SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the
Securities Exchange Act of 1934
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|X| Definitive Proxy Statement
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|_| Soliciting Material Pursuant to Rule 14a-11(c) or rule 14a-12
Four Oaks Fincorp, Inc.
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(Name of Registrant as Specified In Its Charter)
Not Applicable
--------------
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(4) Date Filed:
Four Oaks Fincorp, Inc.
April 4, 2005
Dear Shareholder:
Accompanying this letter is the Notice of Annual Meeting, Proxy
Statement, Summary 2004 Annual Report to Shareholders and proxy for Four Oaks
Fincorp, Inc.'s Annual Meeting. Whether or not you plan to attend the meeting in
person, please submit voting instructions for your shares promptly using the
directions on your proxy card to vote by one of the following methods: (1) by
telephone, by calling the toll-free telephone number printed on your proxy card;
(2) over the Internet, by accessing the website address printed on your proxy
card; or (3) by marking, dating and signing your proxy card and returning it in
the accompanying postage-paid envelope. If you do attend, you can revoke your
proxy and vote in person.
The Annual Meeting will begin at 8:00 p.m. on Monday, April 25, 2005,
at the main office of Four Oaks Bank & Trust Company, located at 6144 US 301
South, Four Oaks, North Carolina. At the Annual Meeting, our shareholders will
elect the board of directors for the coming year, ratify the appointment of our
independent accountant for the coming year 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-K, a copy of which follows the Proxy Statement, and which reflects our
company's financial condition as of December 31, 2004.
As mentioned above, we also have included a Summary 2004 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 vote your shares as directed on your proxy card provided as soon as
possible.
Sincerely yours,
/s/ Ayden R. Lee, Jr.
-------------------------------------
Ayden R. Lee, Jr.
Chief Executive Officer and President
FOUR OAKS FINCORP, INC.
6114 US 301 South
Four Oaks, North Carolina 27524
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NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
April 25, 2005
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You are cordially invited to attend the Annual Meeting of Shareholders
of Four Oaks Fincorp, Inc., which will be held on Monday, April 25, 2005 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 ratify the action of the audit committee of the board
of directors in appointing Dixon Hughes PLLC as independent accountants
for the fiscal year ending December 31, 2005; 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 7, 2005 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-K, containing financial
statements of Four Oaks Fincorp, Inc., for the year ended December 31, 2004, is
enclosed herewith.
YOUR VOTE IS VERY IMPORTANT. A PROXY CARD IS ENCLOSED FOR THE
CONVENIENCE OF THOSE SHAREHOLDERS 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, OR VOTE VIA THE INTERNET OR
TELEPHONE AS PROVIDED ON THE PROXY CARD. IF YOU RETURN YOUR CARD OR VOTE OVER
THE INTERNET OR TELEPHONE 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
/s/ Ayden R. Lee, Jr.
-----------------------------------
Ayden R. Lee, Jr.
Chief Executive Officer and
President
April 4, 2005
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 Summary 2004 Annual Report to Shareholders are being mailed
to shareholders on or about April 4, 2005 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
Monday, April 25, 2005 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) ratify the action of the audit
committee of our board of directors in appointing Dixon Hughes PLLC as
independent accountants for the fiscal year ending December 31, 2005; and (3)
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.
How You Can Vote
You may vote shares by proxy or in person using one of the following
methods:
o Voting by Telephone. You can vote using the directions on your proxy
card by calling the toll-free telephone number printed on the card.
The deadline for voting by telephone is Monday, April 25, 2005, at
3:00 a.m. Eastern time. If you vote by telephone you need not return
your proxy card.
o Voting by Internet. You can vote over the Internet using the
directions on your proxy card by accessing the website address printed
on the card. The deadline for voting over the Internet is Monday,
April 25, 2005 at 3:00 a.m. Eastern time. If you vote over the
Internet you need not return your proxy card.
o Voting by Proxy Card. You can vote by completing and returning your
signed proxy card. To vote using your proxy card, please mark, date
and sign the card and return it by mail in the accompanying
postage-paid envelope. You should mail your signed proxy card
sufficiently in advance for it to be received by Friday, April 22,
2005.
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;
o timely submitting new voting instructions by telephone or over the
Internet as described above; 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 7, 2005
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 7, 2005, we had 3,454,241 shares of common stock
outstanding.
Voting Rights
On all matters to come before the Annual Meeting, each holder of common
stock will be entitled to one vote for each share held. Shareholders do not have
the right to vote cumulatively in electing directors.
How You Can Vote Shares Held by a Broker or Other Nominee
If your shares are held by a broker, bank, custodian or other nominee,
you may have received a voting instruction form with this proxy statement
instead of a proxy card. The voting instruction form is provided on behalf of
the broker or other nominee to permit you to give directions to the broker or
nominee on how to vote your shares. Please refer to the voting instruction form
or contact the broker or nominee to determine the voting methods available to
you.
2
SECURITY OWNERSHIP OF MANAGEMENT
AND CERTAIN BENEFICIAL OWNERS
The following table sets forth certain information as of March 7, 2005
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. The business address for each of the persons listed below
is 6114 US 301 South, Four Oaks, North Carolina 27524. 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 Amount and Nature of Beneficial
Beneficial Owner Ownership(1) Percent of Class (1)
- --------------------------------------- ------------------------------- --------------------
Merwin S. Canaday(2) 70,134 2.0%
Ayden R. Lee, Jr.(3) 100,404 2.9%
Paula Canaday Bowman(4) 48,353 1.4%
William J. Edwards(5) 19,827 *
Warren L. Grimes(6) 12,821 *
Percy Y. Lee(7) 32,147 *
Dr. R. Max Raynor, Jr.(8) 2,324 *
Clifton L. Painter(9) 32,586 *
William Ashley Turner(10) 202,139 5.9%
Nancy S. Wise(11) 6,165 *
W. Leon Hiatt, III(12) 17,875 *
Jeff. D. Pope(13) 9,699 *
All Directors and Executive Officers as a
Group (12 persons) 554,474 16.1%
- -----------------
*Less than 1%
(1) Based upon 3,454,241 shares of common stock outstanding on March 7, 2005.
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 7, 2005.
Beneficial ownership may be disclaimed as to certain of the securities.
(2) Includes 1,311 shares subject to stock options which are exercisable within
60 days of March 7, 2005.
(3) Includes 17,500 shares subject to stock options which are exercisable
within 60 days of March 7, 2005, and 19,040 shares owned by Mr. Lee's
spouse who has sole voting and investment power with respect to these
shares.
(4) Includes 1,311 shares subject to stock options which are exercisable within
60 days of March 7, 2005, and 156 shares owned by Ms. Bowman's spouse who
has sole voting and investment power with respect to these shares.
3
(5) Includes 1,311 shares subject to stock options which are exercisable within
60 days of March 7, 2005, 1,562 shares owned by Mr. Edward's spouse who has
sole voting and investment power with respect to these shares, and 113
shares held in his name as custodian for his granddaughter.
(6) Includes 1,311 shares subject to stock options which are exercisable within
60 days of March 7, 2005, 5,552.3453 shares owned jointly with Mr. Grimes'
spouse, and 1,124.6597 shares owned by Mr. Grimes' spouse who has sole
voting and investment power with respect to these shares.
(7) Includes 1,311 shares subject to stock options which are exercisable within
60 days of March 7, 2005, and 21,322.8156 shares owned jointly with Mr.
Lee's spouse.
(8) Includes 1,311 shares subject to stock options which are exercisable within
60 days of March 7, 2005.
(9) Includes 9,265 shares subject to stock options which are exercisable within
60 days of March 7, 2005, 2,045 shares owned by Mr. Painter's spouse who
has sole voting and investment power with respect to these shares, and 351
shares owned by a minor child who resides in the home.
(10) Includes 1,311 shares subject to stock options which are exercisable within
60 days of March 7, 2005, 199,766.5470 shares owned jointly with Mr.
Turner's spouse, and 530.4805 shares owned by Mr. Turner's spouse who has
sole voting and investment power with respect to these shares.
(11) Includes 5,483 shares subject to stock options which are exercisable within
60 days of March 7, 2005, 1.000 share owned jointly with Ms. Wise's spouse,
28.3660 shares owned by Ms. Wise's spouse who has sole voting and
investment power with respect to these shares, and 91.6082 shares owned by
children who reside in the home.
(12) Includes 8,451 shares subject to stock options which are exercisable within
60 days of March 7, 2005, 81.0136 shares owned by Mr. Hiatt's spouse who
has sole voting and investment power with respect to these shares, and
997.6748 shares owned by minor children who reside in the home.
(13) Includes 7,031 shares subject to stock options which are exercisable within
60 days of March 7, 2005.
The following table sets forth certain information as of March 7, 2005
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 202,139 5.9%
Tenants with right of survivorship
181 Cleveland Crossing
Garner, North Carolina 27529
4
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 $1,200 per
month. Other directors, except Mr. Lee who is not paid a director's fee, are
paid fees of $1,000 per month. During 2004, all of the directors other than Mr.
Lee were paid a bonus of $200.
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. 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 26,
2004, eight (8) directors were present and in attendance.
5
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
audit committee charter was attached to the Proxy Statement for our 2004 Annual
Meeting of Shareholders. 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 director" as that term is defined by Nasdaq
Marketplace Rules and 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 and
setting the compensation of the independent accountant. The audit committee met
ten (10) times during 2004.
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 2004, the compensation
committee met seven (7) 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 committee operates pursuant to a
charter that is available on our website at http://www.fouroaksbank in the
"investor info" section under the listing for governance documents. Pursuant to
the committee's charter, the board 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.
6
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. During
2004, the corporate governance and nominating committee met two (2) times.
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 under the listing for
governance documents, 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).
7
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
- ---- --- ------- -------------------
Merwin S. Canaday 81 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. 56 1983 Chief Executive Officer, President, and Director of Four Oaks
Fincorp, Inc. and Four Oaks Bank & Trust Company
Dr. R. Max Raynor, Jr. 47 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 Corporate Governance and Nominating
Committee
Paula Canaday Bowman 56 1989 Director of Four Oaks Fincorp, Inc. and Four Oaks Bank & Trust
Company
William J. Edwards 61 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
Percy Y. Lee 64 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 SouthBend MHP
Warren L. Grimes 56 1992 Director of Four Oaks Fincorp, Inc. and Four Oaks Bank & Trust
Company; General Partner in Reedy Creek Direct Marketing Associates;
Chairman of our Compensation Committee and Audit Committee; Chief
Financial Officer and Director of Reedy Creek Technologies, Inc;
Executive Director of Smithfield Housing Authority
William Ashley Turner 52 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
8
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 audit committee charter was attached to the Proxy Statement for
our 2004 Annual Meeting of Shareholders.
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 control over financial reporting and the
financial reporting process, including the presentation and integrity of our
financial statements. Our independent accountant is 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 hires and sets the
compensation for 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.
9
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-K for the fiscal year ended December 31, 2004 filed with the
Securities and Exchange Commission. The audit committee also recommended that
the shareholders be asked to ratify the appointment of Dixon Hughes PLLC as our
independent accountant for the 2005 fiscal year.
Audit Committee
Warren L. Grimes (chairman)
Merwin S. Canaday
William J. Edwards
10
COMPARISON OF CUMULATIVE TOTAL RETURN
The following graph compares the cumulative total shareholder return on
our common stock over the five-year period ended December 31, 2004, with the
cumulative total return for the same period on the Nasdaq Composite Index, the
SNL South OTC-BB and Pink Banks Index and the SNL $100-$500M OTC-BB & Pink Banks
Index. The graph assumes that at the beginning of the period indicated $100 was
invested in our common stock and the stock of the companies comprising the
Nasdaq Composite Index, the SNL South OTC-BB and Pink Banks Index and the SNL
$100-$500M OTC-BB & Pink Banks Index, and that all dividends, if any, were
reinvested.
[GRAPHIC OMITTED]
[See supplemental PDF for Chart]
[Chart Data Represented below]
Period Ending
------------------------------------------------------------
December 31,
- --------------------------------------------------------------------------------------------------------------
Index 1999 2000 2001 2002 2003 2004
- --------------------------------------------------------------------------------------------------------------
Four Oaks Fincorp, Inc. $100.00 $101.37 $91.34 $107.10 $121.89 $162.34
NASDAQ Composite 100.00 60.82 48.16 33.11 49.93 54.49
SNL South OTC-BB and Pink Banks 100.00 85.55 92.66 115.44 154.55 180.33
SNL $100M-$500M OTC-BB & Pink Banks 100.00 84.53 97.38 116.81 158.66 191.77
11
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, 2004 (each a "named executive officer" and collectively, the
"named executive officers").
SUMMARY COMPENSATION TABLE
LONG-TERM ALL OTHER
COMPENSATION COMPENSATION
AWARDS (2)
ANNUAL COMPENSATION(1) ------------------- -----------
------------------------------ SECURITIES
NAME & PRINCIPAL POSITION YEAR SALARY(3) BONUS UNDERLYING OPTIONS
- ------------------------------ ---- -------------- ------------- -------------------
Ayden R. Lee, Jr., 2004 $202,304 $28,767 5,000 $10,985
Chief Executive Officer and 2003 190,491 10,501 6,250 10,972
President 2002 180,066 3,749 6,250 11,066
Clifton L. Painter, 2004 $110,683 $14,717 2,625 $ 7,250
Senior Executive Vice 2003 103,927 6,151 3,281 6,347
President, Chief Operating 2002 100,656 2,124 3,359 7,279
Officer
Nancy S. Wise, 2004 $100,633 $14,717 2,437 $ 4,946
Executive Vice President, 2003 95,841 5,296 3,046 4,345
Chief Financial Officer 2002 92,825 1,583 3,046 4,946
W. Leon Hiatt, III 2004 $100,408 $14,717 2,437 $ 6,652
Executive Vice President, 2003 95,400 5,183 3,046 5,806
Chief Administrative Officer 2002 90,000 1,529 2,968 6,468
Jeff D. Pope, 2004 $ 96,667 $10,292 1,875 $ 6,192
Executive Vice President,
Branch Administrator
- ------------------------
(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
$2,444, $2,582, and $2,701, for each of the years ended 2004, 2003, and
2002, respectively, and our contributions to him under our Employee Stock
Ownership Plan in the amounts of $8,000 for each of 2004, 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 Master
Corporate Profit Sharing Retirement Plan and Trust in the amounts of
$1,870, $1,619, and $1,510, for each of the years ended 2004, 2003, and
2002, respectively, and our contributions to him under our Employee Stock
Ownership Plan in the amounts of $5,016, $4,403, and $5,473 for 2004, 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, $0, and $619, for each of the years ended 2004, 2003,
and 2002, respectively, and our contributions to her under our Employee
Stock Ownership Plan in the amount of $4,614, $4,045, and $4,054, for each
of the years ended 2004, 2003, and 2002, 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 $1,716, $1,485, and $1,350, for each of
the years ended 2004, 2003, and 2002, respectively, and our contributions
to him under our Employee Stock Ownership Plan in the amounts of $4,605,
$4,023, and $4,851, for each of the years ended 2004, 2003, and 2002,
respectively. The remainder of the amounts shown for Mr. Hiatt for each
year represent insurance premiums paid by us on term life insurance. The
amounts shown for Mr. Pope represent our contributions to him under our
Master Corporate Profit Sharing Retirement Plan and Trust in the amounts of
$1,594 for the year ended 2004, and our contributions to him under our
Employee Stock Ownership Plan in the amounts of $4,278 for the year ended
2004. The remainder of the amount shown for Mr. Pope represents insurance
premiums paid by us on term life insurance.
(3) Prior reports of the named executive officers' salaries inadvertently
included automobile allowances paid by us for the named executive officers.
For the periods presented in the table, we have excluded the automobile
allowances from amounts paid to the named executive officers as salary.
12
Option Grants in Last Fiscal Year
The following table sets forth certain information concerning options
to purchase our common stock granted to the named executive officers during the
year ended December 31, 2004.
Individual Grants
-----------------
Number of
Securities % of Total
Underlying Options Granted Exercise or
Options to Employees in Base Expiration Grant Date
Name Granted (#) Fiscal Year Price ($/sh) Date(1) Present Value(2)
- ------------------------- ------------- ----------------- ------------- ----------- ----------------
Ayden R. Lee, Jr. 5,000 15% $17.60 02/23/2008 15,318
Clifton L. Painter 2,625 8% $17.60 02/23/2008 8,042
Nancy S. Wise 2,437 7% $17.60 02/23/2008 7,466
W. Leon Hiatt, III 2,437 7% $17.60 02/23/2008 7,466
Jeff D. Pope 1,875 6% $17.60 02/23/2008 5,744
- ------------------------
(1) All options shown were granted under the Company's Nonqualified Stock
Option Plan and were fully vested on February 23, 2005. Each option expires
on the earlier of the expiration date shown or 15 months after termination
of the recipient's employment, except in cases of death or disability. The
option may be exercised to purchase vested shares only. Upon termination of
employment the option is forfeited with respect to any shares not then
vested, except in cases of death or disability. Upon a merger in which we
are not the surviving corporation, or a liquidation or a sale of
substantially all of our assets, outstanding options will become fully
vested and exercisable and, to the extent not exercised, will terminate
upon the effective date of such a transaction.
(2) We utilized the Black-Scholes option pricing methodology to estimate the
hypothetical grant date present value for these stock option grants. We
used the following assumptions in calculating the grant date present value
for these grants: (a) an expected option term of four years; (b) an
interest rate of 3.0% and (c) a dividend yield of 2.1%.
13
Aggregated Option Exercises in Last Fiscal Year and
Fiscal Year-End Option Values
The following table sets forth certain information concerning options
to purchase our common stock held by the named executive officers during the
year ended December 31, 2004, the aggregate value of gains on the date of
exercise, and the value of unexercised options as of December 31, 2004.
Number of Securities Underlying Value of Unexercised
Unexercised Options at December 31, In-the-Money Options at
2004 (#) December 31, 2004 (#) (1)
--------------------------------- --------------------------------
Shares
Acquired on Value Realized
Name Exercise (#) ($) (2) Exercisable Unexercisable Exercisable Unexercisable
- ---------------------- ---------------- ----------------- --------------- ----------------- --------------- ----------------
Ayden R. Lee, Jr. 15,625 $65,950 12,500 5,000 $275,000 $110,000
Clifton L. Painter 8,515 $35,747 6,640 2,625 $146,080 $57,750
Nancy S. Wise 10,858 $53,383 3,046 2,437 $67,012 $53,614
W. Leon Hiatt, III 4,218 $10,834 8,904 2,437 $195,888 $53,614
Jeff D. Pope 4,218 $18,581 5,156 1,875 $113,432 $41,250
- ------------------------
(1) Based on the difference between the exercise price and a price per share of
$22.00, which is the last sale price of our common stock as of December 31,
2004.
(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. The fair market value of our common stock is the purchase price, as
determined by our board of directors, for purchases of our common stock at
the end of the last completed fiscal quarter under our Dividend
Reinvestment and Stock Purchase Plan. The dividend reinvestment purchase
price is determined once each quarter by our board based on the most recent
annual appraisal conducted by an independent appraisal firm, as adjusted
for recent trading activity. On February 2, 2004, Mr. Lee exercised options
to purchase a total of 9,375 shares of our common stock for an exercise
price of $13.23. The fair market value of our common stock on this date was
determined to be $15.80. On November 24, 2004 and December 1, 2004, Mr. Lee
exercised options to purchase a total of 6,250 shares of our common stock
for an exercise price of $12.80. The fair market value of our common stock
on each of these dates was determined to be $19.50. On February 20, 2004,
Mr. Painter exercised options to purchase a total of 5,156 shares of our
common stock for an exercise price of $13.23. The fair market value of our
common stock on this date was determined to be $15.80. On December 14,
2004, Mr. Painter exercised options to purchase a total of 3,359 shares of
our common stock for an exercise price of $12.80. The fair market value of
our common stock on this date was determined to be $19.50. On February 25,
2004, Ms. Wise exercised options to purchase a total of 4,687 shares of our
common stock for an exercise price of $13.23. The fair market value of our
common stock on this date was determined to be $15.80. On November 23, 2004
and December 16, 2004, Ms. Wise exercised options to purchase a total of
6,171 shares of our common stock for an exercise price of $12.80. The fair
market value of our common stock on this date was determined to be $19.50.
On February 9, 2004, Mr. Hiatt exercised options to purchase a total of
4,218 shares of our common stock for an exercise price of $13.23. The fair
market value of our common stock on this date was determined to be $15.80.
On February 17, 2004, Mr. Pope exercised options to purchase a total of
2,343 shares of our common stock for an exercise price of $13.23. The fair
market value of our common stock on this date was determined to be $15.80.
On December 16, 2004, Mr. Pope exercised options to purchase a total of
1,875 shares of our common stock for an exercise price of $12.80. The fair
market value of our common stock on this date was determined to be $19.50.
Employment Agreements
We have employment agreements with each of our named executive
officers. 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 2005 base salary amount for Mr. Lee at
$213,430, Mr. Painter at $118,984, Ms. Wise at $105,414, Mr. Hiatt at $104,927
and Mr. Pope at $104,750.
14
Severance Compensation Agreement
We have entered into severance compensation agreements with each of our
named executive officers that will provide each of 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 our named executive
officers 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 the named executive officers' 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, Ms. Wise, or Mr. Pope or eighteen (18) 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, each named executive officer 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,
Ms. Wise, or Mr. Pope and for eighteen (18) 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 payments,
which we are obligated to pay Mr. Lee each year after his retirement, are
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.
15
Pursuant to Mr. Lee's arrangement, if he continues in his position as
previously stated and retires at the normal retirement age of 65, the estimated
annual pension amount payable under the SERP, but prior to offsets and any
deductions, if any, would be $232,724.
BOARD COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION
General
The Compensation Committee reviews and oversees our general compensation
plans and policies and approves the individual compensation arrangements for our
officers. Warren L. Grimes is Chairman of the Compensation Committee and the
other committee members are William Ashley Turner, Dr. R. Max Raynor, Jr. and
Paula Canaday Bowman. All are non-employee members of the board of directors.
Our Executive Compensation Program
Our Compensation Committee is committed to designing and implementing a
program of executive compensation that will contribute to the achievement of our
business objectives. We have an executive compensation program that we believe:
o fulfills our business and operating needs and enhances shareholder value;
o enables us to attract, motivate and retain the executive talent essential
to the achievement of our short-term and long-term business objectives;
o rewards executives for accomplishment of business goals and objectives; and
o provides rewards consistent with gains in shareholder wealth so that
executives will be financially advantaged when shareholders are similarly
financially advantaged.
In implementing our executive compensation program, we attempt to
provide compensation opportunities that are generally comparable to those
provided by similar companies in our industry. This "peer group" is not the same
group used for the industry comparison in the performance graph found in the
"Comparison of Cumulative Total Return" section above; rather, it reflects the
industry within which we compete for personnel.
16
Elements of Executive Compensation
Our executive compensation program has four key components:
o base salary;
o long-term incentive awards;
o annual performance awards; and
o fringe benefits.
Base Salary
Base salary represents the fixed component of our executive
compensation program. Base salaries are set within ranges, which are targeted
around the competitive norm for similar executive positions in similar companies
in our industry. Individual salaries may be above or below the competitive norm,
depending on the executive's experience and performance.
The base salary for the CEO is determined by the Compensation
Committee. The Compensation Committee delegates authority to the CEO to
recommend the base salaries for our other named executive officers (Nancy S.
Wise, Executive Vice President and Chief Financial Officer, Clifton L. Painter,
Senior Executive Vice President and Chief Operating Officer, W. Leon Hiatt, III,
Executive Vice President and Chief Administrative Officer and Jeff D. Pope,
Executive Vice President and Branch Administrator). Factors considered by
Compensation Committee in determining the compensation of the our named
executive officers are the company's performance and the individual's
performance. Another factor is the salary level for the position compared to
other financial companies.
Long-Term Incentive Awards
Long-term incentive awards are granted pursuant to our stock option
plans and are intended to align the interests of executive officers and other
key employees with those of our shareholders, reward executives for maximizing
shareholder value and facilitate the retention of key employees. Guideline
ranges for stock option grants increase relative to cash compensation as
position levels increase.
The size of an individual's stock option award is based primarily on
individual performance and the individual's responsibilities and position with
our company. These options are granted with an exercise price equal to the fair
market value of our common stock on the date of grant, therefore, the stock
options have value only if our common stock price appreciates from the value on
the date the options were granted. This feature is intended to focus executives
on the enhancement of shareholder value over the long-term and to encourage
equity ownership in our company. The stock option plans are discretionary plans;
however, it has been the Compensation Committee's practice generally to award
options annually.
Annual Performance Awards
Annual performance awards are intended to serve two primary functions.
First, annual incentives permit us to compensate officers directly if we achieve
specific financial performance targets. Second, annual incentives also serve to
reward executives for performance on those activities that are most directly
under their control and for which they are held accountable.
17
At the beginning of each year, we set specific performance goals for
our company and each individual executive. Performance awards are
proportionately increased or decreased from the target to reflect performance
levels that exceed or fall below expectations. For fiscal year 2004, we
determined the best criteria for measurement of our performance was earnings and
growth. Individual performance goals are based on each individual executive's
responsibilities and his or her respective contribution to our financial
targets, including strategic initiatives, innovation, departmental effectiveness
and personnel management.
The annual performance award is discretionary and the Compensation
Committee has the authority to approve, reduce or entirely eliminate annual
performance awards. Annual performance awards are cash-based. Generally, annual
performance award amounts increase as financial measures increase above the
levels originally set by our compensation committee.
Benefits
Benefits offered to executives serve a different purpose than do the
other elements of executive compensation. In general, they are designed to
provide a safety net of protection against the financial catastrophes that can
result from illness, disability or death and to provide a reasonable level of
retirement income. Benefits offered to executives are largely those that are
offered to the general employee population.
Policy With Respect to $1 Million Deduction Limit
Section 162(m) of the Internal Revenue Code imposes a $1 million limit
on the U.S. corporate income tax deduction a publicly-held company may claim for
compensation paid to the named executive officers unless certain requirements
are satisfied. An exception to this limitation is available for
"performance-based" compensation, as defined under Section 162(m). Compensation
received as a result of the exercise of stock options may be considered
performance-based compensation if certain requirements of Section 162(m) are
satisfied. In the event that the Compensation Committee considers approving
compensation in the future that would exceed the $1 million deductibility
threshold, the Compensation Committee will consider what actions, if any, should
be taken to make such compensation deductible. While the tax impact of any
compensation arrangement is one factor to be considered, such impact is
evaluated in light of our overall compensation philosophy. From time to time, we
may award compensation that is not fully deductible if we determine that such
award is consistent with this philosophy and is in the best interests of our
company and its shareholders.
CEO Compensation
Ayden R. Lee, Jr.'s base salary was set competitively relative to other
chief executive officers in financial service companies. Mr. Lee's compensation
was reviewed and recommended by the Compensation Committee and ratified by the
full Board of Directors without Mr. Lee's participation. In determining Mr.
Lee's base salary, the Compensation Committee reviewed independent compensation
data and financial and operational results of our company for fiscal year 2004
as compared against budgets and peer businesses. Mr. Lee's bonus is determined
based on the level of achievement of established performance goals related to
earnings and growth. During fiscal 2004, Mr. Lee also earned $28,767 in annual
performance awards, based on the level of achievement of established performance
goals related to earnings and growth for our company.
18
Conclusion
The Compensation Committee believes that these executive compensation
policies and programs effectively promote our interests and enhance shareholder
value.
Compensation Committee
Warren L. Grimes (chairman)
Paula Canaday Bowman
Dr. R. Max Raynor, Jr.
William Ashley Turner
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The Compensation Committee is comprised of Warren L. Grimes (chairman),
Paula Canaday Bowman, Dr. R. Max Raynor, Jr. and William Ashley Turner, none of
whom were officers or employees of the company or any of the company's
subsidiaries or had any relationship requiring disclosure by the company under
Item 404 of the SEC's Regulation S-K during or prior to 2004.
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, 2004:
19
(A) (B) (C)
NUMBER OF SECURITIES
REMAINTING AVAILABLE FOR
NUMBER OF SECURITIES FUTURE
TO BE ISSUED WEIGHTED-AVERAGE ISSUANCE UNDER EQUITY
UPON EXERCISE OF EXERCISE PRICE OF COMPENSATION PLANS
OUTSTANDING OUTSTANDING (EXCLUDING SECURITIES
PLAN CATEGORY OPTIONS 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 124,723 14.42 397,433
------- ----- -------
Total 124,723 14.42 397,433
======= ===== =======
- ------------------------
(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, 2004: Nonqualified Stock Option
Plan--326,477; and Employee Stock Purchase and Bonus Plan-- 70,956
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 the compensation
committee, which 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 7, 2005, 781,250 shares had been reserved for issuance
under the Option Plan. As of March 7, 2005, there were 138,743 outstanding stock
options, and 295,377 shares remained available for future grants. During 2004,
options to purchase 33,875 shares of our common stock were granted at an average
exercise price of $17.60 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 the compensation committee, 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.
20
Once a year, participants in the Purchase Plan may 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 a liquidation or a sale of substantially all of our
assets. The Purchase Plan provides that the number of shares reserved for
issuance thereunder will be appropriately adjusted upon a stock split, stock
dividend, recapitalization, combination, consolidation, or similar transaction
involving a change in our capitalization.
As of March 7, 2005, 156,250 shares of our common stock had been
reserved for issuance under the Purchase Plan, and 85,294 shares had been
purchased. During 2004, 6,578 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, 2004 to December 31, 2004, loans outstanding to our
directors and executive officers and their associates as a group amounted to a
maximum of approximately $4,710,000 or 14.31% 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, 2004, all Section 16(a) filing requirements applicable to our
officers, directors, and ten percent (10%) shareholders were satisfied.
21
RATIFICATION OF APPOINTMENT OF INDEPENDENT ACCOUNTANTS
Dixon Hughes PLLC has served as the independent accounting firm of
the Company since September 5, 2000. The audit committee has appointed Dixon
Hughes PLLC as independent accountant of our company and its subsidiaries for
the fiscal year ending December 31, 2005. Dixon Hughes PLLC's services to us for
2003 and 2004 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. Although the selection and
appointment of the independent accountant are not required to be submitted to a
vote of the shareholders, the audit committee of our board of directors desires
to obtain shareholder ratification of this appointment. Pursuant to our bylaws,
action on a matter by our shareholders is approved if the votes cast by the
shareholders favoring the action exceed the votes cast against the action. If
our shareholders do not ratify this appointment, the audit committee will
reconsider the appointment. 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, 2004 and 2003, we retained
our independent accountant, Dixon Hughes PLLC, to provide services in the
following categories and amounts:
2004 2003
---- ----
Audit Fees (1) $ 53,500 $ 55,175
Audit-Related Fees (2) 29,250 3,150
Tax Fees (3) 7,425 4,600
All Other Fees (4) 11,200 -
TOTAL $ 101,375 $ 62,925
================== =================
- ----------
(1) "Audit Fees" are fees for professional services billed or expected to be
billed by Dixon Hughes PLLC for the audit of our annual financial
statements and review of financial statements included in our Form 10-Q
filings.
(2) "Audit-Related Fees" are fees billed 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, other attestation services
including Federal Home Loan Bank collateral verification procedures, and
employee benefit plan audits.
(3) "Tax Fees" are fees billed 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. The fees
paid in 2004 related to agreed upon procedures performed regarding the
Gramm-Leach-Bliley Act.
Our audit committee has considered the compatibility of the non-audit
services performed by and fees paid to Dixon Hughes PLLC in fiscal 2004 and
fiscal 2003 and determined that such services and fees were compatible with the
independence of the public accountants. During fiscal year 2004, Dixon Hughes
PLLC did not utilize any personnel in connection with the audit other than its
full-time, permanent employees.
22
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 considers,
among other things, whether such service is consistent with maintaining the
independence of the independent public accountant. Our audit committee also
considers whether the independent accountant is 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-K for the fiscal year ended
December 31, 2004, 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 2006 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
December 5, 2005 (120 calendar days prior to the anniversary of the date of this
proxy statement). Proposals received after December 5, 2005 will not be
considered for inclusion in our proxy materials for our 2006 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 2006 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 February 18, 2006 (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 18, 2006, 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.
23
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
April 4, 2005
Ayden R. Lee, Jr.
Chief Executive Officer and President
24
[GRAPHIC OMITTED]
[Please see supplmental PDF of PROXY CARD]
[Proxy Card Data represented below]
REVOCABLE PROXY
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
FOUR OAKS FINCORP, INC.
FOR THE 2005 ANNUAL MEETING OF SHAREHOLDERS.
The undersigned hereby appoints Ayden R. Lee, Jr. and Merwin 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 Bank & Trust Company, located
at 6144 US 301 South, Four Oaks, North Carolina on Monday, April 25, 2005 at
8:00 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.
PLEASE COMPLETE, DATE, SIGN, AND MAIL THIS INSTRUCTION CARD PROMPTLY IN THE
ENCLOSED POSTAGE-PAID ENVELOPE OR PROVIDE YOUR INSTRUCTIONS
TO VOTE VIA THE INTERNET OR BY TELEPHONE.
(Continued, and to be marked, dated and signed, on the other side)
\/ FOLD AND DETACH HERE \/
================================================================================
FOUR OAKS FINCORP, INC. -- ANNUAL MEETING, APRIL 25, 2005
YOUR VOTE IS IMPORTANT!
https://www.proxyvotenow.com/mtbk
You can vote in one of three ways:
1. Call toll free 1-866-265-2185 on a Touch-Tone Phone and follow the
instructions on the reverse side. There is NO CHARGE to you for this call.
or
2. Via the Internet at https://www.proxyvotenow.com/fofn and follow the
instructions. or
3. Mark, sign and date your proxy card and return it promptly in the enclosed
envelope.
PLEASE SEE REVERSE SIDE FOR VOTING INSTRUCTIONS
================================================================================
REVOCABLE PROXY
FOUR OAKS FINCORP, INC.
PLEASE MARK AS [X]
INDICATED IN THIS
EXAMPLE
ANNUAL MEETING OF STOCKHOLDERS
APRIL 25, 2005
WITHOLD FOR ALL
FOR ALL EXCEPT
1. To elect the following nominees as directors of a one [ ] [ ] [ ]
year term
Nominees:
(01) Merwin S. Canaday (02) Ayden R. Lee Jr.
(03) William J. Edwards (04) Paula Canaday Bowman
(05) Dr. R. Max Raynor Jr. (06) Percy Y. Lee
(07) Warren L. Grimes (08) William Ashley Turner
INSTRUCTION: TO WITHHOLD AUTHORITY TO VOTE FOR ANY INDIVIDUAL NOMINEE(S) WRITE
THAT NOMINEE(S) NAME OF THE LINE PROVIDED BELOW.______________________________
- ------------------------------------------------------------------------------
FOR AGAINST ABSTAIN
2. Ratification of the action of the audit committee of [ ] [ ] [ ]
the board of directors in appointing Dixon Hughes
PLLC as independent accountants for the Company
for the fiscal year ending December 31, 2005:
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.
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.
Please be sure to date and sign -------------------------------
this instruction card in the box below. DATE
- ------------------------------------------------------------------------
- ------------------------------------------------------------------------
STOCKHOLDER SIGN ABOVE
- ------------------------------------------------------------------------
- --------------------------------------------------------------------------------
***IF YOU WISH TO PROVIDE YOUR INSTRUCTIONS TO VOTE BY TELEPHONE ***
OR INTERNET, PLEASE READ THE INSTRUCTIONS BELOW
- --------------------------------------------------------------------------------
/\ FOLD AND DETACH HERE IF YOU ARE VOTING BY MAIL /\
PROXY VOTING INSTRUCTIONS
Stockholders of record have three ways to vote:
1. By Mail; or
2. By Telephone (using a Touch-Tone Phone); or
3. By Internet.
A telephone or Internet vote authorizes the named proxies to vote your shares in
the same manner as if you marked, signed, dated and returned this proxy. Please
note telephone and Internet votes must be cast prior to 3 a.m., April 25, 2005.
It is not necessary to return this proxy if you vote by telephone or Internet.
======================================================
VOTE BY TELEPHONE
Call Toll-Free on a Touch-Tone Phone anytime prior to
3 a.m. April 25, 2005
1-866-265-2185
=======================================================
=======================================================
VOTE BY INTERNET
anytime prior to
3 a.m. April 25, 2005 go to
https://www.proxyvotenow.com/fofn
=======================================================
Please note that the last vote received, whether by telephone, Internet or by
mail, will be the vote counted.
Your vote is important!