UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
SCHEDULE 14A
Proxy 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 ss.240.14a-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.
___________, 2008
Dear Shareholder:
Accompanying this letter is the Notice of Annual Meeting, Proxy Statement,
Summary 2007 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 7:00 p.m. on ______, April __, 2008, in
the cafeteria of Four Oaks Elementary School, located at 180 West Hatcher
Street, Four Oaks, North Carolina. At the Annual Meeting, our 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 10,000,000 to 20,000,000, 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 the 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, 2007.
As mentioned above, we also have included a Summary 2007 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,
Ayden R. Lee, Jr.
Chairman, Chief Executive Officer,
and President
FOUR OAKS FINCORP, INC.
6114 US 301 South
Four Oaks, North Carolina 27524
---------------------------------------------------------------------
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
________, ______ __, 2008
---------------------------------------------------------------------
You are cordially invited to attend the Annual Meeting of Shareholders of
Four Oaks Fincorp, Inc., which will be held on ______, April __, 2008 at 7:00
p.m., local time, in the cafeteria of Four Oaks Elementary School, located at
180 West Hatcher Street, 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 10,000,000 shares to 20,000,000 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 3, 2008 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, 2007, 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
Ayden R. Lee, Jr.
Chairman, Chief Executive Officer, and
President
______ _, 2008
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 2007 Annual Report to Shareholders are being mailed to
shareholders on or about April 7, 2008 by Four Oaks Fincorp, Inc. in connection
with the solicitation of proxies for use at the Annual Meeting of Shareholders
to be held in the cafeteria of Four Oaks Elementary School, located at 180 West
Hatcher Street, Four Oaks, North Carolina on _______, April __, 2008 at 7:00
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: (i) elect eight (8)
nominees to our board of directors; (ii) approve an amendment to the articles of
incorporation increasing the number of authorized shares of our common stock
from 10,000,000 shares to 20,000,000 shares; and (iii) 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 may 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 _____, April __, 2008, at 3:00
a.m. Eastern time. If you vote by telephone, you need not return your
proxy card.
o Voting by Internet. You may 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 ______,
April __, 2008 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 may 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 _____, April __,
2008.
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 3, 2008 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 3, 2008, we had 6,207,191 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 (1) 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 3, 2008
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 current 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 Percent of Class(1)
Beneficial Owner Beneficial Ownership(1)
- -------------------------------- ------------------------ ----------------------
Ayden R. Lee, Jr.(2) 171,263 2.8%
- -------------------------------- ------------------------ ----------------------
Paula Canaday Bowman(3) 71,465 1.2%
- -------------------------------- ------------------------ ----------------------
William J. Edwards(4) 33,023 *
- -------------------------------- ------------------------ ----------------------
Warren L. Grimes(5) 23,378 *
- -------------------------------- ------------------------ ----------------------
Percy Y. Lee(6) 62,989 1.0%
- -------------------------------- ------------------------ ----------------------
Dr. R. Max Raynor, Jr.(7) 7,449 *
- -------------------------------- ------------------------ ----------------------
Clifton L. Painter(8) 53,590 *
- -------------------------------- ------------------------ ----------------------
William Ashley Turner(9) 295,556 4.8%
- -------------------------------- ------------------------ ----------------------
Nancy S. Wise(10) 8,325 *
- -------------------------------- ------------------------ ----------------------
W. Leon Hiatt, III(11) 27,778 *
- -------------------------------- ------------------------ ----------------------
Jeff. D. Pope(12) 22,595 *
- -------------------------------- ------------------------ ----------------------
Michael A. Weeks(13) 8,016 *
- -------------------------------- ------------------------ ----------------------
All Current Directors and
Executive Officers as a Group
(12 persons) (14) 785,487 12.65%
- -------------------------------- ------------------------ ----------------------
*Less than 1%
(1) Based upon 6,207,191 shares of common stock outstanding on March 3, 2008.
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 within 60 days of March 3, 2008 under outstanding stock options.
Beneficial ownership may be disclaimed as to certain of the securities.
(2) Includes 16,775 shares subject to stock options which are exercisable
within 60 days of March 3, 2008, and 32,725 shares owned by Mr. Lee's
spouse who has sole voting and investment power with respect to such
shares.
(3) Includes 1,257 shares subject to stock options which are exercisable
within 60 days of March 3, 2008, and 200 shares owned by Ms. Bowman's
spouse who has sole voting and investment power with respect to such
shares.
(4) Includes 1,257 shares subject to stock options which are exercisable
within 60 days of March 3, 2008, 2,440 shares owned by Mr. Edward's spouse
who has sole voting and investment power with respect to such shares, and
214 shares held in Mr. Edward's name as custodian for his granddaughter.
3
(5) Includes 1,257 shares subject to stock options which are exercisable
within 60 days of March 3, 2008, 9,958.0720 shares owned jointly with Mr.
Grimes' spouse, and 2,017.0649 shares owned by Mr. Grimes' spouse who has
sole voting and investment power with respect to such shares.
(6) Includes 1,257 shares subject to stock options which are exercisable
within 60 days of March 3, 2008, and 42,381.4406 shares owned jointly with
Mr. Lee's spouse.
(7) Includes 742 shares subject to stock options which are exercisable within
60 days of March 3, 2008.
(8) Includes 8,729 shares subject to stock options which are exercisable
within 60 days of March 3, 2008, 3,514 shares owned by Mr. Painter's
spouse who has sole voting and investment power with respect to such
shares, and 601 shares owned by a child who resides in Mr. Painter's home.
(9) Includes 1,257 shares subject to stock options which are exercisable
within 60 days of March 3, 2008, 269,027.4593 shares owned jointly with
Mr. Turner's spouse, and 951.4109 shares owned by Mr. Turner's spouse who
has sole voting and investment power with respect to such shares.
(10) Includes 4,915 shares subject to stock options which are exercisable
within 60 days of March 3, 2008, 1.000 share owned jointly with Ms. Wise's
spouse, 50.8737 shares owned by Ms. Wise's spouse who has sole voting and
investment power with respect to such shares, and 53.7338 shares owned by
a minor child who resides in Ms. Wise's home.
(11) Includes 8,309 shares subject to stock options which are exercisable
within 60 days of March 3, 2008, 205.0431 shares owned by Mr. Hiatt's
spouse who has sole voting and investment power with respect to such
shares, and 1,968.5586 shares owned by minor children who reside in Mr.
Hiatt's home.
(12) Includes 8,309 shares subject to stock options which are exercisable
within 60 days of March 3, 2008.
(13) Includes 742 shares subject to stock options which are exercisable within
60 days of March 3, 2008, 28.759 shares held in Mr. Weeks name as
custodian for his grandchildren.
(14) For all current directors and executive officers as a group, includes a
total of 54,806 shares subject to stock options which are exercisable
within 60 days of March 3, 2008.
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, William J. Edwards, Warren L. Grimes, Percy Y. Lee, Dr. R. Max
Raynor, Jr., William Ashley Turner, and Michael A. Weeks meet the definition of
"independent director" as that term is defined in the Nasdaq Marketplace Rules.
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.
4
Director Compensation
For 2008, the directors, except Mr. Lee who is not paid a director's fee,
will be paid fees of $1,275.00 per month. In addition, for each board committee
meeting attended, the committee chairman will be paid $375.00 and the other
directors will be paid $325.00 each. For information concerning our 2007 board
compensation, please see the discussion under "Executive Compensation--2007
Board Compensation" below.
Board of Directors Meetings
During the last fiscal year, our board of directors met twelve (12)
regular times and had two (2) special meetings. 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 four times a year.
We do not have a stated policy regarding director attendance at our annual
meeting of shareholders, but encourage our directors to attend each annual
meeting of shareholders. At last year's annual meeting of shareholders, held on
April 23, 2007, all 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), William J. Edwards, and Michael A. Weeks and operates under a
written charter, which the board reviews and reassesses annually. The
Committee's charter is available on our website at http://www.fouroaksbank 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. Our board of
directors, in its business judgment, has made an affirmative determination that
each member of the audit committee meets the definition of "independent
director" as that term is defined by Nasdaq Marketplace Rules and SEC rules,
including the special independence requirements applicable to audit committee
members. In addition, one member of our audit committee has past financial
experience resulting in his financial sophistication as required by Nasdaq
Marketplace Rules.
5
The board of directors has determined that none of the members of the
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
"Exchange Act"). 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 continue to consider whether and how best to attract such an expert to serve
on the board.
The audit committee was established by our board of directors for the
purpose of overseeing our accounting and financial reporting processes and
audits of our financial statements. 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. Finally, the audit committee is
responsible for reviewing our systems of internal control over financial
reporting with management and the independent registered public accountants. The
audit committee is responsible for hiring and setting the compensation of the
independent accountant. The audit committee met thirteen (13) times during 2007.
Compensation Committee. The compensation committee is composed of Warren
L. Grimes (chairman), Paula Canaday Bowman, and Dr. R. Max Raynor, Jr., 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 2007, the compensation committee met three (3) times. 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, 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. The compensation committee may not delegate its authority to
other persons under its charter. For more information regarding our compensation
committee's processes and procedures, please see "Executive Compensation -
Compensation Discussion and Analysis - Compensation Committee - Composition and
Responsibility" below.
Corporate Governance and Nominating Committee. 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.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. 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 2007, the corporate
governance and nominating committee met one (1) time.
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
http://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). Consistent with Item 5.05 of Form 8-K, we
intend to disclose future amendments to, or waivers from, the Code of Ethics on
our website within four business days following the date of such amendment or
waiver.
7
Proposal No. 1
ELECTION OF DIRECTORS
The following table and accompanying biographies provide information on
our nominees for election to the board of directors:
Year Positions and Offices with our Company
Name Age First & Business Experience During
Elected Past Five (5) Years
- -------------------- ------ --------- ----------------------------------------------------------------
Ayden R. Lee, Jr. 59 1983 Chairman of the Board of Directors; Chief Executive Officer, and
President of Four Oaks Fincorp, Inc. and Four Oaks Bank & Trust
Company
- -------------------- ------ --------- ----------------------------------------------------------------
Dr. R. Max Raynor, 50 2000 Director of Four Oaks Fincorp, Inc. and Four Oaks Bank & Trust
Jr. Company; Chairman of our Corporate Governance and Nominating
Committee; Owner of Professional Eye Care, with locations in
Benson, North Carolina, Roseboro, North Carolina, and Clinton,
North Carolina
- -------------------- ------ --------- ----------------------------------------------------------------
Paula Canaday Bowman 59 1989 Director of Four Oaks Fincorp, Inc. and Four Oaks Bank & Trust
Company; Director of Benson Area Medical Center
- -------------------- ------ --------- ----------------------------------------------------------------
William J. Edwards 64 1990 Director of Four Oaks Fincorp, Inc. and Four Oaks Bank & Trust
Company; President, Co-owner, Chief Executive Officer, and
Chairman of the Board of Edwards Food Stores
- -------------------- ------ --------- ----------------------------------------------------------------
Percy Y. Lee 67 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 59 1992 Director of Four Oaks Fincorp, Inc. and Four Oaks Bank & Trust
Company; Chairman of our Compensation Committee and Audit
Committee; Executive Director of Smithfield Housing Authority;
General Partner in Reedy Creek Direct Marketing Associates;
Chief Financial Officer and Director of Reedy Creek
Technologies, Inc.
- -------------------- ------ --------- ----------------------------------------------------------------
William Ashley 55 2001 Director of Four Oaks Fincorp, Inc. and Four Oaks Bank & Trust
Turner Company; Owner and President of Ashley Turner Enterprises,
Inc., Ashley Turner Building Co., Inc., Ashley Turner Homes,
Inc., Sugarmill Ventures, Inc., and Sand Castle Building Co.,
Inc; Owner and Manager of Ashley Turner Development Co., LLC,
Import Market, LLC, and Furniture House, LLC; Owner of Ashley
Turner Rentals, LLC, Ashley Turner Commercial Property, LLC,
and Turner Building Supply
- -------------------- ------ --------- ----------------------------------------------------------------
Michael A. Weeks 56 2006 Director of Four Oaks Fincorp, Inc. and Four Oaks Bank & Trust
Company; Co-owner and President of Weeks Turner Architecture,
P.A., Phelps Farm, Inc., and Four Weeks, Inc.; Co-owner and
Manager of PPPV, LLC, Atlantic Park, LLC, Weeks & Sherron, LLC,
PTW Properties, LLC, Weeks Sherron & Turner, LLC, Serwee
Associates, LLC, South Main Associates, LLC, Durant Business
Center, LLC, Lake Wheeler Mobile Estates, LLC, Knightdale
Business Partners, LLC, Weeks Associates, LLC, Tryon Theater,
LLC, APMW, LLC, Manns Chapel Properties, LLC, Bud Leigh, LLC,
WRS, 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.
Vote Requirement
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.
9
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), William J. Edwards, and Michael A.
Weeks and operates under a written charter adopted by the board of directors,
which is available on our website at http://www.fouroaksbank.com in the
"Investor Info" section under the listing for governance documents.
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 with respect to 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.
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 controls
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 accounting principles generally
accepted in the United States of America, 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 its independence.
10
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, 2007 filed with the
Securities and Exchange Commission.
Audit Committee
Warren L. Grimes (chairman)
William J. Edwards
Michael A. Weeks
EXECUTIVE COMPENSATION
Compensation Discussion and Analysis
Compensation Committee -- Composition and Responsibility
Each member of the compensation committee is an independent director as
that term is defined in the Nasdaq Marketplace Rules. There are currently three
directors who serve on the compensation committee: Warren L. Grimes (chairman),
Paula Canaday Bowman, and Dr. R. Max Raynor, Jr.
The compensation committee has two primary responsibilities: (i) assisting
the board in carrying out its responsibilities in determining the compensation
of our CEO and executive officers; and (ii) establishing compensation policies
that will attract and retain qualified personnel through an overall level of
compensation that is comparable to, and competitive with, others in the industry
and in particular, peer financial institutions. The compensation committee,
subject to the provisions of our Employee Stock Option Plan, also has authority
in its discretion to determine the employees to whom stock options shall be
granted, the number of shares to be granted to each employee, and the time or
times at which options should be granted. The CEO makes recommendations to the
compensation committee about equity awards to our employees (other than the
CEO).
The CEO reviews the performance of our executive officers (other than the
CEO) and, based on that review, the CEO makes recommendations to the
compensation committee about the compensation of executive officers (other than
the CEO). The CEO does not participate in any deliberations or approvals by the
compensation committee with respect to his own compensation. The compensation
committee approves all compensation decisions involving the CEO and our other
executive officers.
In 2006, the compensation committee engaged Matthews, Young & Associates,
Inc., also known as Matthews, Young - Management Consulting, which assisted the
compensation committee in determining 2007 base salary ranges and for market
based review of annual merit programs and salary range changes. This consulting
firm assisted the compensation committee with recommendations for compensation.
The recommendations were presented and approved by the compensation committee in
January, 2007. In 2008, the compensation committee continued to rely on the
results of the 2006 survey, modified by a 2007 cost of labor adjustment derived
by Matthews, Young & Associates, Inc. This was considered adequate given that
the compensation practices in our industry typically do not change drastically
from year to year. The compensation committee intends to engage Matthews, Young
& Associates, Inc. during 2008 to update the 2006 survey and assist the
compensation committee with recommendations for compensation for 2009.
11
Compensation Philosophy
Our compensation philosophy rests on two principles: (i) total
compensation should vary with our performance in achieving financial and
non-financial objectives; and (ii) long-term incentive compensation should be
closely aligned with the interests of shareholders. We have therefore adopted a
"pay for performance" approach that we believe offers a competitive total
rewards package to help create value for our shareholders by focusing on the
following performance factors: fee income, loan growth, deposit growth, net
income, and net interest spread. In designing compensation programs and making
individual recommendations or decisions, the compensation committee attempts to
align the interest of executive officers and shareholders; attract, retain, and
motivate high-performing employees in the most cost-efficient manner; and create
a high-performance work culture.
Our compensation program reflects a mix of stable and at risk
compensation, designed to fairly reward executive officers and align their
interests with those of shareholders in an efficient manner. Each element of our
compensation program is intended to provide employees with a pay opportunity
that is externally competitive and that recognizes individual contributions.
Peer Groups and Benchmarks
To ensure that total executive compensation and its elements are
appropriately targeted for both actual performance results and competitive
positioning, the compensation committee periodically reviews executive officer
total compensation against compensation practices of our peer group companies.
Specifically, for three of the named executive positions, Matthews, Young &
Associates, Inc. gathered 2006 survey data for the following peer groups:
o (10) North Carolina Financial Institutions with assets of $400 million
to $1 billion
o (50) Southeast United States Financial Institutions with assets of
$500 million to $700 million and applied regression analysis to
predict salaries at the asset size of our Company at that time
o (31) United States Community Banks with assets of $500 million to $699
million
o (49) United States Financial Institutions with assets of $500 million
to $1 billion
12
In 2006, Matthews, Young & Associates, Inc. then audited and updated the
existing base salary compensation system, including: (i) pricing approximately
20 benchmark positions to create a new, more functional salary structure; (ii)
evaluating and valuing non-benchmarked positions in comparison to benchmarked
positions; (iii) creating a systematic approach for merit/performance increase
determination tying more compensation to performance of the company; and (iv)
delivering an automated-spreadsheet based salary budgeting model.
Executive Compensation -- Elements
Our executive compensation program has four primary components: base
salary, annual cash incentive compensation, long-term equity-based compensation,
and benefits. The compensation committee strives to balance short-term and
long-term company performance and shareholder returns in establishing the total
compensation for our executives. The compensation committee evaluates executive
compensation against performance criteria and competitive executive pay
practices before determining changes in base salary, the amount of any incentive
payments, stock option awards, and other benefits.
o Base salary ranges are intended to be competitive with ranges paid
for similar positions at peer institutions in order to provide us with the
ability to pay base salaries that will attract and retain employees with a
broad, proven track record of performance.
o Our variable annual cash incentive pay plan is designed to provide
a competitive cash payment opportunity based on our overall financial
performance. The opportunity for a more significant award increases when we
achieve higher levels of performance.
o Our long-term equity-based compensation incentive plan is
generally made available to selected groups of individuals, including our
executive officers, in the form of stock options. Equity awards have the
potential to grow in value over time and seek to reward executives for
performance that maximizes long-term shareholder returns.
o To remain competitive in the market for a high caliber management
team and to ensure stability and continuity in its leadership, we provide our
CEO and other named executive officers certain other fringe benefits, such as
retirement programs, medical plans, life and disability insurance, use of
company owned automobiles, and employment agreements. The compensation committee
periodically reviews fringe benefits made available to executive officers to
ensure that they are in line with market practice.
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 peer companies in our
industry. Individual salaries may be above or below the competitive norm,
depending on the executive's experience and performance.
13
The base salary for our CEO and other executive officers is determined by
the compensation committee. The CEO makes recommendations to the compensation
committee for base salaries for our other executive officers. Factors considered
by the compensation committee in determining whether the compensation of our
executive officers should be increased or decreased materially are the company's
performance and the individual's performance. Another factor is the salary level
for the position compared to other financial companies with which we compete.
The following chart shows annual base salary rates for 2007 and 2008 for
each of our named executive officers, as well as percentage increases from 2008
to 2007:
- --------------------------------------------------------------
Name Fiscal 2007 Fiscal 2008 Percent
Increase
- --------------------------------------------------------------
Ayden R. Lee, Jr. $250,246 262,257 4.80%
Nancy S. Wise $133,405 143,048 7.23%
Clifton L. Painter $147,889 163,286 10.41%
W. Leon Hiatt, III $132,842 142,444 7.23%
Jeff D. Pope $136,082 147,743 8.57%
- --------------------------------------------------------------
Normally, we target the annualized percentage increases for our executives
to be consistent with executive base salary increases in our peer market.
Specific factors considered in determining the size of the salary increase for
each named executive officer are summarized below:
Mr. Lee's base salary increase for 2008 was 4.80%. In determining this
increase, the compensation committee considered the competitiveness of Mr. Lee's
salary as well as his total compensation compared to the total compensation of
the peer company CEO's as provided by Matthews, Young. Mr. Lee's individual
contributions in conjunction with the overall performance of the business were
also considered. These contributions included leading the negotiations and
proposed acquisition of LongLeaf Community Bank, and efforts contributing to the
loan and deposit growth achieved during 2007.
Ms. Wise's base salary increase for 2008 was 7.23%. In determining this
increase, the compensation committee considered the performance review prepared
by the CEO, along with individual contributions to the overall success of the
company such as improving the total return on the investment portfolio, securing
additional sources of liquidity, and serving as the point person for the
LongLeaf acquisition. The compensation committee also considered the
competitiveness of Ms. Wise's salary to peer company CFO's as provided by
Matthews, Young.
Mr. Painter's base salary increase for 2008 was 10.41%. In determining
this increase, the compensation committee considered the performance review
prepared by the CEO, along with individual contributions to the overall success
of the company such as his contributions to the company's asset quality through
managing the loan review and approval function, as well as, aiding the loan
growth by the approval of over $300 million of new loans during 2007. The value
of the Chief Lending Officer continues to accelerate in our competitive market.
Mr. Painter also led the loan review due diligence related to the LongLeaf
acquisition. The compensation committee also considered the competitiveness of
Mr. Painter's salary to peer company Chief Lending Officer's as provided by
Matthews, Young.
14
Mr. Hiatt's base salary increase for 2008 was 7.23%. In determining this
increase, the compensation committee considered the performance review prepared
by the CEO, along with competitive salaries from peer companies as provided by
Matthews, Young. In addition, Mr. Hiatt's oversight of the operational
infrastructure which supported the entire company through a period of rapid
growth was considered.
Mr. Pope's base salary increase for 2008 was 8.57%. In determining this
increase, the compensation committee considered the performance review prepared
by the CEO, along with competitive salaries from peer companies as provided by
Matthews, Young. In addition, Mr. Pope's oversight of and contribution to the
double digit loan and deposit growth during 2007 throughout the branch network
was considered.
Annual Cash Incentive Compensation
In February, 2007, the compensation committee approved our 2007 Bonus
Plan. The 2007 Bonus Plan is designed to align the interests of our named
executive officers with the interests of its shareholders by linking bonus
amounts directly to our performance. Named executive officers are eligible to
receive cash bonuses under the 2007 Bonus Plan based on our:
o fee income;
o average loan balances;
o average deposit balances;
o net interest spread; and
o net income.
Targets for these five performance areas were set for fiscal 2007, and our
named executive officers were eligible for bonuses based on four tier target
levels set by the compensation committee. A tier target level must be achieved
in each of the five performance areas in order for that tier level bonus payment
to be paid. Actual bonus payments therefore varied depending on our actual fee
income, average loan balance, average deposit balance, net interest spread and
net income at the end of fiscal 2007. In addition, the compensation committee
has the discretion to award cash bonuses or otherwise increase, reduce or
eliminate cash bonuses that would otherwise be payable under the 2007 Bonus Plan
in its sole discretion.
The 2007 Bonus Plan is administered by the compensation committee. All
determinations regarding the achievement of any performance goals and the amount
of any individual award are made by the compensation committee. These
determinations need not be uniform and may be made selectively among persons who
receive, or who are eligible to receive, an award.
15
In February 2008, the board approved payments to the CEO and the executive
officers under the 2007 Bonus Plan as set forth below. These payments were based
on the actual achievement of the following tier target levels under the 2007
Bonus Plan:
o Fee income: Tier 0
o Average loan balances: Tier 2
o Average deposit balances: Tier 3
o Net interest spread: Tier 0
o Net income: Tier 0
Based upon the achievement of these target levels, the board awarded cash
awards for 2007 performance to the named executives as follows: Mr. Lee $16,100;
Ms. Wise $8,050; Mr. Painter $8,050; Mr. Hiatt $8,050; and Mr. Pope $8,050. The
board did not approve any discretionary cash bonuses for fiscal 2007 under the
2007 Bonus Plan. In addition, the board awarded each named executive officer a
$200 cash Christmas bonus. This bonus was not made pursuant to the 2007 Bonus
Plan.
In February, 2008, the compensation committee also approved the 2008 Bonus
Plan based on 2008 tiers for the same factors and with the same structure as
described above for 2007. However, the committee modified each 2008 dollar tier
for each area from the 2007 dollar tiers to reflect expected company performance
in each area for 2008. The 2008 Bonus Plan does not specify when bonus grants
will be made, although the compensation committee intends that the bonus grants
will be submitted to the board for approval in February 2009 as it did for
fiscal year 2007 bonuses.
Equity Compensation
The determination of the size of any long-term equity compensation grant
is made based on competitive factors and the attainment of strategic long-term
objectives. Equity compensation serves to link the total compensation of
executive officers to the performance of our common stock. In 2007, after
reviewing our historic approach to long-term, equity-based compensation
opportunities, peer practices, and considering other pertinent factors, such as
FAS 123R regarding the accounting for equity based awards the compensation
committee,
o determined that the level of stock option awards to executive officers
was in-line with our peer group; and
o recommended that we maintain the level of awards of stock options to
executive officers.
Neither our board nor our compensation committee sets any performance
levels (minimum, target, maximum or otherwise) for equity compensation grants or
is required to grant options to our named executive officers under our
Nonqualified Stock Option Plan. Instead, grants of options under our
Nonqualified Stock Option Plan are made completely at the discretion of the
board or the compensation committee after a fiscal year is ended based upon the
actual performance of our common stock and the compensation committee's
discretionary assessment of an individual's performance and responsibilities,
and position with the company. Historically, the board has granted options
during its annual February meeting following the end of a fiscal year.
16
On February 25, 2008, in recognition of 2007 performance, the compensation
committee granted our named executive officers options to purchase stock at a
price based on a valuation by an independent appraisal firm with one year
vesting and expiring in four years under our Nonqualified Stock Option Plan as
follows: Mr. Lee 5,000; Ms. Wise 2,500; Mr. Painter 2,600; Mr. Hiatt 2,500; and
Mr. Pope 2,500.
Benefits
Nonqualified Employee Stock Purchase and Bonus Plan
The Employee Stock Purchase and Bonus Plan (the "Purchase Plan") is a
voluntary plan that enables the full-time employees of the company and its
subsidiaries to purchase shares of our common stock. The Purchase Plan is
administered by our compensation committee, which has broad discretionary
authority to administer the Purchase Plan. The committee may amend or terminate
the Purchase Plan at any time. Once each year, participants in the Purchase Plan
may purchase up to five percent (5%) of their compensation, with a maximum
purchase amount of $1,000 per year. We match, in cash, fifty percent (50%) of
the amount of each participant's purchase, up to $500. This benefit is available
to all employees who were actively employed on the last day of the prior year.
Nonqualified Retirement Plans for Chief Executive Officer
The objective of our nonqualified retirement plan is to provide
supplemental retirement benefits to our CEO, Ayden R. Lee, Jr., to encourage him
to remain as an employee and to reward him for contributing materially to our
success. The actuarially determined present values of Mr. Lee's retirement
benefits as of the end of last year are reported in the table below entitled
"Pension Benefits."
Qualified Retirement Plans for Executive Officers
We sponsor the Four Oaks Bank & Trust Company Retirement Plan, which is a
contributory profit-sharing plan in effect for substantially all employees.
Participants may make voluntary contributions resulting in salary deferrals in
accordance with Section 401(k) of the Internal Revenue Code. The plan provides
for employee contributions as a percentage of their annual salary up to the
limit allowed by the Internal Revenue Service. We typically contribute matching
funds of twenty-five percent (25%) of the first six percent (6%) of pre-tax
salary contributed by each participant; however, contributions under the plan
are made at the discretion of our board.
17
We also sponsor an employee stock ownership plan ("ESOP") that makes the
employees of a company owners of stock in the company. The Four Oaks Bank &
Trust Company's Employee Stock Ownership Trust is available to full-time
employees at least 21 years of age after six months of service. Contributions
are voluntary by the company and employees cannot contribute. Stock issued is
purchased on the open market, and we do not issue new shares in conjunction with
the plan. Voluntary contributions are determined by our board annually based on
our performance and are allocated to employees based on annual compensation.
These plans apply to all qualified employees, including the named executive
officers.
Employment and Severance Compensation Agreements
We have entered into employment agreements and severance compensation
agreements with the CEO and the named executive officers to ensure the
continuity of executive leadership, to clarify the roles and responsibilities of
our executives, and to make explicit the terms and conditions of executive
employment. Language concerning a change of control of the company, and terms of
compensation in that event, are included in these agreements consistent with
what the compensation committee believes to be best industry practices, taking
the current environment of consolidation within the financial services industry
into account. The change of control language in the severance compensation
agreements is designed to ensure that executives devote their full energy and
attention to the best long-term interests of the shareholders in the event that
business conditions or external factors make consideration of a change of
control appropriate.
The employment agreements provide named executive officers a base annual
salary that may be increased at the discretion of the board, provide for
additional benefits applicable to executive personnel and participation in the
various benefit programs provided by us for all salaried employees, including
group life insurance, sick leave and disability, retirement plans and medical
insurance programs. Each employment agreement provides for termination by us for
"cause" (as defined in the agreement) at any time.
The severance compensation agreements with each of our named executive
officers 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 based upon his or her then most recent annual salary
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
termination for two (2) years after the date of his or her termination or unless
and until he or she obtains other full-time employment.
18
On February 22, 2008, the compensation committee approved an amended and
restated severance agreement for Mr. Hiatt. Mr. Hiatt's previous severance
arrangement provided that the cash severance payment described above would be
equal one and one half (1.5) years' salary. In order to bring Mr. Hiatt's
severance agreement in line with the severance agreements that we have with our
other named executive officers, the compensation committee amended Mr. Hiatt's
severance agreement to provide that Mr. Hiatt's severance payments under the
agreement would be for two (2) years.
Stock Ownership Guidelines
To date, the compensation committee has not adopted minimum stock
ownership guidelines for our named executive officers.
Tax and Accounting Implications
Internal Revenue Code Section 162(m)
Section 162(m) of the Internal Revenue Code generally does not allow a tax
deduction to public companies for compensation in excess of $1 million paid to
any named executive officer unless such compensation is paid pursuant to a
qualified performance-based compensation plan. We do not currently maintain any
qualified performance-based compensation plans but our compensation committee
will re-evaluate the status of our compensation plans if any of our total
compensation packages for named executive officers nears $1 million.
Compensation Committee Interlocks and Insider Participation
The compensation committee is comprised of Warren L. Grimes (chairman),
Paula Canaday Bowman, and Dr. R. Max Raynor, Jr., none of whom were officers or
employees of the company or any of the company's subsidiaries or had any
relationship requiring disclosure by the company under Item 404 of the SEC's
Regulation S-K during or prior to 2007.
Compensation Committee Report
The compensation committee has reviewed and discussed the foregoing
Compensation Discussion and Analysis required by Item 402(b) of Regulation S-K
with management. Based on such review and discussions, the compensation
committee recommended to the Board, and the Board has approved, that the
Compensation Discussion and Analysis be included in both the company's Annual
Report on Form 10-K for the year ended December 31, 2007 and the company's Proxy
Statement for the Annual Meeting of Stockholders to be held on April 28, 2008.
Warren L. Grimes (chairman)
Paula Canaday Bowman
Dr. R. Max Raynor, Jr.
19
2007 Summary Compensation Table
The following table shows the annual and long-term compensation paid to,
or accrued by us for, our Chief Executive Officer, our Chief Financial Officer,
and our next three most highly compensated executive officers for services
rendered to us during the fiscal years ended December 31, 2006 and 2007. We
refer to the persons identified on the table below as our "named executive
officers."
Change in
pension value
Non-equity and
Option incentive nonqualified All other
Name and Principal Position Year Salary Bonus awards plan deferred compensation Total
($) ($) ($)(1) compensation compensation ($)(4) ($)
($)(2) earnings
($)(3)
================================ ======== ========== ====== ========= ============ ============= ============== ============
Ayden R. Lee, Jr., 2007 $ 250,246 $ 200 $ 24,712 $ 16,100 $ 31,774 $ 12,364 (5) $ 335,396
Chairman, Chief Executive -------- ---------- ------ --------- ------------ ------------- -------------- ------------
Officer and President 2006 $ 226,236 $ 200 $ 19,074 $ 49,450 $ 43,829 $ 12,077 (6) $ 350,866
- -------------------------------- -------- ---------- ------- --------- ------------ ------------- -------------- ------------
Nancy S. Wise, 2007 $ 133,405 $ 200 $ 12,346 $ 8,050 - $ 7,492 (7) $ 161,493
Executive Vice President, -------- ---------- ------- --------- ------------ ------------- -------------- ------------
Chief Financial Officer 2006 $ 120,607 $ 200 $ 9,415 $ 24,725 - $ 8,810 (8) $ 163,757
- -------------------------------- -------- ---------- ------- --------- ------------ ------------- -------------- ------------
Clifton L. Painter, 2007 $ 147,889 $ 200 $ 12,964 $ 8,050 - $ 12,021 (9) $ 181,124
Senior Executive Vice President, -------- ---------- ------- --------- ------------ ------------- -------------- ------------
Chief Operating Officer 2006 $ 136,678 $ 200 $ 9,892 $ 24,725 _ $ 10,547 (10) $ 181,442
- -------------------------------- -------- ---------- ------- --------- ------------ ------------- -------------- ------------
W. Leon Hiatt, III 2007 $ 132,842 $ 200 $ 12,346 $ 8,050 _ $ 9,129 (11) $ 162,567
Executive Vice President, -------- ---------- ------- --------- ------------ ------------- -------------- ------------
Chief Administrative Officer 2006 $ 120,098 $ 200 $ 9,415 $ 24,725 _ $ 11,220 (12) $ 165,658
- -------------------------------- -------- ---------- ------- --------- ------------ ------------- -------------- ------------
Jeff D. Pope, 2007 $ 136,082 $ 200 $ 12,346 $ 8,050 _ $ 9,304 (13) $ 165,982
Executive Vice President, -------- ---------- ------- --------- ------------ ------------- -------------- ------------
Branch Administrator 2006 $ 119,914 $ 200 $ 9,415 $ 24,725 _ $ 11,217 (14) $ 165,471
- -------------------------------- -------- ---------- ------- --------- ------------ ------------- -------------- ------------
20
(1) The amounts reflect the dollar amount recognized for financial statement
reporting purposes for the fiscal years ended December 31, 2006 and 2007
respectively, in accordance with SFAS No. 123(R), disregarding any
adjustment for forfeiture assumptions. Assumptions used in the calculation
of this amount for fiscal year ended December 31, 2006 and 2007 are
included in Note A of our audited financial statements for the fiscal year
ended December 31, 2007, included in our annual report on Form 10-K filed
with the SEC on March 12, 2008.
(2) These amounts are the cash awards to the named executive officers under our
2006 Bonus Plan and our 2007 Bonus Plan, as discussed in the Compensation
Discussion and Analysis section of this report. These cash awards were
earned as of December 31, 2006 and 2007, but paid out in February 2007 and
2008 respectively.
(3) The amount reflects the actuarial increase in the present value under our
SERP for Mr. Lee.
(4) The amounts shown reflect for each named executive officer:
o contributions by us to each named executive officer under our
Four Oaks Bank & Trust Company Retirement Plan;
o contributions by us under the Employee Stock Ownership Plan; and
o the value attributable to term life insurance premiums paid by
us.
(5) Includes $2,933 in contributions under our Four Oaks Bank & Trust Company
Retirement Plan, $9,000 in contributions under our Employee Stock Ownership
Plan and $431 in life insurance premiums paid by us on behalf of the named
executive officer.
(6) Includes $2,846 in contributions under our Four Oaks Bank & Trust Company
Retirement Plan, $8,800 in contributions under our Employee Stock Ownership
Plan and $431 in life insurance premiums paid by us on behalf of the named
executive officer.
(7) Includes $705 in contributions under our Four Oaks Bank & Trust Company
Retirement Plan, $6,356 in contributions under our Employee Stock Ownership
Plan and $431 in life insurance premiums paid by us on behalf of the named
executive officer.
(8) Includes $526 in contributions under our Four Oaks Bank & Trust Company
Retirement Plan, $7,890 in contributions under our Employee Stock Ownership
Plan and $394 in life insurance premiums paid by us on behalf of the named
executive officer.
(9) Includes $2,590 in contributions under our Four Oaks Bank & Trust Company
Retirement Plan, $9,000 in contributions under our Employee Stock Ownership
Plan and $431 in life insurance premiums paid by us on behalf of the named
executive officer.
(10) Includes $2,267 in contributions under our Four Oaks Bank & Trust Company
Retirement Plan, $7,849 in contributions under our Employee Stock Ownership
Plan and $431 in life insurance premiums paid by us on behalf of the named
executive officer.
(11) Includes $2,364 in contributions under our Four Oaks Bank & Trust Company
Retirement Plan, $6,334 in contributions under our Employee Stock Ownership
Plan and $431 in life insurance premiums paid by us on behalf of the named
executive officer.
(12) Includes $2,027 in contributions under our Four Oaks Bank & Trust Company
Retirement Plan, $8,800 in contributions under our Employee Stock Ownership
Plan and $393 in life insurance premiums paid by us on behalf of the named
executive officer.
(13) Includes $2,412 in contributions under our Four Oaks Bank & Trust Company
Retirement Plan, $6,461 in contributions under our Employee Stock Ownership
Plan and $431 in life insurance premiums paid by us on behalf of the named
executive officer.
(14) Includes $2,025 in contributions under our Four Oaks Bank & Trust Company
Retirement Plan, $8,800 in contributions under our Employee Stock Ownership
Plan and $392 in life insurance premiums paid by us on behalf of the named
executive officer.
21
2007 Grants of Plan-Based Awards
Estimated future payouts under non-
equity incentive plan awards (1)
----------------------------------- ----------
All other Exercise or Grant date
option base price fair value
Name Grant Date Threshold Target Maximum awards: of option of stock
($) ($) ($) Number of awards and option
securities ($/Sh) awards
underlying (3)
options
(#)(2)
- ----------------------- ---------- --------- --------- --------- ---------- ----------- ----------
Ayden R. Lee, Jr. 2/26/2007 $ 11,500 $ 28,750 $ 80,500 4,400 24.41 25,225
- ----------------------- ---------- --------- --------- --------- ---------- ----------- ----------
Nancy S. Wise 2/26/2007 $ 5,750 $ 14,375 $ 40,250 2,200 24.41 12,613
- ----------------------- ---------- --------- --------- --------- ---------- ----------- -----------
Clifton L. Painter 2/26/2007 $ 5,750 $ 14,375 $ 40,250 2,310 24.41 13,243
- ----------------------- ---------- --------- --------- --------- ---------- ----------- ----------
W. Leon Hiatt, III 2/26/2007 $ 5,750 $ 14,375 $ 40,250 2,200 24.41 12,613
- ----------------------- ---------- --------- --------- --------- ---------- ----------- ----------
Jeff D. Pope 2/26/2007 $ 5,750 $ 14,375 $ 40,250 2,200 24.41 12,613
- ----------------------- ---------- --------- --------- --------- ---------- ----------- ----------
(1) Under our 2007 Bonus Plan there were five target areas for measurement of
performance: fee income, average loan balance, average deposit balance,
net interest spread and net income. Within each target area there were
four performance tiers, and the target tier for each target area for 2007
was as follows (with tier one representing the lowest payout level and
tier four representing the maximum payout level): fee income - tier 2,
average loan balance - tier 2, average deposit balance- tier 2, net
interest spread - tier 2, and net income - tier 2. For 2007, the actual
tier level achieved for each area under the 2007 Plan were as follows: fee
income - tier 0, average loan balance - tier 2, average deposit balance-
tier 3, net interest spread - tier 0,and net income - tier 0. Payments
under the threshold column are calculated based on the assumption that
tier one in all of the five target areas is met. Payments under the target
column are calculated based on the assumption that the target tier in all
five target areas is met. Payments under the maximum column are calculated
based on the assumption that tier four in all five target areas is met.
(2) Neither our board nor our compensation committee sets any performance
levels (minimum, target, maximum or otherwise) for equity compensation
grants or is required to grant options to our named executive officers
under our Nonqualified Stock Option Plan. Rather grants of options under
our Nonqualified Stock Option Plan are made completely at the discretion
of the board or the compensation committee after a fiscal year is ended
based upon the actual performance of our common stock the compensation
committee's discretionary assessment of an individual's performance and
responsibilities, and position with the company. Historically, the board
has granted options during its annual February meeting following the end
of a fiscal year. All options shown were granted under our Nonqualified
Stock Option Plan on February 26, 2007. Option grants to named executive
officers are made completely at the discretion of our board and/or
compensation committee. The options all have one year vesting periods and
expire four years after the date of grant on the earlier of February 26,
2011 or 15 months after termination of the recipient's employment, except
in cases of death or disability. All options may be exercised to the
extent they are vested. Upon termination of employment, all unvested
options are forfeited, except in cases of death or disability, in which
case the vesting is accelerated. 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.
(3) 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: (i) an expected option term of four years; (ii) an
interest rate of 4.6%, (iii) a dividend yield of 1.2%, and (iv) volatility
of 23.8%.
22
2007 Outstanding Equity Awards at Fiscal Year-End
Option Awards
----------------------------------------------------------------------------------------
Number of Number of Equity Incentive
Securities Securities Plan awards:
underlying underlying Number of
Name unexercised unexercised securities Option Exercise Option Expiration
options options underlying Price Date
(#) (#) unexercised ($/Sh)
Exercisable Unexercisable unearned options
(#)
- ------------- ----------- ------------- ---------------- --------------- -----------------
Ayden R. Lee, - 4,400 (1) - $24.41 2/26/2011
Jr., 5,500 (2) - - $16.73 2/21/2010
6,875 (3) - - $13.24 2/22/2009
8,593 (4) - - $10.24 2/23/2008
- ------------- ----------- ------------- ---------------- --------------- -----------------
Nancy S. Wise - 2,200 (1) - $24.41 2/26/2011
2,715 (2) - - $16.73 2/21/2010
- ------------- ----------- ------------- ---------------- --------------- -----------------
Clifton L. - 2,310 (1) - $24.41 2/26/2011
Painter 2,853 (2) - - $16.73 2/21/2010
3,566 (3) - - $13.24 2/22/2009
4,511 (4) - - $10.24 2/23/2008
- ------------- ----------- ------------- ---------------- --------------- -----------------
W. Leon - 2,200 (1) - $24.41 2/26/2011
Hiatt, III 2,715 (2) - - $16.73 2/21/2010
3,394 (3) - - $13.24 2/22/2009
4,189 (4) - - $10.24 2/23/2008
- ------------- ----------- ------------- ---------------- --------------- -----------------
Jeff D. Pope - 2,200 (1) - $24.41 2/26/2011
2,715 (2) - - $16.73 2/21/2010
3,394 (3) - - $13.24 2/22/2009
3,221 (4) - - $10.24 2/23/2008
- ------------- ----------- ------------- ---------------- --------------- -----------------
(1) Option was granted on February 26, 2007 pursuant to our Nonqualified Stock
Option Plan. This option has a one year vesting period and expires four
years after the date of grant.
(2) Option was granted on February 21, 2006 pursuant to our Nonqualified Stock
Option Plan. This option is fully vested and exercisable and expires four
years after the date of grant.
(3) Option was granted on February 22, 2005 pursuant to our Nonqualified Stock
Option Plan. This option is fully vested and exercisable and expires four
years after the date of grant.
(4) Option was granted on February 23, 2004 pursuant to our Nonqualified Stock
Option Plan. This option is fully vested and exercisable and expires four
years after the date of grant.
All of the options listed above expire on the earlier of the date indicated in
the option expiration date column or 15 months after termination of the
recipient's employment, except in cases of death or disability. Options may be
exercised to the extent they are vested. Upon termination of employment, all
unvested options are forfeited, except in cases of death or disability, in which
case the vesting is accelerated. Upon a merger in which we are not the surviving
corporation, or liquidation or a sale of substantially all of our assets,
outstanding options will become fully vested and exercisable and, to the extent
not exercised, will terminate upon the effective date of such a transaction.
23
2007 Option Exercises and Stock Vested
Option awards
--------------------------------------------------
Name Number of Shares Value Realized on Exercise
Acquired on ($) (1)
Exercise
(#)
- -------------------------- ------------------ ----------------------------
Ayden R. Lee, Jr. - -
- -------------------------- ------------------ ----------------------------
Nancy S. Wise - -
- -------------------------- ------------------ ----------------------------
Clifton L. Painter 5,638 (2) $83,451
- -------------------------- ------------------ ----------------------------
W. Leon Hiatt, III - -
- -------------------------- ------------------ ----------------------------
Jeff D. Pope - -
- -------------------------- ------------------ ----------------------------
(1) 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.
(2) On February 13, 2007, Mr. Painter exercised options to purchase a total of
5,638 shares of our common stock for an exercise price of $8.38. The fair
market value of our common stock on February 13, 2007 was determined to be
$23.18.
2007 Pension Benefits
Number of Years Present Value of Payments During
Credited Accumulated Last Fiscal Year
Name Plan Name Service (#) Benefit ($) ($)
(a) (b) (c) (d) (e)
- ------------------ ---------------------- --------------- ------------------ -----------------
Ayden R. Lee, Jr. Supplemental Executive
Retirement Plan N/A $197,553 -
- ------------------ ---------------------- --------------- ------------------ -----------------
The present value shown in the SERP in the table above is based on
benefits earned as of December 31, 2007 under the terms of the SERP for Mr. Lee
and was calculated using discount rate and mortality rate assumptions consistent
with those used in our financial statements regarding the SERP. Our subsidiary,
Four Oaks Bank & Trust Company, adopted the SERP, which provides that upon Mr.
Lee's retirement from the bank, 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.
24
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.
Upon early retirement on or after Mr. Lee's early retirement age but prior
to his normal retirement date, we shall pay Mr. Lee, in lieu of a normal
retirement benefit, as an annual supplemental retirement benefit, a certain
percentage of the normal retirement benefit under the SERP, to be determined as
follows:
Early Retirement Benefit as a
Age of Retirement Percentage of Normal Retirement
=================== =================================
55 58%
56 64%
57 70%
58 76%
59 82%
60 88%
61 94%
62 or older 100%
Potential Payments upon Termination or Change-in-Control
Severance Compensation Agreements
As described in the "Compensation Discussion and Analysis" section above,
we have severance compensation agreements with each named executive officer.
Termination entitling each executive to the cash severance payment pursuant to
these agreements includes: (i) a termination after a determination by the CEO or
the board of the bank that the executive is no longer a key executive employee
and termination of the severance compensation agreement and notice to the
executive to this effect; (ii) termination in the event of illness or other
disability incapacitating the executive from performing his or her duties for
six (6) consecutive months as determined in good faith by the CEO, board of the
bank or a committee of the board; or (iii) termination upon a change of control,
unless such reason is for cause or because of the executive's disability or
death. For purposes of these agreements, a "change in control" means one or more
of the following occurrences:
25
o A corporation, person or group acting in concert as described in Section
14(d)(2) of the Exchange Act, holds or acquires beneficial ownership within
the meaning of Rule 13d-3 promulgated under the Exchange Act of a number of
shares of voting capital stock of the bank which constitutes either (i)
more than fifty percent (50%) of the shares which voted in the election of
directors of the bank at the shareholders' meeting immediately preceding
such determination, or (ii) more than thirty-three percent (33%) of the
bank's then outstanding shares entitled to vote.
o A merger or consolidation to which the bank is a party (other than a pro
forma transaction for a purpose such as changing the state of incorporation
or name of the Bank), if either (i) the bank is not the surviving
corporation, or (ii) the directors of the bank immediately before the
merger or consolidation constitute less than a majority of the board or the
surviving corporation; provided, however, the occurrence described in
clause (i) shall not constitute a change in control if the holders of the
bank's voting capital stock immediately before the merger or consolidation
have the same proportional ownership of voting capital stock of the
surviving corporation immediately after the merger or consolidation.
o All or substantially all of the assets of the bank are sold, leased, or
disposed of in one transaction or a series of related transactions.
o An agreement, plan, contract, or other arrangement is entered into
providing for any occurrence which would constitute a change in control.
Each agreement provides that if the executive's employment is terminated
under one of the conditions specified above, he or she would be entitled to
receive a lump-sum, cash severance payment based upon a multiple of his or her
salary. In addition, for a period of time after the date of termination as set
forth in each agreement, or unless and until the executive obtains other
full-time employment, each executive shall be entitled to participate in all
life insurance, health (medical and dental), accidental death and dismemberment
and disability plans or programs in which the executive is entitled to
participate immediately prior to the date of termination ("Benefits").
The following table provides the payments that each named executive
officer would have received in connection with such a severance termination as
of December 31, 2007:
Name Multiple of Lump Sum Payment Value of Total Value of
Salary Benefits Payments
(1)
===================== =========== ================ ========== ==============
Ayden R. Lee, Jr. 2X $ 500,492 $ 10,502 $ 510,994
- --------------------- ----------- ---------------- ---------- --------------
Nancy S. Wise 2X $ 266,810 $ 10,502 $ 277,312
- --------------------- ----------- ---------------- ---------- --------------
Clifton L. Painter 2X $ 295,778 $ 10,502 $ 306,280
- --------------------- ----------- ---------------- ---------- --------------
W. Leon Hiatt, III (2) 1.5X $ 199,263 $ 7,876 $ 207,139
- --------------------- ----------- ---------------- ---------- --------------
Jeff D. Pope 2X $ 272,164 $ 10,502 $ 282,666
- --------------------- ----------- ---------------- ---------- --------------
26
(1) The value of the Benefits is comprised of benefits from life insurance,
accidental death and disability insurance, and health and dental insurance
premiums paid by us in 2007 and calculated based on twenty-four (24)
months of coverage for each of Mr. Lee, Ms. Wise, Mr. Painter and Mr. Pope
and eighteen (18) months of coverage for Mr. Hiatt as per each of their
severance compensation agreements.
(2) On February 22, 2008, the compensation committee approved an amended and
restated severance agreement for Mr. Hiatt. Mr. Hiatt's previous severance
arrangement provided that the cash severance payment described above would
be equal one and one half (1.5) years' salary. In order to bring Mr.
Hiatt's severance agreement in line with the severance agreements that we
have with our other named executive officers, the compensation committee
amended Mr. Hiatt's severance agreement to provide that Mr. Hiatt's
severance payments under the agreement would be for two (2) years.
Non-Qualified Stock Option Plan
Our Non-Qualified Stock Option Plan and the stock option agreements with
each named executive officer provide the following:
o In the event of any termination of a named executive officer's employment
that is either for cause or voluntary on the part of the officer and
without our written consent, the options held by such officer immediately
terminate.
o In the event that: (i) we are liquidated, (ii) we merge or consolidate with
another entity and are not the surviving or resulting corporation (an
"Acceleration Event"), or (iii) we sell all or substantially all of our
assets, the vesting period accelerates for options held by all named
executive officers and such options are treated as fully vested immediately
prior to such Acceleration Event. The named executive officers then have
the right to exercise the fully vested options before the effective date of
the Acceleration Event and, to the extent not exercised before the
effective date of the Acceleration Event, such options terminate.
o In the event that the named executive officer's employment shall otherwise
terminate (except by reason of his death), such officer may exercise his or
her options (to the extent vested) at any time within fifteen (15) months
after such termination but not more than four years after the date of the
option grant. In the event that a named executive officer shall die while
employed by the company or within fifteen (15) months after the termination
of employment, any legatee by will, personal representative or distribution
of the options, may exercise the officer's options (to the extent vested)
at any time within fifteen (15) months after his or her death but not more
than four years after the date of the option grant.
27
The table below sets forth the cash payment each named executive officer
would have received as of December 31, 2007 for his or her unvested options,
calculated based on the following assumptions: (i) an Acceleration Event
occurred as of December 31, 2007, accelerating the vesting of each named
executive officer's unvested options, (ii) each named executive officer fully
exercised all such options immediately prior to the Acceleration Event for
shares of our common stock, and (iii) each named executive officer sold or
otherwise surrendered the resulting shares underlying such options for
consideration in connection with the Acceleration Event in an amount equal to
$15.75 per share, which was the closing price of our stock on Nasdaq on December
31, 2007.
Number of Shares of Estimated Cash Payment Related
Common Stock to Exercise of Unvested Options
Underlying of in Connection with
Name Unvested Options an Acceleration Event
as of December 31, as of December 31, 2007 (1)
2007
=================== =================== ================================
Ayden R. Lee, Jr. 4,400 -
- ------------------- ------------------- --------------------------------
Nancy S. Wise 2,200 -
- ------------------- ------------------- --------------------------------
Clifton L. Painter 2,310 -
- ------------------- ------------------- --------------------------------
W. Leon Hiatt, III 2,200 -
- ------------------- ------------------- --------------------------------
Jeff D. Pope 2,200 -
- ------------------- ------------------- --------------------------------
(1) The resulting cash payment for each named executive officer would be zero
because the aggregate exercise price of the unvested options as of
December 31, 2007 exceeded the closing price of our stock on Nasdaq on the
same date.
Cash Bonus Plan
Neither our 2007 nor our 2008 Bonus Plans address the impact of
termination of an employee for any reason on the applicable Bonus Plan.
SERP
Pursuant to Mr. Lee's SERP in the event of a change of control of the
company 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. In connection with such a termination of Mr.
Lee's employment as of December 31, 2007, he would have been entitled to a lump
sum cash payment of $190,187 under the SERP.
Insurance
Upon the death of an executive, he or she is entitled to the life and
accidental death and dismemberment insurance proceeds available through our
benefit plans, which as of December 31, 2007 was valued at $250,000 for Mr. Lee,
Ms. Wise, Mr. Painter, Mr. Hiatt and Mr. Pope.
28
2007 Director Compensation
We use a combination of cash and option awards to attract and retain
qualified candidates to serve on our board of directors. In setting director
compensation, we consider the significant amount of time directors expend in
fulfilling their duties to us as well as the skill level required.
Our non-management directors were paid fees of $1,225 per month in 2007.
In addition, the non-management director chairman was paid $350 and the other
non-management directors were were paid $300 for each board committee meeting
they attended. During 2007, all of the non-management directors were paid a
discretionary cash Christmas bonus of $200.
The table below summarizes the compensation paid by us to non-management
directors for the fiscal year ended December 31, 2007.
Name Fees Earned Option All Other Total
(1) or Paid in Awards Compensation ($)
Cash ($) (2) ($) (3)
($)
====================== =========== ========= ============ ==========
Paula Canaday Bowman $ 16,200 $ 1,853 $ 200 $ 18,253
- ---------------------- ----------- --------- ------------ ----------
William J. Edwards $ 22,150 $ 1,853 $ 200 $ 24,203
- ---------------------- ----------- --------- ------------ ----------
Warren L. Grimes $ 20,850 $ 1,853 $ 200 $ 22,903
- ---------------------- ----------- --------- ------------ ----------
Percy Y. Lee $ 18,900 $ 1,853 $ 200 $ 20,953
- ---------------------- ----------- --------- ------------ ----------
Dr. R. Max Raynor, Jr. $ 16,250 $ 1,853 $ 200 $ 18,303
- ---------------------- ----------- --------- ------------ ----------
William Ashley Turner $ 14,375 $ 1,853 $ 200 $ 16,428
- ---------------------- ----------- --------- ------------ ----------
Michael A. Weeks $ 22,500 $ 1,853 $ 200 $ 24,553
- ---------------------- ----------- --------- ------------ ----------
(1) Ayden R. Lee, Jr., our Chairman, President, and Chief Executive Officer,
is not included in the table as he is an employee and thus receives no
additional compensation for his services as a director. The compensation
received by Mr. Lee as our employee is shown in the Summary Compensation
Table that appears earlier in this proxy statement.
(2) Reflects the dollar amount recognized for financial statement reporting
purposes for the fiscal year ended December 31, 2007 in accordance with
FAS 123(R), without regarding for adjustments for forfeiture assumptions,
and thus includes amounts from awards granted in and prior to 2007.
Assumptions used in the calculation of this amount for fiscal year ended
December 31, 2006 and 2007 are included in Note A of our audited financial
statements for the fiscal year ended December 31, 2007, included in our
annual report on Form 10-K filed with the SEC on March 12, 2008. As of
December 31, 2007, each director has the following number of options
outstanding: Paula Canaday Bowman: 1,257; William J. Edwards: 1,901;
Warren L. Grimes: 1,901; Percy Y. Lee: 1,257; Dr. R. Max Raynor, Jr.: 742;
William Ashley Turner: 1,901, Michael A. Weeks: 742.
(3) Reflects a discretionary cash bonus of $200 for each director.
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, 2007:
29
(a) (b) (c)
- ---------------------------------- --------------------- ----------------- ---------------------
Number of securities
Remaining available
for future
Number of securities Weighted-average issuance under equity
to be issued upon exercise price of compensation plans
Plan Category exercise of outstanding (excluding securities
outstanding 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 166,028 $ 16.20 517,438
- ---------------------------------- ===================== ================= =====================
- ---------------------------------- --------------------- ----------------- ---------------------
Total 166,028 $ 16.20 517,438
- ---------------------------------- ===================== ================= =====================
(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, 2007: Nonqualified Stock Option Plan -- 419,271 shares;
and Employee Stock Purchase and Bonus Plan -- 98,167 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 of
our board of directors, 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 3, 2008, 1,342,773 shares had been reserved for issuance under
the Option Plan. As of March 3, 2008, there were 175,703 outstanding stock
options, and 366,946 shares remained available for future grants. During 2007,
options to purchase 41,140 shares of our common stock were granted at an average
exercise price of $24.41 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 of our 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.
30
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 3, 2008, 268,555 shares of our common stock had been reserved
for issuance under the Purchase Plan, and 170,388 shares had been purchased.
During 2007, 5,785 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, 2007 to December 31, 2007, loans outstanding to our
directors and executive officers and their associates as a group amounted to a
maximum of approximately $6,946,000 or 12.71% 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.
We had no transactions with related persons in 2007 required to be
disclosed under Item 404(a) of Regulation S-K of the Exchange Act, and there are
no such transactions currently proposed for 2008. It is understood, however,
that certain relationships or transactions may arise that would be deemed
acceptable and appropriate upon full disclosure of the transaction, following
review and approval by the audit committee to ensure there is a legitimate
business reason for the transaction and that the terms of the transaction are no
less favorable to us than could be obtained from an unrelated person. Therefore,
our board of directors has adopted the Policy and Procedures with Respect to
Related Person Transactions, which is implemented through the audit committee
and is designed to regularly monitor the appropriateness of any significant
transactions with related persons. The policy applies to any transaction
required to be disclosed under Item 404(a) of Regulation S-K in which (i) we are
a participant, (ii) any related person (as defined in Item 404(a) of Regulation
S-K) has a direct or indirect material interest and (iii) the amount involved
exceeds $120,000. Our policy requires notification to our corporate secretary
prior the consummation of any related person transaction regardless of whether
the related person has a material interest, describing the related person's
interest in the transaction, the material facts of the transaction, the benefits
to us of the transaction, the availability of other sources of comparable
products or services, and an assessment of whether the transaction is on terms
that are comparable to the terms available to an unrelated third party or
employees generally. The corporate secretary then evaluates the proposed
transaction and, if she determines that it is a related person transaction,
submits the transaction to the audit committee for approval. The audit committee
considers all of the relevant facts and circumstances available to it including
(if applicable) but not limited to:
31
o The benefits to us.
o The impact on a director's independence in the event the related person is
a director, an immediate family member of a director or an entity in which
a director is a partner, shareholder or executive officer.
o The availability of other sources for comparable products or services.
o The terms of the transaction.
o The terms available to unrelated third parties or to employees generally.
No member of the audit committee shall participate in any review,
consideration or approval of any related person transaction with respect to
which such member or any of his or her immediate family members is the related
person. The audit committee approves only those related person transactions that
are in, or are consistent with, the best interests of the company and our
shareholders, as the audit committee determines in good faith. If the
transaction has already been consummated, the audit committee will undergo the
same analysis as it does with a proposed transaction, and, if it determines that
the consummated transaction is a related person transaction, it will evaluate
whether the consummated related person transaction should be ratified, amended,
terminated or rescinded and whether any disciplinary action is appropriate.
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 report forms
that were filed with the Securities and Exchange Commission, we believe that
during the fiscal year ended December 31, 2007, all Section 16(a) filing
requirements applicable to our officers, directors, and ten percent (10%)
shareholders were satisfied, except that Mr. Percy Lee failed to timely file a
Form 4 for shares that he purchased on August 22, 2007.
32
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 10,000,000 shares to 20,000,000 shares. The text of
the proposed amendment is attached to this Proxy Statement as Appendix A 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 No. 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 No. 2 and shares represented by returned proxy
cards that do not contain instructions to vote against Proposal No. 2 or to
abstain from voting will be counted as shares cast for Proposal No. 2. Shares
will be counted as cast against Proposal No. 2 if the shares are voted either
against Proposal No. 2 or to abstain from voting. Broker non-votes will not
change the number of votes cast for or against Proposal No. 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 10,000,000 shares of capital stock. As of the close of business on
March 3, 2008, there were 6,207,191 shares of common stock issued and
outstanding, leaving a balance of 3,792,809 shares that are authorized and
unissued. Of the 3,792,809 shares of authorized and unissued common stock,
1,611,328 are reserved for issuance pursuant to our Nonqualified Stock Option
Plan and Employee Stock Purchase and Bonus Plan. The reserved shares consist of
1,342,773 shares reserved for issuance under outstanding options under our
Nonqualified Stock Option Plan and 268,555 reserved for issuance under our
Employee Stock Purchase and Bonus Plan.
33
If the proposed amendment to the articles of incorporation is approved by
the shareholders, upon its effectiveness our company will have a total of
20,000,000 authorized shares of common stock, with 6,207,191 shares issued and
outstanding (as of March 3, 2008) and 1,611,328 shares reserved for issuance,
leaving a balance of 12,181,481 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.
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.
Dividend Rights
Each share of company common stock is entitled to participate equally in
dividends if, as and when declared by the board of directors out of funds
legally available for the payment of such dividends.
34
Voting Rights
Except as otherwise provided by law, each holder of company common stock
has one vote per share upon all matters voted upon by shareholders. With respect
to the election of directors, cumulative voting is not available to company
shareholders.
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 our management. In addition, there have been no proposals to our
management or our board of directors our acquisition 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.
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 3,792,809 shares of common stock presently available (if the
shareholders approve Proposal No. 2, the board of directors will have authority
to issue up to a maximum of approximately 13,792,809 shares); (ii) the
supermajority vote requirements and fair price provisions applicable 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
percent (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.
35
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 percent (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 eighty percent (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 percent (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.
36
Option Plan
The Option Plan provides for grants of nonqualified stock options to
officers and directors 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
37
Audit Firm Fee Summary
During the fiscal years ended December 31, 2007 and 2006, we retained our
independent accountant, Dixon Hughes PLLC, to provide services in the following
categories and amounts:
2007 2006
- ------------------------ ---------------------- -----------------------
$ %(1) $ %(1)
- ------------------------ =========== ========== ========== ==========
Audit Fees(2) $ 147,481 $ 175,267
- ------------------------ ----------- ---------- ---------- ----------
Audit-Related Fees(3) 15,724 0% 57,330 0%
- ------------------------ ----------- ---------- ---------- ----------
Tax Fees(4) 8,400 0% 11,851 0%
- ------------------------ ----------- ---------- ---------- ----------
All Other Fees(5) - 0% 15,880 0%
- ------------------------ ----------- ---------- ---------- ----------
- ------------------------ ----------- ---------- ---------- ----------
TOTAL $ 171,605 $ 260,328
- ------------------------ =========== ---------- ========== ----------
(1) Percentage of the services (if any) for which pre-approval was waived by
the audit committee with respect to audit-related fees, tax fees and all
other fees.
(2) "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, for the reviews of quarterly reports on Form 10-Q, for the
internal controls attestation under Section 404 of the Sarbanes-Oxley Act
of 2002, and for services provided in connection with statutory and
regulatory filings or engagements.
(3) "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, and are
not reported above under "Audit Fees". These services include: accounting
and reporting consultations, SFAS 159 consultation, life insurance
consultation, and employee benefit plan audits.
(4) "Tax Fees" are fees billed for professional services performed by Dixon
Hughes PLLC with respect to tax compliance, tax advice, and tax planning.
(5) "All Other Fees" are fees billed for other permissible work performed by
Dixon Hughes PLLC that does not meet the above category descriptions.
Our audit committee has considered the compatibility of the non-audit
services performed by and fees paid to Dixon Hughes PLLC in fiscal year 2007 and
fiscal year 2006 and determined that such services and fees were compatible with
the independence of the public accountants. During fiscal year 2007, Dixon
Hughes PLLC did not utilize any personnel in connection with the audit other
than its full-time, permanent employees.
The audit committee of the Board of Directors has appointed Dixon Hughes
PLLC as our independent registered public accounting firm for the fiscal year
ending December 31, 2008. A representative of Dixon Hughes PLLC is expected to
be present at the Annual Meeting and will be available to respond to appropriate
questions and afforded an opportunity to make a statement.
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 services to us and whether the service might by
expected to enhance our ability to manage or control risk or improve audit
quality. All audit fees, audit-related fees, tax fees, and all other fees for
2007 and 2006 were pre-approved by the audit committee.
38
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, 2007, 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 Bank Pink $100M-$500M 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
Bank Pink $100M-$500M Index, and that all dividends, if any, were reinvested.
[SEE SUPPLEMENTAL PDF]
Period Ending
----------------------------------------------------------
Index 12/31/02 12/31/03 12/31/04 12/31/05 12/31/06 12/31/07
- ---------------------------------------------------------------------------------------------
Four Oaks Fincorp, Inc. 100.00 113.81 151.57 197.46 295.37 194.21
NASDAQ Composite 100.00 150.01 162.89 165.13 180.85 198.60
SNL South OTC-BB and Pink Banks
Index 100.00 133.88 156.22 178.93 208.63 178.86
SNL Bank Pink $100M-$500M Index 100.00 135.83 164.17 182.32 199.57 178.22
39
ADDITIONAL INFORMATION
A copy of our Annual Report on Form 10-K for the fiscal year ended
December 31, 2007, including the financial statements and schedules thereto, as
filed with the SEC (without exhibits) will be furnished on written request and
by first class mail or other equally prompt means within one business day of
receipt of such 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 2009 ANNUAL MEETING
Any proposals that shareholders intend to present for a vote of
shareholders at the 2009 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
__________, 2008 (120 calendar days prior to the anniversary of the date of this
proxy statement). Proposals received after ____________, 2008 will not be
considered for inclusion in our proxy materials for our 2009 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 2009 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 _________, 2009 (45 calendar days prior
to the anniversary of the mailing date of this proxy statement). Such notice
should set forth: (i) 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
(ii) 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:
(a) we include in our proxy statement advice on the nature of the proposal and
how we intend to exercise our voting discretion; and (b) the proponent fails to
(x) provide us with a written statement, on or before __________, 2009, 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.
40
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
____ __, 2008
Ayden R. Lee, Jr.
Chairman, Chief Executive Officer,
and President
41
Appendix A
----------
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 twenty million
(20,000,000) 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 28,
2008, and approved by the shareholders on April ____, 2008, 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 ______, 2008.
FOUR OAKS FINCORP, INC.
By:
--------------------------------------
Ayden R. Lee, Jr.
Chairman, Chief Executive Officer,
and President
Appendix B
----------
REVOCABLE PROXY
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF
DIRECTORS FOUR OAKS FINCORP, INC.
FOR THE 2006 ANNUAL MEETING OF SHAREHOLDERS.
The undersigned hereby appoints Ayden R. Lee, Jr. and Dr. R. Max
Raynor, Jr. 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 under-signed is entitled to vote at the Annual Meeting of
Shareholders of said Company to be held in the cafeteria of Four Oaks Elementary
School, located at 180 W. Hatcher Street, Four Oaks, North Carolina on
__________, April _____, 2008 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 on the reverse
side. The Board recommends a vote "FOR" the proposals listed on the reverse
side.
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 ___, 2008
YOUR VOTE IS IMPORTANT!
https://www. proxyvotenow.com/fofn
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.
ANNUAL MEETING OF STOCKHOLDERS
APRIL ____, 2008
1. To elect the following nominees as directors of a one year term
[] For [] Withhold All [] For All Except
Nominees:
(01) Ayden R. Lee, Jr.
(02) William J. Edwards
(03) Paula Canaday Bowman
(04) Dr. R. Max Raynor, Jr.
(05) Percy Y. Lee
(06) Warren L. Grimes
(07) William Ashley Turner
(08) Michael A. Weeks
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 10,000,000 shares to 20,000,000 shares.
[_] FOR the amendment.
[_] AGAINST the amendment
[_] WITHHOLD AUTHORITY to vote for the amendment.
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 _____ [a.m.][p.m.],
April____, 2008. 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 _____
[a.m.][p.m.], April____, 2008: 1-866-265-2185
- --------------------------------------------------------------------------------
Vote by Internet
anytime prior to_____ [a.m.][p.m.], April____, 2008, 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! Contol Number _______