Bowman, Dr. R. Max Raynor, Jr., and
William Ashley Turner, each of whom the board, in its business judgment, has
determined meets the definition of "independent director" as that term is
defined by the Nasdaq Marketplace Rules. The compensation committee is
responsible for the approval of compensation arrangements for our officers and
the review of our compensation plans and policies. During 2003, the compensation
committee met three (3) times.
The Corporate Governance and Nominating Committee. The board of
directors established the corporate governance and nominating committee in
February 2004. The members of our corporate governance and nominating committee
are Dr. R. Max Raynor, Jr. (chairman), Paula Canaday Bowman, Warren L. Grimes,
and William Ashley Turner, each of whom the board has determined, in its
business judgment, meets the definition of "independent director" as that term
is defined by the Nasdaq Marketplace Rules. The board has not adopted a charter
for the committee at this time, but has delegated certain responsibilities to
the committee regarding nominations and criteria for proposing or recommending
proposed nominees for election and re-election to the board. The delegated
responsibilities of the committee include: (i) establishing criteria for the
selection of new directors; (ii) evaluating the qualifications of potential
candidates for directors; (iii) recommending to the board of directors the
nominees for election at each annual meeting of shareholders and any person to
be considered to fill a vacancy on the board; and (iv) reviewing and reassessing
the adequacy of our corporate governance principles. A charter for this
committee is being drafted that would codify these delegations.
To be considered by our corporate governance and nominating committee,
a director nominee must have certain minimum qualifications, including the
ability to read and understand basic financial statements, business experience,
relevant industry knowledge, high moral character, meeting certain stock
ownership requirements, having their primary banking relationship with us,
meeting certain age requirements, and the willingness to devote sufficient time
to attend meetings and participate effectively on the board. In identifying,
evaluating, and recommending nominees for director, the committee considers
diversity, age, skills, representation within our market areas, potential
conflicts of interest, and such other factors as it deems appropriate, given the
needs of the board and our company, to maintain a balance of knowledge,
experience, and capability. The committee may retain recruiting professionals to
assist in identifying and evaluating candidates for director nominees.
The corporate governance and nominating committee will consider, in the
same manner and based on the same qualifications as its own nominations,
shareholder nominations for directors. To be considered, a shareholder
nomination must be sent to the Corporate Secretary, Four Oaks Fincorp, Inc.,
P.O. Box 309, Four Oaks, North Carolina 27524. The nomination must be received
no later than the close of business on the 90th day prior to the first
anniversary of the preceding year's annual meeting, and it must contain enough
information regarding the nominee to permit the committee to assess the relevant
qualifications of the nominee, such as biographical profile, list of affiliated
companies, and potential conflicts of interest.
Shareholder Communications
Our shareholders may communicate directly with the members of the board
of directors or the individual chairmen of standing board committees by writing
directly to those individuals at the following address: Four Oaks Fincorp, Inc.,
P.O. Box 309, Four Oaks, North Carolina 27524. Our general policy is to forward,
and not to intentionally screen, any mail received at our corporate office that
is sent directly to an individual unless we believe the communication may pose a
security risk.
Code of Ethics
Our board of directors has adopted a code of ethics (our "Code of
Ethics") that applies to our principal executive officer, principal financial
officer, principal accounting officer or controller, and persons performing
similar functions. A copy of our Code of Ethics is available at
www.fouroaksbank.com in the "Investor Info" section or free of charge upon
written request to the attention of the Corporate Secretary, Four Oaks Fincorp,
Inc., P.O. Box 309, Four Oaks, North Carolina 27524 ((919) 963-2177).
Proposal No. 1
ELECTION OF DIRECTORS
The nominees for the election of directors are named and certain other
information is provided in the following tabulation.
Year Positions and Offices with our Company
First & Business Experience During
Name Age Elected Past Five (5) Years
- ---- --- ------- -------------------
M.S. Canaday 80 1969 Chairman of the board of directors of Four Oaks Fincorp, Inc. and
Four Oaks Bank & Trust Company; Owner of Four Oaks Drug Co.
Ayden R. Lee, Jr. 55 1983 Chief Executive Officer, President, and Director of Four Oaks
Fincorp, Inc. and Four Oaks Bank & Trust Company
Dr. R. Max Raynor, Jr. 46 2000 Director of Four Oaks Fincorp, Inc. and Four Oaks Bank & Trust
Company; Owner of Professional Eye Care, with locations in Benson,
North Carolina, Roseboro, North Carolina, and Clinton, North
Carolina; Chairman of our company's Corporate Governance and
Nominating Committee
Paula Canaday Bowman 55 1989 Director of Four Oaks Fincorp, Inc. and Four Oaks Bank & Trust
Company
William J. Edwards 60 1990 Director of Four Oaks Fincorp, Inc. and Four Oaks Bank & Trust
Company; President, Chief Executive Officer and Chairman of the
Board of Edwards Food Stores; Secretary of Edwards IGA; Co-owner of
L&B Propane
Percy Y. Lee 63 1992 Director of Four Oaks Fincorp, Inc. and Four Oaks Bank & Trust
Company; President of T.R. Lee Oil Co.; Senior Partner of Lee
Brother's Rental; Owner of Percy Lee Rentals
Warren L. Grimes 55 1992 Director of Four Oaks Fincorp, Inc. and Four Oaks Bank & Trust
Company; General Partner in Reedy Creek Direct Marketing Associates;
Chairman of our company's Compensation Committee and Audit
Committee; Chief Financial Officer and Director of Reedy Creek
Technologies, Inc; Executive Director of Smithfield Housing
Authority.
William Ashley Turner 51 2001 Director of Four Oaks Fincorp, Inc. and Four Oaks Bank & Trust
Company; Owner and President of Ashley Turner Enterprises, Inc.,
Ashley Turner Building Co., Inc., and Ashley Turner Commercial,
Inc.; Co-owner and Vice President of Woodland Development Co., Inc.;
Owner and Manager of Ashley Turner Development Co., LLC; Co-owner of
Planet Fitness; Vice President of RAFT, Inc.; Vice President of
Autumn Homes, Inc.; Owner of Ashley Turner Rentals, LLC.
The number constituting our board of directors must be at least five
(5), but not more than twenty-one (21). The number of directors within this
variable range may be fixed or changed from time to time by our shareholders or
our board of directors. Our board of directors has set the number of directors
at eight (8). The members of our board of directors are elected by our
shareholders to serve one (1) year terms.
All of our directors and executive officers hold office until the next
annual meeting or until their successors are elected and qualified. Our board of
directors has no reason to believe that the persons named above as nominees will
be unable or will decline to serve as a director if elected. However, in the
event of death or disqualification of any nominee or refusal or inability of any
nominee to serve, it is the intention of the proxyholders to vote for the
election of such other person or persons as the proxyholders determine in their
discretion; but in no circumstance will the proxy be voted for more than eight
(8) nominees. Properly executed and returned proxies, unless revoked, will be
voted as directed by the shareholder or, in the absence of such direction, will
be voted in favor of the election of the recommended nominees.
Pursuant to North Carolina law, the eight (8) candidates who receive
the highest number of votes will be elected as directors. Abstentions and broker
non-votes are counted for purposes of determining the presence or absence of a
quorum for the transaction of business, but are not counted in the election of
directors and will not be included in determining which candidates received the
highest number of votes.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" ALL OF THE NOMINEES FOR ELECTION
AS DIRECTORS.
Audit Committee Report
As described above, the audit committee of our board of directors is
composed of Warren L. Grimes (chairman), Merwin S. Canaday, and William J.
Edwards and operates under a written charter adopted by the board of directors.
A copy of the proposed revisions to the audit committee charter is attached to
this Proxy Statement as Appendix A and is scheduled to be submitted to our board
of directors at their next monthly meeting for their consideration and approval.
The audit committee charter, as approved by our board, will be filed as an
exhibit to the definitive proxy statement.
The members of the audit committee are not professionally engaged in
the practice of auditing or accounting nor are they experts in the fields of
accounting or auditing, including in respect of auditor independence. Management
is responsible for our internal controls and the financial reporting process,
including the presentation and integrity of our financial statements. Our
independent accountant are responsible for performing an independent audit of
our consolidated financial statements in accordance with auditing standards
generally accepted in the United States of America and to issue a report
thereon. The audit committee's responsibility is to monitor and oversee these
processes. The audit committee also recommends to our board of directors the
selection of our independent accountant. Members of the audit committee rely
without independent verification on the information provided to them and on
representations of management and our independent accountant.
Accordingly, the audit committee's oversight does not provide an
independent basis to determine that management has maintained appropriate
accounting and financial reporting principles or appropriate internal control
and procedures designed to assure compliance with accounting standards and
applicable laws and regulations. Furthermore, the audit committee's
considerations and discussions referred to below do not assure that the audit of
our financial statements has been carried out in accordance with auditing
standards generally accepted in the United States of America, that our financial
statements are presented in accordance with generally accepted accounting
principles, or that our auditors are in fact "independent."
In this context, the audit committee has met and held discussions with
our management, who represented to the audit committee that our consolidated
financial statements were prepared in accordance with accounting principles
generally accepted in the United States of America. The audit committee has
reviewed and discussed the consolidated financial statements with both
management and the independent accountant. The audit committee also discussed
with the independent accountant matters required to be discussed by Statement on
Auditing Standards No. 61 (Communication with Audit Committees). Our independent
accountant also provided to the audit committee the written disclosures required
by Independence Standards Board Standard No. 1 (Independence Discussions with
Audit Committees), and the audit committee has considered whether the provision
of audit and other non-audit services (set forth under "Audit Firm Fee Summary"
below) is compatible with maintaining the accountants' independence and has
discussed with the independent accountant their independence.
Based upon the audit committee's discussions with management and the
independent accountant and the audit committee's review of our consolidated
financial statements, representations of management, and the report of the
independent accountant to the audit committee, and subject to the limitations on
the role and responsibility of the audit committee referred to above and the
audit committee charter, the audit committee recommended that our board of
directors include the audited consolidated financial statements in our Annual
Report on Form 10-KSB for the fiscal year ended December 31, 2003, filed with
the Securities and
Exchange Commission. The audit committee also recommended that Dixon Hughes
PLLC be retained as our independent accountant for the 2004 fiscal year.
Audit Committee
Warren L. Grimes (chairman)
Merwin S. Canaday
William J. Edwards
EXECUTIVE COMPENSATION
The following table sets forth annual and long-term compensation that
we paid or accrued for services rendered for the fiscal years indicated by our
chief executive officer and the next most highly compensated executive officers
whose total salary and bonus exceeded $100,000 individually during the year
ended December 31, 2003 (the "named executive officers").
Summary Compensation Table
Annual Compensation (1) Long-Term Compensation
----------------------- ----------------------
Awards Payouts
------ -------
Securities All Other
Name & Principal Position Year Salary Bonus Underlying Options Compensation (2)
- ------------------------------ --------- ---------------- --------------- ----------------------- -----------------------
Ayden R. Lee, Jr., Chief 2003 $ 192,165 $ 10,501 5,000 $ 10,972
Executive Officer and 2002 181,830 3,749 5,000 11,066
President 2001 178,420 3,749 5,000 7,220
Clifton L. Painter, Senior 2003 $ 109,911 $ 6,151 2,625 $ 6,987
Executive Vice President, 2002 106,081 2,124 2,687 7,279
Chief Operating Officer 2001 102,730 2,124 2,687 4,437
Nancy S. Wise, Senior Vice 2003 $ 102,749 $ 5,296 2,437 $ 5,010
President, Chief Financial 2002 95,853 1,583 2,437 4,946
Officer 2001 88,827 1,556 2,500 4,845
W. Leon Hiatt, III 2003 $ 100,935 $ 5,183 2,437 $ 6,345
Senior Vice President, 2002 95,358 1,529 2,375 6,468
Loan Administrator 2001 87,470 1,502 2,312 5,381
- ------------------------
(1) Amounts shown in the table include amounts paid to the named executive
officers in their capacities as executive officers of our subsidiary, Four
Oaks Bank & Trust Company. Four Oaks Bank & Trust Company was reorganized
as our wholly owned subsidiary in July 1997. Amounts shown also include
amounts deferred by the named executive officers under our Master Corporate
Profit Sharing Retirement Plan and Trust.
(2) The amounts shown for Mr. Lee represent our contributions to him under our
Master Corporate Profit Sharing Retirement Plan and Trust in the amounts of
$2,582, $2,701, and $6,800, for each of the years ended 2003, 2002, and
2001, respectively, and our contributions to him under our Employee Stock
Purchase and Bonus Plan in the amounts of $8,000 and $8,000 for 2003 and
2002, respectively. The remainder of the amounts shown for Mr. Lee for each
year represent insurance premiums paid by us on term life insurance. The
amounts shown for Mr. Painter represent our contributions to him under our
(2) Master Corporate Profit Sharing Retirement Plan and Trust in the amounts of
$1,619, $1,510, and $4,109, for each of the years ended 2003, 2002, and
2001, respectively, and our contributions to him under our Employee Stock
Purchase and Bonus Plan in the amounts of $5,044 and $5,473 for 2003 and
2002, respectively. The remainder of the amounts shown for Mr. Painter for
each year represent insurance premiums paid by us on term life insurance.
The amounts shown for Ms. Wise represent our contributions to her under our
Master Corporate Profit Sharing Retirement Plan and Trust in the amounts of
$0, $619, and $888, for each of the years ended 2003, 2002, and 2001,
respectively, and our contributions to her under our Employee Stock
Purchase and Bonus Plan in the amount of $4,711, $4,054, and $3,615, for
each of the years ended 2003, 2002, and 2001, respectively. The remainder
of the amounts shown for Ms. Wise for each year represent insurance
premiums paid by us on term life insurance. The amounts shown for Mr. Hiatt
represent our contributions to him under our Master Corporate Profit
Sharing Retirement Plan and Trust in the amounts of $1,485, $1,350, and
$1,234, for each of the years ended 2003, 2002, and 2001, respectively, and
our contributions to him under our Employee Stock Purchase and Bonus Plan
in the amounts of $4,562, $4,851, and $3,830, for each of the years ended
2003, 2002, and 2001, respectively. The remainder of the amounts shown for
Mr. Hiatt for each year represent insurance premiums paid by us on term
life insurance.
Option Grants in Last Fiscal Year
The following table sets forth certain information concerning options
to purchase our common stock granted to the named executive officers during the
year ended December 31, 2003.
Number of
Securities % of Total Options Exercise or
Underlying Granted to Employees in Base
Name Options Granted Fiscal Year Price Expiration Date
---------- --------------- ------------------------ ----------- -----------------
Ayden R. Lee, Jr. 5,000 14% $18.00 February 28, 2007
Clifton L. Painter 2,625 7% $18.00 February 28, 2007
Nancy S. Wise 2,437 7% $18.00 February 28, 2007
W. Leon Hiatt, III 2,437 7% $18.00 February 28, 2007
Aggregated Option Exercises in Last Fiscal Year and Fiscal Year-End Option
Values
The following table sets forth certain information concerning options
to purchase our common stock held by the named executive officers during the
year ended December 31, 2003, the aggregate value of gains on the date of
exercise, and the value of unexercised options as of December 31, 2003.
Number of Securities Underlying Value of Unexercised
Unexercised Options at In-the-Money Options at
December 31, 2003 December 31, 2003 (1)
--------------------------------- --------------------------------
Shares
Acquired on Value Realized
Exercise (#) ($) (2) Exercisable Unexercisable Exercisable Unexercisable
Name
- ---------------------- ---------------- ----------------- --------------- ----------------- --------------- ----------------
Ayden R. Lee, Jr. _ _ 17,500 5,000 $367,500 $105,000
Clifton L. Painter 4,125 $10,461 9,500 2,625 199,500 55,125
Nancy S. Wise 3,937 9,985 8,687 2,437 182,427 51,177
W. Leon Hiatt, III 3,187 8,083 8,062 2,437 169,302 51,177
- ------------------------
(1) Based on the difference between the exercise price and a price per share of
$21.00, which is the last sale price of our common stock as of December 31,
2003.
(2) The value realized is based upon the difference between the exercise price
of the option and the fair market value of our common stock at the exercise
date. On February 27, 2003, Mr. Painter exercised options to purchase a
total of 4,125 shares of our common stock for an exercise price of $15.46.
(2) The market value of our common stock on this date was $18.00. On February
27, 2003, Ms. Wise exercised options to purchase a total of 3,937 shares of
our common stock for an exercise price of $15.46. The market value of our
common stock on this date was $18.00. On February 25, 2003, Mr. Hiatt
exercised options to purchase a total of 3,187 shares of our common stock
for an exercise price of $15.46. The market value of our common stock on
this date was $18.00.
Employment Agreements
We have employment agreements with Ayden R. Lee, Jr., Chief Executive
Officer and President, Clifton L. Painter, Senior Executive Vice President and
Chief Operating Officer, Nancy S. Wise, Senior Vice President and Chief
Financial Officer, and Wendell Leon Hiatt, III, Senior Vice President and Loan
Administrator. Each employment agreement provides for a one-year term and on
each anniversary date thereafter, the agreement is automatically extended for an
additional year, unless either party gives notice of nonrenewal. The current
base salary under the agreement may be increased at the discretion of our board
of directors. In addition to the base salary, each employment agreement provides
for, among other things, additional benefits applicable to executive personnel
and benefits applicable to all our salaried employees. Each agreement provides
for termination by us for "cause" (as defined in the agreement) at any time. Our
board of directors has established the 2004 base salary amount for Mr. Lee at
$202,304, Mr. Painter at $110,684, Ms. Wise at $100,633, and Mr. Hiatt at
$100,408.
Severance Compensation Agreement
We have entered into severance compensation agreements with each of Mr.
Lee, Mr. Painter, Ms. Wise, and Mr. Hiatt that will provide them with severance
pay benefits in the event of a "change in control." The purpose of the
compensation agreements is to recognize the services and contributions of Mr.
Lee, Mr. Painter, Ms. Wise, and Mr. Hiatt as key employees and the uncertainties
relating to continual employment, reduced employee benefits, management changes,
and relocations in the event of a change in control. Under each of the severance
compensation agreements, in the event a change in control (as defined in the
agreement) occurs and Mr. Lee's, Mr. Painter's, Ms. Wise's, or Mr. Hiatt's
employment, as the case may be, is "terminated" (as defined in the agreement),
he or she will be entitled to receive a cash severance payment equal to two (2)
years' salary, in the case of Mr. Lee, Mr. Painter, or Ms. Wise or eighteen
months' salary, in the case of Mr. Hiatt, based upon his or her then most recent
annual compensation and the amount of his or her most recent annual bonus at the
time of termination. In addition, Mr. Lee, Mr. Painter, Ms. Wise, or Mr. Hiatt
as the case may be, will be entitled to all life insurance, health, accidental
death and dismemberment, and disability plans or programs in which he or she is
entitled to participate immediately prior to his termination for two (2) years,
in the case of Mr. Lee, Mr. Painter, or Ms. Wise and for eighteen months, in the
case of Mr. Hiatt, after the date of his or her termination or unless and until
he or she obtains other full-time employment.
Supplemental Executive Retirement Plan
Our subsidiary, Four Oaks Bank & Trust Company, has adopted a
supplemental executive retirement plan ("SERP") for Mr. Lee that, upon his
retirement from the bank, will provide him with supplemental annual payments for
the remainder of his life. The purpose of the SERP is to encourage Mr. Lee to
remain as an employee of the bank and to reward him for contributing materially
to the success of the bank. Under the SERP, the bank will be obligated to pay
Mr. Lee an annual payment upon his retirement in an amount which, when added to
Mr. Lee's 401(k) benefits (based on future estimated amounts) and social
security benefits (based on future estimated amounts), will ensure Mr. Lee a
total annual retirement benefit equal to seventy-five percent (75%) of his
Average Annual Compensation (as defined in the SERP) on the date of his
retirement. Depending upon Mr. Lee's age at retirement, the annual payment as a
percentage of Mr. Lee's fully vested retirement benefit will vary (from
fifty-eight percent (58%) of fully vested retirement benefit at age fifty-five
(55) to one hundred percent (100%) at age sixty-two (62)). The annual payment
which we are obligated to pay Mr. Lee each year after his retirement is subject
to certain limitations, including a maximum limit of fifty thousand dollars
($50,000) per year. In the event of a change of control (as defined in the SERP)
of Four Oaks Fincorp, Inc. and termination of Mr. Lee's employment within
twenty-four (24) months thereafter (for any reason, except termination by the
bank for cause), Mr. Lee will be entitled to receive a lump sum cash payment
equal to the actuarial equivalence of the greater of (i) the amount he would
have been entitled to had he retired on such date or (ii) the amount of his pro
rata fully vested benefit under the SERP as of such date.
Equity Compensation Plan Information
We maintain a Nonqualified Stock Option Plan and an Employee Stock
Purchase and Bonus Plan. Neither of these plans are required to be, or has been,
approved by our shareholders.
The following table sets forth aggregate information regarding our
Nonqualified Stock Option Plan and Employee Stock Purchase and Bonus Plan in
effect as of December 31, 2003:
(a) (b) (c)
Number of securities
Remaining available for
future
issuance under equity
Number of securities to be Weighted-average compensation plans
issued upon exercise of exercise price of (excluding securities
Plan Category outstanding options outstanding options reflected in column (a))
(1)
- ------------------------------------------------------------------------------------------------------------------------
Equity compensation plans approved by
security holders N/A N/A N/A
Equity compensation plans not approved by
security holders 122,175 16.37 359,059
-------------------------------------------------------------------------------
Total 122,175 16.37 359,059
(1) Includes shares of our common stock remaining available for future
issuance under the following compensation plans in the amounts
indicated as of December 31, 2003: Nonqualified Stock Option
Plan--297,031; and Employee Stock Purchase and Bonus Plan-- 62,028
shares.
Nonqualified Stock Option Plan
The Nonqualified Stock Option Plan (the "Option Plan") provides for
grants of nonqualified stock options to officers and directors of our company
and its subsidiaries. The Option Plan is administered by a committee of the
board of directors. The committee has broad discretionary authority to
administer the Option Plan. The board of directors may amend or terminate the
Option Plan at any time, but no amendment or termination of the Option Plan may
adversely affect the rights of optionees under prior awards without the
optionees' approval.
The Option Plan provides that the exercise price and number of shares
subject to outstanding options will be appropriately adjusted upon a stock
split, stock dividend, recapitalization, combination, consolidation, or similar
transaction involving a change in our capitalization. Upon a merger in which we
are not the surviving corporation, or a liquidation or a sale of substantially
all of our assets, outstanding options will become fully vested and exercisable
and, to the extent not exercised, will terminate upon the effective date of such
a transaction.
As of March 8, 2004, 625,000 shares had been reserved for issuance
under the Option Plan. As of March 8, 2004, there were 118,932 outstanding stock
options, and 269,431 shares remained available for future grants. During 2003,
options to purchase 36,063 shares of our common stock had been granted at an
average exercise price of $18.00 per share.
Employee Stock Purchase and Bonus Plan
The Employee Stock Purchase and Bonus Plan (the "Purchase Plan") is a
voluntary plan that enables full-time employees of our company and its
subsidiaries to purchase shares of our common stock. The Purchase Plan is
administered by a committee of the board of directors, which has broad
discretionary authority to administer the Purchase Plan. The board of directors
may amend or terminate the Purchase Plan at any time. The Purchase Plan is not
intended to be qualified as an employee stock purchase plan under Section 423 of
the Internal Revenue Code of 1986, as amended.
Once a year, participants in the Purchase Plan purchase our common
stock at fair market value equal to five percent (5%) of their compensation, up
to $1,000. We match in cash fifty percent (50%) of the amount of each
participant's purchase, up to $500. After we withhold for income and employment
taxes, participants use the balance of our matching grant to purchase shares of
our common stock.
The Purchase Plan will terminate upon a merger in which we are not the
surviving corporation or upon a sale of substantially all of our assets. The
number of shares reserved for issuance under the Purchase Plan will be
appropriately adjusted upon a stock dividend, stock split, recapitalization, or
similar transaction that affects the total number of outstanding shares of our
common stock.
As of March 8, 2004, 125,000 shares of our common stock had been
reserved for issuance under the Purchase Plan, and 62,972 shares had been
purchased. During 2003, 5,656 shares were purchased under the Purchase Plan.
Certain Transactions
Certain of our directors and executive officers are customers of, and
borrowers from, Four Oaks Bank & Trust Company in the ordinary course of
business. From January 1, 2003 to December 31, 2003, loans outstanding to our
directors and executive officers and their associates as a group amounted to a
maximum of approximately $5,053,000 or 16.87% of the equity capital of the bank.
All outstanding loans and commitments included in such transactions are made
substantially on the same terms, including rate and collateral, as those
prevailing at the time in comparable transactions with other customers. In the
opinion of management, these loans do not involve more than normal risk of
collectibility or contain other unfavorable features.
Section 16(a) Beneficial Ownership Reporting Compliance
Section 16(a) of the Securities Exchange Act of 1934, as amended,
requires our officers, directors, and persons who own more than ten percent
(10%) of our equity securities to file reports of ownership and changes in
ownership with the Securities and Exchange Commission. Officers, directors, and
ten percent (10%) shareholders are required by SEC regulations to furnish us
with copies of all Section 16(a) reports they file. Based solely on a review of
the copies of such reports furnished to us, or representations by such persons
that no Forms 5 were required, we believe that during the fiscal year ended
December 31, 2003, all Section 16(a) filing requirements applicable to our
officers, directors, and ten percent (10%) shareholders were satisfied.
Proposal No. 2
APPROVAL OF AMENDMENT TO ARTICLES OF INCORPORATION
TO INCREASE AUTHORIZED SHARES OF COMMON STOCK
Our board of directors has unanimously approved and voted to recommend
to our shareholders for their approval an amendment to our company's Articles of
Incorporation to increase the aggregate number of shares of common stock that we
are authorized to issue from 5,000,000 shares to 10,000,000 shares. The text of
the proposed amendment is attached to this Proxy Statement as Appendix B and is
incorporated herein by reference, and the description set forth herein is
qualified in its entirety by reference to the text of the proposed amendment.
Vote Requirement. Amendments to our company's Articles of Incorporation
may be adopted only by the: (i) affirmative vote of the holders of at least
eighty percent (80%) of our capital stock issued and outstanding and entitled to
vote thereon; or (ii) affirmative vote of the holders of at least a majority of
our capital stock issued and outstanding and entitled to vote thereon where the
proposed amendment was approved by an affirmative vote of a majority of
disinterested members of the board of directors.
Since our board of directors has unanimously approved and voted to
recommend to our shareholders for their approval the proposed amendment,
approval of Proposal 2 requires the affirmative vote of the holders of at least
a majority of our common stock issued and outstanding and entitled to vote at
the Annual Meeting.
Shares voted for Proposal 2 and shares represented by returned proxy
cards that do not contain instructions to vote against Proposal 2 or to abstain
from voting will be counted as shares cast for Proposal 2. Shares will be
counted as cast against Proposal 2 if the shares are voted either against
Proposal 2 or to abstain from voting. Broker non-votes will not change the
number of votes cast for or against Proposal 2, but will be treated as shares
present or represented at the Annual Meeting.
Background and Reasons. Our company's Articles of Incorporation
currently authorize the issuance of up to 5,000,000 shares of capital stock. As
of the close of business on March 8, 2004, there were 2,706,538 shares of common
stock issued and outstanding, leaving a balance of 2,293,462 shares that are
authorized and unissued. Of the 2,293,462 shares of authorized and unissued
common stock, 750,000 are reserved for issuance pursuant to our Nonqualified
Stock Option Plan and Employee Stock Purchase and Bonus Plan. The reserved
shares consist of 625,000 shares reserved for issuance under outstanding options
under our Nonqualified Stock Option Plan and 125,000 reserved for issuance under
our Employee Stock Purchase and Bonus Plan.
If the proposed amendment to the Articles of Incorporation is approved
by the shareholders, upon its effectiveness our company will have a total of
10,000,000 authorized shares of common stock, with 2,706,538 shares issued and
outstanding (as of March 8, 2004) and 750,000 shares reserved for issuance,
leaving a balance of 6,543,462 shares authorized and unissued and not reserved
for any specific purpose. The rights and terms of our common stock will not be
changed in any way by the proposed amendment, and the additional shares of
common stock, if authorized, would have the same rights and privileges as the
shares of common stock currently outstanding.
The board of directors believes that it is in our company's best
interests to increase the number of authorized shares of common stock to make
additional shares available for issuance to meet our future business needs. The
increased shares would enable our company to fund future awards under its equity
compensation and purchase plans without requiring the repurchase of shares by
our company, and the increase in shares not reserved for any specific purpose
would give our company flexibility to meet other business needs as they arise in
the future.
Other than shares that will be reserved for issuance under our equity
compensation and purchase plans, management has no present arrangements,
agreements, understandings or plans for the issuance of the additional shares of
common stock proposed to be authorized by the amendment to our Articles of
Incorporation. The board of directors believes the availability of such shares
will benefit our company by providing flexibility to issue stock for a variety
of proper corporate purposes as the board of directors may deem advisable
without further action by our shareholders, except as may be required by law,
regulation or rule. These purposes could include, among other things, the sale
of stock for capital raising purposes, the purchase of property, the acquisition
or merger into our company of other companies, the use of additional shares for
our company's equity compensation and purchase plans, the declaration of stock
splits, stock dividends or distributions and other bona fide corporate purposes.
Were these situations to arise, the issuance of additional shares of stock could
have a dilutive effect on earnings per share, and, for a person who does not
purchase additional shares to maintain his or her pro rata interest, on a
shareholder's percentage voting power in our company. Holders of our common
stock do not have preemptive rights to subscribe for additional securities that
may be issued by our company, which means that current shareholders do not have
a prior right to purchase any new issue of stock of our company in order to
maintain their proportionate ownership interest.
Anti-Takeover Effects. Although an increase in the authorized shares of
common stock could, under certain circumstances, have an anti-takeover effect
(for example, by diluting the stock ownership of a person seeking to effect a
change in the composition of the board of directors or contemplating a tender
offer or other transaction for the combination of our company with another
company), the current proposal to amend the Articles of Incorporation is not in
response to any effort to accumulate our stock or to obtain control of our
company by means of a merger, tender offer, solicitation in opposition to
management or otherwise.
The proposed increase in the number of authorized shares of common
stock is not intended for anti-takeover purposes. Management is not currently
aware of any actions taken by any person or group to obtain control of our
company or to change its management. In addition, there have been no proposals
to our management or its board of directors for a merger or the purchase of our
securities or assets, and the proposal is not part of any plan by management to
recommend a series of similar amendments to the board of directors and the
shareholders. The board of directors does not currently contemplate recommending
the adoption of any other amendments to the Articles of Incorporation that could
be construed to affect the ability of third parties to take over or change
control of our company.
Other Company Provisions with Anti-Takeover Effects. There are other
provisions of the Articles of Incorporation, our Bylaws and the Nonqualified
Stock Option Plan (the "Option Plan") that could have an anti-takeover effect,
including: (i) the authority of the board of directors under the present
Articles of Incorporation to issue up to a maximum of approximately 2,293,462
shares of common stock presently available (if the shareholders approve Proposal
2, the board of directors will have authority to issue up to a maximum of
approximately 7,293,462 shares); (ii) the supermajority vote requirements and
fair price provisions in connection with certain "business combinations" in the
Articles of Incorporation that are described more fully below; (iii) the
supermajority vote requirements to amend the Articles of Incorporation (see
above under "--Vote Requirement"); (iv) under the Bylaws, a special meeting of
shareholders may only be called by the chief executive officer, president,
secretary, the board of directors or pursuant to the written request of a
shareholder who owns at least twenty-five (25%) of all shares entitled to vote;
and (v) under the Option Plan, upon a merger in which we are not the surviving
corporation, or a liquidation or a sale of substantially all of our assets,
outstanding options will become fully vested and exercisable and, to the extent
not exercised, will terminate upon the effective date of such a transaction.
Supermajority Vote Provisions - Business Combinations. Under the
supermajority vote provision in the Articles of Incorporation, certain plans of
merger or consolidation of us with or into any other corporation, or the sale,
lease or exchange or other disposition of all or substantially all of our assets
to or with any other corporation, person or entity, must be approved by an
affirmative vote of:
(i) the shareholders holding at least a majority of our shares
issued and outstanding and entitled to vote thereon, provided
that such plan has received the prior approval of at least
eighty percent (80%) of the full board of directors before
such plan is submitted for approval to the shareholders; or
(ii) the shareholders holding at least eighty percent (80%) of our
shares issued and outstanding and entitled to vote thereon
provided that such plan has not received the prior approval of
at least eighty (80%) of the full board of directors, but has
received the prior approval of a majority of a quorum of the
board of directors.
Fair Price Provisions. The fair price provision of the Articles of
Incorporation applies to business combinations, which includes mergers,
consolidations, sales of assets or securities, recapitalizations and similar
transactions involving us that have not received the approval of 80% of the full
board of directors and only to shareholders who vote against such business
combinations and who then elect to sell their shares to us for cash at the
minimum or fair price.
Under the fair price provision, the consideration for such shares must
be paid in cash by us and the price per share must be at least equal to the
greater of:
(i) the highest price per share paid for our common stock during the
four years immediately preceding the vote by any five (5%) shareholder who votes
in favor of the business combination;
(ii) the cash value of the highest price per share previously offered
pursuant to a tender offer to shareholders within four years immediately
preceding the vote;
(iii) the aggregate earnings per share of our common stock during the
four fiscal quarters immediately preceding the vote multiplied by the highest
price/earnings ratio of our common stock at any time during the four fiscal
quarters or up to the day the vote occurs;
(iv) the highest price per share, including commissions and fees paid
by a control person in acquiring any of its holdings of our common stock; or
(v) the fair value per share of our common stock of the minority
shareholders as determined by an investment banking or appraisal firm chosen by
a majority of the members of the board of directors voting against the business
combination, such fair value not taking into consideration that the shares are
held by a minority of the shareholders.
Option Plan. The Option Plan provides for grants of nonqualified stock
options to officers and directors of us and our subsidiaries. Upon a merger in
which we are not the surviving corporation, or a liquidation or a sale of
substantially all of our assets, outstanding options will become fully vested
and exercisable and, to the extent not exercised, will terminate upon the
effective date of such a transaction.
Anti-Takeover Effect. The supermajority vote and the fair price
provisions of the Articles of Incorporation and the acceleration of vesting
provisions of the Option Plan may have certain anti-takeover effects, including
that of making us a less attractive target for a "hostile" takeover bid or
rendering more difficult or discouraging a merger proposal or the assumption of
control through the acquisition of a large block of our common stock.
The board of directors believes that the fair price provision may
encourage companies interested in acquiring us to negotiate in advance with the
board of directors since, if eighty percent (80%) of the full board of directors
approves certain business combinations, the minimum price and higher voting
requirements of the fair price provision would be avoided.
The requirement of a supermajority of shareholders to amend our
Articles of Incorporation and approve certain business transactions may have
anti-takeover effects by allowing a minority of our shareholders to prevent a
transaction favored by the majority of shareholders. Also, in some
circumstances, the board of directors could cause an eighty percent (80%) vote
to be required to approve a transaction, thereby enabling management to retain
control over our affairs and their positions with us.
The primary purpose of the supermajority vote requirements and fair
price provisions, however, is to encourage negotiations with our management by
groups or corporations interested in acquiring control of us and to reduce the
danger of a forced merger or sale of assets.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" THE APPROVAL OF AN AMENDMENT
TO THE ARTICLES OF INCORPORATION TO INCREASE THE NUMBER OF AUTHORIZED SHARES OF
COMMON STOCK
SELECTION OF INDEPENDENT ACCOUNTANT
Since September 5, 2000, Dixon Hughes PLLC (formerly Dixon Odom PLLC)
has served as our independent accountant. The audit committee has appointed
Dixon Hughes PLLC as independent accountant of our company and its subsidiaries
for the fiscal year ending December 31, 2004. Dixon Hughes PLLC's services to us
for 2002 and 2003 included the audit of our annual consolidated financial
statements, reviews of certain of our income tax returns and consultation on
various accounting, tax and other matters. A representative of Dixon Hughes PLLC
is expected to be present at our Annual Meeting. This representative will have
an opportunity to make a statement if desired and will be available to respond
to shareholder questions.
Audit Firm Fee Summary
During the fiscal years ended December 31, 2003 and 2002, we retained
our independent accountant, Dixon Hughes PLLC, to provide services in the
following categories and amounts:
2002 2003
---- ----
Audit Fees (1) $ 51,972 $ 55,175
Audit-Related Fees (2) 1,400 3,150
Tax Fees (3) 4,000 4,600
All Other Fees (4) 16,900 -
TOTAL $ 74,272 $ 62,925
(1) "Audit Fees" are fees for professional services performed by Dixon Hughes
PLLC for the audit of our annual financial statements and review of
financial statements included in our 10-QSB filings, as well as services
that are normally provided in connection with statutory and regulatory
filings or engagements.
(2) "Audit-Related Fees" are fees for assurance and related services performed
by Dixon Hughes PLLC that are reasonably related to the performance of the
audit or review of our financial statements. These services include:
accounting consultations and other attestation services including Federal
Home Loan Bank collateral verification procedures.
(3) "Tax Fees" are fees for professional services performed by Dixon Hughes
PLLC with respect to tax compliance, tax advice, and tax planning.
(4) "All Other Fees" are fees for other permissible work performed by Dixon
Hughes PLLC that does not meet the above category descriptions. These
services include agreed upon procedures regarding the Fair Lending Act and
tests of internal controls.
Our audit committee has considered the compatibility of the non-audit
services performed by and fees paid to Dixon Hughes PLLC in fiscal 2003 and
fiscal 2002 and determined that such services and fees were compatible with the
independence of the public accountants. During fiscal year 2003, Dixon Hughes
PLLC did not utilize any personnel in connection with the audit other than its
full-time, permanent employees.
Policy for Approval of Audit and Non-audit Services. Before we engage
an accountant for any audit or permissible non-audit service, we are required to
obtain the approval of our audit committee. In determining whether to approve a
particular audit or permitted non-audit service, our audit committee will
consider, among other things, whether such service is consistent with
maintaining the independence of the independent public accountant. Our audit
committee also will consider whether the independent accountant are best
positioned to provide the most effective and efficient service to us and whether
the service might be expected to enhance our ability to manage or control risk
or improve audit quality.
ADDITIONAL INFORMATION
A copy of our Annual Report on Form 10-KSB for the fiscal year ended
December 31, 2003, including the financial statements and schedules thereto, as
filed with the SEC will be furnished on written request, without charge to any
of our shareholders. Such requests should be addressed to Wanda J. Blow, Four
Oaks Fincorp, Inc., P.O. Box 309, Four Oaks, North Carolina 27524 ((919)
963-2177).
SUBMISSION OF SHAREHOLDER PROPOSALS FOR 2005 ANNUAL MEETING
Any proposals that shareholders intend to present for a vote of
shareholders at the 2005 Annual Meeting of Shareholders, and that such
shareholders desire to have included in our proxy statement and form of proxy
relating to that meeting, must be sent to our principal executive office, marked
to the attention of Ayden R. Lee, Jr., and received at such office on or before
_______, 2004 (120 calendar days prior to the anniversary of the date of this
proxy statement). Proposals received after _________, 2004 will not be
considered for inclusion in our proxy materials for our 2005 annual meeting. A
determination as to whether we will oppose inclusion of any proposal in our
proxy statement and form of proxy will be made on a case-by-case basis in
accordance with our judgment and the rules and regulations promulgated by the
SEC.
In addition, if a shareholder intends to present a matter for a vote at
the 2005 annual meeting, other than by submitting a proposal for inclusion in
our proxy statement for that meeting, the shareholder must give timely notice in
accordance with SEC rules. To be timely, a shareholder's notice must be sent to
our principal executive office, marked to the attention of Ayden R. Lee, Jr.,
and received at such office on or before __________, 2005 (45 calendar days
prior to the anniversary of the mailing date of this proxy statement). Such
notice should set forth: (a) as to each matter the shareholder proposes to bring
before the meeting, a brief description of the business desired to be brought
before the meeting and the reasons for conducting such business at the meeting;
and (b) the name and record address of the shareholder, the class and number of
shares of our capital stock that is beneficially owned by the shareholder, and
any material interest of the shareholder in such business. For notices that are
not timely filed, we retain discretion to vote proxies we receive. For notices
that are timely filed, we retain discretion to vote proxies we receive provided:
(i) we include in our proxy statement advice on the nature of the proposal and
how we intend to exercise our voting discretion; and (ii) the proponent fails to
(x) provide us with a written statement, on or before February __, 2005, that
the proponent intends to deliver a proxy statement and form of proxy to holders
of at least the percentage of our voting shares required under applicable law to
carry the proposal, (y) include the same statement in its proxy materials filed
with the SEC, and (z) immediately after soliciting the percentage of
shareholders required to carry the proposal, provide us with a statement from
any solicitor, or other person with knowledge, that the necessary steps have
been taken to deliver a proxy statement and form of proxy to holders of such
percentage of shares.
OTHER MATTERS; DISCRETIONARY AUTHORITY
As of the date of this proxy statement, we know of no business that
will be presented for consideration at the annual meeting other than the items
referred to above. The enclosed proxy confers discretionary authority to vote
with respect to any and all of the following matters that may come before the
annual meeting: (i) matters for which we did not receive timely notice; (ii)
approval of the minutes of a prior meeting of shareholders, if such approval
does not amount to ratification of the action taken at the meeting; (iii) the
election of any person to any office for which a bona fide nominee is named in
this proxy statement and such nominee is unable to serve or for good cause will
not serve; (iv) any proposal omitted from this proxy statement and the form of
proxy pursuant to Rule 14a-8 or Rule 14a-9 under the Securities Exchange Act of
1934, as amended; and (v) matters incidental to the conduct of the annual
meeting. If any such matters come before the annual meeting, the proxy agents
named in the accompanying proxy card will vote in accordance with their
judgment.
All shareholders are encouraged to sign, date, and return their proxy
submitted with this proxy statement as soon as possible in the envelope
provided. If a shareholder attends the annual meeting, then he or she may revoke
his or her proxy and vote in person.
By Order of the board of directors
_____ _, 2004
Ayden R. Lee, Jr.
Chief Executive Officer and President
Appendix A
DRAFT
FOUR OAKS FINCORP, INC.
AUDIT COMMITTEE CHARTER
I. PURPOSE
The primary function of the Audit Committee (the "Committee") of the Board of
Directors of Four Oaks Fincorp, Inc. (the "Company") is to assist the Board of
Directors in fulfilling its oversight responsibilities by reviewing the
financial information and reporting processes, the systems of internal controls,
and the audit processes including the work of the Company's Compliance
Department.
While the Committee has the responsibilities and powers set forth in this
Charter, it is not the duty of the Committee to plan or conduct audits or to
determine that the Company's financial statements are complete and accurate and
are in accordance with generally accepted accounting principles. Management is
responsible for the preparation, presentation, and integrity of the Company's
financial statements and for the appropriateness of the accounting principles
and reporting policies that are used by the Company. The independent accountant
is responsible for auditing the Company's financial statements and for reviewing
the Company's unaudited interim financial statements.
II. AUTHORITY
The Committee has the authority to conduct or authorize investigations into any
matters within its scope of responsibility. It is empowered to:
o Select, approve the compensation of, and review the performance of the
Company's independent accountant. Where appropriate approve the
discharge of the independent accountant.
o Review and concur in the appointment, replacement, reassignment, or
dismissal of the General Auditor.
o Resolve any disagreements between management and the independent
accountant and between management and the General Auditor.
o Pre-approve all auditing and permissible non-audit services, including
decisions to outsource related activities, and shall not engage the
independent accountant to perform the specific non-audit services
proscribed by law or regulation.
o Review the work performed by the Company's Compliance Department.
o Retain and compensate independent counsel, accountants, or others to
advise the Committee as necessary to carry out its duties.
o Conduct or authorize investigations into any matters within the
Committee's scope of responsibilities.
o Delegate pre-approval authority, including but not limited to approval
of audit and permissible non-audit services, to a member of the
Committee. The decisions of any Committee member to whom pre-approval
authority has been delegated must be presented to the full Committee
at the next scheduled meeting.
o Seek any information it requires from employees--all of whom are
directed to cooperate with the Committee's requests--or external
parties.
o Meet with the Company's officers, independent accountant, or outside
counsel, as necessary.
III. RESPONSIBILITIES AND DUTIES
In meeting its responsibilities, the Committee is expected to:
1. Obtain the full Board's approval of the Committee's Charter. Review and
update the Committee's Charter annually or more frequently as conditions
dictate. Propose and receive approval of any changes to the Committee's
Charter from the full Board.
2. Review information provided by management, the Internal Audit Department,
the Compliance Department, and the independent accountant about significant
risks and exposures, accounting and otherwise, then assess the steps
management has taken to minimize such exposures and to mitigate such risks
to the company.
3. Review and approve the proposed audit scope and approach with the
independent accountant, the General Auditor, and the Compliance Officer.
4. Consider, with management, the General Auditor, the Compliance Officer and
the independent accountant as applicable, the rationale for employing audit
or related consulting firms.
5. Review with the General Auditor, the Compliance Officer, and the
independent accountant the coordination of audit efforts to assure
completeness of coverage, reduction of redundant efforts, and effective use
of audit and compliance resources.
6. Review the findings from any examination by regulatory agencies, including
findings related to the Company's compliance and safety and soundness
examinations.
7. Review policies and procedures with respect to officers' expense accounts
and perquisites, including their use of corporate assets, executive travel
and entertainment, and consider the results of any review of these areas by
the Internal Audit Department or by the independent accountant.
8. Review with the General Auditor and the independent accountant the process
for communicating the code of conduct and results of their review(s) of
compliance with the Company's code of conduct.
9. Establish procedures for receiving, retaining, and addressing any
complaints about the Company's accounting, internal accounting controls, or
auditing. Procedures will provide for the anonymous and confidential
submission of employee concerns regarding questionable accounting and
auditing matters and any suspected fraudulent or unethical activity.
10. Perform a self-assessment of the Committee's performance as compared to the
Charter annually.
11. Perform such other functions as assigned by law, by the Company's Board of
Directors, by the Company's Articles of Incorporation, or by the Company's
Bylaws.
12. Comply with requirements in the Company's bylaws regarding committees of
the Board.
13. Review all "related party transactions" for potential conflict of interest
situations on an ongoing basis and approve, as deemed appropriate by the
Committee, all such transactions prior to their consummation. The term
"related party transactions" includes all transactions required to be
disclosed pursuant to Item 404 of Regulation S-K under the Securities
Exchange Act of 1934, as amended.
14. Determine the appropriate funding to be provided by the Company for the
payment of: (i) the independent accountant or any other registered public
accounting firm engaged to prepare or issue an audit report or perform
other audit, review, or attest services for the Company; (ii) any advisers
employed by the Committee under its authority to retain independent
counsel, accountants, and other advisers to assist the Committee in
carrying out its duties; and (iii) ordinary administrative expenses of the
Committee in carrying out its duties.
Financial
15. Confirm and assure the independence of the independent accountant according
to the Sarbanes-Oxley Act of 2002, SEC rules and regulations, the Nasdaq
Marketplace Rules, and any other criteria established by law or regulation
from time to time. This shall include, among other things, a review of
management consulting and related services provided by the independent
accountant to the Company and any of its subsidiaries and a review of
compliance with the SEC's rules regarding audit partner rotation. To assure
the independence of the accountant, the Committee shall receive, review and
actively discuss, on an annual basis, a written statement from the
independent accountant delineating all relationships between the accountant
and the Company (including a listing of all non-audit services rendered and
related fees) consistent with Independence Standards Board Standard No. 1,
as modified or supplemented.
16. Review and discuss with the independent accountant any matters described in
Statement of Auditing Standards No. 61, as modified or supplemented.
17. Approve any changes in accounting principles.
18. Review and discuss with management and the independent accountant filings
with the SEC (prior to filing) and other published documents containing the
Company's financial statements and consider whether the information
contained in these documents is consistent with the information contained
in the financial statements presented during Board Meetings.
19. Review with management, the independent accountant, and the General
Auditor, interim financial statements and the results of the independent
accountant's review, before they are filed with the SEC or other
regulators.
20. Review the effectiveness of the Company's system for monitoring compliance
with laws and regulations relating to financial reporting and the results
of management's investigation and follow-up (including disciplinary action)
on any suspected fraudulent acts or accounting irregularities.
21. Obtain periodic updates from management regarding actions taken to ensure
compliance with applicable financial reporting laws and regulations and the
Company's operating procedures and corporate policies.
22. Review legal and regulatory matters identified by management or counsel
that may have a material impact on the financial statements, related
Company compliance policies, and programs and reports received from
regulators and evaluate whether such matters have been considered in the
preparation of the financial statements.
23. Determine whether or not to recommend that the annual financial statements
be included in the Company's annual report on Form 10-KSB (or Form 10-K, if
applicable) for the previous fiscal year, based on the Committee's review
and discussion with management and the independent accountant.
24. Receive regular reports, including at the completion of an annual
examination, from the independent accountant on the critical accounting
policies and procedures of the Company, all alternative treatments of
financial information within generally accepted accounting principles that
have been discussed with management, and any other material written
communications that have occurred between the independent accountant and
the Company's management.
25. Review with management and with the independent accountant at the
completion of the annual examination:
A. The company's annual financial statements and related footnotes,
including the completeness of its financial disclosures.
B. The independent accountant's audit of the financial statements and his
or her report thereon.
C. Any significant changes required in the independent accountant's audit
plan.
D. Any serious difficulties or disputes with management encountered by
the independent accountant during the course of the annual audit.
E. Other matters related to the conduct of the annual audit which are
communicated to the Committee under generally accepted auditing
standards.
Internal Control
26. Consider and review with the independent accountant and with the General
Auditor the adequacy of (i) the Company's internal controls, including
computerized information system controls, security, and controls related to
financial reporting and (ii) any related significant findings and
recommendations of the independent accountant and of the Internal Audit
Department, together with management's responses thereto.
27. Consider and review with management and with the General Auditor:
A. Significant findings during the year and management's responses
thereto.
B. Any difficulties encountered in the course of their audits, including
any restrictions on the scope of their work or access to required
information.
C. Any changes in the planned scope of the approved audit plan.
D. The Internal Audit Charter. Approve the Internal Audit Charter and any
subsequent changes.
E. Review the effectiveness of the internal audit function, including
compliance with The Institute of Internal Auditors' Standards for the
Professional Practice of Internal Auditing.
Compliance
28. Review and approve the annual plan for the Company's Compliance Department
as well as subsequent changes to the plan.
29. Review compliance reports and discuss significant risks and exposure
related to the Company and its subsidiaries.
30. Review the effectiveness of the system for monitoring compliance with laws
and regulations unrelated to financial reporting and the results of
management's investigation and follow-up.
31. Review the effectiveness of the Company's Compliance Department.
Reporting
32. Provide an open communication between the General Auditor, the independent
accountant, the Compliance Officer, and the Board of Directors.
33. Regularly report to the Board of Directors about the Committee's
activities, issues and related recommendations.
34. Prepare a letter for inclusion in the Company's Annual Report that
describes the Committee's composition, responsibilities, and how the
responsibilities were discharged.
35. Comply with the Sarbanes-Oxley Act of 2002, as well as SEC and Nasdaq
Marketplace Rules governing disclosure in public documents related to audit
committees, including (i) the requirement to disclose whether the members
are independent; (ii) whether or not the members of the Committee are
financially literate under the Nasdaq Marketplace Rules; (iii) whether or
not a member of the Committee has the requisite experience of financial
sophistication under the Nasdaq Marketplace Rules; (iv) whether or not the
Committee includes a "financial expert", and if not, an explanation of why;
(v) whether or not the Company has a code of ethics for its Chief Executive
Officer and senior financial officers; and (vi) the inclusion of an audit
committee report.
III. COMPOSITION
The membership of the Committee shall consist of three or more members of the
Board of Directors, each of whom shall be independent as defined by Nasdaq
Marketplace Rules, SEC rules, and any other criteria established by law or
regulation from time to time. In addition, the Company shall strive to have: (i)
each member of the Committee satisfy the applicable Nasdaq Marketplace Rules
relating to financial literacy; (ii) one member of the Committee with past
financial experience resulting in his or her financial sophistication as
required by Nasdaq Marketplace Rules; and (iii) a member who qualifies as an
"audit committee financial expert" as defined by SEC rules. The Chairman of the
Board of Directors shall at all times be a member of the Committee.
IV. MEETINGS
The Committee shall meet at least 4 times annually, and may meet more frequently
if necessary. The Committee shall meet separately at least annually with the
Chief Executive Officer, the Chief Financial Officer, the General Auditor, and
the independent accountant to discuss any matters the Committee or they believe
should be discussed privately. The Committee will invite members of management,
auditors or others to attend meetings and provide pertinent information, as
necessary. Minutes will be recorded for each meeting held.
Approved by the Company's Board of Directors at its meeting on March ____, 2004.
Appendix B
Articles of Amendment to
Articles of Incorporation of
Four Oaks Fincorp, Inc.
Pursuant to Section 55-10-06 of the North Carolina Business Corporation
Act, the undersigned corporation hereby submits these Articles of Amendment for
the purpose of amending its Articles of Incorporation:
1. The name of the corporation is Four Oaks Fincorp, Inc.
2. The Articles of Incorporation of the corporation are hereby
amended as follows:
Article III of the Articles of Incorporation is hereby deleted in
its entirety and is replaced with the following Article III:
"3. The corporation shall have the authority to issue ten million
(10,000,000) shares of capital stock with a par value of One
Dollar ($1.00) per share."
3. The foregoing amendment was approved by, and proposed and
recommended to the corporation's shareholders by, the Board of
Directors on January 20, 2004, and approved by the shareholders
on April __, 2004, in accordance with the provisions of Chapter
55 of the North Carolina General Statutes.
4. These Articles of Amendment will become effective upon filing.
IN WITNESS WHEREOF, I have hereunto set my hand this __ day of ______,
2004.
FOUR OAKS FINCORP, INC.
By:
---------------------------------------------------
Ayden R. Lee, Jr.
Chief Executive Officer and President
Appendix C
PROXY THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
FOUR OAKS FINCORP, INC.
FOR THE 2004 ANNUAL MEETING OF SHAREHOLDERS.
The undersigned hereby appoints Ayden R. Lee, Jr. and M. S. Canaday as proxies,
each with the full power of substitution to represent the undersigned and to
vote all of the shares of stock in Four Oaks Fincorp, Inc. which the undersigned
is entitled to vote at the Annual Meeting of Shareholders of said Company to be
held at the main office of Four Oaks Fincorp, Inc. located at 6144 US 301 South,
Four Oaks, North Carolina on _______, April ___, 2004 at ____ [a.m.] [p.m.].,
and any adjournments thereof (1) as hereinafter specified upon the proposals
listed below as more particularly described in the Company's proxy statement,
receipt of which is hereby acknowledged; and (2) in their discretion upon such
other matters as may properly come before the meeting and any adjournments
thereof. In order to vote for the proposals, place an X in the appropriate box
provided below. The Board recommends a vote "FOR" the proposals listed below.
1. To elect the following nominees as directors of a one year term: M. S.
Canaday; Ayden R. Lee, Jr.; William J. Edwards; Paula Canaday Bowman; Dr. R. Max
Raynor, Jr.; Percy Y. Lee; Warren L. Grimes; William Ashley Turner.
[ ] FOR all nominees [ ] WITHHOLD AUTHORITY
(except as marked to the contrary below.) to vote for all nominees.
INSTRUCTION: To withhold authority to vote for any individual nominee(s)
write that nominee(s) name on the line provided below.
- -------------------------------------------------------------------------------
2. To amend the Articles of Incorporation to increase the number of authorized
shares of common stock from 5,000,000 shares to 10,000,000 shares.
[ ] FOR the amendment. [ ] AGAINST the amendment [ ] WITHHOLD AUTHORITY
to vote for the
amendment.
PLEASE MARK, SIGN AND RETURN THIS PROXY PROMPTLY IN THE ENCLOSED ENVELOPE
(continued from other side)
THE BOARD OF DIRECTORS FAVORS A VOTE "FOR" THE ABOVE PROPOSALS AND UNLESS
INSTRUCTIONS TO THE CONTRARY ARE INDICATED IN THE SPACE PROVIDED, THIS PROXY
WILL BE SO VOTED.
SHARES
Dated: _______________________________, 2004
Please date and sign this Proxy and return promptly.
------------------------------------------
Signature
------------------------------------------
Signature
NOTE: Please sign your name exactly as it appears on
this card. When signing for a corporation or
partnership, or as agent, attorney, trustee,
executor, administrator, or guardian, please indicate
the capacity in which you are signing. In the case of
joint tenants, each joint owner must sign.